The World Bank has temporarily suspended Liberia’s access to vital funding after the country missed its payment obligations for 60 days.
This decision, effective as of August 15, 2024, threatens to disrupt key development projects just as the government struggles with budgetary constraints and a revised national budget.
Consequently, the suspension prevents Liberia from drawing funds from active credits, Project Preparation Facility advances, Institutional Development Fund grants, and other loans and grants managed by the World Bank. Michael Sahr, the World Bank’s External Affairs Officer, confirmed the suspension, expressing hope that Liberia would promptly clear its overdue payments to restore access to project financing.
“The World Bank looks forward to the Republic of Liberia’s payment of all overdue amounts and remains committed to supporting Liberia to ensure the effective implementation of all the projects in its portfolio, for the benefit of the Liberian people,” Sahr stated.
Moreover, this setback arrives at a challenging time for the Unity Party-led government, which is already facing tough decisions in managing a recast budget. The national budget has been reduced from $738.9 million to $721.5 million, with funds being reallocated to prioritize public administration and security, resulting in cuts to critical sectors like health, education, and public investment.
It is worth noting that in March 2020, the World Bank approved a $40 million project for Liberia, aimed at supporting crucial reforms to reduce poverty and foster inclusive growth. This initiative, consisting of a $20 million concessional loan and a $20 million grant, was the first in a series designed to improve public sector transparency and promote economic and social inclusion. The project focused on enhancing productivity and diversification by reforming agriculture, expanding electricity access, and strengthening both the agriculture and energy sectors.
Nonetheless, inflation rates surged in 2023, with the annual average inflation rising to 10.1% from 7.6% in 2022. Food inflation particularly spiked to 12.3%, a sharp increase from 1.6% in the previous year, while non-food inflation remained steady at around 10%.
As a result, the suspension of World Bank funding adds to Liberia’s financial difficulties, putting at risk crucial infrastructure, agriculture, and energy projects that have already been impacted by budget cuts. In 2023, Liberia’s economy grew by 4.7%, mainly due to increased gold production, although growth in other sectors lagged at just 1.4%.
Despite robust gold exports, Liberia’s current account deficit expanded to 24.4% of GDP in 2023, driven by a growing trade deficit. Imports, particularly minerals, machinery, and petroleum, outpaced export growth, causing the trade deficit to rise to 18.4% of GDP.
Additionally, throughout 2023, monetary policy remained stringent, with the Central Bank of Liberia raising the policy rate by 500 basis points to 20% to combat inflation. The financial sector remained adequately capitalized, with a capital adequacy ratio of 21.2%, and non-performing loans decreased to 11.2%, though slightly above the acceptable threshold of 10%.
Looking ahead, Liberia’s economy is expected to grow by 5.3% in 2024 and by an average of 5.9% from 2024 to 2026. However, achieving these growth projections will require continued macroeconomic stability, careful fiscal management, and successful implementation of structural reforms in key sectors.
