Introduction

1. On behalf of our Liberian authorities, we thank management and staff for their timely response to the request for emergency disbursement under the Rapid Credit Facility (RCF). The authorities view the RCF as crucial in catalysing donor support from other development partners.

2. Over the past two years, Liberia has pursued a broad-based reform agenda to restore macroeconomic stability, improved financial management, and sustainable growth, underpinned by the Pro-poor Agenda for Prosperity and Development (PAPD 2018–23). To anchor their reform agenda, the authorities requested an Extended Credit Facility (ECF) arrangement, approved in December 2019. The outbreak of the COVID-19 pandemic has, however, severely derailed the country’s growth path, generating urgent balance of payments (BOP) needs. Consequently, the authorities request emergency financial assistance under the RCF in the amount of SDR 36.2 million (14 percent of quota) to meet urgent balance of payments needs. In parallel, they are exploring debt service relief under the G-20 Debt Service Suspension Initiative (DSSI).

3. Consistent with the authorities’ commitment to transparency and accountability, all crisis-related expenditures will be audited by the General Auditing Commission and published within two weeks of the finalization of the audit. The authorities have also agreed to publish on the government’s website, procurement contracts within established timeframes and thresholds, including details of beneficiaries. As part of the prior actions for the RCF, the authorities have begun publishing weekly expenditure reports on the government’s website, including COVID-19 related expenditures. Starting in the new fiscal year, all spending entities will be required to utilize the Integrated Financial Management Information System (IFMIS) for stronger expenditure management.

Program Performance under the Extended Credit Facility (ECF)

4. The authorities remain committed to the implementation of reforms under the ECF program. While most end- December 2019 fiscal targets and structural benchmarks were met, the monetary program faced some challenges. Accordingly, the authorities are taking corrective action to address the missed performance targets including the hiring of a firm to print local currency and ensuring liquidity needs are addressed promptly. They plan to resolve all outstanding issues in time for the first review.

Impact of the COVID-19 Pandemic

5. Since the first case was reported in March 2020, the number of confirmed COVID-19 cases has continued to increase to more than 300, including 28 fatalities. As the authorities continue work to improve testing capacity and tracing of infections, the number of cases is expected to rise, exerting pressure on the already fragile health care system.

6. The impact of COVID-19 and the necessary containment measures introduced by the authorities to contain the pandemic threaten to severely undermine the already strained private sector activity, particularly hotel and transportation services, which make up 16 percent of GDP. As a result, the FY 2019/2020 growth rate has been revised downwards to -2.5 percent, from the pre-COVID-19 projection of 0.5 percent. Similarly, revenue performance is now expected to decline by close to 1 percent of GDP, amidst pressures for additional emergency financing. Consequently, a cumulative fiscal gap of close to 3.5 percent of GDP is projected for fiscal years 1920/2020 and 20/21. At the same time, the sharp contraction in foreign funding for infrastructure projects, decline in remittance inflows, and drop in services receipts, are expected to widen the BOP gap by 5.1 percentage points of GDP in 2020. Furthermore, the depressed iron ore prices and possible decline in mining production, could impact the growth forecast, revenue, and the external position, going forward.

Policy Responses to the Pandemic

7. The authorities have taken decisive measures to contain the spread of the COVID-19 disease to preserve human lives and protect businesses. Key measures include the declaration of a state of emergence, restrictions on movement and gatherings, and the temporary closure of all schools, places of worship, and non-essential services. The government also established an Executive Committee on Coronavirus (ECOC) to effectively coordinate the national response, in collaboration with development partners.

8. With support from the international community, the development of a COVID-19 preparedness plan is at an advanced stage and will mostly incorporate support to the health sector. The authorities are also leveraging on the experience gained during the Ebola crisis, including surveillance and contact tracing, to break the chain of disease transmission.

9. The authorities place great importance to food security and the provision of adequate social support. In this context, they have revised the FY 2019/2020 budget to allocate resources to augment the COVID-19 Household Food Support Program (COHFSP); purchase medical supplies for health facilities; settle utility bills for households in affected communities; and implement a cash transfer program for small informal traders, including women. Further, the government is prioritizing the clearance of outstanding domestic expenditure arrears to support the private sector. In this respect, they are working with the Fund to provide resources in their fiscal program to buy back bonds issued to banks in lieu of arrears due to customers who undertook government contracts. This would have the effect of injecting additional, much-needed liquidity in the banking system.

10. In the monetary sector, the authorities’ priorities are to improve the availability of Liberia dollar banknotes and slowly build up reserves to stabilize the exchange rate and inflation. Due to limitations imposed by partial dollarization, scope for an effective monetary policy response to the pandemic remains limited. Nonetheless, the central bank is implementing several temporary measures to ease liquidity conditions in the banking system. Key measures include (i) flexible restructuring of borrowing terms by banks to benefit solvent borrowers in hard-hit sectors, (ii) suspension of fees at point of sale outlets, and (iii) increasing allowable transfer limits on mobile money transactions. While focused on preserving financial sector stability, the CBL has stepped up on-site supervision at systemic financial institutions and intensified monitoring of activity in the banking sector to ensure compliance with prudential requirements. Looking ahead, the CBL will continue to assess the impact of their interventions and introduce additional measures to ameliorate stress on the financial system, when warranted.

Post-Crisis Measures

11. The authorities reiterate their commitment to reforms under the ECF arrangement to stabilize macroeconomic conditions and lay the foundation for inclusive and durable growth. Once the crisis subsides, they will resume fiscal consolidation to support debt sustainability, including domestic revenue mobilization and rationalization of expenditures. They will also improve cash management. As part of the revenue mobilization efforts, the National Legislature has approved an increase in the excise on fuel beginning FY 2020/2021- a measure which is expected to yield about 1.2 percent of GDP in additional revenue, with no impact on retail prices. To maintain debt sustainability, they will limit the financing of development expenditure to mostly grants and highly- concessional resources.

12. The authorities continue to implement recommendations of the Action Plan on the Kroll Report. They are carrying out internal reorganization, including within the internal audit and banking departments. More importantly, they are prioritizing the finalization of the amendments to the Financial Institutions Act, and enhancement of the AML CFT framework in line with FATF recommendations.

Conclusion

13. Our authorities look forward to Executive Directors’ support for the disbursement under the RCF to help sustain ongoing efforts to contain the fallout of the pandemic and support the recovery. They are committed to pursuing their medium-term policies, as articulated in their Memorandum of Economic and Financial Policies (MEFP) under the ECF arrangement, to strengthen public institutions, improve the business environment, and support growth. They look forward to continued Fund engagement and technical support.