Liberia: Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver and Modification of Performance Criteria, and Financing Assurances Review—Informational Annex

The drop in demand and commodity prices in Liberia is adversely affecting investment and exports in some key sectors. The staff report examines Liberia’s second review under the Poverty Reduction and Growth Facility and request for Waiver and Modification of Performance Criteria. The global recession is slowing Liberia’s post-war economic recovery. There is limited room for countercyclical fiscal action owing to high debt levels while monetary policy is constrained by high dollarization. In the mining sector, investment continues, and iron ore exports are expected to resume with the global economic recovery.

Abstract

The drop in demand and commodity prices in Liberia is adversely affecting investment and exports in some key sectors. The staff report examines Liberia’s second review under the Poverty Reduction and Growth Facility and request for Waiver and Modification of Performance Criteria. The global recession is slowing Liberia’s post-war economic recovery. There is limited room for countercyclical fiscal action owing to high debt levels while monetary policy is constrained by high dollarization. In the mining sector, investment continues, and iron ore exports are expected to resume with the global economic recovery.

I. Relations with the Fund

(As of February 28, 2009)

I. Membership Status: Joined 03/28/1962; Article XIV

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Payments to the Fund1 (Expectation Basis)2

(SDR million; based on existing use of resources and present holdings of SDRs):

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Projected Payments to the Fund (Obligation Basis) 3

(SDR million; based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative:

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VIII. Implementation of Multilateral Debt Relief Initiative (MDRI): Not applicable

IX. Safeguards Assessment

An update safeguards assessment of the Central Bank of Liberia (CBL) was completed in August 2008. The update found that while the CBL had largely addressed the measures to increase transparency recommended by the 2007 interim safeguards assessment, significant risks exist in the control framework of the bank. Of particular concern during the course of the assessment was a delay in the assumption of co-signing authority for CBL financial matters by the Fund-supported Special Advisor. The assessment also found that internal audit capacity was weak and that the Audit Committee was not exercising effective oversight of CBL financial reporting, audit, and control systems. A priority measure to utilize the services of an external auditor to conduct a series of special audits was completed in August 2008 and it indicated that the monetary data submitted by the CBL are accurate and in compliance with TMU definitions, and that progress has been made to improve some aspects of the overall control environment, including the assumption of co-signing authority by the Special Advisor. The CBL has also made progress in implementing other safeguards recommendations, including drafting investment guidelines for CBL financial resources.

X. Exchange Rate Arrangement

Liberia maintains an exchange rate system that is free of restrictions on payments for current and capital transfers. The currency of Liberia is the Liberian dollar. The U.S. dollar is also legal tender. The current exchange rate arrangement is a managed float, with no predetermined path for the exchange rate. The exchange rate of the Liberian dollar is market determined, and all foreign exchange dealers, including banks, are permitted to buy and sell currencies. Liberia’s exchange rate at end-January 2009 was L$64.5=US$1.

XI. Article IV Consultation

The 2008 Article IV consultation discussions were held in Monrovia during October 20-31, 2008 in Monrovia. The staff report (Country Report No. 09/4, 1/13/09) was discussed by the Executive Board on December 22, 2008 and is posted on the IMF website.

XII. Technical Assistance

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XIII. Resident Representative

A resident representative has been posted in Monrovia since April 2, 2006.

II. Joint World Bank-IMF Work Program, 2008–09

(As of March 31, 2009)

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III. Statistical Issues

1. Data provision has serious shortcomings that significantly hamper surveillance. There are serious shortcomings in the national accounts and balance of payments, which stem mainly from lack of source data, limited scope, and appropriate timeliness; these shortcomings have required Fund staff to estimate historical data in these areas.

2. The government passed legislation in July 2004 to create the Liberia Institute of Statistics and Geo-Information Services (LISGIS) as a semi-autonomous agency. This agency will have the lead in coordinating and reestablishing national economic and social statistics.

3. As one of twenty-two countries participating in the GDDS Project for Anglophone Africa, Liberia has undertaken to use the GDDS as a framework to develop its national statistical system. Metadata and plans for improving the data over the short and medium term have been posted on the Fund’s Dissemination Standards Bulletin Board since October 24, 2005.

Real sector statistics

4. National accounts data are estimates as opposed to statistics compiled on the basis of a standard statistical methodology. Estimates of GDP by production and by sector components are prepared by the LISGIS. The Fund staff has estimated total GDP by sectoral origin for the period 1997–2006 with the assistance of the Ministry of Planning and Economic Affairs (MPEA) and LISGIS. Estimates for GDP by expenditure are not available. Consequently, there is a high degree of uncertainty regarding estimates of the level and growth rate of GDP, sectoral components, and all ratios to the GDP. The national business register and National Accounts questionnaires were established in December 2008 and the first post conflict annual establishment census was launched in February 2009. The National Accounts survey was launched in February 2009. National Accounts estimates are expected by end 2009. Improvements in data quality require: (i) a Household Income and Expenditure Survey to develop reliable data on informal household sector production activities as well as on expenditures by households and also form a basis for consumer price index weights (ii) labor survey. The population census conducted in 2007 will be the source for designing these surveys.

Price statistics

5. The CPI has been compiled since October 2005 jointly by the Central Bank of Liberia (CBL) and LISGIS. Prior to January 2007, price data were based on the Monrovia Consumer Price Index (MCPI) which contained a basket of only 79 items, which were weighted according to a household income and expenditure survey from 1964. In January 2007, the authorities formally adopted the Harmonized Consumer Price Index (HCPI). The HCPI is based on an expanded basket of goods and services consistent with the ECOWAS harmonized market basket, and updated weights (using consumption patterns in neighboring countries in the absence of an updated household survey). The weights were revised based on the results of the Core Welfare Indicators Questionnaire and the recommendation made by the June 2007 CPI technical assistance mission on the implementation of the review of weights. The reference base retained for the new series was set as December 2005=100. The HCPI covers only the Greater Monrovia and there is need to extend the HCPI to include all the counties.

Government finance statistics

6. The Ministry of Finance (MoF) regularly provides AFR with monthly disaggregated data on government revenue and on government current and capital expenditure on a cash and commitment basis. There is scope, for improving the quality of the government finance statistics, including reporting on financing items and expenditures on domestic debt and arrears. A 2006 STA mission noted several issues regarding data quality, including problems in reporting customs revenue, problems in revenue classification, and lack of budget codes for fiscal reporting. The authorities plan to adopt the GFSM 2001 methodology, and additional requests for technical assistance could be forthcoming. The authorities have not reported data for publication in the Government Financial Statistics Yearbook and in the IFS.

Monetary and financial statistics

7. The CBL has made progress in adopting the statistical methodology recommended in the IMF’s Monetary and Financial Statistics Manual. In November 2007, an STA monetary and financial statistics (MFS) mission assisted the CBL to develop a framework for compiling standardized report forms (SRFs) for reporting monetary data to the IMF and resolve problems in the data reported by some commercial banks. The authorities plan to adopt International Financial Reporting Standards (IFRS) as the accounting framework for the year 2008. The report of a special audit of the CBL monetary data reporting found that the Bank is on course to be fully compliant with all the relevant IFRS’s that impact the operations of the Bank in 2008 in the externally audited accounts for 2008. An MFS follow-up mission planned for 2009 will work with the new source data for the central bank to update the SRFs for publication in the International Financial Statistics Supplement on Monetary and Financial Statistics.

Balance of payments statistics and external debt

8. The CBL has made significant progress in rebuilding capacity for balance of payments statistics. With the assistance of STA long-term advisor in balance of payments statistics, the CBL was able to report comprehensive balance of payments statistics for publication in the IMF Balance of Statistics Yearbook (2008). However, significant gaps remain to be filled—particularly in the area of financial account—to improve the overall quality of reported data. With the support of STA, the authorities are developing a comprehensive balance of payments data collection program to address the paucity of primary source data. In an effort to reconcile the significant discrepancies in international trade statistics (ITS) reported by various agencies, the CBL has also initiated work on a new ITS database aimed at incorporating new data sources. The CBL has completed a census of foreign direct investment enterprises in preparation for an FDI survey.

9. Significant gaps exist in the records of external public debt, particularly those related to bilateral and commercial creditors. A task force comprising staff seconded from the CBL, MoF, MPEA, General Auditing Office and the Bureau of the Budget (BoB) is making progress in obtaining loan agreements and financial statements from external creditors to update the external debt database maintained by the MoF. The balance of payments unit in the CBL is adequately staffed—two officers have attended the IMF Headquarters course on balance of payments statistics, and one more is scheduled to attend the next course to be held in May 2009.

Liberia—Table of Common Indicators Required for Surveillance

As of March 31, 2009

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Includes reserve assets pledged or otherwise encumbered.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extrabudgetary funds, and social security funds) and state and local governments.

1

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

2

This schedule represents all currently scheduled payments to the IMF, including repayment expectations and repayment obligations. The IMF Executive Board can extend repayment expectations (within predetermined limits) upon request by the debtor country if its external payments position is not strong enough to meet the expectations without undue hardship or risk.

3

This schedule is not the currently applicable schedule of payments to the IMF. Rather, the schedule presents all payments to the IMF under the illustrative assumption that repayment expectations – except for SRF repayment expectations – would b extended to their respective obligation dates by the IMF Executive Board upon request of the debtor country. SRF repayments are thus only shown on their current expectation dates, unless already converted to an obligation date by the IMF Executive Board.

4

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts ca not be added.

5

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.