---- The authorities intend to stay away from fuel subsidies for now and broadly limit rice subsidies to offset the sharply higher shipping costs for imports, the IMF said.
The decision by the administration of President George Weah to hike the price of rice by nearly US$5 is driven by the government’s desire to end some of the costly social subsidies that have widened the country’s account deficit.
The hike, which appears to be backed by the International Monetary Fund, comes after the government spent US$15 million on rice subsidies in the last two fiscal budget years just to keep the price of rice low.
Out of this amount, US$11 million (0.3 percent of GDP) was allocated in the fiscal year 2022 budget to stabilize rice prices by offsetting sharply higher international shipping costs in the wake of global supply chain disruptions.
Rice, which is Liberia’s staple food and mostly imported, is central for social cohesion and poverty alleviation and in the Special 2021 budget, US$5.5 million was spent on subsidizing import.
According to the IMF, the government, as part of its plan to reduce the country's account deficit, has promised to limit rice subsidies for next budget year.
“With the 2022 budget benefitting from exceptional resources, financing will become more difficult going forward,” the IMF said in a 2022 Article IV Consultation report on Liberia, which was under the Fourth Review of the Extended Credit Facility Arrangement.
“In the absence of practical targeting mechanisms, subsidies can quickly become prohibitively expensive and difficult to reverse in an election year—a US$1 per gallon subsidy on gasoline costs about 2.5 percent of GDP and a 20 percent subsidy on imported rice some 0.5 percent of GDP. The authorities intend to stay away from fuel subsidies for now and broadly limit rice subsidies to offset the sharply higher shipping costs for imports.”
However, the IMF disclosed that the Weah administration shared their concern that high gasoline and food prices, which push up already high poverty and could fuel social discontent, heaping pressure on the government to grant subsidies — pointing to difficult trade-offs — “a US$1 subsidy per gallon of gasoline would cost as much as building 100km of new roads.”
Rice subsidies, the IMF believes, have a higher poverty-alleviating impact and should be designed to maximize consumer relief…but to “reverse the increase in the deficit in 2023,” the Weah government has plan “to stay away from fuel subsidies for now and broadly limit rice subsidies to offset the sharply higher shipping costs for imports.”
This revelation was not, however, stated in the Ministry of Commerce and Industry release on December 2, announcing the price hike, which would negatively impact the vast majority of the country's populations, many of whom are poor ( 51 percent in 2021) and in extreme poverty nearing 30%.
The Ministry’s decision means that the wholesale price for a 25kg bag of rice is now US$17, up from 13.50, while retail price jumped from US$14.00 to US$17.50.
“Following extensive consultations with all relevant stakeholders, including major rice importers and the Liberia Marketing Association, coupled with recommendations from the Rice Stabilization Taskforce, a decision was reached to adjust the price of rice in order to increase the importation volume; increase availability of the commodity on the market: eliminate unauthorized price hikes, and deter black market sales.”
“The Government of Liberia hereby announces effective December 3, the following adjusted price for a 25kg bag of rice: wholesale price US$17.00 or retail price US$17.50.”
The ministry’s decision came a few weeks after Weah had established a rice stabilization taskforce, with the mandate to assess sustainability of current interventions, explore all options and propose new measures necessary to keep rice affordable and available on the Liberian market.
The taskforce was established after the government fretted for weeks two months ago to solve the issues of rice shortage in the market, which they blamed on importers inflating the price of rice, so as to pressure the government to meet their demands for an increase.
This hike, which is the first in five years, raised the price of rice for many households, at a time, when 2.3 million Liberians are unable to meet their basic food and non-food needs — with poverty being higher in rural areas — home to 71.7 percent of the poor compared to 68 percent of the total population.
Food inflation as of 2022, according to the World Bank in its third Economic Update on Liberia that food inflation, notably for rice, had increased to 5.2 percent --deeply affecting rural communities, many of whom disproportionately poor.
Approximately 18% of households in Liberia’s estimated population of five million were identified as moderately to severely food insecure in Liberia, the World Food Programme said in a comprehensive food security assessment report in 2018.
This is happening as Liberia, which is a fragile, low-income country of an estimated population of 5.2 million still has its per-capita income to be around a third of the level prior to the civil wars during 1989-2003, which then at some US$680 per year in 2021.
According to the IMF, the Weah administration does not just intend to bring next year’s fiscal deficit down from the currently elevated levels but remain firmly committed to building the 2023 budget around the imperatives financing constraints.
It added that it is imperative that the Weah administration phase out the rice subsidy as international shipping costs normalize; (iii) avoid fuel subsidies; and swiftly reform public enterprises to reduce their budgetary burden.
“Constraints could be less tight than programmed if Liberia benefitted from another mining concession payment or if donor support was tapered by less. The current account (CA) deficit has hovered around 18 percent of GDP in the last few years andis projected to remain large in the medium-term and to narrow to 13.4 percent of GDP in the long term.”
This means that Liberia’s external position is substantially weaker than the level implied by fundamentals and desirable policies, the IMF noted, saying the deficit is expected to remain comfortably financed by non-debt-creating project grants and foreign direct investment (FDI) flows, as well as inexpensive donor loans.