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International Monetary Fund. African Dept.

management framework. 12. As part of an effort to modernize the monetary policy framework and deepen the financial sector, the CBL recently launched new monetary instruments, including a Standing Credit Facility (SCF), a Standing Deposit Facility (SDF), an Intra-day Facility (IDF) and CBL bills. Together, these facilities are expected to help in the management of monetary conditions and pave the way for a move towards an interest-based monetary framework. 13. To strengthen the governance and operational independence of the CBL, and consistent with Fund TA advice, the

International Monetary Fund. African Dept.

maintaining price and exchange rate stability. It has stepped up its intervention in the foreign exchange auction to help contain depreciation pressures and anchor inflationary expectations. The CBL also plans to issue additional CBL bills to manage Liberian dollar liquidity. The reduced domestic activity may negatively impact on the quality of banks’ portfolios with worsening credit quality and increasing nonperforming loans. The CBL however, continues to monitor the banking system to ensure the health and stability of the system, and stands ready to take the necessary

International Monetary Fund. African Dept.

-Bonds, as well as CBL bills to its portfolio, and is developing a communications and awareness strategy to precede these initiatives. Develop a Consumer Confidence Index (CCI) and a Business Confidence Index (BCI) to gauge both customers and business perceptions and craft future policies in respond thereof; and Create standing deposit facilities to expand the available policy tools. Financial Sector 17. Confidence in the banking system continues to increase as evidenced by the strong balance sheet position. Key macro-prudential indicators of the industry

International Monetary Fund. African Dept.

implement a sound borrowing plan that ensures debt sustainability, while advocating caution in engaging in non-concessional borrowing. They also called for further progress in public financial management reforms to improve the quality of spending in a resource-constrained environment. Directors agreed that the Central Bank of Liberia (CBL) should tighten monetary policy with the objective of reducing inflation to single digits by 2021. Directors emphasized that further issuance of CBL bills should be suspended until the cost of the operation is included in the

International Monetary Fund. African Dept.
Liberia remains a fragile, post-conflict country with weak capacity and limited physical and human capital accumulation. External assistance to Liberia is winding down from its peak in 2016. To address pressing needs, the government launched its Pro-Poor Agenda for Prosperity and Development (PAPD), focusing on physical and human capital accumulation. Policy uncertainty and slippages, however, imposed a significant toll on the economy over the past two years. Particularly, higher fiscal deficits and accommodative monetary policy have led to rapid depreciation of the Liberia dollar and increased inflation, eroding the purchasing power of the poor.
International Monetary Fund. African Dept.

and exchange rate policy framework needs to be strengthened . In the highly dollarized setting, an increase in government spending in Liberian dollars led to exchange rate and inflation pressures. In the context of the recent launch of both T-bills and CBL bills, improved liquidity management and forecasting would be key steps towards establishing a monetary policy anchor. The authorities continue to make headway with their structural reform agenda . The Project Management Unit will help ensure readiness and quality of investment projects. Progress towards a

International Monetary Fund. African Dept.

Dollar liquidity by using new monetary policy instruments (SDF and CBL bills), initially up to L$5,000 million (about US$32 million) at a nominal interest rate of about 28 percent; 5) Cut CBL operational costs in line with the three-year budget plan; 6) Shift CBL expenditure to Liberian dollar (e.g. pay half of CBL wage bill (US$6 million) currently paid in USD in Liberian dollar; 7) Receive additional interest payments from GOL of US$ 15 million initially; and 8) Auction 100 percent of surrender receipts while the foreign exchange interbank

International Monetary Fund. African Dept.

suspension of the surrender requirement, and higher demand for CBL bills (in response to higher monetary policy rates under the program) helped to contain growth in currency in circulation and the pressure on the exchange rate. Domestic food inflation (year-on-year) spiked to 30 percent in March and April due to disruptions to the supply of domestically produced food to Monrovia during the general lockdown. However, it quickly declined to 14 percent by September. Health and education inflation spiked in July, but this is considered a measurement issue ( Box 1

International Monetary Fund. African Dept.

through regular meetings of the Liquidity Management Committee, which aims at improving liquidity monitoring and forecasting, intended to inform the basis for CBL’s intervention in the foreign exchange auction and the sterilization of Liberian dollar liquidity through the issuance of Treasury and CBL bills (end-December 2014 structural benchmark). Also, a technical working group composed of MoF and CBL staff will be set up to prepare a proposal as to timing and possible terms of conversion of part of Central Government debt held by the CBL (end-December 2014 structural

International Monetary Fund. African Dept.

. Strengthening the Monetary and Exchange Rate Policy Framework 22. The exchange rate has been under pressure in recent months . The Liberian dollar has depreciated by 10 percent between end-2012 and end-September 2013, mainly reflecting increasing (net) government spending in Liberian dollars since 2012. In the absence of sterilization (T-bills and CBL bills were not introduced until July 2013), demand for U.S. dollars has been increasing since then. This led to depreciation pressures, in spite of higher CBL intervention through the foreign exchange auction ( Text Chart 3