‘Inflation, Main Driver of Liberia’s Fiscal Pressures’

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Albert Zeufack, World Bank Chief Economist for Africa (first from right) and other WB staff at the teleconference in Washington, DC.

— Says World Bank Liberia’s Economist, Daniel Boakye; launches the 19th edition of Africa’s Pulse

The World Bank Liberia’s Economist, Daniel Boakye said the main drivers of inflation in the country are fiscal pressures, which are caused by the continuous revenue deficits in its third year running.

To address the problems, Mr. Boakye called for robust revenue generation mechanisms to be put in place to close the gap and to reduce the government’s rising wage bill.

Boakye said, “Government is having fiscal pressures and fiscal deficits in part because revenues have been falling below targets since 2017. In the midst of falling revenues, the government is finding difficult to adjust its expenditure. That is why we say there are fiscal pressures. So, addressing fiscal pressures could be in two ways: find out how best the government could mobilize domestic revenue to close the gap. And on the expenditure side, we see a lot of pressures coming because of the rising wage bill. So, the government could review its policy framework for containing the wage bill.”

He made the statement on Monday, April 8, 2019, at the launch of the 19th edition of Africa’s Pulse, the World Bank’s bi-annual analysis of the state of African economies.

According to Africa’s Pulse, growth in Sub-Saharan Africa has been downgraded to 2.3 percent for 2018, from 2.5 percent in 2017.

The report also notes that economic growth remains below population growth for the fourth consecutive year, and although regional growth is expected to rebound to 2.8 percent in 2019, it will have remained below three percent since 2015.

The April 2019 edition of Africa’s Pulse also looks at how fragility is holding back Sub-Saharan Africa, and how the digital economy can help the continent move forward.

“The digital transformation can increase growth by nearly two percentage points per year and reduce poverty by nearly one percentage point per year in Sub-Saharan Africa alone. This is a game-changer for Africa,” said Albert Zeufack, World Bank Chief Economist for Africa.

The slower-than-expected overall growth, according to the report, reflects ongoing global uncertainty, but “increasingly comes from domestic macroeconomic instability including poorly managed debt, inflation, and deficits; political and regulatory uncertainty; and fragility that is having visible negative impacts on some African economies. It also belies stronger performance in several smaller economies that continue to grow steadily.”

In Nigeria, the World Bank noted that growth reached 1.9 percent in 2018, up from 0.8 percent in 2017, reflecting a modest pick-up in the non-oil economy. South Africa came out of recession in the third quarter of 2018, but growth was subdued at 0.8 percent over the year, as policy uncertainty held back investment.

Angola, the region’s third-largest economy, remained in recession, with growth falling sharply as oil production stayed weak.

Growth picked up in some resource-intensive-countries like the Democratic Republic of Congo and Niger, as stronger mining production and commodity prices boosted activity alongside a rebound in agricultural production and public investment in infrastructure.

In others, like Liberia and Zambia, growth was subdued, as high inflation and elevated debt levels continued to weigh on investor sentiment.

In the Central African Economic and Monetary Community, a fragile recovery continued as reform efforts to reduce fiscal and external imbalances slowed in some countries. Non-resource-intensive economies such as Kenya, Rwanda, Uganda, and several in the West African Economic and Monetary Union, including Benin and Côte d’Ivoire recorded solid economic growth in 2018.

Africa’s Pulse also found that fragility in a handful of countries is costing Sub-Saharan Africa over half a percentage point of growth per year. This adds up to 2.6 percentage points over five years.

“The drivers of fragility have evolved over time, and so too must the solutions,” said Cesar Calderon, Lead Economist and Lead author of the report. “Countries have a real opportunity to move from fragility to opportunity by cooperating across borders to tackle instability, violence, and climate change.”

Meanwhile, Boakye has called for the creation of a competitive Information Technology (IT) environment to attract more IT companies in Liberia to boost the sector.

He named the uneven distribution of IT infrastructures and the high cost to access the internet as some of the constraints faced by ordinary Liberians.

However, he added that the arrival of the fiber optic cable in Liberia and the mobile money platform, when harnessed, will boost Liberia’s digital platform.

“What really can be done in the face of these challenges is the creation of a competitive environment to have more players to begin to engage in the digital world. If you have IT companies trying to explore the opportunities that the internet has, you will get people, especially the youth who are coming out of schools getting involved in internet activities,” he stated.

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