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The European Union lent Liberia $88 million to help its economy grow


The Republic of Liberia under the leadership of President George Weah, has been expanding considerably. Indeed, it has expanded by 4.8% in 2022 despite global headwinds from the war in Ukraine, high global inflation, and depressed demand in advanced economies. The expansion was certainly driven by mining and agriculture. Growth in the agricultural sector accelerated to 5.9%, from 3.3% in 2021, on the back of increased rice and cassava production. Industrial output grew by 10.4% in 2022 largely driven by increased gold production.

Moreover, despite the pressure from global fuel and food prices, inflation remained contained last year. Indeed, annual average inflation slowed to 7.6% in 2022 from 7.8%. Food prices declines by 1.6% thanks to a relatively good agricultural harvest, whereas non-food inflation reached 10.6%, primarily due to energy prices. The Central Bank of Liberia kept reserve requirements unchanged last year.

This year, the Liberian government received $88 million from the European Union to continue its economic expansion. The Delegation of the European Union in Mamba Point, the Head of the European Union Delegation to Liberia, Ambassador Laurent Delahousse, and the Minister of Finance and Development Planning, Samuel D. Tweah, Jr., signed four new support programs of the European Union to Liberia, totaling $88 million. The money given to Liberia would strengthen the relationship between Liberia and the EU.

This deal signed between the two governmental entities has four major goals: (1) strengthening inclusive and accountable democracy in Liberia. $16.5 million of the $88 million were allocated for this specific task to be achieved. (2) EU support for technical and vocational education and training for young people in Liberia. $31 million of the $88 million go to the fulfillment of that objective. (3) Enhancing the transformation from productivity to product. This is meant to boost safe and sustainable food system growth for enhanced food and nutrition security, including aquaculture. $24 million of the $88 million were allocated to the completion of this goal. And lastly, (4) forestry and conservation for a sustainable economic development, which another $16.5 million of the $88 million were allotted to this goal.


Liberia's Trade Balance, 2022-2023

Source: Central Bank of Liberia


Of course, these $88 million given to Liberia were no charity. It is a loan that ought to be paid back. If that loan is used as it is supposed to be, then the return generated from the investment made in these four programs could provide revenue to pay back the loan to the EU. One way for Liberia to generate enough revenue to pay back the loan is through its trade balance. The problem is that Liberia’s trade balance is in deficit. The only time Liberia’s exports outweigh its imports was when in June 2022, at 8.8%. Therefore, the Liberian government can’t rely on its trade balance for the call on the loan.

The other way will be to either increase taxes, or for the Liberian central bank to print money. If the Liberian central bank prints money to pay back the loan, it is like operating a Ponzi scheme in which the bank will print money to pay back old investors at the expense of reducing the purchasing power of the Liberian people which could lead to inflation. If the government wants to generate more revenue to pay back the loan, then it will have to increase taxes. This means reducing the disposable income of ordinary Liberians. The inability of the Liberian government to pay back the loan would mean that Liberia will forever owe the EU, and the EU will now have everlasting leverage on the Liberian government.

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