Statement by Ismaila Usman, Executive Director for Liberia October 20, 2004

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.


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.

Key Points

  • Since the last Board review, appreciable progress has been made by the Liberian authorities in reform implementation to further improve cooperation with the Fund, and move closer to the process of de-escalation of measures.

  • Reforms have included improvement in the formulation and implementation of fiscal and monetary policies, and enhanced transparency in governance, setting the stage for a medium-term economic development programme, while a cash-based budget for the second half of the fiscal year 2005 (Jan.-June 2005) has been prepared

  • The authorities are confronted with daunting challenges which include, among others, financing important social infrastructure and creating jobs and skills for the vast population of displaced and demobilised persons to make the rehabilitation efforts meaningful.

  • To this end, the authorities are requesting for increased and faster flow of external assistance, and an early lifting of the UN sanctions to enhance revenue and to accelerate the recovery process.

  • The authorities would also appreciate an early move from the current staff review to a Staff Monitored Programme (SMP), supported by continued technical assistance in all relevant areas of need.


Relative political stability in Liberia in the last one year has enhanced recovery chances, and has helped to speed up the demobilisation and reconstruction process, as well as the implementation of other social and economic reforms. There have been reforms in fiscal and monetary areas, including on some important governance issues. A transparent cash-based budget framework is now in place, and there is an on-going external audit of some revenue-generating agencies of government, including the Central Bank of Liberia (CBL). The authorities are also making timely monthly payments of US$50,000 to the Fund, as agreed, since January 2004.

The authorities are committed to further strengthening cooperation with the Fund by sustaining these initial successes, and implementing further reforms. A comprehensive economic programme is being planned to serve as a successor to the current Results Focused Transition Framework, RFTF, which is the basis for the on-going economic transition and reforms programme. The Interim government is also committed to establishing a legacy of socio-political recovery and cohesion, as well as a stable macroeconomic environment for sustainable growth and poverty reduction before it leaves office after the elections planned for October 2005.

For more positive progress in the post-conflict efforts to revive the Liberian economy, the authorities hope to continue to count on the understanding and support of the IMF and the valuable inputs of its staff’s, especially in the provision of ample technical assistance to help rebuild capacity and improve economic management. They are appreciative of the current Fund assistance and support and those of the World Bank, the United Nations and the rest of the international community.

2. An Update on Progress made towards Economic Recovery

i. Cooperation with the Fund has strengthened—Since the last Board discussion, the Liberian authorities have strengthened cooperation with the Fund by maintaining close policy dialogues with staff. Prudent policy implementation has been sustained, and relevant economic data are submitted regularly to staff. The authorities have also continued to meet their obligations by making the minimum monthly payments as agreed.

ii. The Economy is recovering steadily—The basic economic programme through June 2004, under the Resource-Focused Transition Framework has been satisfactorily implemented. Consistent implementation of reforms, supported by increasing donor assistance, has enhanced recovery chances for the economy, inspite of political and social sensitivities and capacity constraints. Small-scale commercial and rural activities have been reactivated, including some productive activities in manufacturing and services, especially construction. These have resulted in the growth of real GDP to an estimated 23 per cent in the first half of the year over the second half of 2003, while growth for the second half of 2004 is projected at 21 percent. Prices of food items have fallen markedly, with the easing of supply constraints, while the year-on-year general consumer price inflation decelerated from 41 per cent to 12 per cent.

iii. There have been substantial and far-reaching institutional reforms in the last one year

  • For budget and expenditure management, the authorities have been making concerted efforts to return to an orderly budget preparation process. In this wise, all government revenues are now centralised in the CBL, and a cash-based budget is being operated, with contingent spending plans specified. A weekly analysis of commitments is now in place, and a Cash Management Committee, comprising the Chairman of the Interim government is in operation.

  • In the Central Bank of Liberia (CBL), a weekly foreign exchange auction was introduced in July 2004 as a first step towards developing a set of monetary policy instruments. The auction is functioning well. Ceilings on lending rates, which have been discouraging lending by commercial banks and hampering competition, have been removed; measures have been taken to correct faulty monetary statistical data with the assistance of Fund staff and thereby restore confidence in the institution’s information system. All government accounts operated with the bank are consolidated.

  • Measures to strengthen economic management in general have included, setting up a macro fiscal unit and revoking both the suspension of sales tax on restaurant services and the administrative order on exempting companies from pre-shipment inspection. The mandate of Large Taxpayer Unit has been broadened to include customs, excise and General Sales Tax (GST), while identification number is now mandatory on all import permits, customs, GST, and tax documents.

  • In a bid to boost revenue collections, the authorities have extended preshipment inspections to all dutiable imports, and intend to begin taxing foreign vessels that fish in Liberian waters. Further actions are being proposed to strengthen policy in the future, with technical assistance support from the international community.

  • The authorities have embarked on an exercise of taking stock of domestic and wage arrears, with the support of external partners, and have agreed that no payments will be made until all amounts are verified, audit of the payroll is completed, and a strategy for their settlement is defined.

iv. On Governance, major steps that have been undertaken include the following:

  • The external audits of the main revenue generating agencies, including the CBL, have started and will provide a detailed roadmap for reforms, while steps are being taken to remove ghost workers and to audit the payroll.

  • The external peer review has expressed confidence in the CBL’s current financial information, following substantial measures taken to improve the bank’s statistical information. The new management of the Bank has taken steps to strengthen internal governance, and adjust the misalignment in its budget programme.

  • The disarmament, demobilisation, rehabilitation and reconstruction programme is on track and moving fast, while a RFTF Implementation and Monitoring Committee headed by the Chairman of the Interim Government has been formed.

  • An independent National Electoral Commission has been established, and has been provided with some resources for conducting democratic elections next year to usher in a new elected government.

3. The Budget for the Second Half of FY 2004/05 (January–June 2005)

The authorities are proposing a cautious cash budget, in light of economic uncertainties for the first half of 2005, but are nonetheless, adopting a macroeconomic framework that will put the economy on the path of enhanced recovery and growth, including a modest buildup of international reserves to about $11 million. The second half of FY2005 budget will have no recourse to financing, but will accommodate contingent spending plans in the event of the lifting of UN sanctions on timber exports, or increase in revenue, consequent upon increased inflows of foreign grants or revenue collections, which is envisaged to rise by 50 per cent. Public expenditures will focus on stepped-up spending on social infrastructure, internal security and the justice system. The monetary programme aims at a broadly stable exchange rate, while accommodating a further rebound in the demand for local currency. Broad money is projected to rise by about 40 per cent in the twelve month period, ending June 2005.

4. Proposed Reforms and the Medium-Term Economic Outlook

The Liberian authorities appreciate the need, on their part, to step up efforts on transparency and the implementation of reforms. In this wise, they are proposing, with staff support, to reverse the slippages observed in the following areas, and with acceptable timelines:

i. Budget and Expenditure Management—The authorities have agreed to make weekly payments to reduce the cumulative deficit to $1.5 million to coincide with the agreed overdraft, and formally cancel the bridge facility by the end of November, 2004.

  • In addition, they intend to avoid future direct debits on the government accounts with the CBL, and will suspend payments on all domestic debts incurred through June, until cumulative deficit is reduced to the agreed limit, while no further recourse will be made to borrowing from commercial banks.

  • The authorities agreed with staff to strengthen the Cash Management Committee and complete preparation of revenue forecasts and cash plans for all line ministries and other expenditure categories for the remainder of the FY 2005, i.e. November, 2004 -June 2005. The Cabinet and all heads of agencies would be provided with copies of the revised budget approved by the National Transitional Legislative Assembly (NTLA).

  • Monthly fiscal reports that will compare actual revenue and expenditure with the budgeted figures will be generated and published on the website of the Ministry of Finance.

  • There will be investigations, as well as necessary actions to ensure that no commercial bank is receiving deposits and taxes from any government ministry or agency in violation of the agreed budget procedure.

  • In a similar vein, CBL has been instructed to dishonour any letter payments except remittances to foreign missions and emergency payments for security operations.

  • Staff of the CBL are working with the Fund staff to reverse current spending excesses.

  • Steps are being taken to liberalise imports of petroleum products, with technical assistance from the World Bank.

ii. Monetary Policies and reforms in the CBL—It is proposed that interest on non-performing government debts will be stopped, and all accruals for the second half of the year will be reversed.

  • Furthermore, the monetary authorities intend to adopt policies that will strengthen ailing banks, and will also introduce standing credit facility for short-term liquidity support for commercial banks; and lift restrictions on inter-bank activity.

  • Reforms are also being proposed in the CBL to include, a revision of the bank’s budget for the second half of the year, after adjustments for reversal of the accrued interest; phased reduction in the personnel cost of the bank; and incorporating spot checking of commercial banks deposits in bank supervision procedures.

iii. To strengthen the monitoring of implementation of reforms, it is being proposed that membership of the Monitoring Committee will include top ranking government officials like, the Chief of Staff in the National Transitional Government of Liberia (NTGL) Chairman’s Office as chairman, the Minister of Finance, and the Governor of the CBL, among others. The Committee will meet bi-weekly and issue formal report on progress of implementation, as well as monitor time-bound technical assistance action plans.

5. Daunting Challenges Remain and Enhanced International Community Support is Essential

An assessment of the recent donors’ meeting held at the World Bank Headquarters on 24th September, 2004, indicated that, in light of Liberia’s pre-war low level of economic development, coupled with the devastations of the civil war, Liberia’s current economic situation is more of construction than reconstruction. For instance, basic infrastructure like telephones, fax machines, electricity, and stationery items are barely available in most government institutions, while out of the 80,000 disarmed combatants awaiting settlement only 10,000 could be offered jobs or some form of formal education.

Consequently, a major challenge currently facing the Liberian authorities, is how to finance a sustainable long-term economic development, to create jobs and improve skills development for the teeming population of refugees numbering about 300,000 and reintegrating 80,000 disarmed combatants into civilian life. This figure excludes yet unknown number of refugees that still remain in neighbouring countries. Without jobs, efforts at re-integration will be futile. Closely tied to this, is the daunting challenge of resettling the internally displaced vast population, most of whom are still in camps, as well as providing basic infrastructure in suburban areas to encourage sub-urban settlement and ensure that urban towns are not overcrowded.

The authorities are, therefore, appealing to the international community to continue to facilitate the strong implementation of the RFTF programme by their timely and consistent disbursement of resources in order to achieve the objectives of the programme. In addition, it is also essential to augment current financial resources and technical assistance support to enable the authorities accelerate the rehabilitation programme, especially in developing social infrastructure and resuscitating agriculture, to create jobs and to sustain the current successes.

6. Conclusion

The authorities are committed to maintaining close dialogue with the staff and management of the Fund at all times, and to continue to implement necessary reforms and adopt sound policies, inspite of their capacity constraints. In order to enhance and consolidate the reforms, as well as strengthen their cooperation with the Fund towards the process of de-escalation of remedial measures, they are requesting that the current staff review be allowed to advance to a Staff-Monitored Programme (SMP), soonest. They also request further technical assistance from the Fund and the World Bank, and other external partners.

The authorities have limited time before the democratic elections in October 2005. In essence, slow pace or limited donor support will not only slow down progress on recovery, but may also delay achieving these objectives. Furthermore, delayed timber activity 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, going forward.

The authorities hope that they can continue to count on the understanding and support of the IMF Executive Board and, indeed, the rest of the international community to help them to achieve their goals.