IMF Executive Board Fully Restores Liberia's IMF Status, Approves Financial Support Amounting to US$952 Million and HIPC Decision Point DesignationPress Release No. 08/52
March 14, 2008
The Executive Board of the International Monetary Fund (IMF) today approved a range of measures to complete the steps necessary for Liberia to fully normalize financial relations after more than two decades of protracted arrears to the IMF. The Board decisions also enabled it to commit IMF financial support amounting to a combined SDR 582 million (about US$952 million), and to agree in principle to designate Liberia as a Decision Point country under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
Normalization of relations includes the Executive Board's agreement to restore Liberia's voting and related rights, and its decision to restore Liberia's eligibility to use the general resources of the Fund. The suspension of Liberia's rights to use SDRs was also lifted after overdue obligations to the IMF were cleared through a bridge loan amounting to an equivalent to SDR 543 million (about US$888 million).
Financial support approved by the Executive Board includes a three-year, SDR 239.02 million (about US$391 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) and a SDR 342.77 million (about US$561 million) arrangement under the Extended Fund Facility (EFF) in support of the Liberia government's economic program covering 2008-10.
The Executive Board's decisions allow an immediate disbursement to Liberia of an amount equivalent to SDR 550.03 million (about US$900 million) under the arrangements. The remaining SDR 31.76 million (about US$52 million) will be drawn in six installments.
Executive Directors also agreed that Liberia has taken the steps necessary to reach the Decision Point under the enhanced HIPC Initiative. A separate press release regarding these deliberations will be issued jointly with the World Bank following consideration of the HIPC Decision Point by the Bank's Executive Board, which is expected early next week.
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty and reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.
Assistance under the EFF is given to IMF member nations with economies suffering from serious balance of payment difficulties caused by structural imbalances in production, trade and prices. Or alternatively, to those countries whose economies are characterized by slow growth and an inherently weak balance of payments position. Drawings can be made over a period of three years under conditions similar to IMF standby drawings.
At the conclusion of the IMF Executive Board's discussion of Liberia's relations with the Fund and the country's requests for three-year arrangements under the PRGF and EFF, Mr. Murilo Portugal, Deputy Managing Director and Acting chair, issued the following statement:
"Liberia reached an important milestone today in normalizing its financial relations with the IMF by clearing its long overdue financial obligations. Bridge loans by the United States Government to the Government of Liberia helped to clear its arrears to the IMF and pay for its quota increase under the 11th General Review. A large number of IMF member countries contributed to the financing package required for the IMF to provide debt relief to Liberia.
"Liberia has continued to make satisfactory progress in implementing its IMF staff-monitored program. This has helped to maintain macroeconomic stability, support the economic recovery, and strengthen public financial management and the financial sector. Liberia's medium-term economic policy framework, to be supported by arrangements under the IMF's Poverty Reduction and Growth Facility and Extended Fund Facility, is appropriately aligned with the government's poverty reduction strategy. The government's reform objectives are ambitious, and will require continued strong commitment to the economic program to ensure achievement of key benchmarks. Continued financial and technical support from the international community will be important to support the government's efforts.
"Over the past two years, Liberia has strengthened public expenditure management and financial transparency, and increased government revenues. Further efforts are required to improve budget implementation without weakening the procedures for approving, controlling and monitoring spending. Adoption of a comprehensive public financial management law will be an important step in this regard, and would allow for further improvements in budget preparation and implementation and a more efficient allocation of government resources to achieve Liberia's poverty reduction goals.
"Liberia has also made good progress in strengthening governance. An important step in this regard was the adoption of a comprehensive anti-corruption strategy by the government. Finalization of legal and other arrangements for establishing an independent anti-corruption commission, as called for in the government's economic strategy, is important to firmly establish an environment of zero tolerance for corruption.
"Liberia's monetary policy is anchored on seeking to maintain broad exchange rate stability. However, in view of the still-low level of international reserves, continued efforts to strengthen the available instruments for managing domestic liquidity will be important.
"Liberia has fulfilled the requirements to reach the decision point under the Enhanced HIPC Initiative. Liberia could reach the HIPC Initiative completion point following satisfactory performance under the Fund-supported program, implementation of the poverty reduction strategy for at least one year, and implementation of proposed measures in public financial management, the social sectors, debt management, and governance," Mr. Portugal stated.