IMF Executive Board Concludes 2012 Article IV Consultation with Liberia

Public Information Notice (PIN) No. 12/143
December 14, 2012

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 November 19, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Liberia.1

Background

Since the last Article IV consultation concluded in December 2010, prudent fiscal policy and strengthened public financial management have contributed to a near doubling of government revenue, resumption of direct budget support, and initiation of significant infrastructure development projects without accumulation of expenditure arrears. Monetary policy has focused on accumulating reserves, which sizably outperformed expectations during the period. Financial policies focused on strengthening the banking system and promoting intermediation.

Economic activity remains robust in 2012, with inflation moderating at or near single digits and the exchange rate is stable. Following resumption of iron ore exports in 2011—for the first time since the end of the civil war—real GDP growth is estimated at close to 9 percent in 2012, driven by mining, construction, and services albeit growth in agriculture and forestry remains sluggish. Foreign direct investment is increasing. Following spikes in food and fuel prices in 2011 and early 2012, U.S. dollar-denominated inflation declined to under 4 percent by end-June and is expected to remain in single digits through end-2012. The trade deficit has widened since 2010 reflecting concession-financed capital imports and rising food and fuel import prices which more than offset the increase in iron ore exports. Reserve coverage has remained relatively stable at about 2½ months of imports.

While medium-term prospects are bright, notably in the commodity export sectors, broad-based growth is necessary to reduce high levels of underemployment and widespread poverty. To this end, the authorities’ draft second poverty reduction strategy focuses on achieving accelerated broad-based growth through scaling up of investment in infrastructure and human capital, raising agricultural productivity, employment creation, especially youth employment, and deepening financial markets. To support this strategy, efforts are needed to create fiscal space for higher capital spending by containing personnel costs and other current transfers, while future commodity revenues would need to be channeled to infrastructure financing and capacity building to enhance competitiveness. Financial sector development and improving access to credit would help support the private sector. Further reforms are necessary to improve public financial management, governance, and the business environment.

Executive Board Assessment

Executive Directors welcomed Liberia’s progress in improving macroeconomic and social conditions under the recently concluded Extended Credit Facility (ECF) arrangement. Directors noted that the economic outlook is favorable, but that daunting policy challenges remain, including safeguarding macroeconomic stability and strengthening the foundation for broad-based and lasting growth.

Directors emphasized the need to expand fiscal space for infrastructure and social spending. They considered that the FY2012/13 budget is appropriately focused on increasing public investment, but called for additional efforts to contain current spending beyond the recently adopted rule for public sector wages.

More broadly, Directors highlighted the need to strengthen public financial management and address capacity constraints that hamper capital spending. They stressed the importance of keeping external borrowing within sustainable levels, seeking external concessional financing, and strengthening the management of foreign aid. Directors also recommended putting in place a framework for managing natural resource revenue, which would bolster Liberia’s ability to cope with export price volatility and improve governance.

Directors supported efforts to strengthen the implementation of monetary policy. They welcomed the authorities’ pursuit of de-dollarization and their plans to improve liquidity management through the issuance of treasury bills. Directors also saw merit in increasing official foreign exchange reserves as a buffer against shocks.

Welcoming the authorities’ progress in implementing risk-based supervision and improving the payments system, Directors highlighted the importance of further promoting financial intermediation. Directors expressed concerns, however, about elevated non-performing loans in the banking system, and called for heightened vigilance by the authorities.

Directors agreed that accelerated structural reforms on a broad front remain essential to raise Liberia’s growth path and reduce poverty. Steps to improve the business climate and lay the groundwork for private sector development and employment remain a top policy priority.


Liberia: Selected Economic and Financial Indicators, 2009–13
 

 

 

2009 2010 2011 2012 2013

 

      Proj. Proj.
 
  (Annual percentage change, unless otherwise indicated)

National account and prices

         

Real GDP

5.3 6.1 8.2 8.9 8.3

GDP deflator (US dollars)

-1.7 5.4 10.6 5.0 1.1

Nominal GDP (millions of US dollars)

1,155.1 1,291.9 1,545.4 1,767.5 1,934.4

Consumer prices (annual average)

7.4 7.3 8.5 6.6 5.6

External sector

         

Exports, f.o.b.

-39.7 40.4 77.0 23.8 14.3

Imports, f.o.b.

-19.0 17.4 49.9 33.3 16.1

Terms of trade (deterioration -)

-9.2 76.8 16.1 -24.1 -2.5

Average exchange rate (local currency per U.S. dollar)

68.3 71.4 72.2

Gross official reserves (millions of US dollars)

312.2 391.4 425.1 452.0 462.0

Import coverage of reserves (months) 1

3.2 3.5 2.9 2.2 2.1

Central government operations 2

         

Total revenue and grants

13.5 22.6 30.2 23.0 9.7

Of which: total revenue

5.2 30.2 21.7 29.3 6.5

Total expenditure and net lending

26.3 13.4 35.7 34.3 19.9

Of which: current expenditure

24.2 16.4 23.5 44.3 5.9

capital expenditure

41.5 -6.2 131.7 -7.8 111.8

Money and credit

         

Reserve money

12.4 33.9 49.7 13.8 12.1

Broad money (M2) 3

36.7 35.4 34.6 17.4 12.6

Credit to private sector

31.5 40.1 32.4 14.4 9.4
  (Percent of GDP)

External sector

         

Current account balance

         

(including official grants)

-28.8 -32.8 -34.1 -52.4 -62.4

(excluding official grants)

-148.2 -152.0 -149.3 -131.5 -97.4

Trade balance

-36.4 -35.5 -40.7 -49.5 -53.0

Exports, f.o.b.

13.3 16.7 24.6 26.7 27.9

Imports, f.o.b.

-49.7 -52.2 -65.4 -76.2 -80.9

Central government operations 2

         

Total revenue and grants

20.7 23.5 26.4 27.8 27.3

Of which: total revenue

18.6 22.5 23.6 26.1 24.9

Total expenditure and net lending

21.9 23.1 27.0 31.0 33.3

Of which: current expenditure

18.9 20.5 21.8 27.0 25.6

capital expenditure

3.0 2.6 5.2 4.1 7.8

Overall fiscal balance (including grants)

-1.2 0.5 -0.6 -3.2 -6.0

Public external debt

145.4 8.8 10.7 12.1 14.8
 

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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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