Liberia: Liberia Finance Profile

Liberia: Financial Sector Profile

Founded by freed slaved from the United States, who came to form the country’s ruling class, Liberia’s recent history has been characterized by internal strife and conflict. A military-led coup overthrew the government in 1980, marking the beginning of a long-lasting civil war that claimed additional than 200,000 lives, devastated the country’s infrastructure, and caused GDP to decline at an annual rate of 30 % until the signing of a comprehensive peace agreement in 2003. In 2005, following peaceful elections, Ellen Johnson-Sirleaf became Liberia’s and Africa’s initial democratically elected female president.

Even though significant evolution has been made in overcoming the devastating effects of years of civil conflict, Liberia remains part the poorest nations in the world. GDP per capita stands at USD 500, or just one fifth of the African average. However, the new government’s strong commitment to political and economic reforms have yielded significant benefits.. Liberia enjoyed GDP increase of above 7 % per year from 2006 to 2008, with a slowdown to 4.9 % in 2009 before a forecasted rebound in 2010. Liberia’s robust increase has been closely connected to the resumption of forestry operations, increased diamond and gold exports, higher production of rice and a vibrancy of the services and construction sectors.

Agriculture remains the mainstay of the Liberian economy, accounting for about 61 % of GDP in 2007, followed by manufacturing, accounting for 13 % of GDP in 2007. Most of Liberia’s natural resources are exported raw.

Despite the last few years of gains, major challenges remain. Much of Liberia's infrastructure, inclunding roads, the electrical grid, and communications systems, remain in ruins, and the country faces crippling deficit, estimated at 572 % of GDP in 2007. Annualized inflation has been high, having reached a peak of 27 % in August 2008, but is expected to fall back to 5 % by 2010. The significant disparity between high import and low export levels have led to a large current account deficit, which is estimated to reach 60 % of GDP in 2010.

Liberia's economy is shallow and remains vulnerable to political and economic instability. The high cost of credit and scarce access to financing impede much-needed entrepreneurial activity and development of the private sector. Even though banks are highly liquid, low competition, combined with borrowers’ high risk profiles, leads to interest rate savings-credit spreads of up to 14 %.

Substantial evolution has been completed in strengthening the banking sector inclunding adopting a national corporate governance framework and increasing the regulatory capital adequacy ratio and the minimum capital requirements. Measures have as well been implemented to improve supervision of the banking system, inclunding a requirement for semiannual on-site examinations of all operating banks.

The Liberian financial sector is dominated by banks. Eight banks operate currently operate in the country, seven of which are foreign owned. The only domestic bank is owned by the government. Gross assets, which registered a 35.4 % increase in the 2007-2008 period, stand at over 40 % of GDP. Deposits rose by 9.9 % and gross loan portfolio by 3.5 % for the same 2007-2008 period.

The industry’s capital adequacy ratio continued to be in excess of the minimum Basel requirement, at 22 %. However, non‐performing loans as a ratio of total loans in the sector stood at 19 % as of end 2008. As an indication of increased public confidence, the sector experienced a 43 % increase in deposits, between 2007 and 2008.

The Liberian capital market is in its nascent stages of development: no stock market operates in the country, and government bond issuance has been limited.

Liberia is a member of the Economic Community of West African States (ECOWAS). The government is committed to a phased implementation of the ECOWAS Common External Tariff by 2012.

Remittances play a large role in the Liberian economy. 2008 estimates indicate that annual remittances totaled 69 million USD or the equivalent of 8.1 % of annual GDP.

The world financial crisis has had adverse result on the Liberian economy: a fall in rubber prices by over 60 % and a slowdown in remittances resulted in a drop in foreign-exchange inflows. While economic increase has slowed, limited external financial linkages have shielded the country from the worst of the world downturn.

Next slowing in 2009, economic activity is strengthening in 2010 with moderate inflation and a stable exchange rate. Real GDP increase is expected to increase to additional than 6 % from 4 ½ % in 2009. Exports have rebounded due to the increase in rubber production and prices. FDI commitments have increased sharply following the ratification of iron ore and several concession agreements palm oil. A number of legislative acts that contribute greatly to support private sector development and improving governance have been approved by the Legislature.

Performance under the economic program supported by the Fund has been good. All quantitative performance criteria under the program until the end of June 2010 were observed. The implementation of structural benchmarks until the end of September was generally satisfactory, although the completion of national accounts data and a computerized registry of government assets have been delayed.

The 2010/11 budget was approved in September with changes to the Code of gain. The budget provides an increase in revenues and subsidies because of budget subsidies and payments for signing the concession agreements. tax revenue increase was modest due to a reduction in the maximum rate of gain taxation of corporations and individuals beginning January 1, 2011. Spending details are being finalized. budget funding is currently limited to a drawdown of deposits uncommitted. A supplementary budget will be filed should new funding become available.

Rising Liberia Vision 2030, and accelerate increase outside the mining and agricultural concessions. Discussions focused on sources of funding for infrastructure over the medium term based on detailed financial projections and financial models concessions. The concessions are expected to provide additional revenue to finance a large share of infrastructure development needs. However, the action deep structural impediments to private sector investment outside concessions will be essential to facilitate opportunities for increase and jobs for the young and growing people. In this regard, the mission discussed the efforts to transform the economy to support inclusive increase and development of businesses small and medium enterprises.