No! Our government has completely misread the objective conditions of the economy, it has underestimated the enormity of the recession and is yet to understand that the economy is facing the prospects of something unconventional — stagflation.
There seems to be a broad agreement among our monetary and fiscal executives that our economy is in recession as emphasized by conditions on the markets — a substantial decrease in economic activities, towering levels of unemployment and surging inflationary rates.
This is the worst recessional condition our economy has faced since the peak of the war years.
Economic recessions are usually bourne out of a government’s fiscal policy framework but the responsibility for this has been blamed the slowdown in global economic activities, supposedly triggered by the lowering prices for our main export commodities and the drawdown of the United Nations Mission in Liberia (UNMIL).
Our government have rationalized the reason for this recession as having exclusive bearing on the global decline of investors interest in iron ore and rubber, causing companies operating here to receive reduced returns on their exports and ultimately reduction in their workforce and corporate tax to governement .
They also believe a key complement, to the determinants of our economic woes, is found in the drawdown of the United Nations Missions in Liberia (UNMIL), that UNMIL’s drawdown reduced the inflow of US dollars in the economy increasing its parity to the Liberian Dollar and hence fueling inflation.
Simply put, the government thinks our lowering rates of GDP and decrease in the real growth rates from 2.5% to -0.5% offshoots from the unemployment and reduction in corporate tax caused by the decrease in the prices of our global export and the inflation caused by UNMIL’s drawdown.
This economic analysis is sorely inaccurate not because the government missed out on identifying the problem but because they have no clue into why the problem exists.
51.7% of the world’s iron ore trade evolves from the Australian economy, the commodity makes up US$1 in every US$5 of Australian export and is sternly built on iron ore trade.
Even with the steep decline in mining investment the economic growth rate of Australia increased from 2.9% to 3.3% last year and has been steadily increasing for the past 25 years.
Thailand, the world’s largest exporter of rubber (35.8%), has also seen similar growth, even with the downturn in the global price of rubber, the Thai economy grew by 2.5% in 2016 after growing by 2.8% the preceding year.
These countries are more reliant on iron ore and rubber trade than Liberia but their economies is seemingly unaffected by the disruptions on the global markets.
This is so because they have strong fundamentals and ample fiscal and monetary buffers and we have none.
Our economy is managed by a cash based budget which is focused on economic sustenance than long term priorities, we use virtually everything we earn during the budget year, hence we have not managed to create a fiscal space which will protect us from unpleasant economic disruptions.
This makes our economy venerable and susceptible to any form of economic gyration.
Additionally, UNMIL’s drawdown have had veritable effects on the activities in our markets due to the quantum of their procurement and individual staff spending which is predominantly in United States Dollars.
This has forced their absence into the equation of our surging inflation rates because in the years running to 2016, US$500m was spent on UN Forces in Liberia but this year, a little over US$180m is been spent, in consideration of their drawdown plan.
Considering that Individual members of UNMIL spend most of their income on their families abroad and that the Liberian governement expands more than US$600m annually into the economy, it defies economic logic to conclude that absence of UNMIL would setoff an inflationary bomb that our economy cannot handle.
The truth is, Liberian is experiencing recession because our government do not understand its triggers:
The question of corporate income tax poses little headache economically because most of the companies bearing the brunts of the global economic decline have already laid off workers, in huge swathes, otherwise it could have possibly been balanced by our contingent revenue base and grants or loans.
So there’s not a question of corporate income tax but a question of unemployment.
Unemployment is rising at a faster rate than before because companies are adjusting their workforce to meet the existing realities, and the government has no plan for the creation of new jobs — unemployment rates is hovering above normalcy and beyond, adding force onto our economic crisis.
Secondly, UNMIL’s leaving does create a disruption in the money supply in our economy but doesn’t cause an inflation necessary for recession because it’s been substantially complemented by other sources of income including the government; the monetary support for this recession stems from an issue we’ve thoroughly overlooked — the printing of new bank notes.
The new bank notes were printed when our markets were in the throes of inflation and the doubling of money quantity made it worse such that the exchange rates have reached a all time high; capital flight and UNMIL drawdown has added tooth onto this problem.
With unemployment rates hitting the skies and inflation rates surging above regularity, our government has admitted that there is no short term solution to the problem, which means a long term solution cannot be be achieved in 2017.
Our economy is expected to witness a new phenomenon -stagflation, where a stagnant economy meets a surging inflation.
About the author: Ernest Duku Jallah is a bourgeoning economist studying at the University of Liberia and is an ideological supporter of the Student Integration Movement (SIM), a political party based on the campus of the University of Liberia.
He also an activist and a volunteer and can be reached at [email protected] or on cell numbers +231888523565/+231776969681.