RESTRICTED Scopy Report No. AF-45a Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized THE CURRENT ECONOMIC POSITION AND PROSPECTS OF LIBERIA Public Disclosure Authorized June 16, 1966 Public Disclosure Authorized Africa Department CURRENCY EQUIVALENT Liberian $1 = U.S. $1 INTRODUCTORY NCTE This report has been based on material collected by Mrs. Gloria Fleming, who was attached to an I.M.F. Mission to Liberia in November, 1965. The text has been written by Mr. Colin Bruce. CURRENT ECONOMIC POa TION AND PROSPECTS OF LIBERIA TABLE OF CONTENTS Page No. BASIC DATA. * . * * MAP . e * . * * * * * * * * * * * * * * * SUMARY AND CCLUSIONS .... * I BACKGROUND . * * * * * .* * * II. RECENT ECONOMIC DEVELOPMEiTS. 1 Overall Growth. * * * * 1 Sectoral Growth Patterns. 2 Mining and Quarrying. * * * 2 Agriculture a . * * * * * * * 2 Investment and Savings. * * * 3 Internal Financial Situation. 4 Public Sector Finance . a . * . Currency and Credit . .......... 6 Prices. * . * . * * * * * * * 7 External Financial Situation. 7 Balance of Payments . ..0. * * * * 7 Foreign Exchange Reserves.. .. ..... 7 Debt and Debt Service . ..........* * 7 III. FUTURE PROSPECTS. 8 Favorable Growth Factors. * 8 Constraints on Growth .............. 9 Development Planning and Statistics . 9 Projections . 9 Creditworthiness ........ ** ** *. 12 STATISTICAL APPENDIX I. BASIC DATA Area: 43,000 sq. miles Population: 1 million (1962) Rate of growth (long-term): 1.5 % Population density (per sq. mile): 20 - 25 Political status: Independent since 1847 Gross national product: $163 million (1964) Rate of growth 1960-64: 12.8% at constant 1960 export prices .8% at current prices Per capita: US$163 (1964) Gross domestic product at factor cost: $176.4 million (1964) of which, in percent, Agriculture: 29% Mining and quarrying: 48% Manufacturing, construction, transport and trade: 29% Government: 9% Percent of GDP at market prices 1964 1961-64 Gross investment 25% 38.5% Gross national savings 8% - Balance of payments current account deficit 17% - Investment income payments 19% 18% Government taxation revenue (or current revenues) 20% 19.5% Resource gap as % of investment: 66% Money and credit Relationship to large monetary or customs area: No independent monetary system. The currency is the US $. Rate of chango 1964 1961-6h!' Demand deposits $16."4million - Time and savings deposits 9.6 " Commercial bank credit to private sector 20.8 ' 16,3% Other lending to private sector - Rate of change in prices LIBERIA -2- Public sector operations Long-term 1964 Rate of change 1959/60-1962/63 Government current receipts $38.8 million 7.8% Government current expenditures $36.4 " 5.5% Surplus/deficit $ 2.5 Government capital expenditures $ 8.5 15.7% Public investment expenditures $ 7.0 " Total external assistance to public sector $ 9.3 " External public debt (in US $) Fiscal 1959/60-62/63 Total debt outstanding $178 million (Dec.31., 19614) Total annual debt service $9 rdllion $ 10.6 million (196) Debt service ratio (Public and 27% (1964) Private) Balance of payments (in US $) Long-ter Rate of change 19614 (1959-64) Total exports (f.o.b.) $124.9 million 13.b$ Total imports (f.o.b.) $111.2 i 21.0l Net invisibles -$ 47.6 i 16.2% of which investment income -$ 38.0 i 8.3% Net current account balance -$ 33.9 it 1959 -+0.1 1960-6e 19664 Commodity concentration of exports 90(6 90% (iron ore and rubber) Gross foreign exchange of reserves n.a. n.a. IMF position 1962 - Jan.1965 1965 Quota $11.25 million $13.milion Drawings $ 7.4 $3 16. External financial assistance (in US $) Past average (1960-64) 1965 Commitments Disbursements Commitments Disbursements Total Soft assistance $7.0 m. $4.5 m. $6.8 m.- Hard assistance $10.0 m. Major donors: U.S. $ 7.0 m. $4.9 m. Germany $ 2.0 m. $1.0 m. Miscellaneous $3.4 m. LIBERIA -3- II. IBRD AND IDA OPERATIONS (in US $) A) Past operations Amount committed Amount disbursed DBRD 4.25 million 0.55 million IDA Total Weighted average Rate of Grace Repayment interest period period (p.a.) (years) (years) B) Terms of IBRD/IDA operations (January 1, 1961-October 31, 1965) .0550 8.42 10.00 *C) Record of IDA transactions Credit (date and purpose) None *D) Future operations IBRD loan (date and purpose) None IDA credit (date and purpose) 1966 $3 million roads *Per capita IDA commitments received: None *Per capita IDA commitments received and to be received: $3 .IlBE RI A Koohun S i E R R A Koo L E O N E G U | N E A \./.p > Loation of Liberia N/M f!b., z oomo /NIMBA /Nat oaho reCo Bendoj- '~ dTok o nW<. v;iBe le Gopre Bpolu oTeawo ono VORY Pu eh-n t= -l GO RIC a Ga, ronZ..ncu so loa d PLAN Ar/ON Mecco Den,no) atoto Roberts po't solol. / suehn F- i-o4e;;, MON RO\I 0 Ho,bl FIRES TONE - se h ete PLANTATIONS - . Compou.d N- 3 Tch,en Buchon )$n D,Ob hard surface (bituminous) y' Loose surface (laterinte) Under construction Warl.ke - - - ---- Programmed and ar under survey Toruke Webo Comp Kng-O RailwaysKarlee - Airfields Airstrips Pibo F/RESTONE - . PLANTATIONS 0 .o so a SO National forests Cape Plmos(Har JUNE 1966 18RD-1803 SUMMARY AND CONCLUSIONS i. Liberia has benefitted from stable political conditions over many years and there have been no political or constitutional changes since the previous economic report ("The Economy of Liberia", AF-10 of Septem- ber 4, 1963) was circulated. However, there have been significant economic and financial changes. Following a financial crisis towards the end of 1962, the Government introduced budgetary reforms with the assistance of the DIF which are well on the way to solving the crisis and laying the foundation for a steady, if unspectacular, growth in the future. The 15,000 or so Americo-Liberians, in a total population of about 1 million, still dominate the political and economic life of the country, but under President Tubman's "unification" policy a start has been made to provide more opportunities and help to the indigenous African population, 90% of whom are illiterate and most of whom are engaged in subsistence farming. The Government is maintaining its "open door" investment policy. ii. The Liberian economy is still very much a double enclave one, with iron ore and rubber providing 55% of GDP and 94% of exports in 1964 and the main stimulus to growth. Neither sector has had much direct effect on the position of the mass of the indigenous population. There has been little spill-over effect into other sectors mainly because all of the iron ore and most of the rubber is produced by foreign concession companies, who transmit most of their profits overseas. The iron ore companies have sustantial debt which means that large additional sums have to be transferrec overseas in the form of interest and amortization. Also, the internal transfer payments through taxation and profit sharing with the Government by the foreign concession companies have been and are limited by generous tax concessions in the earlier years of development. iii. Throughout the 1950's and up through 1962 an investment boom gathered momentum. The rate of growth in GDP was 4.7% per annum between 1960 and 1964, despite falling prices of iron ore and rubber. If these export prices had not fallen, the growth rate would have been 11% per annum for the same volume of output. The investment boom ended in 1962/63, partly because of the completion of some major iron ore developments and the tapering off of some others, partly because of the continued fall in iron ore and rubber prices and partly because a boom in public spending ended when it was realized that the government faced bankruptcy. In order to finance the rapid increase in expenditure, both on capital and current account, the Government had resorted to extensive short and medium-term financing by using suppliers' credits, contractorst finance and borrowing from the commercial banks. It became clear that the Government could not meet the maturities on these loans and credits. At the same time a balance of payments crisis developed. Between 1960 and 1964 the current account balance changed from a small surplus of $0.1 million to a deficit of $33.9 million, due mainly to a deterioration in the terms of trade, an increase in the net outflow of investment income and, up to 1962, a rapid increase in imports resulting from the investment boom. As long as these deficits were being matched by substantial private and public net capital inflows, the balance of payments position was tolerable, but with the sharp drop threatened in both these items, it was realized that something had to be done. - 11 - iv. The IMF recommended a program of financial reform and retrenchment. The Government accepted the recommendations, an IMF Standby Credit was arranged and an extension of debt maturities negotiated with the Government's creditors. Ever since the Government has continued to implement these policies with DIF technical assistance. v. Fundamentally, Liberia has a strong economic potential for long- term growth. It is rich in iron ore (and possibly other minerals) and it is suitable for growing a wide variety of tropical crops. So far only rubber has been developed on a large scale, but there are other possibilities particularly for palm kernels, palm and other vegetable oils and for timber. One of the main tasks of the Government in the coming years will be devising means of modernization and monetizing the subsistence sector.