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IMF Country Report No. 21/9
LIBERIA
FIRST AND SECOND REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA AND MODIFICATION OF PERFORMANCE CRITERIA—PRESS RELEASE; STAFF REPORT; STAFF STATEMENT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR LIBERIA
January 2021
In the context of the First and Second Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 21, 2020, following discussions that ended on October 27, 2020, with the officials of Liberia on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on December 8, 2020.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
A Staff Statement updating information on recent developments.
A Statement by the Executive Director for Liberia.
The document listed below have been or will be separately released.
Pro-Poor Agenda for Prosperity and Development (PAPD) paper.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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LIBERIA
FIRST AND SECOND REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA AND MODIFICATION OF PERFORMANCE CRITERIA
December 8, 2020
Executive Summary
Context. Restoring macroeconomic stability, providing a foundation for sustainable inclusive growth, and addressing weaknesses in governance remain the main objectives of this program. While allowing for a slight fiscal loosening to meet humanitarian needs during the COVID-19 pandemic, tight monetary policy, much improved public financial management, domestic revenue mobilization, and zero central bank financing have supported the administration’s efforts to achieve price and exchange rate stability. This has helped to preserve the purchasing power of the poor who were the most affected by the high inflation environment at the program’s inception. The authorities consider bringing the ECF-supported program back on track of utmost importance and are committed to their development plan, the Pro-Poor Agenda for Prosperity and Development (PAPD).
Program status. The IMF’s Executive Board approved a four-year arrangement under the ECF (60 percent of quota) in December 2019. The Board also approved, in the context of the COVID-19 pandemic, debt relief under the Catastrophe Containment and Relief Trust (4.5 percent of quota) in April 2020 and a disbursement under the Rapid Credit Facility (RCF) (14 percent of quota) in June 2020.
Program performance. Three out of six end-2019 performance criteria (PCs) were not met. In particular, the PC on net international reserves (NIR) was missed by a large margin due to higher foreign exchange intervention than programmed and U.S. dollar liquidity assistance to the banking sector. Three of the six end-June 2020 PCs were not met as the impact of the pandemic made the PC targets no longer feasible nor appropriate. Two structural benchmarks (SBs) were met; four were not met, as the pandemic further strained implementation capacity. Nonetheless, one of the four was implemented with a delay and notable progress was made on several others. To further strengthen program performance, the authorities have implemented key measures as prior actions, including adopting a FY2021 budget in line with program parameters and clearing all debt service arrears, among other measures.
Request. The Liberian authorities request (i) a waiver for nonobservance of the end-December 2019 and end-June 2020 PCs on the basis of the corrective actions taken; (ii) the completion of the first and the second reviews; and (iii) modification of PCs.
Risks to the program. Risks are high despite significant mitigation measures built into prior actions and PCs. The main risks are a worse- and longer-than-anticipated impact of COVID-19; slippage from fiscal spending pressures; re-emergence of U.S. dollar liquidity needs in the banking sector; and re-emergence of Liberian dollar banknote shortages.
Policy commitments. The fiscal authorities’ efforts are focused on improving fiscal cash management and control and mobilizing domestic revenue, with the objective of financing vast development needs and better protecting the poor. The central bank is rebuilding confidence in the banking sector by addressing the root cause of the U.S. dollar liquidity needs that emerged last year and ensuring adequate supply of Liberian dollar banknotes. The central bank is also committed to rebuilding NIR to reduce vulnerability to external shocks. The authorities have adopted a comprehensive resolution to fight corruption, which is an important milestone whose effective implementation is vital.
Approved By
Celine Allard (AFR) and Kevin Fletcher (SPR)
Discussions were held virtually (September 28-October 27, 2020). The staff team comprising Ms. Saito (head), Messrs. Jenya and Matsumoto, and Ms. Tejada (all AFR), Ms. Kamali (SPR), Ms. Lattie (MCM), Mr. Abdychev (Resident Representative), and Mr. Deline (Economist, Resident Representative Office) exchanged information and held discussions with Finance Minister Tweah, Central Bank Governor Tarlue, Commerce Minister Tarpeh, Legal Advisor to the President Bernard, Auditor General Gaye, other senior government and central bank officials, and development partners. Ms. Kaze and Ms. Jain provided research support and Mr. Magno assisted the team in the preparation of this report.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Safeguarding Fiscal Discipline
B. Achieving Price Stability
C. Building Confidence in the Financial System
D. Creating the Foundation for Sustainable and Inclusive Growth
ADDRESSING WEAKNESSES IN GOVERNANCE
STATISTICAL ISSUES AND CAPACITY DEVELOPMENT
PROGRAM ISSUES, MONITORING AND RISKS
STAFF APPRAISAL
BOX
1. CPI Measurement Issues, 2020
FIGURES
1. Foreign Exchange Developments, 2016–20
2. Monetary Developments, 2013–20
3. Recent Economic Developments, 2016–20
4. Fiscal Performance, FY2014–20
TABLES
1. Selected Economic and Financial Indicators, 2018–25
2. Balance of Payments, 2018–25
3a. Fiscal Operations of the Budgetary Central Government (Including Off-Budget Transactions), 2018–25 (Millions of U.S. dollars)
3b. Fiscal Operations of the Budgetary Central Government (Including Off-Budget Transactions), 2018–25 (Percent of GDP)
3c. Fiscal Operations of the Budgetary Central Government, 2018–25 (Millions of U.S. dollars)
3d. Fiscal Operations of the Budgetary Central Government, 2018–25 (Percent of GDP)
4. Depository Corporations Survey, 2018–25
5. Financial Soundness Indicators, 2018–20
6. External Financing Requirement and Source, 2017–25
7. Schedule of Disbursements Under ECF Arrangement, 2019–23
8. Indicators of Capacity to Repay the IMF, 2019–30
ANNEX
I. Improving the Debt Service Workflow
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
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LIBERIA
FIRST AND SECOND REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA AND MODIFICATION OF PERFORMANCE CRITERIA— INFORMATIONAL ANNEX
December 8, 2020
Prepared By
The African Department
(In consultation with other departments)
Contents
RELATIONS WITH THE FUND
RELATIONS WITH OTHER IFI’S
STATISTICAL ISSUES
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LIBERIA
FIRST AND SECOND REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA AND MODIFICATION OF PERFORMANCE CRITERIA—DEBT SUSTAINABILITY ANALYSIS
December 8, 2020
Approved By
Celine Allard (IMF) and Marcello Estevão (IDA)
Prepared by the International Monetary Fund and the International Development Association.1
Liberia: Joint Bank-Fund Debt Sustainability Analysis2
Liberia: Joint Bank-Fund Debt Sustainability Analysis2
| Risk of external debt distress | Moderate |
| Overall risk of debt distress | High |
| Granularity in the risk rating | Limited space to absorb shocks |
| Application of judgment | No |
Liberia: Joint Bank-Fund Debt Sustainability Analysis2
| Risk of external debt distress | Moderate |
| Overall risk of debt distress | High |
| Granularity in the risk rating | Limited space to absorb shocks |
| Application of judgment | No |
The Debt Sustainability Analysis (DSA) continues to assess Liberia at moderate risk of external debt distress and high risk of overall public debt distress, with very limited space to accommodate shocks and an extended breach of the Present Value (PV) of public debt-to-GDP ratio. However, public debt is assessed to be sustainable as (i) both the PV of public debt-to-GDP and PV of debt-to-revenue ratios are projected to be on a downward trend and (ii) the high PV of public debt ratios largely reflect debt to the central bank, for which the interest rate is relatively low but is not discounted in the PV calculations. The rollover risk of domestic debt is low as most of the domestic debt is the government’s consolidated debt to the CBL. To keep debt distress vulnerabilities contained, it will be important to maintain fiscal discipline and rely on concessional financing.
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