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Liberia: Economy Rebounded in 2009; Grew by 4.6%

Tuesday, 04 May 2010 15:33

Source: Liberian Daily Observer
By: George D. Kennedy

Says CBL in Newsletter:
Amidst the daunting impact of the global financial and economic crisis on the fragile Liberian economy in 2009, a newsletter published by the Central Bank of Liberia (CBL) has reported that the economy grew by about 4.6% last year.

According to the newsletter published February 2010, the growth trajectory of the economy compares favorably with the 1.3% growth for Sub-Saharan Africa and the decline in global output for the same period. The Central Bank of Liberia anticipates a strong economic expansion of the country in 2010, projecting a GDP growth of well above 7.0%.

 The CBL newsletter indicates that the continued rise in Liberia's Gross Domestic Product (GDP) took place against the background of a relatively stable macro-economic environment.

In a foreword by CBL Executive Governor Dr. Joseph Mills Jones stated that inflationary pressures moderated, reflecting the decline in international prices of fuel and food.

“The Government's adherence to prudential fiscal policy and the efforts of the CBL towards maintaining exchange rate stability also contributed to this stable macroeconomic environment,” Dr. Jones noted.

The Executive Governor, however, pointed out that the continued high current account deficit remains a problem, requiring more concerted efforts to increase production for both exports and local consumption.

Some broad topics highlighted in the newsletter include the Executive Governor's foreword, basic CBL reserves information, exchange rate, inflation, remittances, the banking sector, Liberia's membership to the West African Monetary Zone (WAMZ), microfinance-regulatory and supervisory framework, microfinance training, capital market development in Liberia, the launch of an integrated financial sector in Liberia, and progress of improving the credit environment in Liberia, amongst others.

CBL Reserves

One of the major functions of any central bank is to maintain exchange rate stability in the economy.

Reserves as an instrument used as a shock absorber against factors that can negatively affect a country's exchange rate such as a fall in export earnings or decline in remittance inflows; it is informed by international best practice for every central bank to accumulate reserves.

The reserves accumulation by the CBL for the past five and half years has given space to the bank to intervene in most of the shocks that could have rendered the entire economy into shamble especially during the global financial crisis.

Between January 2006 and January 2010, the CBL net foreign reserves position increased from about US$5 million to US$272.8 million including special drawing rights (SDRs) allocated by the International Monetary Fund (IMF).

The Banking System

The CBL newsletter reports that the balance sheet of the banking expanded in key areas, and there was improvement in key prudential ratios thus making necessary for the bank to step up its mode of supervision from the traditional camels-based approach to risk-based supervision. Total credit to the private sector as a percentage of nominal GDP, according to the CBL information sheet, increased to 15.5 percent during 2009, compared with 11.6 percent in 2008.

Exchange Rate

A key function of the central bank is to ensure exchange rate stability. Exchange rate is a major determiner of inflation-the increase or decrease in the price level of goods and services.

Therefore, as a central banker, you must be in the position to ensure exchange rate stability. The CBL notes a reduction in the pressure on the exchange rate of the Liberian dollar between October and December of 2009, with the rate moving from L$71.56/US$1.00 at end October to L$68.31 at end December.

Inflation

According to the CBL, inflationary pressure reduced in 2009 averaging 7.4%, from 17.5% in 2008. The bank recalled the general decrease in prices in 2009. According to CBL newsletter, the decrease was mainly a result of the 'pass-through' effects on the domestic economy of the decline in prices of oil and food on the world market.