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International Monetary Fund. African Dept.
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Publication Date:
14 Sep 2022
eISBN:
9798400218309
ISBN:
9798400218309
Language:
English
Keywords:
IMF arrangement; prudent monetary policy; executive governor Tarlue; Policy discussion; IMF's transparency policy; Credit; Structural reforms; International reserves; Global
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IMF Country Report No. 22/296

Abstract

IMF Country Report No. 22/296

Copyright Page

IMF Country Report No. 22/296

LIBERIA

2022 ARTICLE IV CONSULTATION AND FOURTH REVIEW OF THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVER OF NONOBSERVANCE OF PERFORMANCE CRITERION, AND REPHASING OF ACCESS—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR LIBERIA

September 2022

In the context of the Staff Report for the 2022 Article IV Consultation and Fourth Review of the Extended Credit Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, and Rephasing of Access, the following documents have been released and are included in this package:

  • A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its August 24, 2022 consideration of the staff report on issues related to the Article IV Consultation and the IMF arrangement.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on August 24, 2022, following discussions that ended on March 11, 2022, with the officials of Liberia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 10, 2022.

  • A Debt Sustainability Analysis prepared by the staff[s] of the IMF and International Development Association

  • An Informational Annex prepared by the IMF staff.

  • A Statement by the Executive Director for Liberia.

The documents listed below have been or will be separately released:

Selected Issues

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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International Monetary Fund

Washington, D.C.

Press Release

PRESS RELEASE

PR22/290

IMF Executive Board Completes Fourth Review under the Extended Credit Facility Arrangement and Concludes the 2022 Article IV Consultation for Liberia

FOR IMMEDIATE RELEASE

  • Global developments will dampen economic growth to 3.7 percent this year, but Liberia easily has the potential to grow by at least 5 percent annually.

  • Quantitative program performance was quite strong while the implementation of the structural reform agenda incurred delays. Adoption of new anti-corruption legislation was good progress.

  • Entrenching macroeconomic stability, achieving strong and fiscally sustainable economic growth, and addressing weaknesses in governance and public-sector institutions remain the main program objectives.

Washington, DC – August, 24th 2022: The Executive Board of the International Monetary Fund (IMF) completed today the 2022 Article IV Consultation and the fourth review under the Extended Credit Facility (ECF) with Liberia. The four-year arrangement, with total access of SDR 155 million (60 percent of quota or about US$214.30 million) was approved by the IMF Executive Board on December 11, 2019. Today’s decision allows for an immediate disbursement of SDR 17 million (about US$ 22.1 million), bringing total disbursements under the arrangement to SDR 85 million (about US$ 110.7 million). In completing the fourth review, the Executive Board granted a waiver of nonobservance of the end-June 2021 quantitative performance criterion on net international reserves, based on corrective action taken by the authorities.

Liberia experienced a strong economic recovery in 2021. Growth is expected to soften to 3.7 percent in 2022, largely due to heightened global uncertainties and commodity price shocks, which are pushing inflation into the double-digits. Liberia ’s COVID-19 vaccination program has accelerated in recent months, but pandemic-related risks, including a potential outbreak of new variants, remain. The upcoming political cycle with presidential and parliamentary elections, scheduled for September 2023, is another source of uncertainty.

Following the Executive Board discussion, DMD Li, Acting Chair and Deputy Managing Director, made the following statement:

The Liberian authorities continue to implement sound macroeconomic policies, despite delays with the broad-based reform agenda. The authorities managed to keep the program broadly on track by preserving macroeconomic stability, ensuring a comfortable international reserve position, and maintaining debt sustainability.

The supplementary budget for 2022 aims primarily to mitigate pressures on food prices and stabilize the state-owned electricity company. To limit the temporary widening of the fiscal deficit, the authorities have streamlined non-priority spending, while largely preserving the significant increase of public investment relative to previous years, made possible by partial use of the IMF’s 2021 SDR allocation to Liberia.

The authorities should press ahead with fiscal structural reforms to make public services and public enterprises more efficient and to secure more permanent space for adequate public investment while preserving debt sustainability. Progress with mobilizing domestic revenues should be built upon, including by streamlining tax exemptions. Efforts to address capacity constraints that hamper selection, preparation, and execution of public investment projects need renewed impetus.

Macroeconomic stability is set to strengthen further with the planned modernization of Liberia’s monetary policy framework and the ongoing currency changeover, provided operational risks are appropriately mitigated.

Stepping up the fight against corruption remains a top priority. The recent adoption of the amended Liberia Anti-Corruption Commission (LACC) Act, the new Whistleblower and Witness Protection Act, and the revised Code of Conduct, is good progress. Swift implementation is now key.

The authorities are strengthening the growth leg of their reform program. In addition to pro-growth fiscal reforms and the fight against corruption, it will be important to fully see-through plans to improve the business climate and enable greater access to credit, including by facilitating the resolution of non-performing loans. Improving educational attainment, adapting to climate change, and addressing gender disparities are also critical

Table 1.

Liberia: Selected Economic Indicators, 2019–27

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.

The total amount of external project grants and loans, along with the associated spending, has been revised down from 2021 onwards to reflect the revised authorities’ database prepared together with donors.

Estimates for 2021 include bank restructuring costs of 0.3 percent of GDP as expenditure.

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

Including central government debt owed to the Central Bank of Liberia.

Title Page

LIBERIA

STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION AND FOURTH REVIEW OF THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVER OF NONOBSERVANCE OF PERFORMANCE CRITERION, AND REPHASING OF ACCESS

August 8, 2022

EXECUTIVE SUMMARY

Context. Liberia is a fragile, low-income country. Per-capita income remains about a third of the level prior to the civil wars during 1989-2003. After a bout of economic instability, prudent monetary and fiscal policies reduced inflation to just over 5 percent in 2021 and budgets are financed without recourse to central bank credit. Economic growth suffered first from macroeconomic instability and then from the COVID-19 pandemic. Growth rebounded to 5 percent in 2021 and, after a soft patch this year due to Russia’s war in Ukraine, should reach 5-6 percent in the medium term if Liberia taps its clear potential through persistent structural reforms and prudent policies. The government’s resolve will be tested in the runup to the general elections in September 2023.

Program status. The four-year ECF arrangement was approved in December 2019 (SDR 155 million, 60 percent of quota). It is anchored by the government’s Pro-Poor Agenda for Prosperity and Development and focuses on restoring macroeconomic stability, putting Liberia on a fiscally sustainable growth path, and addressing weaknesses in governance and public-sector institutions. The third ECF review was concluded in November 2021. Liberia also benefitted from the Rapid Credit Facility in June 2020, debt service relief from the IMF’s Catastrophe Containment and Relief Trust during April 2020 to April 2022, and the general SDR allocation in August 2021. Financial support from the IMF since program inception totaled some US$550 million (14 percent of GDP), most of which went toward the strengthening of Liberia’s international reserves.

Program performance. Quantitative program performance was quite strong. Five out of six performance criteria and four out of five indicative targets for this review were met, whereas the execution of the structural reform agenda incurred many delays. Ahead of the review several overdue structural benchmarks were implemented though, including the adoption of improved anti-corruption legislation.

Program commitments. The authorities commit to continued stability-oriented policies, including a currency changeover, the modernization of the monetary policy framework, responsible fiscal policy, which requires some consolidation after the significant widening of this year’s deficit, and a strengthening of banking supervision. Their structural reform agenda supports these objectives, notably through measures to mobilize additional domestic revenues and reforms of mismanaged public agencies. A start is also being made to improve the business climate.

Requests. Staff supports the authorities’ request for (i) a waiver of non-observance of a performance criterion; (ii) the re-phasing of the program; (iii) the resetting of several structural benchmarks to later dates; (iv) the modification of the performance criterion related to contracting external public debt; (v) the completion of the fourth program review; and (vi) the disbursement of SDR 17 million (6.58 percent of quota).

Approved By

Montfort Mlachila (AFR) and Gavin Gray (SPR)

Discussions were held February 28 to March 11, 2022 in Monrovia and virtual discussions on selected issues continued through mid-June 2022. The staff team comprising Mr. Klingen (Head), Mr. Matsumoto, Mr. Jenya, Mr. Molise, Ms. Jain (all AFR), Ms. Barrail (MCM), Ms. Kamali (SPR), Mr. Abdychev (res. rep.), and Mr. Deline (local economist) held discussions with President Weah, Minister of Finance and Development Planning Tweah, Central Bank Executive Governor Tarlue, Members of the Legislature, senior government and central bank officials, and civil society. Mr. Cipollone and Mr. Magno supported the team at headquarters.

Contents

  • CONTEXT

  • ECONOMIC DEVELOPMENTS, OUTLOOK, AND RISKS

  • PROGRAM PERFORMANCE

  • POLICY DISCUSSIONS

  • A. Further Entrenching Macroeconomic Stability

  • B. Toward Fiscally Sustainable Growth

  • C. Addressing Weaknesses in Governance and Public Institutions

  • D. Program Modalities, Repayment Capacity, and Capacity Building

  • STAFF APPRAISAL

  • FIGURES

  • 1. Recent Economic Developments

  • 2. Monetary Developments

  • 3. External Sector Developments

  • 4. Fiscal Performance, CY2017–22

  • TABLES

  • 1. Selected Economic and Financial Indicators, 2019–27

  • 2. Balance of Payments, 2019–27

  • 3a. Fiscal Operations of the Budgetary Central Government (Including Off-Budget Transactions), 2019–27 (Millions of U.S. dollars)

  • 3b. Fiscal Operations of the Budgetary Central Government (Including Off-Budget Transactions), 2019–27 (Percent of GDP)

  • 3c. Fiscal Operations of the Budgetary Central Government, 2019–27 (Millions of U.S. dollars)

  • 3d. Fiscal Operations of the Budgetary Central Government, 2019–27 (Percent of GDP)

  • 4. Monetary Survey, 2019–27

  • 5. Financial Soundness Indicators, 2016–21

  • 6. External Financing Requirement and Source, 2019–27

  • 7. Proposed Schedule of Disbursements Under ECF Arrangement, 2019–23

  • 8. Indicators of Capacity to Repay the IMF, 2021–31

  • ANNEXES

  • I. External Sector Assessment

  • II. Risk Assessment Matrix, April 2022

  • III. Status of Key Recommendations for the 2019 Article IV Consulatation

  • IV. Summary of Capacity Development Strategy

  • APPENDIX

  • I. Letter of Intent

    • Attachment I. Memorandum of Economic and Financial Policies

    • Attachment II. Technical Memorandum of Understanding

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Cover IMF Staff Country Reports
Liberia: 2022 Article IV Consultation and Fourth Review of the Extended Credit Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Liberia
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 296
Publisher:
International Monetary Fund
ISBN:
9798400218309
ISSN:
1934-7685
Pages:
136
DOI:
https://doi.org/10.5089/9798400218309.002