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
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International Monetary Fund. African Dept.
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Publication Date:
08 Jan 2021
eISBN:
9781513566283
ISBN:
9781513566283
Language:
English
Keywords:
ISCR; CR; staff appraisal; staff statement; currency management plan; financing gap; Executive Board discussion; budget support loan; CBL budget; liquidity assistance; gross investment; CBL's net int'l; Credit; Loans; forex purchase
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First and Second Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria

Abstract

First and Second Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria

Context

1. Since program inception, macroeconomic conditions have continued to challenge this fragile state. An acute shortage of Liberian dollar banknotes in December (a period of high currency demand), heightened U.S. dollar liquidity needs in the banking sector, high inflation, a three-week fuel shortage in February, long-standing delays in the government meeting payment obligations, and poor provision of public services were some important challenges. The pandemic then followed in March, with the general lockdown affecting more severely those depending on day-to-day market trading for livelihood. With the support of the disbursement under the Rapid Credit Facility (RCF), the authorities launched the COVID Household Food Support Program (COHFSP) in June to benefit those affected but delivery of the food items has been much delayed as the government agencies faced capacity constraints in enumerating food-insecure households.

2. The authorities are, however, committed to bringing the ECF-supported program back on track to advance their Pro-Poor Agenda for Prosperity and Development (PAPD). The authorities remain committed to restoring macroeconomic stability, providing a foundation for sustainable inclusive growth, and addressing weaknesses in governance. In this regard, they consider bringing the ECF-supported program back on track of utmost importance.

Recent Economic Developments

3. Economic activity declined in the first half of 2020 but signs of recovery are now emerging and inflation is moderating.

  • High frequency indicators (revenue, imports, credit growth, Figure 3) show that economic activity is down from the previous year by about 3 percent. In particular, imports in the first half of 2020 are down by about 7 percent. There are signs of recovery in the second half of 2020.

  • Headline inflation has sharply declined to 14 percent in September from about 30 percent at program inception, reflecting tight monetary conditions (Figure 2) and exchange rate appreciation (Figure 1) as well as lower fuel prices (Figure 2), weak economic activity (Figure 3), and substantial fiscal tightening (Figure 4). Much improved fiscal cash management by the government, with zero overdrafts from the central bank under the program, the suspension of the surrender requirement, and higher demand for CBL bills (in response to higher monetary policy rates under the program) helped to contain growth in currency in circulation and the pressure on the exchange rate.

  • Domestic food inflation (year-on-year) spiked to 30 percent in March and April due to disruptions to the supply of domestically produced food to Monrovia during the general lockdown. However, it quickly declined to 14 percent by September. Health and education inflation spiked in July, but this is considered a measurement issue (Box 1).

Liberia CPI Measurement Issues, 2020

Prices for some education and health services are infrequently priced, and recent price collection resulted in a spike in July inflation relative to June 2020. The Consumer Price Index (CPI) was updated with new weights and basket items in January 2019, based on the results of the 2016 Household Income and Expenditure Survey, which became available in 2018. In July 2020, CPI data (in the sub-index of education and health) show a discrete jump, reflecting new inputs from surveys conducted for the first time since January 2019. The size of the jump is in line with the change in the Liberian dollar exchange rate during this period. The discrete change, however, has resulted in CPI inflation (12-month percentage change) jumping from 13 percent in June to 17 percent in July. Staff has advised the Liberia Institute of Statistics and Geo-Information Service (LISGIS) on regularizing price collection for these basket items and recompiling the effected indices from January 2019 to better represent their price development.

Liberia: Consumer Price Index, 2019M1–2020M9

(Index, 2019M1 = 100)

Citation: IMF Staff Country Reports 2021, 009; 10.5089/9781513566283.002.A001

Sources: Liberia Institute (or Statistics and Geo Information (LISGIS); and IMF staff calculations

Meanwhile, to assess Liberia’s inflation dynamics more accurately, a critical input to the monetary policy targets, the inflation index excluding health and education was also examined in parallel. Inflation using this adjusted measure shows a downward trend, which is in line with the tight monetary conditions.

Liberia: Monthly Inflation Dynamics, 2020

(12-months percentage change)

article image
Source: Liberian authorities; and IMF Staff calculations.
Figure 1.
Figure 1.

Liberia: Foreign Exchange Developments, 2016–20

Citation: IMF Staff Country Reports 2021, 009; 10.5089/9781513566283.002.A001

Sources: Central Bank of Liberia; and IMF staff calculations.
Figure 2.
Figure 2.

Liberia: Monetary Developments, 2013–20

Citation: IMF Staff Country Reports 2021, 009; 10.5089/9781513566283.002.A001

Sources: Central Bank of Liberia; and IMF staff calculations.1 Effective January 2019, Liberian authorities have rebased inflation using the 2016 Household Income and Expenditure Survey which calculates the 2004 base year using a regional average consumption basket.2 Regional average based on prices in Cote D’Ivoire, Guinea, Liberia and Sierra Leone as of October 23, 2020.3 A significant portion of Liberian credit is expressed in US Dollars, as such, private sector credit growth has been plotted using US dollar values.
Figure 3.
Figure 3.

Liberia: Recent Economic Developments, 2016–20

Citation: IMF Staff Country Reports 2021, 009; 10.5089/9781513566283.002.A001

Sources: Central Bank of Liberia; and IMF staff calculations.1 Quarterly average rice imports needed to meet 400g rice per person per day criteria (World Food Program).2 Quarterly average fuel imports considered adequate by Liberia Petroleum Refining Company (LPRC).
Figure 4.
Figure 4.

Liberia: Fiscal Performance, FY2014–20

Citation: IMF Staff Country Reports 2021, 009; 10.5089/9781513566283.002.A001

Sources: Liberian authorities; and IMF staff calculations.

4. Despite recent improvements, Liberia remains vulnerable to shocks as both fiscal and external buffers remain low. Fiscal buffers remain non-existent and spending needs outweigh revenue inflows. External buffers have improved relative to end-December 2019. Gross official reserves of the CBL as of end-June rose by US$16.1 million due to increased donor support. However, end-June 2020 NIR declined by US$21.1 million compared to end-December 2019, mostly because the RCF disbursement of US$50 million was on-lent to the government.

Outlook and Risks

5. The growth forecast for 2020 has been revised down from 1.4 percent at program inception to -3.0 percent. The current forecast is another ½ percentage point lower than the forecast at the time of the RCF request in June, reflecting the prolonged period of COVID-19 restrictions in Liberia and disruption of cross-border travel.1 The growth forecast for 2021 is at 3.2 percent, also a ½ percentage point down from the RCF forecast In the medium-term, growth is expected to average 4.5 percent, supported by higher capital spending and improved business confidence.

6. Risks to the outlook are tilted towards the downside. A second wave of cases (domestic or overseas) would slow economic activity further; slippages from fiscal spending pressures could result in larger drawdowns on government deposits than programmed, putting pressure on the exchange rate and inflation; re-emergence of heightened U.S. dollar liquidity needs in the banking sector and that of Liberian dollar banknote shortages would undermine confidence in the banking sector and the business climate more broadly.

Program Performance

7. Overall program performance at end-December 2019 was weak largely due to a significant slippage on the monetary program.

  • All fiscal targets except two were met: The PC on the primary balance excluding grants was met by appropriately adjusting expenditure following revenue shortfalls compared to the approved budget. Two other PCs on the CBL’s gross direct credit to the government and new external non-concessional debt of the public sector were also met thanks to improved fiscal discipline and the authorities’ commitment to prioritizing concessional borrowing. The PC on new external arrears of the government, however, was not met, partly due to shortcomings in cash management, but these external arrears totaling US$1.4 million that emerged in end-2019 were cleared shortly after the due dates. Two indicative targets (ITs) on total revenue collection and social and other priority spending were met but the IT on on-budget capital spending was not met due to tight fiscal conditions throughout the year.

  • The monetary program went off track by a large margin: The PC on NIR was missed by US$17.8 million due to (i) higher foreign exchange interventions than programmed (US$10 million); (ii) the need of U.S. dollar liquidity assistance to the banking sector (US$7 million); and (iii) CBL budget overrun (US$0.8 million). The PC on the CBL’s operational and capital spending was not met due to unanticipated severance payments; and the IT on net domestic assets (NDA) of the CBL was met.

8. Program performance at end-June 2020 was negatively affected by the impact of COVID-19 despite diligent and continuous efforts.

  • The fiscal program performance was affected by the pandemic: two PCs on primary fiscal balance excluding grants and the CBL’s gross direct credit to the government were not met as the impact of the pandemic made the targets no longer feasible nor appropriate; but the PC on the contracted new non-concessional debt of the public sector was met; the IT on total revenue collection was also met despite the pandemic thanks to the authorities’ revenue mobilization efforts, including the introduction of petroleum excise taxes; the IT on social and other priority spending was met, and the IT on on-budget capital spending was not met The elimination of ghost workers and new retirees in the social sector and the decision to reallocate US$25 million of non-essential spending on goods and services for the COHFSP (not part of IT) are worth noting.

  • The monetary program performance was also affected by the pandemic: The PC on the CBL’s operational and capital spending was met; the PC on NIR was not met and missed by US$26.1 million due to the impact of the RCF on-lending to the government (US$50 million), which was partially offset by the CCRT (US$16.1 million) and higher-than-expected accumulation from the CBL’s operations (US$7.8 million); and the IT on NDA of the CBL was not met due to on-lending of the RCF disbursement.

9. Liberia maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions. The surrender requirement on remittances also remains suspended.

10. Significant progress has been made on the structural reform agenda, though some measures were not met, in part due to capacity constraints, which were exacerbated by the pandemic (MEFP ¶9).

  • The SBs to improve public financial management (PFM) and governance show progress on all fronts, but not all SBs were met. The SB to improve the civil service payroll registry was not met, partly due to interruptions during the lockdown, but 80 percent of government workers on the payroll have verified biometric identification cards (prior action). The SB to improve controls of compensation of employees was not met, but was implemented with delay, centralizing hiring and payment of most workers. The provision of quarterly financial performance reports for FY2019 and FY2020Q1-Q2 of State-Owned Enterprises (SOEs) was met. The SB on the inventory and rationalization of bank accounts in preparation for the Treasury Single Account was not met, but most Ministries, Agencies, and Commissions (MACs) are currently in compliance with the requirement to have only one account in U.S. dollar and one in Liberian dollar at the CBL.

  • The SBs to improve governance at the CBL show progress with respect to operational independence and governance arrangements at the CBL, including the submission to the Legislature of Amendments and Restatements of the CBL Act 1999 consistent with IMF understandings in January 2020 and its passage in October 2020. Significant progress on the priority items of the CBL Action Plan has been made, with delays mostly due to capacity constraints. The CBL also started reviewing the new Financial Institutions Act of 1999 with technical assistance from the IMF.

  • The SB set out to strengthen anti-corruption measures was not met. Early progress led to the submission of proposed amendments to upgrade the anti-corruption framework in line with the United Nations Convention against Corruption (UNCAC) to the Legislature. However, the passage of the Liberia Anti-Corruption Commission (LACC) Bill has been delayed as it became clear that some processes require actions not only by the Legislative Branch, but also by the Judiciary Branch, mainly the Supreme Court. Among other reforms, the LACC Bill amends the 2008 LACC Act by providing the Commission with (i) prosecutorial powers over corruption and related economic and financial offenses and (ii) new functions as the agency responsible for the recovery of assets that are the proceeds of corruption and the agency responsible for setting up and operating the asset declaration regime.

Policy Discussions

A. Safeguarding Fiscal Discipline

11. Overall, the FY2020 fiscal stance was tight mostly thanks to fiscal discipline in the first three quarters of the year despite a relaxation in the last quarter in response to the pandemic. Expenditure stayed within available resources despite a revenue shortfall and significant spending pressures, including on wage arrears in the first half of FY2020. The on-budget primary deficit excluding grants declined from 1.0 percent of GDP in FY2019 to 0.9 percent of GDP in FY2020 (Text Table 1 and Table 3d). The primary deficit (including off-budget project spending) declined from 5.1 percent of GDP to 2.8 percent of GDP (Table 3b)—broadly equal to the medium-term debt-stabilizing primary deficit. Budget support of US$108 million—including US$50 million from RCF disbursed in the last quarter of FY2020—allowed the authorities to fully execute the recast budget, provide adequate COVID-19 response, and secure some carryover (i.e., accumulation of deposits) for FY2021.

Text Table 1.

Liberia: Fiscal Budget – FY2020–21

(Million U.S. dollars)

article image
Sources: Liberian authorities; and IMF staff estimates and projections.

GOL deposits (drawdown and accumulation) and Carryover are all shown as Financing items in Tables 3a-d.

Table 1.

Liberia: Selected Economic and Financial Indicators, 2018–25

article image
Sources: Liberian authorities; and IMF staff estimates and projections.

Central government operation is based on a commitment basis and refers to the budgetary central government operations and off-budget projects. Fiscal year refers to

Ratios are calculated using external debt (in USD) evaluated at the end of period exchange rate over GDP (in USD) evaluated at the period average exchange rate.

Including the central government debts from the Central Bank of Liberia.

Projections for reserves assume that the remaining financing gap will be filled by donor financing, including possibly from the RCF, and other sources.

2020 CPI inflation is measured excluding health and education sub-index due to measurement issues.

Table 2.

Liberia: Balance of Payments, 2018–25

(Millions of U.S. dollars, unless otherwise indicated)

article image
Sources: Liberian authorities; and IMF staff estimates and projections.

The central bank is currently revising BOP statistics using the custom-based trade data, which would have better data coverage, especially on imports.

“Private financing” may reflect current transfers that are not captured by the official statistics.

Includes SDR holdings.

CCRT prospective financing is contingent on availability of resources and IMF Board approval of additional funding.

Recorded in fiscal years.

Projections for reserves assume that the remaining financing gap will be filled by donor financing, including possibly from the RCF, and other sources.

Table 3a.

Liberia: Fiscal Operations of the Budgetary Central Government (Including Off-Budget Transactions), 2018–251

(Millions of U.S. dollars)

article image
Sources: Liberian authorities; and IMF staff estimates and projections.

Fiscal table is shown on a commitment basis and refers to the budgetary central government operations and off-budget projects. Fiscal year refers to July 1 to June 30.

Starting in FY2020 budget support loans are shown as borrowing, while data prior from FY2020 show budget support loans as part of grants in line with past practice.

To ensure estimates are comparable across vintages in the table: i) budget support loans have been reclassified as borrowing; and ii) debt-to-GDP ratio is calculated as the stock of debt in USD divided by nominal GDP in USD.

Including property tax and social contribution by foreign concessions.

Including net issuance of T-bill and T-bond.

Including the central government debt from the Central Bank of Liberia, which was not included prior to 2019 Article IV Consultation.

Table 3b.

Liberia: Fiscal Operations of the Budgetary Central Government (Including Off-Budget Transactions), 2018–251

(Percent of GDP, unless otherwise indicated)

article image
Sources: Liberian authorities; and IMF staff estimates and projections.

Fiscal table is shown on a commitment basis and refers to the budgetary central government operations and off-budget projects. Fiscal year refers to July 1 to June 30.

Starting in FY2020 budget support loans are shown as borrowing, while data prior from FY2020 show budget support loans as part of grants in line with past practice.

To ensure estimates are comparable across vintages in the table: i) budget support loans have been reclassified as borrowing; and ii) debt-to-GDP ratio is calculated as the stock of debt in USD divided by nominal GDP in USD.

Including property tax and social contribution by foreign concessions.

Including net issuance of T-bill and T-bond.

Including the central government debt from the Central Bank of Liberia, which was not included prior to 2019 Article IV Consultation.

Table 3c.

Liberia: Fiscal Operations of the Budgetary Central Government, 2018–251

(Millions of U.S. dollars)

article image
Sources: Liberian authorities; and IMF staff estimates and projections.

Fiscal table is shown on a commitment basis and refers to the budgetary central government operations and off-budget projects. Fiscal year refers to July 1 to June 30.

Starting in FY2020 budget support loans are shown as borrowing, while data prior from FY2020 show budget support loans as part of grants in line with past practice.

To ensure estimates are comparable across vintages in the table: i) budget support loans have been reclassified as borrowing; and ii) debt-to-GDP ratio is calculated as the stock of debt in USD divided by nominal GDP in USD.

Including property tax and social contribution by foreign concessions.

Including net issuance of T-bill and T-bond.

Including the central government debt from the Central Bank of Liberia, which was not included prior to 2019 Article IV Consultation.

Table 3d.

Liberia: Fiscal Operations of the Budgetary Central Government, 2018–251

(Percent of GDP, unless otherwise indicated)

article image
Sources: Liberian authorities; and IMF staff estimates and projections.

Fiscal table is shown on a commitment basis and refers to the budgetary central government operations and off-budget projects. Fiscal year refers to July 1 to June 30.

Starting in FY2020 budget support loans are shown as borrowing, while data prior from FY2020 show budget support loans as part of grants in line with past practice.

To ensure estimates are comparable across vintages in the table: i) budget support loans have been reclassified as borrowing; and ii) debt-to-GDP ratio is calculated as the stock of debt in USD divided by nominal GDP in USD.

Including property tax and social contribution by foreign concessions.

Including net issuance of T-bill and T-bond.

Including the central government debt from the Central Bank of Liberia, which was not included prior to 2019 Article IV Consultation.

12. Domestic revenue improved towards end-FY2020 thanks to the excise tax on fuel, collection of one-off revenue, and overall improvements in tax collection. In June, the authorities introduced a surcharge of 30 cent per gallon on fuel—expected to yield 1.2 percent of GDP—and they formalized it into an excise tax in the FY2021 budget law. Moreover, end-year collection of budgeted one-off measures partly offset the revenue shortfall projected at the time of the RCF request. Consequently, the domestic revenue outturn for FY2020 was US$435 million (13.9 percent of GDP), lower than the US$465 million originally budgeted but higher than the US$395 million projected in the recast budget (Text Table 1). The positive revenue momentum continued in the first quarter of FY2021. Moreover, the Legislature approved changes to relevant laws to mandate the Liberia Revenue Authority (LRA) to start collecting all revenues from the Liberia Maritime Authority (LMA) and the Liberia Telecommunication Authority (LTA) from January 2021 onward.

13. Cash management and expenditure control continue to improve. Regular fiscal reports and cash plans are informing allotment and financial budget decisions, and summary fiscal reports are being published in the Ministry of Finance and Development planning (MFDP)’s website since June 2020 (MEFP ¶12). Debt service payments, both domestic and external, were however delayed (domestic debt service was significantly delayed) partly due to tight fiscal conditions but also to poor integration of direct debits into cash management decisions and a lengthy reconciliation process.2 To avoid a recurrence, the authorities have created a special debt service bank account at the CBL, where 10 percent of daily revenue is being transferred, and introduced a quarterly debt service allotment (Annex I). The authorities have also: (i) resumed the monthly Liquidity Management and weekly Treasury Management Committee meetings since July 2020; (ii) moved to quarterly expenditure reconciliation; (iii) began recording all direct debits into the Integrated Financial Management Information System (IFMIS) at the beginning of the month; and (iv) eliminated advances to autonomous agencies.

14. The authorities made significant progress on the civil service payroll reform (MEFP ¶13). The payroll regulation to centralize all wage payments was issued in March 2020 and a circular to suspend wage payments of those without biometric identification cards was issued in November 2020, enforcing validation of employment based on a biometric identification card and verification of skills. The number of public employees has been reduced from around 74,000 at the beginning of FY2020 to 67,100 by November 20 through elimination of duplicates, ghost workers, and retirement. Of these, at least 80 percent of government workers on the payroll have verified biometric identification cards (prior action), with the original target of 100 percent not yet achieved due to constraints arising from COVID-19. Consequently, the authorities delayed the suspension of salaries from the originally planned target date of end-June 2020 to end-March 2021 (new SB). The Payroll Cleaning Taskforce has improved payroll efficiency through: (i) better record keeping and controls, with hiring for all agencies now centralized and managed through the Civil Service Agency (CSA) (except for integrity and transparency institutions); (ii) integrating of the presidential appointees with the general payroll; and (iii) centralizing of hiring of consultants.

15. The Legislature’s approval of a budget of US$570 million for FY2021, a slight loosening of the fiscal policy stance relative to FY2020, is consistent with program parameters (prior action). The budget proposes a wage bill of US$292 million, contributions to the National Road Fund (NRF) of US$24 million, arrears clearance of US$10 million, and US$31 million to prevent re-emergence of U.S. dollar liquidity needs in the banking sector (MEFP ¶11). Given current revenue momentum, revenue is projected to overperform the FY2021 budget by US$20 million, which will be saved until a supplementary budget in early 2021. The on-budget primary deficit excluding grants is therefore projected at 1.1 percent of GDP in FY2021 (Text Table 1 and Table 3d), a relaxation of 0.2 percentage points of GDP compared to FY2020, with higher revenue due to reforms (e.g., petroleum excise) more than offset by the adverse effect of the pandemic, which affects all of FY2021 compared to just the last third of FY2020. This slight fiscal easing aims to help support recovery from the pandemic.

B. Achieving Price Stability

16. Monetary policy has appropriately remained tight, with the CBL exercising caution considering the uncertainties about the economic impact from COVID-19. In May, the CBL reduced the policy rate by 500-basis points to 25 percent but kept reserve requirements unchanged (MEFP ¶19). With annual inflation down to 14 percent at end-September, this amounts to an increase in the real rate by 8 percentage points since December 2019. The attractive real interest rate is helping restore the value of the Liberian dollar, as evidenced by increased placements on CBL bills up to end-September 2020 (largely held by banks). In line with TA advice, the CBL shortened the tenor for CBL bills from one year3 to two weeks; this change also made CBL bills more attractive to hold given banks’ uncertainty about the liquidity impact from the COVID pandemic. While some banks have increased term deposit rates to align with the policy rate, further unlocking interest rate transmission channels require complementary policies. In this regard, staff endorses the CBL’s the plans to reduce the Liberian dollar Reserve Requirement (RR) to 15 percent from 25 percent, and increase the U.S. dollar RR to 15 percent from 10 percent would remove banks’ aversion to take on Liberian dollar deposits.

17. Coordination with the government is continuing to help the CBL regulate the supply of money appropriately. The CBL is closely monitoring the demand for currency in circulation (CIC), which could come from multiple sources including the government’s drawdowns on its Liberian dollar deposits and the government’s sales of foreign exchange (budget support) to the central bank to make payments in Liberian dollar. As the government gradually increases its expenditure in Liberian dollar, the coordination becomes more important. The CBL and MFDP are far advanced in finalizing a Memorandum of Understanding that will formalize existing arrangements for data sharing in the Liquidity Management Committee (LMC), and strengthen the activities of the Liquidity Working Group (comprised of MFDP, LRA, and CBL) to coordinate liquidity management in the economy (MEFP ¶21). These arrangements are helping the CBL develop liquidity forecasting capacity and adopt a proactive liquidity management strategy to offset excess Liberian dollars that would emanate from the expected increase in Liberian dollar payments.

18. The exchange rate market faces several anomalies and the CBL plans to request technical assistance to review the regulations (MEFP ¶26). For example, retail depositors (who receive a portion of wages in Liberian dollar) currently do not sell their Liberian dollar balance to purchase U.S. dollar balance at commercial banks, partly due to commercial banks’ persistent aversion to buy Liberian dollars despite investment opportunities created by the introduction of CBL bills. Consequently, depositors continue to withdraw Liberian dollars to purchase foreign exchange at foreign exchange bureaus, despite the favorable exchange rate to sell at the commercial banks over the rate at the bureaus. To address anomalies such as this one, the authorities intend to work towards: (i) retaining CBL’s foreign exchange auction guidelines designed to achieve transparent price determination and avoid discriminatory provision of foreign exchange; and (ii) strengthening the current auction mechanism by conducting a comprehensive review of the CBL’s foreign exchange auction guidelines and reviewing the framework for the regulation and supervision of banks and bureaus. Moreover, the authorities have suspended the reintroduction of the surrender requirement and are committed to refraining from introducing any additional Capital Flow Management (CFM) measures.4

19. Despite some emerging pressures, the CBL’s operational budget has been prepared following IMF Technical Assistance (TA) recommendations. In 2021, the CBL aims to further reduce its deficit and eliminate the drawdown on reserves to finance its budget. To that effect, operational expenses excluding interest on monetary policy instruments and the cost of printing additional currency in 2021 is expected to remain within levels comparable to 2020 (MEFP ¶22). This has been achieved by reducing wages and salaries, rationalizing goods and services, and appropriate phasing of Information Technology contracts. To reduce the drawdown from reserves, the CBL Board has approved an increase in the local currency component of the wage bill to 50 percent from 35 percent and directed management to negotiate local contracts in local currency. These measures will realize savings in reserves sufficient to meet currency printing costs for FY2021, assuming the CBL’s sterilization operations remain effective.

20. The approval of the Amendments and Restatement of CBL Act 1999 will improve the CBL’s independence and enhance transparency and accountability. The changes, legislated in October 2020, include: (i) provisions that grant the CBL the power to seek general approvals for currency printing from the Legislature for a three-year period; and (ii) creation of the monetary policy committee as a separate decision-making body from the Board to help the Bank effectively operationalize its price stability mandate (MEFP ¶23). To improve transparency and accountability, the CBL has published the Audited Annual Financial Statements for 2019 on its website.

C. Building Confidence in the Financial System

21. The financial sector remains challenged, partly from the negative economic fallout created by the COVID-19 pandemic. Financial sector risks were elevated prior to the pandemic, with some financial institutions not meeting minimum prudential requirements. A preliminary assessment suggests that loans to the service and hospitality sectors have largely contributed to the marginal rise in nonperforming loans (NPLs) for some institutions, but reported income remains strong and total capital adequacy is above the minimum ratio. Nonetheless, continuing to strengthen micro prudential oversight amidst the challenging macroeconomic conditions is important. The pre-crisis fragility in some institutions and the impact from the asset classification and provisioning allowances will emerge with a lag, creating the possibility that reported financial strength could be negatively affected by additional loan loss provisioning. The moratorium on asset classification and provisioning extended to September 2020 was lifted in early November (MEFP ¶28).

22. Over the near-term, the authorities are addressing identified risks from financial institutions with notable breaches of regulatory requirements. The CBL Board will adopt a reform plan (prior action) and the government is seeking funding sources. With the further support of technical assistance from the U.S. Treasury Department, financial viability of the plan will be ascertained (MEFP ¶30). The authorities are also working with financial institutions not meeting minimum prudential requirements to ensure full compliance by June 2021. Addressing corporate governance issues and eliminating operational inefficiencies in financial institutions are needed. To strengthen the CBL’s supervisory and regulatory capacity, the CBL has begun revisions to the New Financial Institution Act (1999) (MEFP ¶29). The CBL has also committed to issue the new Risk-Based Supervision (RBS) Guideline by end-June 2021 (SB).

23. The CBL Board’s adoption of a three-year currency management plan will be an important step forward in securing a steady supply and improving the quality of currency in circulation. With financial and technical support from USAID, the CBL successfully conducted the secure delivery and verification of the banknotes in July (MEFP ¶20). However, the quality of banknotes in circulation continues to be poor. The CBL is planning to adopt a proposal before end-December to print enough banknotes needed for transactions in 2021 and over the medium term, and to replace unfit banknotes in circulation with due consideration given to saving time and minimizing cost (MEFP ¶25). The CBL has presented to the Legislature their estimates of demand for banknotes for the next three years and, once approved, plans to secure the first batch to meet demand for 2021 (MEFP 25).

D. Creating the Foundation for Sustainable and Inclusive Growth

24. The Debt Sustainability Analysis (DSA) continues to assess Liberia at moderate risk of external debt distress and high risk of overall public debt distress. The downward revision to economic growth and higher near-term borrowing needs have reduced Liberia’s ability to borrow in the medium term. This DSA points to short- and medium-term debt service pressure, even if some of this pressure was alleviated as debt relief from the CCRT became available.

25. The authorities’ exit strategy from fragility by upgrading the national road network is underfunded. Upgrading the national road network (only 5 percent of roads are paved) has been one of the top priorities of the PAPD (the 2018 Article IV Consultation, IMF Country Report 18/172). The implementation of the Southeastern Corridor Road Asset Management Project (SECRAMP) is however lagging and underfunded. Out of about US$260 million5 needed to connect the country with paved roads, however, only US$100 million has been identified in grants, concessional loans, and annual contributions of the Liberian government to the NRF.

26. Moreover, most of the population is enduring poor living conditions and human capital formation remains extremely inadequate. Food insecurity is rising, social safety nets are rudimentary, and the healthcare system is underdeveloped (The 2019 Article IV Consultation, IMF Country Report 19/169). Moreover, the COVID-19 response—estimated at US$84.8 million, of which US$32.8 million is on-budget and US$52 million is off-budget—aims to support the most vulnerable cohorts, by redirecting and scaling-up existing social programs. Capacity constraints and the absence of social registry however stand in the way of reaching the most vulnerable (¶1).

27. Working with development partners, contributing to the NRF, and prioritizing limited resources are critical in delivering on the PAPD. The authorities are facing limited concessional resources for road construction and limited non-concessional borrowing space in the DSA (¶24). They are also facing competing demands for public resources from past obligations (debt service and arrears clearances), public resources needed to secure financial stability (¶15), and social sector spending needs such as the COHFSP (¶9, ¶26). Working with donors and development partners to secure grants and concessional borrowing is therefore important. In this regard, the government’s commitment to meet its contribution to the NRF is critical in mobilizing more resources and hence completing the SECRAMP. Finally, given the scarcity of resources and competing demands, the authorities need to carefully assess and prioritize the use of public resources.

Addressing Weaknesses in Governance

28. The authorities are taking steps to address weaknesses in governance, but more remains to be done. Fiscal governance has improved along with the efforts to improve cash management and budget controls. The publication of regular fiscal reports (¶13) provides additional assurances and increases accountability. However, the audits of budget execution (FY2018 and FY2019) are behind, delaying the quantification of arrears (MEFP ¶33). The authorities are targeting completion of FY2018 and 2019 audits by end-December 2020 (SB) and of FY2020 audits by end-February 2021 (SB).

29. The authorities are also taking steps to increase transparency in procurement. Since March 2020, the authorities are publishing information on procurement contract awards for FY2019 and FY2020 in the Public Procurement and Concessions Commission (PPCC) website, as well as information on the legal ownership of contract awardees. They have also changed their data collection template from MACs to include beneficial ownership of contract awardees for publication on the PPCC’s website (MEFP ¶38). They are now working on publishing this beneficial ownership information, validating the delivery of goods and services, and posting contracts on the PPCC’s website and are committed to publish at least 75 percent of FY2020 contracts awarded by end-January 2021. A first round of compliance audit has been conducted to ensure that MACs are following the current procurement procedures.

30. The authorities are taking steps to expedite the resubmission of the necessary amendments to upgrade the anti-corruption legal framework. They have adopted a resolution at the anti-corruption conference held during September 16–17, 2020 to guide their medium-term, anti-corruption efforts. According to the streamlined process, they will prioritize: (i) submitting to the Legislature amendments to the LACC Act to give the LACC first tier prosecutorial power and the function to operate the asset declaration and verification regime of the Government by end-March 2021 (SB); and (ii) submitting to the Legislature draft Whistle Blower and Witness Protection bill by end-June 2021 (SB).

31. However, Liberia’s business climate faces multiple barriers for the private sector to serve as an engine of growth. The July 2020 business climate conference identified high fees and difficulties in obtaining business registries as the key obstacles to doing business (MEFP ¶40). The Ministry of Commerce is working with various stakeholders on an implementation plan to improve the business environment.

Statistical Issues and Capacity Development

32. Capacity development in the context of the COVID crisis has focused on areas critical to safeguarding domestic revenue and financial sector stability. In the recovery period, the Capacity Development Strategy prioritizes domestic revenue mobilization; strengthening bank supervision; cash management; and monetary policy operations.

Program Issues, Monitoring and Risks

33. Staff support the following requests for waivers for nonobservance of program conditionality:

  • Waivers for the nonobservance of the floor on the fiscal primary balance and the CBL’s gross direct credit to the central government for end-June 2020. COVID-19 adversely affected revenue and increased spending needs, making the end-June fiscal targets no longer feasible nor appropriate. Staff supports this based on corrective action: adopting a FY2021 budget to reset fiscal policy in line with program objectives (¶15).

  • Waivers for nonobservance of the ceiling on the change in NIR for end-December 2019 and end-June 2020. Staff support this based on corrective actions: in consultation with staff, the CBL Board adopting a reform plan to prevent re-emergence of U.S. dollar liquidity needs in the banking sector; and a viable plan to make up for lost reserves (Text Table 2).

  • Waiver for missing the ceiling on the CBL’s operational and capital expenses for end-December 2019. Staff support this based on corrective action: adopting (by the CBL Board) a 2021–23 CBL budget in line with program parameters.

  • Waiver for missing the ceiling on new external arrears of the central government (continuous). Staff support this based on corrective action: the MFDP is streamlining debt service payments (¶13).

Text Table 2.

Liberia: Revised NIR Targets, 2020–21

(Million U.S. dollars)

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Sources: Liberian authorities; and IMF Staff estimates and projections.

The pace of accumulation raised to recover the missed target at end-2019.

34. Staff support the authorities request of the following changes to the Technical Memorandum of Understanding (TMU):

  • Adding an adjuster to the definition of NIR to recognize GOL deposits to the CBL on test dates on the day of the deposit, even if the CBL’s accounting records do not recognize the deposit.

  • Adding an adjuster to the definition of NIR for: (i) the receipt of US$ mutes in transit; and (ii) regular deposits of mutes. Data on mutes shows a cyclical pattern: worsening NIR during the period of accumulation and bumping up NIR when the settlement for mutilated notes is received. On average, US$6.5 million of unfit notes are deposited to the CBL annually.

  • To prevent accumulation of arrears, clarifying that the CBL’s operational spending is on a commitment basis while capital spending is on cash basis to facilitate long-term investment plan.

  • Adding adjusters to the definitions of NIR, NDA of the CBL, and the CBL’s gross direct credit to the government to adjust the targets for on-lending of IMF disbursements, as well as debt relief under the CCRT.

  • Revising the definition of domestic arrears to distinguish arrears to domestic suppliers of goods and services and domestic debt service. In accordance with the PFM law, definition of arrears to suppliers will remain the same, while debt service arrears will be recognized as soon as payment is not made on the due date.

  • Adding an adjuster to the definition of primary fiscal balance to allow for capital injection to the banking sector to ensure financial stability.

35. Staff propose disbursement of SDR34 million (about US$48.8 million) of which SDR 26.9 million (about US$38 million) to be on-lent to the government to fill the fiscal financing gap arising from the impact of COVID-19. The financing gap is mostly due to additional spending needs of US$150 million for 2020 (IMF Country Report 20/202), part of which was already financed by the RCF (US$50 million) and the rest is being financed by donor support from development partners (US$56 million) and bilateral donors (US$6 million). The program is fully financed for the next twelve months with good prospects thereafter.

36. Downside risks to the program are high, but the program’s inherent features and the authorities’ swift action and commitment provide adequate mitigation. The main risks are: (i) a worse and longer than anticipated impact of COVID-19; (ii) slippages from fiscal spending pressures; (iii) re-emergence of U.S. dollar liquidity needs in the banking sector; and (iv) re-emergence of Liberian dollar banknotes shortages.

Capacity to Repay

37. Considering Liberia’s sustainable debt position, staff considers that Liberia has adequate capacity to repay the Fund (Table 8). This assessment is based on Liberia’s track record in meeting its obligations to the Fund, the strength of the program, and its catalytic role, the favorable medium-term outlook, and a sustainable debt position.

Table 4.

Liberia: Depository Corporations Survey, 2018–25

(Millions of U.S. dollars; unless otherwise indicated)

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

Projections for reserves assume that the remaining financing gap will be filled by donor financing, including possibly from the RCF, and other sources.

See Text Table 1 for adjustments to Net International Reserves target from program approval.

Table 5.

Liberia: Financial Soundness Indicators, 2018–201

(Percent)

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Sources: Liberian authorities; and IMF staff estimates.

The reported Financial Soundness Indicators have been validated by IMF staff using source data from the CBL as given. Staff notes that CBL should revise its risk-weights and risk-weighted asset calculation to reflect the credit risk of the underlying instruments appropriately. Additionally, discrepancies in measuring revaluation of paid-in capital may lead to inaccurate measures for capital for some banks.

Table 6.

Liberia: External Financing Requirement and Source, 2017–25

(Millions of U.S. dollars)

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Sources: Liberian authorities and IMF staff estimates and projections.
Table 7.

Liberia: Schedule of Disbursements Under ECF Arrangement, 2019–23

(Millions of SDR)

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Source: IMF staff estimates.

Disbursement is also subject to continuous performance criteria.

Table 8.

Liberia: Indicators of Capacity to Repay the IMF, 2019–30

(As of October 2019; SDR millions, unless otherwise indicated)

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

Total debt external public debt service includes IMF repayments.

Safeguards Assessments

38. Progress is being made in reversing the significant deterioration of safeguards at the CBL identified by the 2020 safeguards assessment, but more work is needed. Deteriorations were found in the areas of governance, autonomy, compliance, internal audit and the internal control environment. Prior actions, PCs, and SBs are built in to this program to address these vulnerabilities: these include filling Board vacancies, strengthening the CBL Law, appointing a firm to co-source internal audit activity, updating the CBL’s Action Plan in line with staff’s recommendations, and revising the CBL budget to limit the drawdown of foreign reserves. While these measures were partially met, delays are being observed in the following areas: improving independent oversight, establishing a compliance function, formalizing month-end closing procedures, and conducting semi-annual external audits on the foreign reserves (the last audit was conducted at end-December 2019). In addition, the pandemic has impacted the co-sourcing arrangement and internal audits on budget execution, procurement, and government banking operations have been delayed. New structural benchmarks to ensure completion of key measures have been established (MEFP, Table 3b).

Staff Appraisal

39. Faced with multiple challenges the authorities have taken necessary actions to stabilize the economy. With growth expected to contract by 3 percent in 2020, the authorities understand the urgent need to restore macroeconomic stability, see it as a precondition for the successful implementation of their PAPD, and remain committed to bringing the ECF program back on track. However, despite recent improvements, Liberia remains fragile and vulnerable to shocks as both fiscal and external buffers remain low and downside risks to the outlook are high.

40. Program performance has been mixed, but the authorities have taken corrective actions to address weaknesses in the program and continue to make progress in structural reforms. At end-December, three out of six PCs were not met, and the PC on NIR was missed by a large margin. The CBL has taken actions to prevent re-emergence of U.S. dollar liquidity needs in the banking sector; and re-emergence of Liberian dollar banknote shortages. Three out of six PCs were not met either at end-June, as the impact of the pandemic made the PC targets no longer feasible nor appropriate. The SBs to improve PFM and governance show mixed performance, but with progress on all fronts. Progress in the public payroll reform is welcome. The passage of the amendments and restatement of the CBL Act 1999 constituted a milestone in improving governance at the CBL. The SB set out to strengthen anti-corruption measures was not met but the adoption of the resolution of anti-corruption is an important first step.

41. A slight loosening of the fiscal stance for FY2021 is appropriate, but improving cash management, enhancing transparency and accountability, and mobilizing domestic revenue continue to be critical. Given the macro-criticality of these issues, the Fund will be channeling its capacity development activities to these areas. The MFDP’s diligent work to improve cash management has allowed the authorities to stay within available resources by cutting expenditure when resources fall short and more proactively allocate scarce resources and achieve a more adequate expenditure composition, including the wage bill. However, to gain full control of the budget, faster reconciliation and better management of direct debits and debt service payments are needed. Expediting domestic revenue mobilization efforts remains paramount to fill spending needs and support economic growth. In this regard, staff welcomes the introduction of the excise tax on fuel and urges the authorities to follow through with amendments to LMA and LTA Acts to allow LRA to collect all the revenue from these institutions. In addition, cleaning up tax expenditure and streamlining the process can limit tax exemptions only to necessary ones.

42. The monetary policy stance is appropriately aligned with the authorities’ inflation objective, but instruments need further finetuning. Staff welcome the CBL’s commitment to strengthen the monetary implementation framework by further finetuning the open market instruments, particularly as the government gradually increases its expenditure in Liberian dollar. Achieving this commitment hinges on improving coordination between the MFDP and CBL. In the medium term, the CBL needs to review the required reserve framework to incentivize greater usage of Liberian dollar. Continuing to rein in the CBL’s operational expenses is key to an effective monetary policy. In the medium term, the CBL needs to resume non-discriminatory foreign exchange auctions in a form fully consistent with Liberia’s obligations under Article VIII of the Fund’s Articles of Agreement.

43. The authorities need to quickly address weakness in the financial sector to safeguard financial sector stability. Hence, they should promptly take appropriate measures to prevent re-emergency of heightened U.S dollar liquidity needs, and, if needed, request the Legislature to appropriate additional resources through a supplementary budget. Making steady progress on addressing breaches in minimum prudential standards and conducting further assessments of the financial sector’s performance should also be priorities, given the pandemic’s likely adverse effects on NPLs and liquidity. Addressing corporate governance issues and eliminating operational inefficiencies in weak financial institutions represent a cornerstone for maintaining financial stability going forward. Moreover, the CBL should ensure that currency stocks remain adequate to meet expected seasonal and transactional demand for currency within the next 6 months which is only possible with timely procurement of banknotes.

44. Further improvements in governance are necessary for efficient delivery of public services. To this end, the authorities should clear the audit backlog for FY2018 and FY2019 by end-December 2020, and FY2020 by end February 2021. In addition, the authorities should build on the recent momentum to publish all procurements above the threshold awarded by MACs to include beneficial owners of these contracts. Furthermore, the authorities should speed up the preparation of the bills for the whistleblower and witness protection and illicit enrichment laws and ensure that all relevant stakeholders are consulted.

45. Liberia continues to be assessed as having a sustainable debt burden and adequate capacity to repay the Fund, but borrowing space is insufficient to support sustainable growth. The DSA shows Liberia at moderate risk of external debt distress and high risk of public debt distress. Limited concessional loans for roads, the absence of non-concessional borrowing space, and competing demands for public resources are curbing the authorities’ ability to finance vast development needs. Therefore, the authorities should continue to work with donors and development partners to secure grants and concessional borrowing. In this regard, the government’s commitments for its contributions to the NRF is critical in mobilizing more resources and hence completing the SECRAMP. Finally, given the scarcity of resources and competing demands for public resources, the authorities need to carefully assess and prioritize the use of public resources.

46. Based on the strength of the authorities’ policy commitments and corrective measures, staff supports the completion of the first and second reviews. Staff also supports the authorities’ requests for waivers of non-observance of performance criteria: i) for end-December 2019 on the ceiling on the CBL’s operational and capital expenses, and the floor on the change in the CBL’s net international reserves; ii) for end-June 2020 on the floor on fiscal primary balance, the floor on the change in the CBL’s net international reserves, and the ceiling on CBL’s gross direct credit to central government; and iii) for the continuous PC on the ceiling on new external arrears of the central government Finally, staff supports the authorities’ request for modification of end-December 2020 performance criteria on: i) the floor on fiscal primary balance; ii) the ceiling on contracted new non-concessional external debt; iii) the ceiling on the CBL’s gross direct credit to government; iv) the floor on the change in NIR; and v) the ceiling on the CBL’s gross direct credit to central government Staff also supports the authorities’ request for modification of end-December 2020 Indicative Targets on: i) the floor on total revenue collection of the central government; ii) the ceiling on new domestic arrears/payables of the central government; iii) the floor on social and other priority spending; iv) the floor on on-budget capital spending; and v) the ceiling on net domestic assets (NDA) of the CBL Staff also supports the following clarification modifications in the TMU: Clarifying the accounting rule of CBL operational and capital expenses; and clarifying that the CBL’s operational expenses are on a commitment basis, while capital expenses are on a cash basis;

  • Clarifying the definition of NIR to recognize GOL deposits to the CBL on the day of the deposit, even if the CBL’s accounting records do not recognize it on the same day; adding an adjuster to the definition of NIR for the receipt of U.S. dollar mutilated banknotes in transit and regular deposits of mutilated banknotes at the CBL to avoid these transitory transactions affecting NIR; and adding an adjustor to the definition of NIR to allow for on-lending of IMF disbursements and debt relief under the CCRT;

  • Adding adjusters to the definitions of NDA of the CBL and the CBL’s gross direct credit to the government to allow for on-lending of IMF disbursements and debt relief under the CCRT;

  • Adding an adjuster to the definition of primary fiscal balance to allow for capital injection to the banking sector to ensure financial stability; and

  • Adding domestic debt service payment arrears to the definition of domestic arrears.

Annex I. Improving the Debt Service Workflow

Streamlining debt service is critical to prevent the emergence of debt-related arrears. Despite major improvements to cash managements and recording of debt stocks and flows throughout FY2020, some domestic and external debt service were paid past their due date. Delays were not only due to tight fiscal conditions and the poor integration of direct debit payments into cash management decisions, but also due to a cumbersome loan repayment process. Until recently, the authorities waited to receive payment invoices (typically one month before the due date) to start the process of allotment, financial budget, voucher, and payment; all of which involved 34 steps and multiple departments at the Ministry of Finance, Development and Planning (MFDP). This burdensome process under a tight timeline meant that there was no room to accommodate delays including those related to liquidity constraints. To avoid recurrence, the authorities have made the following changes to the debt service flow process: (i) created a special debt service bank account at the CBL, where 10 percent of daily revenue is being transferred with the aim of smoothing cash availability for debt obligations; (ii) introduced quarterly allotment based on a debt service plan; (iii) introduced monthly financial budget, to be approved at the beginning of the month based on cash availability. Since near-term debt service projections are accurate, by doing the allotment and financial budget before receiving invoices allows the authorities to better incorporate upcoming debt service into cash plans and smooth loan repayment.

Table A1.

Liberia: Debt Service Workflow

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Appendix I. Letter of Intent

Monrovia, December 7, 2020

Madame Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, D.C., USA

Dear Madam Managing Director:

On behalf of the government of Liberia, we would like to provide you with an update on the progress we have achieved under our economic program anchored by our development plan Pro-Poor Agenda for Prosperity and Development (PAPD) and supported by the IMF’s Extended Credit Facility (ECF). Since the IMF Board approved the program in December 2019, tight fiscal and monetary policies, as well as lower fuel prices and weak economic activity have helped us to reduce inflation and stabilize the exchange rate, albeit with declining economic activity. Increased on- and off-budget support and the IMF’s debt relief under the Catastrophe Containment and Relief Trust (CCRT) are helping us to weather the economic impact of the pandemic. Although the incidence of COVID-19 in Liberia remains below our expectation with only 1,528 reported cases as of November 19, the outlook for 2020 and 2021 remains uncertain.

In as much as program performance for the first review of the program was mixed in light of addressing a major shock that affected performance, the second review continues to show improvement despite the impact of COVID-19. For the end-December 2019 fiscal targets, all were met except the ceiling on new external arrears of the government partly due to significant pressure to become current on wages before the holiday season. These have since been cleared. However, on the monetary side, only the indicative target on the ceiling on net domestic assets of the Central Bank of Liberia (CBL) was met as improvements in cash management helped the government to contain expenditure within the resource envelope. Program performance for end-June 2020 should have been strong if it were not for the COVID-19 pandemic. As a result, all the quantitative performance criteria (QPC) for end-June were missed except the ceilings on the contract non-concessional debt of the public sector and the ceiling on the CBL’s operational and capital spending, and the indicative target on the floor on total revenue collection of the government. The target on the floor on the change in Net International Reserve (NIR) and the ceilings on Net Domestic Asset (NDA) of the CBL and the CBL’s gross direct credit to the government were missed because of the net impact of the on-lending of the Rapid Credit Facility (RCF) disbursement and the CCRT. We have made substantial progress with most of the structural benchmarks. For those that have not been met, we are asking that they should be rephased for the third and fourth reviews.

The attached first Supplement to the Memorandum of Economic and Financial Policies (MEFP) sets out the government’s objectives and policies for the rest of 2020 and 2021. Our fiscal program is in line with program objectives. To this end, the Legislature approved a credible budget for FY2021 that is underpinned by a conservative resource envelope. It builds on the gains we achieved in FY2020 to further rationalize spending to create space for more social and capital spending. In addition, to safeguard financial stability, a provision of US$31 million was appropriated by the Legislature in the FY2021 budget. Our monetary program is designed to facilitate the achievement of price stability, reserve accumulation and to rebuild external foreign currency buffers.

Based on the strength of our corrective actions and policy response moving forward, we request the following waivers for nonobservance of the program’s quantitative performance criteria:

  • Waivers for the nonobservance of the floor on the fiscal primary balance and the CBL’s gross direct credit to the central government for end-June 2020.

  • Waivers for nonobservance of the ceiling on the change in NIR for end-December 2019 and end-June 2020.

  • Waiver for missing the ceiling on the CBL’s operational and capital expenses for end-December 2019.

  • Waiver for missing the continuous ceiling on new external arrears of the central government based on the corrective action we have taken.

We request modification of the end-December 2020 Performance Criteria on the floor on fiscal primary balance; the ceiling on contracted new non-concessional external debt; the ceiling on the CBL’s gross direct credit to government to reflect recent developments, as well as prospective on-lending to the government in USD of ECF disbursements related to the first and second reviews and debt relief from the IMF; the floor on the change in NIR; and the ceiling on CBL’s gross direct credit to central government. We also request modification of end-December 2020 Indicative Targets on the floor on total revenue collection of the central government; the ceiling on new domestic arrears/payables of the central government; the floor on social and other priority spending; the floor on on-budget capital spending; and the ceiling on net domestic assets (NDA) of the CBL

We request clarification modifications in the Technical Memorandum of Understanding (TMU). Modifications are:

  • Clarifying the accounting rule of CBL operational and capital expenses; and clarifying that the CBL’s operational expenses are on a commitment basis, while capital expenses are on a cash basis;

  • Clarifying the definition of NIR to recognize GOL deposits to the CBL on the day of the deposit, even if the CBL’s accounting records do not recognize it on the same day; adding an adjuster to the definition of NIR for the receipt of U.S. dollar mutilated banknotes in transit and regular deposits of mutilated banknotes at the CBL to avoid these transitory transactions affecting NIR; and adding an adjustor to the definition of NIR to allow for on-lending of IMF disbursements and debt relief under the CCRT;

  • Adding adjusters to the definitions of NDA of the CBL and the CBL’s gross direct credit to the government to allow for on-lending of IMF disbursements and debt relief under the CCRT;

  • Adding an adjuster to the definition of primary fiscal balance to allow for capital injection to the banking sector to ensure financial stability; and

  • Adding domestic debt service payment arrears to the definition of domestic arrears.

In view of the policies and measures contained in the attached MEFP, we are requesting completion of the first and second reviews of the ECF-supported program and a disbursement of

SDR 34.0044 million (13.18 percent of quota). We further request that US$38 million out of this disbursement should be on-lent to the government to finance the gap created by the impact of COVID-19.

We authorize the IMF to publish the staff report, including this letter, the attached supplement to the MEFP and the TMU, the informational annex, and the update to the debt sustainability analysis carried out by IMF and World Bank staff on its website and other media once the IMF Executive Board approves the first and second reviews of the ECF-supported program.

Sincerely,

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Attachments:

  • - Memorandum of Economic and Financial Policies

  • - Technical Memorandum of Understanding

Attachment I. Memorandum of Economic and Financial Policies

This first supplement to the November 25, 2019 Memorandum of Economic and Financial Policies (MEFP) summarizes implementation of the program supported by the IMF’s Extended Credit Facility (ECF) since approval in December 2019. It also sets forth the key program policies and measures for 2020 and 2021.

Introduction

1. Since the approval of the ECF supported economic program, the administration of President George Manneh Weah has made progress to stabilize the economy despite the COVID-19 pandemic. Tight monetary and fiscal policies 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.

2. The pandemic side-tracked our efforts to aggressively implement the Pro-poor Agenda for Prosperity and Development (PAPD) covering the period 2018–23. The pandemic hit us at a time when consensus for broad based reform had finally emerged and the economy was bottoming out. In this regard, we view bringing the program back on track as critical to sustaining the progress we have already achieved in stabilizing the economy and attain the other objectives of the program, namely putting Liberia on a fiscally sustainable growth path and addressing weakness in governance and institutions of the public sector. These are necessary to achieve broad based growth under the PAPD.

Recent Economic Developments

3. The economic situation in the first half of 2020 remained challenging although economic stability improved.

  • With the impact of COVID-19, growth is now projected at -3.0 percent for 2020, 0.5 percentage points below the RCF baseline, largely due to prolonged lockdowns at home and abroad and second wave of pandemic seen in several countries. While mining sector and manufacturing sector might avoid contraction, service sectors, especially hospitality sector, have been hit hard due to the lack of international travelers.

  • Liberian Dollar inflation1 excluding education and health categories where measurement issues have occurred due to infrequent survey declined sharply partly in response to the tight monetary policy and the stable exchange rate. End-2020 inflation estimates has been revised down to 12 percent from 15 percent as monetary policy stance remains tight and Liberia continues to benefit from low oil prices.

4. In addition, our external buffers have improved relative to end-December 2019. To end-June 2020, gross official reserves of the Central Bank of Liberia (CBL) increased by US$16.1 million due to increased donor support during the pandemic, and partial payment of the Emergency Liquidity Assistance (ELA). However, end-June 2020 NIR declined by US$21.1 million compared to end-December 2019 mostly because the RCF disbursement of US$50 million was on-lent to the government.

Outlook and Risks

5. The prolonged period of lockdown which has already dampened growth this year is expected to slow down economic recovery in 2021. Consequently, we are projecting GDP growth for 2021 at 3.2 percent compared to a RCF projection of 4 percent. While recovery in the mining and manufacturing sectors are expected to continue, they face headwinds emanating from the global environment. Inflation is expected to decline further in 2021 as oil prices remain low.

Program Performance

6. Program performance for end-December 2019 was mixed on account of a large miss of the monetary program although the fiscal program was on track. Three out of six end-2019 performance criteria (PC) were met.

  • The target on the primary balance excluding grants for end-December 2019 was met, as the revenue shortfall in the first half of FY2020 was addressed by tight cash control.

  • The ceiling on the CBL’s gross direct credit to the government by end December 2019 was met. There was, however, a two-week period in January where ECF disbursements were inadvertently transferred to the government account but were reversed after staff observed an unexplained jump in government deposits.

  • The ceiling on new external non-concessional debt of the public sector was met as the authorities did not contract any non-concessional debt.

  • The indicative targets on the floor on social and other priority spending and the floor on budget capital spending were also met.

  • However, the ceiling on new external arrears of the government was not met. External arrears totaling about $1.4 million emerged in December 2019 partly due to significant pressure to become current on wages before the holiday season. These have since been cleared.

  • On the monetary front, we missed the floor on the change in NIR for end-December 2019 by US$17.8 million on account of extending Emergency Liquidity Assistance (ELA) in foreign currency and foreign exchange intervention that helped us to mop-up excess liquidity during the festive season—the peak demand period for Liberian dollars—and mitigate the impact of the shortage of Liberian dollars.

  • On the indicative targets (ITs), three out of four ITs were met. We missed the cumulative target for the ceiling on the CBL’s operational and capital spending due to compensation for laid-off staff, upfront payments to auditors which were not budgeted for, and over-expenditure on general goods and services. All commitments carried forward to 2020 have been paid within the 2020 budget for the first half. However, we met the indicative target on the floor on total revenue collection of the central government; we also met the IT on the ceiling on net domestic assets of the CBL by US$15 million due to large inflows of non-tax revenue towards end-December which outweighed the ELA; and we met the IT on the floor on social and other priority spending.

7. End-June 2020 ECF performance could have been stronger had it not been negatively affected by the impact of COVID-19. Three out of six end-June 2020 PCs were met and three out of five ITs were met.

  • On the fiscal front, the target on primary fiscal balance excluding grants was not met because of COVID-19 related expenditure increases. In addition, despite the steps made in effective cash management, the government missed the ceiling on the CBL’s gross direct credit to the government due to on-lending of the RCF disbursement. However, the continuous ceilings on the contracted new non-concessional debt of the public sector was met. The indicative target on the floor on total revenue collection was also met despite the pandemic thanks to the authorities’ revenue mobilization efforts, including a substantial increase in petroleum excises towards the end of the fiscal year.

  • On the monetary front, the target on the ceiling on the CBL’s operational and capital spending was met by US$1.9 million despite clearing commitments brought forward from 2019; the target floor on the change in NIR was missed by US$26.1 million due to the net impact of RCF on-lending to the GOL and CCRT, and higher than expected accumulation by US$7.8 million from the CBL’s operations. However, making up for the large miss in NIR in December 2019 was unattainable due to COVID-19 impact on general foreign exchange flows. The indicative target on the ceiling on net domestic assets of the CBL was missed due to on-lending of the RCF disbursement to the government.

8. We have maintained an exchange system free of restrictions on the making of payments and transfers for current international transactions. Although the surrender requirement on remittances was an important source for building our foreign reserve buffers, it remains suspended. Interest income on the consolidated GOL debt has since become the main source of foreign exchange for the CBL

9. The implementation of the structural reform agenda under the program is largely on track, though some monetary related measures were not met due to capacity constraints.

  • The Structural Benchmarks (SBs) set out to improve Public Financial Management (PFM) and Governance show mixed performance, but significant progress has been made on all fronts. The measures to improve the civil service payroll registry were not met, but at least 80 percent of public employees on the payroll have been verified with biometric identification cards. Effective November 2020, we suspended pay for civil servants whose national identification registry has not been verified but are resident in Monrovia until they are verified. The SB to improve controls of compensation of employees was not met but implemented with delay and hiring and payment of most workers have been centralized. The provision of quarterly financial performance reports for FY2019 and FY2020Q1-Q2 reports of the largest SOEs was submitted to the IMF before the target date of end-May 2020, and we are working on finalizing the quarterly reports for the rest of FY2020 and FY2021Q1. The SB on the inventory and rationalization of bank accounts in preparation for the Treasury Single Account was not met. Significant progress has been made and most Ministries, Agencies, and Commissions (MACs) are in compliance with the requirement to have only one account in USD and one in LD at the CBL.

  • We made progress implementing the SBs set out to improve operational independence and governance arrangements at the CBL. Amendments to the CBL Act were submitted to the Legislature in January 2020 and passed in October 2020 (met). Significant progress on the CBL Priority Action plan has been made on most items, although some items due by end-December 2019 or end-June 2020 have been delayed mostly due to capacity constraints. We have also commenced the review of the new Financial Institutions Act of 1999 with technical assistance from IMF.

  • SB set out to strengthen anti-corruption measures were not met. Despite making early progress leading to the submission of proposed amendments to upgrade the anti-corruption framework in line with the United Nations Convention against Corruption (UNCAC) to the Legislature, we have had to revisit the amendments to establish a special corruption court—now the consensus among key stakeholders—and enlist the support of the Judiciary on some of the changes.

  • SBs that were not met have been rephased to the third and fourth reviews to create more time for us to implement the reforms.

Economic and Financial Policies for the Program

A. Fiscal Policy

10. Despite the impact of COVID-19 on our FY2020 budget, the fiscal stance did not deteriorate as expected during the RCF discussions due to increased revenue mobilization efforts. Domestic revenue overperformed RCF projections by 0.8 percent of GDP owing to better than expected compliance and the introduction of excise tax on fuel in May2020 while expenditure was kept in line with the FY2020 recast budget after a lengthy reconciliation between July and September. The change to allow the LRA to retain 4 percent of revenue collected to fund its operations (as opposed to a budget allocation) has also helped to improve operational efficiency. As a result, we estimate that the primary balance excluding grants for FY2020 is 1.3 percent of GDP better compared to the RCF estimate of a deficit of 1.8 percent of GDP and remains consistent with the medium-term debt stabilizing deficit of 2.5 percent. The cash surplus has been transferred to FY2021 to finance economic recovery, in particular, road construction and other capital expenditure, which is the administration’s key electoral promise.2 However, the delivery of food aid to those whose livelihoods has been negatively affected by COVID-19 has been slower than expected due to enumeration challenges, but has now picked up pace.

11. As a prior action, the Legislature approved a budget of US$570 million for FY2021 that is fully financed, further rationalizes wages and salaries, and set aside funds to support a financial sector reform plan. Although we submitted a budget of US$535 million (17 percent of GDP) in June, additional revenue from FY2020 budget surplus, an increase in the revenue forecast for FY2021 based on the current momentum, and additional budget support that was originally expected in FY2020 but was disbursed in FY2021, made it possible to increase the budget to the current level of US$570 million. The approved budget set the wage bill at US$292 million, contributions to National Road Fund (NRF) at US$24 million, clearance of FY2019 arrears at US$10 million, and US$31 million for the financial sector reform plan. The current trend in domestic revenue indicates that an additional US$20 million could be generated. We will set this amount aside to use for the reform plan in case the full amount required is more than the amount approved by the Legislature and will be approved through a recast or supplementary budget in early 2021.

12. We have made significant progress to strengthen budget execution, including setting up modalities to speed up the process of expenditure reconciliation and better management of direct debits.3 Notable achievements include: budget execution in FY2020 staying within the total available resources; fiscal report and cash plans being produced regularly and used to inform decisions on allotment and financial budget; and summary fiscal report being published since early June 2020 on the MFDP’s website. To consolidate the cash management gains we have made during FY2020, the Liquidity Management and Technical Management Committees resumed monthly and weekly meetings respectively since early July and policy discussions are being more proactive. Furthermore, we have moved to quarterly reconciliation of expenditure to avoid the long delays experienced this year as reconciliation was done only at the end of the financial year. In addition, we have also begun entering all direct debits, including transfers to the Road Fund, in IFMIS at the beginning of the month to facilitate cash planning.; and we have also eliminated advances to autonomous agencies, which are now required to process all their expenditure in IFMIS.

13. We have also made significant progress to streamline the wage bill.

  • We issued the payroll regulation in March 2020 with the goal to enforce two layers of validation: biometric identification card, and verification of skills. The number of public employees listed in the initial employees’ database at the beginning of FY2020 have been reduced from around 74,000 to about 67,100 through the elimination of duplicates, ghost workers, retiring employees past mandated age, and further cleaning up of the database. Out of 67,100 public employees, 53,700 (80 percent of total) have had both national identification registry (NIR) card and skills verified by November 20. Of the 13,400 with outstanding IDs to be validated, 5,000 have had their skills verified. The remaining 8,400 are mostly in remote areas in Internal Affairs and Social Sectors, and their verification was interrupted by COVID. We issued a Circular in November 10, 2020 announcing the suspension of salary beginning with the November pay for those who fail to submit their valid biometric NIR. We expect to have all civil servants verified by end-January.

  • We have improved payroll efficiency through better record keeping and controls. This was made possible through the creation of the Payroll Cleaning Taskforce comprising MFDP (chair), Internal Audit Agency (co-chair), Civil Service Agency (CSA) (member), and National Identification Registry (member) by the President. Hiring for all agencies is now centralized and being managed through the CSA, except institutions that are supposed to be independent from the executive branch. The taskforce is, however, monitoring their payroll. In addition, all Ministries, Agencies, and Commissions (MACs) have migrated to the new payroll system, except for the General Auditing Commission to ensure operational independence. The taskforce has also integrated the payroll of the presidential appointees with the general payroll as part of the efforts to improve payroll efficiency and controls. Furthermore, the taskforce is working to centralize hiring of consultants at the CSA (except for security and integrity agencies) to ensure greater control.

14. Payment of debt service will be better prioritized along with payroll payment. To avoid the recent delays in debt service, we have created a special debt service bank account at the CBL where 10 percent of daily revenue collection is already being transferred. We believe that this amount will smooth our ability to service our debt obligations; and in the event the balance is insufficient, the amount needed will be transferred from the revenue account. Since debt service is predictable based on contracts and disbursed amounts, we started making debt service allotment on a quarterly basis (instead of waiting to receive the invoice), and financial budget based on availability of cash, smoothing the payment’s operational process once the invoice is received. We have improved near-term projection of debt service to make the data sufficiently reliable to make the allotment ahead of the invoice, and discrepancies have been minimized primarily to changes in exchange rates. We have also improved collaboration between the DMU and the cash management team to ensure timely payment of debt service. Furthermore, we have streamlined the process for debt payments by frontloading some of the stages so that they are done before we receive the invoice. We estimate that the streamlined process will save 2–3 weeks in the process of debt payment.

15. The government cleared overdue payments on debt, including to domestic financial institutions (prior action). The government redeemed the local currency Treasury bond maturities for July 2020 and the US$9 million redemption on the US$65 million bond for arrears on September 30, 2020. However, the impact on the liquidity of the banking sector has been limited as the GOL payment merely off-set with previously undisclosed overdue tax liabilities owed by some banks.

16. The Debt Sustainability Analysis continues to assess Liberia at moderate risk of external debt distress and high risk of overall public debt distress. The assessment of overall public debt arises from the recognition of old GOL debt to the CBL which had not been recognized under the previous DSA framework prior to 2018. The downward revision to the growth and higher near-term borrowing need to fight the pandemic have reduced Liberia’s ability to borrow in the medium-term. The total public and publicly guaranteed debt and total public external debt reached 56.6 and 37.2 percent of GDP at end-FY2020, respectively. This DSA points to the short- and medium-term debt service pressure. Some of this pressure was alleviated as the debt relief became available from the Catastrophe Containment and Relief Trust (CCRT). Therefore, we will continue to prioritize borrowing on concessional terms.

17. To support reserve accumulation at the CBL and to contribute to de-dollarization, we have increased the share of the wage bill paid in local currency from 20 percent to 35 percent. This switch has increased our Liberian dollar expenses beyond our local currency denominated revenue. As such, we have set our program to purchase Liberian dollar from the CBL using our excess US dollar inflows. Even with the switch to 35 percent and selling part of the GOL’s FX to the CBL, the Government will still save before end-December sufficient U.S. dollars at the CBL for the financial sector reform plan. The government will progressively increase the share of local currency in the wage bill in subsequent years until it reaches 50 percent.

18. We are making efforts to improve debt and aid management in Liberia. We recently developed a comprehensive Debt Management Manual as well as National Aid and NGO Policy of Liberia to guide our efforts to improve debt and aid management. We have also cleaned underlying debt data in collaboration with creditors and donor partners, and improved the Debt Management Unit (DMU)’s capacity to monitor debt and create short term debt service projections. However, more capacity is still needed to run the newly upgraded CSDRM-S system to version 2.3 smoothly and to produce long term debt service projections. Staff in the DMU is working with counterparts from the Government of Ghana to build capacity to run the system and produce a variety of reports.

B. Monetary Policy

19. Since the inception of the program in December 2019, monetary policy has remained tight, albeit with some caution regarding the uncertainties about the economic impact from COVID-19. In May, the CBL effected a 500-basis points reduction in the policy rate to 25 percent. With annual inflation down to 14 percent at end-October, this amounts to an increase in the real rate by 8 percentage points since November 2019. The relatively attractive real interest rate is helping to restore the value of the LRD, which is manifested in increased placements on CBL bills up to mid-August 2020. In line with the monetary program, the average stock of CBL bills for June-September was LD4.7 billion increasing from the average of LD2.4 billion for January–March 2020. We shortened the tenor to two weeks, moving closer to IMF recommendations; though we also retained the option to conduct longer tenor issues of up to one year to signal our expectation of declining inflation.

20. The delivery of LD banknotes in July 2020 is boosting confidence in the banking sector. With financial support from USAID, Kroll helped oversee the procurement, secure delivery and verification of the banknotes to the CBL. We are proactively monitoring the injection of LD banknotes to ensure consistency with the end-year inflation target.

21. The MFDP and the CBL will continue to improve coordination. In this regard, the CBL has enhanced coordination with the MFDP for data sharing—through an MOU—which will formalize the CBL’s participation in the Liquidity Management Committee of MFDP. In addition, we have strengthened the activities of the Liquidity Working Group which provides the forum for MFDP, Liberia Revenue Authority (LRA) and the CBL to coordinate liquidity management in the economy.

22. The CBL budget in the first half of 2020 is under-executed due to expenditure control measures and savings arising from COVID-19 related lockdown. Operating costs of the CBL are expected to be contained within QPC target of US$24.2 million to end-December despite the need to pay-off former staff acquitted in the LRD banknote case and to strengthen IT security imply that these savings may not be sustained in the second half of 2020. We are negotiating with vendors to phase payments for IT upgrade contracts of US$2 million for upgrading core banking software which was expected to come on-stream in the last quarter of 2020.

23. The Legislature approved amendments to the CBL Act that strengthen the independence of the central bank while enhancing transparency and accountability. Among the changes incorporated in the Amendment and Restatement of the Act Establishing the Central Bank of Liberia 1999 (Amended CBL Act hereafter) are the provisions that grant the CBL the power to seek approvals for currency printing from the Legislature for a three-year period with flexibility on how that amount is printed within the approved period. Additionally, the Amended CBL Act provides for the creation of the monetary policy committee as a separate decision-making body from the Board. With the passage of the Amended CBL Act, the CBL will quickly establish the monetary policy committee to ensure that the Bank will remain focused on effectively operationalizing its price stability mandate.

24. The CBL’s monetary policy stance will remain consistent with the objectives of reducing inflation to single digit while restoring the store of value function for the Liberian dollar. To this end, maintaining an effective reserve money targeting monetary framework remains the CBL’s focus to consolidate these gains. The CBL will continue to strengthen the monetary implementation framework by further finetuning the open market instruments over the near-term, particularly as government gradually increases its expenditure in LRD. We will keep the 14-day tenor to conduct ongoing liquidity management and retain longer tenor CBL bills—28-days to 90-days— to proactively manage structural liquidity and to ensure monetary conditions remain consistent with the continuing inflation decline. These refinements will ultimately assist the CBL to communicate its monetary policy stance more effectively. All these will support the development of the financial markets, which is strategic to our goal of deepening the financial markets. In addition, we will align the reserve requirement ratios for both currencies with our objective to create the appropriate incentives for saving in LRD and to restore the store of value function for the Liberian dollar.

25. The CBL commits to printing banknotes in 2021 and over the medium-term to meet growing transaction demand and replace unfit banknotes on an on-going basis. The CBL Board is planning to adopt the banknote printing plan for the next three years, as provided in the recently Amended CBL Act, and to submit to the Legislature for approval before end-December. Once approved, the CBL will move ahead with the procurement of banknotes to meet transaction demand. Moreover, to support financial stability, our commitment is to replace unfit banknotes in circulation with due consideration to saving time and minimizing cost.

26. In the medium-term, the CBL commits to resuming non-discriminatory foreign exchange auctions in a form fully consistent with Liberia’s obligations under Article VIII of the Fund’s Articles of Agreement by:

  • Retaining CBL’s FX auction guidelines that are designed to achieve transparent price determination and incorporate full acceptance of the need to avoid discriminatory provision of foreign exchange—such as could arise through rationing and prioritizing provision—and which could lead to multiple currency practices (MCPs) and exchange restrictions (ERs). The publication of the auction outcomes supports our goal to ensure their transparency.

  • Strengthening the current auction mechanism that uses a single price auction system, in which access is available to all licensed intermediaries (authorized dealers) in good licensing standing, does not impose constraints on the price that bidders can submit and allotment of FX to bidders is determined solely on the price submitted. We acknowledge that further refinements to our auction guidelines may be necessary to enable the central bank to rebuild FX buffers. Accordingly, we will request technical assistance on FX the operational framework and arrangements to include: (i) a comprehensive review of the CBL’s FX auctions guidelines to make them robust and (ii) a review of the framework for the regulation and supervision of banks and bureaus to ensure that the FX market remains transparent and competitive.

  • Accepting that Capital Flow Management (CFM) measures should not substitute for warranted macroeconomic adjustments. We concur with staff that the monetary and fiscal programs put in place under the program, and the improved auction mechanism that allows for a more flexible exchange rate, will have a positive impact on the availability of foreign exchange and reduce the incentives to sequester foreign currency outside of established markets. In light of this, while we remain concerned about the possibility that the volume of foreign exchange transactions could shift further from the formal foreign exchange system to the parallel market, we have decided to maintain the suspension of the surrender requirement and will also refrain from introducing any additional CFMs, except in severe deterioration in Liberia’s balance of payments as provided in section 29, subsection 4(b), of the Amended CBL Act.

27. We will keep containing the drawdown of reserves arising from the growing gap between the CBL’s revenue and its expenditure on operations and capital development. Since program inception, the CBL has been paying 35 percent of the wage bill in Liberian dollar and reduced overall personnel costs, albeit, the reduction is smaller than hoped. In this regard, CBL is committed not only to further cut personnel costs and increase the share of Liberian Dollar payment in wages to 50 percent beginning January 2021 but also to further rationalize benefits and goods and services while increasing Liberian dollar component of new contracts. The CBL Board has approved the 2021–2023 budget with a commitment to pay at least 50 percent of all goods and services in Liberian dollars. For 2021–23, currency printing costs estimated at US$7.1 million per year will be needed to meet the increase in demand for currency as well as replacement needs. Hence, our policy is to consolidate the CBL’s operational and capital expenses excluding interest expense on monetary policy instruments and currency printing further, but a higher ceiling than this year is needed to accommodate this increase.

C. Financial Sector Policies

28. The financial sector remains challenged by the negative economic fallout created by the COVID-19 pandemic, and addressing the sector’s vulnerabilities remain the focus of the CBL. Non-performing loans for the banking sector has increased by 5 percentage points since March 2020 with the increase most pronounced for some banks and the service sectors. Further assessments of the sector’s performance in light of the COVID-19 pandemic will be conducted over the next months, particularly in relation to NPLs and the impact on banks’ liquidity arising from the moratorium on asset classification and provisioning rules that was extended to September 2020. The moratorium has since been discontinued, and banks have been advised to fully comply with provisioning and prudential standards. Maintaining an effective regulatory and supervisory framework to support stability is a key component of the ECF supported program. With the Fund assistance, the CBL will shortly update the financial soundness indicators to September 2020, with the regularization of semi-annual updates thereafter.

29. Strengthening prudential regulatory requirements, including revisiting the framework for monitoring banks’ foreign currency exposures, is important to underpin financial sector resilience. The refinements in the reserve requirements framework to incentivize intermediation in local currency will be examined once clarity on the impacts from the COVID-19 pandemic emerges. Reducing banks’ liquidity risks from the high intermediation in foreign currency will also help to underpin financial system stability. Moreover, with the help of the Fund, we will advance work to revise the New FIA (1999) for submission to the Legislature by June 2021 (revised SB), which will strengthen the CBL’s capacity to discharge its expanded mandate to cover financial stability under the Amended CBL Act, including the introduction of a Comprehensive Resolution Regime (CRR).

30. We are addressing the identified weaknesses in the financial sector by adopting a reform plan for financial institutions with notable breaches of regulatory requirements. Through intensified surveillance of the entity, the CBL has made progress in identifying prudential weaknesses. We are also seeking funding sources for the reform plan. However, we are still working with the staff and through harnessing technical assistance support from the U.S. Treasury Department to assess the financial viability of the plan. We recognize that additional actions are needed to address the weaknesses in corporate governance. In addition, we intend to enhance microprudential supervision to address any remaining weaknesses that may be identified in financial institutions by end-June 2021.

Structural Reforms

Public Financial Management

31. We have made significant progress in the civil service payroll reform (¶13). We now have 80 percent of public sector employees verified with both national identification registry (NIR) card and skills as of November 20. The payroll cleaning taskforce is integrated and comprise all institutions related to payroll. The committee was tasked with automating and digitizing all the tracking of civil service employees, keeping the database streamlined, and eliminating and preventing ghost workers.

32. We have completed the interfacing of the payroll system and IFMIS which has improved efficiency and accuracy in payroll management. Updates and payments to the payroll are now being reflected in IFMIS real time allowing to track payroll members at the individual level and allowing for better cash management and monitoring of the overall fiscal budget.

33. The administration will collaborate with the General Audit Commission to ensure that the audit for FY2018 and FY2019 budget execution are concluded as soon as possible but no later than end-December 2020, and audit for FY2020 budget execution is conducted timely and reported to the Legislature by end-February 2021. FY2020 expenditure numbers were reconciled and submitted to the GAC by end-October as required by the law (SB). The GAC is expected to conclude the audit by end-February 2021 and submit to the Legislature by -end-March 2021. This will help us to ensure that COVID-19 related spending in FY2020 was used for the intended purpose and any financial malfeasances are appropriately sanctioned. To signal our commitment, we have set completion of FY2018 and 2019 audits as a structural benchmark for the third review. We commit to departing from previous tradition by completing these audits without disclaimer.

34. We are preparing the groundwork to rapidly adopt a treasury single account (TSA). The concept note has been drafted in consultation with the IMF. We are working to complete the inventory and rationalize bank accounts with the CBL and commercial banks before end-January 2021. Moreover, MACs have been instructed to maintain only one operational account in USD and one in LD at the CBL, and to close all accounts in commercial banks (excluding those for donor funded projects). Currently most MACS are in compliance with this instruction.

Domestic Revenue Mobilization

35. In order to gather all domestic revenue for the budget, by end-November 2020, we submitted the amendments to the Liberia Maritime Authority (LMA) and Liberia Telecommunication Authority (LTA) Acts to the Legislature for adoption in January 2021 as specified in the budget law. Meanwhile, we will continue to collect in line with the existing revenue sharing formula until the formula is approved.

36. Given the need to boost domestic revenue further, we are going to prioritize the following tax administration measures:

  • Modernize the customs code with support from the World Bank by reviewing at least 22 regulations before December.

  • On customs administration, we will build on our recent work to proactively curb smuggling through enhanced post clearance audits and adoption of four-level customs’ inspection at the Nimba port

  • Improving transparency in customs administration by posting all procedures and fact sheets on the recently revamped website of the LRA.

  • Reviewing tax exemptions to streamline the process by (i) improving coordination between MFDP and LRA to analyze the impact of exemptions, and (ii) requiring cost-benefit analysis before exemptions are granted.

Governance

37. We will expedite the resubmission of the necessary amendments to upgrade our anti-corruption framework. We adopted the resolution of the anti-corruption conference held September 16–17, 2020 to guide our anti-corruption efforts in the medium-term. To ensure efficiency, we have broken down our goal to improve the legal framework to enhance the fight against corruption into different pieces. We would like to prioritize as structural benchmarks for 2021 the following:

  • Enact the revised LACC Act that provides (i) the LACC first tier prosecutorial power over corruption and related economic and financial offenses; (ii) for scope and requirements of an effective system of asset declarations for senior public officials in line with international best practices, including by providing the LACC with the power to receive and verify the declarations, ensure public access to the declarations and sanction public officials who fail to declare or provide false information.; and

  • Enact the Whistle Blower and Witness Protection Act to provide effective protection from potential retaliation for reporting persons, witnesses and victims in accordance with the UNCAC and best international practices.

Procurement

38. To enable greater disclosure and transparency of procurement information, we started publishing on the PPCC website all information on procurement contract awards in March 2020. We have set up a team of audit experts and conducted the first round of compliance audits to ensure MACs are following the correct procurement procedures. We have also changed our data collection template from MACS to include beneficial ownership of contract awardees for publication on the PPCC website. We will revise the PPCC regulations to require MACs to publish on the PPCC’s website all relevant information on their procurement activities (from planning to awards). We will setup a reliable and comprehensive procurement database, which will be the first step of an e-procurement system and which will allow the PPCC to systematically collect, maintain, and publish information on public procurement for monitoring the performance of procuring entities in terms of efficiency and compliance with the legal framework. In line with these efforts, we are working to publish on the PPCC’s website procurement contracts paid from the budget above a value of US$200,000 for goods, above US$400,000 for works, and above US$100,000 for services, along with the names of the companies awarded the contract and their beneficial owners. We expect to have published this information for 75 percent of the FY20 contracts by end-January 2021. Finally, we will ensure that the PCCC has adequate funding to implement the reforms described in this paragraph.

Business Climate

39. The COVID-19 pandemic has negatively affected Liberia’s business climate. While the number of confirmed cases remains below earlier expectations, the implementation of containment measures and the associated disruptions to cross-border travel have imposed a large toll on the economy. The service sector (mainly, hotels and restaurants) is particularly suffering from a lack of foreign arrivals due to the suspension of major international flights to Liberia. To dampen the negative impact of the pandemic on the business climate:

  • We have allocated US$2 million to provide support to market women and petty traders.

  • The CBL has permitted financial institutions some additional flexibility to solvent borrowers in hard-hit sectors experiencing temporary liquidity shortfalls, but will maintain loan reporting, classification, and provisioning standards to avoid compromising information on loan quality.

  • The CBL has improved access and affordability of electronic payment services for retail customers. To ease the use of electronic payments and mobile-money options, the CBL has temporarily suspended fees and charges for transfers; suspended processing fees at point-of-sale outlets used by merchants; and increased allowable limits for transfers.

40. From the medium- and long-term perspective, improving the business climate combined with other needed structural reforms allow the private sector to serve as the engine of economic growth. The business climate reforms are expected to lower the cost of doing business; remove administrative barriers and delays; and expand import-competing and export-oriented activities. To this end:

  • We held a business climate conference that included a Judicial forum on 07/22/2019 to identify key impediments to doing business in Liberia. We identified that high fees, transportation costs, and customs duties, and as well as difficulties in obtaining business registries, as the key obstacles faced by business owners in Liberia. The Ministry of Commerce is working with various stakeholders on an implementation plan to deliver a conducive business environment.

  • We are planning a major investment and business climate conference as part of an annual judicial conference under the auspices of the Chief Justice. The annual Judicial conference was a mainstay of the justice sector but has been discontinued because of lack of funding. The conference surveys overarching legal issues, opportunities and challenges in the justice sector. The inclusion of business climate agenda into a judicial conference is critical to addressing several business-climate issues that have legal implications. Placing judicial actors like judges at the center of business climate reforms holds a stronger promise. The conference is planned for first half of 2021.

  • We are reducing the bottlenecks on road transportations (e.g., checkpoints) to improve trade and the efficiency of movement of goods.

  • Minister of Finance and Minister of Commerce and Industry have held a few meetings with the Liberia Chamber of Commerce, and we plan to enhance and maintain close communication with the business community to discuss ways and means of improving the investment and business climate.

Improving Statistics for Program Monitoring

41. On the fiscal front we continue to make progress to improve statistics for program monitoring. We remain committed to reconcile cash and commitment expenditure and share monthly fiscal report within 3 weeks from the end of each month in line with the ECF program requirement to ease program monitoring. We are also producing quasi-weekly summary fiscal reports and publishing a short report in the MFDP website, enhancing monitoring of the budget and transparency. Moreover, we have made progress to improve our debt statistics production and monitoring and towards ensuring timely debt service payments. Our estimates and composition of debt outstanding, as well short-term projections of debt service has significantly improved, and we continue to work towards building our capacity to produce long-term debt service projections with ease.

Program Monitoring

42. The program will be monitored by quantitative performance criteria, structural benchmarks, indicative targets, and semi-annual reviews, as set out in Tables 1, 2, and 3 of this memorandum and the attached technical memorandum of understanding, which also defines the scope and frequency of data to be reported for program monitoring purposes. The third review to be completed on or after June 1, 2021 will be based on end-December 2020 targets and other relevant performance criteria; and the fourth review to be completed on or after December 1, 2021 based on the end-June 2021 targets and other relevant performance criteria.

Table 1.

Liberia: Quantitative Performance Criteria (QPC) and Indicative Targets (IT) for the Program Under the ECF Arrangement, December 2019–December 2021

(Millions of U.S. dollars; unless otherwise indicated)

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Sources: Liberian authorities and IMF staff estimates and projections.

The Standard Continuous Performance Criteria will also apply: (i) Not to impose new or intensify existing restrictions on the making of payments and transfers for current international transactions; (ii) Not to introduce new or intensify existing multiple currency practices; (iii) Not to conclude bilateral payments agreement that are inconsistent with the IMF’s Articles of Agreement (Article VIII); and (iv) Not to impose new or intensify existing import restrictions for balance of payments

These numbers are cumulative from the beginning of the fiscal year.

These numbers are cumulative from the beginning of the calendar year.

Table 2.

Liberia: Prior Actions for First and Second Reviews of ECF, 2020

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Sources: IMF staff; and Liberian authorities.
Table 3a.

Liberia: Structural Benchmarks for the Program Under the ECF Arrangement, First and Second Reviews

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Sources: IMF staff; and Liberian Authorities.
Table 3b.

Liberia: Structural Benchmarks for the Program Under the ECF Arrangement, Third Review

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Sources: IMF staff; and Liberian Authorities.
Table 3c.

Liberia: Structural Benchmarks for the Program Under the ECF Arrangement, Fourth Review

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Sources: IMF staff; and Liberian Authorities.
Table 4.

Central Bank of Liberia (CBL) Action Plan: Priority Items

August 31, 2020

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Sources: IMF staff; and Liberian Authorities.

Attachment II. Technical Memorandum of Understanding

A. Introduction

1. This memorandum sets out the understandings between the Liberian authorities and the International Monetary Fund (IMF) regarding the definitions of the quantitative performance criteria (QPCs) and indicative targets (ITs) for the program supported by the Extended Credit Facility (ECF) arrangement, as well as the related reporting requirements. It also describes the methods to be used to assess the program performance and the information requirements to ensure adequate monitoring of the targets. The authorities will consult with the Fund before modifying measures contained in this letter, or adopting new measures that would deviate from the goals of the program, and provide the Fund with the necessary information for program monitoring. Unless otherwise specified, all QPCs and indicative targets (ITs) will be evaluated in terms of cumulative flows from the beginning of the period.

B. Program Exchange Rates

2. For the purpose of the program, foreign currency denominated values for 2019 will be converted into Liberian currency (Liberian Dollar) using a program exchange rate of LD 211.50/US$ and cross rates as reported in the IMF’s International Financial Statistics as of October 31st, 2019 and reproduced below in Table 1.

Table 1.

Liberia: Program Exchange Rates

(As of end-October 2019)

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C. Definitions

Quantitative Performance Criteria (QPC)

3. For the purpose of the program, the Government is defined as the budgetary central government of Liberia (GoL). It excludes extrabudgetary units of the central government, public nonfinancial corporations, public financial corporations, social security funds, and local government. The operations of the budgetary central government will be presented in U.S. dollars with all revenues and expenditures that are denominated in Liberian dollars converted at the period average exchange rate.

4. The budgetary central government is defined as central government entities with budgets covered by the main budget controlled by the Ministry of Finance and Development Planning. The coverage includes on-budget operations and off-budget transactions managed by these entities.

5. The revenue collection of the budgetary central government includes all tax and nontax receipts transferred into the GoL revenue accounts at the CBL for the relevant fiscal year, including income and transfers from state-owned enterprises and public institutions, as well as budget support loans and grants. Tax revenue includes taxes on income, profits, capital gains, goods and services, international trade, and other taxes (including property tax and social contribution by foreign concessions). Non-tax revenue includes property income (dividends and interest income, royalty and rent, and assets sales), administrative fees, fines, penalties and forfeits, as well as other non-tax revenue (voluntary transfers and other grants, sales of other goods and services, withholding on other payments by government (non-resident), and taxes on financial and capital transactions. External loans and grants for off-budget projects managed by the budgetary central government are excluded unless otherwise stated. For the purposes of the program, revenue is measured in U.S. dollars, with GoL revenue account receipts in Liberian dollars converted to U.S. dollars using the period average exchange rate.

6. The public sector is defined as the general government (which includes the central government, local government and social security funds), public nonfinancial corporations and public financial corporations. Public corporations are defined as resident institutional units controlled by government, or another public corporation, that are principally engaged in the production of market goods or services. Control of a corporation is defined as the ability to determine general corporate policy of a corporation. General corporate policy is understood in a broad sense to mean the key financial and operating policies relating to the corporation’s strategic objectives as a market producer. A market producer is an institutional unit that provides all or most of its output to others at prices that are economically significant.

7. The definition of public external debt (both concessional and non-concessional), for the purposes of the program, refers to the debt of the central Government (as defined in paragraph 3) owed to non-residents, and it applies not only to the meaning set forth in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. 15688-(14/107), adopted December 5, 2014 (Annex I), but also to commitments contracted or guaranteed for which value has not been received. External debt is considered as contracted for program monitoring purposes once all conditions for its entrance into effect have been met, including ratification, if required. External debt is considered guaranteed when all the conditions for entry into effect, including ratification, have been met for both external debt and the guarantee.

8. Quantitative performance criteria are proposed for December 31, 2020, and June 30, 2021 with respect to:

  • Primary fiscal balance (floor),

  • New arrears on public external debt (ceiling),

  • New non-concessional public external debt contracted or guaranteed (ceiling),

  • CBL’s operational and capital expenditure (ceiling),

  • CBL’s net international reserves (floor), and

  • CBL’s gross direct credit to government (ceiling). Primary Fiscal Balance

9. A floor applies to the cumulative flow of the primary fiscal balance since the beginning of the fiscal year, which runs from July 1 to June 30. The primary fiscal balance relates to revenue and expenditure of the budgetary central government (as defined in paragraph 4). For the purpose of monitoring the program and QPCs, the focus is on on-budget operations only, and the primary balance used is defined as being equal to the difference between revenue excluding budget-support grants and loans and expenditure net of interest payments (including on-budget gross investment in nonfinancial assets). Revenue is defined as all revenue collected by the LRA. Expenditure is measured on a commitment basis. For non-payroll expenditures, commitment happens when a payment voucher has been issued following receipt of goods or services. A future obligation to pay is subject to fulfillment of a contract or service delivery and thus is distinguished from commitment. For payroll expenditure, commitment is when the payment is approved. The primary fiscal balance used for the debt sustainability analysis is calculated using revenue and expenditure of the budgetary central government including off-budget transactions.

10. Adjuster: If the sum of cumulative budget support grants and concessional budget support loans received up to the relevant quarter in FY2019/20 exceeds the amounts stated in Table 2 below, the floor for the primary fiscal balance excluding grants in that quarter will be adjusted downward by the amount of the excess. The criteria in paragraph 12 will be used to determine whether a loan is concessional or non-concessional. If part of expenditure were for capital injection that are consistent with the financial sector reform plan adopted by the CBL Board in consultation with Fund staff, the floor for the primary fiscal balance excluding grants in that quarter will be adjusted downward by that amount.

Table 2.

Liberia: Adjustor to the Primary Balance Excluding Grants, FY2020

(Millions of U.S. dollars, Cumulative)

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*As reported at end-September after full reconciliation of the fiscal year.

New Arrears on Public External Debt

11. A zero ceiling applies on payment arrears on public external debt. Public external debt is defined in paragraph 7. For the purpose of the ceiling on the accumulation of external payment arrears, external payment arrears will accrue when undisputed payments such as interest or amortization on debts of the Government (as defined in paragraph 3) to non-residents are not made within the terms of the contract (taking into account any contractual grace periods). This criterion excludes arrears arising from external payments obligations being renegotiated with creditors and arrears on debts in dispute. The source of the data is primarily the Debt Management Unit of the Ministry of Finance and Development Planning, but where information gaps arise, other fiscal and monetary sources will be used to reconcile the data. This performance criterion will be monitored on a continuous basis.

New Non-Concessional Public External Debt Contracted or Guaranteed

12. A continuous ceiling applies to the contracting and guaranteeing by the public sector of new non-concessional external debt. Public external debt is defined in paragraph 7.

13. For program purposes, a debt is concessional if it includes a grant element of at least 35 percent, calculated as follows: the grant element of a debt is the difference between the net present value (NPV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. The NPV of debt at the time of its contracting is calculated by discounting the future stream of payments of debt service due on this debt. The discount rate used for this purpose is 5 percent. Loans provided by a private entity will not be considered concessional unless accompanied by a grant or grant element provided by a foreign official entity, such as both components constitute an integrated financing package with a combined grant element equal to at least 35 percent.

14. Non-concessional public external debt is external debt (as defined in paragraph 7) that does not meet the definition of concessionality defined in paragraph 12. External debt and its concessionality will be reported by the Debt Management Unit of the Ministry of Finance and Development Planning and will be measured in U.S. dollars at current exchange rates.

CBL’s Operational and Capital Expenditure

15. A ceiling applies on the operational and capital expenditure of the CBL. For the purposes of the program, the CBL’s operational and capital expenditure budget is defined as the sum of total accrual based operating expenses and cash based capital expenditure excluding the interest paid on CBL instruments and facilities. The budget is measured in U.S. dollars, with all Liberian dollar expenditure converted at the monthly period-average exchange rate.

CBL’s Net International Reserves

16.Net international reserves of the CBL are defined as the difference between gross official reserve assets and gross reserve liabilities. The net foreign exchange position of the CBL is presented in U.S. dollars. Assets and liabilities denominated in SDRs are valued at a fixed rate of the U.S. dollar against SDR at the program exchange rate (Table 1). Other currencies are valued at cross rates against the U.S. dollar using the program exchange rates (Table 1).

17. Gross official reserve assets of the CBL include the following: (i) monetary gold holdings; (ii) holdings of SDRs; (iii) the reserve position in the IMF; (iv) foreign convertible currency holdings; (v) foreign currency denominated deposits held in central banks and other investment-grade banks and institutions abroad; (vi) loans to foreign banks of investment-grade redeemable upon demand; (vii) investment-grade foreign securities; and (viii) other unpledged convertible liquid claims on nonresidents. It excludes the following: (i) any foreign currency claims on residents; (ii) Resident banks’ foreign currency assets held at the CBL; (iii) capital subscriptions in international institutions; (iv) foreign assets in nonconvertible currencies; (v) unfit foreign currency bank notes in vault and in transit; (vi) gross reserves that are in any way encumbered or pledged, including, but not limited to (a) assets blocked when used as collateral for third-party loans and third party payments or pledged to investors as a condition for investing in domestic securities; (b) assets lent by CBL to third parties that are not available before maturity and are not marketable; (c) assets blocked for letters of credit; (d) assets ring-fenced in accordance with guarantees.

18. Gross reserve liabilities of the CBL are defined as sum of the following (i) outstanding liabilities of the CBL to the IMF; (ii) all short-term foreign currency liabilities of the CBL to nonresidents with an original maturity of up to, and including, one year, and (iii) all foreign currency deposits of the government with the CBL. SDR allocations are excluded from gross reserve liabilities of the CBL.

19. For the purpose of calculating the QPC on NIR, end-of-the-month foreign exchange numbers audited by the Internal Audit Department of the CBL will be used, except for IMF accounts numbers (i.e., Reserve tranche position, SDR holdings, and Use of Fund resources will be taken from IMF records).

20. Adjusters to QPC on the floor on the change in NIR. The QPC floor on the change in NIR shall be adjusted down by the difference between the value credited to the CBL’s account and the value of unfit U.S. dollar banknotes shipped to the Federal Reserve. The QPC on NIR shall also be adjusted up by the amount of the debt relief provided under the CCRT and down by the amount of any foreign currency on-lending to the GOL of IMF disbursements above the projections specified in table 3, converted to U.S. dollar at the program exchange rate.

Table 3.

Liberia: Adjustor to the Floor on NIR, 2020–21

(Millions of U.S. dollars)

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Cumulative from beginning of year.

21. Recognition of GOL deposits on test dates. GOL deposits credited to the CBL’s accounts before or on the test date but whose liability is recognized by the CBL after the test date shall, for program purposes, be recognized a GOL deposit occurring on the test date.

CBL’s Gross Direct Credit to Government

22. A ceiling applies on the CBL’s gross direct credit to the Central Government (as defined in paragraph 3). CBL gross direct credit to the Government is the sum of all claims on the government in local and foreign currency. It includes loans to the Government in local currency including all suspense accounts, loans to the Government in foreign currency including all suspense accounts, securities in local currency (other than shares), securities in foreign currency (other than shares), negative balances (overdrafts) on deposits of the central government in local currency including “other deposits”, negative balances (overdrafts) on deposits of the central government in foreign currency including “other deposits”, and all other claims on the government in local currency.

23. Adjustment to the QPC on the ceiling on the CBL’s gross direct credit to government. The ceiling will be adjusted up by the amount of on-lending to the GOL of IMF disbursements converted to U.S. dollar at the program exchange rate.

Indicative Targets

24. The program sets indicative targets for December 31, 2020, and June 30, 2021 with respect to:

  • Total revenue collection of the budgetary central government (floor),

  • New domestic arrears/payables of the budgetary central government (ceiling), • Social and other priority spending (floor),

  • On-budget capital spending (floor), and • Net domestic assets of the CBL (ceiling).

Total Revenue Collection of the Budgetary Central Government

25. For the purpose of the indicative target on revenue collection, total revenue is the revenue collection of the budgetary central government (as defined in paragraph 5) including budget support loans and grants.

New Domestic Arrears/Payables of the Budgetary Central Government

26. A ceiling applies on new domestic arrears of two types of government expenditure. The precise point at which a government liability falls into arrears typically varies according to the type of expenditure. For the purposes of this indicative target, the following two types of government expenditure will be considered to be in arrears under the circumstances set forth below:

  • Payment to commercial contractors for provision of goods and services or fixed assets: expenditure is considered to be in arrears when “cash expenditure” is lower than “IFMIS expenditure” in expenditure code 22 (goods and services), code 23 (consumption of fixed capital) and code 31 (capital expenditures) reported in the final reconciled ECF report of the corresponding fiscal year. A processing period cannot be more than 90 days from the end of the fiscal year.

  • Payment of interest or principal on government debt: expenditure falls into arrears as soon as the scheduled date for payment has passed (subject to any applicable grace period).

Social and Other Priority Spending

27. For end-December 2019 and end-June 2020, social spending is defined as education, health, and social development services. Education, health, and social spending consist of the payments from the FY2019/20 budget of the units listed in Table 3 (payment vouchers approved by the Ministry of Finance and Development Planning).

Table 3.

Liberia: Social and Other Priority Spending

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On-Budget Capital Spending

28. On-budget capital spending is defined as gross investment in nonfinancial assets as stated in the budgetary central government statement of operations table. It excludes off budget projects. The indicative target is based on the annual gross investment and will be tested in June 2020 based on gross investment over FY 2019/2020.

Net Domestic Assets of the CBL

29. The net domestic assets of the CBL are defined as monetary base expressed in U.S. dollars minus the net foreign assets of the CBL (converted into U.S. dollars at program exchange rates). The following definitions apply:

  • Monetary base expressed in U.S. dollars is defined as monetary base expressed in Liberian dollars divided by the Liberian dollar/USD exchange rate published by the CBL for the relevant test date.

  • Monetary base expressed in Liberian dollars is defined as the stock of Liberian dollars in circulation (including vault cash of ODCs in Liberian dollars) plus reserve deposits of ODCs at the CBL in both Liberian dollars and U.S. dollars.

  • The net foreign assets of the CBL are expressed in U.S. dollars and are defined as foreign assets of the CBL minus foreign liabilities of the CBL.

  • Foreign assets of the CBL are defined as the sum of gross reserves (defined in paragraph 16) and other foreign assets. Other foreign assets include but not limited to foreign currency trade credit/ advances of non-resident.

  • Foreign liabilities of the CBL are defined as the sum of short-term foreign liabilities and other foreign liabilities. Short-term foreign liabilities include but not limited to the use of Fund credit and loans. Other foreign liabilities include but not limited to other foreign currency loans to nonresidents and SDR allocation.

30. Adjustment to the indicative target on the ceiling on the net domestic assets of the CBL. The ceiling will be adjusted up by the amount of on-lending to the GOL of IMF disbursements converted to U.S. dollar at the program exchange rate.

D. Data Reporting

31. To allow monitoring of developments under the program, the Ministry of Finance and Development Planning and the CBL will coordinate and regularly report the information requested in Tables 4–6, below, to the staff of the IMF.

Table 4.

Data Reporting Requirements for Program Monitoring

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32. The above data and reports will be provided electronically to the IMF Resident Representative to Liberia, with copies to the local IMF economist, Mr. Deline (adeline@imf.org) for further transfer to the African Department of the IMF in Washington, D.C.

33. Moreover, we will provide the Fund with such information as the Fund requests in connection with the progress in implementing the policies and reaching the objectives of the program.

34. In addition to this summarized table, the CBL will also provide detailed balance sheet data to IMF staff when requested.

Table 5.

Reporting Requirements for the CBL’s Cash Budget (Template)

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Table 6.

Reporting Requirements for the CBL’s Cash Budget (Template)

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1

The upward revision to nominal GDP projections relative to the RCF request is due to a higher GDP deflator because of large upward revisions to commodity prices (e.g., iron ore and gold).

2

Direct debits are budgeted for payments made directly from the consolidated fund by the CBL based on service level agreements with public institutions.

3

The CBL has retained the option to conduct longer tenor issues of up to one year to signal declining inflation expectations (MEFP ¶24).

4

A surrender requirement on inward remittances has been in place since December 2016, but it was suspended in November 2019 in light of acute shortages of Liberian dollar banknotes.

5

To complete roads from Ganta to Tapeta (144 km, Phase 1) and roads from Tapeta to Zwerdu (114 km, Phase 2), the total cost of US260 million is estimated at US$1 million per kilometer.

1

Headline inflation is currently suffering from measurement errors in education and health categories due to infrequent surveys. The recent survey results which were included in the inflation numbers for July 2020 without splicing for the last two years when health and education surveys were not conducted unjustifiably increased inflation by 5 percentage points.

2

GOL’s annual contribution to the National Road Fund (commitment) is about $24 million; 40 percent of which goes to new constructions of (i) road from Ganta to Tapeta (144 km) and (ii) road from Tapeta to Zwerdu (114 km). Both (i) and (ii) still have a financing gap of about US$60 million each even if the GOL delivers its commitments in full.

3

Budgeted for payments made directly from the consolidated fund by the CBL based on service level agreements with public institutions. These include fees to the CBL and monthly transfers to LRA.

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Cover IMF Staff Country Reports
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
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2021: Issue 009
Publisher:
International Monetary Fund
ISBN:
9781513566283
ISSN:
1934-7685
Pages:
126
DOI:
https://doi.org/10.5089/9781513566283.002

Liberia: Consumer Price Index, 2019M1–2020M9

(Index, 2019M1 = 100)
Figure 1.

Liberia: Foreign Exchange Developments, 2016–20
Figure 2.

Liberia: Monetary Developments, 2013–20
Figure 3.

Liberia: Recent Economic Developments, 2016–20
Figure 4.

Liberia: Fiscal Performance, FY2014–20