A. Further Entrenching Macroeconomic Stability

14. The CBL intends to retain its current moderately tight monetary policy stance to largely lock in the low inflation rates achieved after unexpectedly rapid disinflation. Interest rates will be kept at 20 percent with monetary aggregates closely monitored through a new currency management system developed with support from IMF experts. Some additional inflation imported from world markets will rightly be accommodated, but monetary policy continuity should help preserve the medium-term disinflation trend toward an inflation rate of some 5 percent. IMF staff supports this approach, adding that the many uncertainties surrounding the currency changeover also argued for continuity.

15. The currency changeover will be a boon for the economy, but operational risks are considerable. IMF staff had all along been concerned about replacing the entire currency stock by a new family of banknotes and newly introduced coins, arguing that a reprinting exercise would have addressed the shortage of fit banknotes faster and with less operational risk. IMF staff took comfort, however, in the Currency Changeover Implementation Plan prepared in the context of the last program review. While key elements remain intact, such as a gradual approach where new denominations are introduced one at a time and the old currency remains legal tender for an extended period, delays in making a key processing facility operational rekindle concerns about the bulk delivery of new currency from August potentially overwhelming the CBL’s capacities. At the suggestion of IMF staff, the CBL has somewhat pushed back the delivery schedule and is arranging for new storage and processing capacity, but at this point taking higher risk has become unavoidable.

16. Once the currency changeover is accomplished, the authorities should modernize the monetary policy framework to give monetary policy more traction.¹ Reforms are being accompanied by advice from IMF experts.

• Current framework. The CBL currently uses the CBL-bill interest rate as policy rate and its main communication tool. But since the outstanding CBL-bill stock is being held constant, recent interest rate moves have had little impact on banks’ loan and deposit rates. Moreover, monetary aggregates are being targeted in parallel, including under the ECF-supported program, which can give rise to ambiguities about the monetary policy stance. With LD monetary aggregates heavily dominated by cash in circulation, the CBL is also constrained by LD banknote shortages.

• Challenges. Constraints from cash shortages will be fully lifted once banknotes and coins for all denominations will have been introduced toward end-2022 in the context of the currency changeover. However, an abrupt switch to a full-fledged interest rate based monetary policy framework could be premature considering that the necessary supporting infrastructure is not yet in place. There is no meaningful interbank market and no capital market or yield curve. The government rather places LD-denominated T-bills and T-bonds with only a few tenors directly with banks at negotiated interest rates. Moreover, Liberia’s dual currency system, where LD and U.S. dollars are both legal tender, may make the composition of money demand highly sensitive to interest rates, which risks strong inflationary or deflationary pressures from small misjudgments in setting interest rates.

• Reforms. Deficiencies in the current framework should be resolved by clearly articulating reserve money as a medium-term operating target while at the same time using interest-rate based instruments in the implementation of monetary policy in the short-term and consistent with the monetary policy objective, resuscitating the interest corridor system, and conducting the auctions for longer-term CBL-bills at a variable rate tender. This will prepare the ground and the infrastructure for gradually deemphasizing intermediate targets on monetary aggregates and for the adoption of a modern monetary policy framework. IMF staff analysis shows that the exchange rate, currency in circulation, and the domestic currency component of narrow money could best serve as variables that provide useful information about the buildup of inflationary risks and thus guide monetary policy through this period of heightened uncertainty. As time passes, the CBL could deemphasize reserve money as the operating target and transition to an interest rate-based framework.

17. The CBL broadly agreed with this analysis and way forward but emphasized that carrying out too many reforms—currency changeover, monetary policy framework, and de-dollarization—all at the same time could be problematic. Moreover, articulating reserve money as the medium-term indicative target could be seen as a step backward from the current monetary policy communication through the interest rate. They welcomed the idea of CBL-bill auctions and committed to introducing them next June (proposed SB for end-June 2023).

18. While these reforms will help monetary policy gain traction, a breakthrough will only come with de-dollarization, which will take a concerted effort and time to achieve. IMF staff encouraged the authorities to draft a de-dollarization plan. Considering the international experience and Liberia’s idiosyncrasies, such a plan could include prudential regulations that force banks to internalize the risks of operating in foreign currency and increase banks’ incentives to focus on Liberian dollar deposits and loans, development of Liberian dollar debt markets, and increasingly conducting government business in Liberian dollars. These could be complimented by some administrative measures that are market friendly. IMF staff have advised against non-market-based approaches to de-dollarization as these are usually costly and could have unintended consequences. These measures would not only give monetary policy stronger traction, but also strengthen the CBL’s lender-of-last resort function, earn Liberia seigniorage, and allow the exchange rate to serve as a shock absorber. The authorities broadly agreed and will try to conduct more of the government’s business in LD rather than U.S. dollars, but for now the CBL is preoccupied with the currency changeover.

19. The authorities acknowledged that the banking system faces challenges. While system-wide capital and liquidity requirements are met, all but one bank breach the 10 percent regulatory ceiling for non-performing loans (NPLs) to different degrees and a few non-systemic banks fail to observe capital or liquidity requirements. Continuing weaknesses in credit quality and loan classification were identified in the CBL’s latest on-site examinations, which revealed the need to improve underwriting standards, credit and evaluation approval processes, and credit monitoring. These findings have already prompted the CBL to require additional provisioning. Further vigilance is warranted and banks should be forced to recapitalize if needed. IMF staff supports the authorities’ plans to strictly enforce NPL regulations, including writing off loans that have been non-performing for more than three years or become uncollectable, and to keep the CBL’s Board of Governors (BoG) abreast of developments through quarterly reports. The CBL is exploring measures to support NPL recoveries, including applying regulation that allows it to deny delinquent borrowers access to banking services. Penalties for non-compliance with liquidity requirements will be enforced from the third quarter of 2022. IMF staff also urged the CBL to pressure undercapitalized banks to implement their reform plans more expeditiously.

20. The authorities are advancing the restructuring of LBDI, but it has further to go. The newly appointed management is rightly focusing on raising additional capital and securing more liquidity to consistently and safely comply with regulatory requirements. IMF staff welcomed that the government would allow a dilution of its capital share in the process and is considering a more arms-length approach to managing the bank. But it is also an immediate priority to strengthen record keeping, step up NPL recoveries, and improve underwriting standards, while keeping operating costs in check and preserving liquidity. The process of restating LBDI’s balance sheet in accordance with supervisory findings should be wrapped up as soon as possible. The special supervisory regime imposed by the CBL should remain in place for now. The authorities agreed with these priorities.

21. The supervisory framework for the financial sector is being strengthened. After extended consultations with stakeholders and IMF experts, the FIA is now ready to be sent to the CBL’s BoG for approval ahead of the submission to the Legislature in September (SB proposed to be reset to end-September 2022 from end-February 2022). The Act will equip the CBL with additional powers to deal with distressed banks and with authority to impose supplementary capital buffers. Once the FIA is approved, the CBL will move ahead with the next steps, namely approving operational guidelines, policies, and manuals for bank resolution next January (SB proposed to be reset to end-January 2023 from end-April 2022) followed by assigning specialized staff for resolution issue next March (SB proposed to be reformulated and reset to end-March 2023 from end-May 2022). As the last step toward implementing risk-based supervision, the CBL aims to issue guidelines for banks in September (SB proposed to be reset to end-September 2022 from end-April 2022).

22. The main linkage between the financial sector and the macroeconomy is limited private sector access to financing and financial services, weighing on economic growth. Financial stability concerns are mitigated by the recent recapitalization of LBDI, the fact that pan-African banks account for most of the sector, limited bank exposure to the sovereign, and the currency reform, which ends periodic LD currency shortages. That said, high NPLs and weaknesses in loan classification are a concern. The bigger issue is limited access to credit, low levels of financial inclusion, and a large gender gap in financial access. This hampers private-sector led development. Private sector credit remains below the sub-Saharan Africa (SSA) average even when adjusted for income levels. The number of accounts per population also lagged peers but thanks to a sharp increase of mobile money accounts during the pandemic, it has now caught up with the SSA average. The gender gap remains among the region’s largest.

23. Besides the currency changeover, a number of welcome reforms are in train that are conducive to financial deepening and inclusion. These include the establishment of a digital credit and collateral registry at the CBL and the development of a “national digital switch” to improve interoperability for digital payments. In line with its National Financial Inclusion Strategy, the government has already extended consumer protection to non-bank financial institutions. It should move forward with plans to better link Village Savings and Loan Associations and credit unions to the banking sector.

B. Toward Fiscally Sustainable Growth

24. Fiscal policy will have to straddle the competing objectives of protecting macroeconomic stability and enabling growth through investment and service provision. The authorities remain committed to refraining from monetary budget financing, prioritizing concessional external borrowing, and avoiding payment arrears. Space for public investment will open up over time as additional domestic revenues are mobilized and the wage bill is contained, which is still large despite the commendable reforms since 2019. It will be equally important to also tackle spending inefficiencies and management issues in public enterprises and agencies.

25. In formulating its medium-term fiscal policy, the government will be guided by the Debt Sustainability Analysis (DSA). It continues to assess Liberia’s risk of distress for external public debt as moderate and as high for total public debt.² The authorities are determined to bring both ratings to moderate, which is already in striking distance. On this basis and subject to achieving economic growth of at least 5 percent per year on average, Liberia can afford fiscal deficits of up to 3 to 4 percent of GDP per year. Affordable deficits are larger than in previous reviews due to a change in the terms at which the World Bank provides financial support. Disbursements under operations approved after end-June 2022 are loans rather than the previous 50-50 mix of loans and grants. Since the concessionality of loans is augmented at the same time, deficits become larger but more affordable. In the case of Liberia, fiscal deficits rise by about one percent of GDP due to the World Bank’s policy change.

26. A supplementary budget for 2022 in line with understandings with IMF staff that accommodates additional priority spending has been presented to the Legislature (prior action). The Legislature has since adopted it, with the minor change of adding a modest amount for regional development for which extra funding has already been received. Since the adoption of the original budget, some pressing new needs emerged that would have materially undermined the performance of the Liberian economy and social cohesion had they been left unaddressed.

• The Liberia Electricity Company (LEC) will be allocated US$18 million (0.5 percent of GDP) to avert its nearing collapse over dilapidated infrastructure, rampant power theft, and delayed connection to the regional power pool.

• The Monrovia airport will be allocated US$2 million (0.1 percent of GDP) to make repairs urgently needed to restore its safe operation after several incidents.

• US$11 million (0.3 percent of GDP) will be allocated to stabilize rice prices by offsetting sharply higher international shipping costs in the wake of global supply chain disruptions. Rice is Liberia’s staple food and mostly imported. Its price is central for social cohesion and poverty alleviation.

The additional outlays were covered by a net expenditure reduction in the context of reshuffling other expenditure items (US$11 million, 0.3 percent of GDP), along with additional resources from the World Bank (US$15 million, 0.4 percent of GDP), and a mining concession (US$5 million, 0.1 percent of GDP). Part of the IMF’s SDR allocation to Liberia originally intended for the buy-back of T-bonds was repurposed to instead retire the T-bills issued last year to avoid payment arrears in the face of revenue shortfalls. Overall, the 2022 fiscal deficit (excluding budget grants and donor projects) reaches 2.4 percent of GDP, compared to 0.9 percent of GDP in 2021, while largely preserving the significant increase in investment of the original 2022 budget. The 2022 budget deficit inclusive of grants and donor projects comes to 5 percent of GDP, after 2.4 percent of GDP in 2021. This strikes an appropriate balance under the circumstances in the view of the authorities and IMF staff.

27. IMF staff expressed concerns about such budget pressures persisting. With the 2022 budget benefitting from exceptional resources, including the on-lending of US$80 million (2 percent of GDP) from the SDR allocation by the CBL, financing will become more difficult going forward. In the absence of practical targeting mechanisms, subsidies can quickly become prohibitively expensive and difficult to reverse in an election year—a US$1 per gallon subsidy on gasoline costs about 2.5 percent of GDP and a 20 percent subsidy on imported rice some 0.5 percent of GDP. Public entities should be reformed rather than subsidized. The authorities agreed in principle. They hope to be able to stay away from fuel subsides this year and will reform public entities, although LEC may require additional emergency support of around 1 percent of GDP that would need to be managed in the 2023 budget.

28. The authorities intend to bring next year’s fiscal deficit down from the currently elevated levels. They are firmly committed to building the 2023 budget around the imperatives of the DSA and financing constraints. The latter are more binding, as they essentially limit the deficit to what can be covered by financial support from development partners and a further drawdown of the SDR allocation. It will therefore be important that the authorities (i) see through their extensive fiscal structural reform agenda, especially regarding domestic revenue mobilization and spending efficiency; (ii) phase out the rice subsidy as international shipping costs normalize; (iii) avoid fuel subsidies; and (iv) swiftly reform public enterprises to reduce their budgetary burden. Constraints could be less tight than programmed if Liberia benefitted from another mining concession payment or if donor support was tapered by less.

29. The authorities reiterated their continued commitment to fiscal structural reforms.

• Regarding domestic revenue mobilization, various initiatives to improve tax administration are advancing with the support of IMF technical assistance and guided by the recently extended Domestic Revenue Mobilization Strategy. Building on earlier narrowing of investment tax incentives, the authorities have identified seven areas for further streamlining, including duty waivers for parliamentarians and returning Liberians, tax withholding for government contractors, and exemptions granted by decree and in concession agreements (MEFP, ¶12, bullet 7). They committed to adopting a package of tax exemption reductions with a revenue yield of at least US$15 million (0.4 percent of GDP) in 2023 by October (proposed SB for end-October 2022). By September 2022, the government will also put all legal and regulatory requirements in place to integrate the Liberian Telecommunication Authority into the 2023 budget. The authorities are also making progress with their preparation to introduce a VAT to replace the general sales tax, but implementation before 2024 is unlikely considering the scale of the project.

• Regarding spending efficiency, a database is being established that facilitates improved matching of the allocation of teachers and health workers to the public’s needs. The authorities also pledged to prepare a framework paper on the public investment management cycle with a view to better prioritizing projects and avoid undue implementation delays. Furthermore, they will protect capital spending by strictly following the Public Financial Management Act and the Budget Transfer Act in the virement of budget allocations from capital to recurrent spending.

• Regarding public financial management, the authorities commit to expeditiously see the TSA project through, drawing on the continued advice from IMF experts. In consultation with IMF staff, a list of the remaining accounts of Ministries, Agencies, and Commissions (MACs) at commercial banks destined for closures has been drawn up. The MFDP will use its authority to close them and transfer the balances to the CBL by September (SB proposed to be reformulated and reset to end-September 2022 from end-December 2021). In a second step, the account structure of the TSA at the CBL will be finalized and implemented (SB proposed to be reformulated and reset to end-October 2022 from end-March 2022).

• Regarding public enterprises, the authorities agreed that reforming LEC was an urgent priority, especially addressing rampant power theft of around 50 percent, connecting Liberia to the regional power pool CLSG, and repairing neglected infrastructure. New management is about to be appointed and reform discussions are well advanced. A comprehensive reform action plan validated by development partners already supporting LEC reforms will be adopted by cabinet in October (proposed SB for end-October 2022). The authorities are also pushing reforms of airport operations and are in the process of identifying new airport management.

30. The authorities broadly agreed with IMF staff analysis showing that the Liberian economy has good growth potential.³ Since the end of the civil war in 2003, GDP growth has averaged 4.5 percent, with 6.5 percent in the first ten years and stagnation in the flowing ten years. While much of it reflects the swing from positive to negative shocks between the decades, there is also evidence of pronounced declines in the efficiency of investment and in labor productivity, manifesting themselves in falling total factor productivity (TFP). If TFP is restored to the post war average, education levels catch up with those in Ethiopia, and capital accumulation retains its historical pace, GDP would grow by 5-6 percent annually. Liberia’s evident opportunities in the mining, agricultural, and tourism sectors, which could have a catalyzing effect for the broader economy, also speak to the economy’s potential.

31. There are two main fronts for policy action to unlock potential and to strengthen competitiveness:

• Physical and human capital. Infrastructure and education levels are highly inadequate, reflecting poor spending efficiency within sectors, insufficient prioritization of these sectors within the government’s resource envelope, and a tight overall resource envelope. Liberia’s investment efficiency is one of the lowest in SSA and education outcomes relative to student-teacher ratios compare unfavorably with peers. Over time, current spending has crowded out domestically financed investment to less than 0.5 percent of GDP, leaving infrastructure development in the hands of donors, and the budget allocation of the Legislature is as high as 70 percent as the one for the entire education sector. At some 17 percent of GDP, government’s own revenues are limited, though not out of line with SSA generally. Efforts to mobilize more domestic revenues and to contain the wage bill to make room for investment are underway, but the distribution of resources across sectors and spending efficiency within sectors also deserve attention.

• Business climate. Business opportunities are also hampered by a poor operating environment, which features amongst the world’s poorest. Corruption is a key factor, but there is a whole range of other issues.⁴ To make tangible progress, the authorities considered it most effective for purposes of the ECF-supported program to focus on the areas of (i) facilitating trade across borders and inside Liberia where excessive security checkpoints are a major impediment; (ii) registering businesses through digitalization, harmonization, and establishing a one-stop shop; and (iii) the enforcement of contracts by strengthening the Commercial Court. These plans are still rather general at this point, but the authorities have initiated consultations with stakeholders and commit to develop an implementation plan with concrete actions, milestones, and responsibilities by December (SB proposed to be reformulated and rest to end-December 2022 from end-March 2022). Other commendable reforms, which are at different gestation stages, are being pursued in parallel: digitalization of port procedures in a collaboration between the port and revenue authorities, measures to improve access to finance, and considerations to establish an appeals court to alleviate chronic backlogs at the Supreme Court. The government has also largely avoided new arrears to vendors in the past few years.

32. To alleviate potentially grave welfare losses from climate change, the authorities should focus on putting adaptation measures and verification processes for carbon credits in place.⁵

• Risks from climate change. Liberia ranks as the 177th most vulnerable and 165th least ready country among the 182 countries covered by the “ND-GAIN Index.” With the projected rise of temperatures in Liberia similar to global trends, high vulnerabilities rather arise from (i) heavy reliance on climate sensitive sectors such as agriculture, which accounts for 40 percent of employment, and fisheries, which provide 65 percent of the population’s protein intake; (ii) susceptibility to flooding, as Liberia is one of the world’s wettest countries, and the spread of waterborne diseases due to poor sanitation systems; and (iii) low-laying coastal areas that are home to 60 percent of Liberia’s population. Low levels of education, an unfavorable business climate, and pervasive corruption explain Liberia’s low readiness rating.

• Liberia’s climate change institutions and policies. The National Climate Change Steering Committee has overall coordination and supervision responsibility and is supported by the National Climate Change Secretariat housed in the Environmental Protection Agency (EPA), which is also the designated national authority under the UN Framework Convention on Climate Change (UNFCCC). Liberia’s action plan for implementing its climate change strategy is costed at US$2 billion (50 percent of GDP), of which 60 percent are devoted to mitigation efforts and 40 percent to adaptation measures. In its National Defined Contribution, Liberia commits to reducing emissions by 64 percent by 2030. Adaptation polices are guided by dedicated, comprehensive action plans, with eight key priorities, including in agriculture, fisheries, water, and coastal zones. However, implementation has been hampered by financial constraints, lack of awareness, limited technical expertise, and insufficient political will according to Liberia’s first communication to the UNFCCC.

• Policy recommendations. Liberia is a net carbon sink due to its rain forest and limited emissions, which correspond for all its 5.2 million inhabitants to that of 87,000 U.S. residents. Given its vulnerability to climate change, Liberia may want to increase adaptation measures more aggressively. Financing is a serious constraint that further international support could help alleviate. Development partners encouraged the authorities to put in place verification systems for carbon credits, which would help Liberia unlock more international financial support. The MFDP said that this work had begun. IMF staff also suggested that the climate change dimension be systematically considered in public investment planning. Low cost-measures, such as climate-conscious zoning and extension services, are low-hanging fruit ready to be picked.

C. Addressing Weaknesses in Governance and Public Institutions

33. Despite welcome steps to upgrade the framework to fight corruption and strengthen governance, improvements on the ground are slow in coming. Surveys find that corruption is widespread, echoing other analyses, which identify weaknesses in:⁶ fiscal governance (fiscal transparency, revenue institutions, public financial management controls, procurement, spending outcomes), central bank governance, the regulatory framework (regulatory management practices and trade facilitation), and the rule of law (contract enforcement and investor protection).

34. Expeditious implementation of the new LACC Act is now key. It substantially strengthens the LACC by granting it new first-tier prosecutorial powers, by fostering its independence, and by putting it in charge of administering the asset declaration system for high-level public officials. It resets the LACC by appointing, or reappointing, all commissioners according to a new process designed to ensure maximum integrity and impartiality. Civil society, other integrity institutions, and development partners will nominate a selection committee that draws up a shortlist of candidates from which the President will pick commissioners for confirmation by the Senate. Once a new commission is in place, the LACC’s new prosecutorial powers will take effect. However, in a setback, the new Act removes sections of the previous law that explicitly provided the LACC with powers to freeze and seize assets. It will be important to ensure that these changes do not undermine the ability to recover the proceeds of corruption. The authorities aim to constitute the selection commission by end-August, finalize the shortlist of commissioners by mid-October, and nominate commissioners by end-October.

35. The authorities intend to further increase fiscal transparency. Budget audits will be submitted to the Legislature and published with shorter lags, with the one pertaining to FY2020/21 slated for September (proposed SB for end-September 2022). The Public Procurement and Concession Commission (PPCC) has published almost all contracts for FY2020/21 and the posting of those for the special budget period is well underway.⁷ Supplementary information on winning bidders is being upgraded with the help of the Liberia Business Registry and through the PPCC’s vendor registry to disclose beneficial ownership where it may deviate from legal ownership, which is already published. IMF staff encouraged the authorities to follow through with their plans to incentivize agencies to promptly submit all contract information to the PPCC by otherwise withholding funds and to better address shortcomings identified in audit reports.

36. Progress on some safeguards-related issues has been noted. The CBL’s 2020 annual financial statements have been published, though they were only finalized in March 2022. Nonetheless, the audit opinion was clean. The 2021 audit has been delayed and is expected to be finalized in 2022Q3. The end-December 2021 foreign exchange audit (recurrent SB) was completed in February 2022 and did not raise any significant issues. Internal audit has continued with the co-sourcing arrangement and expects to issue its first annual report on 2021 in August. While the CBL had undertaken to prepare quarterly compliance reports for submission to the BoG starting with 2022Q1, the authorities have faced challenges in this area, including staffing, and have requested additional time to deliver on this item (recurrent SB proposed to be reset to 2022Q4 from 2022Q1). Separately, IMF staff is following up with the CBL on other outstanding recommendations and stressed the need to set out clear procedures for the currency changeover and to ensure close adherence to them.

37. To strengthen the effectiveness of integrity institutions, their allocations have been substantially increased in the 2022 budget. Resources for the LACC, the PPCC, and the General Audit Commission are set to rise by over 25 percent compared to the special budget outturn. IMF staff encouraged the authorities to protect these allocations in budget execution and to release allotments on a quarterly basis.

38. The pending AML/CFT legal reforms should be finalized as a matter of priority and the effective implementation of the AML/CFT framework should be emphasized. The new AML/CFT Act will establish a National Steering Committee comprising all major stakeholders to develop a coherent strategy for implementation and oversight. In this context, provisions for the identification and verification of beneficial owners, management of accounts by politically exposed persons, and fit and proper rules for managers of financial institutions deserve particular attention. The new Financial Intelligence Act will upgrade the Financial Intelligence Unit (FIU) to an agency with an improved governance structure. Both bills acts are currently in the Senate-House conference. A swift passage of these acts is particularly important given that the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) is scheduled to commence its mutual evaluation of Liberia this September. As part of this evaluation, Liberia will need to show alignment of its AML/CFT legal framework with the international AML/CFT standards and demonstrate effective implementation. Unless sufficient progress is made, Liberia risks being designated as a “jurisdiction with increased monitoring,” with adverse economic consequences. Close cooperation between the FIU, the CBL, and other relevant AML/CFT agencies, along with capacity building while preserving the independence of such agencies, are essential for ensuring effective application of the AML/CFT regime. The authorities may also contemplate concluding an MoU between the CBL and the FIU.

D. Program Modalities, Repayment Capacity, and Capacity Building

39. Regarding program modalities, staff supports the authorities’ requests to:

• Rephase the ECF arrangement to account for the delays in the conclusion of reviews thus far. With the end-December 2021 and end-June 2022 test dates for the fifth and sixth review already past, the next review will be based on the observance of performance criteria for end-September 2022. The total number of reviews will be reduced to seven from eight, with the previously envisaged disbursement for the eighth review equally distributed over the remaining reviews. Given the delays in implementing the structural reform agenda and considering that the large SDR allocation has eased near-term external financing needs, IMF staff proposes rephasing the program rather than combining reviews.

• Be granted a waiver for the non-observance of the end-June 2021 PC on net international reserves on the basis of corrective action taken by the authorities. The deviation was transitory due to delays in bank recapitalization and the implementation of the currency changeover. The CBL and MFDP are now also more closely cooperating on foreign exchange purchases by the CBL from the government.

• Reset and reformulate several SBs to account for actual and prospective implementation delays (MEFP Tables 4 and 5).

• Replace the PC on external public debt. In keeping with the IMF’s new debt limits policy, a ceiling on the present value (PV) of newly contracted public or publicly guaranteed external debt will substitute for the ceiling on the contracting of new non-concessional external debt of the public sector from September 2022 onward. For 2022 and 2023, newly contracted external debt comprises mostly borrowing from the World Bank, the African Development program, the Arab Bank for Economic Development, and the governments of Kuwait and Saudi Arabia. The ceiling is an integral part of the government’s fiscal program and the macroeconomic policy framework.

• Receive the disbursement of SDR 17 million attached to this review. PCs, ITs, and SBs through June 2023 are set out in Tables 1, 4, and 5 of the MEFP.

40. Liberia’s capacity to repay the Fund remains adequate, but the country’s exposure to Fund resources is high and program risks are significant. Total outstanding credit to the IMF accounts for some 23 percent of Liberia’s total external public debt. Debt service to the Fund as a share of total obligations will peak in 2022 at 52.6 percent. Main program risks, including a weakened reform drive in the runup to the 2023 elections, are partly mitigated by the prior actions and program measures. The program remains fully financed with firm commitments for the next 12 months and good prospects for the remainder of the program.

41. Liberia benefits from intensive capacity development support by the IMF (Annex 4). A total of 63 activities took place in 2020-21, of which 57 were technical assistance missions. They are closely aligned with the structural agenda of the IMF-supported program and focus on (i) public financial management to improve budget control, spending quality, and transparency, (ii) revenue administration to support domestic revenue mobilization; (iii) banking supervision to underwrite financial stability; (iv) central bank operations to strengthen the monetary policy framework, governance arrangements, and the currency changeover; and (v) statistical issues to facilitate surveillance and program monitoring. Despite absorption challenges on the part of the authorities, capacity development support remains critical for driving structural reforms forward.

42. Data provision has serious shortcomings that significantly hamper surveillance. The authorities lack technical capacity to produce macroeconomic data in a timely manner, partly due to frequent personnel turnover. They realize the issue and technical assistance has been provided but the COVID-19 pandemic delayed the progress. Technical assistance will continue to assist capacity development at the statistical office.