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Liberia at moderate risk

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The World Bank says Liberia remains fragile and vulnerable to external shocks, with  significant infrastructure deficit and poor living conditions for majority of its population.In its 2018 Update, the Bank reports that Liberia remains at moderate risk of debt distress, though care and precision in implementing its ambitious infrastructure program will be critical.

The report specifically notes the effect of road construction on aggregate demand may be fairly limited, since only a small part of the total cost of asphalt- surfaced, capital-intensive roads would be expected to be sourced locally, adding “The medium-term outlook is subject to both upside and downside risks.”

According to the bank, inflation is projected to remain high in the near term, given the sharp depreciation of the Liberian dollar in the past year, and then to gradually decline from an estimated 11.7 percent in 2018 to 6.3 percent in 2023, but says that in the long run, inflation is set to continue its gradual decline and stabilize at around 5½ to 6 percent.

On key baseline macroeconomic assumptions, the report says the country’s revenue- to-GDP ratio is estimated to improve from 12.9 percent in FY2018 to 15 percent in FY2023 by, among other measures, improving tax compliance and efficiency and expanding coverage, after which it is expected to remain broadly stable, while fiscal deficit is expected to remain elevated as the authorities meet high spending needs, declining only from 5.1 percent of GDP in FY2018 to 4.4 percent in FY2023.

It continues that Liberia’s current account deficit has improved compared to the previous DSA and is projected to improve due to a further contraction in imports.It notes, however, that with a decline in current transfers, the current account deficit will nonetheless remain elevated at 22.4 percent of GDP in 2018. With limited net capital inflows anticipated for the remainder of 2018, gross international reserves are projected to decrease further to about 3 months of imports by the end of 2018, which is lower than in the previous DSA update.

The World Bank says it External Sector Assessment (ESA) shows that Liberia’s external position is substantially weaker than implied by fundamentals and desirable policy settings, and that under the baseline scenario, which reflects staff’s interpretation of government’s stated plans, Liberia will remain at moderate risk of debt distress but move closer to thresholds that mark a high probability of debt distress.

The Liberia – 2018 Update is Joint Bank-Fund Debt Sustainability Analysis (DSA) prepared by the staffs of the International Development Association (IDA) and the International Monetary Fund or IMF in collaboration with the Government of Liberia.The report notes that in January, Liberia successfully completed its first democratic political transition between different political parties since 1944,
which saw the ascendancy of the Weah-led administration.

It does not currently have a Fund-supported program but continues to be subject to the IDA Non-Concessional Borrowing Policy (NCBP) regardless of the risk of debt distress.According to the IMF, accumulation of external debt has accelerated since 2010 due to scaled-up infrastructure spending and the fiscal response to a series of adverse shocks.

The total public external debt stock was $736 million (25 percent of GDP) at end- FY2017, comprising mostly multilateral loans. The Government of Liberia also has ratified but undisbursed loans amounting to $422 million. Two thirds of the total debt outstanding, $431 million, was disbursed during the last four years (FY2014– 17).

The distribution of external loans is concentrated in infrastructure (excluding energy) and basic services (37 percent), energy (29percent), public administration (including both public finance management and budget support, 24 percent), agriculture (7 percent), and health (4 percent), respectively. World Bank Report

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