Public Information Notice: IMF Concludes 2002 Article IV Consultation with Liberia

September 3, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2002 Article IV consultation with Liberia is also available.

On March 05, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Liberia.1


The 1989-1996 civil war in Liberia resulted in destruction of most of the infrastructure and a reduction in GDP to one tenth of its pre-war level. Recovery in activity was initially fast, based on a revival of rubber and smallholder agricultural production and exploitation of forestry resources. By the end of 2000, GDP had returned to nearly half of its pre-war level. However, iron ore extraction—which had previously been responsible for 10 percent of GDP and 50 percent of exports—was not resumed and no significant reconstruction work was undertaken on the infrastructure.

The pace of economic activity has since slowed markedly, with GDP rising by about 5 percent in 2001 and 3.3 percent in 2002. Rebel fighting in the north and west of the country has disrupted local rubber, logging, and farming activity, and capacity in the rubber sector has been further restricted by the failure to replant in recent years. The small manufacturing sector has continued to suffer from an unreliable supply of domestic utilities and a virtual absence of foreign investment. However, in the logging sector, there has been a substantial rise in production in those regions that have been unaffected by rebel activity, and growth has continued in the informal and services sectors, including mobile telephones.

Despite some appreciation of the exchange rate during the last quarters of 2001 and 2002, the Liberian dollar has been on a steep downwards trend, declining by 34 percent in terms of the US dollar in the two years to end-December 2002. With many prices denominated in US dollars, which is legal tender in Liberia alongside the Liberian dollar, consumer prices have risen sharply and the 12-month inflation rate spiked above 20 percent in March 2002.

The fiscal position has continued to deteriorate. Total government revenue (including grants) is estimated to have declined by around 13 percent in fiscal year 2001/02, to US$72 million. No grant income was received by the government, and the only buoyant areas of revenue were stumpage fees on timber production and (in the first half of 2002) transfers from the maritime agency. The slowing economy and tax derogations appear to have substantially depleted other tax receipts. In order to ensure a fiscal outcome near to balance in cash terms in 2001/02, nonmilitary expenditure was heavily reduced, and further domestic and external arrears were accumulated. The adverse revenue trends continued through the remainder of 2002, resulting in a further pruning of spending on health, education, and other social services. For calendar year 2002, total government revenue fell to 12.9 percent of GDP from 15.8 percent in 2000, and current expenditure dropped to 4.6 percent of GDP from 9.8 percent over the same period. Wage and salary payments to government employees were eight months in arrears in December 2002.

Tax policy performance and expenditure control have continued to be weak. There have been no moves to increase the taxes levied on the substantial monopoly rents earned in the rice and petroleum sectors as a result of government regulation and bureaucratic discretion, while government spending has been authorized and tax credits have been issued without apparent enforcement of appropriate budgetary procedures. Accountability for the principal off-budget agencies has been extremely limited.

The adverse fiscal position of the central government and central bank has continued to dominate monetary developments. Liberian currency in circulation rose by 14 percent in the 12 months to September 2002 and total reserve money grew by 10 percent. The Liberian dollar component of the broad money supply rose by 17 percent. Total broad money M2 (which includes bank deposits denominated in U.S. dollars, but excludes U.S. banknotes) rose by 33 percent, reflecting in part the depreciation of the Liberian dollar by 29 percent in terms of the US dollar through the period. Holdings of foreign currency by the Central Bank of Liberia (CBL) remained in the range of US$1.5 million-2 million.

The profitability and asset quality of the commercial banks continued to be under pressure as the deteriorating economic environment caused some rise in nonperforming loans, the government failed to pay interest due, and new restrictions were placed on banks' lending rates. The central bank set a limit of 10 percentage points on the spread that could be earned on the interest rates charged on lending above the weighted average cost of funds, with an absolute ceiling on lending rates of 18 percent. In December 2002, the CBL reimbursed L$55 million to depositors at the Liberian United Bank (LUBI), which had been seized in April 2000, and simultaneously issued certificates of deposit (CDs) of equivalent value to four private companies. The three-month CDs will not accrue interest, but they will be repayable in U.S. dollars at a fixed rate substantially more beneficial than that ruling at the issue date, thus providing a guaranteed annualized rate of return in U.S. dollars, which the CBL estimates at 33 percent. The CDs give rise to a multiple currency practice subject to Fund approval.

Liberia's external current account balance (including grants) improved substantially in 2002, to an estimated deficit of 5.1 percent of GDP, compared with a deficit of 20.6 percent of GDP in 2001. Merchandise exports rose by some 3.6 percent of GDP, owing to a higher rubber price and the substantial increase in timber production. In contrast, the deterioration in the security situation and border closures led to a sharp decline in goods imports of an estimated 4.5 percent of GDP. Liberia has been subject to UN sanctions, which prohibit arms imports and diamond exports, since May 2001. Liberia's external debt amounted to close to US$2.8 billion at end-2002 (498 percent of GDP), of which US$2.5 billion was in arrears.

The government has retained a strong influence on key domestic markets, including the imposition of maximum retail prices on the three products that dominate the monetized part of Liberia's domestic economy: rice, petroleum products, and cement. Rice and petroleum prices, net of tax, are substantially higher than in neighboring countries; petroleum imports are restricted to a single supplier; de facto restrictions still seem to have limited entry to the rice market; and the single cement producer has benefited from a range of tax concessions and restrictions on imports. However, the government has recently issued press advertisements confirming the freedom of rice importation from government restriction and has removed the derogation against the goods and services tax for domestically produced cement.

Liberia has been in continuous arrears to the IMF since December 1984. At the end of January 2003, Liberia's arrears to the IMF amounted to SDR 498.1 million (US$681 million). Liberia was declared ineligible to use the general resources of the IMF on January 24, 1986, and a declaration of noncooperation with respect to Liberia was issued on March 30, 1990. On February 25, 2002, the Executive Board of the IMF decided that the procedure to suspend Liberia's voting and related rights in the Fund be initiated.

Executive Board Assessment

Directors noted with great concern the continued deterioration in the Liberian economy during 2002: GDP growth had slowed further; inflation had been high and volatile; and the exchange rate had depreciated substantially. Moreover, poverty remained widespread, only rudimentary social services were being provided, and arrears in government wages and salaries could not be reduced.

Directors observed that the deepening domestic conflict had displaced large numbers of the rural poor in 2002, had reduced economic activity, notably in rice production and manufacturing, and had dampened timber and rubber exports. Together with persistent weaknesses in governance, transparency, and the rule of law, the conflict had further eroded international confidence, causing foreign direct investment virtually to dry up and leading to a cessation of donor assistance to the government. U.N. sanctions remain in place.

Directors expressed concern about the dire prospects facing the economy. Without progress on the security situation, substantial progress in macroeconomic stabilization and structural reforms, and improvements in governance, growth prospects would be entirely dependent on the output of the timber sector in regions unaffected by the conflict. At the same time, timber production might need to be restrained in order to ensure environmental viability and the long-term sustainability of the sector. Also, rubber production will be constrained by the failure to rejuvenate plantations in recent years. For 2003, GDP growth is expected to decline, with little prospect of improvement in subsequent years, and GDP per capita will remain amongst the lowest in the world. The country's widespread poverty and social needs are thus not likely to be addressed.

Directors acknowledged that the authorities had taken some positive steps notwithstanding the deteriorating security situation in the country, including structural measures regarding the corporate and shipping registries, financial auditing of the petroleum company, the ending of the concession against the goods and services tax for domestically-produced cement, and the confirmation of liberalization of trading in the rice market. Directors nevertheless expressed disappointment that several other long-overdue reforms—identified again at the last Article IV consultation—had not been taken. They stressed the importance of increasing revenue and improving fiscal transparency. Full financial audits of maritime, timber and petroleum operations should be undertaken; petroleum product taxation increased; and the cash balances of all government agencies should be transferred to the central bank. Exemptions and allowances against taxes and duties should be reduced, and the accuracy of valuations improved, particularly in respect of the logging industry. Consideration should be given to increasing tax rates on discretionary consumer goods and services, such as cellular telephone usage.

Directors expressed serious concern about the composition of public spending and the inadequate level of monitoring, transparency, and control. About half of budgeted expenditure for the current fiscal year is allocated to capital spending, and most appears to be related to security outlays. The granting of tax offsets to private companies for work they performed on capital and other projects should be discontinued, as it undermines the tender process and effective project costing, and is open to abuse. The expenditure of the off-budget agencies, including particularly the Forestry Development Authority, the Bureau of Maritime Affairs, and the Liberian Petroleum Refining Corporation, should be brought urgently into the budget authorization process to strengthen accountability and discourage the misappropriation of funds.

Directors observed the close association in the last two years between increases in reserve money, the depreciation of the Liberian dollar, and surges in the domestic price level, which pointed to the need to improve monetary policy execution. Directors emphasized the need to ensure that decisions of the central bank concerning financial instruments, foreign exchange sales, and regulations on commercial banks are based on sound economic principles, and are free of conflicts of interest. The central bank's decision in 2002 to issue certificates of deposit with above-market repayment terms to selected private creditors should not be repeated; these certificates were expensive to the central bank and gave rise to a multiple currency practice.

Directors welcomed the government's public statement that rice importation is free of restrictions, but stressed the need to remove quickly the import monopolies for petroleum and cement, which have provided monopoly rents to private individuals and led to high prices to consumers.

Directors again drew attention to weaknesses in the collection, compilation and dissemination of statistics, including errors in the monetary data, the use of outdated weights in the consumer price index, incomplete production and balance of payments data, and unreliable reporting to the Fund.

Directors reviewed Liberia's overdue financial obligations to the Fund, and regretted that Liberia's cooperation with the Fund had not improved since the last review. Accordingly, the Executive Board decided to suspend Liberia's voting and related rights in the Fund, with immediate effect. Directors urged the authorities to take necessary steps to strengthen Liberia's cooperation with the Fund, including through policy action and increased monthly payments to the Fund. They noted in this regard the authorities' intention to increase payments to the Fund starting in July 2003. Directors emphasized that they stood ready to reinstate Liberia's voting and related rights once there was evidence that its cooperation with the Fund had improved significantly. The decision on suspension will be reviewed in six months' time.

Liberia: Selected Economic and Financial Indicators










(Annual percentage change)

Output and Prices


Real GDP




Consumer prices (annual average)





(In percent of GDP)

Central government


Total revenue and grants




Of which : tax revenue




Total expenditure and net lending (cash basis)




Of which : current expenditure




capital expenditure




Overall fiscal balance (cash basis)





External sector


Current account balance, including grants (deficit, -)




Current account balance, excluding grants (deficit, -)




Trade balance (deficit, -)




Exports, f.o.b.




Imports, c.i.f.




Public sector external debt outstanding





(In millions of U.S. dollars)

Current account balance including grants (deficit, -)




Trade balance (deficit, -)




Nominal GDP





(Liberian dollars per U.S. dollar)

Official exchange rate (end of period)





Sources: Liberian authorities; and IMF staff estimates.


1 Under 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.


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