Liberia - Current economic position and prospects

RESTRICTED Scopy Report No. AF-45a 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 The report may not be published nor may it be quoted as representing their views.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 THE CURRENT ECONOMIC POSITION AND PROSPECTS OF LIBERIA June 16, 1966 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 Per capita: US$163 (1964) .8% at current prices 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: $3 .Il BE R I A S i E R R A Koo Koohun L E O N E \./.p > G U | N E A Loation of Liberia z oomo N/M f!b., /NIMBA /Nat oaho reCo Bendoj- '~ dTok o nW<. v;iBe le Gopre oTeawo Bpolu Pu eh-n t= -l ono V O R Y GO RIC a Ga, ronZ..ncu so loa d PLAN Ar/ON Mecco Den,no) atoto Roberts po't solol. / suehn F- i-o4e;;, MON RO\I Ho,bl 0 FIRES TONE - se h ete PLANTATIONS - . Compou.d N- 3 Tch,en D,Ob Buchon )$n 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 0 .o so a SO - . PLANTATIONS 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. On the other hand, because of its very small population and poorly developed education and training facilities, the prospects for any worthwhile measure of industrial development are slim. In the pre--1963 boom the construction industry expanded very rapidly and provided much employment. With the ending of the investment boom and the retrenchment in government expenditure there has been a considerable contraction, which has not yet ended, with an accompanying fall in employment. vi. A striking feature of Liberia's recent economic history is the serious deterioration in the terms of trade, which has offset to a marked degree what would otherwise have been a powerful stimulus to a hi,her rate of growth. The terms of trade are likely to deteriorate further quite considerably during the next five to ten years. Tables 18 and 19 show in part this depressing feature. However, the same projections indicate that the greatly increased output and export sales volume of iron ore will more than offset the falling prices. Projecting the national income and expenditure forward to 1970 and valuing rubber and iron ore, both in terms of estimated current prices and constant 1960 prices, the GDP is expected to grow at only 2.% at current prices as against 6.6% at constant 1960 prices. As this indicates, the scope for increased public and private consumption is very limited. If public consumption incrcases more than 2-3% per annum, then the rate of public invcstm-Cnt and overseas borrowing will be reduced even further. vii. The debt service burden on the budget will continue to limit seriously the scope of government development activity. At the moment debt service payments take just over 26% of total government revenue. Unless the Government is able to negotiate another extension of maturities, debt service will take about 28% of total revenue in 1970 - the worst year being 1969 when the payments reach their peak. In 1975, however, the position is likely to be much improved as the ratio of debt service payments to govern- ment revenue falls to about 180. This does not include debt service payments on any new loans. The figures show that if a reasonable public investment program is to be financed, most of it will have to come from overseas borrowing and such borrowing will have to be on soft terms, particularly with a long grace period. - iii - viii. The projected rate of public investment in 1970 of $17 million should be well within Liberia's absorptive capacity. Indeed, were it not for the large debt service payments, public saving available for capital expenditure would be higher and it would be desirable to have a higher rate of public investment to stimulate economic and social development outside the enclave economy, particularly as private investment is projected to drop from $4 million in 1964 to about $23 million in 1970. There is, however, a possibility that private investment might be higher as an additional iron ore mine might be opened up. ix. With regard to the balance of payments, while the large current account deficit is likely to be virtually wiped out by 1970, (due to a marked improvement in the trade balance) the ratio of total public and private debt service payments to foreign exchange earnings will still be high. The ratio is likely to increase somewhat from 23% in 196b to 27% in 1970, but is likely to improve towards the end of the 1970's. x. Thus, although both debt service ratios are high, the position is under control and improvements can be foreseen, provided public consumption continues to be closely controlled. Since 1962 the Government has shown commendable willingness and ability to reform and for retrenchment and there is no reason to think that these policies will not be continued. The continuing deterioration in the terms of trade will limit the rate of growth of the economy in terms of current prices to 2.6% per annum, but the likely improvement in the current account balance of payments and the public finance sector are such as to make Liberia creditworthy for a fair amount of overseas borrowing, but only on soft terms. Report AF-45, dated June 16, 1966 Africa Department - 1 - THE CURREN.T ECONOMIC POSITION AND PROSPECTS OF LIBERIA I. BACKGROUND 1. Liberia has benefited from stable political conditions over many years and there have been no political or constitutional changes in Liberia since the previous economic report ("The Economy of Liberia", AF-10 of September L, 1963) was circulated. Liberia continues to be governed peaceably under a republican form of constitution by President Tubman and his True Whig Party. 2. - With an area of 43,000 square miles of rolling, low bush and forest-covered land, Liberia is situated within the tropical rainbelt area, with very heavy seasonal rainfall. It has considerable natural resources of iron ore (and possibly other minerals) and forests. It is climatically suit- able for growing a wide variety of tropical crops. 3. Liberia's first population census was carried out in April 1962 but the information has still not been published. However, it is believed that the population is only about 1 million (estimated to be increasing at 1.5% per annum) and there is thus a low population density: about 23 per square mile. The small absolute size of the population poses certain problems for economic development, such as the small internal purchasing power for manufactured goods. About 15,000 or 1.5% of the population are Americo-Liberians: the descendants of the original freed American slaves who colonized Liberia in 1820. This small group still dominates the political and economic life of the country, but under President Tubnan1s "unification" policy the indigenous African population, 90% of whom are illiterate, is gradually being brought more into the picture. Further progress depends upon strengthening the econony so as to support comprehensive education and public health programs, 4. Liberia's statistical information is scarce and of poor quality and as yet there are no official naticnal income accounts. Unofficial esti- mates value the GDP at factor cost in 196h at about $176 million or about $176 per capita. This is relatively high for Africa but is unequally distri- buted and a substantial part flows abroad, due to the repatriation of profits earned by foreign companies engaged in iron ore mining and rubber growing. Per capita GNP in 1966 was about $163. About 80% of the population are engaged in agriculture, forestry and fishing and most of these are subsistencE farmers with a very low standard of living. II. RECENT ECONOMIC DEVELOPMENTS Overall Growth 5. Liberia experienced rapid economic growth in the 1950's and up to 1962. In 1963 there was a slump from which a recovery is beginning. The depression in 1963 was caused mainly by three factors. First, by the rapid falling off of investment in the iron ore mines and servicing facil- ities as major development works were completed. Second, by the continued - 2 - fall in the prices of both iron ore and rubber, which together provided about 55% of the GDP in 1964. Third, by the reduction in government capital expenditure, particularly in the building and construction industry. This in turn resulted from a too rapid expansion of this sector and the serious public debt position into which the government got itself by financing the expansion with large amounts of short and medium-term finance, a large part of which consisted of contractors' finance and suppliersl credits. 6. Prior to 1962 GDP increased by 6% to 7% annually. In terms of constant prices the rate of growth was higher as iron ore and rubber prices were falling. In 1963 there was a small fall, but a recovery began in 1964 which appears to be continuing. GDP increased about 3.8% in 196h. In terms of constant prices again the increase was considerably higher. From 1960 through 1964 and revaluing rubber and iron ore net output quantities at 1960 prices, GDP increased by about 11%. 7. There are no time series of employment, but there must have been a reduction in employment in 1963 due to the recession in the building and construction industry, which has not been offset by employment in mining which of course is capital intensive. Sectoral Growth Patterns Mining and Quarrying 8. Iron ore mining, which is opencast mining, replaced agriculture as the most important sector of the economy in 1964. As an earner of foreign exchange it passed rubber in 1961. Iron ore production quadrupled over the five year period 1960 through 1965, from 2.9 million to 15.9 million long tons, but prices fell by 40%, so that the value of output little more than doubled. Nevertheless, iron ore mining has been an important factor offsetting the lower rubber prices. There are four iron ore producers - Liberian Mlining Company (L.M.C.) which has been in production since 1951, fational Iron Ore Company (N.I.0.C.) which started production in 1962, Liberian-American-Swedish Minerals Company (L.A.M.CO. ), which first produced in 1963 and is currently the largest producer,and German-Liberian ining Company (D.E.L.I.M.CO), which commenced production in 1965. After increasing from $2.3 million in 1960 to $4.5 million in 1962 the net output of diamond mining fell to $1.7 million in 1964. Volume fell from just over 1 million carats in 1961 to about 200,000 carats in 1964. Diamonds are mined by Africans in small diggings. Agriculture 9. Agriculture's share of the GDP has fallen from Wlo in 1960 to 24% in 1964 and in absolute terms the net output value has fallen from $68.3 million to $51.0 million, of which rubber accounted for $20.8million. But most of the reduction took place in 1961, when the unit export price of rubber fell by nearly 28%. Prices have declined further since then, but at a much slower rate, while output has remained more or less steady. Until - 3 - 1960 the rubber was almost entirely produced on the plantations of the Firestone Rubber Company, but production by Liberian farmers was encouraged and is increasing rapidly, and other concessions have since been granted to foreign companies. 10. The only other cash crops of any importance are palm kernels, coffee, cocoa and piassava: but exports of these four crops - a monopoly of the Liberian Produce 1arketing Corporation, established in 1962 - only con- tributed about 6% of total exports in 1964. 11. The subsistence sector contributes only about 11% of GDP and has probably been growing roughly in line with the population increase, believed to be about 1.5% annually. The main subsistence crop is manioc or cassava. Rice is another important food crop, but a large part of Liberia's requirements are imported, although there has been increasing local production of swamp rice over the last few years. 12. Liberia has considerable reserves of forests which have hitherto not been exploited to any great extent, due to transport problems and to lack of knowledge of the various species growing in Liberia. However, a German team is currently making a survey of forests and timber prospects and timber production (entirely for home consumption) has increased at about 101 per annum over the last few years to a total of 16 million board feet. 13. The value of net output of construction, transport and trade has fluctuated widely over the four-year period 1960 through 196. It increased from $32.5 million in 1960 to $95.9 million in 1962, falling back to $50.4 million in 1964. The construction boom up to 1962 was geared to the invest- ment in mining and to government investment which will be discussed in paragraphs 17 to 19. 14, The manufacturing sector is very small with an output which was valued at $4 million in 1962. It consists mainly of a brewery (beer and soft drinks) and factories manufacturing shoes, explosives, tyre retreading, building materials, reconstituted milk, soap and edible oil. 15. In 1965 the Liberian Bank for Industrial Development and Invest- ment was incorporated with a paid-up share capital of $1 million, a quarter of which was provided by the International Finance Corporation. So far the Bank has not invested in or lent money for any project. Investment and Savings 16. Due largely to the opening up of new iron ore mines and the con- struction of transport facilities to export the ore, gross fixed capital formation built up to a considerable peak in 1962, when it increased by )40% over 1961 to a figure of $101 million. Next year it dropped by 46% to $69.1 million and in 1964 it fell again to $51 million. In 1962 when private investment in iron ore was at its height, gross fixed capital formation was 56% of GDP, but fell to 2h% in 1964. 17. The abrupt drop in investment which occurred in both construction and machinery and equipment resulted from the virtual completion of the opening up of N.I.O.C. and L.A.M.CO. iron ore mines. As will be shown in paragraph 32, the very heavy investment in mining was reflected in the import bill for 1962. 18. There are signs that gross fixed capital formation has been picking up again, due almost entirely to an increase in government capital expenditure, largely on the Mount Coffee hydroelectric project and roads. However, the hydroelectric project will be completed by 1970. 19. Gross domestic saving in 1964 was $56 million, of which public domestic saving was $8 million and private domestic saving was $47 million. There was, however, an outflow of net investment income amounting to $38 million and therefore gross national saving was about $17 million, of which public saving was $1 million and private saving was $16 million. These are in terms of national income definitions. In terms of the Government accounts, budget recurrent revenue exceeded budget recurrent expenditure (excluding debt service) by $9 million. Net of debt service there was a deficit of $1.5 million. 20. There is no industrial breakdown of gross capital formation but clearly most of the recent private investment has been in iron ore mining and in mining services (including railways) and there has been government investment in infrastrucutre projects, such as power, roads and ports. There is however, some investment in agriculture. The Firestone Rubber Company has a big replanting program in hand,with high yielding rubber trees replacing old ones. Firestone are also helping Liberian farmers to grow rubber and giving technical assistance with good results. There has also been some investment in palm kernals and output is increasing fairly rapidly. Internal Financial Situation Public Sector Finance 21. Despite falling rubber and iron ore prices, revenue did not in- crease as fast as one might have expected from the growth of the economy up to and including 1962. This is so partly because of deficiencies in tax assessment and collection, which have not yet been fully corrected. Also, very substantial tax concessions were granted to the foreign companies growing rubber and exploiting the iron ore deposits; these vary considerably, having been negotiated on an individual basis. An investment code is being prepared, which will standardize the terms of concessions given in the future, 22. Over the four-year period from 1961 through 1965 total government revenue increased by nearly 7% per annum. More efficient assessment and collection after 1962 has helped to keep the receipts increasing against the falling trend of export prices. About 38% of the total revenue is derived from direct taxes (income taxes and profit sharing). This results from the taxation on the Firestone Rubber Company and the profit sharing agreements with iron ore companies. About 9% of total revenue comes from taxes and fees on foreign vessels registered in Liberia to avoid higher taxes in their ow.n countries. 23. There is no accurate accounting data showing the breakdown of actual recurrent expenditure. A government estimate for 1965 is given in Table 11 in the Appendix, but this includes capital expenditure financed from recurrent revenue. Total recurrent expenditure (excluding debt service) has been stabilized since 1962 under arrangements agreed with the IMF. It fell from $32.1 million in 1962 to $28.3 million in 1963 and is expected to be about $31.3 million in 196$. In national income terms per capita public consumption is high for an African territory - $30 per head. This compares, for exaile, with $3 per head average in East Africa and $8 per head in Halawi. A relatively high per capita public consumption is to be expected by reason of Liberia's relative smallness and her very small population, since there are certain basic government overheads which are not directly proportional to size of population, but the public finance sector would obviously be in a healthier position were public consumption lower. In terms of the Government accounts, recurrent revenue in 1965 is estimated to exceed recurrent expenditure (excluding interest on public debt) by about $13 million. Deducting debt interest payments of $6 million, debt amortization payments of $5 million and estimated capital expenditure of $22 million gives an overall deficit of $20 million which will be financed by drawing on the I-F standby credit ($3 million) and by other external borrowing of $17 million. 24. Despite the extension of debt repayments over a 15-year period, it is estimated that recurrent expenditure cannot be permitted to increase by more than about 2-3% per annum. Thus, for many years to come the Liberian Government will be limited in the extent to which social services can be expanded, unless there is a further reduction of non-productive government services. 2$. Thus, the Liberian Government's budget reflects the economic changes which have taken place in recent years and the financial reforms which it agreed with the 11F it would take to alleviate the serious debt service problem that threatened bankruptcy in 1962. This situation did not arise mainly because recurrent expenditure (excluding debt servicing) was in- creasing faster than recurrent revenue: it arose because a considerable unplanned and unauthorized (because of poor controls over expenditure and poor accounting procedures) capital expenditure program had been financed mainly with short and medium-term contractors' and suppliers' credits and with short-term commercial bank advances; repayments on the credits and advances were likely to lead to substantially increasing current account budget deficits. At the same time falling exports prices of iron ore and rubber brought the threat of a balance of payments crisis. In this situation the Government sought and obtained IMF assistance referred to above. Early in 1963 a financial program, designed to strengthen the Government finances - 6 - and enlarge its debt servicing capacity, was introduced with considerable IMF technical assistance. On the basis of these reforms and the stand- by credit given by the IMF. the major creditors of the Government agreed to extend the maturities of their credits over a 15-year period. Since June 1963 the IMF has granted stand-by credits totalling $14.1 million, of which $10.4 million have been used; Liberia has faithfully fulfilled all its commitments under the stand-by arrangements. Currency and Credit 26. There is no central bank in Liberia and, although the Liberian dollar, with a gold content equivalent to that of the U.S. dollar, is the official monetary unit, no Liberian dollar notes have been issed and the principal currency in circulation is the U.S. dollar. Since there is no information available regarding the amount of U.S. currency in circulation there is no information about the total money supply. The Treasury has minted $2.5 million in Liberian coins and in September 1965 it is estimated that demand deposits were $13.3 million. Since there is no central bank and to all intents and purposes the U.S. dollar is the currency of Liberia, a deficit in the overall balance of payments automatically brings about an equivalent reduction in internal liquidity, while an overall surplus has the reverse effect. 27. There are seven commercial banks operating in Liberia and these are all almost exclusively foreign (mainly American) owned. The largest is the Bank of Monrovia, which is a wholly owned subsidiary of the First National City Bank of New York. This bank handles the government's accounts. 28. The commercial banks have a reasonably high cash ratio estimated at 15.8% in 1965, but no additional liquid assets so that their liquidity ratio is the same and this is low. The ratio of advances to total deposits is extraordinarily high (although the ratio of capital and reserves to total liabilities is also fairly high). It has risen from 106% in 1961 to 144% in 1965. If advances to the Government are excluded, the ratio increased from 56% in 1961 to 85% in 1965. Thus, the high advances/deposits ratio of the commercial banks, which is covered by borrowing from headquarters offices overseas, is caused to a large extent by lending to the Government. There is, however, an unknown amount of fluctuating lending by the commercial banks to organizations outside Liberia, lending which is done on behalf of their head offices. Consequently, the overall advances/ deposit ratio needs to be discounted somewhat. Moreover, under the arrangements with the IMF, there has been no further Government borrowing from the commercial banks for capital expenditure, and in the settlement for the extension of debt maturities over 15 years of the Government's short and medium-term debt, the commercial banks agreed to a moratorium for five years. Thus, their outstanding loans to the Government still reflect the 1962 position. Further, in order not to cause bankruptcies, the commercial banks did not call in their advances to the private sector of the economy when the investment boom ended and merchants were overstocked. As the Government repays its borrowing for capital expenditure during the pre- 1963 boom, a more normal advances/deposit ratio will be regained. -7- Prices 29. There are no time series of official price or cost living indices. The cost of living in Monrovia is extremely high and increasing. External Financial Situation Balance of Payments 30. The balance of payments on current account has moved from a very small surplus in 1959 to a deficit of $33.9 million in 1964. The trade surplus fell from $22.3 million to $13.7 million over the same period 1/ and the outflow on net investment income increased from $23.6 million To $38.0 million. There were two main causes of the falling trade surplus. First, the terms of trade have deteriorated considerably: iron ore and rubber prices have fallen while import prices have been rising. Second, there was a rapid increase in imports both inside and outside the enclave sectors. 31. The volume of rubber exports declined slightly from 1960 to 1963, due to the replanting program of Firestone Rubber Company, but has since recovered. Over the same period unit export prices fell by just over 38%. Iron ore unit export prices also fell - by 40% - between 1960 and 1965, but due to a rapid increase in volume - from 2.9 million long tons in 1960 to an estimated 13.8 million long tons in 1965, the value of iron ore exports increased from $34.6 million in 1960 to an estimated $97.8 million in 1965. Between them rubber and iron ore provided 88% of total exports in 1964. 32. An analysis of merchandise imports shows an extraordinary fluc- tuation, increasing rapidly to a peak of $131.6 million in 1962, falling away to $108.1 million in 1963 and increasing slightly again to $111.2 million in 1964. Imports of machinery and vehicles account for a large part of this fluctuation, with a smaller fluctuation in imports of manufacturing goods. Machinery and vehicle imports increased from $23.3 million in 1960 to $53.7 million in 1962, falling to $34.9 million in 1963 and increasing slightly again to $37.4 million in 1964. Clearly these imports were geared very much to the investment boom. Foreign Exchange Reserves 33. Since there is no central bank or even a British Colonial type currency board and effectively the U.S. dollar is the currency, Liberia has no separately identifiable foreign exchange reserves. Debt and Debt Service 34. The total external public debt outstanding on December 31, 1964 (including undisbursed loans) was $178.3 million. Major reported additions 1/ There was a trade deficit of $28.8 million in 1961 and $27.8 million in 1963. - 8 - during 1965 have added another $14.3 million, making a total of $192.6 million. There is also some additional internal short-term public debt, owed mainly to the commercial banks. 35. Debt service payments on external public debt in 1965 were $11.5 million or 8.2% of estimated 1965 export earnings. Over the next 12 years, i.e. the rest of the 15-year extension period negotiated with the help of the IMF, public debt service payments will average $13 million or 7% of estimated average export earnings over the period. Adding private debt service payments the ratio becomes 23% in 1965 and 28% in 1970. 36. The seriousness of the debt service position is also shown by the ratio of debt service payments to recurrent budget revenue. Even on the extendod basis the ratio in 1965 was 26.8%. In other words just over one- quarter of the Government's recurrent revenue has to be used in repaying debt and in paying interest on outstanding debt. This position may improve slightly as Government revenue increases but only if new debt incurred has on average long repayment and grace periods and has on average low rates of interest, III. FUTURE PROSPECTS Favorable Growth Factors 37. The past rate of growth of the Liberian economy in real terms has been extraordinarily high, even after the rapid decline in investment and government retrenchment after 1962. The downward trend of iron ore and rubber prices is likely to continue but the production and export quantities of iron ore are likely to more than compensate for falling prices. The same is true of rubber but to a much lesser extent. Thus, iron ore and rubber exports will continue to be an important element making for an in- creased rate of growth, but not nearly so much as during the previous decade. There are possibilities of other minerals being exploited, although there are no definite projects in view. The Government's budgetary position will be progressively improved by its share of the rapidly increasing profits of the iron ore companies, provided restraint in public consumption continues to be exercised. 38. Apart from rubber, Liberia possesses a good potential for other agricultural crops. In particular it should be possible to increase con- siderably the production and export of palm kernels, vegetable oils and timber. Most of this increase is likely to come initially from foreign concessions and, although a start has been made in persuading subsistence farmers to grow cash crops (such as rubber), one of the main tasks of the Government in the coming years will be the modernization and monetization of the subsistence sector. In this connection an important element will be the provision of an adequate and sound agricultural credit system, possibly through the medium of cooperatives. -9 - 39. Although it got itself into serious public debt and balance of payments positions, with the help of the IMF the Government has shown con- siderable capacity for reform and consolidation and thus Jay a more solid foundation for the future. Constraints on Growth hO. Due to the serious debt position referred to above, which will limit the public savin-s available for public capital expenditure and the capacity to absorb overseas loans (unless on soft terms), the growth of the Liberian economy will depend very much on the future extent of foreign private investment. In other words, the Government's ability to stimulate growth through public investment will continue to be severely restricted by the level of debt service payments under present agreements until toward the end of the 1970's. 41. As was remarked in paragraph 3, manufacturing through import substitution is severely limited by the small population, low purchasing power and the slow growth in disposable incomes. What little development there is likely to be will be restricted mainly to the processing of agricultural crops. The population constraint is not helped by the high level of illiteracy, the lack of education and training facilities and the necessary constraints upon public consumption. A reapportionment of such consumption - e,g. a reduction in the 10 of total government recurrent outlays spent on the Foreign Service - would assist a more rapid development of needed education and public health services. 42. The terms of trade are likely to continue to deteriorate well into the 1970ts. Although, as pointed out in paragraph 38 above, the production and export volume increases will more than offset the falling iron ore and rubber prices, nevertheless these falling export prices will be an important inhibitor of economic growth and increases in government revenue. Development Planning and Statistics 43. It is to be hoped that the elevation of the Office of National Planning to a fully fledged ministry, which was recently announced, will ,ive this organization the greater status and authority so necessary if sound economic and social planning is to be carried out. The ministry is preparing Liberia's first development plan, but, unless the statistical service is rapidly improved, the first plan will necessarily be limited essentially to the public sector. However, even this would be a big advance over the past. Projections 44. Quantifying the future prospects for the Liberian economy is a risky business, because so many of the variables and parameters are unknown and the statistical base from which the projections proceed is rough and ready and somewhat shaky. However, an attempt has been made and the results - 10 - are shown in Tables 18-24 in the Appendix. It is considered that these give as accurate a picture as is possible in the circumstances, but they should be treated with considerable caution and are in no sense accurate predictionf of what will actually happen. 45. In terms of the macro-economic accounts, GNP at current market prices is projected to increase by about 2.5% up to 1970 and GDP at factor cost by 2.7%. If the population increases at 1.5% per annum, per capita GNP would increase by only about li per annum. In terms of constant 1960 prices for iron ore and rubber GDP would increase by about 6.6% per annum, as against about 11% from 1960 through 1964. The difference between 2.5% (current prices) and 6.6% (constant prices) measures only part of the inhibiting effect of-falling export prices of rubber and iron ore, because if these prices were not to fall, the stimulus to growth and the avail- ability of savings would be much higher. 46. The overall rate of growth is also pulled down by the slow rate of growth in the subsistence sector and the halving of GDP attributable to construction. If there were to be a major new investment in the private sector, particularly if another iron ore mine is developed (an American company is investigating the possibility), this picture could be changed. 47. Complete information is not available, but it is difficult to see gross fixed capital formation being higher than about $40 million in 1970, of which about 43% is likely to be in the public sector. This would be a fall of $11 million or 22% on the 1964 level. In the private sector, the increased output in the mining and agricultural sectors will come largely from past investment bearing fruit. By 1970 the existing iron ore develop- ment projects will be virtually complete and Firestone's replanting program and the investment programs of the other agricultural concession companies will be finished. There will be some further investment in palm kernels and palm'oil (in December 1965, the Tidewater Company obtained a concession to develop 35,000 acres - 5,000 in the first five years), forestry and perhaps some other agricultural products and in the processing of agricultural products, but these are unlikely to offset the decline in investment in the other private sectors outlined above. As remarked in the previous paragraph the main hope lies in another iron ore mine being opened up, but no allowance has been made for this in the projections. 48. In the public sector, a major work in progress - the Mount Coffee hydroelectric project - will be complete. If peasant agriculture is to be developed and the forest potential exploited, there is need for considerable public investment in roads and possibly ports. There are also requirements for some public investment in education, training and public health, if these are not to be the constraints they have been in the past. However, there are limitations imposed by budgetary and debt servicing position. If it were not for the debt service burden, there would be a healthy and increasing rate of public saving available for public investment. - 11 - 49. Thus, gross investment (no allowance has been made for inventory changes) is likely to decline both absolutely and relative to GDP and this is a further factor making for a somewhat reduced rate of growth. Gross fixed capital formation as a percentage of GDP is likely to fall from 25% in 1964 (it was 50% in 1962) to about 17% in 1970. 50. Gross domestic saving is likely to be high, increasing from $55 million in 1964 to $85 million in 1970. Thus, domestic saving would be considerably higher than the projected level of gross fixed capital formation ($40 million). But factor income payments flowing abroad are also likely to increase from $38 million in 1964 to about $47 million in 1970. The projected change, therefore, in gross national saving is from $17 million in 1964 to $38 million in 1970. Public domestic saving and public national saving are projected to increase from $8 million to $23 million and from $1 million to $18 million respectively. Private domestic saving and private national saving are likely to increase from $47 million to $62 million and from $16 million to $20 million respectively. 51. Turning to the public finance projections, receipts from income tax on the Firestone Company will fall because of the falling price of rubber, but other income tax receipts are likely to increase as the other concession companies begin to make profits. There is also likely to be an increase in receipts from improved collections. The Government's income from profit sharing in the iron ore companies is likely to increase at a faster rate than in the past as the fruits of past investment are reaped. 52. On the recurrent expenditure side, per capita public consumption is high and it has been assumed that this can be permitted to increase by only 2% per annum up to 1970 and 3% per annum between 1971 and 1975 because of the increasing burden of public debt service payments on existing debt, which reach their peak in 1969, and only taper off slowly up to 1978 when there will be a sizeable drop. This restriction in public consumption will be difficult to maintain, particularly with regard to agriculture and can probably only be achieved if, as remarked earlier, there is further retrenchment in non-productive Government services. Moreover, the recurrent expenditure arising out of completed development schemes requires to be taken into account and, if there were no retrenchment in non-productive services the amount of public savings available for new capital expenditure would be correspondingly reduced. 53. Private non-corporative consumption is also likely to be restricted. As Table 17 shows, private consumption is projected to be about the same in 1970 as in 1964. Per capita there would be a small decrease. 54. The projection of the current account balance of payments in 1970 shows a distinct change over 1964. The favorable visible trade balance is likely to increase from about $14 million to about $56 million, despite the continued fall in iron ore and rubber prices. This is due mainly to the very large increase in the tonnage of iron ore exported, to new exports of timber valued at nearly $10 million and to the slower rate of growth in - 12 - imports resulting from the lower level of investment. However, net private investment income is likely to increase from $31.3 million to $42.1 million, due to the transfer of higher profits made by the foreign concession companies and the increased interet on private debt. The result is that the current account deficit would be reduced from $34 to about $2 million. 55. In the capital account, there is a radical change in the private section. In 1964 direct foreign private investment in Liberia greatly exceeded the amortization payments on private debt, but from now onwards, unless there is a major new investment in iron ore mining, the position is likely to deteriorate up to 1970 when it is projected that gross private investment will exceed amortization of private debt by only $1 million. In the public section, grosspublicborrowing overseas is projected to increase from just over $9 million in 1964 to nearly $12 million in 1970 (1964 was an exceptionally low year due to the retrenchment in government expenditures following the crisis). The amortization of public debt will increase from h million in 1964 to $11 million in 1970, so that net public borrowing is estimated to decrease from just over $5 million to about $1 million in 1970. In projecting the debt service it is assumed that new public borrowing overseas is on soft terms and has a grace period of 10 years. 56. These projections suggest that in 1970 Liberia could undertake a public investment program of around $18 million, financing $7 million from public saving after provision of debt service and $11 million or about 60% of the total by public overseas borrowing. However, it should be reemphasized that such projections should not be interpreted as forecasts, particularly since they depend in part on the assumptions made in paragraph 55regarding the increase in recurrent budget expenditures, and also, of course, because the outcome will depend upon the level and type of aid actually forthcoming. Creditworthines8 570 Liberia remains credit worthy for moderate amounts of borrowing overseas, but only on soft terms, i.e. with long grace and maturity periods and low effective rates of interest. This is so both on balance of payments grounds and on budgetary grounds. While the ratio of public debt service payments to foreign exchange earnings is reasonable and will only increase slightly from 8.5% in 1964 to about 93 in 1970, if private debt service is included, the position is not so sound and the overall rate; will increase from 23' in 1964 to 27% in 1970. Debt service payments, which took just over a quarter of total government revenue in 1964, are likely to take about 28% of total government revenue in 1970. In 1975 the position will be improved, but still just under one-fifth of government revenue will be pre- empted by debt service payments, unless Liberia is able to negotiate a further extension of maturities with its main creditors, or new sources of revenue are opened up by further investment in mining. 58. With IMF help, both with standby credits and technical assistance, the performance of the Government has improved very considerably and it has - 13 - faithfully abided by the terms under which the IMF standby credits were granted. Revenue collection has been improved, the accounting procedures have been modernized and strict controls over expenditure have been in- troduced. There is still room for improvement and the statistical services of the Government need to be greatly strengthened, particularly if compre- hensive planning is to be undertaken, but the right policies are being effectively implemented. 59. Judged in real terms the performance of the economy has been excellent. From 1960 through 1964 GDP at constant 1960 prices rose by about 10-11% per annum and is likely to expand by about 6% per annum from 1964 through 1970. However, valued at current prices GDP increased by 4.7% per annum from 1960 through 1964 and from 1964 through 1970 is likely to increase only at about 2.5Q per annum. The differences between the rates of growth at constant and current values is due to a rapid deterioration in the terms of trade, caused by falling export prices for Liberia's two main exports - iron ore and rubber. The deterioration in the terms of trade is likely to continue, but increases in export quantities, particularly iron ore, are likely to more than offset the falling prices. 60. The investment boom ended in 1962 when major mining works were either completed or were coming to an end and when government investment, particularly in construction, was cut back sharply. With retrenchment and financial reforms the position is being consolidated and increasingly over the next decade the investment of the pre-1963 period will bear fruit. If the Government continues to restrain public consumption, the legacy of uncontrolled short-term financed public spending can be surmounted and the Government's performance since 1962 is an indication that the restraint will be continued. Nevertheless, the public savings available for public in- vestment will be limited. Considerable public investment in education, h.alth, agriculture and transport (roads) is desirable per se and could be absorbed without difficulty; it is all the more desirable in order to offset private investment which is likely to fall, unless there is a major new iron ore development. Such an increase can only be financed by borrowing over- seas but this cannot be done unless the terms are soft or unless the whole or a substantial proportion of the existing debt is refinanced on soft terms, so as to relieve the very heavy burden on the budget. LIBERIA STATISTICAL APPENDIX 1. External Public Debt. 2. External Public Debt Service. 3. Industrial Distribution by Percentages of the Working Population, 1962. 4. Occupational Distribution of the Working Population, 1962. 5. Industrial Origin of G.D.P. at Current Prices and G.N.P., 1960-66. 6. Gross Fixed Capital Formation, 1961-65. 7. Iron Ore Production, 1960-65. 8. Rubber Production, 1960-65. 9. Production by reference to Exports of selected Tree Crops, 1960-65. 10. Timber Production, 1960-6h. 11. Government Finances, 1961-65. 12. Functional Distribution of Estimated Expenditure, 1965. 13. Assets and Liabilities of the Commercial Banks, 1961-65. 1L. Balance of Payments, 1959 and 1964. 15. Imports, 1960-64. 16. Value and Volume of Exports and Unit Export Prices, 1962-65. 17. Direction of Trade, 196h. PROJECTIONS 18. Projection of G.D.P. by Industrial Origin, 1970 at Current and Constant 1960 Prices. 19. Projections of National Income and Expenditure, 1970, at Current and Constant 1960 Prices. 20. Projections of Gross Domestic Investment, Gross National and Gross Domestic Savings, 1970. 21. Public Finance Projections, 1965-70 and 1975. 22. Projection of Merchandise Exports, 1970. 23. Projection of Merchandise Imports, F.O.B., 1970. 2h. Projection of Balance of Payments 1970. Notes on the Construction of the irojection Tables Table 1: LIBERIA - EXTERNAL MEDIUM - AND LONG-TERM /1 PUBLIC DEBT OUT- STANDING INCLUDING UNDISBURSED AS OF DMEMBER 31, 1964 WITH MAJOR REPORTED ADDITIONS JANUARY 1, 1965-JANUARY 31, 1966 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Debt outstanding Major reported December 31, 1964 additions Item Net of Including January 1, 1965- undisbursed undisbursed January 31, 1966 TOTAL EXTERNAL PUBLIC DEBT 122,622 178,348 1)4 300 Privately-placed debt 61,075 62 052 - Suppliers' credits 2 Others 16,449 16,h9 IBRD loan 13 3,250 _1,00 U.S. Government loans 1,82 5 97,087 10,800 Export-Import Bank 30,07- 30,074 - Other 21 751 67,013 10,800 AID 1,369 38,650 1,750 Military Sales 918 918 Lend Lease credit 18,923 18,923 Agriculture Trade Development 541 8,522 - Loans from other governments 9,709 15,959 2 500 Germany 9,317 15,567 Israel 392 392 - /1 Debt with an original or extended maturity of one year or more. SOURCE: Statistics Division IBRD-Economics Department March 22, 1966 Table 2: LIBERIA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1964 WITH MAJOR REPORTED ADDITIONS JANUARY 1, 1965-JANUARY 31, 1966 /1 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) GRAND TOTAL DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- YEAR UNDISBURSED ZATION INTEREST TOTAL 1965 155,175 5,136 6,323 11,459 1966 160,339 4,984 6,130 11,115 1967 156,854 4,415 6,253 10,668 1968 152,439 5,645 6,087 11,732 1969 146,794 11,424 5,733 17,157 1970 135,369 11,089 5,109 16,198 1971 124,280 11,092 4,483 15,575 1972 113,188 9,477 3,918 13,340 1973 103,711 10,105 3,326 13,431 1974 93,606 12.299 2,739 15,038 1975 81,307 9,799 2,154 11,953 1976 71,508 9,800 1,718 11,519 1977 61,708 9,183 1,278 10,461 1978 52,524 4,961 841 5,802 1979 47,563 3,318 680 3,993 /1 Includes service on all debt listed in Table 1 prepared March 22, 1966 except the following: A. Debt outstanding as of December 31, 1964: 1) U.S. Government (lend-lease) of $18,923,000 for which the amortization terms are not known. 2) German credit of DM17,000,000 from Kreditanstalt fur Wideraufbau which has not yet been finalized but falls within the terms of the "Frame Agreement" with the German Government of December 12, 1961. B. Major reported additions: 1) The undisbursed German credit of DM10,000,000 from Kreditanstalt fur Wiederaufbau for which only the disbursed portion has a government guarantee. SOURCE: Statistics Division IBRD-Economics Department March 22, 1966 Table 3 Industrial Distribution by Percentages of the Working Population, 1962 Males Females Total Agriculture, Forestry nnd Fiching 73.8 93.5 80.9 Mining and Quarrying 5.3 0.2 3.5 Manufacturing 2.9 0.5 2.1 Construction 4.5 0.1 2.9 Electricity, Gas, Water and Sanitary Services 0.1 - - Commerce 2.9 2.7 2.8 Transport, Storage & Communications 1.4 - 0.9 Services 8.1 2.5 6.0 TOTAL 100.0 100.0 100.0 SOURCE: Annual Report of the Office of National Planning. Table 4 Occupational Distribution of the Working Population, 1962 Occupation Number Percentage Professional, Technical and related 7,615 1.8 Administrative, Executive and Managerial 2,116 0.5 Clerical L,537 1.1 Sales 11,080 2.7 Farmers, Fishermen, Hunters and Loggers etc. 324,258 78.7 Miners 6,990 1.7 Workers in Transport and Communications 6,104 1.5 Craftsmen and Labourers 3h,152 8.3 Service, Sports and.Recreation 8,03L 2.0 Unclassified 6,908 1.7 TOTAL L11,79h 100.0 SOURCE: Annual Report of the Office of National Planning. Table 5 Industrial Origin of G.D.P. and G.N.P., 1960-62 ($ million) 1960 1961 1962 1963 1964 Agriculture Rubber 39.9 24.1 24.9 21.3 20.8 Other Cash Crops 10.3 9.3 9.0 9.6 11.0 Subsistance Sector 18.1 18.4 18.6 18.9 19.2 Total Agriculture 68.3 51.8 52.5 L9.8 51.0 Mining and Quarrying Iron Ore 36.8 29.2 27.6 45.8 81.9 Diamonds 2.3 2.2 4.5 4.0 1.7 Other 0.4 0.5 0.5 0.5 0.2 Total Mining and Quarrying 39.5 31.9 32.6 50.3 83.8 Construction, Transport and Trade Construction 23.5 35.4 44.7 35.2 20.1 Other 29.0 41.0 51.2 h3.5 30.3 Total 52.5 76.6 95.9 78.7 50.4 Government 12.5 13.2 13.9 1L.6 15.8 G.D.P. at Market Prices 172.8 173.5 196.9 193.4 201.0 Less Indirect Taxes less subsidies 15.7 18.1 22.7 23.4 24.6 G.D.P. at factor cost 157.1 155.4 172.2 170.0 176.4 Less Net Investment Income paid abroad 34.6 33.5 31.1 36.6 38.0 G.N.P. at factor cost 122.5 121.9 141.1 133.4 138.4 Add Indirect taxes less subsidies 15.7 18.1 22.7 23.4 2h.6 G.N.P. at market prices 138.2 140 0 163.8 156.8 163.0 SOURCES: Economic Survey of Liberia, 1962, Northwestern University I.M.F. Staff estimates I.B.R.D. Staff estimates. Table 6 Gross Fixed Capital Formation, 1961-65 ($ million) 1961 1962 1963 196h 1965 Construction Public 16.2 1h.0 12.3 7.7 1.4 Private Concessions 20.1 36.0 19.9 3.7 3.8 Other Private 21.0 20.0 21.8 15.7 15.3 TOTAL 57.3 70.0 54.0 27.1 33.5 Machinery and Equipment -/ 18.5 31.0 15.1 24.0 TOTAL 71.8 101.0 69.1 51.1 1/ Adjusted for passenger cars imported for private use and machinery and equipment already included in gross fixed capital formation in the construction sector. SOURCES: I.M.F. Staff estimates derived from the Annual Report of the Office of National Planning. Table 7 Iron Ore Production, 1960-65 (Millions of Long Tons) 1960 1961 1962 1963 196h 1965 LMC 2.9 3.1 3.1 3.0 3.0 2.8 NIOC - - 0.6 2.3 3.1 2.9 LAMC - - - 2.3 7.2 8.6 DELIMCO - - - 1.6 TOTAL 2.9 3.1 3.7 7.6 13.3 15.9 1/ Forecast SOURCE: I.M.F. Staff estimates based on data supplied by the Liberian authorities. Table 8 Rubber Production, 1960-65 (Millions of Pounds, dry content) 1960 1961 1962 1963-/ 1964 1965 3/ Firestone Plantations Company 80.1 79.6 77.2 72.9 73.2 76.0 Other Plantations (foreign concessions) - - - 0.2 3.0 5.0 Independent Liberians 14.4 15.8 17.0 18.5 20.0 23.0 TOTAL 94.5 95.4 94.2 91.6 96.2 10h.0 1/ Production yeaxsending October of yeasindicated. 2/ Annual Report of the Department of Agriculture, 1963/1964. 5/ Estimate for the calendar year. SOURCES: I.M.F. Staff calculations based on data supplied by Firestone Plantations Company and other concessions; Liberia, Department of Agriculture, Annual Report, September 1, 1963 - August 31, 1964. Table 9 Production by Reference to Exports of Selected Tree Crops, 1960-65 (Millions of lbs.) 1960 1961 1962 1963 1964 1965 1/ Palm Kernels 33.6 28.4 18.9 13.2 13.9 40.6 Cocoa 2.2 1.5 1.8 2.3 2.1 2.0 Coffee 2.0 2.2 4.2 5.2 5.93/ Piassava 8.4 2.9 1.9 1.4 1.3 1.6 1/ Estimated on the basis of exports for the first half of 1965. T/ Two-thirds of reported. export volume; one-third estimated smuggled. / One-third of reported export volume; two-thirds estimated smuggled. SOURCE: I.M.F. Staff estimates based on the Office of National Planning Annual Report, 1965. Table 10 Timber Production, 1960-1964 (illions of board feet) Year Production 1960 10.8 1961 18.0 1962 15.8 1963 15.0 196h 16.0 SOURCE: I.M.F. Staff estimates based on data supplied by the Liberian authorities. Table 11 Government Finances, 1961-6 / ($ Million) 1960/61 1961/62 1962/63 1963 196b 1965- Actual Actual Akctual Actual Actual Ejtimates A. Revenues 1. Direct Taxes on Income and 15.10 13.99 13.08 13.90 15.50 16.46 Profits Income Tax 8.51 7.73 7.85 7.77 7.87 8.99 a. Firestone (7.00) (5-.o) (b.67) ( .66) (3.31) (4.13) b. Others (1.51) (2.33) (3.18) (3.11) (0.56) (4.86) Other direct taxes 0.85 0.91 0.71 Iron Ore Profit Sharing 5.7h 5.35 4.52 .0. 2. Taxes on External Trade 12.6 15.8 16.07 17.56 17.34 17.08 Import duty 6.88 8.29 8.71 8.83 8.86 8.78 Surtax 1.00 1.19 1.21 1.25 1.27 1.2 Luxury Tax 1.69 2.03 2.23 2.25 1.84 2.0h Public Highway Tax 1.60 2.08 2.12 2.16 2.10 2.10 Export duty 0.37 0.6b 0.6 0.59 0.58 0.51 Consular Fees 0.95 1.09 0.76 0.73 0.88 0.69 Entry tax on Petroleum ... ... ... 1.62 1.67 1.60 Other custom revenues 0.15 0.16 0.140 0.11 0.16 0.12 3. Other Revenues 4.95 6.60 6.99 5.81 7.21 9.24 Vesscl taxes and fees 1.07 0.85 1.31 2.05 2.82 3.88 Education levy ... ... ... 0.9 0.37 1.40 Other 3.88 5.75 5.68 2.82 b.02 3.96 TOTAL REVENUE 32.69 36.07 36.14 37.25 40.05 42.79 Table 11 (continued) 1960/61 1961/62 1962/63 1963 1964 1965 Actual Actual Actual Actual Actual Estimates B. Recurrent Expenditure (excluding Debt Service) 28.LO 32.10 ... 28.31 32.00 31.30 Balance 4.29 3.97 ... 8.94 8.05 11.9 C. Debt Service 0.10 0.20 ... ) ) 10.20 Balance h.19 3.77 ... ) 11.63 ) 11.30 1.29 D. Cepital Expenditure 4.10 8.70 ... ) 50) 5 Overall Balance 0.09 -4.93 ... -2.69 -3.25 -4.21 E. Financing I.M.F. Drawings - - ... 3.60 3.80 3.00 Change n Cash Balances 0.09 -4.93 ... 0.91 0.55 -1.21 1/ Individual items for the calendar year 1963 onwards are not all directly comparable with the earlier financial year figures due to reclpssification. 2/ I.L.F. Staff estimates of probable actual expenditure. SOURCES: The Economy of Liberia, AF-10 I.M.F. Staff estimates. Table 12 Functional Distribution of Budgeted Expenditure, 1965 1/ $ '000 % of Total Economic Development 6,669 15.4 Agriculture 871 Commerce and Industry 319 Natural Resources 263 Comuanications 1,597 Roads and.Maintenance 2,29h Development Corporation 1,325 Social Development 8,353 19.3 Education 5,757 Public Health 2,596 National Defence 2,500 5.7 General Government 15,737 36.3 Legislative Services %4 Justice 1,463 Chief Executive 2,889 Local Government 670 Foreign Affairs 4,147 9.6 Treasury 1,182 Information L30 General 4,412 Debt Service 9,636 22.3 Unallocated U41 1.0 Total Expenditure 13,336 100.0 1/ Includes capital expenditure, except that paid for out of foreign assistance, but including I.H1.F. drawings. SOURCE: Annual Report of the Office of National Planning. Table 13 Assets and Liabilities of the Commercial Banks, 1961-65 ($ Million) 1/ 1/ 11/ / 2/ 1961- 1962- 1963- 196- 1965- Assets Cash 2.9 3.2 2.6 3.1 3.6 Net-Foreign Assets -0.9 -6.8 -9.3 -11.5 -9.4 Credit to Government 12.9 15.4 1L.9 13.5 13.- Credit to Private Sector 13.2 15.7 20.3 20.8 19.4 Other Assets (net) 0.6 0.2 2.3 3.9 1.8 TOTAL ASSETS 28.7 27.7 30.8 29.8 28.8 Liabilities Capital and Reserves 5.0 4.5 4.9 5.9 6.0 Private Deposits 23.7 23.2 25.9 24.0 22.8 Demand .. (13.7) (15.9) (1.) (13.3) Time and Savings .. (9.5) (10.0) (9.6) (9.5) TOTAL LIABILITIES 28.7 27.7 30.8 29.8 28.8 Cash Ratio 12.4% 13.8% 10.0% 12.9% 15.8% Advances/beposit ratio including Government 106% 136% 136% 143% 14L% Advances/Deposit ratio excluding Government 56% 68% 78% 87 85% 1/ At December 31 f/ At September 30 SOURCE: Annual Report of the Office of National Planning. Table 1 Balance of Payments, 1959 and 19664 ($ million) 1959 1964 Current Account Exports 65.2 124.9 Imports -42.9 -111.2 Trade Balance 22.3 13.7 Net Investment Income -23.6 -38.0 Net Other Services 0.1 - 9.6 Donations 1.3 Current Account Balance 0.1 -33.9 Capital Account Net direct private investment 8.6 27.3 Official long-term credits (net) 5.6 1.6 I.M.F. Standby Credit (net) - 3.8 Net balancing item -14.3 1.2 -0.1 33.9 SOURCE: I.M.F. Staff estimates. Table 15 Imports, 1960-641/ ($ million) 1960 1961 1962 1963 1964 Food, beverages and tobacco 11.0 14.1 17.0 19.6 19.8 Machinery and vehicles 23.3 35.0 53.7 34.9 37.4 Ianufactured Goods 26.2 31.5 47.1 38.1 35.4 Chemicals h.7 4.3 5.8 4.9 5.3 Fuels and Lubricants 2.9 3.4 4.3 7.5 10.0 Other 1.1 2.4 3.7 3.0 3.3 Total Imports 69.2 90.7 131.6 108.0 111.2 1/ Excludo imports for re-export. SOURCE: Anin-ual Report of the Office of National Planning. Table 16 Value and Volume of Exports and Unit Export Prices, 1960-65 First Hal. 1960 1961 1962 1963 196h 1965 Value (in $ million f.o.b.) 85.5 62.3 68.8 80.2 12b.9 70.0 Rubber 42.0 25.9 26.9 23.0 22.6 12.6 Iron Ore 3h.6 29.L 32.4 L5.0 86.8 48.9 Diamonds 2.3 2.2 h.5 L.0 1.7 0.8 Palm Kernels 2.0 1.1 0.8 0.6 0.8 0.9 Cocoa 0.5 0.2 0.2 0.1 0.4 0.2 Coffee 0.5 0.L 0.6 1.51' 6.012 1.1 Piassava 0.2 0.4 0.1 0.1 0.1 0.1 Re-exports 3.L 2.7 3.3 5.6 6.5 5.h Volume Rubber (million lb., 2/ d.r.c.) 106.7 90.8 100.1 88.5 93.8- 52.6 Iron Ore (million long tons) 2.9 2.8 3.7 6.4 12.0 6.9 Diamonds (thousand carats) 967.0 1,095.0 854.0 700.0 200.0 100.0 Palm Kernels (million lb.) 33.6 28.4 18.9 13.2 13.9 20.3 Cocoa (million lb.) 2.2 1.5 1.8 2.3 2.1 1.0 Coffee (million lb.) 2.0 2.2 h.2 8.L1 17.81/ h.9 Piassava (million lb.) 8.4 2.9 1.9 1.4 1.3 0.8 Unit Prices Rubber (cents per lb.) 39. 28.5 26.8 25.9 24.1 23.9 Iron Ore ($ per ton) 11.90 10.50 8.76 7.03 7.23 7.10 Palm Kernels (cents per lb.) 0.59 0.39 0.42 0.15 0.58 ... 1/ Includes re-exports of smuggled coffee. 2/ From Rubber Statistical Bulletin, Secretariat of International Rubber Study Group, May-1965. SOURCES: Annual Report of the Office of National Planning I.M.F. Staff estimates. Table 17 Direction of Trade, 1964 Exports $ Million % of Total Africa 1.4 1.2 Western Europe 60.6 5h.5 U.S.A. L8.6 h3-9 Other 0.5 0.4 Total Exports 111.2 100.0 Imports U.S.A. Th. 39.6 West Germany 21.8 19.6 U.K. 10.7 9.6 Others 34.6 31.2 111.2 100.0 SOURCE: Annual Report of the Office of National Planning. Mission estimates. Table 18 Projection of G.D.P. by Industrial Origin, 1970 at Current and Constant 1960 Prices ($ million) Projections 1970 at constant 1960 1964 Projections at 1960 prices-/ Actual Actual current prices 1964 1970 Agriculture 68.3 51.0 60.4 65.2 93.5 Rubber 39.9 20.8 23.8 35.0 56.9 Other Cash Crops 10.3 11.0 15.5 11.0 15.5 Subsistence Sector 18.1 19.2 21.1 19.2 21.1 Mining and Quarrying 39.5 83.8 102.4 130.4 216.4 Iron Ore 36.8 81.9 100.2 128.5 214.2 Diamonds 2.3 1.7 2.0 1.7 2.0 Other 0.4 0.2 0.2 0.2 0.2 Construction, Transport and Trade 52.5 50.4 54.0 50.4 54.0 Construction 23.5 20.1 10.0 20.1 10.0 Other 29.0 30.3 W.0 30.3 44.0 Government 12.5 15.8 19.3 15.8 19.8 G.D.P. at Market Prices 172.8 201.0 236.1 261.8 383.7 1/ For rubber and iron ore only. Other prices are assumed to remain constant. Such other changes as there may be are relatively unimportant compared with the large fall in rubber and iron ore prices. Table 19 Projections of National Income and Expenditure, 1970, at Current and Constant 1960 Prices ($ Million 1/) 1960 196h 1970 G.D.P. at 1960 market prices 2/ 173 262 38 Effect of Shange in the Terms of Trade - -61 -148 G.D.P. at Current Market Prices./ 173 201 236 Factor Incomes paid abroad ... -38 -7 Public (-7) (-05) Private ... (-31) (-42) G.N.P. at Market Prices ... 163 189 Current Account Balance of Payments ... 34 2 Gross National Expenditure at Market Pfices ... 197 191 Investment ... 51 40 Consumption ... 1h6 151 Public ... (30) (35) Private ... (116) (116) 1/ Rounded to the nearest million. 2/ For rubber and iron ore only. Other prices are assumed to remain constant. Such other changes as there might be are relatively unimportant compared with the large fall in rubber and ion ore prices. Table 20 Projections of Gross Domestic Investment, Gross National and.Gross Domestic Savings, 1970 ($ Million 1/) 196h 1970 Est. Actual Projected Gross Fixed Capital Formation 51 LO Public (7) (17) Private (44) (23) Change in Stocks Gross Domestic Investment 51 4O Current Account Balance of Payments 34 2 Gross National Savings 17 38 Public (1) (18) Private (16) (20) Factor Incomes paid abroad 38 1L7 Gross Domestic Saving 55 85 Public (8) (23) Private (47) (62) 1/ Rounded to the nearest million. Table 21 Public Finance Projections, 1965-70 and 1975 ($ million) 1964 1965 1966 1967 1968 1969 1970 1975 Actual Estimated 1/ Projected A. REVENUE 1. DrEct Ta15.50 18.31 20.49 21.74 23.90 28.20 28.00 31.50 1. Direct Taxes on Income _7 8.97 - U-99 U-37 -F 1 7.99 77T 8.00 Income Tax 7.~837~ T ~ 7.980 a. Firestone (3.31) (4.13) (4.00) (3.25) (2.93) (2.61) (2.34) (2.00) b. Others (4.56) (4.86) (4.99) (5.12) (5.25) (5.38) (5.51) (6.00) Cther Direct Taxes 1.52 1.00 1.04 1.08 1.12 1.16 1.20 1.50 Iron Ore Profit Sharing 6.11 8.32 10.46 12.29 14.60 19.05 20.06 22.00 2. Taxes on External Trade 17.34 17.08 17.76 18.44 19.12 19.81 20.50 24.00 Import Duties 15.75 1.. 17.2T 17.92 I8.T 19.30 22.86 Exporting Duty 0.58 0.51 0.51 0.50 0.50 0.50 0.50 0.50 Corular Fees 0.88 0.69 0.69 0.70 0.70 0.70 0.70 0.70 3. Other Revenues 7.21 9.24 9.26 9.29 9.33 9.36 9.50 11.oo Vessel Taxes and Fees 2 3UT 9 14.oo 4 Education Levy 0.37 1.40 1.42 1.44 1.46 1.48 1.50 2.00 Other 4.02 3.96 3.96 3.97 3.98 3.99 4.00 4.50 TOTAL REVENUE 40.i 47.63 47.51 49.T7 52.35 57.37 5.00 6.70 ADJUSTED TOTAL REVENUE 38.81 B. RECURRENT EXPENDITURE - ADJUSTED (Excluding Debt Service) 29.66 31.30 31.90 32,50 33.20 33.90 34.60 40.10 Balance 9.15 13.33 13 T 1 19-15 23.47 23..40 26~40 C. DEBT SERVICE 10.65 11.46 11.11 10.67 11.73 17.16 16.20 11.95 Balance -1.50 T77 T77 6.30 7.42 6.31 -7.20 15 D. CAPITAL EXPENDITURE -8.50 -22.40 -25.30 -17.00 -12.00 -14.00 -17.00 -20.00 Overall Balance -9.30 -2o -20.5 -10.70 5 7.69 TT.8 -T3 E. FINANCING IMF Drawings (net) 3.80 3.00 1.40 - 4.661/ - 4.662/ - .681 - - Other Overseas Borrowing 5.50 17.53 19.40 15.36 9.24 12.37 9.80 5.55 S 7evise stimate by Mission, ? Assumes no further IMF Standby Credits and the balance outstanding of $16.0 is repaid by the end of 1969. Table 22 Projection of Merchandise Exports, 1970 1960 1964-65 First half 1965 1970 Actual Actual at Annual Rate Projection Rubber Volume - lb. million 106.7 93.8 105.2 152.0 Unit Price-Cents per lb. 39.4 2b.1 23.9 17.6 Value $ million -72.0 737_ 26 Iron Ore Volume - Long ton million 2.9 12.0 13.8 20.0 Unit Price $ per ton 11.9 7.23 7.1 6.2 Value $ million T. T67 97.7 12 .0 Diamonds Value 2.3 1.7 1.6 2.0 Palm Kernels Value 2.0 0.8 1.8 2.5 Cocoa Value 0.5 O.h 0.4 O.h Coffee Value 0.5 6.0 2.2 3.0 Piassava Value 0.2 0.1 0.2 0.2 Timber Volume - miles of board ft. - - - 5L Unit Price - 0.18 Value - - - 9.7 Re-exports 3.- 6.5 10.8 13.5 TOTAL VALUE 85.5 12h.9 160.0 182.1 T2ble 23 Projection of Merchandise Imports, F.O.B., 1970 ($ Million) 1960 1963 196h 1970 Actual Actual Actual Projection Food, beverages and Tobacco 11.0 19.6 19.8 24.2 Machinery and Vehicles 23.3 3L.9 37.4 32.0 Manufactured Goods 26.2 38.1 35.4 '43.0 Chemicals h47 L.9 5.3 7.0 Fuels and Lubricants 2.9 7.5 10.0 15.2 Other 1.1 3.0 3.3 5.0 TOTAL IPORTS 69.2 108.0 111.2 126. Table 24 Projection of Balance of Payments, 1970 ($ Million) 1964 1970 Current Account Merchandise Exports 124.9 182.1 Merchandise Imports -111.2 126.4 Trade Balance 13.7 577 Net Private Investment Income -31.3 -12.1 Net Public Investment Income -6.7 -5.1 Net Other Services -9.6 -10.0 Current Account Balance -33.9 -1.5 Capital Account Amortization of Private Debt -6.9 -21.8 Direct Private Investment 34.2 23.0 Net Private Investment 27.3 1.2 Amortization of Public Debt ~ l/ -11.1 Public Overseas Borrowing 9.3 1/ 11.8 Net Public Borrowing 5.3 0.7 Balancing Item 1.3 -0 * 33.9 1.5 1/ Including net I.H.F. Stand-by Credit of $3.8 million. Notes on the Construction of the Projection Tables 1. The starting point for any projections is obviously the exports of iron ore and rubber and here the basic information about the output and prices is fairly reliable. The foreign concession companies have provided detailed forecasts of their investments, outputs and profit and loss accounts and estimates were made of non-concession outputs of agricultural produce and of possible timber exports by foreign concessions. These quantities were valued at forecast prices obtained from the Commodities Division of the Economic Department and the values of merchandise exports arrived at. GDP projections were then built up on the basis of net output or value added figures derived from gross export earnings and from the following assumptions: that the imputed value of the subsistence sector would increase at 1.51' per annum in line with the estimated increase in population, that there would be a further fall in construction investment and output, upon separate calculations of government net output and that the net output of transport and trade up to 1970 would bear the same rough relationship to other net output as it did in 1963 and 1964. Imports were then projected separately for consumer goods and investment goods, the former on the basis of past relationships to disposable income and the latter on estimates of gross fixed capital formation, both public and private. The balance of payments was then estimated on the basis of projected merchandise exports and imports, net public and private investment incomes, which were taken from the public debt service table and the forecast profit and loss accounts of the foreign concession companies, a calculation of net services (imports are valued f.o.b,) and estimated private foreign investment and public borrowing. With regard to the public finance accounts, on the revenue side, a major part comes from the income tax and profit sharing on the foreign concessions and these were calculated largely from the forecast profit and loss accounts of the companies concerned. Import duties were derived from the projection of imports and checked against independent IMF estimates, which used a more sophisticated technique, and found to correspond. Other revenues were either projected on a straight line basis or independently judged. As for recurrent expenditure, this item (less debt service) was projected forward at 2,S per annum up to 1970 and at 3% per annum up to 1975. Debt service was taken from Table 2. The assumptions about capital expenditure are discussed in the text. 2. As debt servicing is obviously a key parameter for the future of the public sector, whereas national income, exports, imports and the balance of payments were only projected forward to 1970, the public finance sector was also estimated for 1975. Then GNP, Gross National Expenditure, national and domestic savings were calculated. Finally, all the initial projections were checked, as far as is possible without using a sophisticated statistical projection model, and amended to ensure internal consistency.