Statement by the IMF Article IV Mission to LiberiaPress Release No. 06/41
March 1, 2006
The following statement was issued today in Monrovia by Mr. Robert Powell, the International Monetary Fund (IMF) mission chief for Liberia:
"An IMF mission visited Monrovia during February 16-March 1, 2006 to conduct the 2006 Article IV discussions with the Liberian authorities. The mission exchanged views on recent economic developments with Minister of Finance, Antoinette Sayeh, Minister of Planning and Economic Affairs, Togah McIntosh, Acting Governor of the Central Bank of Liberia (CBL), Richard Dorley, other senior government officials, local donor representatives, the Liberia Chamber of Commerce, and representatives of civil society. The mission team is encouraged by the initial policy steps being undertaken by the authorities to address the daunting economic challenges facing the country. The mission has agreed, in principle, with the authorities on a Staff-Monitored Program (SMP) for the period through September 2006.
"The Liberian economy continues its modest recovery led mainly by donor-related inflows and a gradual improvement in security in rural areas. Real GDP growth is estimated at about 5 percent in 2005, up from an estimated 2.6 percent growth in 2004. For 2006 and the medium term, further economic growth recovery is anticipated as the pace of economic reforms gain momentum. The volatility in prices and the exchange rate declined in 2004-05 following the cessation of hostilities in mid-2003. Recently, however there have been signs of a rise in prices, in part reflecting the increased donor presence. Exports remain well below their level before the most recent episode of conflict, in part because of the sanctions on timber exports. Imports have, however, risen sharply, fueled by donor assistance. Liberia's external debt has been in arrears for more than two decades, and is unsustainable; at end-2005, the ratio of debt to exports was estimated at about 2,600 percent.
"Fiscal management deteriorated markedly in the run-up to the formation of the new government. Revenue collection stagnated, largely reflecting a breakdown of controls in customs, while expenditure decisions were taken in a non-transparent manner, circumventing the Cash Management Committee. Excessive allotments granted for some ministries and the indiscriminate issuance of vouchers by line ministries led to a cash deficit. As a result, sizeable domestic arrears have been accumulated. Economic governance remained a concern in 2005 as new concessions and contracts, mainly associated with natural resources, were granted in a non-transparent manner in recent years and on terms unfavorable to the government. In response to the deepening governance concerns, the National Transitional Government of Liberia (NTGL) agreed with international partners in September 2005, on a framework for a Governance and Economic Management Program (GEMAP) aimed at strengthening economic governance in key public institutions.
"The mission welcomes the government's endorsement of GEMAP and is encouraged by the initial actions taken since its inauguration to improve public financial management. These actions include enforcement of pre-shipment inspections, more prudent allotments by the Bureau of the Budget for line ministries in close collaboration with the Ministry of Finance, reestablishing the Cash Management Committee to contain expenditures within available cash revenues, as well as initiating a review of all concessions and contracts signed by the NTGL. The CBL is also taking steps to strengthen its budgetary management.
"A key element of the government's strategy in the short run will be to achieve significant progress in rebuilding key government institutions. This includes putting in place a functioning budgetary process, including planning, execution, internal controls, and regular reporting, as well as strengthening the main revenue-generating agencies so that they can fulfill their role in a fully transparent and accountable fashion.
"The mission discussed with the government its plans for a program of short-term reconstruction and development priorities for the remainder of the fiscal year through end-June 2006. The SMP draws on, and is consistent with these plans. Under the SMP, the government has agreed with IMF staff specific quantitative targets and structural benchmarks for the period through end-September aimed at further strengthening fiscal management and the financial operations of the central bank and improving economic governance. The government has also indicated its intention to develop an anti-corruption strategy in collaboration with international donors.
"In the coming months, the mission will review progress under the SMP and discuss with the government its plans for a poverty reduction strategy and for the 2006/07 budget. A substantial reduction in Liberia's external debt burden will be an important element in the country's medium-term economic strategy. While it is too early to be precise about a timetable for debt relief for Liberia, successful implementation of the SMP is an important first step in achieving this goal."