The New Dawn newspaper reported (The New Dawn, January 10, 2014) that the House of Representatives (of the National Legislature) is expected to summon Finance & Planning Minister, Amara Konneh, and CBL Governor, Dr. Mills Jones “. . . to provide explanations on the rapid rise in the (foreign) exchange rate and the general state of the (Liberian) economy . . . what has happened to the economy of late . . . (to cause) the alarming increase in the (foreign) exchange rate of the US dollar against the Liberian dollar?”.
In my reaction to this report, I held (The Analyst Liberia, January 16, 2014) that these officials, professional economists and financial management experts, are and will be happy to explain, in detail, the state of the nation’s economy and its finance and budgetary plans. Thus, according to press reports, was the basis of the Minister’s appearance before the Lawmakers on last Tuesday.
The State of the Economy
In the front-page headline, “Economy Crumbles – US $2 billion needed”, The New Democrat newspaper reported (New Democrat, January 22, 2014) that the Finance & Planning Minister did appear before the National Legislature and “. . . gave assurance that the state of (the nation’s) economy is intact . . . that the fundamentals . . . remain stable and strong . . . He assured Plenary and the public that the economy was sound . . . and that . . . there is no need to panic, the Ministry of Finance was committed to a campaign to accelerate revenue generation for execution of government’s development agenda”, emphasizing a vigorous tax collection program.
The Economic Problems
However, according to the New Democrat newspaper, Minister Konneh told the lawmakers that the economy or our government needs US $2 billion to manage the affairs of state efficiently and effectively; “that for everybody to be happy . . . to receive adequate funding that will run the country smoothly, keep the place (country) quiet and every head of agencies (of government) can shine and be happy is US $2 billion. The current budget . . . (FY2013/2014)”, he said, “is between US $500 – $600 million, with a shortfall of US $68 million”, while for-profit, revenue-generating, state-owned enterprises such as the National Port Authority (NPA), Liberia Petroleum Refining Corporation (LPRC) and others continue to delay and become delinquent in transfer/payment of such revenue to its rightful, lawful owner, the GOL.
Continuing, the Minister informed the Legislators that “the country faces further challenges due to susceptibility to external (economic) factors – Liberia’s undiversified economy depends on international prices and demand; the major (Liberia’s) staple food, rice is imported . . .” The Minister pointed out that “the government spent (last fiscal year) about US $15.9 million for goods and services, while it spent US $22.6 million on salaries (and wages) of government employees, including the President and senior officials . . . We are (now) concerned about the exchange rate. When you have 8 billion Liberian dollars circulating in the economy and (but) you don’t have the corresponding US dollars circulating to reach an equilibrium, you have (the current, high exchange rate experience) this situation”.
The Minister’s Solution – Rigid campaign of Tax Collection
During his appearance, the Finance & Planning Minister assured the lawmakers, “my message is the new sheriff of tax, Amara Konneh, is in town and we will do it. We are just asking for your support. I am the manager of the Ministry of Finance . . . we would enforce our audits, we would enforce our tax enforcements and make sure we collect the needed tax to run our country”.
But . . . We are not Persuaded
While we applaud the minister’s tax collection crusade to fund government spending, a necessary (fiscal policy) approach to stimulate economic activities, we are not convinced that (A), such collection crusade will be successful, and (B), if successful, the result will exacerbate Liberia’s worsening, national/international, economic conditions, for the following reasons:
A. Although the Minister of Finance & Planning is the chief executive officer of Ministry, but he lacks the legal power/authority to enforce successful tax collection; that power/authority is a function of a court of law; and a sheriff is an officer of the court. However, there has been and is a serious problem with collection through the courts. For example, appearing before the same lawmakers, LTA Commissioners held (New Dawn, January 22, 2014) that they are “. . . finding it difficult to collect fees owed . . . due to ‘judicial’ bottlenecks. Whenever they want to revoke operational licenses of indebted companies and seek court action, the court usually places a ‘stay order’ on their decision”.
Now, these are very large, socio-politically-connected, often delinquent tax-payers and state-owned, revenue-generating enterprises (“Lucrative & profitable” positions in government with excellent opportunities for acquisition of wealth) know the rules – the tricks of the trade to evade payment ad infinitum, Minister Konneh and sheriff notwithstanding!!
B. On the other hand, let us agree, for the sake of the argument, that Minister Konneh collects the full US $500-$600 million as required by FY2013-2014. No doubt that more than 95% of the expenditures will be made for salaries, imported goods and services, including the minister’s “Liberian food staple, rice”.
Thus, this local, economic stimulus continues and exacerbates our excessive demand for imported goods and services, bought with foreign currencies and sold on the local market at prices denominated, also, in foreign currencies. This excessive demand for imported goods and services is, in fact, excessive demand for foreign currencies; therefore, the price rises excessively, with disastrous, economic impact on the purchasing power of the average, Liberian consumer. In other words, the more and more foreign currencies are demanded by Liberian consumers in order to purchase more and more importable goods and services, the higher and higher the prices of these foreign currencies (or foreign exchange rates) rise. This is the prevailing state of our nation’s economy.
Apparently, there is need for the Nation’s Economic Planning Minister and Central Bank to take a closer look at the economic variables that affect the health of our nation’s economy. It is now clear and certain that Liberia’s foreign exchange rate has come and is under pressure with considerable depreciation (reduction of or decrease in value) due, perhaps, largely to deterioration in Liberia’s Terms of Trade and our excessive demand for imports”.