Public Information Notice: IMF Discusses Liberia's Post-Conflict Conditions and Economic Program for 2004/05

December 3, 2004

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.

On October 20, the Executive Board of the International Monetary Fund (IMF) concluded the discussion of a report on Liberia's post conflict conditions and economic program for 2004/05.


The signing of a peace agreement in August 2003 ended fifteen years of intermittent civil wars. A two-year transitional government, with participation of all previously warring factions, was subsequently established, with a mandate to rebuild some institutional capacity and to prepare the country for elections in October 2005. The security situation has improved with the deployment of 15,000 UN peace-keepers and the demobilization of 65,000 combatants.

Following the severe contraction of the GDP in the second half of 2003, the economy has started to recover owing to donor support and related manufacturing and services activities.

Real GDP is projected to increase by about 21 percent in the second half of 2004, compared to the second half of 2003. It is expected to expand further, although at a slower pace, in the first half of 2005, driven by increasing donor support and a partial recovery of agriculture activities.

A basic economic program for the first half of 2004 was successfully implemented. A cash-based budget was executed, without recourse to domestic financing. Revenue-enhancing measures boosted revenue, and some steps were taken to strengthen the budget process, including expenditure controls. On the monetary side, the Central Bank of Liberia (CBL) succeeded in accommodating the increase in demand for local currency without affecting the exchange rate; reserves recovered modestly. More recently, first steps were taken toward a more transparent and market-based framework for the operations of the banking system, including the introduction of foreign exchange auctions and the removal of ceilings on lending rates. Misinformation issues at the CBL were swiftly resolved in cooperation with external partners.

For 2004/05, the authorities have agreed on a macroeconomic framework geared toward creating a stable environment and a further build up of international reserves. The budget for 2004/05 continues to be cash-based, without recourse to domestic financing. Spending plans are geared toward some social projects, reestablishment of security and the justice system, and some repayments of domestic arrears. While the scope for monetary policy continued to be constrained by the high degree of dollarization, the authorities intend to further develop instruments of monetary policy that are expected to be utilized when the scope of monetary policies broadens with the expected continued increase of demand for local currency.

In the area of governance, the authorities intend to implement the final steps to liberalize petroleum product imports, with technical support from the World Bank. In cooperation with external partners, they are also working on measures that could lead to the lifting of sanctions on timber exports.

The authorities have adopted a focused agenda aimed at putting the country firmly on the road to recovery. The agenda aims at reestablishing a transparent budget process; accountable revenue-generating agencies; and a market-based and transparent framework for the operations of the CBL and banking system.

Recent slippages in the fiscal and monetary areas are a concern. The emergence of domestically financed budgetary deficits and measures that led to higher expenses at the CBL have put undue pressures on the financial position of the banking system and underscore the need to make expenditure controls fully effective. The IMF is working with the authorities on a package of corrective measures.

Liberia has been in continuous arrears to the Fund since 1984. A declaration of noncooperation was issued in 1986, and the country's voting and related rights were suspended in March 2003. At end-July 2004, Liberia's arrears to the Fund amounted to SDR 506 million or 709 percent of quota.

Executive Board Assessment

Directors welcomed the improvements in the security situation in Liberia and the incipient recovery of the economy. They noted that, despite a difficult political environment and capacity constraints, the authorities have made overall progress in implementing some key reforms and in strengthening cooperation with the Fund.

Directors commended the authorities for the successful implementation of the basic economic program for the first half of 2004, based on a cash-based budget without recourse to domestic financing. They welcomed further steps to improve the budget process and the operating framework of the Central Bank of Liberia (CBL), including the recent introduction of foreign exchange auctions and the removal of ceilings on lending interest rates. However, Directors regretted the slippages since June 2004 caused by additional spending and the reemergence of a cash deficit financed domestically, which could undermine the reform process and complicate the mobilization of additional donor support. Directors therefore welcomed the authorities' determination to put the fiscal program back on track.

Directors endorsed the macroeconomic framework for 2004/05. They underscored the importance of maintaining a cash-based budget to foster fiscal discipline, and welcomed the increased outlays on social programs, security and the justice system, and some clearance of domestic arrears. They called on the Cash Management Committee to fulfill its responsibilities to implement policies in a consistent way so as to prevent the circumvention of agreed procedures. Directors encouraged the authorities to develop an equitable strategy for the settlement of domestic arrears, including an appropriate balance in the treatment of domestic and external arrears. They strongly cautioned against resorting to domestic borrowing in light of the arrears, and the financial fragility of the CBL and the domestic banking system.

Directors noted that the high degree of dollarization continues to limit the scope of monetary policy, but encouraged the authorities to develop monetary policy instruments with external assistance. They expected that the strong increase in demand for local currency would allow monetary policy to become more active over time. They called on the CBL to redouble its efforts to strengthen its financial position, and to lay the ground for effective banking supervision in anticipation of a recovery of the financial sector.

Directors stressed that the recent slippages in the financial management of the CBL and irregularities in the accounting of official reserves and data provided to the Fund represent a setback to the authorities' reform agenda and to the strengthening of cooperation with the Fund. At the same time, they were encouraged that the authorities had taken immediate steps to restore confidence in the CBL's information systems, in full cooperation with external partners. They urged the authorities to continue to work closely with the Fund on corrective measures, and encouraged efforts to ensure the full and timely implementation of understandings reached with the staff.

Directors concurred that the authorities' focused and ambitious reform agenda through end-2005 would help put the country firmly on the road to recovery. The re-establishment of a transparent budget process, accountable revenue-generating agencies, and a transparent and market-based framework for the operations of the CBL and the financial system would help achieve irreversible positive changes in key economic institutions. Directors emphasized the importance of close cooperation between the authorities and external partners, and the development of concrete and time-bound action plans, to support effectively the government's proposed reform agenda. They noted that technical assistance to Liberia would continue to be needed to strengthen institutions and macroeconomic management, and they supported the authorities' request for technical assistance from the Fund, in particular to improve statistical reporting.

Directors expressed their willingness to consider the initiation of the process of de-escalation of remedial measures related to Liberia's overdue financial obligations to the Fund once steps to reverse recent policy slippages are fully implemented, and understandings on a staff-monitored program for 2005 are reached. In this context, a number of Directors expected the authorities to consider increasing the monthly payments to the Fund as the international reserves position improves.

Liberia: Selected Economic and Financial Indicators, 1999-2004





2004 Jan-Jun

2004 Jul-Dec







(Annual percentage change, unless otherwise indicated)

Output and prices


Real GDP 1/






Consumer prices (annual average)







(In percent of GDP)

Central government operations (calendar year)


Total revenue and grants






Of which: tax revenue






Total expenditure and net lending






Of which: current expenditure






Capital expenditure






Overall fiscal balance (cash basis)







External sector


Current account balance, including grants (deficit, -)






Of which: public interest payments due






Current account balance, including grants (deficit, -)






Trade balance (deficit, -)






Exports, f.o.b.






Imports, c.i.f.






Public sector external debt outstanding (total)







(In millions of U.S. dollars, unless otherwise indicated)

Current account balance including grants (deficit, -)






Trade balance (deficit, -)






Nominal GDP






Official exchange rate

(Liberian dollar per U.S. dollar; end of period)






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

1/ For 2004, growth rates compared to previous semester.


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