Liberia Economic Memorandum September 15, 1975 Western Africa Region Public Disclosure Authorized

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Report No. 873-LBR FILE Liberia Economic Memorandum September 15, 1975 Western Africa Region Public Disclosure Authorized

Not for Public Use Public Disclosure Authorized Public Disclosure Authorized

Document of the International Bank for Reconstruction and Development Public Disclosure Authorized International Development Association

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mnay not otherwise be disclosed without World Bank/IFC authorization. CURR'ENCY EQUIVAIENT

The official monetary unit is the Liberian dollar,,with a par value equal to that of the U.S. dollar. Apart from the Liberian dollar, the U.S. dollar is a legal tender in Liberia. TABLE OF CONTENTS

Page No.

Country Data Map Preface Introduction and Summary i-iii

PART ONE - RECENT ECONOMIC DEVELOPMENTS AND SHORT-TERM PROSPECTS

I. Economic Performance, Policies and Outlook

- Production and Income 1 - Prices and Monetary Developments 4 - Fiscal Performance 7 - Concession Agreements 15 - External Trade, Payments and Creditworthiness 16

II. Sector Problems and Issues

- Agriculture 18 - Manpower and Education 20

PART TWO - A MACRO-ECONOMIC MODEL FOR LIBERIA

I. The Basis for Projections

- Data 22 - The Structure of the Economy - Elements of a Model 22

II. Key Elements of the Projections

- Projections 27

STATISTICAL APPENDIX

- List of Tables 32

Page 1 of 3 Pages

WIuNS! DATA-LIBERIA

ARIA PPiATION MIASITI 111,369 hot r~~~~~~r~~~~n±ce(mid-1972)~~~~Per ksmiof arable land

SOCIALDINDICATORS

Reference Countries Liberia Ghana El Salvador jamaica

GNPPER CAPITA054 (ATLASBASIS) /1. 250 / 300 /a 340 /a 810 I

DEMOGRAPHIC Crudoenir-th rate (parthouoend) . 50 /bc hi/do hh/b f 35 /b Crudethmsand)217St death rata (per 18f2l a7US~ Infant mortality rate (Per thousand live birthce) .. 159/bc * 53 26 Ab Life expectancy at birth (yeare) 37 /I 53 h /d,e 55 69 Drams reproductimn rate /Z. 2.6 /d 3.2 3 h/o 2.5 Population growth raei 2.7 3.1 YE 2.6/h 3:2 7~ 1:6 /b Population groth rote - urban... 57; 47 67 Ag tutr (p.r~csut)

Age dependency ratio A 0.7 _ 1. 1.0 1. 0 Economic dependency, ratio At 1.1 1:2L. l.h i.6 /b 1.7 Urban popdlatiof as percent of total 2 b 23 b 7/ Funily planning, Noaof acceptorso cucilativo (thous.) .. 21bo3 1 9L. 7L No. of unarm (%of married ominon) 2

Tot=lao4ore(00sno)hC~ 580 3,500 /- 1,300 /b 750 / Percentage employed in agriculture 81 72 ss 7; hL7 5 33 Te Percentage unemployed . 20 7/ . 10 13-Oh T. 140gDIST,RIBUTIO Rkr.- , alincome received by highest 5% . 60 . 20 / Percent of national income received by highest 20% . .. 52 7F Percent of national income received bY lowest 20% .. . Z7 Percent of national incomo received by lowost 40% . 13 . 13 77

MISIRIBUTIOROF LANDOWBRBSHIP %,owned by top 10I of owners .... 75 %owne-d by smalleot 10% of owosre .... 6

Pouainfrphysician 12,000 / 10,550 / 12,950 /t 4,030 2,630 Population per nursin Person 4. ,l140t 1,070 7E 960 1,720 / Populaticon per hospital bed 730 530 7-r 760 520 2h0- Per capita calorie supply me %of requirecents / 86 88 92 82 103 Per capita protein supply, itotl (grams Per dayL6 36 36 56 Si 56 Of which, animal and pulse. 10 /v 10 /y 18 29 /v Death rate1-4hyears /7 29L 21 75. 7/b .

EDUCATION 3 6l Adj-usted /8 primory school enrollment ratio j 73 /x 89 90 8 Adjusted 7 osecondary echool enrollment ratio 2 12- 5o80 Tears of schooling provided, firet and secnd level 12 12 1S 12 1 Vo cational enrollment as %of se.. school enrollment 12 5 23 31/o 9 /aa Adult literacy rate % 9 /g.ab 32 /a . s 7;-d 86 77uo.

MOUISING 1 - . ba Average No. of person. per coon (urban) /u ... 25/bo Percent of occupied unito without piped water . 74 /b of Accses to electricity (as %of total Population) .. . 7 35 7b5of Percent of tural population connected to electricity . 7,.

CONSUMPTON LSIS.-eiv-rs par 1000 Population 77 99l 85 ~ 95 /b 376 / Paseengr core par l00 PoPaaion 6 41 0 7 L5 T. Electric poser coneumption (khp.c.) usb /sh 59368'/ 218 0 Newsprint consumption p.c. kg par year 0 .O.h' 3 A 4.15 re Noieo, Figures refer either in the latest periode or to acon fe rnetltmeaue,boy weighte, ana tho lateet yearo. latest peiodo refer in pr~inciple to / distribution by age and sex of national populations. the y-e-r- 1956-60 or 1966-70; the latest yearo in pr.- 6 Protei standards (requi arnnto)ftor all countrioe s e-tab- ciple to 1960 end 1970. linked by USDAEoono,nl Resear,ch Service provide for adeinsn, /1 Tho Per Capita GNP estimate in at market priccs for allowance of 60 groiso of total protein per day, and 20 gramss of yvars oth-r than 1960,calculated by the oune conversion animal and pulse protein, of which 10 grams should be anieal technique as tho 1972 Wond Book Atlos. protein, Tmae standards are somewhat lmowr than those of 75 /2 Average number cf daughters pe womanof repruductive gram of total protein end 23 grams of an~ial protein as en age. average for the -Ird, propose.d by FAOin the Third nibrid Fond fl Population grcwth miens or for the decadee ending in Survy. 1960 and 1970. /7 Bone studies have suggeoted that crude death rates of children A Ratio of population under 15 eand 65 end over to popula.. ages 1 through 4 may be used as a firet approxim.ation index of tiun of ages 15-6k. for age dependency ratio end to labor malnatrition. force- of ages 15-65 for economic dependeny ratio. Li Pereentage enrolled of corresponding population of school age Li PAO reference standards represent physiological. m as defined for eac h ceuntry. qui.rmaeota for noraal activity and health, taking

/o 3972; /b 1971; Ic Estimate based on the population growth sfurvey which commenced in Nay 19693 /d 1965-70; 75e Estimate-; If Registered only; L& 1962; /b 1960-72; /1 Towno with population of 5,000 and over; /j Adminie- trative rectors of municipalities; A5 Kingston metropolitan area and selected main towns; /1 Data are hosed on the results of the population growth surv~ey which co"rer five percent nf the total population; /.-Ratio of population under 15 and 65 and cver to total labor fo rce; /o Localities haviog more than 2,000 inhabitente;_ /o Including workers expelled from Hon,duran; /p BEclodem forefl7y; /q Unemployed and partially employed; In 1V69; /a 196h; /t Nu,nber on the regioter, not all workIng in the country; /u Personnel in guvarnment servicfa only; /- 1964-66; 7w 1966-68; Ix Including pre-prinary education; ft Inclu!eo overage etudente; /m Not inciuding; te... ev training; 77a 1p68; /ab'15 yeare end over; /ac As percent of total school age population; 7ad Definitioc unknown; /ae 1956, city of Wnrc ia only; /af DAta reer to living quarters; /ag Includes police aWothsr govemunent security vehicleo; lab 1961.

* Jamica has been nelected as an objective country mince ito GNPper capita is nealy four tmen that of Liberia; its economic otructure dependo heavily on the mining sector; both countries are encouraging foreign inveotmento; and Liberia o enployment policy objective in to reach the correct level of Jso,mlcalo manpower traioing.

B2 April 29, 1975 Page 2 of 3 Pages

ECONOM3ICINDICATORS

OROSSNATIONAL PROWCT IN 1974 ANNUALRATE OF GROWFd(%. constant prices) US$Mln. % 1964 -69 1969 -73 1973 (1974)

ONP at Market Prices 530.1 100.0 15.4 7.1 2.3 2.0 Gross Domestic Investment 95.9 18.1 1.1 1.2 -9.4 Gross National Saving 1 29.6 9.6 Current Account Balance -33.5 - 6.3 Exports of Goods,NFS 407.2 76.8 11.6 5.2 5.3 Importsof Goods, NIS 316.0 59.6 3.8 0.5 -5.7

OUTPUT,LABOR FORCE AND PRODUCTMIT IN 1974 Value AddedV Labor Force-V FerAeorka us$ Mln. S= I a,S;n ,

Agriculture 83.0 16.0 Industry and Mining 226.9 43.9 Services 206.9 40.1 Unallocated Total/Aver.ge 516.8 100.0 ,, r . 10.0

GOVERNMENTFINANCE .Cnntrnl Government 97- 1973 orUr~17

Current Receipts 108.6 19.3 18.9 Cu-rret Expenditure o3lY 15.0 14.6 Current Surplos 24.9 4.2 4.3 Capital Expenditures 34.6 6.9 6.0 External Asaistanre (met) - 7. -1 .0 -1.3

MONEY.CREDIT wnn PRICES 19'9 1970 1971 1972 TMillion $ outstanding end periodT 1 Money and Qoasi Money32 31.5 42.1 43.9 50.9 59.3 70.0 Bank credit to Public Sector 6.9 7.4 9.9 5.5 1.5 2.4 Bank Credit to Private Sector 29.4 35:3 38.8 40.3 55.2 73.1

(Percentages or Index NuMbers)

Money and QuesiMoney en %of OGD] .. 12.0 11.8 12.5 12.7 12.2 GeneralPrice Index (1963 - 100) Annual percentege changes in: GeneralPrice Index 9.6 0.7 - 0.3 3.9 19.5 19.5 BRnk credit to Public Sector -37.6 7.2 33.8 -44.1, -72.7 3.9 BRnk credit to Private Sector 22.2 20.1 10.0 21-5 14.3 32.14

NOTE, All onversiona to dollars in this table are at the average exchange rate prevailing during the period covered.

V Total labor forre; unemployed are allocated to sector of their normal oocupation. rUnallccated: conmits sainly of unemployed wrkers seeking their first job.

21/ Dic ud and toxr deposits .. not acailable .2/ GDP of ...oL-v .....o y oaly . not applicable Page 3 of 3 pages

TRADE PAYMENTS AND CAPITAL FWWS

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1970-74)

1969 1973 1974 US $ Mln % (Millions US $)

Exports of Goods, NFS 199.5 329.9 407.2 Agriculture 48.1 16.3 Imports of Goods, NFS 122.8 226.7 316.0 of which: Rubber (41-0) (13-9) Resource Gap (deficit 7-).7 10_3.2 272 Iron Ore 190.4 64.5 Logs and Timber 11.1 3.8 Interest Payments (net) -26.7 - 4.7 - 4.3 Diamonds 33.4 11.3 Workers' Remittances -17.5 -20.6 -22.6 Other Factor Payments (net) -30.3 -92.0 -120.0 Net Transfers 13.2 19.6 22.2 All other coamodities 1.O 4.1 Balance on Current Account 15.4 5.5 -33.5 Total 295.0 100,0

Direct Foreign Investment 32.0 49.0 27.5 EXTERNAL DEBT. DECEMBER 31. 1974 Net MLT Borrowing Disbursements 8.3 12.6 13.9 US $ Mln Amortization 8.9 -12.8 z-1.1 Subtotal -0.6 - 0.2 - 1.2 Public Debt, incl. guaranteed 154.8 Capital Grants 1.0 . . Non-Guaranteed Private Debt Other Capital (net) -44.8 - 0.9 - 1.1 Total outstanding & Disbursed 154.8 Other items n.e.i .I. . 1/ Increase in Reserves (+) * . DEBT SERVICE RATIO for 197V

Gross Reserves (end year) Net Reserves (end year) . . Public Debt, incl. guaranteed 5.3 Non-Guaranteed Private Debt Fuel and Related Materials Total outstanding & Disbursed Imports of which: Petroleum 4.6 14.7 56.4 Exports of which: Petroleum IBRD/IDA LENDING. (Hay 31, 1975) (Million US $):

/ ~~~~~~~~~~~~~~~~~~IBRDIDA RATE OF EXCHANGE-22RID Outstanding & Disbursed 29.2 11.0 Undisbursed 7.3 7.6 Outstanding incl. Undisbursed 31.6

1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. j/ The official monetary unit is the Liberian dollar, with a par value equal to that of the U.S. Dollar.

not available

not applicable

JUIY 31, 1975

IBRD 10832R 5'00 R~~~~~~~~~~~~~~OO 70Q5 6000~~~~~~~~~~~~~~~~~~~~~~NOVEMBER 1974 \I000 J LIBERIA

'3GU I N E A -j CONCESSIONS / ~~~~0 J PAJYEK CO MINE_A IRON ORE CONCESSIONS KThPAVED ROADS .1; S / k *7 ( t > O MINEA A POTENTIAL IRON ORE DEVELOPMENT ALL WEATHER ROADS

jrS tVOINJA iA V ' L p1U~t \iw._O RUBBERCONCESSIONS -s-aa-a RAILWAYS * / < t - / / ) \ tSNN1U NATIONALETLC FORESTS REGIONAL BOUNDARIES NIMBA\,r;a!/%_*\it a @..... CONCESSIOS.:FORESTRY - - COUNTY OUNDARIES

r FOYA/RICEPROJECT ANO$THLORMA * OBED RICEPROJECT / a / | * l AW M!LLS | > INTERNATIONAL 30UNDARIES FOYSAMARA A FOR ZORO t B COMIVERS WOLOG@RS- 7ATA CNC 5 000

a ~ REGION No4L~AALIi EACL '2 SOIl-I010 FORE '½ 7Th > OREROFOtOT 0~~~~~LIF'6~"

LOFA LETCO~~~~~~~~~~~~~~~~~~~~O

RE~ ~~ROBANOAE:FOR rI>N SRISLCFOIEST1B\FSLCO T

UAt/onticKOceen OREST \c\ MIRES X

Ebo 'OOL~~~~~AFOREST 7 / I - KAHNWESLCCDIAKE0 .4

W PE EFORId No3SALLARSBELORL ANG \LETCO g z MaXS SNRO d SUAKOKOG°Oo' E 1T0 CCCt~~~~~~~~~~~~~~ \' VEST OLEs. GBAVOLNOLG'S FORESTFS °l ACNO 'RARN-

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...... RANDL..I ) 0 TY~~~~~~~~~~~~~~~~~~Ite/o FOREST OUl ~~~ FOFITO ~~~~~~~~~NOSEOETR OCSIN c1 MIN SERR~~~~At/at/MOeaTMLEOOeaI KAO S'&500 ~O PREFACE

The Bank undertook an in-depth analysis of Liberiats economy in 1973, and its findings are contained in Liberia, Growth with Development, a Basic Fconomic Report in Seven Volumes, (No. 426a-LBR) issued on March 1, 1975. The purpose of this Economic Memorandum, which was prepared after a parallel Bank/IMF mission to Liberia in April 1975, is to update our information on the Liberian economy. No attempt is made to repeat background information or to provide a comprehensive analysis.

Part I of this Memorandum is mainly concerned with economic developments in 1974 and short-term prospects. Part II presents a macroeconomic model and discusses long-term prospects. The memorandum was contributed by Emmerich M. Schebeck (Part I) and Nicholas G. Carter (Part II).

INTRODUCTION AND SIMMARY

i. Liberia's economy still derives most of its growth from the enclave sector. A substantial portion of public sector revenue is generated by the same source. Thus the continued growth of both national income and government revenues depends strongly on the performance of iron ore, rubber and forestry subsectors. The present action-oriented Government is eager to promote the development of the non-enclave economy and impatient with the amount of progress that has been made so far. Yet as is typical in many enclave economies, the problem is not so much the limitation of financial resources as it is the absorptive capacity and the lack of skilled manpower in the public sector.

ii. The 1974 performance of the Liberian economy was mixed. Export demand was particularly buoyant with prices for iron ore and rubber averaging some 40 percent more than in 1973. Exports rose by 25 percent to US$400 million. This was the main factor contributing to an estimated growth of 23 percent in GDP at current prices. On the other hand, import prices also rose sharply. Real output expanded probably only by 2 percent. The enclave economy showed an increase in iron ore production. In the non-enclave economy only the agricultural sector showed impressive growth, thanks to the pursuance of an incentive pricing policy. Unlike the previous years a substantial redistribution of incomes occurred in favor of the rural sector. Wage employees in the urban economy outside the enclave sector suffered from a decline in real disposable income.

iii. The expectation of further increases in import prices contributed to a strong upsurge in imports, which at US$304 million were valued at about 40 percent more than in 1973. The 1974 trade surplus of US$96 million was the second highest on record and more than sufficient to offset a deficit on current invisibles and an outflow of capital. The sharp increase of imports was facilitated by a rise of 33 percent in bank credit to the private sector. Import growth is expected to decelerate as it appears that importers are now less optimistic about the opportunity for profiting from speculation in stocks. In addition, commercial banks are exercising restraint in extending import credit. iv. Favorable export prices and rising import prices were instrumental in raising government revenues by 21 percent in 1974. As a result, and despite a stepped-up rate of spending on capital account, an overall budgetary surplus of US$18 million was realized. This permitted accelerated amortization of domestic debt and an improvement in Treasury liquidity. - ii -

v. The prospects for 1975 are favorable. GDP at current prices should show a further sharp increase, largely because iron ore prices are expected to average some 55 percent more than in 197h. The rise in prices should more than offset an expected reduction in the volume of exports resulting from the phasing out of one iron ore mine and from some stretching out of deliveries to overseas buyers owing to a weakening in world demand since 1974 sales contracts were negotiated. Price developments in the rubber market are, as usual, subject to wide month to month fluctuations, but the recent modest recovery from extremely weak conditions experienced in late 1974 is encouraging. With an anticipated slowing down in the rate of increase of import prices, Liberia should again have a large trade surplus in 1975.

vi. Government spending is likely to show a further increase in 1975, probably by about 10 percent over the budgeted amount of US$117 million. Nevertheless, government finances are unlikely to come under pressure during the year for a number of reasons. As usual, revenues are outstripping original forecasts, Treasury liquidity is ample, and if the Government wishes, it can probably persuade the iron ore concessionaries to distribute a larger share of their profits (of which 50 percent accrue to the Government).

vii. The long-term prospects are also favorable. The worldwide iron ore shortage, combined with the easy accessibility of Liberian ore denosits and Liberia's favorable investment climate has resulted in serious interest being taken in all three of her remaining unexploited ore deposits. The concession agreement for the exploitation of the Wologisi iron ore deposit was recently concluded and the Ministry of Finance expects to finalize the one for Bie by end-1975. Negotiations for the Putu deposit have been deferred for 2-3 years. While the current recession in OECD countries may temporarily delay exploitation, it is very likely that investments of some US$2 billion at current prices (or four times the value of Liberia's 1974 monetized GDP) will take place between 1977 and 1981, resulting in a virtual doubling of annual output in the middle 1980s. Moreover, LAMCO and Bong mines are increasing their investment program in order to fully upgrade their output from lump ore to pellets. LAMCO is investing US$7 million in 1975, whereas Bong has just launched a 2-year investment program of US$120 million for a new pelletizing plant. viii. While the longer-term prospects of Liberia's economy are favorable, it is difficult to visualize that much stimulus to economic activity will occur until investments in the new iron ore mines begin to be implemented from 1977. Meanwhile, given the likelihood of slowly expanding real output, real per capita incomes will probably fall unless a more expansionary fiscal policy is pursued. Thus, the immediate key to development is to derive more revenue from the concessions and to transform it into infrastructure so that a modern economy outside the enclaves can develop and function. - iii -

ix. During 197h, the Government took several important steps to tackle some of the problems it confronted. The most notable ones were: (i) renegotiations of existing concession agreements, (ii) establishment of the National Bank of Liberia as the central monetary authority, and (iii) implementation of a revised structure and level of the import tariff. Undoubtedly, this has been a formidable record of achievements. The per- sistent effort on the part of the Government to deal with problems and issues continues. x. One of the major tasks now facing the Government is that of effectively deploying investment resources in a substantially enlarged public sector investment program aimed at economic diversification. At the end of 1974 the Government began to lay the ground work for a planned program of development, and with technical assistance from IBRD, UNDP, and USAID it is presently engaged in the preparation of its first 4-year Develop- ment Plan which should commence in 1976. xi. There is clear recognition that a much greater effort of resource mobilization will be necessary to finance an ambitious investment program. Because economic activity is generally rudimentary in the non-enclave economy a large part of the additional finance required must be derived from external sources which points at the need for increased foreign assistance. Efforts continue to increase tax and other revenues from the enclave economy. Attention is also being given to means of improving tax administration. xii. There is a clear recognition of the need and the beginning of action for increased efficiency of Government. Efforts are underway to improve the organizational structure of the Ministry of Agriculture and a similar task is contemplated for the Ministry of Finance. The need for civil service reform and for a salary structure competitive with that of the enclave economy is also recognized. A program to provide banking services in rural areas to mobilize and deploy private savings as well as aid resources has been launched. Actions are underway for an organizational and financial overhaul of public corporations so that they can produce more efficiently and contribute toward government revenue and/or the financing of their own expansion.

PART I

RECENT EOONOMIC DEVELOPMENTS AND SHORT-TERM PROSPECTS

I. ECONCMIC PERFORMANCE, POLICIES AND OUTLOOK

Production and Income

1. 1974 Developments. Statistics on output and income are currently undergoing major revision. Revised national account data in current prices is available for the 1970-74 period but only to 1973 in constant prices. The 23 percent recorded growth of current price GDP in the monetized economy in 1974 reflects primarily favorable developments in world market prices for Liberia's major export commodities (iron ore and rubber) and to a lesser extent an expansion of output. Preliminary data suggest that 1974 real gross domestic product may have at best increased by 2 percent which is less than half the country's 1973 growth performance. Considering an 8 percent terms of trade deterioration in 1974 and a population growth estimated at 3 percent, real per capita incomes have probably fallen in the monetized economy.

2. This general picture deludes the fact that the 1974 performance of Liberia's economy was in fact very mixed. In the past, the enclaves (iron ore, rubber and timber) had been the main source of growth, but with only little linkages with the rest of the economy. In 1974, the enclave economy experienced only gro*th in the iron ore sector, where output expanded by about 7 percent and production reached full capacity. Strong world demand drove prices about 33 percent above the 1973 level. 1974 rubber prices were on average nearly 48 percent higher than in 1973, but weakened considerably towards the end of the year. Yet performance of the enclave rubber industry, which accounts for about two-thirds of rubber production, was poor: output declined by more than 4 percent. This was largely caused by overaged trees on the Firestone plantation where in the past, when rubber prices were depressed replanting had been neglected. Timber production fell by nearly 22 percent, and this change in output roughly corresponds with price developments in international markets.

3. With the pursuance of an incentive pricing policy since late 1973 there are signs that the agricultural sector, with its large potential, is about to emerge from a protracted period of lethargic performance. All indications are that non-enclave agricultural growth was impressive in 1974. Rubber production by Liberian farmers rose by nearly 8 percent, reflecting the marked sensitivity to international prices. Other cash crop production (except coffee, which recorded a drop in output of nearly 20 percent due to adverse weather) also showed substantial increases: cocoa 38 percent and palm kernels 31 percent. Gains in world market prices were passed on to producers, which raised average producer prices over 1973 levels by about 30 percent for robusta coffee, 41 percent for cocoa and 50 percent for palm kernels. - 2 -

Table 1: GROSS DOMESTIC PRODUCT BY INDUSTRIAL ORIGIN, 1971-74 Monetary Econory

(a) (in millions of dollars at current prices)

1970 1971 1972 1973 19741-/

Agriculture2/ 40.4 40.2 38.2 62.7 83.0 Of which: Rubber ( 23.0) ('24.0) ( 22.2) ( 37.1) ( 52.4)

Mining 115.7 124.8 142.1 152.7 189.1 Of which: Iron ore (104.7) (113.7) (129.7) (133.8) (177.9)

Manufacturing 15.2 17.1 18.0 22.6 23.6 Construction 16.2 14.4 17.6 15.0 14.2 Transportation & communication 31.8 34.7 36.3 39.3 40.9 Wholesale and retail trade 42.6 45.6 49.4 53.3 70.7 Government services 23.0 27.0 26.7 31.2 41.8 Other services 38.3 38.7 43.9 50.5 53.5

GDP at factor cost 323.1 342.5 372.2 427.3 516.8 Annual rate of change (in %) 6.0 8.7 14.8 20.9

Indirect taxes (net of subsidies) 27.8 29.9 33.6 39.1 57.4

GDP at market prices 350.9 372.4 405.8 466.4 574.2 Annual rate of change (in %) 6.1 9.0 14.9 23.1

(b) (in millions of dollars at 1971 constant prices)

1970 1971 1972 1973

Agriculture1 36.2 40.2 40.4 45.9 Mining 121.2 124.7 130.8 131.5 Manufacturing 15.7 17.1 18.2 20.8 Construction 15.2 14.4 15.0 12.8 Transportation & communications 32.7 34.8 36.5 39.3 Wholesale and retail trade 40.4 45.7 48.5 52.0 Government services 25.2 27.0 24.2 24.5 Other services 38.2 3806 40.8 42.7

Real GDP at factor cost 324.8 342.5 354.4 369.5 Annual rate of change (in %) 5.4 3.5 4.3

Source: Ministry of Planning and Economic Affairs. 1/ Preliminary estimates. 2/ Includes hunting, forestry, and fishing. - 3 -

4. Information on rice is insufficient to permit an accurate assessment of production gains in 1974, when an estimated 125,000 tons of paddy (approximately 75,000 tons of rice) were harvested. Import performance suggests that production may have been substantially larger than in the preceding year, but this is uncertain in view of the probable reduction in demand following a 33 percent rise in consumer prices and a possible substitution of cassava for rice. (The retail pr.ce of cassava is not controlled and increased nearly three-fold in 1974 which appears to refnect rapidly rising demand for this low-priced staple particularly in urban areas). Following rising world market prices for rice, the ceiling price to consumers for a 100 lb. bag of rice was raised from $18 to $24 in 1974, and producer prices were increased from 6 cents to 10 cents per lb. of paddy. (Considering a milling rate of 60 percent, the new producer price for paddy translates into $373 per ton of milled rice which reflects closely the current world market price).

5. Elsewhere in the non-enclave economy the sluggish performance of the past years seems to have persisted. Only in the trade sector a high level of activity was noticeable, spurred by rising consumption expenditures of the private sector and a build-up of stocks. The upsurge in import demand also reflected a significant betterment of incomes in the rural sector.

6. Although development expenditures (domestically and externally financed) increased by over 20 percent, with a similar expansion in the import value of capital goods, investment in real terms does not seem to have risen appreciably, as implied by the low level of construction activity and the sharp rise in the import prices of capital goods.

7. The Basic Economic Report drew attention to the highly skewed income distribution in Liberia (GINI coefficient of 0.63) and the fact that the 70 percent of the population dependent upon the rural economy share less than 25 percent of national income. A significant conclusion emerging from the 1974 developments is that a substantial redistribution of incomes occurred in favor of the agricultural sector, while those dependent upon the rest of the domestic economy suffered a decline in real disposable income.

8. Prospects for 1975 are more favorable than in 1974. Iron ore prices negotiated by the companies for 1975 are on the average 55 percent higher than in 1974. This rise in prices should more than offset an expected reduction of 2 million tons in production resulting from the phasing out of deliveries to overseas buyers owing to a weakening in world demand that has become perceptible since sales contracts were negotiated in late 1974. In rubber, the outlook is not quite as promising although the recent modest recovery of the rubber market from the extremely weak conditions of late 1974 is encouraging. WiGle a continuing recovery of world market prices will tend to stimulate production it should be realised that the development of the rubber industry is constrained by high production costs - sharply affected by a recent increase of minimum agricultural wages - and a continuing shortage of farm labor. Another factor limiting the prospects of the rubber industry is that a sizable portion of the trees owned by Firestone plantation are overaged. With regard to timber, the demand for choice primary species appears to be unabated despite the recession in Europe and the US, but a substantial recovery and resumption of 1972-73 output levels of most other species can probably not be expected in 1975. Output of rice, cocoa, coffee and palm kernels appears to be increasing as indicated by the marketing corporation's purchases during the first few months of 1975. On the investment side indications are that activity is beginning to pick up. For 1975 the Government has provided for an 84 percent increase in development outlays over 1974 levels, which should permit a substantial increase in real investment. In addition, in the case of one mining company, there are plans to complete the installation by 1977 of a second pelletizing plant costing some $120 million at current prices.

Prices and Monetary Develonments

9. Prices. In 1974, increases in the general price level continued unabated from the preceding year and were at an annual rate of some 15 to 20 percent. The first quarter of 1975 shows no indication that the rate of inflation is declining; price increases are running at a monthly average -of 1.5 percent. The acceleration in the general price level in 1974 reflects primarily rising import costs for food and clothing as well as the full impact of the energy crisis and to a lesser extent domestic factors. The key elements of inflation were: an increase in food prices of some 26 percent; a 22 percent price rise for clothing; 30 percent for fuel and light; 40 percent for transportation of goods and people. The Government attempted to moderate domestic price increases through the introduction of a system of price controls but this has not been successful. Although price control regulations are still in effect, their usefulness is largely limited to cases involving blatant profiteering. In the case of oil, the Government has permitted the full cost of the increase in crude oil prices to be reflected in domestic prices.

10. Monetar developments. Despite the establishment in August 1974 of a central bank, the National Bank of Liberia, the scope for an active monetary policy continues to be limited. This is, of course, also hampered by the present currency arrangements with the US dollar serving as the predominant medium of exchange. Moreover, given the insufficient resources of the National Bank, its ability to control the supply of credit in the capacity of lender of last resort is severely restricted. Thus at present, the central bank's role vis-a-vis the banking community consists mainly of supervisory and advisory functions and the setting of reserve requirements on commercial bank deposit liabilities. The 33 percent increase in credit to the private sector in 1974 was entirely the result of commercial bank activities and not of policies consciously pursued by the National Bank. 11. Because of the peculiarities of Liberia's monetary system, the officially recorded monetary data reflect neither the total supply of resources generated by the econc'y nor the total demand for credit. With the free transfer of funds between Liberian banks (mostly branches of US banks) and their headquarter offices abroad, substantial amounts of domestically generated funds are kept outside the country, and most financing requirements of the concession sector and larger domestic enterprises are either met by drawings from these deposits or by direct borrowings in the US or European capital markets. Therefore, domestic operations of the commercial banks reflect only financial transactions with the Government and part of the private sector. While under these circumstances the pursuance of an active monetary policy becomes a difficult task for the Liberian authorities, the link to the US dollar and the free access to international capital markets also have great advantages.

12. Excluding the foreign financed credit expansion for which only incomplete information is available, credit to the economy increased by 33 percent in 1974, reflecting a marked improvement in the goverment's position with the banking system, due mainly to the buoyancy of government revenues. Of the record increase of nearly $18 million domestic credit expansion to the private sector (as against $6.9 million in 1973), over 55 percent was directed to.commerce mainly to finance the sharp increase in imports. Indications are that some imports may have been motivated by speculative inventory accumulation fostered by inflationary expectations. Since the beginning of 1975 the demand for import credit has diminished significantly. Apparently, fear of an economic downturn has motivated traders to reduce existing stocks.

13. The sharp credit expansion in 1974 resulted in a marked change in the structure of commercial bank assets and liabilities (see Table 2). In the two preceding years, the increase in private sector deposits - exceeded by far credit demand which led to an outflow of $9.5 million to commercialba nk's headquarters in the United States. In 1974 domestically generated resources proved to be insufficient to satisfy the credit requirements of the economy, and the commercial banks had to meet the short- fall by net foreign borrowing.

14. A slowdown in the mobilization of domestic resources from the private sector which started in the first quarter of 1975 is partly a reflection of the inflationary conditions which probably reduced the willingness of the public to hold cash balances as deposits. Moreover, interest rates on bank deposits in Liberia are low relative to those offered in the US and Europe, and commercial banks freely arrange the transfer of funds to their headquarter banks. A substantial amount of resources from the commercial sector and sophisticated large depositors was probably placed directly abroad rather than in Liberia. Of course, the easy access by commercial banks to the Euro-Dollar and the US market to supplement their domestic resources reduces their need to actively seek private savings in Liberia and to offer attractive interest rates. Table 2: COMMERCIAL BANKS' SUPPLY AND USE OF LOANABLE FUNDS, 1971-74

1971 1972 1973 1974

(In millions of dollars)

Changes in deposits of the private sector 2.36 6.47 9.62 10.71 Demand deposits (-0.87) (2.18) (6.22) (9.16) Time and savings deposits (3.23) (4.29) (3.40) (1.55)

Changes in-capital accounts -0.80 -0.01 3.59 0.04

Changes in net foreign assets (increase -) 2.28 -2.61 -6.88 5.27

Changes in domestic reserves 0.13 0.71 0.46 1.08

Changes in domestic credit 6.66 2.85 4.12 18.82 Claims on Government (net) (3.31) (-5.19) (-2.82) (0.95) Claims on private sector (3.35) (8.04) (6.94) (17.87)

Changes in other domestic assets (net) -2.95 0.29 1.75 -3.88

(In per cent)

Changes in deposits of the private sector 5.6 14.6 18.9 18.1

Changes in domestic credit 15.1 5.6 7.7 33.2 Claims on Government (net) (44.9) (-48.6) (-51.4) (64.6) Claims on private sector (9.1) (20.0) (14.4) (32.4)

(In per cent of GDP)

Deposits of the private sectorly 11.1 11.5 12.9 11.9%V

Domestic creditl/ 11.1 11.4 12.4 12.0i/

1/ Annual average of quarterly figures. 2/ Calculated on the basis of a preliminary estimate of 1974 GNP. -7-

15. As long as the determination of interest rates remains the domain of comercial banks and not of the central bank, it would be unreasonable to expect an interest rate policy which would be an effective instrument for the mobilization and/or allocation of resources. The National Bank is clearly recognizing this problem. As a first step in the direction of eventually pursuing an active interest rake policy, the National Bank raised the maximum usuary rate from 10 to 25 percent in March 1975 and that way separated the usuary rate from the commercial banks' interest rate structure. It is hoped that the upward revision of the interest rate ceiling will encourage commercial banks to extend more credit to enterprises owned by Liberians. Their access to commercial bank credit had been limited since the previous 10 percent interest ceiling was not considered sufficient by banks to cover the cost of money and the risk element. To achieve the desired change in commercial bank lending operations it mEy in addition be necessary to issue some Government directives. Consideration is also given by the National Bank to formulate an interest rate policy for time and demand deposits. Undoubtedly there is a clear need for such a policy. But it is questIonable whether its objectives can be achieved unless minimum rates are fixed at or above the rates prevailing in Europe and the United States. 16. The need for agricultural credit and banking services in the rural areas has been discussed in detail in the Basic Economic Report. In conjunction with an IDA and USAID assisted agricultural development project in Lofa County, plans are now well undertay to create a revolving fund for agricultural credit, to be governed by a trust deed agreement and administered by the Liberian Bank for Development and Investment (LBDI) on behalf of the Government. LBDI will open a branch in Lofa County in 1976. As commercial banks continue to show little inclination to expand their operations into the rural areas, the Lofa operation of LBDI will be a significant step towards increasing the process of monetization in rural Liberia.

Fiscal Performance

17. 1914 Develo2ments. Favorable export prices and rising import prices were instrumental for the 21 percent increase in government revenues over 1973. As a result, and despite a stepped-up rate of government spending a budgetary surplus of $23 million was realized which permitted a substantial reduction in short-term liabilities with commercial banks and an improvement in Treasury liquidity. 18. Government revenues averaged between 18 to 19 percent of GDP in the 1969-74 period and this is relatively high compared to other developing countries with similar per capita incomes and a good performance considering the large subsistence sector. However, the tax base related to the domestic economy other than the concession sector, rubber industry and trade sector is quite small as a large proportion of the population still remains outside the monetized economy. There also remains room for improvement in tax administration and tax collection. Table 3: GOVERNMENT REVENUE-/, 1972-75 (in million of Liberian dollars)

Budget Actuals Estimates 1972 1973 1974 1975

Taxes on income and profits 28.1 32.1 42.2 41.3 Companies and partnerships 5.4 7.8 13.6 11.3 Iron ore profit sharing 13.6 14.0 13.9 15.5 Individuals 2.3 3.0 4.8 5.0 Austerity tax 4.3 4.7 5.7 5.7 Realty lease tax 0.6 0.7 0.7 0.8 Withholding tax on nonresidents 2.0 2.0 3.5 3.0

Taxes on property 0.8 0.7 0.9 0.9 Real estate tax 0.8 0.7 0.9 0.9

Taxes on goods and services 15.4 20.9 21.8 22.2 Excise taxes 4.3 5.2 4.8 5.5 Stumpage tax 0.8 2.2 2.6 ... Business and professional license 2.2 3.3 3.0 3.3 Maritime revenue2/ 7.2 8.6 9.9 12.1 Motor vehicle tax 0.8 1.4 1.4 1.3 Other 0.1 0.1 0.2 ...

Taxes on international trade and transactions 23.4 24.8 33.0 35.5 Import duties 20.8 20.8 27.4 30.0 Consular fees 1.7 2.3 4.3 4.6 Export duties 0.9 1.8 1.3 0.9-

Other taxes 2.4 2.4 2.3 2.0 Hut and development tax 1.0 1.7 1.8 2.0 Education levy 1.1 0.4 -- -- Stamp fees 0.2 0.3 0.5 ... Total Tax Revenue 70.1 80.9 100.2 101.9

Nontax revenue 8.0 9.0 8.4 11.1 Interests, rents and other property income 1.0 2.8 3.0 )4/ Administrative fees and fines 0.8 1.2 1.3 ) 11.1 - Sales of capital assets 2.2 0.2 0.2 ) Other 5/ 4.0 4.8 3.9 ) Total-- 78.1 89.9 108.6 113.0

Sources: Ministry of Finance, Statements of Estimated Revenues and Actual Revenue Collected; Bureau of the Budget, The Budget of the Government of Liberia for the Fiscal Period January 1, to December 31. 1975.

1/ Adjustments were made to the original figures in the Statements to exclude financing items. 2/ Initial and annual fees on vessels registered under the Liberian flag. 3/ Export duties on rubber (rubber sales tax) for 1975 are included in income tax on companies and partnerships. 4/ Tncludes stumpage tax, stamp fees, and other miscellaneous taxes. 5/ Details may not add to the total due to rounding. -9-

19. The buoyancy of revenues from charges on imports in 197h reveals not only the higher level of imports (40 percent increase over 1973) but also a change in the composition of imports (toward intermediate and consumer goods) as well as the impact of the 1974 tariff reform. This reform, which wras designed to rationalize the ad valorem rate structure eliminated previous inconsistencies between protection and revenue aspects and accentuated the emphasis on development. It brought a substantial upward revision of duties on luxury items and consumer goods (average 40 percent) while reducing duties on rew materials and capital goods (average about 5 percent). Corporate and individual income tax revenues grew by about 75 percent. In contrast, receipts from iron ore profit sharing stagnated despite a 33 percent increase in unit values. Although part of the price increase was offset by a sharp rise in operating costs (particularly fuel) and the gradual phasing out of IMC's operations a large portion of net profits was as a matter of policy, retained in the companies and allocated to reserves.

20. The contribution of the 12 public corporations to government revenue in terms of income tax and profit distribution is minimal at present. Only six corporations are profitable and only one, Liberian Produce Marketing Corporation, contributes to government revenue. This is a matter of concern to the Government, and in 1974 the Comptroller General's Office for Public Corporations was established to achieve a more effective control over these enterprises. The weak overall performance of this sector is largely attribut- able to the lack of proper management; substantial amounts of funds were spent without much justification, investment planning is badly organized and little attention has been paid to the feasibility of investments. Attempts are made to remedy these problems and a task force has been set up to review the operations of these corporations. Recently, major recruiting of international staff was started in order to upgrade the management of these corporations. This effort should ensure that public enterprises will eventually show an adequate return on capital and contribution to public savings.

21. Total budgetary expenditures increased by 20 percent in 1974. The original 1974 budget provided for only a small growth in current expenditures so as to permit nearly a 10 percent increase in development expenditures. The sharp rise in government expenditures arose principally because of two factors: First, there was unrealistic budgeting. Little allowance had been made for the sharp increase in import inflation. Second, unavoidable outlays occurred to meet the financial requirements of new public enterprises. As a consequence, current expenditure increased by 20 percent over 1973 actuals and budgetary development expenditures by 15 percent. The experience gathered so far has been useful in identifying some of these problems which should assist in preparing a more meaningful expenditure estimate for 1976. Moreover, the Ministry of Finance, in an attempt to bring expenditures under control, is taking active steps to deal with the problem of budgetary transfers. The success of this control procedure should ultimately ensure that funds are only directed to approved and well-conceived projects. - 10 -

22. Like in recent years budgetary development expenditures accounted for a small portion (17 percent) of total expenditures and were largely concentrated in agriculture, transport and housing, which together aceounted for about 60 percent of the total. The level of foreign-financed development expenditures, including both extra-budgetary project finance and grants provided in form of technical assistance remained relatively stable compared to 1973. A meaningful analysis of government expenditure policy-is., however, not possible because no functional breakdown of foreign-finanoed development expenditures is available, while the existing breakdown between recurrent and development expenditures is still in many respects very arbitrary.

23. The 1975 Budget and ProsDeets. The original budget for 1975 projects a 4 percent revenue increase over 1974 and a 12 percent expansion in total expenditures, leaving a surplus of $17 million. Current expectations are that it will prove to be difficult, if not impossible, to contain expenditures within the budget appropriation. Government spending is likely to exceed the budgeted amount by about $10 million, and the increase over the preceding year may turn out to be in the neighborhood of 24 percent. Nevertheless, goverrment finances are unlikely to come under severe pressure during the year. As usual, revenues are outstripping original forecasts (more than $3 million in the first quarter), Treasury liquidity is ample, some foreign credit lines are available, and if the Government wishes, it can probably persuade the iron ore concessionaires to distribute a larger share of their profits.

24. In 1975, higher revenues are expected from iron ore profit sharing as a result of new contract prices, which boosted iron ore prices on average by 55 percent over their 1974 level. Furthermore, new concession agreements were concluded between the Government and the two major iron ore companies in 1974 which should yield additional revenues of over $2 million. Yet despite these factors, the budget shows revenue receipts from the iron ore concessionaires to increase by less than $2 million. The reason for this is attributed to a larger than normal allocation of the companies' profits to reserves to meet requirements for future investments. Corporate income taxes, which contributed significantly to the favorable revenue performance in 1974, are estimated to decline sharply as a result of the weak market for rubber. Taxes on international trade are expected to fall short of the original pro- Jections, mainly as a result of reduced imports following the large build-up of stocks during 1974.

25. The budgeted growth in total government outlays is entirely attri- butable to an 84 percent increase in allocation for development expenditures. Current expenditures are budgeted some $1 million below the actual for 1974 in spite of a 12.5 percent salary increase for government employees and a 7.5 percent increase in fuel cost. Given the current rate of price increases, the appropriation for current expenditures constitutes a substantial under- provision for purchases of goods and services as indicated in Table 5 below. Table 4: GOVERNMENT FINANCE, 1972-75 (in million of Liberian dollars)

Budgetary Actual Estimates 1972 1973 1974 1975

I Revenues 78.1 89.9 108.6 113.0 Tax revenues 70.1 80.9 100.2 101.9 Non-tax revenues 8.0 9.0 8.4 11.1 II Budgetary expenditure 57.9 71.5 85.6 96.2 Current expenditures 50.3 59.1 71.3 69.8 Development expenditures 7.6 12.4 14.3 26.3 III Budgetary surplus (I-II) 20.2 18.4 23.0 16.8 IV Grants 11.3 11.0 12.3 14.5 V Extrabudgetary expenditures 14.7 20.1 20.3 24.0 VI Overall surplus (III+IV-V) 16.8 9.3 15.0 7.3 VII Financing (a) Domestic financing - 9.6 - 4.3 - 7.2 0.3 Changes in cash2/ - 3.7 - 1.1 - 5.1 4.0 Domestic debt - 4.3 - 2.2 - 2.3 - 5.3 Borrowing ( 0.5) ( 1.9) ( 3.0) ( 1.0) Amortization (- 4.8) (- 4.1) (- 5.3) (- 5.3) Other 3/ - 1.5 - 1.1 0.2 -

(b) Foreign financing - 7.2 - 5.0 - 7.8 7.0 Changes in foreign_assets - - - Foreign debt - 6.9 - 3.8 - 6.6 -13.3 Borrowing ( 4.2) ( 7.3) ( 8.4) ( 8,5) Amortization (-11.1) (-11.1) (-15.0) (-13.3) Use of Fund resources (net) - 0.3 - 1.2 - 1.2 - 0.5 Total financing -16.8 - 9.3 -15.0 - 7.3

Sources: Liberian authorities and mission adjustments.

1/ (-) indicates increase in assets or decrease in liabilities. 21 Data from Treasury cash accounts. Due to floating does not coincide with monetary data. Includes time deposits and overdraft. 3/ Includes errors and omissions. 4/ Inctease in foreign deposits due to contributions to sinking fund. - 12 -

Whereas the costs for these purchases amounted to about $35 million in 1974, only $28 million is appropriated in the 1975 budget. Should the Government intend to maintain the real value of these purchases in 1975, at a time when price increases of 15 to 20 percent can be anticipated, the actual outlays for 1975 could exceed the budgetary appropriations by about $13 million.

Table 5: BUDGET E1PNDITURZS BY FUNCTION. 1974 AND 1975 (in $ million)

Budgetary Actual Estimates 1974 197-5

Total Budget (including debt amortization) 109.4 117.0

Less: Development Funding 14.3 26.3 Debt Service (am6rtization and interest) 26.4 23.2 Salaries 32.9 37.0 Fuel Costs 1.0 2.0

Purchases of Goods and Services 3h.8 28.5

26. The sharp increase in development expenditures from $14.3 million in 1974 to $26.3 million in 1975 reflects to a large extent outlays for the construction of a conference center ($4 million) and the local contribution to the Taiwan-financed sugar refinery ($3 million). Expenditures for education and road transport which have been stagnant at around $1.5-2 million in the past years are expected to more than double.

27. Development expenditures by bilateral and multilateral aid agencies either in form of loans or grants are recorded outside the budget. In 1972 these foreign resources financed 65 percent of total dev_lopment expenditures (budgetary plus foreign-financed) but in recent years domestic financing of development expenditures rose sharply and is anticipated to reach 52 percent in 1975. - 13 -

Table 6: DhVEIwpmENT EPENDITURES (DOMESTIC AND FOREIGN FINANCE) (in $ million)

1/ 1 1/

Budgetary Development Expenditures 7.6 12.4 1h.3 26.3 Foreign-Financed Development Expenditures 14.7 20.1 20.3 24.0

Total Development gxpenditures 22.3 32.5 34.6 50.3

Share of Domestic-financed development expenditures (in %) 34 38 41 52

j/ Actuals g/ Anticipated

28. As revenues are more buoyant than had been anticipated when the budget was prepared the 1975 budgetary surplus could be of approximately the same order of magnitude as the $23 million surplus attained in 1974. This surplus will be fully utilized to meet an anticipated debt service of $23 million. An important question is whether the continuation of the passive fiscal policy of the past is appropriate at a time when growth in the non- enclave economy outside of agriculture has more or less come to a halt while it will be several years before significant new mining investment will begin to stimulate economic activity in other sectors.

29. Unlike many other developing countries, an expansionary fiscal policy in Liberia would not necessarily be constrained by a shortage of resources. Treasury liquidity is ample and given the projected sharp reduction in public debt amortization after 1977, the Government is in a position to adopt more expansionary expenditure policies through a reduction in cash balances or thrQugh an inerease in foreign borrowing. Beyond this, revenues from the mining concessions could be increased. The projected low revenue take from these concessions in 1975-i8 largely the result of a policy decision of the main iron concessionaires -- with concurrence of the Govern- ment - to allocate the greater pirt of the anticipated inerease in profits to reserves. While one can understand the reason for this (some of the companies are planning for an expansion of their operations in Liberia) it does not necessarily follow that what is appropriate for the companies at a given tiuqe is appropriate for the national economy at the same time. It could easily lead to a situation of declining government revenues (in real terms) at a time of rising-exports and rapidly growing resource requirements for the development of non-enclave sectors. A complicating factor is that the Government would like to find alternative employment opportunities for the 2,500 to 3,000 workers (2.5 to 3 percent of total wage employme-nt) who will be laid off in 1975 because of the phasing out of INC's mine. - 1' -

30. There appears to be an overriding need to promote non-enclave development and to protect real income against a severe setback until the ne-e?ining investments materialize. Fiscal policy can assist in this objective through increased government spending and through the creation of conditions conducive to higher spending by the private sector. Expenditure policy elements that would probably be most effective in stimulating non- enclave development include foremost attractive producer prices, the establishment of a rubber floor price, and public works programs in areas of road and public building maintenance.

Fiscal Management

31. The rapid expansion of the public sector in recent years combined with the advent of Liberia's first Four-Year Development Plan in 1976 and the increasing efforts toward decentralization brings the shortcomings of fiscal management increasingly into focus. As discussed in detail in the Basic Economic Report, management problems are not confined to the fiscal sector; they affect nearly every economic activity and are certainly more prominent in other public agencies than the Ministry of Finance. Although much progress has been made in areas such as concession policy, tariff reform and tax administration, there remains considerable scope for improvement in expenditure control, resource planning and budgeting.

32. Expenditure Control is more or less limited to restricting total outlays within the limits of conservative revenue estimates. Occasionally, this causes excessive restrictions on routine expenditures, notably for materials and supplies.

33. Resource PlanEiM. A major defect of the existing development funding is the absence of an effective coordination of external aid programs (the Ministry of Planning is officially in charge of it but not yet performing this task effectively). The Government has only a rough estimate of likely commitments and disbursements of external aid and grants during the- course of the fiscal year. As a result, the budget commitments of counterpart funds fcr utilizing external assistance are little more than crude guesstimates and so are budgetary development appropriations. 'vith rising external assistance programs, particularly from bilateral donors, the need for effective aid coordination is increasing.

34. BudeLetinZ Process. In recent years some substantial improvements in the budgeting were made with the assistance of the IMF. Yet the preparation of the budget still constitutes a major problem. This is accentuated by the fact that three agencies (Ministry of Finance, Ministry of Planning and Bureau of the Ebdget) have to participate in the preparation of the budget. In principle, the institutional instrument of collaboration is the Budget Cormmittee which used to conduct budget hearings on the basis of appropriation requests. These tended to ignore financial and human resources constraints. In the past two years the budgeting process was reoriented toward the fixing of asency ceilings on the basis of the revenue forecasts, but the principal weakness remains: lack of priority setting, by the various agencies and ministries. - 15 -

35. Much of the necessary improvement in budgeting is hampered by the lack of skilled Liberian staff. Liberia has relied heavily on foreign technical assistance, yet the infusion of outside assistance can only provide the necessary long-term impact if full-time counterparts are attached to foreign personnel in order to benefit from on-the-job training on a systematic basis.

36. The lack of an adequate system of post auditing of project implementation by the various ministries is hampering control of work progress and development budget preparation. Procedures need to be established for adequate and timely progress reporting of ongoing projects to ensure adequate project funding and to take expeditious action should bottlenecks occur.

Concession Agreements

37. Essential to Liberia's development are the resources it can derive from the iron ore, rubber and timber concessions. The importance of the enclave sector and the need to protect Liberia's equity led the Government to establish in 1972 a Concession Secretariat (with UNDP technical assistance) for the administration of concession agreements. As a result of this effort model concession agreements for iron ore and timber, laying out government's objectives and guidelines, were established which formed the basis for the round of renegotiations which began in 1973. The accomplishments so far have been remarkable: in 1974, three renegotiations of iron ore agreements have been completed and renegotiations with Firestone were initiated. In May 1975 the stumpage fee, although under the forest law but nevertheless impinging strongly on forest concessions, was raised substantially.

38. Iron Ore Concession. Renegotiations of LA4CO and Bong's concession agreements focused primarily on increasing Liberia's share of value added from a more or less given production. The outcome was an additional $2 million annual yield from LAMCO and about $350,000 from Bong. Most of the additional revenue is derived from taxation on non-resident dividend income and management fees, higher surface rentals, imposition of duties and consular fees on some imports which previously had been duty exempt, and a-change in the minimum royalty from 25 cent per ton to 3 and 4 percent of the sales value. In addition, in the case of LAMCO, $53 million warth of debt owed to foreign partners was reclassified as preferred stock half the dividends of which will accrue to the Government. This conversion reduced the previously excessive debt structure which has a significant bearing on the calculation of profits. The new agreement also provides for a 7:2 limitation of the debt equity ratio of LAMCO and a continuous joint review by LAMCO management and the Government of profit appropriations.

39. Serious interest is being expressed by foreign groups in the development of three new iron ore deposits: Iblogisi (estimated reserves: 1 billion tons); Bie Mountain (indicated reserves: 700 million tons); and PPutu (3h0 million tons). The concession agreement for Wologisi was completed in the first half of 1975, and the Ministry of Finance expects to finalize the one for Bie by end-1975. Negotiations for the Putu deposit have been deferred for 2-3 years. The most significant departure from the existing iron ore concession agreements is the Government's position not to hold equity in the new companies, but to ensure an equitable return to Liberia solely through tax measures. - 16 -

40. Firestone Concession. After nearly 16 months of talks the renegotiations round between Firestone and the Government has come to an impasse. The boom in prices in 1973/74 was completely missed, and now the concession has relatively less to offer. The basic issues involved are: (i) the elimination of ambiguities in the determination of taxable income which arise out of Firestone's accounting methods; (ii) taxation of non-resident dividend income; (iii) curtailment of blanket duty exemptions; (iv) production of high quality rubber to meet internationally recognized grades; and (v) purchase of Liberian farm rubber at an equitable price.

41. Forest Agreements. Prior to 1973, the Goverment received a $3 stumpage fee per cubic meter of export logs. Thereafter, this fee was raised to an average of $10 but still remained substantially below the Ivory Coast's average stumpage fee of $27, whose pattern of log exports is similar to that of Liberia. The Government, in recognizing the need to protect primary species from too rapid exploitation and to encourage local processing of these species, introduced a further upward revision of stumpage fees in May 1975, raising the average fee to $19 per cubic meterl/. The most significant adjustments apply to the valuable veneer species whose export value could rise nearly five-fold if converted in Liberia. Because of slow exploitation of secondary timber species their stumpage fee has been kept deliberately low as an incentive. The Government also raised the export duty on processed forest products from 3 percent of the f.o.b. market value to a range of 5 to 15 percent. This duty is now relatively high and could easily create a negative incentive for the processing of many secondary species. A fundamental problem confronting the Government relates to the enforcement of these fees which is severely hampered by various practices of forest companies and an inadequately staffed and underpaid forestry service. External Trade. Payments and Creditworthiness 42. Export Performance and ProsPects. The rapid growth of exports in 1973 continued in 1974, when total export earnings rose by almost 24 percent to $400 million or about 70 percent of GDP. All of the 1974 growth was due %othe very rapid increase in international commodity prices. Three-quarters of the increase was due to iron ore price changes alone. For 1975, total earnings are expected to rise at a slower rate than in 1974. While iron ore prices are expected to average some 55 percent more than in 1974, some reduction in the volume of ore exports is likely as a result of the phasing out of IMC, and a possible stretching out of deliveries to overseas buyers owing to a slowdown in economic activities in the OECD countries. In the case of rubber exports there is no indication that production will expand for reasons explained in paragraph 8 above. 43. Imports. "Xe 1974 import level of $304 million Was about 40 percent above the preceding year as the economy was feeling the full brunt of The energy crisis. The higher oil bill ($56 million compared to $14.7 million in 1973), accounted for nearly half of the total increase in imports. Durable consumer good imports increased by 35 percent (minus 2 percent in 1973) and food imports by 30 percent (16 percent in 1973). The latter increase was in large part due to steeply higher rice prices; the volume of rice imports was actually down.

j The stumpage fee is actually calculated as a percentage of the f.o.b. market price per cubic meter. - 17 -

44. Indications are that some of the factors which contributed to the sharp increase in imports in 1974 may have subsided. In particular, importers are now less sanguine about the opportunity of profiting from speculations in stocks, and the banks are exercising increased restraint in extending import credit. Barring a further large increase in oil prices, the import bill for 1975 is expected to increase by only 5 percent. A continued large trade surplus is probable.

45. Balance of Paents. Balance of payments analysis is at best tenuous, because Merla uses uS dollars as the medium of exchange and because of the absence of information on investment income, private direct investment and private capital movements. The 1974 trade surplus of $96 million (about 24 percent of export earnings) while still less than the $106 million in 1973, was the second highest on record. Indications are that this surplus was more than sufficient to offset a deficit on current invisibles and an outflow of capital. The realization of an overall balance of payments surplus appears to be supported by indications that the 1974 deficit on account of non-factor services was substantially less than in 1973. Net foreign assets of the banking system rose by about $3 million.

46. Creditworthiness. The Government has recently completed a comprehensive debt audit. bcternal public debt outstanding and disbursed was estimated at $155 million at the end of 1974. Following large debt repayments in preceding years, the debt service ratio fell to 5.3 percent in 1974, from 7.1 percent in 1972. The ratio is projected to fall further in the next few years as final portions of heavy debt incurred in the early 1960s are paid off. The Government has contracted new debt in recent years and most of it at concessionary terms. Even with an expanded public borrowing program and assuming adverse external conditions, Liberia's debt service ratio is estimated to stay below 5 percent of export earnings through the remainder of the 1970s. - 18 -

II. SECTOR PROBIEMS AND ISSUES

Agriculture

47. The focus continues to be on increasing rice production and exports of tree crops. Since the Basic Economic Mission visited Liberia two years ago the most important elements of policy progress were:

(i) introduction of an active farm pricing policy, which improved incentives to producers

(ii) initiation of negotiations on a rubber pricing policy with Firestone in conjunction with the ongoing renegotiation of the concession agreement;

(iii) entrusting the Liberian Produce Marketing Corporation with the distribution of fertilizer, seeds and planting material. While the-distribution system is still limited in the areas covered, it ensures for the first time an organized and timely marketing of farm inputs;

(iv) with external assistance the establishment of an agricultural credit facility is presently underway. Although initially confined to Lofa County, it is anticipated that credit operations can be expanded in about 2 years to Bong County, which would then cover the two most productive agricultural areas in Liberia; and

(v) the establishment of the first Liberian-owned rubber processing plant (600 tons capacity per month) to be followed by two similar plants in 1976. In this way the Government hopes to break the oligopolistic pricing practices presently pursued by the major foreign-owned rubber concessions.

48. The Government is placing increasing emphasis on the need for agricultural development. In 1972, public expenditure for agriculture amounted to $2.5 million, or only 4 percent of the total budget. For 1975, $9.5 million, or about 10 percent of the total budget has been appropriated. Outside the regular budget, external assistance will fund over $1.5 million of agricultural projects and a special Development Fund (financed out of LPMC's profits) will provide an additional $1 million, largely for the development of export crops. The need for a strong institutional framework to support a concerted agricultural development effort has also been recognized. The Government has assigned responsibility for specific rural development tasks to particular ministries, while at the same time, attempting to strengthen those agencies that require overhaul. For instance, steps are being taken to improve the organizational structure of the Ministry of Agriculture to make it more - 19 - attuned to its expanding development task. A planning division has been established and is actively engaging in project appraisal work. The Ministry of Public Works (with the assistance of external donors) is contributing to agricultural development policies by constructing new trunk and crop extraction roads, and by upgrading existing roads. Programs for improving rural health and educational facilities are underway.

49. A remaining fundamental problem relates to Liberia's future development strategy for agriculture. The basic issue is the relative importance to be attached to rural development versus large-scale plantation development. This issue has a significant bearing on the speed at which Liberia's predominantly subsistence agriculture can be integrated into the monetized economy and on whether the extremely large income disparities between rural and modern sectors can be reduced in the fore- seeable future. The present development strategy aims at the simultaneous promotion of large government owned plantations (for coffee, cocoa, oil palm and rice) serving as nucleus estates for outgrowers and at smallholder rural development for food crops. While this dualistic approach definitely has merits in Liberia, indications are that the Ministry of Agriculture's principal interest is in plantation development and that relatively little faith is placed in traditional agricuture to boost export production and to achieve food self-sufficiency.

50. Although the Government has in the past been slow in promoting agricultural investment, efforts are now underway for large-scale investment programs. In the field of rural development a proposed I3A and USAID assisted project will promote smallholder agriculture in Upper Lofa County; it is anticipated that a similar project for Bong County will foUow. These two counties possess the best agricultural potential and are also the most densely populated. 51. The Ministry of Agriculture has also commissioned a feasibility study for a 60,000 acre plantation for oil palm (22,000 acre government plantation and 32,000 acre outgrowers) to be spread over the sparsely populated counties of Grand Gedeh, Sino and Maryland. Studies are also underway for a 10,000 acre coffee and cocoa plantation. Rough estimates indicate a price tag of $60 million for these plantations, and the Government hopes to attract external assistance for this development. Recently the Ministry embarked on a 3,000 acre irrigated and fully mechanized rice project, which will be operated by a newly formed government corporation on a commercial basis and mmaged by technical assistance from Taiwan. The next project in the pipeline is a similar 10,000 acre rice project. Given the high costs of $1,500 per acre for mechanical land development of fully irrigated rice (sharply in contrast to the $160 cost by using labor intensive technology) the overall cost of these rice projects is excessively high. At the existing paddy price of 10 cents per lb., fully mechanized large- scale rice development has not been profitable and the intention is, therefore, to raise the producer price to 15 cents per lb. Since the existing producer price reflects closely the current world market price (see para. 4), it is questionable whether this would be the right decision. - 20 -

52. Large-scale plantation development certainly has merits in Liberia since land is generally plentiful and outside towns labor is scarce. Moreover, plantation development would be one step towards diversifying the economy to adjust to a declining minerals sector within the next few decades. An important policy question is whether the Government should undertake plantation development on its own, leave it to the private sector, or engage in joint ventures with private firms. For plantations which are government owned, expatriatemanagement should be considered because of the scarcity of trained Liberian managers.

53. It is contemplated that under the new organization of the Ministry of Agriculture all agricultural development projects will be organized in the form of corporations - public corporations for plantation development and development authorities for rural development. The Ministry will act as a holding company for these entities and otherwise concern itself with overall sector planning and policy formulation. Specialized staff will be taken out of the Ministry and placed with the various corporations and authorities in order to deal directly with project implementation.

Manpower and Education

54. The major constraint on Liberia's development is the shortage of skilled manpower in every field of economic activity. The large presence of expatriates in both enclave and non-enclave sectors has partially helped to overcome the manpower constraint but it also has suppressed the demand for Liberian personnel trained in technical and vocational schools. The continuing policy of Liberianization will change this picture. Moreover, during the next decade, it is anticipated that the enclave economy, particularly the iron ore concessilns and, increasingly, the forest and forest products industries will be characterized by rapidly increasing demand for workers with at least basic industrial training. Also, it is anticipated that employers will wish to upgrade the existing induastrial work force and as a consequence, create a significant demand for training facilities.

55. The manpower available to the public sector is of particular concern. The ability of the Government to staff its institutions with Liberians is frustrated by the lack of qualified Liberians. As a consequence the Government is expected to have a continuing need for technical assistance to manage the public affairs of a growing economy. It is also possible that the announced policy of promoting decentralization could increase the demand for technical assistance.

56. The Governme.it has taken steps to make the public service more efficient and more attractive as a career for talented people by beginniiig the process of creating a career service with a regularized salary structure. It has created an Institute for Public Administration to provide in-service training courses for civil servants and to provide a variety of consulting services to government ministries and departaments. An assessment of the manpower problem indicates that there are some additional steps which the Government could consider: - 21 -

(i) Technical assistance planning is still rudimentary. The Government might begin to assess its total needs by occupation and ministry for the next decade. Of necessity, technical assistance planning will be part of the manpower planning exercise for the public sector and must be closely coordinated with any policy of Liberianization which the Government formulates. The Government might also consider linking its foreign scholarship program directly to its Liberianization and its technical assistance policy planning.

(ii) The Government's policy of decentralization is a commendable objective. However, decentralized decision making, if not carefully conceived, could be intensive in the use of the very resources which are currently in short supply in Liberia, i.e., high level manpower. The manpower implications of any plan for decentralization should, therefore, be carefully evaluated.

57. The aims of Government in the education field include achievement of quality education and adequately trained manpower. To achieve a balanced trade-off between the various objectives the education strategy for the next Plan might consider:

(a) assigning highest priority to the promotion of quality in a limited number of selected primary schools where this might be accomplished most economically;

(b) assigning lower priority to the further expansion of formal secondary education which is expensive;

(c) assigning higher prlwity to adult education and literacy training where economic returns are likely to be immediate and substantial;

(d) taking steps to involve local communities more in the operations of their schools. These steps should be designed to engender a sense of responsibility for the physical condition of the schools;

(e) as part of the effort to increase quality, high priority should be assigned to the maintenance of primary school facilities and to the provision of teaching aids. - 22 -

PART II

A MACRO-ECONOMIC MODEL FOR LIBERIA

I. THE BASIS FOR PROJECTIONS

Data

58. Liberian data has in the past been generally poor and incomplete. The bulk of the information in the Basic Economic Report was generated by the Mission itself. However, in the past two years, there has been a substan- tional improvement. Reliable national accounts, balance of payments, and public sector data are now available for most of the past decade. Institutional arrangements for the collection and generation of such information now exist; balance of payments data await only the full functioning of the new Central Bank. Physical production data, at least for the major sectors, is up to date and reliable. External debt data, currently in transition between the Ministry of Finance and the Central Bank, has not been officially reported since the end of 1972, but all transactions since then are known and the current debt situation can easily be calculated. The macroeconomic model is based largely on data generated by the Basic Economic Mission with appropriate updates as new and better information has become available over the past two years. Because it uses 1972 as a base year and is intended to illustrate long run development trends, there are some differences between "projected"t and actual data for 1973-75. However, the projections do reflect the entire range of shifts in international prices in that period. The differences between "projected" and actual data for that period will not, we feel, make a significant difference in the long run projection.

The Structure of the Economy-Elements of a Model

59. The key feature to capture in a projection of the economy is the duality imposed on it by the concessions. Its growth and performance depends on the growth of the concessions, on the linkages with the rest of the economy, on the amount that the public sector can siphon from the stream of enclave exports and on the manner in which the Government spends those resources. Consequently the analysis begins with the exogenous specification of the output of the three enclave sectors, rubber, iron ore and timber. Value added in these sectors is assumed to grow in identical fashion to physical output and the three summed together, less of course the rubber produced by Liberian farmers, are designated as "concession output". Output of Liberian rubber farmers, output in other modern, non-enclave, agriculture, and output in subsistence make up the Liberian agriculture sector; all thaee elements have exogenously specified growth rates. Manufacturing also has a specified rate of increase, the past history of this sector has been too erratic to relate to investment activity; past data indicate an average of 21.4 percent of investment expenditure as value added in construction. Government value added is directly related to public sector employment. The rest of the sectors - utilities, services, trade and transport are assumed to relate to the level of activity in the economy as a whole; past data indicated about 29 percent of - 23 -

GDP at factor cost is in these sectors - this fraction is used for the model. GDP at market prices is calculated from GDP at factor cost plus indirect taxes; the latter comes from the government revenue budget, but is basically derived from import duties. Analysis of available data indicates a fairly constant 22 percent of the c.i.f. value of imports (other than capital goods and fuels) is collected as duty.

60. The import side of the economy is treated in seven separate categories, generally according to the nature of the goods. First is rice, which because of its importance as a staple and as a perpetual policy problem needs to be looked at separately from the rest of the foods. Regression analysis on historical data indicates an import elasticity with respect to private consumption of 3.0 and an elasticity with respect to price of -1.2. These are used in the projection but it is clear that they are probably somewhat too extreme to be valid for long periods. Therefore$ the model also specifies that the maximum real increase in rice imports in any one year should not be more than 10 percent. The rest of the food imports do not give meaningful results when analyzed by regression techniques, thus the recent average elasticity with respect to real private consumption of 0.47 is used in the projection. Other consumer goods exhibit income and price elasticities of about 1.0 and -0.5 respectively. Fuel demand is highly affected by output in the concessions, thus this relationship is used in the projection and a unit eleasticity is assumed. Intermediate goods are found to relate to the output in manufacturing; here the elasticity has been 0.75. Capital goods imports are in general the result of investment activity and as would be expected in an enclave economy, do not exhibit any significant price elasticity. The elasticity with respect to investment has been 1.3, this is used in the projection. Finally, imports of nonfactor services, which are largely charges on foreign trade, are related to the volume of imports. Historically this has been about 6 percent, this is used for projections.

61. The export side of the economy is dominated by iron ore. Here we know the volume that can be produced by each of the companies and the specific changes that are scheduled to occur over the next five to ten years and thus the more difficult part of the projection is the estimation of possible prices. In rubber we treat Liberian rubber and concession rubber separately, each has its own growth rate based on the Mission's assessment of the potentials. Concession rubber appears to be relatively insensitive to prices, but Liberian rubber might be related to the market. That has not been done in the model, however, because no quantitative estimate of supply elasticity is available. Instead exogenously determined supply function has been used. Forestry products are divided into logs and sawn timber, each with its own specific absolute volume estimates through 1980 and with growth rates thereafter. Other explicit export categories are cocoa, palm kernels, palm oil, diamonds and coffee; each has its own explicit volume estimates followed by longer run growth rates as estimated by the Mission. There is a residual "other goods" with a historical growth rate of 5 percent and nonfactor services with an annual increase of 10 percent. - 2h -

62. Foreign trade prices, both for exports and imports, are derived from the series produced by the 'Economic Analysis and Projections Department of the Bank. However, in the case of iron ore, specific contracts already exist between iron ore companies and their customers, some extending as far as 1979. These indicate a much sharper price rise in the near term than do those of the Bank, however, over the long run the two series converge. The projection has used the Liberian rather than the Bank prices.

63. Investment is composed of three parts; public sector investment, iron ore investment and other private investment. Public sector investment is derived from a separate public finance section of the model and is composed of exogenous estimates of investment by foreign assistance agencies, investment by the decentralized agencies and investment by the Central Government. Non- iron ore private investment is estimated at its historical, and fairly stable, average of 9 percent of GDP at market prices. Iron ore investment is exogenously derived from company data and forecasts. All other elements of national accounts, such as consumption and savings are derived as residuals from the previously described aggregates.

6h. The only other part of the model that contains significant struct- ural relationships is the balance of payments. We have already outlined above the manner in which the resource balance is derived. The next line is factor payments. Of this interest on public debt is a purely mechanical calculation based on past disbursements. Workers remittances are the payments made by foreign workers in the enclaves as well as by the Lebanese trading community, although the latter is smaller and generally unrecorded.

65. Such remittances are related to the value added in the concessions; past data indicates a marginal rate of 9.6 percent, this is used in the projections. It is felt that workers remittances will fall in the future, as in fact they have in the past, because of an increasing Liberianization of the economy. Given this, the model uses a constant level of real flows as nominal ones under a crude assumption that the rate of inflation would be about equivalent to the rate of Liberianization. Direct investment income is more interesting. An analysis of past data shows that these payments are related to export earnings in rubber and iron ore and the fitted coefficients indicate an elasticity of 0.39 with respect to rubber and 0.25 with respect to iron ore. However, when used for projection purposes, this projection causes the share of remitted profits to fall from 31 percent in 1972 to 11 percent in 1980 This is due to the shifting emphasis from rubber to iron ore. It was felt, however, that a reasonable projection would maintain the share at about 30 percent, perhaps falling slightly, but not as fast as the original structure would suggest. This involved raising the elasticity with respect to iron ore to 0.53. Other small items on the balance of payments such as transfers are exogenous extra- polations of past levels; a significant item however is .iaritime revenues - these are the earnings, now about $10 million annually, accruing to Liberia from ship registrations. The model, following the estimates of the Mission uses a growth of 8.5 percent per annum. Direct foreign investment is composed of iron ore and other. For the latter, the model uses an exogenous extrapolation of recent values of about $20-$25 million per year. Iron ore itself varies considerably according to the plans of the individual companies. It is assumed in the projection that on the average 75 percent of the investment in any year will involve the inflow of foreign capital while the other 25 percent is to be raised locally. The final items on the balance of payments involve external public debt; these folLow standard routines. - 25 -

66. Finally, the model has a public finance sector. This is composed of elasticities and growth rates on the revenue side, and growth rates on the expenditure side. All are a combination of past trends (based on rather diffuse data) and mission estimates. The purpose of this section is more to try to merge the fiscal with the real and to simultaneously show the concepts of the Ministry of Finance with those of the Ministry of Planning than it is to make any kind of sustained projection.

II. KEY ELE=ENTS OF THE PROJECTIONS 67. From the preceding discussion it is clear that any projection of the Liberian economy depends critically upon the outlook for exports of the three major concession commodities, both in terms of price as well as volume, and upon the growth of the public sector. Of these by far the most important are the assumptions concerning iron ore. During discussions with the Govern- ment in 1975, it was indicated that there is a strong possibility of as many as three new iron ore mines being opened up in the 1980s. Each of the three would involve an investment of about $500 million (in 1974 prices); two would begin production in 1981 and the third by about 1983. All are 9 million metric ton capacity and are planned to come on stream in three million ton increments over five years. The two main projections in this paper center around the decision to go ahead with these projects: the optimistic run assumes all three go on schedule while the pessimistic one assumes none of the three materialize. In the near term the output of iron ore is fairly well known. The current output is about 24 million metric tons per annum. At the end of 1975 the Liberian Mining Campany will close its facility at Bomi Hills, this will decrease the national output to 21.6 million tons in 1976. In 1977 the Bong mine will bring on stream a peZletizing facility which will on net balance increase national output to 22.8 million tons where it should stay until the new mines materialize. In order to account for the possibility of a continued weak world market for iron ore the pessimistic projection assumes that prices will hold but that only 90 percent of Liberian capacity will be sold. On the price side, the iron ore companies currently have contracts as far out as 1978, these are used in the projection even though they are slightly in excess of the prices forecast by the IBRD; after 1978 IBRD price changes are used. 68. The projection for rubber assumes that concession output will grow at 1 percent per annum and that of Liberian farmers at 2.3 percent per anmnm. Both rates are roughly equal to those of the past. IERD forecast price changes are used. 69. In the forestry sector specific estimaates were made for logs and for sawn timber. In the former case it has been assumed, based on the findings of the Mission, that from the 1973 export volume of 248,000 cubic meters, exports will grow to 4j25,000 cubic meters by 1978 and then by 1.5 percent per annum thereafter. Sawn timber, where 1973 exports were only about 500 cubic meters, is expected to grow rapidly to 40,000 cubic meters by 1978 as a result of the requirements for local processing, and then remain constant thereafter. In both cases IBRD price projections were used. - 26

70. In the minor exports, coffee and cocoa have growth rates of 5 percent, as does the residulal of agriculture. Palm oil is expected to increase at 3 percent and palm kernel oil at 1 percent. Finally, diamonds are projected with a 4.2 percent growth rate. For all these commodities IBRD price projections are used.

71. Internally, the growth of the economy depends primarily on the growth of concession output. As this is expected to be fairly low in the latter part of the 1970s, the impetus for growth in that period will have to come from other sectors. It is assumed that manufacturing will increase at 10 percent per annum, but this is a very small sector. Public sector output depends on employment in that sector, but it is the stated intention of the Government to limit sharply the increase in the next few years, freeing it in the area of general administration and allowing it to increase investment in the field of economic services. Thus, public sector investment becomes a key detenuinant, not only for public sector value added, but also for construction. Public sector investment, however, is limited to the absorptive capacity of the Government. As a maximum it is assumed that for budgetary investment a 10 percent growth per annum will be the best that can be achieved until the 1980s at which point a 15 percent growth may be possible. Similar considerations are used for the growth in investment in the decentralized agencies. Finally, the growth of foreign assisted investment is determined by the inflow of foreign aid. This is expected to grow sme 16 percent in nominal terms per annum between 1974 and 1980 and then by 4 percent thereafter.

72. The other key determinant of internal growth is investment in the iron ore sector. Without new mines foreign direct investment is projected to be a nominal $25-40 million per year until the end of the decade rising to $65 million by 1990. Investment in the three new mines ($1.5 billion total at 1974 prices) is phased in the projection so that $60 million is invested initially in 1976, rising to $160 million annually in 1980-82, $170 million in 1983 and 1984 falling to $40 million in 1990.

73. Other assumptions necessary for the projection include a 5 percent internal inflation rate, a 3.3 percent population growth rate and a 2.7 percent increase of production in the subsistence sector. On the import side, the projection utilizes a number of elasticities. Rice has an elasticity with respect to consumption of 3.0 and with respect to price of -1.2; this function behaves well as long as consumption does not change sharply. In the projection the import of rice is restricted to have no more than a 10 percent increase in any one year. Intermediate goods have an elasticity with respect to manufacturing of 0.75 and mith respect to price of -0.44. Capital goods are related to investment with elasticities of 1.50 and -1.73. Food imports are determined with an elasticity of 0.47 and fuel increases in line with concession output. Finally, consumer goods imports are related to consumption with an elasticity that varies between 0.8 and 1.2; this function is used as a policy variable to achieve certain consumption targets. 27

Projections

74. Tables 7-10 present the results of the two alternative projections. In the first, all of the remaining iron ore deposits are exploited in the 1980s and the volume of exports of iron ore holds at capacity levels. In the second none of the three investments in iron ore materializes and in addition exports are only 90 percent of actual mining capacity, the remainder being prockied and stockpiled in Liberia. A conparison of the two nicely illustrates Liberia's development problem. It would be possible to continue cQmfortable levels of consumption, growing at close to 9 percent per annum in real terms, under either alternative, however, in the absence of new iron ore, the picture changes dramatically in the late 1980s requiring immense infusions of foreign resources by 1990 in order to maintain this style of economic life. Although the projections do not go that far, it is clear that what happens in the pessimistic case between 1985 and 1990 (look particularly at "Other Capital Accounts" in Tables 9 and 10) is likely to occur between 1995 and 2000 in the optimistic case. The investment in new mines only puts off the problem, it does not provide a successful growth plan. Liberia must provide haman, social and productive capital in non-enclave sectors within the next decade or so, or be faced with stagnation and a much more difficult development problem by the turn of the century at the latest. The country is clearly creditworthy for the next fifteen years regardless of how one chooses to measure her position. However, this is not the relevant performance criteria, rather it should be the ability and willingness of the country to move from passive dependence on enclaves to active sustainable economic activity of her own. Table 7: RESOURCES AND USE OF RESOURCES 1972-1990 (OPTIMISTIC SCENARIO) - 1971 Constant Prices - $ millions

Grwt at Growt Rate 1572 1?73 1974 1975 1976 1977 -197619781978 197 1791979 19801580 ~ 198Rt85 1990199( 1972-80 () 1980-90()

GDP at Factor Cost 395.8 411.6 427.9 435.3 435.5 466.3 485.1 504.5 527.4 807.9 916.2 3.7 5.7 of which Iron Ore '7.6 *6.e £A ; -2. 6 41.9 75.5 92., 5.1 38.2 125.8 33.6 3..6 -1L.8 Indirect Taxes 314.1 35.0 40.2 47.4 48.4 50.3 52.5 55.3 rg.5 118.5 189.2 7.2 12.3 h.5 GDP at Yarket Prices 429.9 446.7 468.1 482.7 483.9 516.7 537.6 559.8 587.0 926.4 1,105.4 4.0 Importsoof Goods & ITFS 175.7 173.0 140.2 146.2 170.5 204.6 225.2 246.3 277.8 386.5 1457.5 5.9 5.1 Exports of Goods & NFS -269.4 -287.1 -273.0 -272.6 -253.5 -265.8 -268.9 -272.0 -275.2 -503.4 -528.2 0.3 6.7 Terms of Trade adjustment -11.14 -6.5 -85.2 -79.8 -58.8 -38.6 -23.0 -4.2 13.1 36.1 88.0 - Exports - adjusted -258.0 -280.7 -187.8 -192.9 -1914.7 -227.2 -2h15.9 -267.8 -288.6 -539.4 -616.2 1 4 7.9 Total Resources 1! 336.2 332.5 335.4 356.2 401.0 s455.5 493.9 534.1 589.6 809.5 1,031.7 7.3 5.8 217.0 211.5 209.7 219.8 230.1 240.8 252.1 264.1 281.1 440.8 669.5 3.3 9.1 Private Consumption - 9.6 Public Consumption 48.0 52.8 59.8 58.3 59.3 61.6 64.3 67.2 70.4 115.6 175.5 4.9 -0.9 Gross Domestic Investment 71.3 68.1 65.9 78.1 112.6 153.1 177.5 202.9 238.1 273.9 216.6 16,3 6.2 of which Concessions 147.2 15T!.7 15.1 157.2 114)l.3 151.3 152.3 153.2 154.1 290.0 295.5 0.1 7.3 5.8 Total use of Resources 336.2 332.5 335.4 356.2 401.0 455.5 493.9 534.1 589.6 809.5 1,034.7 Domestic Savings 153.6 175.8 113.4 124.8 135.8 175.6 198.2 224.4 248.9 426.9 375.2 6.2 14.2

1/ Residual item - includes stock changes and "errors and omT-ssiCns`.

2/ Fixed investment only. lable 8: RESOURCES AND USE OF RESOURCES 1972-1990,PESSIMISTIC SCENARIO) - 1971 Constant Prices - $ millions

1990 Grnwth Rate Grow-th Rate 1972 1973 1974 1975 1976 1977 1978 1979 1980 1985 1972-80 () '980-90 W~ 1.7 4,o GDP at Factor Cost 395.8 411.6 427.9 h16.5 409.9 429.7 443.3 457.6 472.8 565.7 702.3 pf which Iron Ore 7.G 16.*3 8. 8.4 9.8 8 8.8 8.).L0.4. . .! 'a8A c.o 34.1 35.0 40.2 47.1 47.8 49.0 50.9 53.5 56.9 87.2 154.2 6.6 10.S Indirect Taxes 856.4 4.9 GDP at Market Prices 429.9 446.7 468.1 463.6 457.6 478.7 494.1 511.0 529.7 652.9 2.6 175.7 173.0 140.2 140.3 1h1.9 147.7 155.3 16h.1 174.5 231.3 363.5 -0.1 7.6 Imports of Goods & NFS 1.6 Exports of Goods & NFS -269.4 -287.1 -273.0 -253.4 -236.5 -248.1 -251.2 -254.3 -257.5 -276.2 -301.1 -0.6 48.o - Adjustment -11.4 -6.5 -85.2 -73.4 -60.8 -48.8 -35.5 -19.1 -5.0 15.8 Terms of Trade -0.3 3.3 Exports - adjusted -258.0 -280.7 -187.8 -180.0 -175.7 -199.3 -215.7 -235.2 -252.5 -292.0 -349.1 336.2 332.5 335.4 350.6 363.0 378.2 398.2 420.8 446.7 608.0 918.9 3.6 7.5 Total Resource 2.8 8.6 Private Consumption 1/ 217.0 211.5 209.7 220.7 228.9 235.4 245.8 257.5 271.2 388.7 617.0 157.7 4.5 8.7 Public Consumption 48.0 52.8 59.8 57.6 58.4 60.2 62.6 65.3 68.2 99.4 98.0 107.3 134.7 172.2 5.2 4.8 . 71.3 68.1 65.8 72.2 75.7 82.7 89.8 Gross Domestic Investment -0.L 0.7 of which Concessions 147.2 15L.7 158.1 145.1 133.7 140.2 141.2 142.1 1L3.0 107.6 153.1 3.6 7.5 Total use of Resources 336.2 332.5 335.4 350.6 363.0 378.2 398.2 420.8 1446.7 608.0 918.9 -1.6 Domestic Savings 153.6 175.8 113.4 111.9 109.6 134.3 150.3 169.1 185.3 195.3 157.8 2.h

1/ Residual item - includes stock changes and "errors and omissicns".

2/ Fixed investment only. Table 9: BALANCE OF PAYMENTS 1972-1990 (OPTIM.ISTIC SCENARIO)

- Current $ MLllicn -

1972 1973 1974 1975 1976 1977 1978 1979 1980 1985 1990Gr,wth Rate Growth ______Rate ______19 7 2 - 8 00%% % 19 8 0 - -90909

Exports 2)47.3 332.4 402.9 489.1 )t94.7 592.8 667.7 760.8 858.1 2325.7 3539.1 16.8 15.2 of which Forestry 8.2 16.7 17.8 29.9 33.9 40.7 49.5 57.6 65.6 103.8 16L4.5 29.7 9.6 Iron Ore 182.5 197.2 262.8 336.6 321.0 391.3 434.9 497.9 567.6 i846.0 2737.6 15.2 17.0 Rubber 29.2 L2.8 6)4.5 56.7 64.8 76.4 88.3 98.7 105.8 159.6 240.9 17.5 8.6 Other 27.4 75.7 57.8 69.4 75.0 84.4 95.0 106.6 119.1 216.3 396.1 20.2 12.8

Imports 184.2 229.5 3)4.2 384.6 447.6 549.0 627.1 716.0 843.1 1687.1 2653.6 20.9 12.1 of which Rice 7.8 12.3 15.8 33.6 36.7 39.2 0o.4 42.0 46.1 95.3 204.9 24.9 16.i Capital Goods 63.4 68.8 85.4 64.9 109.8 175.4 219.5 269.0 342.5 417.8 277.9 23.5 -2.1 Other 113.0 148.4 213.0 286.1 301.1 334.4 367.2 405.o 454.5 1174.0 2170.8 19.0 16.9

Net Factor Payments -92.5 -109.1 -1)0.0 -150.7 -152.8 -177.3 -195.7 -217.2 -238.5 -520.4 -738.8 12.6 12.0 of which Workers Remittances -20.0 -20.6 -20.9 -20.8 -19.6 -20.2 -20.3 -20.4 -20.5 -33.5 -34.1 0.3 5.2 Direct Investment Income -68.o -83.2 -114.4 -125.9 -129.9 -15)4.0 -172.5 -193.7 -213.)4 -479.2 -69)4.2 15.4 12.5 Other -4.5 -5.3 -4.7 - 4. -3.3 -3.1 -2.9 - 3.1 - 4.6 -7.7 -10.5 0.3 8.6

Net Transfers 14.9 16.1 17.6 18.4 19.3 20.3 21.4 22.5 23.8 31.9 44.1 6.0 6.4 Balance on Current Account -1)4.5 10.0 -33.7 -27.7 -86.4 -113.2 -133.8 -150.0 -199.7 150.1 190.8 - - Direct Foreign Investment 30.6 33.9 32.5 37.5 75.L 118.5 151.h 182.9 23)4.8 303.8 155.6 29.0 -4.o Net Public Borrowing -1.0 -0.2 -1.2 7.2 14.8 15.8 21.4 26.8 31.6 35.6 36.1 - - Gross Borrowing 10.7 12.6 13.9 21.6 28.9 29.2 30.8 34.6 40.3 51.9 64.0 13.0 4.7 Amortization -11.7 -12.8 -15.1 -114.4 -14.1 -13.4 -9.3 -7.9 -8.7 -16.3 -28.0 --A.6 l 2.h Other Capital Account -15.2 -43.8 2.3 -17.0 -3.8 -21.0 -39.2 .- 59.8 -66.7 -489.5 -382.5 20.3 19.1

Debt Service 16.2 18.2 20.3 19.5 19.3 18.8 15.3 14.8 17.8 35.2 56.6 1.2 12.3 Debt Service Ratio 7.1 5.8 5.3 4.2 4.0 3.3 2.)4 2.0 2.1 1.5 1.6 - - Table 10: BALANCE OF PAYMENTS 1972-1990 (PESSIMISTIC SCENAR0I)

- Current $ Millicn -

Growth Rate Growth Rate 1972 1973 1974 1975 1976 1977 1978 1979 1980 1985 1990Oy92/0 1Q oQI-90I3

Exports 247.3 332.4 1402.9 454.8 462.0 553.3 623.8 710.5 800.8 1236.5 1923.9 15.8 9.2 of which Forestry 8.2 16.7 17.8 29.9 33.9 40.7 49.5 57.6 65.6 103.8 164.5 29.7 9.6 Iron Ore 182.5 197.2 262.8 302.2 288.3 351.9 391.0 447.7 510.4 756.9 1122.4 13.7 8.2 Rubber 29.2 42.8 64.5 56.7 64.8 76.4 88.3 98.7 105.8 159.6 240.9 17.5 8.6 Other 27.4 75.7 57.8 66.0 75.0 84.3 95.0 106.5 119.0 216.2 369.1 20.2 12.0

Imports 184.2 229.5 314.2 368.5 387.4 425.0 464.7 512.0 570.5 1000.6 2028.8 15.2 13.5 of which Rice 7.8 12.3 15.8 33.6 36.7 39.2 40.4 142.0 46.1 88.3 1914.8 214.9 15.5 Capital Goods 63.4 68.8 85.4 56.9 60.9 69.6 78.9 90.0 103.3 14h.8 209.3 6.3 7.3 Other 113.0 148.4 213.0 278.0 289.8 316.2 345.14 380.0 421.1 767.5 1624.7 17.9 ll.<

Net Factor Payments -92.5 -109.1 -14o.o -141.6 -143.8 -167.2 -184.9 -205.5 -225.9 -322.7 -I455.8 ll.8 7.2 of which Workers Remittances -20.0 -20.6 -20.9 -19.6 -18.5 -19.2 -19.3 -19.3 -19.4 -19.9 -20.4. -0.14 0. Direct Investment Income -68.0 -83.2 -114.4 -118.0 -121.7 -144.4 -161.8 -181.6 -200.2 -289.9 -419.9 14.5 7.7 Other -4.5 -5.3 -4.7 -4.o -3.6 -3.6 -3.8 -4.6 -6.3 -12.9 -15.5 44.3 9.4

Net Transfers 14.9 16.1 17.6 18.4 19.3 20.3 21.14 22.5 23.8 31.9 44.1 6.0 6.4 Balance on Currmt Acccnnt -14.5 10.0 -33.7 -36.8 -49.9 -18.5 -4.4 15.6 28.2 -54.8 -516.6 - Direct Foreign Investment 30.6 33.9 32.5 33.3 39.1 39.8 45.6 46.4 52.2 66.9 87.6 6.9 5.3

Net Public Borrowing -1.0 -0.2 -1.2 7.2 14.8 15.8 21.4 26.8 31.6 35.6 36.1 - Gross Borrowing 10.7 12.6 13.9 21.6 28.9 29.2 30.8 34.6 40.3 51.9 64.0 1.0 b.47 Amortization -11.7 -12.8 -15.1 -114.4 -14.1 -13.4 -9.3 -7.9 -8.7 -16.3 -28.0 -3.6 12.14

Other Capital Accolnt -15.2 -43.8 2.14 -3.7 -4.0 -37.1 -62.6 -88.8 -112.0 -147.8 393.0 -

Debt Service 16.2 18.2 20.3 19.5 19.3 18.8 15.3 14.8 17.8 35.2 56.6 1.2 12.3

Debt Service Ratio 7.1 5.8 5.3 4.5 4.3 3.5 2.5 2.1 2.3 2.9 3.0 - - 32 -

STATISTICAL APPENDIX

List of Tables

Table 1 Iron Ore Production and Sales, 1972-74

Table 2 Rubber Production, 1971-71

Table 3 Marketing of Main Crops by the Liberian Produce Marketing Corporation, 1971/72-1974/75

Table 4 Iron Ore Production by Type, 1972-74

Table 5 Area Under Rubber Cultivation, 1971-74

Table 6 Purchase Price for locally Produced Rubber, 1972-75 Table 7 Liberian Produce Marketing Corporation's Purchase Price of Major Cash Crops

Table 8 Consumer Price Index for Monrovia, 1970-75

Table 9 Recorded Emnployment by Sectors, 1970-75

Table 10 Functional Classification of Budgetary Expenditures, 1972-75

Table 11 National Bank of Liberia: Assets and Liabilities, 1974-75 Table 12 Assets and Liabilities of the Commercial Banks, 1972-74

Table 13 Value of Exports by Principal Commodities, 1969-74 Table 14 Volume of Exports by Principal Commodities, 1969-74 Table 15 Imports by Commodity Groups, 1969-74 APPENDIX TABLE

Table 1: IRON ORE PRODUCTION AND SALES, 1972-74

(In millions of long tons)

1972 1973 1974 Prod. Sales Prod. Sales Prod. Sales

Liberian Mining Company 2.0 2.6 2.6 2.6 2.1 2.1 National Iron Ore Company 3.9 3.9 3.7 3.3 3.4 3h5

Liberian-American-Swedish Minierals Joint Venture Company 11.1 11.5 10.9 13.1 12.4. 13.2 of which: Pellets (1.8) (.. ) (1.7) (...) (1.8) (...)

Bong Mining Company 5.4 5.5 5.6 6.9 6.5 6.7 of which: Pellets (24 ) (12.3) C...)

Total 22.3 23.5 22.8 25.9 24h4 25.5

Source: Data provided by the Liberian authorities. APPENDIX TABLE

Table 2: RUBBER PRODUCTION, 1971-74

(In millions of pounds)

1971 1972 1973 1974

Concessions 124.2 132.2 130.5 125.0

Firestone (95.2) (92.9) (83.0) (75.6) Other (29.0) (39.3) (47.5) (49-4)

Liberian farmsi/ 52.3 48.1 59.0 63.5

Total 176.5 180.3 189.5 188.5

Source: Data provided by the Rubber Planters' Association of Liberia 1/ Estimate. APPENDIX TABLE

Table 3: MARKETING OF MAIN CROPS BY THE LIBERIAN PRODUCE MARKETING CORPORATION, 1971/72-1974/751/

1971/72 1972/73 1973/74 1974/752./

(In long tons)

Purchases

Coffee 4,088 4,635 3,750o

Cocoa 2,585 2,296 3,165 ...

Palm kernels 11,568 11,786 15,486

Exports

Volume

Coffee 4,980 6,625 3,718 4,200

Cocoa 2,535 2,342 3,091 3,000

Palm kernels 10,660 11,324 13,853 16,950

Value (In thousands of dollars)

Coffee 6,526 4.,46 9 4,923

Cocoa ... 1,440 3,178 5,232

Palm kernels ... 2,504 6,539 7,212

Source: Data provided by the Liberian Produce Marketing Corporation.

1/ Years ended September 30.

2/ Estimated. APPENDIX TABLE

Table IRON-: ORE PRODUCTION BY TYPE, 1972-74 (In millions of long tons)

1972 1973 1974

Run of the -mine -- -- 0.3

Washed fines 8.7 7.8 9.3

Washed.lumps 5.5 4.7 5.8

Concentrates 4.0 6.2 4.9

Pellets 4.1 4.1 4.1

Total 22.3 22.8 24.4

Source: Data provided by the Liberian authorities. Table 5: AREA UNDER RUBBER CULTIVATION 1971-74 (In thousands of acres)

Concession farms Liberian farms-2 All farms Year Tapped Untapped Total Tapped Untapped Total Tapped Untapped Total

1971 99.3 37.7 157.0 86.o 63.3 149.3 185.3 101.0 286.3

1972 97.1 43.3 140.4 88.o 62.8 150.8 185.1 106.1 291.2

1973 97.1 41.7 138.8 92.0 60.3 152.3 189.1 102.0 291.1

1974!1/ 102.3 41.0 143.3 93.0 60.0 153.0 195.3 101.0 296.3

Source: Data provided by the Rubber Planters' Association of Liberia, Inc. / Estimates. APPENDIX TABLE

Table 6: PURCHASE PRICE FOR IDCALLY PRODUCED RUBBER. 1972-75 (In cents per pound)

Latex Specification Nonspecification coagulum coagului

1972

January 13.1 7.7 6.5 February 13.4 7.8 7.1 March 13.3 7.8 7.1 April 13.4 7.7 6.9 May 13.0 7.6 7.1 June 13.0 8.3 7.4 July 13.2 8.3 7.3 August 13.2 8.4 7.6 September 13.2 8.1 6.9 October 12.7 7.7 6.9 November 12.8 9.3 7.8 December 12.9 10.7 10.1

January 13.1 11.8 10.8 February 13.1 13.8 13.1 March 13.8 16.3 16.2 April 14.6 18.9 18.1 May 14.7 18.8 18.5 June 15.8 19.0 18.3 July 26.4 24.4 22.9 August 32.8 30.8 28.8 Septanber 31.9 29.3 26.4 October 29.5 26.5 22.9 Novenber 27.3 24.3 21.3 December 29.9 26.9 23.3

1974

January 39.3 36.3 30.9 February 42.9 39.9 33.8 March 38.9 35.9 30.7 April 36.5 33.5 28.1 May 31.4 28.4 23.5 June 32.4 28.7 24.1 July 29.9 24.3 28.5 August 32.5 20.8 17.3 September 31.6 20.9 17.5 October 28.4 16.1 13.9 Novesber 25.4 16.2 13.7 December 19.5 12.1 9.6

J975

January 18.1 14.5 11.1 February 18.3 14.3 11.1 March 19.4 15.5 11.7 April 19.4 15.0 14.5

Sources: Ministry of Planning and Economic Affairs, Economic Survey, 1973; Rubber Planters' Association of Liberia, Inc., Rubber Planters Bulletin, various issues, and data provided by the Liberian authorities. APPENDIX TABLE

Table 7: LIBERIAN FRODUCE MARKETING CORPORATION' S PURCHASE FRICES1/ OF MAJOR CASH CROPS, 1971-75

(In dollars)

Robusta Coffee Cocoa Palm kernel (per pound) (per pound) (per bag)2/

1971

Karch 0.12 0.15 7.50 June 0.12 0.15 6.00 September 0.12 0.15 6.50 December 0.12 0.18 6.50

1972

March 0.18 0.18 6.50 June 0.18 0.18 7.00 September 0.25 0.26 11.75 December 0.25 0.26 11.75

1973

March 0.18 0.18 6.50 June 0.18 0.18 7.00 September 0.25 0.26 11.75 December 0.25 0.26 11.75

1974

March 0.30 0.26 11U75 June 0.30 0.26 11.75 September 0.30 0.36 16.0OW December 0.30 0.36 16.00

1975

March 0.30 0.36 16.oo June 0.30 0.36 10.00

Source: Data provided by the Liberian Produce Marketing Corporation.

At official buying stations. E/ 168 pounds net. From August 1, 1974. Table 8: CONSUMER PRICE INDEX FOR MONROVIA, 1970-75

(SeZtember-November 196'4 = 100)

Number Weight 1970 1971 1972 1973 1974 1,74 19 1975 of First Second Third Fourth First Second Third Fourth First items quarter quarter quarter quarter quarter quarter quarter quarter quarter

All items 79 100 126.0 126.1 131.0 156.6 187.1 146.0 155.7 164.7 160.1 l7:.6179.88 195.6 199.2 208.6

Foodstuffs 32 34.4 120.2 log.o log.o 141.9 179.4 121.5 139.5 160.7 146.5 164.7 173.5 191.9 187.3 201.5

Rent 1 14.9 115.8 116.8 127.7 162.5 163.1 162.1 162.1 162.8 162.8 158.6 158.6 162.5 16?.5 171.5

Clothina 14 13.8 140.0 13. 1h46.3 164.7 200.6 150.1 165.8 170.6 172.4 185.6 190.2 2o5.4 221.2 235.1

Health, personal care, and services 9 11.4 167.0 193.4 211.6 223.8 279.0 223.6 223.6 22,.7 224.1 26°.1 264.2 293.4 296.3 297.5

Household goods and furniture 7 6.1 124.4 122.8 320.8 145.8 167.5 133.6 142.0 154.4 153.0 156.1 163.4 167.2 183.3 191.9

Beverages and tobacco 6 5.7 129.2 131.5 130.7 135.0 146.5 151.9 134.1 136.5 137.4 137.4 145.4 150.6 152.4 160.9

Fuel and ligbt 3 5.0 99.9 10ht. 103.0 1i5.6 151.3 113.9 11L.5 114.5 119.5 130.0 156.4 159.7 159.2 160.5

Miiscellaneous 7 8.7 108.7 1i2.1 109.9 147.1 178.6 1'5.2 150.8 151.2 151.3 160.2 161., 189.0 204.0 210.3

Source: Data provided by the Liberian authorities. APPEDIX TABLE

2 Table 9: RECORDED EMPWYtN0T BY SECTORS, / 1970-75

Sector 1970 1971 1972 1973

Agriculture 23,163 23,071 21,621 22,146 Fishing 253 308 266 360 Forestry3 1,615 1,144 1 ,166 1,212 11,183 11,077 10,877 11,371 Mining 1)694 Mamnfacturing 2,108 2,118 1,866 Constraiction 1,691 1,154 896 645 Commerce 2,153 2,248 2,608 2,750 Transport 2,592 2,701 3,150 3,198 Services 1,058 1,068 1,072 1,018 Government 19,362 20,711 18,538 18,797 Electricity 680 738 940 888 Total 65,858 66,338 63,o0o 64,o7g

Source: Data provided by the Liberian authorities.

I/ With the exception of Government, data relate to 96 establishments, each of which employs 20 or more persons. APPENDIX TABLE

Table 10: FUNCTIONAL CLASSIFICATION OF BUDGETARY EXPENDITURES, 1972-75_/

(In millions-of dollars)

Budget Actuals estimates 1972 1973 1974 1975

General public services 18.3 22.6 24.7 31.6 General administration 14.3 18.3 19.7 25.1 Public order and safety 4.0 4.3 5.0 6.5 Defense 4.0 3.8 3.8 4.7 Education 9.5 10.8 12.2 15.9 Health 4.9 5.9 7.1 8.6 Social security and welfare 1.0 1.3 1.5 1.6 Housing and community amenities 2.5 3.9 -57 4.5 Other community and social services 0.7 0.9 0.9 1.0 Economic services 7.0 11.5 18.1 20.2 Labor 0.4 0.-7 0.8 -7z Agriculture, forestry, and fishing 2.5 4.5 6.3 9.3 Mining 0.8 0.9 1.2 1.7 Manufacturing and commerce 0.6 0.9 1.1 1.4 Electricity and water 0.1 1.0 2.8 1.2 Transportation 1.7 2.7 3.8 4.9 Road transport (1.5) (2.2) (2.3) (4.5) Air transport (0.2) (0.5) (1-5) (0.4) Communication 0.9 0.5 0.6 0.6 Other economic services -- 0.3 1.5 0.1 Unallocable 10.1 10.7 11.5 8.3 Public debt (interest) 5.0 4.6 4.3 3.8 Other.-II 5.1 6.1 7.2 4.5

Total 57.9 71.5 85.6 96.2

Sources: Ministry of Finance, Expenditure Report; Bureau of the Budget, The Budget of the Government of Liberia for the Fiscal Period January 1 to December 31, 1975; and staff estimates and adjustments.

1/ Covers only budgetary expenditures due to the lack of detailed information on extrabudgetary expenditures. 2/ Adjustments were made to the original figures in the P2port to exclude financing and intergovernmental transfer items. 3/ Mainly rents, utilities, and travel expenses which are not allocable to each function. Table 11: NATIONTAL BANK OF LIBRIA: ASS S AND LTABILITISJ 1974-75

(In millions of dollars; end of period)

1974 19.75 Julyl: Aug. Sept. Oct. Nov. Dec. Jan. Feb.

Assets 29.60 36.60 36.02 38.22 44.77 35.42 41.54 47.94 External assets (net) 8.26 13.17 11.31 13.73 16.78 11.87 15.27 21.48 External assets (8.26) (13.18) (11.30) (13.73) (16.78) (11.87) (15.27) (21.48) U.S. currency (2.16) (2.68) (1.58) (1.16) (1.07) (2.49) (1.58) (1.14)2/ Balances with banks abroad (2.27) (6.66) (5.89) (8.74) (11.88) (5.49) (9.80) (16.45) Holdings of SDRs (3.83) (3.83) (3.83) (3.83) (3.83) (3.89) (3.89) (3.89) External liabilities Balances with banks in Liberia_V 0.74 2.17 3.67 3.45 6.80 2.69 4.64 5.13 GOL securities 20.26 20.26 20.26 20.26 20.26 20.26 20.26 20.26 Advances -- -- 0.20 -- -- GOL Banks (0.20) ------Other Other assets 0.34 1.00 0.59 0.78 0.93 0.60 1.37 1.07 Liabilities 29.60 36.60 36.02 38.22 44.77 35.42 41.54 47.94 Paid up capital 4.75 4.75 4.75 4.75 5.00 5.00 5.00 5.00 General reserve ------0.01 0.01 0.01 Liberian coins in circulation 8.58 8.60 8.63 8.65 8.68 8.80 8.79 8.86 -Deposits - 4.72 11.60 10.86 12.86 19.06 9.16 15.66 2J.84 GOL -- (5.87) (6.00) (8.28) (14.36) (4.84) (10.20) (15.56) Banks (4.02) (4.30) (3.43) (3.16) (3.21) (3.17) (2.95) (3.39) Other (0.70) (1.43) (1.43) (1.42) (1.49) (1.15) (2.51) (2.89) > Allocation of SDRs 11.50 11.50 11.50 11.50 11.50 11.68 11.68 11.68 Other liabilities 0.05 0.15 0.29 0.46 0.53 0.77 0.40 0.55

Source: National Bank of Liberia. > 1/ The National Bank of Liberia commenced its operations on July 10, 1974. 2/ Includes U.S. currency in transit amounting to $0.25 million. 3/ Includes clearing and cash items. Table 12: ASSES AND ITABILTISS OF THE CONMERCIAL BANKS, 1972-74

(In millions of dollars; end of Deriod)

1972 1973 1974 March June Sept. Dec. March June Sept. Dec. March June Sept. Dec.

Foreign assets (net) 0.29 -0.39 -2.84 -5.37 4.81 6!98 3.17 1.51 4.40 3.80 -3.05 -3.76 Foreign assets 12.21 12.35 9.56 10.94 15.22 16.41 12.10 15.89 26.80 19.60 Cash on hand: notes 13.74 23.48 (1.88) (2.22) (2.53) (1.46) (2.09) (1.36) (3.38) (3.25) (2.73) (2.15) (2.96) Claims on banks (3.55) abroad (9.35) (9.56) (6.37) (8.84) (12.47) (14.51) (8.24) (12.09) (23.42) (16.94) Other (10.32) (19.70) (0.98) (0.57) (o.66) (0.64) (o.66) (0.54) (o.48) (0.55) (0.65) (0.51) (0.46) (0.23) Foreign liabilities -11.92 -12.74 -22.40 -16.31 -10.41 -9.43 -8.93 -14.38 22.40 15.80 16.79 Liabilities to banks 27.24 abroad (-9.96) (-11.06) (-10.13) (-10.91) (-7.71) (-7.61) (-7.28) (-12.69) (19.96) (13.99) Nonresident deposits (15.04) (25.99) (-1.96) (-1.68) (-2.27) (-5.40) (-2.70) (-1.82) (-1.65) (-1.69) (2.44) (1.81) (1.75) (1.25) Domestic assets 62.28 57.90 63.92 68.84 65.82 68.20 15.r 78.61 85.13 99.75 105.17 103.28 Reserves 1.42 2.05 1.77 2.05 1.54 1.61 1.73 2.51 2.13 2.05 4.37 3.59 Cash on hand: coins (0.77) (0.76) (0.80) (0.73) (o.84) (0.89) (o.48) (1.06) (0.91) (1.13) (0.87) (0.32) Balances w'th Bank of Monrovia (0.65) (1.29) (0.97) (1-32) (0.70) (0.72) (1.25) (1.45) (1.22) (0.92) Balances with National Bank ------(3.50) (3.27) Claims on Goverrnment (net) 1.05 1.67 4.62 5.49 -0.52 2.75 3.29 1.47 -0.59 -o.94 2.85 2.42 Scheduled debt (7.54) (6.89) (6.89) (6.15) (6.15) (5.47) (5.47) (4.39) (5.89) (3.53) Other claims (3.67) (2.42) (9.06) (9.65) (9.23) (10.77) (9.60) (8.34) (5.22) (3.43) (6.58) Securities (5.63) (1.11) (1.37) (o.89) (0.69) (0.71) (0.50) (0.29) (0.20) (0.21) (o.44) (o.46 (0.39) Deposits (0.17) (0.29) (-16.44) (15.56) (-12.21) (-11.93) (-16.96) (-11.26) (-7.61) (-6.79) (-13.52) (-10.49) (-2.10) (-1.66) Claims on private sector 43.44 44.48 43.88 48.25 47.93 49.38 50.81 55.19 60.61 69.37 Loans and overdrafts 68.45 73.06 (42.61) (43.69) (43.09) (47.42) (47.11) (48.57) (49.43) (54.17) (59.26) (68.02) (67.04) (71.77) Investments in shares and debentures (0.83) (0.79) (0.79) (0.83) (0.82) (0.81) (1.38) (1.02) (1.35) (1.35) (1.41) (1.29) Interbank assets 3.27 1.79 3.95 2.06 3.61 2.69 2.76 2.00 4.94 4.33 2.85 1.83 Other assets 13.10 7.91 9.70 10.99 13.66 11.77 16.78 17.44 18.04 24.94 26.65 22.38 Domestic liabilities 62.57 57.51 61.08 63.47 70.63 75.18 78.54 80.12 89.54 103.55 102.12 99.52 Derosits of the private sector 46.61 45.43 46.55 50.92 57.10 61.34 59.40 59.53 68.15 68.92 66.20 70.04 Demand deposits (24.70) (19.67) (20.76) (22.47) (25.58) (25.84) (25.74) (29.53, (35.99) (35.02) (33.94) (38.69) Time and savings devosits (21.91) (25.76) (25.79) (28.45) (31.52) (33,50) (33.66) (29.80) (32.16) (33.90) (32.26) (31.35) Interbank deposits 1.65 1.89 3.36 1.79 1.88 1.82 2.37 3.03 2.45 6.03 6.87 4.51 Capital accounts 5.06 4.71 4.80 4.86 4'97 5oL 6.33 8.45 7.95 8.83 9.10 8.;9 Other liabilittes 9.2L 5.48 6.37 5.90 5 .P 6.98 10.44 9.31 10.99 19.77 19.95 16.48

S'urces: ;4!ristry of Planninc and Ec-nnnric Affairs, Quarterly Statistical Bulletrn Liberia (Summary of 1972); data provided by the Liberian authorities (173); and dlata o br,ov2ded the Eiat'onal Bank oI Liberia (19744). Table 13: VALUE OF 1UIORTS BY PRINCIPAL COMMODITTiM 1969-74

1969 1970 1971 1972 1973 17 U 1969 1970 1971 1972 1973 19741/

(In thousands of dollars) (In per cent) Iron ore 137,050.5 149,806.6 160,614.3 182,709.0 196,714.o 262,169.2 58.9 63.5 65.1 67.7 60.7 65.5 Lumps (63,004.5) (53,844.5) (40,304.3) (46,730.1) (53,974.6) (68,791.2) (27.1) (28.8) (16.4) (17.3) (16.7) (17.2) Pellets (16,970.5) (19,702.2) (31,804.2) (54,753.9) (53,135.5) (75,629.8) (7.3) (8-3) (12.9) Fines (20.3) (16.4) (18.9) (31,625.3) (40,882.6) (54,824.4) (53,422.0) (52,195.3) (74,758.5) (13.6) (17-3) (22.2) (19.8) (16.1) Concentrates (25,450.2) (35,377.3) (18.7) (33,681.4) (27,803.0) (37,408.6) (42,989.o) (10.9) (15.0) (13-7) (10.3) (1.s5) (10.7 Rubber 30,479.8 36,175.4 32,498.1 29,037.1 42,851.4 64,513.0 13.1 15.3 13.2 10.8 13.2 16.1 Crepe (16,933.4) (17,451.3) (16,378.1) (13,327.9) (27,081.3) (35,574.1) (7.3) (7.4) (6.6) (4.9) (8.4) (8.9) Latex (13,546.4) (18,724.1) (16,120.0) (15,709.5) (15,770.1) (28,938.9) (5.8) (7.9) (6.5) (5.8) (4.9) (7.2) Logs 6,940.2 5,745.4 7,243.0 8,157.8 16,605.8 17,581.2 3.0 2.4 2.9 3.0 5.1 4.4 Diamonds 45,706.3 27,891.2 28,229.1 31,674.1 49,316.2 29,937.5 19.6 11.8 1.4 11.7 15.2 7.5 Coffee 2,524.1 3,339.2 4,013.5 4,556.4 5,060.8 3,971.0 1.1 1.4 1.6 1.7 1.6 1.0 Cocoa 1,587.2 1,015.1 1,254.7 1,465.6 1,898.8 4,285.2 0.7 0.4 0.5 0.5 o.6 1.1 Palm kernels 1,476.7 1,880.7 2,167.9 446.7 248.5 59.5 o.6 0.8 0.9 0.2 0.1 __?/ Other 1,773.3 4,385.3 3,585.1 5,603.1 5,804.4 12,168.4 0.8 1.9 1.5 2.1 1.8 3.0 Re-exports 5.280.8 5.871.1 6,970.9 6,103.3 5.339 3 5.572.2 2.3 _2 2.8 2.3 1.7 1.4 Total 232,818.9 236,110.2 246,576.6 269,753.4 324,039.2 400,257.1 100.0 100.0 100.0 100.0 100.0 100.0

Sources: Ministry of Planning and Economic Affairs, External Trade of Liberia: Exports (various years); and data provided by the Liberian authorities. Revised; N egligible. E Table 14: VOLUE OF EXORTS BY RINCIPAL COMMODITIES, 1969-74

r+9 1970 1077 197 '1973 19714

(In thousands of lpng tons)

Iron ore 20,245.8 23,8.89.o 20,899.2 22,615.9 25,169.7 25,187.5 Lump (),202.4) (8,7357.5) (5,427. 9) (5,712-5) (6,884.A) (6,616.9) Finl ets '32 (7,332.4) (8,071.2) (8 506 9 ) (8,862.8) (9,'460.1) Pellets (1,576. 6) (,0.)(2,961.1) (4+,268 . P3) (4, 016.-5) (4,239.h) Concentrates (3,775.3) (5,516.0) (4,439.0) (4,107.8) (5,405-5) (14,371.1)

(In thousands of pnunds)

Rubber 1a4-,150. 183,874.5 186,475.5 1°r923. 0188,414.5 19!4,O?.9 Late-:< (3,203.14) (91,392.1) (86,387. ) (8(,-'j) (73,668.!) (76,569.?) Crepe (79,9L7.3) (92,482.h) (99,590.2) (°5,,55-7) (114,781.1) (113,720.2)

C2 'fee 9 ,3L9 2 1(0,949.7 12,171.8 1 2 ,5.6 15 ,2g.0 7,5148.5

`,231.9 3,573.5 6,85 2° 7,01571 5 ,!b5.3. 7, ?;6

Pa2ir kernels 25,050.0 29,230.0 36,694.8 9,91.5 2,23'9.9 360.0

(In thousands of carats)

q660* 738. 9 2.79. 1.3 35.

(In t:ousands of- cubic 'eet)

L.'egs';-, -, 559 4,9 8. 7,719,232.0 .8 2.9 9.8

3ce2rces: ;4'.is&-y I1anr,-r-:!- and Afconor,cAffairs, External -rade or Liberia: Exorts ':-iar^us years); ard' dat a p-ovidesd by.'tc Liberian authnr-ities.

1, es-. AP,PDENDIX TABLE Table 15: IMPORTS BY COMMODITY GROUPS, 1969-7)L

1969 1970 1971 1972 1973 1974

(In thousands of dollars)

Machinery and transport equipment 36,547.1 50,082.2 54,175.5 63,397.4 68,825.5 85,375.7

Manufactured goods 43,499.5 50,594.6 50,646.1 58,817.2 57,618.1 77,711.4

Foodstuffs, beverages, and tobacco 17,982.6 25,260.3 29,786.9 30,458.5 35,488.o 46,527.0

Fuels and lubricants 43621.8 9,527.5 11,841.3 12,o3o.1 14,718.6 56,414.5

Chemicals 7,806.7 9,663.2 11,548.8 9,914.6 12,803.5 18,520.7

Other 495 4568.2 4,421.5 4,o65.5 4,015.0 4,901.0

R6corded imports 114,653.5 149,695.9 162,420.3 178,683.4 193,468.7 289,1448.3

Adjustment for q8ti'ated border trade& 22,855.2 13,945.7 114.5 15,837.1 24,658.1 14,950.0

Total 137,506.6 163,641.6 176,534.8 194,520.4 218,326.8 304,398.3

(In per cent of total)

Machinery and transport equipment 26.6 30.6 30.7 32.6 3_.6 28.0

Manuf.ctured goods 31.6 3C.9 28.7 30.2 26.4 25.5 Foodstuffs, beverages, and tobacco 13.1 15.4 16.9 15.7 16.3 15.3

Fuels and lubricants 3.3 5.8 6.7 6.2 6.7 18.5

Chemicals 5.7 5.9 6.5 5.1 5.9 6.1

Other 3 2.8 2.5 2.1 _.8 1.6

Recorded imports 83.4 91.5 92.0 91.9 88.7 95.1 Adjustment for qstimated border trade,l 16.6 8.0 8.1 11.5 4-9

Total 100.0 100.0 100.0 100.0 100.0 100.0

Sources: Ministry of Planning and Economic Affairs, 3xternal Trade of Liberia: Imports (various years); and data provided by the Liberian authorities. / Revised. 2 Customs data. / On diamonds only.