Liberia’s trade deficit is widening, the Central Bank of Liberia (CBL) has declared. According to the CBL, the key driver of the country’s trade deficit is its huge import receipts, which is further exacerbated by its sole reliance on rubber and iron ore as its key export commodities. Total import payments rose by 19.7% to US$300.5 million, the Bank said.
The problem facing the post-conflict economy can mostly be traced to the volatility of global prices of iron ore and rubber, which exposes the country to susceptible external shocks.
In its third Quarter Financial &Economic Bulletin, the CBL acknowledged this as a troubling sign for the economy and immediately published a recommendation for the government to pursue a swift policy action aimed at widening the country’s export base towards non-traditional exports in order to reverse its sole dependence on iron ore and rubber.
The Bank observed that the ongoing downward trend in global commodity prices continue to make commodity-exporting economies vulnerable to external shocks, as already reflected in Liberia’s export receipts in the last few quarters.
The Bank also reported that at end-September, 2013, rubber and iron ore exports recorded a combined 81.1% of total export receipts from 78.1% at end-June, 2013; representing about 20.6% decline in combined iron ore and rubber export receipts to US$99.5 million at end-September, 2013 from US$125.4 million at end-June, 2013.
The CBL noted that this decline largely accounted for the 23.5% decline in total merchandise export receipts.
At end-September, 2013 merchandise export receipts had declined by 23.5% to US$122.8 million, from US$160.5 million at end-June, 2013.
According to the CBL, this was largely on account of 19.6%, 23.2% and 33.9% declines in iron ore, rubber and non-iron ore and rubber export receipts during the review quarter relative to the preceding quarter.
Amid this challenge, iron ore continues to overshadow rubber in the country’s export sector as the country’s primary export commodity.
At end-September, 2013 iron ore accounted for 58.1% of total export receipts at the end of the preceding quarter.
On an annualized basis, iron ore exports more than doubled by US$39.5 million to US$71.4 million at the end of the review quarter from US$31.9 million at end-September, 2012. Rubber export receipts fell by 23.2% to US$28.2 million during the quarter from US$36.6 million at end-June, 2013 accounting for 22.9% of total export receipts.
Liberia’s Deteriorating Balance of Payments
The CBL has released a provisional statistics of Liberia’s overall balance of payments (BoP) highlighting a deficit of US$216.5 million. The statistics, which is curled from the Bank’s Third Quarter Economic &Financial Bulletin, is published the US$216.5 million from a revised surplus of US$38.0 at the end of the previous quarter.
According to the CBL, the overall balance of payments deteriorated on an annualized basis by US$338.0 million at the end of September, 2013 from a surplus of US$121.5 million at the end of September, 2012.
Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.
These transactions, according to economists, include payments for the country's exports and import of goods, services financial capital and financial transfers. In other words, the balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored.
According to economists, a nation is said to have a trade deficit if its imports exceeds its exports. But this is not the case with Liberia.
According to the CBL, the quarterly deterioration in the country’s BoP was largely on account of 22.8% and 94.6% declines in the financial and capital accounts respectively at end-September, 2013 compared with their levels at end-June, 2013.
The Bank observed that the 7.2% rise in the current account deficit also contributed to the quarterly BoP deterioration. The current account deficit deteriorated to US$440.8 million at end-September, 2013 from US$411.3 million at end-June, 2013 largely on account of a 96.6% surge in the trade deficit and 65.1% decline in current transfers during the quarter. A current account is one of the two primary components of the balance of payments, the other being capital account.
The CBL noted that year-on-year comparison shows 18.4%, 23.1% and 96.0% deteriorations in the financial, current and capital account balances at end-September, 2013, largely explaining the huge annualized deterioration in the BoP deficit.
Asia, Europe ECOWAS Top Liberia’s Direction of Trade
Asia, Europe and the Economic Community of West African States (ECOWAS) sub-region accounted for the giant share of Liberia’s total trade in the third quarter, the CBL says. Export receipts from Europe amounted to US$67.3 million, accounting for 54.8% of total export receipts for the quarter, from 18.5%of total export receipts during the preceding quarter.
According to the CBL, the surge in export towards Europe reflects the ongoing recovery in the Eurozone, mainly improved growth figures for Germany and France for the previous quarter.
Asia’s share of Liberia’s exports for the quarter amounted to US$37.5 million from US$38.0 million at end-June 2013, accounting for 30.5% of total export receipts, from 38.0% for the preceding quarter. The CBL blamed the decline on weak external demand from China, the world’s fastest growing economy.
On the other hand, Liberia’s intra-regional export trade with its sub-regional counterparts witnessed a decline during the quarter under review, amounting to US$10.4 million or 8.5% of total export receipts from US$19.3 million or 12.0% of total export receipts at end-June, 2013.
The low level relative to Europe and Asia reflects the several constraints to trade in the sub-region.