‘Shrinking Economies’

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The World Bank Group’s growth estimates for 2014 in the three affected countries have been revised sharply downward. With second-round effects and investor aversion, the economies of Sierra Leone and Guinea are expected to shrink in 2015, and Liberia is expected to grow at less than half the pace anticipated before the crisis, the Bank has estimated. It says the total fiscal impact of the crisis is well over half a billion dollars in 2014 alone depicting how the Ebola epidemic continues to cripple the economies of Liberia, Sierra Leone, and Guinea.

According to the Bank’s latest report, the crisis is resulting in flat or negative income growth and creating large fiscal needs in all three countries, as they work to eradicate the virus. The Bank released an update earlier highlighting its most recent analysis of the economic effects of the Ebola epidemic on the three countries.

“All three had been growing rapidly in recent years, and into the first half of 2014. But GDP [gross domestic product] growth estimates for 2014 have been revised sharply downward since pre-crisis estimates. Projected 2014 growth in Liberia is now 2.2 percent (versus 5.9 percent before the crisis and 2.5 percent in October). Projected 2014 growth in Sierra Leone is now 4.0 percent (versus 11.3 percent before the crisis and 8.0 percent in October). Projected 2014 growth in Guinea is now 0.5 percent (versus 4.5 percent before the crisis and 2.4 percent in October).

As the epidemic continues, these economies will face a difficult year in 2015, as second-round effects kick in and investor aversion takes a further toll. The 2015 growth estimates are 3.0 percent in Liberia, -2.0 percent in Sierra Leone, and -0.2 percent in Guinea, down from pre-Ebola estimates of 6.8 percent, 8.9 percent, and 4.3 percent respectively. In Sierra Leone and Guinea these growth forecasts are lower than the Bank’s October estimates (7.7 percent for Sierra Leone; 2.0 percent for Guinea).

In Liberia, where the epidemic may be abating and where there are some signs of economic activity picking up, the 2015 estimate is an increase on October’s (1.0 percent). These projections imply forgone income across the three countries in 2014–15 of well over US$2 billion (over US$250 million for Liberia, about US$1.3 billion for Sierra Leone, about US$800 million for Guinea).

“This report reinforces why zero Ebola cases must be our goal. While there are signs of progress, as long as the epidemic continues, the human and economic impact will only grow more devastating,” said Jim Yong Kim, president of the World Bank Group. “As we accelerate the immediate health response, the international community must also do everything we can to help the affected countries back on the road to economic recovery and development.”  

Combining the effects on revenue and spending with cuts made to public investment to finance the response, the total fiscal impact is well over half a billion dollars in 2014 alone, the Bank declared.

Liberia has been hardest hit fiscally. Relative to pre-Ebola forecasts, revenues are down US$86 million while public spending has increased US$62 million, a combined impact of more than 6 percent of GDP.

In Sierra Leone, revenues are down US$85 million while spending has increased US$43 million, a combined impact of more than 2.5 percent of GDP.

In Guinea, revenues are down US$93 million while spending has increased US$106 million, a combined impact of more than 3 percent of GDP. Although the resulting fiscal deficits in the three countries have so far been financed by inflows from development partners, governments have also cut public investments by more than US$160 million across the three countries, damaging future growth prospects.

The World Bank’s October report on the economic impact of Ebola (released at the 2014 Annual Meetings of the IMF [International Monetary Fund] and the World Bank Group) found that if the epidemic continues in the three worst-affected countries and spreads to neighboring countries, the two-year regional financial impact could range from a “low Ebola” estimate of US$3.8 billion to a “high Ebola” estimate of US$32.6 billion.

These scale estimates of potential impact remain valid: the epidemic is not yet under control. Containment, combined with a full-fledged financial recovery effort to restart business activity and bring back investors, are now both therefore urgently needed for the region to improve on the downbeat forecasts in this update, the update concluded.

President Jim Yong Kim, who was in Liberia on a one-day official visit on December 2, disclosed that the Bank is working with the IMF and the African Development Bank (AfDB) to prepare several trenches of budgetary support the Liberian government’s development Agenda.

Dr. Kim stressed the need for finishing the Ebola epidemic in West Africa and commencing the economic recovery programs for the region, particularly for Liberia, the country hit hardest by the Ebola crisis. The World Bank Group president is a public health expert and strong advocate for the defeat and elimination of Ebola from West Africa.

Dr. Kim concluded his visit to Liberia signing a financing agreement with Ecobank Liberia Limited details of which will be made available soon. 

The Liberian government has announced that it needs about US$375 million to deal with the Ebola epidemic and restore the economy back to a strong growth path. The government is currently nursing a US$305 deficit and has begun sourcing direct budget support grant revenues to finance its deficit.

The Finance Minister Amara M. Konneh has called for strong fiscal discipline in government urged public officials to expect and accept cuts in their budget envelopes.

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