Countries generally tax the forestry sector to achieve the twin objectives of revenue maximization and sustainability of logging levels. In an ideal world of perfect markets and information, auctions would be the best instrument to determine the price of extraction rights. However, a number of factors-including a lack of information on the forest resources under consideration, uncertainties as to the stability of property rights over time, and a lack of access to credit-have limited the use of auctions so far, particularly in low-income countries. To establish transparency of the forestry sector's financial flows, this paper discusses a radical simplification of Liberia's current timber tax structure, including a proposal to reduce the sector's current tax system to two instruments, an area tax and an export tax.
. Evolution of Liberia’s Timber Sector
Liberia’s forest resources are significant . About half of the country’s area is covered by high forests, compared with less than 10 percent of arable land. Liberia’s forests are equivalent to about 45 percent of the remaining Upper Guinea Forest, which spans 10 West African countries from Guinea to Cameroon. They contain a number of valuable species— such as African mahogany—that are in high demand on world markets.
Timberactivity began in the late 1960s, driven by low stumpage fees and the establishment of basic road
support will not only slow down progress on recovery, but may also delay achieving these objectives. Furthermore, delayed timberactivity as a result of failure to lift the UN sanctions would adversely affect the prospects of enhancing government revenue from the sector, and by implication, the financing of Liberia’s economic development. The authorities believe that some progress has been made on the timber industry reforms, with the assistance of external partners, and therefore, call for an early lifting of the sanctions in order to advance the development process
—such as African mahogany—that are in high demand on world markets.
52. Timberactivity began in the late 1960s, driven by low stumpage fees and the establishment of basic road infrastructure that opened access to forest areas . Through the mid-1970s, it was the fastest-growing sector of the economy, increasing its contribution to GDP from less than 5 percent to about 20 percent. Logging activity was largely carried out by foreign concessionaries. During the second half of 1970s, world demand for timber products dropped in response to global recessions, and the number
legitimized the use of the DM.
E. Liberia’s Experience with Dollarization
44. Between World War II and the early 1970s, overall favorable world market conditions for Liberia’s exports and foreign direct investment helped sustain dollarization, as adopted in 1946 . Iron ore, rubber, and timberactivities were flourishing, based on high export prices and large inflows of foreign capital.
45. During the 1970s, the oil crises and global economic downturn led to a significant deterioration of economic performance . The trade surplus started to decline and became
This Selected Issues and Statistical Appendix paper examines recent economic developments and medium-term outlook for Liberia. This paper focuses on economic developments during 2003 and 2004 and the medium-term challenges of reconstruction. The paper explores the pros and cons of adopting full (de jure) dollarization in Liberia. It reviews the theoretical arguments for and against adopting dollarization and the associated empirical evidence. The choices of monetary and exchange rate regimes made by other post-conflict countries are presented. The paper also assesses whether Liberia, in its current post-conflict situation, could benefit from dollarization.
imports of goods and services.
D. Fiscal Developments
10. Fiscal performance during 2003 was extremely poor, reflecting weak fiscal management and the effects of the internal conflict. 3 Total reported revenues in 2003 declined by 40 percent, compared to 2002. A large part of revenue, particularly from the maritime registry and timberactivities, was reportedly used outside the budget process. On the expenditure side, outlays appear to have been largely geared to the internal conflict, resulting in a buildup of sizable wage arrears and a standstill of social
This report reviews Liberia’s Post-Conflict Economic Conditions and Economic Program for 2004–05. The economy of Liberia is recovering, following a sharp contraction in the second half of 2003, as a result of increasing donor support and the revival of associated manufacturing and services activities. Despite political and capacity constraints, the economic program through June 2004 was implemented successfully. The monetary program for 2004–05 aims at a broadly stable exchange rate, while accommodating a further rebound in the demand for local currency.
). By contrast, exports stagnated at a low level, owing mainly to the continued ban on timberactivity. Nondonor imports were largely financed by strong remittances.
III. R eport on D iscussions
10. The discussions took place against the backdrop of an improving security situation and a revival in economic activity; however, capacity constraints and less than full support by the former warring factions for Chairman Bryant’s reform course were a concern . While the demobilization process was proceeding well, it was unclear how quickly ex-combatants would be
on the establishment of security outside Monrovia and the pace of donor activities . The speed of deployment of UN peacekeepers throughout the country will define the rate at which internally displaced persons and disarmed combatants return to their homes and resume productive activities, especially in agriculture. No resumption of timberactivities is expected during the first six months of 2004 as the UN Security Council decided recently to extend the ban on exports for another year, owing to lack of progress in meeting the requirements for lifting the sanction