Liberia: GoL to Revisit Petroleum Prices Soon

The Government of Liberia has emphasized that its recent decision to set a new price structure for petroleum products in the country was not arbitrary, but one motivated by external factors.

Speaking during a special press briefing on Tuesday, Information Minister Ledgerhood J. Rennie said the government acknowledges that the increment is “hard to bite down”, but it is necessary to ensure the constant availability of the products on the market and the stability of the price. 

“We are hoping that in the next month or so, we can revisit the decision and there can be a decrease”, Minister Rennie said. 

He explained that the government is aware that the cost of petroleum could hurt the general price level, which is why it is planning to revisit the new price structure in the “soonest possible time."

The language of economic pain from the government is a clear indication that the impact of the increment will be dire — touching everything from transportation to consumer spending to costs of goods and services across the country. High petroleum prices will eventually land on the shoulders of Liberian consumers, many of whom live on US$1 or less per day, exacerbating some form of income and or food insecurity and vulnerability.

The situation puts the country in danger of massive inflation – hampering Liberia’s economic growth rate projection of 5.2 percent from 2022–to 2025.

Currently, the government has now set the wholesale price of gas at US$5.48 and the retail (pump) price at US$5.66. As for fuel, the wholesale price is US$5.82, while the pump price is US$6.00. This means that filling up a gasoline car that takes 10 gallons now costs nearly US$57; more than what was paid just about a week ago, at the price of US$45. For diesel vehicles, the price is even higher.

Given this context, a prolonged increment in the price of petroleum products will cause further economic dislocations to Liberia as increased in the past has been one of the key drivers of inflation. It would mean businesses spending more on transporting goods from place to place — making it more expensive for households. Also, the increase in petrol prices means a large share of Liberian households’ budgets are likely to be spent on it, which leaves less to spend on other goods and services, competing intensely with food.

According to an IMF staff report, volume 2021, the vast majority of Liberia's economically active population (EAP) is expected to grow from 1.6 million to nearly 2 million in 2023; and with most of them informally employed, the issue of petrol (energy) is an indispensable input in their lives.

About 35 percent of Liberian households make their living predominantly through agricultural-related activities, which could be badly affected due to an increase in transportation costs as a result of a spike in petrol prices. Farm produce will come at a premium due to the costs of transport and storage.

In the informal sector, 65 percent of whom are wage earners, work for private employers in the service sector (LISGIS 2016). About 20 percent work for the government and 15 per work for nonprofit organizations. A higher proportion of women fall into the lower-earning work categories. So with the current increase, consumers’ discretionary spending will reduce, costing severe knock-on effects on the broader economy, leading to inflation that the government has fought so high to contain in the past.

Even the International Monetary Fund (IMF) has warned that while the situation in Ukraine remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious.

“Price shocks will have an impact worldwide, especially on poor households for whom food and fuel are a higher proportion of expenses,” the IMF said in a statement last week. “Should the conflict escalate, the economic damage would be all the more devastating. In many countries, the crisis is creating an adverse shock to both inflation and activity, amid already elevated price pressures.”

And if inflation were to hit Liberia now, it could hit the country hard as it lacks enough funds to create the fiscal space needed to support a resilient recovery since policy options for increasing fiscal space are based on debt sustainability, external assistance in debt relief, debt service suspension, debt restructuring, and concessional loans, according to the MFDP budget circular document for the fiscal year 2022 budget.

Long before the Ukraine war, the macroeconomic outlook for the fiscal year 2022, made available by Liberia’s Ministry of Finance and Development Planning (MFDP), assumed that high levels of uncertainty around the evolution of the COVID-19 and its likely impact on external demand and global and domestic supply chains; and unaddressed vulnerabilities in the financial sector could undermine the economic recovery of 5.2 percent over the years from 2022 to 2025, increase poverty, and weaken Liberia's fiscal and external balances.

But the uncertainty is no longer COVID-19, but a war that has resulted in disruption on supply chains, causing commodity prices to soar and fuelling market turmoil that the price of many everyday items from food to petrol and heating, already rising at their fastest rates in 30 years, could be pushed higher.

Meanwhile, Min. Rennie has frowned on profiteering and hoarding of the products by some unscrupulous people, warning that anyone caught in the act will be dealt with by the full weight of the law. 

The Information Minister said the relevant Government agencies are working to announce fixed fares for transportation to various locations within 48 hours in order to avoid hiking the cost. 

He warned commercial drivers against overcharging passengers. 

For his part, the Deputy Managing Director of the Liberia Petroleum Refining Company, Adrian Hoff, said importers of petroleum products in the country operate under a Collateral Management Agreement (CMA) that allows them to order products in the country without initially paying cash to the major international suppliers. 

But he said, once in the country, in order for products to be lifted from the LPRC storage facility each day, and taken to the market, the Liberian importers will have to pay per consignment at the prevailing global rate — hence their clamor for an increment in price. 

Mr. Hoff said the Weah Administration has made tough decisions in the past to avoid increasing the cost of petroleum products by cutting levies. 

“We have met with the President and his biggest concern has been ‘don't increase the price’.” 

The government announced earlier that the decision stems from the Russian-Ukrainian crisis since Russia is a major global exporter of crude oil. 

Both men said the prices of gasoline and diesel in Liberia are lower than in many countries in the sub-region. 

The two officials urged Liberians to make some adjustments in order to conform to the current global reality, as the government continues discussions with importers so that the brunt of the problem isn't felt by ordinary Liberians.