On Tuesday evening, a commuter heading to Red-light, Paynesville found it very difficult to board a taxi cab on Broad Street. Mr. James Mulbah, a resident of Paynesville City, retired from work in the evening to shockingly observe that taxi fare to Paynesville has increased from L$60 to L$100. The latter is the approved fare by the Government of Liberia per a commuter from Central Monrovia to Paynesville.
Mr. James Mulbah fruitlessly roamed Broad Street for hours and was later to pay the L$100 to go home before darkness fell after a long day’s work at a local hotel.
Before then, Mulbah had come in contact with our business reporter who was also on Broad Street. He was wondering why the drivers had abruptly increased the fare when the government has not announced any changes. Our reporter immediately joined him in seeking answers to his inquiry.
Many taxi cab drivers, who preferred anonymity, explained that the reason for the unapproved increment in the fare is not only due to the government’s ongoing motor vehicle inspection and registration and insurance policy which has led a number of vehicles grounded in Monrovia, but to the rising exchange rate between the United States (US) and Liberian dollars. The exchange rate between the two currencies currently stands at L$84 for US$1.
“Are you not aware that US$1 is now trading for L$84?” the driver asked. This taxi cab driver explained that petroleum prices are directly affected upward when the exchange rate between the USD and the LD rises. This man also explained that demand for the USD is too high as the economy expands.
“You have more people including businesses that are in need of USD to transact businesses,” he said.
Mulbah, a university graduate, noted that until the productive sector of the economy can take strong root, it will be difficult if not impossible, to have a stable exchange rate between the two currencies.
Mr. Mulbah’s story applies certainly to majority of the population across the country who earns their living on the Liberian dollar. In most cases, the people including taxpayers and ordinary Liberians are required to exchange their LD to the USD before they purchase certain goods and pay their taxes to the government. Few months ago, the rate soared to about L$89 for US$1, a situation that prompted the Central Bank of Liberia to intervened immediately.
This is exactly how the people and the economy are interconnected. For example when there is increase in the price of petroleum products, it affects the prices of nearly all other commodities on the market.
Also if a country is importing more than it is exporting (Liberia as a case in point) that country will certainly experience negative trade balance or trade deficit. This is because the balance of payment between Liberia and the countries it is importing from is not equal.
Liberia’s Trade Deficit a Factor
Preliminary statistics provided in the Central Bank of Liberia’s (CBL) annual report for the year ended-December, 2013 record an overall trade deficit of US$667.3 million, which the Bank says represents a 5.6 percent increase in the level recorded at end-December, 2012. According to the CBL, this development was largely on account of mixed performances on the external front— improved export performance mainly driven by increased iron ore production relative to recorded level in 2013, but outweighed by increased import payments.
The Central Bank noted that policies and programs aimed at reversing the current trend, mainly through export diversification and value chains development in the agro-sector, must form a cardinal pillar in the country’s national priorities in the short to medium term.
Balance of Payments
According to the CBL, provisional overall balance of Liberia’s balance of payments (BOP) statistics for the year-ended December, 2013 recorded an overall deficit of US$176.8 million, from a surplus of US$43.7 million for the preceding year. The deterioration, the Bank says was mainly driven by a 13.2 percent widening of the current account deficit in view of the economy growing over reliance on imports. In other words, because Liberia is importing more than it is exporting, the country has to raise enough foreign exchange (USD) to pay for the goods and services imported.
Liberia’s current account deficit also rose by 13.2 percent to US$1,288.0 million (one billion two hundred eighty-eighty million) for the year ended December, 2013, from US$1,137.3 million (one billion one thirty seven million three hundred thousand) for the preceding year, the CBL said. According to the Bank, this is due to 5.6 percent deterioration in the trade deficit to US$667.3 million in 2013, from US$632.0 million in 2012. The CBL noted that the widening in the trade deficit in 2013 was on account of a 12.5 percent (US$134.5 million) rise in import payments that outpaced a 22.3 percent (US$99.3 million) growth in export receipts recorded in 2013.
The 38.0 percent decline in current transfers, resulting mainly from an 89.3 percent fall in workers’ remittances, also contributed to the deterioration in the current account deficit, the CBL added. The Bank indicated that current account deficit as a percent of GDP averaged 65.2 percent in 2013, from 65.5 percent and 64.7 percent in 2012 and 2011, respectively.
Capital & Financial Account
The CBL noted that the 18.3 percent fall in the capital & financial account in 2013 was largely on account of a 57.4 percent reduction in net capital transfers and a 44.9 percent reduction in net trade credit. However, provisional statistics on foreign direct investments in 2013 showed a 7.8 percent rise over the level recorded in 2012.
At end-December, 2013, Liberia’s total merchandise trade (on f.o.b basis) grew by 15.4 percent to US$1,754.6 million, from US$1,520.8 million recorded for 2012. Exports and imports accounted for 31.0 percent and 69.0 percent, respectively; from 29.2 percent and 70.8 percent in 2012, respectively.
From preliminary statistics, the trade deficit rose by 5.6 percent to US$667.3 million during 2013, from US$632.0 million recorded for 2012, mainly on account of increased import payments in 2013 that outmatched the growth in export receipts.
Total merchandise export receipts rose by 22.3 percent to US$543.7 million in 2013, from US$444.4 million earned in 2012, largely on account of a 180.0 percent rise in iron ore export receipts to an estimated US$327.8 million in 2013, from US$117.1 million in 2012.
The significant rise in iron ore export earnings in 2013 was driven mainly by increased domestic production and export volumes, despite the declining global price pattern of the commodity throughout the year. Iron ore and rubber accounted for 82.5 percent of total export earnings in 2013, from 66.2 percent in 2012 and 67.6 percent in 2011.
Meanwhile, the CBL announced that its gross external reserves position at end-December, 2013 was US$241.0 million from US$258.5 million at end-December, 2012. When measured in months of import cover (excluding iron-ore related imports), Liberia remains below the West African Monetary Zone (WAMZ) minimum threshold of 3.0 months. From provisional statistics, Liberia’s months of import cover declined to 2.4 in 2013 from 2.9 recorded in 2012, mainly on account of continued increase in import payments and slowdown in gross foreign reserves, the Bank stated. The CBL assured that it remains strongly committed to building the country’s foreign reserves while at the same time working to maintain broad exchange rate stability in a highly dollarized economy.