Liberia: Risk Assessment
Country Risk Rating
Business Climate Rating
- Diverse natural resources (rubber, iron, gold, diamonds, oil)
- Financial support from the international community
- Member of the Economic Community of West African States (ECOWAS)
- Poor infrastructure
- Dependent on commodity prices
- Significant levels of poverty and unemployment; shortcomings in education and healthcare
- Recent Ebola epidemic, which could reoccur
- Recent and fragile democracy, high levels of corruption
- Difficult business environment
- Dominant informal sector
Resumption of growth
Liberia's growth has been volatile since the Ebola epidemic in 2014. After being negative in 2019, partly due to currency depreciation and a weak external sector, growth contracted further in 2020 following the COVID-19 pandemic. Measures to combat the spread of the epidemic, such as the closure of certain establishments including schools, churches, and cinemas, and restrictions on access to restaurants and banks, impacted domestic demand. To lessen the impact on the population, whose situation is already difficult, the government and its international partners implemented a pandemic response plan, with assistance provided to the poorest and most vulnerable households. The plan also features a component devoted to economic recovery through private sector investment and domestic revenue mobilization. However, the downturn in activity was mainly due to the decline in exports (29% of GDP in 2019). Mining sector exports (nearly 50% of the total), chiefly gold, declined, despite higher gold prices, owing to weakened external demand. Rubber and palm oil exports fell as well. In 2021, external demand is expected to recover, which should allow exports to resume and thus growth to rebound. Services recorded losses due to restrictions related to the COVID-19 crisis, which affected various sectors such as tourism, transport, and financial services, but should be on a more positive trajectory in 2021. Agriculture and forestry (one-third of GDP), which employ 60% of the population, are expected to be resilient in 2021 thanks to increased rubber and palm oil production capacity.
Inflation fell sharply on weaker demand, low oil prices, and tighter monetary conditions. A shortage of banknotes led to a contraction in the money supply and consequently to less depreciation of the Liberian dollar, which reduced inflation. Still, inflation remains high as a result of the Liberian dollar's trend depreciation against the U.S. dollar. In 2021, a slight rise in the global price of oil, which is a major import product, will slow the decline in inflation.
Deficits financed by foreign aid
The current account deficit remains very high, despite international assistance, but is stable. It is particularly affected by the large trade deficit (18% of GDP in 2020), which did however continue to shrink thanks to a decline in imports owing to the Liberian dollar’s sharp depreciation against the U.S. dollar (1 USD was worth 97 Liberian dollars in July 2017, compared to 195 in October 2020), as well as modest growth in exports. In 2020, the decline in exports was offset by lower imports and lower oil prices. In 2021, the deficit is not expected to change, due to the parallel recovery in exports and oil prices. The current account deficit will be partly financed by FDI (8% of GDP), but the bulk of the financing will come from multilateral concessional loans. The increase in public spending to contain the pandemic, coupled with lower revenues due to the slowdown in activity, caused the public deficit to widen to -20.5% in 2020 versus -18% in 2019. However, grants considerably reduce the deficit, and this situation should continue in 2021 with the additional funds received in response to COVID-19. The IMF has granted USD 50 million under its Rapid Credit Facility and debt service relief under the Catastrophe Containment Relief Trust amounting to USD 45 million over two years. The EU approved the disbursement of USD 59 million under two programs to promote economic development and post-COVID recovery. The World Bank and the African Development Bank have also released funds for various health and food security projects, and to mitigate the effects of the pandemic. Public debt has increased significantly because of this financing. However, its external share (70% of the total) is almost exclusively multilateral and concessional. The domestic share recently increased due to borrowing from the central bank.
Uncertain political stability
Former footballer George Weah was elected president in December 2017. His election, after two civil wars (1990/97 and 1999/2003), marked the first democratic and peaceful transition between two elected presidents in 73 years. Through his Pro-Poor program, President Weah affirmed his commitment to tackling the lack of infrastructure, promoting access to basic public services, and fighting corruption. However, the weak economy, inflation, and recurring corruption issues are fuelling public protests and undermining political stability. Furthermore, the regime’s handling of the COVID-19 crisis, which has been handicapped by the weak health care system, has come in for criticism. This has further eroded the popularity of the president, which had already been damaged by social unrest and corruption scandals. The next elections are scheduled for 2023. In the meantime, political stability may well be challenged by widespread criticism of the Weah administration.