Is Liberia’s GDP $0.9B Or $3.3B? Was Debt Ratio Reduced from 35% in 2017 to 26%?


A Rejoinder to Sam Jackson’s 11/06/2018 Article

By J. Yanqui Zaza

Flipping through the local Internet Web Sites I came across Mr. Sam Jackson’s comment that Liberia’s debt ratio to GDP (Gross Domestic Product) is now 26 percent. In his article, carried in the Frontpage, called “Pro-Poor Agenda for Prosperity and Development: Long on Aspirations but Short on Reality,” Mr.  Jackson stated that “…the country’s debt to GDP ratio is sustainable at 26 percent…” This statement implies that Liberia has reduced its total public debts (I.e., the numerator), has increased its GDP (i.e., the denominator) or did both. Most importantly, it suggests Liberia has a good chance to borrow more money since its public debt (i.e., domestic and external) ratio of 26 percent is below the 38 percent benchmark.

His comment that Liberia’s debt to GDP ratio has dropped to 26 percent from 35 percent at the June in 2017 (See page # 14 of the IMF Report No.17/348) inspired me to pen this article. Oh no, I am not suggesting that he should have addressed all of the important issues in one article. Nonetheless, some readers might accept questionable numbers/analysis if left uncorrected or unquestioned. For example, is there circumstantial evidence supporting the number of persons (300,000) who died during the fourteen-year old war? Is it true that poor people are more prone to corruption than rich people?

Before discussing Liberia’s total public debt ratio, what is GDP?  Economists say it is the market values of goods (latex, iron ore, diamonds, pepper, rice, etc.) and services (security service, legal service, mechanic service, transport service, etc.) produced within a year. Equation. “…Private Consumption+ Gross Investment+ Government Investment + Government Spending + (Export-Import).”

Added to the complexity of GDP, there are two types (Real and Nominal). Economists and policymakers use Real GDP to measure a country’s success or failures. An increase in real GDP implies that a country might become prosperous. On the other hand, economists use Nominal GDP. I guess this is so because a larger denominator results into a lower debt ratio, to calculate a country’s debt to GDP ratio. So, the higher the GDP, the lower the debt ratio, especially if the total public debt does not change.

So, what is the difference between Real GDP and nominal GDP? Economists use the base price, for example, US $1.09 on January 1, 2017, to calculate real GDP and they use the current price, for example US $1.32 at December 31, 2017, to calculate Nominal GDP. In short, the rate of inflation or deflation separates nominal GDP from real GDP.

In the case of Liberia, did economists use Liberia’s inflationary rate to calculate the nominal GDP? The inflationary rate was 13 percent in 2017 up from 12.5 percent in 2016, according to IMF Country Report No. 17/348.

Now, let us look at the numbers for real GDP and the numbers for nominal GDP. The Central Bank of Liberia recorded, on Page # 32 of the 2017 Annual Report, that the Real GDP was US $882M, US $904M and US $939M in 2016, 2017 and 2018 respectively. On the other hand, the International Monetary Fund Country Report No. 34/348 reported, on page # 21, that the Nominal GDP was US $2.1B, US $3.3B and US $3.3B in 2016, 2017 and 2018 respectively. (  In each year, the increase in GDP from Real to Nominal was above 100 percent. Why?

Now, let us look at the increase from 2016 to 2017 of the same type of GDP, nominal, even before an adjustment, inflationary rate, is considered. The nominal GDP in 2016 was US $2.1B. In 2017, the nominal GDP was US $3.3B. The difference from 2016 to 2017 was US $1.2B (i.e., nominal GDP US $2.1B in 2016 and nominal GDP US $3.3B in 2017). So, where did the US $1.2 billion come from? Using US $2.1 B as the denominator ($739M/$2.1B), the ratio would be 35 percent.

Also, let us calculate the nominal GDP in 2017 by using the 13 percent inflationary rate to multiply by the real GDP in 2017. The result of the multiplication (US $904M multiplied by 13 percent) US $1.068B. So, how did economists get US $3.3B nominal GDP in 2017 from real GDP of US $0.904B in 2017?  Again, using US $1.068 as the denominator ($739M/$1.068B), the debt ratio would be 69 percent.

The inflationary rate adjustment did not support the huge increase in the nominal GDP, so let us use a current price at December 31, 2017. For a sample, let us use the base price US $1.09 at January 1, 2017 and the current price of US $1.32 at December 31, 2017. Again the result is US $1.2B nominal GDP (US $1.32 by multiplied by US $0.904B of real GDP); and it is not US $3.3B nominal GDP in 2017. Also, using US $1.32 as the denominator ($739M/$1.32), the debt ratio would be 55 percent.

Our economists should provide information about how one can get the correct denominator (Nominal GDP). Also, I suggest economists should use the total public debt, not just the total amount of external debt as the writers of the IMF Country Report No. 17/348 did. This is because a reduction in the numerator (total public debt) might result into a low debt ratio.

As stated earlier, the failure to use the correct GDP or correct total public debt might encourage policymakers to make unwarranted decisions. For instance, investors use a country’s income per capital (GDP divided by population) to determine a business location. Also, money lending institutions, including the World Bank, use total public debt to GDP ratio (total public debt divided by GDP) to ascertain if a country is eligible for more loan.

If the ratio is incorrect because policymakers did not include bonds payable or liabilities owed to state-owned entities within the total public debt (i.e., the numerator), the debt to GDP might be lower. The lower debt ratio might encourage policymakers to borrow more money or undertake projects, a recipe for a depreciation of the Liberian currency, etc.


  1. That is a good one; thank you Mr. Zaza. However, we need true professionals to gather, keep, and distribute/report in a systematic way accurate data which will serve as a panacea for strategic planning and good decision making.

    I hope the govt will take this seriously.

  2. J. Yanqui Zaza.

    Thanks for the rejoinder, as you raise questions that many who read the original article may also have. For transparency, I did not read the original article, the subject of your rejoinder. I however, am providing my thoughts based on reading of your rejoinder and the data you provide as well as the calculation methods used. My hope is that more readers would understand the original article, and in light of the week instead you raised.

    First, lets look at the difference between real GDP and nominal GDP. Real GDP is adjusted for inflation whereas nominal GDP is not. It’s important then to understand what base years were used for the respective measures. For example, in calculating for Real GDP of 2017, a base year of 2005 is used. The calculation would take the 2005 prices of the quantities of all goods and services purchased in 2017 to obtain the real GDP for 2017.

    To convert the real GDP to nominal GDP (market value of all goods and services produced in the economy unadjusted for inflation), you will need to calculate for the GDP deflator. The GDP deflator is the Nominal GDP divided by the Real GDP and then multiplied by 100 [(nominal/real) * 100].

    Base years are usually 6 years for GDP and more narrower for Consumer Price Index (“CPI”).

    Knowing what each agency used in calculating their respective real and nominal GDP, then a year to year comparison can be done to determine the impact or give interpretation to economic activities in the current year and economic growth since the base year. A base year should be such that there is a relevant timeframe to measure economic activities to gauge a nation’s economic growth.

  3. Hi Sir,
    Thanks for your comment.

    Let assume for discussion purposes that the authorities use the correct math to calculate the nominal gross national product.

    Nonetheless, should the country accept the debt to gross domestic product ratio at 26 percent
    from 35 percent at the of June 30, 2017? Or, are you implying that the authorities should use the US $3.3 billion as 2017 Nominal gross domestic (i.e. as the dominator) in calculating the debt to GDP ratio all because the computation to calculate nominal GDP is correct? If yes, are you not undermining the concept and spirit of the debt to GDP ratio benchmark?

    Sir, I assume that you are aware of the concept of a benchmark. It is a theory that is intended to encourage a country to borrow money that its debt repayment should not eat away a significant portion of government revenue, thereby making it difficult for a government to finance both social programs and capital projects.

    In Liberia’s case, reducing the debt to GDP ratio from 35 percent to 26 percent might encourage our government to borrow more money. And, predictably, the government might not generate adequate revenue (i.e., since the increase in real GDP in 2018 might not be more than 10%), to repay its debt and invest in the needed projects.

    The Central Bank of Liberia reported US $822M, US $904M and US $936M in 2016, 2017 and 2018 respectively, while nominal GDP was US $2.1B for 2016, US $3.3B was for 2017.

    For 2017, the difference between real GDP at US $904M in 2017 and nominal GDP at US $3.3B is huge, an increase that is more than 200%. Is the increase (200%) reasonable?

    I think reasonable people should ask questions or seek an adjustment anytime a computation, provision or a regulation produces a result that undermines the spirit of parity, equity, fairness or that the result of such a computation does not represent the factors or is distortive.

    Again, thanks for your comment.

  4. J. Yanqui Zaza.

    You raised questions that are fair and require clarity for the citizenry to understand. I do believe governmental agencies have an obligation to provide detailed clarity on the data that are relied on and how those data were selected. And key to that is the consistency of the method used. For example, I had mentioned in my earlier comment the use of a base year that is relevant for measuring meaningful economic activities of a current year. And such should be in consistent with what is proven in economic theory and used by economist globally. In presenting the facts in the original article which you critiqued in your article, the author may not have presented all the metrics the IMF and CBL used in their calculation as they may be irrelevant to the ordinary reader.
    I understand your concern about the benchmark. But the GDP metrics are what they are based on the relevant data obtained. We do know that Liberia has undergone tremendous changes in both the health sector with the Ebola crises and the drawdown of the United Nations and ECOWAS support facilities that certainly impacted any measurement of GDP, real and nominal, within the years in scope. As such magnitude of these events is certainly accounted for in the calculation. The IMF will not adjust its key measures as there is consistency in its methodology that applies across the board for all countries. My point was to make clear that such a gap should not be a surprise for a nation like Liberia that has experienced events the magnitude that would stress a developed country. The economic benchmark of Liberia can be adjusted based on the priorities of the government and that calculations should take into account any events that was never intended to be a permanent expenditure of government or foreign agency in Liberia (e.g., the value of the United Nations and ECOWAs missions). I do agree that a correct calculation may not narrow the gap. An adjustment is not required in the calculation, but the key data used in the calculation can be adjusted based on whether their value. A change in the GDP Deflator would certainly impact the difference between real GDP and nominal GDP.

    I do hope that someone with the relevant key data from the IMF and CBL or the author of the original article would address the specific of your questions. My hope is that I provided additional understanding to the measurements of these key measures.


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