Liberia - Overview of economy

Liberia has traditionally relied on mining (of iron-ore, gold, and diamonds), rubber, timber, and shipping registration revenues as its major sources of income. Nearly 8 years of war ending in the mid-1990s destroyed much of the country's infrastructure and has brought mining to a halt. Most of the country's inhabitants are engaged in agriculture. Apart from small farmers producing rubber, however, almost all agriculture is subsistence farming . The government has not produced systematic data since 1989, and such information that is available has come from limited surveys by prospective aid donors.

Liberia's economic boom in the late 1960s and early 1970s was due to strong rubber and iron exports, with the real gross domestic product (GDP) growing at 9 percent a year. In the late 1970s, with a general slowdown in the world economy, growth slowed to 1 percent. In the 1980s the economy declined. Real GDP was 10 percent lower in 1986 than in 1979, as companies cut back on investment. The civil war—which lasted from 1989 to 1996—displaced

much of the population and destroyed the productive infrastructure. Iron ore output ceased relatively early on in the hostilities, although other resources, particularly diamonds, continued to be exploited by the various factions. The formal economy came to a standstill as the population turned to subsistence production for survival. Since the end of the war in 1997, the formal sector has started up again in the major towns, but the lack of reliable data makes it difficult to be confident about the extent of the recovery. According to the International Monetary Fund (IMF), domestic production has rebounded strongly, though it still only stands at one-third of its pre-war level. The GDP is thought to have doubled in 1997 and grew at 25-30 percent in 1998 due to increases in agricultural output. The CIA World Factbook estimates that the GDP grew at the rate of 15 percent in 2000, reaching US$3.35 billion at purchasing power parity in that year.

The abrupt stop in formal economic activity at the start of the war produced a drastic fall in revenues and substantial capital flight . The rise in military spending took an increasing share of government revenues. A string of interim governments relied principally on funds from the Liberian maritime shipping registry, which was largely unaffected by the war. In 1999 agriculture and reconstruction were allocated funds far below the levels required to revive the economy. Alleged human rights abuses and allegations of Liberian government support for destabilizing forces in neighboring Sierra Leone caused some donors to be reluctant to resume aid.

In Liberia, unlike most of Africa, a high proportion of revenue comes from direct taxation on incomes and profits, particularly from iron ore mining and shipping registration fees. However, revenues have invariably been inadequate to meet spending plans, and until a return to budgetary control in 1999, the government failed to pay salaries, accumulated debts, and financed budget deficits by printing money.

From January to June 2000, the Liberian government operated an IMF-monitored program to improve the country's fiscal position, liberalize import controls, and reform the civil service and the state-owned enterprises. The initial response by the government to this program has been encouraging, but the task facing the government in reforming the economy is considerable, and it will take several years to improve tax revenues, re-structure the civil service, and privatize the state-owned enterprises.