Liberia: Second Review Under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of Performance Criteria and Modification of a Performance Criteria

Publication Date: December 19, 2013
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Summary: KEY ISSUES Context: Real GDP growth is projected to remain robust at 8.1 percent in 2013, led by mining, construction, and services. Inflation should reach 8.5 percent in December (y/y) due to higher international food prices and recent exchange rate pressures. The baseline outlook is positive, with new mining projects and plantations due to start operations in the coming years. Downside risks stem from delays in public investment, and uncertainty linked to the weak external environment. Accelerating implementation of the authorities’ poverty reduction strategy, the Agenda for Transformation, and in particular road and energy projects, is key to boosting growth in the non-mining sector and reduce poverty. Policies: Fiscal policy focuses on scaling-up public investment while maintaining debt sustainability and strengthening project execution capacity. Budget implementation has improved, but weaknesses in liquidity management have led to repeated spending overruns in FY2012 and FY2013. After delays in securing external financing, recent agreements bring debt close to the program limits. The monetary and exchange rate policy framework needs to be strengthened. In the highly dollarized setting, an increase in government spending in Liberian dollars led to exchange rate and inflation pressures. In the context of the recent launch of both T-bills and CBL bills, improved liquidity management and forecasting would be key steps towards establishing a monetary policy anchor. The authorities continue to make headway with their structural reform agenda. The Project Management Unit will help ensure readiness and quality of investment projects. Progress towards a Treasury Single Account continues, albeit with delays. The creation of the Liberia Revenue Authority will help strengthen tax administration. Program performance: Program performance has weakened relative to the previous review, as well as the former ECF-supported arrangement. Three out of six performance criteria (PCs) and two out of four indicative targets (ITs) were missed. Although deviations from two PCs were only minor, foreign reserves fell below the program floor by US$14 million, reflecting the CBL’s larger sales of U.S. dollars to mitigate exchange rate pressures, the launch of a new credit stimulus scheme, and high operational expenditures. Four out of eight structural benchmarks were met, including two with delays; three are proposed to be re-set, and one (on procurement plans) became a prior action. An update of the 2011 safeguards assessment has been completed.
Series: Country Report No. 13/365
Subject(s): Extended Credit Facility | Economic growth | Public investment | Fiscal policy | Budgets | External borrowing | Debt management | Monetary policy | Foreign exchange reserves | Performance criteria modifications | Performance criteria waivers | Liberia

Publication Date: December 19, 2013
ISBN/ISSN: 9781484311523/1934-7685 Format: Paper
Stock No: 1LBREA2013002 Pages: 106
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