Liberia is one of the poorest countries in the world, with 59% of its population living in poverty as of 2016. The country faces significant challenges, including low human development, high rates of child stunting and malnutrition, inadequate sanitation, and severe spatial challenges. Liberia's economic growth has been repeatedly derailed by shocks, such as civil unrest, commodity price shocks, the Ebola epidemic, and COVID-192. Despite some recovery, real GDP per capita has broadly stagnated since 2003.
To transition from cyclical stagnation to sustainable, inclusive growth, Liberia needs to undergo five significant transformations. These include reshaping the macro-economy by increasing domestic savings and mobilizing resources, diversifying away from over-reliance on the mining sector, shifting towards activities that align with the labor demands of an expanding urban population, recognizing the private sector as the primary driver of economic expansion, and implementing deep-seated policy and institutional reforms to modernize the public sector.
The newly elected government in October 2023 has a crucial role in implementing structural reforms and capital investment over the next five years, which will impact Liberia's long-term economic outlook. Under a “business as usual” scenario, Liberia is not on track to achieve middle-income status by 2030. However, with credible reforms, Liberia has the potential to perform much better over the medium to long run. A high ambition reform program could significantly improve productivity, education, health metrics, and public investment efficiency.
Liberia could potentially attain lower middle-income status before 2040 under an ambitious reform scenario. The effectiveness of government policies and programs to enhance resilience and inclusion will determine the extent to which long-term growth results in reduced poverty and more widely shared prosperity. Establishing a solid foundation for long-term growth requires ensuring macro-economic stability and fiscal sustainability. Institutional and policy reforms are essential to modernize the public sector and provide the necessary institutions for transformation.
Creating a more conducive business climate will attract private capital and stimulate economic activity beyond mining. Harnessing Liberia's comparative advantage in agro-processing and pursuing open trade can help sustain higher growth over the medium and long term. Key policy recommendations to escape the natural resource trap and transition to sustained, inclusive growth include continued progress on macroeconomic stability, deeper policy and institutional reforms, and an overhaul of the business environment.