The staff report for the Third Review of Performance Under the Staff-Monitored Program (SMP) on Liberia explains economic developments. The Central Bank of Liberia (CBL) will continue to use the exchange rate to gauge domestic monetary conditions and manage Liberian dollar liquidity to maintain broad exchange rate stability. Progress has been made in rebuilding Liberia’s statistical capacity, but more needs to be done to establish the database required for policy formulation and monitoring.

Abstract

The staff report for the Third Review of Performance Under the Staff-Monitored Program (SMP) on Liberia explains economic developments. The Central Bank of Liberia (CBL) will continue to use the exchange rate to gauge domestic monetary conditions and manage Liberian dollar liquidity to maintain broad exchange rate stability. Progress has been made in rebuilding Liberia’s statistical capacity, but more needs to be done to establish the database required for policy formulation and monitoring.

1. The information below has become available since the issuance of the staff report. The new information does not alter the thrust of the staff appraisal and, in the staff’s assessment, the policies under the 2007 SMP continue to meet the standard on an upper credit tranche Fund arrangement, except for program financing.

2. Recent economic developments. Preliminary data indicate that total government revenue in fiscal year 2006/07 (July-June) was US$148.3 million, an increase of 75 percent compared with fiscal year 2005/06 and 23 percent more than projected in the program. While precise numbers are not yet available, indications are that government spending picked-up in the last months of the fiscal year. Supported by higher U.S. dollar government spending and increased sales of foreign exchange in the CBL’s weekly auctions, the Liberian dollar appreciated to L$60.5/US$1 on July 9 from L$62.5/US$1 at end-May. The depreciation of the Liberia dollar therefore slowed to 4.8 percent in the twelve months to end-June 2007 from 7.2 percent in May. Year-on-year inflation rose to 12.4 percent in June from 10.1 percent in May, mostly on account of higher food prices; excluding food, the rate of increase in consumer prices slowed further to 3.9 percent in June from 4.9 percent in May.1

3. Political developments. Liberia’s recently appointed Auditor General submitted a critical assessment of the 2007/08 budget to the legislature, asserting that the budget contained insufficient information for a proper legislative consideration. While the government provided additional information to the legislature, the budget has not yet been approved for the fiscal year that started on July 1. The legislature also defeated a motion for a 1/12th continuing resolution, arguing that this could further delay passage of the budget. As a result the cash management committee at the Ministry of Finance is currently not able to approve any expenditures. The Minister of Finance has indicated that she expects the budget to be approved by the end of July.

1

Inflation data under Harmonized CPI, adopted at end-January 2007, have been revised following additional STA TA. The mission that concluded on June 29, 2007 assisted the authorities in correcting problems with calculation methodology, which resulted in a revision of inflation data reported under the HCPI from January 2007.

Liberia: Third Review of Performance Under the Staff-Monitored Program: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Liberia
Author: International Monetary Fund