By J. Yanqui Zaza
The demand for the US dollar has contributed to the decline of the value of the Liberian dollar since 2006. It declined from L$62 to US$1 in 2006, to L$108 to US$1 in 2016; and in 2018, it is L$126 for US$1. The exchange rate decline is now being exacerbated by the liquidity crisis. Nowadays, due to the shortage of cash, commercial banks are reluctant to cash government checks or provide credit lines to government contractors, according to the President of the Liberian Banking Association when he served as a panelist at the Governance Commission Seminar on December 15, 2017.
LIBERIA-CENTRAL BANK S. LEONE-CENTRAL BANK
|In thousands of Liberian dollar values||In thousands of Sierra Leonean Leones|
|LESS AMOUNT DUE FROM GOVERNMENT||(26,982,782.0)||(24,776,827.0)||(39,057,652.0)||(1,284,803.0)|
|ADD DEPOSITS OF GOV. AGENCIES||18,219,613.0||16,280,911.0||-0-||-0-|
|AMOUNT OWED TO THIRD PARTIES||(377,292.0)||(1,203,950.0)||-0-||-0-|
|NON-CASH EQUIVALENTS ASSETS|
|TOTAL NON-CASH EQUIVALENTS||(4,969,539.0)||151,762,866.0|
|EXCESS CASH DEPOSITED OUTSIDE COUNTRY||1,094,707.0||500,361,787.0|
|REVENUE BASED ON EXCESS CASH RESERVES||70,196.0||34,037,880.0|
|REVENUE BASED ON GOVERNMENT LOAN||1,535,025.0||-0-|
|TOTAL DUE TO THIRD PARTIES (USED LD 126)||(5,346,831.0)||-0-|
|CENTRAL BANK OWES TO THIRD PARTIES||USD $42,435,166.||-0-|
Predictably, had the Central Bank owned excess cash in the amount similar to Sierra Leone’s 500,361,787 Leonean, it could have fulfilled item # 2 of the ten functions of the Central Bank of Liberia (“Administer the currency laws and regulate the supply of money”). (See page # 5 of the 2016 Central Bank of Liberia Audited Financial Statements.) It could use the excess cash deposited in banks located outside of the country to pay government’s debts owed to commercial banks, including some of the US$14 million and, or US$24 million government bonds sold to commercial banks in 2015 and 2016 respectively, if the government did not reverse the sale of bonds. (See page# 27 about the sale of government bonds or treasury bills within the 2015-2017 Economic Analysis Report of the Central Bank.)
Although, the 2016 Central Bank of Liberia’s Annual Report indicates that Liberia has reserved US$180 million Net International Reserve, the US $180 million is not cash-equivalent for the Bank to fight inflation, exchange rate, liquidity problem, etc. This is because the US$180 million is denominated into Special Drawing Rights (i.e., is a privilege to borrow money) and long-term loans and advances owed by the Government of Liberia (i.e., a bankrupt borrower), according to page #36 of the 2016 Annual Report of the Central Bank.
In fact, for the purpose of calculating cash and cash-equivalents, one can safely deduce that the Central Bank is broke since its parent (i.e., the Liberian government) cannot pay its debt of US $214,149,063 (i.e., L$ 26,982,782,000/L$126) within the next twelve months.
The Governor of the Central Bank of Liberia, Mr. Milton Weeks, commenting on the liquidity crisis, stated that the US$444 million outflow of remittances was responsible for the liquidity crisis. However, if the Governor’s theory [“the outflow of US $444m remittances is responsible for the shortage of US dollars”] is true, how come Liberia’s exchange rate did not improve when the Liberian market received an abundance of US dollars in 2006 through 2015 from donors and our international partners?
Instead, the value of the Liberian dollar continued to decline, from L$62 in 2006 to L$126 in 2017. More importantly, the Governor of the Central Bank of Liberia should remember that the Bank was established to reduce the impact of capital flight, impact of exchange rate fluctuations, impact of trade deficits, impact of global influence on import and export prices, etc., but not to focus on the source of the problem.
The practice of searching for the culprits and not solving the problem did not start with the Governor. In September of 2016, just few months after President Ellen Johnson Sirleaf had signed the 2017/2018 national budget into law, she called for a Special Meeting with the Liberian Lawmakers to revisit the budget. The President and her advisers stated that the decline in global prices of commodities was the source of Liberia’s liquidity crisis.
Subsequently, President Sirleaf, along with many of her advisers, etc., deceptively began indicating that global prices of commodities had reduced Liberia’s revenue and government could not pay expenditures such as debts owed to commercial banks.
However, the revenue record says otherwise, according to page # 45 of the Central Bank of Liberia Report for revenue, covering the twelve months of 2015 and 2016 and the four months of 2017. For example, total revenue for the months of March and April of 2017 was higher than the same two months in 2015 and 2016. Specifically, taxes on import (i.e., taxes, which constitute 50% of Liberian government revenue) were up in November and December of 2016 and the four months of 2017.
Further, corporate taxes and payroll taxes were up in 2016 and for the four months of 2017. More so, the two entities (i.e., Liberian Firestone Rubber Plantation and ArcelorMittal Liberia), which account for the largest volume of Liberia’s export, sell Liberia’s exports to their parents, mitigating any global influence on the price between these Liberian subsidiaries and foreign parents.
Revenue collection was normal; therefore, it can be concluded that the Central Bank cash management is responsible for the liquidity crisis. For example, the bank had lent US$17,507,579 [L$2,205,955,000/L$126 [L$26,982,782,000 as loans in 2016 minus L$24,776,827,000 loan in 2015)] to the government of Liberia. Also, it used US$28 million (L$3,705,706,000/L$126) of government revenue to pay the bank’s operating expenses since it did not own a significant amount of excess cash to generate revenue outside of Liberia.
For example, in comparison, the Central Bank of Sierra Leone collected seventy-five percent (75%) of its revenue from interest earned from banks located outside of the country, while Liberia collected just about three percent (3%). The bank reduces its cash flow when it uses US dollar on the Liberian market to lend money to the government or pay its expenses.
Further, while Sierra Leone’s Central Bank, during the Ebola period, increased its equity by 180,341,579 Leones (375,636,010 Leones in 2014 minus 195,394,431 Leones in 2013), the Liberian Central Bank did not disclose in the 2016 financial statements what happened to the US$14 million and US$24 million proceeds of the government bonds sold in 2015 and 2016 respectively.
In conclusion, had the Central Bank of Liberia accumulated excess cash reserves and added some portion of the proceeds of the bonds sold in 2015 and 2016, the bank would have accumulated adequate cash to pump US dollars onto the Liberian market, thereby, mitigating the impact of capital flight and alleviating the current liquidity crunch.