DEBT MANAGEMENT AND ECONOMIC DEVELOPMENT OF LIBERIA: TIME SERIES APPROACH
Abstract
Background of the study: Liberia remains a fragile country vulnerable to external shocks, with a significant infrastructure deficit and poor living conditions for the majority of its population. While Liberia’s economic situation is on a better footing since receiving debt relief in 2010, the country continues to struggle to translate higher government revenues (driven mainly by economic rents obtained from its extractive industries) and new concessional and grant financing to broad-based and inclusive economic growth, development and poverty alleviation. The Liberian government contracted new non-concessional loans further straining the country’s weakened capacity to meet debt obligations.
Objective of the study: The paper sought to determine the effect of debt management on economic development of Liberia using a time series approach. The control variables were inflation, exchange rate and interest rate.
Methodology: The study adopted time series research design approach where the years covered were from 2000-2019. The 20-year period provided a substantive duration for time series data analysis. The research adopted the use of secondary data.
Results and findings: The results portrayed a negative and significant relationship between debt management and economic development in Liberia. There was a negative and significant relationship between inflation and economic development in Liberia. Exchange rate had a negative and significant relationship with economic development in Liberia. Lastly, interest rates had a negative and significant relationship with economic development in Liberia.
Conclusions and recommendations: The study concludes that Liberia’s vulnerabilities call for a prudent fiscal policy, maintenance of the fiscal anchor on debt accumulation, and the implementation of effective measures to mobilize domestic resources. To maintain debt levels at moderate levels, it is important to continue to prioritize grants and concessional loans. A strong commitment to mobilizing domestic resources. It is also important to enhance debt management capacity by improving the information flow between different entities and strengthening the capacity of the debt management. Debt thresholds should be country and context-specific and that Liberia’s borrowing space is significantly larger than that estimated by staff. In particular, they remain more optimistic about medium-term growth and the return on investment from infrastructure projects.
Keywords: Debt Management, Economic Development, Inflation Rate, Exchange Rate, Interest Rates & Liberia.
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