The IMF reports says Liberia remains a fragile, post-conflict country with weak capacity and limited physical and human capital accumulation. External assistance to Liberia is winding down from its peak in 2016.
To address pressing needs, the government launched its Pro-Poor Agenda for Prosperity and Development (PAPD), focusing on physical and human capital accumulation. Policy uncertainty and slippages, however, imposed a significant toll on the economy over the past two years.
Particularly, higher fiscal deficits and accommodative monetary policy have led to rapid depreciation of the Liberia dollar and increased inflation, eroding the purchasing power of the poor. Outlook and Risks. The near- and medium-term outlook under the baseline scenario is challenging.
Growth is projected to slow further to about 0.4 percent in 2019 and remain below 2 percent into the medium-term. In the baseline scenario, the authorities face the possibility of a forced, abrupt adjustment when domestic and external financing options are exhausted. An alternative reform scenario is therefore presented as a more viable alternative, in which growth weakens somewhat in the near term, due to proactive fiscal and monetary tightening, but picks up significantly over the medium term to exceed 5 percent by 2024. Policy Recommendations.
In the current situation, macroeconomic stability needs to be the priority in the short-term. This will require not only monetary tightening, but also adopting a realistic fiscal program for the remainder of FY2019 and FY2020.
Meeting pressing needs will require not only a re-prioritization of spending away from consumption, but also significant reforms aimed at boosting revenue. Parallel to these efforts, creation of a welcoming business environment is needed to give the private sector enough confidence to pursue physical capital accumulation.
In this process, it will be important to safeguard social sector spending, not only for humanitarian reasons, but also to ensure that the pace of human capital accumulation is sufficient to underpin high growth over the medium term.