Public Information Notice: IMF Concludes Article IV Consultation with Liberia

April 11, 2000

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On February 28, 2000, the Executive Board concluded the Article IV consultation with Liberia.1


During Liberia's devastating seven-year civil war, economic activity was severely disrupted. The war took a heavy toll on the population and the country's infrastructure was largely destroyed. Following a peace agreement in August 1996, Mr. Charles Taylor was elected President in July 1997. The security situation has recently improved considerably, though some areas in the northern part of the country have remained difficult.

Domestic production has rebounded strongly following the end of the civil war, although it still remains only about one-third the prewar level. Based on provisional data, real GDP is estimated to have about doubled in 1997 and increased by a further 25-30 percent in 1998, mainly reflecting a postwar surge in food and cash crop production, with particularly sharp increases in rice and cassava output. Agricultural production and trade projections suggest the economy continued to recover strongly in 1999. Real per capita GDP is currently estimated to be in the range of US$150-200.

Inflation and the exchange rate have stabilized. Inflation on a 12-month basis averaged 3 percent in October 1999, although there were fluctuations related to the food supply situation. The exchange rate in terms of the U.S. dollar has broadly stabilized since August 1997, averaging L$41 in 1998 and L$42 in 1999.

Following a tight fiscal policy in 1998, the overall fiscal balance deteriorated significantly in the first 11 months of 1999, recording a deficit of US$11 million (2½ percent of GDP) on a commitment basis. The significant deterioration mostly reflected expenditure overruns relating to the purchase of government vehicles and equipment and refurbishing of the Ministry of Foreign Affairs to facilitate government operations, and security-related outlays. In December 1999, the government took decisive actions to improve budget performance and reverse expenditure overruns, canceling US$8 million in domestic payments vouchers than did not reflect underlying contracts or completed transactions. Consequently, the budget deficit for the year 1999 as a whole was reduced to US$2 million (½ of 1 percent of GDP) on a commitment basis.

The Central Bank of Liberia replaced the largely defunct and illiquid National Bank of Liberia in October 1999. However, the scope for monetary policy in Liberia has remained limited since the end of the war. Monetary developments during 1998 and 1999 reflected the fixed stock of currency, the balanced central government budget (on a cash basis), and the problems in the financial sector and the economy in general. Broad money is estimated (based on provisional data) to have increased by 13 percent during the December 1998-September 1999 period.

Based on provisional data, the external current account deficit has fallen significantly since the end of the war, from 27 percent of GDP in 1997 (including grants) to 9½ percent in 1999. The trade deficit averaged US$115 million per year in 1998-99, and was largely financed by donor grants, private remittances from Liberians living abroad and foreign direct investment. Lacking access to external financing and international reserves, external debt service obligations were financed through the accumulation of arrears in 1998 and 1999, with the exception of US$50,000 in monthly payments to the Fund. Liberia is faced with an onerous external debt (US$2.6 billion at end-1999, equivalent to 570 percent of GDP), much of which is in arrears.

On the structural front, with regard to rice imports, a World Bank-financed team, which visited Senegal and The Gambia in October 1999, recommended a speedy liberalization of the sector, drawing on lessons in these two countries.

Executive Board Assessment

Executive Directors noted that the Liberian economy has rebounded rapidly following the end of the devastating seven-year civil war. Nonetheless, real per capita income still remains only about one-third of the pre-war level and poverty is widespread. Directors emphasized that to maintain the growth momentum, and to broaden its impact on all productive sectors, the authorities will need to expand their focus from near-term relief to a more comprehensive reconstruction and economic reform program. More generally, they observed that the situation is still fragile and the task ahead daunting, pointing to the many post-conflict issues that need to be addressed. In these endeavors, in addition to determined efforts by the authorities, Directors welcomed the provision of technical assistance by the Fund, and noted that technical and financial support from the donor community will also be extremely important. Directors encouraged the authorities to ensure that the medium-term strategy they are developing focuses on fostering private sector development, good governance, and transparency; and they noted the need for the authorities to begin working on a poverty reduction strategy.

Directors noted the recent positive developments in the macroeconomic situation, including the achievement of a stable exchange rate and a reduction in inflation. They expressed concern, however, about the deterioration in the fiscal situation in the first half of 1999, owing to substantial extrabudgetary expenditures. Directors welcomed the authorities' recent corrective actions to improve fiscal performance, but underscored, nonetheless, the need for substantially strengthening expenditure management and control. In particular, they emphasized the importance of consolidating expenditure authority within the budget.

Directors were encouraged by the adoption of a comprehensive fiscal policy framework for January-June 2000 that seeks to address the serious structural problems underlying expenditure management. In this regard, they supported the establishment of an interagency budget-monitoring task force that would help coordinate the activities of the various budget agencies as well as review monthly expenditures and revenue against cash-flow projections. These efforts would be crucial for enhancing transparency in the fiscal accounts and eliminating extrabudgetary spending. Directors supported the introduction of the new tax code by July 2000 as an important measure to expand the tax base and improve tax administration. They considered that such efforts on the expenditure and revenue side would be necessary for providing adequate resources to priority social sector and poverty reduction programs.

Directors acknowledged the need for the new central bank to develop a monetary policy framework based on reserve money programming, but cautioned that the Central Bank of Liberia will need to be adequately capitalized and its staff trained to operate effectively. They emphasized that continuation of an appropriately restrained monetary stance, supported by a tight fiscal position, will be important in the near term to build confidence in both the central bank and the new currency, as well as in light of the inability of the government to borrow internationally or internally.

Directors agreed with the authorities that a well-functioning financial sector will be critical for the continuation and expansion of the economic recovery. To this end, they emphasized that the central bank will need to strengthen quickly its capacity to supervise the banking system and should work expeditiously to assess the health of each of the existing commercial banks.

Directors stressed that structural reforms in other areas were also critical for broadening the economic recovery. In this regard, they welcomed the authorities' commitment to liberalize rice imports by June 2000, and urged the authorities, in collaboration with the World Bank, to proceed with the liberalization of petroleum imports. Directors also encouraged the authorities to push ahead with the civil service functional audit and the restructuring of the security services in the coming year. They cautioned that the inclusion of ex-combatants in the civil service payroll was not sustainable and urged the authorities to reconsider this action.

Directors welcomed the improvement in statistical reporting during the past two years, but observed that the quality and timeliness of data provision to the Fund for surveillance purposes remains weak. They underscored the importance of continued efforts to improve the statistical base, including the preparation of a monthly monetary survey, as well as the compilation of national income accounts and balance of payments statistics.

Directors supported the authorities' desire to move quickly to a rights accumulation program (RAP) and called for continued efforts to improve relations with donors and creditors in order to help pave the way for a potential RAP. In this connection, they stressed that a sustained and credible track record of policy performance under the staff-monitored program was essential to strengthen cooperation with the Fund and build support for the kind of concerted international effort needed to support Liberia's economic recovery and reconstruction program as well as to achieve a lasting solution to its debt problem. In this light, the donors' conference in mid-2000 would provide an important opportunity to discuss the authorities' medium-term strategy and financial and technical assistance needs.

Directors welcomed Liberia's intention to accept the obligations of Article VIII, Sections 2, 3, and 4 of the Fund's Articles of Agreement in the near future, and encouraged the authorities to work with the staff to identify and eliminate remaining exchange restrictions.

Liberia: Selected Economic Indicators

  1997 1998 1999

Output and prices (change in percent) 1/      
Real GDP 106.3 28.5 23.0
Consumer prices (end of period) 2/ ... ... 3.0
Central government finance (percent of GDP)      
Total revenue and grants ... 14.7 14.6
Total expenditure and net lending ... 15.1 15.1
Overall fiscal balance (commitment basis) ... -0.4 -0.4
Changes in expenditure-related arrears ... 0.4 0.5
Overall fiscal balance (cash basis) ... 0.1 0.1
Total public sector external debt outstanding 827.0 692.4 569.5
Money and credit 1/ 3/      
Broad money (percent change) ... ... 12.8
External sector (millions of U.S. dollars) 1/      
Trade balance -217.9 -118.5 -111.7
Current account balance -80.7 -41.9 -42.3
Gross official reserves (end of period) 0.5 0.4 0.2
External sector (percent of GDP) 1/      
Trade balance -73.6 -32.5 -24.9
Current account balance -27.3 -11.5 -9.4
Exchange rates      
Liberty dollar per U.S. dollar (period average) ... 41 42

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

1/ Based on provisional estimates.      
2/ October 1999.      
3/ Reflects year-to-date through September 1999.      

1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6278 Phone: 202-623-7100