A. Outlook and Risks

14. The medium-term macroeconomic outlook is still favorable. Growth is projected to rebound to 3.2 percent in 2017, thanks to a further expansion in commercial gold production and continued growth in the agricultural sector supported by the Liberian Agricultural Transformation Agenda (LATA), even though rubber production is expected to remain stagnant. Medium-term growth of about 6 percent, still below the pre-Ebola 10-year average of over 7 percent, will be driven by a rebound in mining activity, particularly gold production, and sustained growth in all other non-mining sectors of the economy, notably thanks to improved electricity availability including from the finalization of the Mount Coffee hydropower plant which remains on track to come on stream by end-2016.

15. But, risks to the outlook remain high (Annex 1). The most immediate risk is the worsening of security post-UNMIL withdrawal, particularly in the run-up to the elections. More cases of Ebola—even on a small, contained scale as in the last year—would undermine confidence and activity. Weaker-than-expected market conditions for commodities could undermine government revenues and force the government to cut expenditure to unsustainable levels, which could crowd out priority social spending. The worsened macroeconomic outlook and high investment needs and borrowing pressures increase debt risks. Increasing financial sector vulnerabilities including a further loss of correspondent banking relationships could undermine the sector’s contribution to the economic recovery.

Text Table 1.

Liberia: Selected Economic Indicators, 2014–21

Sources: Liberian authorities and IMF staff estimates and projections.

¹Including selected off-budget items, such as Mt. Coffee project and Ebola-related activities. Fiscal data and projections refer to fiscal year (July - June).

²In months of next year’s imports excluding imports related to UNMIL operations and FDI projects such as iron-ore concessions.

³Net foreign exchange position is evaluated at the program exchange rates, instead of the current market exchange rates, and therefore, valuation adjustments are shown separately.

Text Table 1.

Liberia: Selected Economic Indicators, 2014–21

			2014	2015	2016	2017	2018	2019	2020	2021
			Est.	Est.	Proj.	Proj.	Proj.	Proj.	Proj.	Proj.
(Annual percentage change)
Real sector
	Real GDP		0.7	0.0	−0.5	3.2	5.2	5.7	6.0	6.6
	Consumer prices (annual average)		9.9	7.7	8.7	9.7	8.1	7.5	7.1	7.5
(Percent of GDP, fiscal year)
Central government operations1
	Total revenue and grants		27.4	32.5	31.4	30.9	27.6	27.0	27.6	28.2
	Total expenditure and net lending		29.3	40.9	35.6	39.4	33.6	31.5	31.0	31.4
	Overall fiscal balance, including grants		−1.9	−8.4	−4.2	−8.5	−6.0	−4.5	−3.4	−3.2
	Public external debt		13.2	23.0	28.0	33.6	37.4	38.1	37.5	36.8
(Percent, unless otherwise indicated)
Monetary sector
	Credit to private sector (annual change)		5.6	8.1	9.0	7.6	10.2	11.7	13.7	13.1
(Percent of GDP, unless otherwise indicated)
External sector
	Current account balance, including grants		−26.9	−32.2	−31.8	−28.2	−24.4	−23.4	−22.7	−22.5
	Gross official reserves (millions of U.S. dollars)		411	446	469	501	528	566	566	626
		Months of imports of goods and services2	2.5	2.6	2.9	3.2	3.2	3.3	3.2	3.3
	CBL’s net foreign exchange position3 (millions of U.S. dollars)		179	164	181	192	219	272	382	442
	Terms of trade (annual percent change)		−10.7	−26.4	…	…	…	…	…	…

Sources: Liberian authorities and IMF staff estimates and projections.

¹Including selected off-budget items, such as Mt. Coffee project and Ebola-related activities. Fiscal data and projections refer to fiscal year (July - June).

²In months of next year’s imports excluding imports related to UNMIL operations and FDI projects such as iron-ore concessions.

³Net foreign exchange position is evaluated at the program exchange rates, instead of the current market exchange rates, and therefore, valuation adjustments are shown separately.

View Table

Text Table 1.

Liberia: Selected Economic Indicators, 2014–21

			2014	2015	2016	2017	2018	2019	2020	2021
			Est.	Est.	Proj.	Proj.	Proj.	Proj.	Proj.	Proj.
(Annual percentage change)
Real sector
	Real GDP		0.7	0.0	−0.5	3.2	5.2	5.7	6.0	6.6
	Consumer prices (annual average)		9.9	7.7	8.7	9.7	8.1	7.5	7.1	7.5
(Percent of GDP, fiscal year)
Central government operations1
	Total revenue and grants		27.4	32.5	31.4	30.9	27.6	27.0	27.6	28.2
	Total expenditure and net lending		29.3	40.9	35.6	39.4	33.6	31.5	31.0	31.4
	Overall fiscal balance, including grants		−1.9	−8.4	−4.2	−8.5	−6.0	−4.5	−3.4	−3.2
	Public external debt		13.2	23.0	28.0	33.6	37.4	38.1	37.5	36.8
(Percent, unless otherwise indicated)
Monetary sector
	Credit to private sector (annual change)		5.6	8.1	9.0	7.6	10.2	11.7	13.7	13.1
(Percent of GDP, unless otherwise indicated)
External sector
	Current account balance, including grants		−26.9	−32.2	−31.8	−28.2	−24.4	−23.4	−22.7	−22.5
	Gross official reserves (millions of U.S. dollars)		411	446	469	501	528	566	566	626
		Months of imports of goods and services2	2.5	2.6	2.9	3.2	3.2	3.3	3.2	3.3
	CBL’s net foreign exchange position3 (millions of U.S. dollars)		179	164	181	192	219	272	382	442
	Terms of trade (annual percent change)		−10.7	−26.4	…	…	…	…	…	…

Sources: Liberian authorities and IMF staff estimates and projections.

¹Including selected off-budget items, such as Mt. Coffee project and Ebola-related activities. Fiscal data and projections refer to fiscal year (July - June).

²In months of next year’s imports excluding imports related to UNMIL operations and FDI projects such as iron-ore concessions.

³Net foreign exchange position is evaluated at the program exchange rates, instead of the current market exchange rates, and therefore, valuation adjustments are shown separately.

Liberia: Recent Economic Developments

Citation: IMF Staff Country Reports 2016, 392; 10.5089/9781475562620.002.A001

Source: Liberian authorities; and IMF staff estimates and projections.

• Download Figure
• Download figure as PowerPoint slide

View Full Size

Liberia: Recent Economic Developments

Citation: IMF Staff Country Reports 2016, 392; 10.5089/9781475562620.002.A001

Source: Liberian authorities; and IMF staff estimates and projections.

• Download Figure
• Download figure as PowerPoint slide

Liberia: Recent Economic Developments

Citation: IMF Staff Country Reports 2016, 392; 10.5089/9781475562620.002.A001

Source: Liberian authorities; and IMF staff estimates and projections.

• Download Figure
• Download figure as PowerPoint slide

B. Fiscal Policy

16. The government under executed the FY2016 budget. Reflecting stronger-than-expected impact of commodity shock on the government revenue, domestic revenue was US$453 million (22 percent of GDP), about 4 percent lower than the approved budget. Based on an austerity draft revised budget (never approved by the Legislature), the government reduced spending by about 10 percent compared with FY2015 spending. The under execution of the budget allowed the government to achieve a budget deficit of US$23 million (1 percent of GDP) and an overall fiscal deficit of US$87 million (4.2 percent of GDP), including off-budget project spending.

17. Fiscal pressures are higher in FY2017. First, revenues from the natural resource sector continue to be weak and growth is not recovering as expected, reducing projected FY2017 government revenues on unchanged policies by about US$85 million (4 percent of GDP) compared to revenue projections at the time of the completion of the fourth review. Second, the government in FY2017 will need to finance US$30 million one-off exceptional spending related to the elections (US$22 million) and the security handover from UNMIL (US$8 million). Third, because of the frontloading related to the Ebola epidemic, expected donor budget support (excluding Fund augmentation and World Bank support) would decrease from US$96 million (4.6 percent of GDP) in FY2016 to US$50 million (2.3 percent of GDP) in FY2017, a drop of $46 million compared to the average of the last four fiscal years.

Text Table 2.

Liberia: Budget, FY2016 and FY2017

(Millions of U.S. dollars)

Source: Liberian authorities; and IMF staff estimates and projections.Note: This table aggregates all the measures that the government introduced to the FY2017 budget while Text Table 1 in the Memorandum of Economic and Financial Policies (Appendix I) separately shows measures depending on the timing of their introduction. Therefore, these tables have different presentations although both summarize the FY2017 budget, but underlying projections are the same.

Text Table 2.

Liberia: Budget, FY2016 and FY2017

(Millions of U.S. dollars)

						FY2016	FY2017
						Outturn (Baseline)	No-policy Scenario	Budget Projection (Baseline)
Revenue and grants						521	485	549
	Revenue					453	435	499
		of which: Revenue shortfall by commodity price and slow recovery				−21	−85	−85
		Tax				402	386	403
			of which: Revenue measures (1)				−	17
					Increase in GST		−	13
					Tax on beverages		−	1
					Tax on tobacco		−	1
					Tax on other goods and services		−	1
					Increase in real estate tax		−	0.5
		Non-tax				51	49	96
			of which: Revenue measures (2)				−	34
					GSM excise		−	3
					Outbound call surcharge		−	2
					Storage surcharge		−	29
	Grants					68	50	50
Expenditure						544	618	576
	Current					492	577	539
		of which: Exceptional spending					30	30
		of which: Spending measures (3)					−	−38
				Compensation of employees			−	−13
				Goods and services			−	−18
				Subsidies and transfers			−	−7
	Capital					52	42	37
		of which: Spending measures (4)					−	−5
Budget balance						−23	−133	−27
Financing						37	−13	−11
	Borrowing					28	0	0
	Amortization					−13	−13	−13
	Deposit financing (+: withdrawal, -: deposit)					22	0	2
Financing gap (+ surplus, -: deficit)						15	−146	−38
ECF augmentation (5 percent of quota)								18
World Bank additional budget support								20
Memorandum
Total shock (revenue shortfall and exceptional spending)							115	115
Total adjustment (revenue and spending measures; = (1) + (2) + (3) + (4))							−	93
Overall balance, including off-budget activities						−87	−185	−185
	of which; Public investment financed by loans					−1	154	154
Nominal GDP (Millions of U.S. dollars)						2080	2183	2183

Source: Liberian authorities; and IMF staff estimates and projections.Note: This table aggregates all the measures that the government introduced to the FY2017 budget while Text Table 1 in the Memorandum of Economic and Financial Policies (Appendix I) separately shows measures depending on the timing of their introduction. Therefore, these tables have different presentations although both summarize the FY2017 budget, but underlying projections are the same.

View Table

Text Table 2.

Liberia: Budget, FY2016 and FY2017

(Millions of U.S. dollars)

						FY2016	FY2017
						Outturn (Baseline)	No-policy Scenario	Budget Projection (Baseline)
Revenue and grants						521	485	549
	Revenue					453	435	499
		of which: Revenue shortfall by commodity price and slow recovery				−21	−85	−85
		Tax				402	386	403
			of which: Revenue measures (1)				−	17
					Increase in GST		−	13
					Tax on beverages		−	1
					Tax on tobacco		−	1
					Tax on other goods and services		−	1
					Increase in real estate tax		−	0.5
		Non-tax				51	49	96
			of which: Revenue measures (2)				−	34
					GSM excise		−	3
					Outbound call surcharge		−	2
					Storage surcharge		−	29
	Grants					68	50	50
Expenditure						544	618	576
	Current					492	577	539
		of which: Exceptional spending					30	30
		of which: Spending measures (3)					−	−38
				Compensation of employees			−	−13
				Goods and services			−	−18
				Subsidies and transfers			−	−7
	Capital					52	42	37
		of which: Spending measures (4)					−	−5
Budget balance						−23	−133	−27
Financing						37	−13	−11
	Borrowing					28	0	0
	Amortization					−13	−13	−13
	Deposit financing (+: withdrawal, -: deposit)					22	0	2
Financing gap (+ surplus, -: deficit)						15	−146	−38
ECF augmentation (5 percent of quota)								18
World Bank additional budget support								20
Memorandum
Total shock (revenue shortfall and exceptional spending)							115	115
Total adjustment (revenue and spending measures; = (1) + (2) + (3) + (4))							−	93
Overall balance, including off-budget activities						−87	−185	−185
	of which; Public investment financed by loans					−1	154	154
Nominal GDP (Millions of U.S. dollars)						2080	2183	2183

Source: Liberian authorities; and IMF staff estimates and projections.Note: This table aggregates all the measures that the government introduced to the FY2017 budget while Text Table 1 in the Memorandum of Economic and Financial Policies (Appendix I) separately shows measures depending on the timing of their introduction. Therefore, these tables have different presentations although both summarize the FY2017 budget, but underlying projections are the same.

18. The approved FY2017 budget—despite strong revenue and expenditure measures—proved soon unrealistic. In September 2016, the Legislature approved an FY2017 budget of US$600 million, with US$532 million in domestic tax, non-tax revenues, and deposit financing sources and US$68 million in external budget support (including the expected Fund augmentation). However, the downward revision of economic growth in 2016-17 and the delay in approval of the budget are now expected to reduce FY2017 revenues by US$37 million compared to the budget. On this basis, in consultation with staff, the authorities adopted further revenue and spending measures in November 2016. The revised fiscal plans, envisaging a government deficit of US$27 million (1.2 percent of GDP) will be reflected in a supplementary budget that the government plans to submit to the January 2017 parliamentary session. The overall fiscal deficit (including domestically-and externally-financed off-budget items) would increase from 4.2 percent of GDP in FY2016 to 8.5 percent of GDP in FY2017 as the government executes steps up the execution of delayed Ebola-related and infrastructural spending, which are financed in FY2017 through the drawdown of yet unused external grants and domestic loans.

19. The comprehensive package of fiscal measures for FY2017 reflects the authorities’ commitment to address fiscal pressures. The adjustment, estimated as the revenue effort plus the expenditure cuts from inflation-adjusted FY2016 original budget levels, would be about US$93 million or 4.2 percent of GDP for FY2017. This policy effort compares to a fiscal shock from revenue shortfall and exceptional spending estimated at US$115 million.

• Revenue measures for a total of US$63 million (3 percent of GDP) on an annual basis. Measures approved by the Legislature as amendments to the Liberia Revenue Code (LRC), for a total of US$33 million include: (i) increase in the General Sales Tax (GST, US$20 million); (ii) additional excises on tobacco, alcohol and non-alcohol beverages, and introduction of an international outbound call excise and GSM excise (for a total of US$12 million); and (iii) increase in real estate tax (US$0.5 million). In addition to these measures, the government applied a 30 US cent per gallon increase in administrative fuel storage surcharges collected by the Liberian Petroleum Refining Company (LPRC) starting in January 2016 (US$30 million). Taking into account the timing of the implementation of the various measures, the yield of all these measures in FY2017 would amount to for US$51 million or 2.3 percentage points of GDP.

• Spending measures. Cabinet approved austerity measures in June 2016 including: reducing consultant services; freezing new hiring (except in education, health, and security); limiting official travel, printing and publication; and reducing purchases and maintenance of vehicles. Investment under the domestically-financed Public Sector Investment Plan (PSIP) was limited to existing projects. Additional November 2016 measures include additional cuts by about 4 percent from the budget expenditure ceiling (about US$11 million) of goods and services purchases, subsidy and transfers, and capital spending. Total spending adjustment compared with expenditure plan under the original FY2016 budget would be US$38 million.

20. IMF and World Bank exceptional budget support would fill the remaining financing gap of US$38 million in FY2017. The first installment of the access augmentation under the ECF arrangement requested by the authorities (US$18 million) and World Bank’s additional budget support grant (US$20 million), including US$8 million from the Crisis Response Window, delivered through Development Policy Operation would fill the balance of payments gap. The Fund disbursement would be channeled to budget support, which will help avoid unsustainable expenditure cuts. Even with exceptional assistance, total FY2017 budget support of US$86 million would still fall short of FY2016 levels of US$96 million.

21. The authorities plan to maintain a tight fiscal stance in FY2018. External budget support is expected to remain limited while the government will still have to finance some of the exceptional spending for the elections and security. The authorities intend to maintain the overall spending envelope constant in nominal terms. Higher revenues from the rebound in economic activity and ongoing revenue administration reform should compensate the expected decline in external assistance.

C. Fiscal Reform

22. The authorities intend to push ahead with fiscal reform:

• Tax policy and administration: With support from the IMF and other donors, the LRA has widened the tax base, improved tax compliance, and built capacity. The achievements include introducing desk audit system for large tax-payers, completing sectorial audit manuals, providing workshop to taxpayers, and signing Memorandum of Understanding with other government agencies, such as Liberia Anti-Corruption Commission. The government is reviewing the LRC for further amendments, including natural resource taxation, consistency between tax code and non-tax revenue, regional tariff harmonization, and simplification and avoidance of ambiguity in the tax code. Key changes (reflected above) were approved by the Legislature together with the FY2017 budget, but shortcomings remain. In addition, the government has been preparing for VAT implementation in 2018. A draft VAT bill is under preparation.

• Natural resource taxation: The government is formalizing the deferral of social contributions by the concessions, which would replace the informal agreement not to collect the contributions and allow the government to collect 50 percent of the dues and to receive the deferred contributions starting in FY2019 (structural benchmark).

• Procurement: The Public Procurement and Concessions Commission (PPCC) has modernized and stepped up the enforcement of public procurement processes, helping to avoid unfunded expenditure commitments. The PPCC has rolled out the pre-qualification of potential bidders, and has recently launched the standardization of procurement contracts and pre-approval framework. The PPCC aims at improving the rate of timely submission of draft procurement plans for the FY2018 budget to 50 percent of ministries and agencies receiving budget allocations (structural benchmark).

• Public investment management: The establishment of the domestically-financed public investment database and the expansion of the externally-financed database (structural benchmarks for the fifth review) have been lagging because of capacity constraints, technical difficulties, and poor coordination among MFDP and line ministries and agencies. With assistance from the Fund, the authorities have stepped up efforts to develop these tools crucial to improving their capacity to manage and increase the impact of investment spending. The completion of the domestically-financed project database is a prior action and the expansion of externally-financed project database is a structural benchmark for December. The MFPD is also preparing an action plan to implement the recommendations of the recent 2016 Public Investment Management Assessment (PIMA) conducted by FAD (Box 1).

• Treasury Single Account (TSA): The MFDP is preparing a strategy paper for the extension of the TSA which has still a relatively limited coverage. The strategy envisages a technical working group composed by MFDP, CBL, and commercial banks which should agree on a memorandum of understanding on the operations of the TSA.

• SOEs: Loss-making SOEs draw resources from the budget and may also create contingent liabilities. The authorities are committed to improve transparency of SOEs activities and financial control. To this end, the MFDP is now regularly publishing a quarterly report of 13 largest SOEs, which will be expanded to include below-the-line information by end-FY2017 (ongoing structural benchmark).

• PFM strategy: The MFDP is updating PFM reform strategy to cover FY2017–19. The new strategy will reflect the findings of 2016 Public Expenditure and Financial Accountability (PEFA) assessment and the 2016 PIMA. In addition, the PFM Act is being amended based on the Fund recommendations.

D. Monetary and Exchange Rate Policy

23. The CBL succeeded in improving its foreign exchange position. Despite lower foreign exchange sales from the government in the first half of 2016, the CBL managed to strengthen its international reserve position. Going forward, the authorities are committed to increase external buffers to above three months of imports to strengthen credibility and resilience to shocks, particularly in the run-up to the elections. To this end, the CBL intends to:

• Implement the three-year financial plan: The CBL has broadly adhered to the plan launched in December 2015 (prior action for the fourth review). The deficit in 2016 is projected to be US$2.1 million (13 percent) higher than planned, mainly because of a previously unbudgeted portion of the cost of printing banknotes, for an amount of $3.9 million out of a total of US$5.2 million. The CBL undertook the much-delayed printing following an unexpected green light by the Legislature, which has veto power over issuance of banknotes. The CBL absorbed about 60 percent of the cost through a reduction of US dollar operational expenses. A similar approach may be needed to absorb the cost of further issuance of banknotes in 2017.

• Moderate its foreign exchange interventions: In order to achieve its reserve targets, the CBL has limited its interventions and allowed increased exchange rate flexibility, with the Liberian dollar projected to depreciate by 12 percent to the US dollar in 2016 compared to 7 percent in 2015.

• Institute an Asset and Liability Committee (ALCO): In light of the need to actively manage balance sheets and expenses, the CBL intends to establish an ALCO to oversee risk management, balance sheet, and financial performance (structural benchmark for the eighth review).

24. Liquidity management coordination has resumed after a slowdown caused by the transition at the CBL and MFDP. Coordination between MFDP, CBL, and LRA is crucial in light of high dollarization (including in government operations) and large lump-sum external assistance inflows. Meetings of the Liquidity Working Group (LWG) have been irregular over the summer, contributing to sharp fluctuations in Liberian dollar liquidity conditions. Submission of key inputs to the liquidity framework has been hampered by the transition of high-level officials at the CBL and MFDP and upgrading of the CBL’s core banking application to Temenos 24. However, coordination has recently resumed, also in reaction to high liquidity volatility, resulting in the September 2016 issuance of a two-year, L$6 billion bond by the CBL on behalf of the MFDP with a yield of about

15 percent, well-above the average of 3 percent for Treasury bills.

E. Financial Sector Vulnerabilities

25. In the course of 2014–16, the CBL extended financial support to FIBLL, an insolvent bank. FIBLL was a medium-sized bank with a market share of 4.7 percent of total deposits (about 1 percent of GDP) in 2015, majority owned by the FIB group of Gambia. As a result of prolonged mismanagement and deteriorating performance since 2013, the bank slid into insolvency in 2014 with NPLs rising to 70 percent of total loans. To prop up the bank, the CBL extended an uncollateralized line of credit of US$12 million with a one-year maturity in 2014, which was fully used by January 2016, and an additional US$7.3 million in the course of 2016 for a total exposure of US$19.3 million (about 1 percent of GDP).

26. As its exposure mounted, the CBL decided to resolve FIBLL with support from the Fund. The CBL support was motivated initially by risks to systemic liquidity and, later, by the impact of possible failure of the bank on the financial system, access to finance, and employment. However, the effectiveness of CBL’s support to FIBLL was undermined by lack of collateral and the poor prospects to restore the bank’s solvency, in the absence of an emergency liquidity assistance framework which would have clarified the scope, objectives, and limitations of liquidity support. With options limited by the absence of a bank resolution scheme and an increasing drain on its international reserves, incompatible with the objectives of the ECF, the CBL agreed with Fund staff to resolve the bank with technical assistance from the Fund.

27. However, the CBL pursued an A&P resolution scheme as opposed to the outright liquidation recommended by staff. The CBL closed FIBLL in June 2016 as agreed with staff, but sold most of its assets and liabilities to a Ghanaian private equity group through a P&A transaction, as opposed to an outright liquidation as recommended by staff. The deal envisaged the injection by the buyer of US$18.4 million in the successor bank, GN Bank. The CBL had to absorb all its exposure which was excluded from the P&A arrangement.

28. Concerns over the modality of resolution of FIBLL delayed the completion of the fifth review. The CBL argued that a P&A transaction would avoid losses for depositors in the absence of a deposit insurance scheme, minimize the cost to the public sector, achieve continuity in banking services, and maintain public confidence in the financial system. In contrast, staff’s recommendation for an outright liquidation stemmed from concerns about risks for future open bank assistance to the successor bank in light of the large losses of FIBLL operations, the ambitious business plan of the new buyers, their limited track record in banking, and the challenging economic environment in the country.

29. Over the summer and fall, CBL and staff agreed on measures to mitigate concerns over the resolution of FIBLL and minimize risks to the CBL. Measures include:

1. Forensic audit of FIBLL covering the causes of FIBLL losses and the CBL supervision of the bank that will be conducted by an internationally reputable firm, with an interim report to be shared with staff (prior action for the fifth and sixth ECF review); the authorities will share the final report of the audit with Fund staff and transmit the results to the relevant judicial authorities (structural benchmark), and committed to publishing the audit’s findings;

2. Commitment by the buyers to promptly correct any capital shortcoming, as outlined in the P&A agreement; and

3. Special monitoring of the bank with monthly reporting of GN Bank Financial Soundness Indicators (FSIs) and quarterly financial statements to the Fund.

30. The CBL is also moving to address the gaps in the safety net architecture exposed by the FIBLL episode. With technical assistance from the Fund, the CBL is working on: (i) procedures for an emergency liquidity assistance (ELA) framework (structural benchmark) in addition to recently issued revised regulations for a standing credit facility and minimum reserve requirements; (ii) a special resolution regime to take over and transfer, without shareholders’ approval or involvement of the courts, assets and liabilities of a failing bank to an authorized institution; and (iii) a deposit insurance scheme, designed in accordance with international good practices, to offer depositors more meaningful protection against potential banking system distress.

31. The CBL is implementing a strategy to reduce NPLs. NPLs to total loans have declined substantially to 13.5 percent in August 2016 from 19.2 percent in August 2015. The decline is largely due to write-off of FIBLL NPLs, the recovery of lending post-Ebola, and the restructuring of some loans. The CBL has renewed efforts to reduce NPLs mainly to facilitate credit to the private sector. The CBL has resumed the “name and shame” initiative in October 2016 that involves publishing names of noncompliant delinquent borrowers in the press. The measure is being complemented by enforcement of the regulation on mandatory write-offs of fully provisioned recoverable legacy NPLs.

32. The CBL is enhancing supervision and Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) regulations. Mindful that withdrawal of correspondent banks is impacting trade finance, flow of remittances, humanitarian aid, and financial inclusion, the CBL has established a dedicated AML/CFT supervision unit. The CBL is also working closely with the Financial Intelligence Unit (FIU) to address gaps in financing of terrorist activities and criminalization of illicit trafficking of goods.

F. External Sector Issues

33. Mainly due to weak export prospects, Liberia’s borrowing space has tightened. Liberia’s risk of debt distress moved from low to moderate in 2015 as contracting of new debt accelerated and the economic outlook worsened following the Ebola and commodity price shocks. With continued economic weakness, particularly in exports, the DSA shows that the current risk rating of debt distress remains moderate, but is close to high, especially because of debt-to-export ratios close to the threshold.

34. In response, the authorities committed to limit the pace of external borrowing. In FY2016 the government signed US$150 million in new loans, but as no loan was ratified the PC on the debt limit was met. In FY2017 the Legislature ratified new loans for US$155 million, or US$91 million in PV terms, of which US$103 million signed in FY2016. The program envisages the ratification of about additional US$95 million in new loans for FY2017 (including the remainder of the loans signed in FY2016) for a total US$250 million or US$136 million in PV terms. The total ratification envelope for FY2016-FY2017 of US$136 million in PV terms is thus lower than projected at the time of the fourth review, consistent with the smaller borrowing envelope needed to keep the risk of debt distress at moderate. Text Table 3 shows the summary of the external borrowing program. Text Table 4 shows new external debts by type of interest and by currency.

Text Table 3.

Summary Table of Projected External Borrowing Program

(July 1, 2016 to June 30, 2017)

Source: Liberian authorities; and IMF staff calculation.

Text Table 3.

Summary Table of Projected External Borrowing Program

(July 1, 2016 to June 30, 2017)

PPG external debt				Volume of new debt in FY2017		PV of new debt in FY2017 (program purposes)
				USD million	Percent	USD million	Percent
By sources of debt financing				250	100	136	100
		Concessional debt, of which		198	79	99	73
			Multilateral debt	181	72	88	65
			Bilateral debt	17	7	11	8
			Other	0	0	0	0
		Non-concessional debt, of which		52	21	37	27
			Semi-concessional	52	21	37	27
			Commercial terms	0	0	0	0
By creditor type				250	100	136	100
			Multilateral	181	72	88	65
			Bilateral - Paris Club	0	0	0	0
			Bilateral - Non-Paris Club	69	28	48	35
			Other	0	0	0	0
Uses of debt financing				250	100	136	100
	Infrastructure			211	84	119	87
	Social spending			39	16	17	13
	Budget financing			0	0	0	0
	Other			0	0	0	0
Memo items
Indicative projections
Year 2				74		34
Year 3				71		39

Source: Liberian authorities; and IMF staff calculation.

View Table

Text Table 3.

Summary Table of Projected External Borrowing Program

(July 1, 2016 to June 30, 2017)

PPG external debt				Volume of new debt in FY2017		PV of new debt in FY2017 (program purposes)
				USD million	Percent	USD million	Percent
By sources of debt financing				250	100	136	100
		Concessional debt, of which		198	79	99	73
			Multilateral debt	181	72	88	65
			Bilateral debt	17	7	11	8
			Other	0	0	0	0
		Non-concessional debt, of which		52	21	37	27
			Semi-concessional	52	21	37	27
			Commercial terms	0	0	0	0
By creditor type				250	100	136	100
			Multilateral	181	72	88	65
			Bilateral - Paris Club	0	0	0	0
			Bilateral - Non-Paris Club	69	28	48	35
			Other	0	0	0	0
Uses of debt financing				250	100	136	100
	Infrastructure			211	84	119	87
	Social spending			39	16	17	13
	Budget financing			0	0	0	0
	Other			0	0	0	0
Memo items
Indicative projections
Year 2				74		34
Year 3				71		39

Source: Liberian authorities; and IMF staff calculation.

Text Table 4.

Type of New External Debt

(July 1, 2016 to June 30, 2017, Millions of U.S. dollars)

Source: Liberian authorities; and IMF staff calculation.

Text Table 4.

Type of New External Debt

(July 1, 2016 to June 30, 2017, Millions of U.S. dollars)

By the type of interest rate
Fixed interest rate	250
Variable interest rate	0
Unconventional loans	0
By currency
USD denominated loans	33
Loans denominated in other currency	217

Source: Liberian authorities; and IMF staff calculation.

View Table

Text Table 4.

Type of New External Debt

(July 1, 2016 to June 30, 2017, Millions of U.S. dollars)

By the type of interest rate
Fixed interest rate	250
Variable interest rate	0
Unconventional loans	0
By currency
USD denominated loans	33
Loans denominated in other currency	217

Source: Liberian authorities; and IMF staff calculation.

35. Liberia is making progress with regional and multilateral trade agreements. Liberia became a WTO member in July 2016. As part of the ECOWAS Trade Liberalization Scheme (ETLS), the government is working on implementing the Common External Tariff (CET), which was approved by the legislature in September, 2016. Migration to the CET is to take place starting in January 2017.