IMF Executive Board Concludes 2010 Article IV Consultation with Liberia

Public Information Notice (PIN) No. 10/157
December 10, 2010

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 December 8, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Liberia.1


Since the last Article IV consultation at end-2008, the authorities have instituted far reaching institutional and legal changes in public financial management, debt management, budget process, tax policy, and tax administration. In the financial sector, a raft of legal and regulatory improvements was implemented aimed at strengthening financial sector stability, increasing intermediation, and expanding access to financial services. The Legislature has approved a comprehensive Public Financial management Act, a new Commercial Code, and significant changes to the Revenue Code.

The implementation of the Liberia Poverty Reduction Strategy (PRS) adopted in 2008 has been satisfactory. Implementation progress was slow during the first year but the authorities stepped up their efforts to bring PRS implementation back on track through a series of 90-day action plans. The second year implementation report of the PRS covering the period to April 2010 reports an increase of the implementation rate of deliverables to 80 percent, from 20 percent in the first year.

Over the past two years strong macroeconomic policies, strengthened institutions, and debt relief have stabilized the economy and supported confidence building. Many vulnerabilities remain.

While medium-term prospects are bright, notably in the commodity export sectors, broad-based growth is necessary to reduce high levels of under employment and widespread poverty. To this end, future commodity revenues would need to be channeled to infrastructure financing and capacity building to enhance competitiveness. Financial sector development would help support the private sector. Further reforms are necessary to remove structural impediments to growth, notably of property rights and land tenure.

After a slowdown in 2009, economic activity is strengthening in 2010 with subdued inflation and a stable exchange rate. Real GDP growth is expected to rise from 4½ percent in 2009 to 6 percent in 2010. Exports have rebounded on account of rising rubber and timber production. Foreign direct investment is on the upswing and new investment commitments have also increased following the ratification of several new iron ore and palm oil concession agreements.

Executive Board Assessment

Executive Directors commended the Liberian authorities for their continued satisfactory implementation of the Fund-supported program. Directors noted that the authorities’ prudent macroeconomic policies, strengthened institutions, and debt relief had contributed to macroeconomic stability and laid the basis for faster economic growth. They stressed that, while the medium-term prospects are generally favorable, reflecting the expected boost in mineral exports, significant challenges stemming from volatile commodity prices and large development needs will need to be tackled to put the economy on a sustainable, high growth path.

Directors supported the authorities’ new development strategy aimed at inclusive growth, capacity building, financial sector development, and infrastructure investment. They emphasized the importance of prioritizing infrastructure projects and safeguarding the recently-achieved debt sustainability. In this regard, it is critical to strengthen project implementation capacity, including in the areas of project appraisal, procurement, and execution, as well as internal audit and control. Directors also encouraged the authorities to focus greater attention on securing property rights, resolving land ownership disputes, and maintaining social stability.

Directors welcomed the authorities’ commitment to strengthen public financial management and limit debt creation. They saw scope for more effective engagement with bilateral and multilateral partners to generate infrastructure funding, as well as opportunities for greater involvement of the private sector in infrastructure provision. They stressed that future concession revenues should be deployed effectively to improve infrastructure and strengthen the human capital base.

Directors agreed that monetary policy should aim to sustain adequate foreign exchange reserves. They noted that the launch of the treasury bill market would improve liquidity management and boost demand for the use of the Liberian dollar. This in turn, should help broaden the scope for an active monetary policy. They agreed that enhancing Liberia’s export competitiveness could not be based on exchange rate adjustment, given the high level of dollarization in the economy, and encouraged the authorities to press ahead with the necessary structural reforms to improve the business climate.

Directors considered it important to strengthen the level of financial intermediation and services in support of private sector growth. They encouraged the authorities to seek solutions with the financial community to improve access to financial services. Directors noted that the successful conclusion of debt buyback with the remaining commercial creditors and the agreement with Paris Club creditors on the full cancellation of remaining debt had sharply reduced Liberia’s debt vulnerabilities. They urged that every effort should also be made to secure the remaining outstanding pledges from members towards the Fund’s contribution to debt relief for Liberia.

Liberia: Selected Economic and Financial Indicators, 2006–10
  2006 2007 2008 2009 2010
        Prel. Proj.
  (Annual percentage change, unless otherwise indicated)
National account and prices          
Real GDP 7.8 9.4 7.1 4.6 6.3
GDP deflator (US dollars) 3.5 12.0 7.3 -1.2 4.5
Nominal GDP (millions of US dollars) 603.8 739.9 850.7 879.0 976.6
Consumer prices (annual average) 7.2 13.7 17.5 7.4 7.4
External sector          
Exports, f.o.b. 44.1 28.6 22.2 -39.7 34.8
Imports, f.o.b 44.0 13.0 42.2 -20.6 16.8
Terms of trade (deterioration -) 54.5 -11.9 -8.1 -9.4 66.1
Average exchange rate (local currency per U.S. dollar) 58.0 61.3 63.2 68.3
Gross official reserves (millions of US dollars) 46.5 85.3 107.8 312.2 317.1
Import coverage of reserves (months) 1/ 0.5 0.8 0.8 3.2 2.6
Central government operations 2/          
Total revenue and grants 6.5 73.3 39.5 13.5 22.6
   Of which: total revenue 6.6 73.6 36.7 5.2 30.2
Total expenditure and net lending -19.5 100.2 60.2 26.3 13.4
   Of which: current expenditure -12.0 84.1 62.9 24.2 16.4
      capital expenditure -65.5 354.3 43.4 41.5 -6.2
Money and credit          
Reserve money 23.9 26.7 13.1 12.4 -3.2
Broad money (M2) 3/ 35.1 43.2 45.7 37.7 1.9
Credit to private sector 41.7 39.2 44.1 31.5 11.1
  (Percent of GDP)
External sector          
Current account balance          
   (including official grants) -13.9 -31.4 -57.3 -36.8 -40.4
   (excluding official grants) -199.6 -177.9 -185.3 -148.2 -152.0
Trade balance -46.3 -39.3 -53.4 -46.6 -46.1
   Exports, f.o.b. 26.8 28.1 29.9 17.4 21.2
   Imports, f.o.b -73.1 -67.4 -83.3 -64.0 -67.3
Central government operations 2/          
Total revenue and grants 14.9 22.1 26.0 27.2 31.0
   Of which: total revenue 14.8 21.9 25.2 24.4 29.6
Total expenditure and net lending 10.7 18.3 24.8 28.8 30.4
   Of which: current expenditure 10.1 15.8 21.8 24.9 27.0
      capital expenditure 0.6 2.5 3.0 3.9 3.4
Overall fiscal balance (including grants) 4.2 3.8 1.2 -1.6 0.6
Public external debt 783.7 594.5 376.6 190.9 8.9

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

1/ Excluding imputed UN military services imports.

2/ Fiscal year ending in June on a cash basis (debt service payments shown after all debt relief).

3/ Defined as Liberian currency outside banks plus demand, time, and savings deposits in Liberian and US dollars.

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. An explanation of any qualifiers used in summings up can be found here:


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