## 1lbrea2019002

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### EXECUTIVE SUMMARY — context, request, and main commitments
- Context
  - Resource constraints, macroeconomic imbalances, and longstanding fragility challenge efforts to improve living standards.
  - Election-related spending pressures and shortcomings in execution weakened governance and fiscal management.
  - Consensus on broad-based reform led to a request for Fund-supported program.
- Request
  - Authorities requested Fund support: a four-year arrangement under the Extended Credit Facility (ECF) of SDR155 million (60 percent of quota).
  - Arrangement aims to: restore macroeconomic stability; provide a foundation for sustainable growth; address weaknesses in governance.
- Main policy commitments
  - FY2020 credible budget that consolidates public finances, including rightsizing compensation of employees and comprehensive civil service reform while protecting critical social spending.
  - Improved fiscal monitoring and control systems implemented.
  - Intent to mobilize domestic revenue beyond FY2020.
  - Monetary policy: significant tightening in 2019 to reduce inflation.
  - External position: reduce the Central Bank of Liberia (CBL) operational deficit; enhance FX monitoring; improve FX auction structure and management.
  - Governance: central bank reforms and major legal changes to enhance independence.
- Risks
  - Program risks assessed as high; principal risks: expenditure overruns; domestic revenue shortfalls; monetization of fiscal deficits (recourse to CBL overdrafts); domestic payment arrears; high CBL operational losses; heightened civil unrest.
  - Program design includes prior actions, quantitative performance criteria (QPCs), and indicative targets to mitigate risks.
- Staff view
  - IMF staff supported ECF access at level requested and noted ECF disbursement would support adjustment efforts, catalyze donor grants, and provide a reform framework.

### RECENT ECONOMIC DEVELOPMENTS AND VULNERABILITIES
- Inflation and exchange rate
  - Inflation and exchange rate depreciation remained high at 30 percent as of end-September 2019.
  - Inflation rate remains on par with rate of depreciation at about 30 percent y-o-y in July 2019.
- Output and demand
  - Real GDP growth slowed in 2019; real GDP (annual percent change) series include: 2.5, 1.2, 0.4, -1.4, 1.6, 1.4, 3.4, 4.2, 4.9, 5.4.
  - Private sector credit growth series: 25.3, 4.7, 5.3, -0.3, 2.4, 1.3, 3.7, 4.5, 5.0, 6.2.
- Arrears and fiscal buffers
  - Domestic arrears at end-June FY2019 totaled US$90 million (2.8 percent of GDP); reconciled end-FY2019 arrears estimated at US$52 million (1.6 percent of GDP).
  - About half of the US$90 million were wage arrears, cleared by end-September by drawing on the CBL overdraft facility.
  - US$90 million (3 percent of GDP) of government deposits were spent in the last six months of 2018, leaving no fiscal buffers.
- Reserves and external buffers
  - Gross official foreign reserves fell from 2.4 months of import cover at end-2018 to 2.2 months in the first half of 2019.
  - Gross international reserves estimated at US$313 million at end-2018 (2.4 months of imports) and US$278 million (2.2 months) so far in 2019.
  - Note: gross reserves for end-2018 revised from US$358 million (Article IV) to US$313 million at the end-year external audit; vault cash revised from US$97 million to US$52 million following audit reclassifications.
- CBL operational expenses
  - CBL operational expenses (excluding cost of monetary operations) increased to US$39 million in 2019 (original budget), compared to US$23 million in 2018 (outturn), largely due to increased employment at the CBL.
  - CBL outstanding stock of government debt on its balance sheet estimated at US$497 million as of end-October 2019.

### PROGRAM OBJECTIVES, OUTLOOK, AND EXTERNAL SUPPORT
- Program focus
  - Restore macroeconomic stability while protecting the poorest; place Liberia on a fiscally sustainable growth path aligned with the PAPD; address governance and public sector institutional weaknesses.
- External support
  - Budget support grants anticipated for FY2020 total US$61 million, equal to 13 percent of domestic revenue.
- Macroeconomic projections under program
  - Real GDP growth projected to recover to above 5 percent in the medium term.
  - Inflation projected to decline to 15 percent within a year and reach single digits during the program period.
- Growth recovery caveat
  - Speed of growth recovery beyond 2020 depends on how quickly fiscal space is created for social and development spending given limited budget resources and the size of compensation of employees.

### FY2020 BUDGET EXECUTION — Q1 shortfalls and allotment dynamics
- Revenue shortfalls
  - Domestic revenue in FY2020Q1 (July–September 2019) fell short by about US$26 million versus projection.
  - As of end-October, the Liberia Revenue Authority (LRA) had collected US$123.7 million.
  - If underperformance continues, revenue shortfall versus approved budget could be as high as US$52 million, requiring a recast FY2020 budget and new high-quality revenue measures.
- Q1 allotment vs. revenue (US$ millions, FY2020 Budget)
  - Revenue by quarter: Q1 84; Q2 106; Q3 149; Q4 136; FY2020 total 474; Budget 526.
  - Domestic revenue by quarter: Q1 84; Q2 100; Q3 109; Q4 121; FY2020 total 413; Budget 465.
  - Budget support by quarter: Q1 0; Q2 6; Q3 40; Q4 15; FY2020 total 61; Budget 61.
  - Expenditure (allotment) by quarter: Q1 118; Q2 79; Q3 141; Q4 136; FY2020 total 474; Budget 526.
  - Compensation of employees by quarter: Q1 74; Q2 50; Q3 99; Q4 74; FY2020 total 297; Budget 297.
  - Other primary expenditure by quarter: Q1 25; Q2 13; Q3 34; Q4 45; FY2020 total 116; Budget 168.
  - Debt service by quarter: Q1 19; Q2 17; Q3 8; Q4 17; FY2020 total 61; Budget 61.
  - Primary expenditure (commitment) by quarter: Q1 55; Q2 107; Q3 133; Q4 119; FY2020 total 413; Budget 526.
- Execution dynamics
  - Q1 allotment (US$118 million) in line with budget but higher than revenue outturn (US$84 million), leading to held-back wage and other payments.
  - Q2 allotment shows sharp contraction: wages from US$74 million in Q1 to US$50 million in Q2; non-compensation primary expenditure from US$25 million in Q1 to US$13 million in Q2.
- Political and social pressure
  - Government determined to avoid arrears and central bank borrowing, but risk of slippages sizeable given pressure to clear wage arrears amid strikes and demonstrations.

### FISCAL POLICY, WAGE RATIONALIZATION, AND CASH MANAGEMENT
- Compensation of employees and civil service reform
  - Compensation of employees at end-FY2019: 10 percent of GDP, 4 percentage points above regional average, about US$120 million per year.
  - FY2020 prior action: total compensation of employees reduced by 10 percent (around 1 percentage point of GDP); compensation capped at US$297 million for FY2020.
  - Discretionary allowances (~60 percent of total compensation previously) eliminated and merged into civil service wage.
  - Civil service reclassification: graded 75,000 public employees; close to 30 percent registered with verified national identification repository number.
  - July and September adjustments: July—reduce pay above median to median and raise those below minimum wage of US$100 per month; September—those paid above $500 per month shared further cuts to reach US$297 million.
  - Centralization: wage payments centralized through the Civil Service Agency (CSA).
- Fiscal objective and QPC
  - Medium-term objective: reduce primary deficit (including off-budget transactions) from 5.2 percent of GDP (FY2019 estimate) to debt-stabilizing level of 2.5 percent of GDP over medium term.
  - A QPC set on primary fiscal balance excluding grants and off-budget transactions for program monitoring.
- Cash management and arrears strategy
  - Formal procedures established to ensure payment vouchers can be paid in full and on time.
  - Segregation of duties: Budget Department makes allotments; Fiscal Affairs issues financial budgets (cash release schedules).
  - Regular Liquidity Management Committee and Treasury Management Committee meetings established.
  - Weekly updated budget execution reports and cash plans submitted to staff since June 2019.
  - Ceiling on domestic arrears set under program; authorities establishing outstanding end-FY2019 arrears based on granular data and commit to verification by the General Audit Commission (GAC).
  - Modalities for clearing arrears to be decided with staff; could include budgetary provisions starting in FY2021 and securitization where necessary.

### REVENUE MOBILIZATION AND LRA PRIORITIES
- FY2020 revenue envelope and measures
  - Revenue envelope for FY2020 estimated at 16.8 percent of GDP: tax-to-GDP 12.5 percent; other revenue 2.4 percent; external budget support 2 percent.
  - Total proposed revenue measures: US$26.8 million, 0.9 percent of GDP.
- Selected revenue measures and amounts (Million U.S. dollars; Percent of GDP)
  - ECOWAS CET migration plan to Year 2: 6.00; 0.19
  - Implementation of the new excise law: 0.60; 0.02
  - State Owned Enterprises total: 11.74; 0.37
    - LIBTELCO: 1.89; 0.06 (modify revenue sharing ratio from 61/39 to 69/31)
    - LMA: 3.35; 0.11 (enforce collection; LMA supposed to pay minimum of about US$10 million annually and US$12 million additionally)
    - NPA: 5.00; 0.16
    - LAA: 0.50; 0.02
    - NaFAA: 1.00; 0.03
    - Royalty - Mittal: 3.00; 0.10 (modify royalty formula)
  - One-off measures total: 5.50; 0.17
    - Audit of the telecom: 1.00; 0.03 (technical audit expected in FY2020Q3)
    - Liberia Petroleum Refining Company: 2.00; 0.06 (budget support)
    - Collection of Road Fund Arrears: 2.40; 0.08
    - Administrative fees from MAC: 0.10; 0.00
- LRA administrative priorities (top three)
  - Establish one tax account per taxpayer per tax type and one return per tax type per period.
  - Provide and use an Information Technology Tax System (ITAS) fit for purpose.
  - Monitor and publish institutional performance through established KPIs at least quarterly.
- Tax policy potential (FAD TA findings)
  - Short- to medium-term options amounting to about 3 percent of GDP (annual impact: FY18/19 terms): up to 2.2 percent of GDP from direct taxes; about 1.1 percent of GDP from indirect taxes; additional 0.7 to 1.2 percent of GDP from natural resource taxation and eliminating certain incentives.
  - Measures include expanding PIT base, increasing GST rate and base, following ECOWAS CET migration plan, finalizing review of investment incentives and exemptions, excise tax measures.

### CENTRAL BANK OF LIBERIA (CBL) — monetary policy, governance, and policy solvency
- Monetary policy framework and instruments
  - New interest-rate based instruments implemented in November 2019 with Fund TA.
  - Rate on overnight Standing Deposit Facility (SDF) initially set at 30 percent.
  - Interest rate on Standing Credit Facility (SCF) re-aligned at 5 percentage points above the SDF rate.
  - CBL to auction Central Bank Bills (CBBs) to commercial banks and the general public at graduating rates based on tenors.
- CBL budget cuts and operational targets
  - Board approved significant cuts to CBL’s 2020 budget: US$14.6 million reduction in expenditure (excluding cost of monetary operations) from budgeted US$38.8 million.
  - Reduction to be achieved through wage reduction of US$5.3 million and expenditure rationalization.
  - Ceiling set on CBL’s operational and capital expenses excluding cost of monetary operations (QPC).
  - Target: reduce use of gross reserves to finance operational losses down to zero in 2020.
  - With measures, CBL cumulative operating expenditure (excluding interest payments) contained to US$32.9 million in 2019 and to US$24.2 million in 2020.
- CBL policy solvency analysis (baseline and alternative)
  - Baseline: CBL not policy solvent — cumulative net deficit of LD51 billion by 2024; CBL would cover between 10 and 20 percent of its total cost between 2020 and 2024.
  - Alternative scenario: regularize about US$212.4 million credit claims into new instrument at 6 percent interest; amortization begins in 2029; outstanding debt to CBL USD456 million by 2024 (alternative) vs USD287 million (baseline).
  - Alternative scenario results: cumulative losses cut by half to LD35 billion; Income-Cost ratio improves to close to 76 percent by 2024 but net income remains negative; foreign reserves under alternative lower than baseline (US$403 million by 2024).
  - Key implication: achieving policy solvency requires substantial reductions in operational expenses (operational expenses account for close to 86 percent of total expenses).
- FX management and auctions
  - Program commitments: reduce CBL operational losses and eliminate two main sources of reserve loss (credible fiscal budget and curtailment of CBL operational losses).
  - Commitment to resume non-discriminatory FX auctions consistent with Article VIII and revised Auction Regulations (September 10, 2019) emphasizing transparent price determination and publication.
  - Surrender requirement: 25 percent of FX from remittances to be surrendered to CBL as temporary measure.
  - Considered CFMs (approved by Cabinet but not implemented): export repatriation requirement; increase remittance surrender requirement from 25 percent to 50 percent — authorities decided not to implement these.
- Governance and safeguards
  - Safeguards assessment (2019) found governance and controls at CBL deteriorated significantly; lack of permanent Board impacted oversight.
  - Prior actions implemented: appointment and confirmation of permanent Board members (Legislature confirmed on July 18, 2019); appointment of reputable firm to co-source internal audit (PA); updated CBL Action Plan including Kroll recommendations; semi-annual external audits of foreign reserves and regular FX data submission.

### FINANCIAL SECTOR STABILITY AND SUPERVISION
- Banking sector challenges
  - High nonperforming loans and reduced liquidity; NPLs at 13.8 percent at end-December 2018 (14.9 percent at end-December 2017).
  - Poor underwriting standards, weak financial sector statistics, reporting practices, and FX liquidity shortages.
  - Government issued bonds in May to clear US$65 million of arrears to banking sector; bonds pay 4 percent coupon and amortize in 7 equal payments.
- Program measures and timelines
  - CBL to enforce reporting requirements including open FX positions and improve data quality and verification.
  - CBL to prepare overview of banking system by end-June 2020; if information insufficient, conduct Asset Quality Review (AQR).
  - On-site examinations of institutions that overdrawn at CBL as of end-September 2019 completed; reputable external auditor to review findings by end-December 2019.
  - Bond Discount Facility (BDF) postponed until CBL finishes on-site examinations; only banks demonstrating solvency and liquidity after discounting allowed to proceed.
  - Amendments to the Financial Institutions Act to empower resolution powers: submit by end-September 2020; issue regulations and operational guidelines on bank resolution by December 2020.

### DEBT SUSTAINABILITY ANALYSIS (DSA) — findings and risks
- Risk ratings and stock
  - DSA suggests Liberia at moderate risk of external debt distress and high risk of overall public debt distress.
  - External debt stock end-FY2019: $1,016 million (34.9 percent of GDP).
  - Total public and publicly guaranteed debt at end-FY2019: 51.8 percent of GDP.
- Medium-term targets and assumptions
  - Medium-term debt-stabilizing primary deficit (on-budget activities) target: 1.4 percent of GDP.
  - Anticipated external borrowing disbursements in medium term: $930 million, most on concessional terms.
  - Planned non-concessional borrowing: average $50 million per year.
- Baseline projections and vulnerabilities
  - PV of PPG external debt-to-GDP projected to peak just below 30 percent between FY2022-26.
  - Debt-service to revenue ratio peaks at 12.4 percent in FY2023 (below threshold 14 percent).
  - Standard stress tests show small adverse changes in debt terms or failure to adjust primary expenditure could move country into high risk of external debt distress.
- Policy commitments to preserve sustainability
  - Authorities committed to ceiling on non-concessional borrowing, refraining from nontransparent collateralized agreements, and ensuring transparent contracting of new debt.
  - DSA incorporates US$45 million domestic arrears repayment over medium term (assuming possible rejections/haircuts on some arrears).

### PROGRAM DESIGN, ACCESS, DISBURSEMENT SCHEDULE, AND CAPACITY TO REPAY
- ECF access and phasing
  - Staff proposal: four-year ECF-supported program; access of 60 percent of quota (SDR 155 million or US$214.3 million) phased in nine broadly even disbursements.
  - Access compared to norms: below norm of 120 percent of quota (or 160 percent for 4-year program) for low-income country with outstanding IMF credit under all facilities <100 percent of quota.
  - Liberia’s outstanding purchases and loans 59.77 percent of quota as of April 30, 2019.
  - Relative to GDP, cumulative IMF credit under program peaks at 8.3 percent of GDP.
  - Program fully financed for next twelve months with good prospects thereafter.
- Disbursement schedule (Millions of SDR; % of Quota)
  - Dec 9, 2019: 17.0; 6.59 percent of quota — Executive Board Approval.
  - Jun 1, 2020: 17.0; 6.59 percent of quota — first review/observance of PC for Dec 31, 2019.
  - Dec 1, 2020: 17.0; 6.59 percent of quota — second review/observance of PC for Jun 30, 2020.
  - Jun 1, 2021: 17.0; 6.59 percent of quota — third review/Dec 31, 2020 PC.
  - Dec 1, 2021: 17.0; 6.59 percent of quota — fourth review/Jun 30, 2021 PC.
  - Jun 1, 2022: 17.0; 6.59 percent of quota — fifth review/Dec 31, 2021 PC.
  - Dec 1, 2022: 17.0; 6.59 percent of quota — sixth review/Jun 30, 2022 PC.
  - Jun 1, 2023: 18.0; 6.98 percent of quota — seventh review/Dec 31, 2022 PC.
  - Nov 15, 2023: 18.0; 6.98 percent of quota — eighth review/Jun 30, 2023 PC.
- Capacity to repay and safeguards
  - Staff considers Liberia has adequate capacity to repay the Fund based on track record, program strength, catalytic potential for external support, favorable medium-term outlook, and sustainable debt position.
  - Safeguards assessment identified governance and control issues at the CBL; remedial actions implemented as prior actions.

### PROGRAM MONITORING, PERFORMANCE CRITERIA, INDICATIVE TARGETS, AND REPORTING
- Fiscal and monetary anchors and targets (selected QPCs and ITs)
  - QPCs include: floor on primary fiscal balance excluding grants and off-budget transactions; ceiling on contracted new non-concessional external debt; zero ceiling on new external arrears; ceiling on CBL operational and capital expenses; floor on change in CBL’s net international reserves; ceiling on CBL’s gross direct credit to government.
  - Indicative targets (examples)
    - Floor on total revenue collection (US$ millions): Sep. 2019 = 84.0; Dec. 2019 = 184.0; Mar. 2020 = 293.0; Jun. 2020 = 414.0.
    - Floor on social and other priority spending (US$ millions, cumulative): Sep. 2019 = 14.7; Dec. 2019 = 29.3; Mar. 2020 = 44.0; Jun. 2020 = 58.7.
    - Ceiling on the CBL’s operational and capital expenses (US$ million, cumulative from beginning of calendar year): Sep. 2019 = 27.4; Dec. 2019 = 32.9; Mar. 2020 = 9.3; Jun. 2020 = 14.1.
    - Floor on change in CBL net international reserves (US$ million, cumulative): Sep. 2019 = -22.1; Dec. 2019 = -25.7; Mar. 2020 = 2.5; Jun. 2020 = 5.0.
    - Ceiling on CBL gross direct credit to central government (US$ million): Sep. 2019 = 487.5; Dec. 2019 = 487.5; subsequent dates same.
- Reporting and data requirements
  - Detailed, frequent reporting required: MFDP weekly cash plan and weekly fiscal report; monthly reconciled fiscal reports; LRA daily unreconciled revenue report; CBL daily FX inflows/outflows weekly submission; full set of monthly FSIs, ODC and CBL balance sheets monthly.
  - Reporting timetables: weekly reports within five days after end of week; monthly reports within three weeks after end of month; quarterly SOE reports within 45 days after end of quarter.
  - All reports to be provided electronically to IMF Resident Representative and local IMF economist.
- Prior actions and structural benchmarks (selected)
  - Prior actions completed before Board: approval of FY2020 fiscal budget consistent with program; resume Liquidity Management Committee meetings; one-month track record of weekly fiscal reporting; restructure civil service wage bill to US$297 million; appoint all non-executive CBL Board members; incorporate Kroll recommendations into CBL Action Plan; CBL four weeks of weekly FX flow reports to IMF (PA).
  - Structural benchmarks include: biometric ID regulation/no payment without biometric ID (target date August 15, 2020); submit CBL Act amendments (end-March 2020); inventory and rationalize bank accounts (end-June 2020); eight largest SOEs provide quarterly financial reports (end-May 2020).

### GOVERNANCE, ANTI-CORRUPTION, AND STATISTICS
- Governance and anti-corruption measures
  - Legislation enacted: Land Rights Act, Power Theft Act, Whistleblower Protection Act, Freedom of Information Law.
  - Program measures: amend Penal Code to criminalize all acts of corruption and establish special fast track process for prosecuting corruption by end-June 2020; centralize asset declarations to LACC with verification powers; issue regulations on PEP account management; strengthen fit and proper provisions for financial institutions.
  - Mitigation for LEITI delisting: replace LEITI management; consult with EITI; combine 10th and 11th Annual Reports and engage internationally recognized consultant to prepare combined report.
- Statistical capacity and TA
  - Significant IMF TA mobilized: STA and MCM for fiscal, monetary, and FX reporting; FAD on PFM and cash management; LEG on AML/CFT; additional TA on tax policy, CBL operational budget analysis, and currency management.
  - Actions: rebasing GDP with NAAS and administrative data; CPI rebasing to 2016; improve monetary statistics and FSIs; address government finance statistics reporting lapses.

### SOCIAL SPENDING, BUSINESS CLIMATE, AND STRUCTURAL REFORMS
- Social spending safeguards
  - Program establishes an indicative floor on on-budget spending for teachers and core clinical health workers and spending on home-grown school feeding program.
  - FY2020 contingency fund US$3 million (0.1 percent of GDP) included.
- Business climate measures and quick wins
  - Adhere to automatic fuel pricing mechanism; reduce container tracking fee to neighboring country levels; abolish import permit declaration requirement; extend work and residency permits tenor from one to five years.
  - Customs Code to be passed by June 2020.
- Infrastructure and human capital
  - Physical capital (roads) targeted alongside human capital; recognition of low education spending and poor outcomes; school feeding emphasized to increase enrollment and nutrition.
- Procurement, ICT, and e-procurement
  - Revise PPCC regulations; implement e-Procurement and publish procurement information; implement EFT system with World Bank financing to automate reconciliations and improve cash management.

*Source: 1lbrea2019002 — IMF Country Report excerpts and MEFP/Annexes as presented in the provided content unit.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Resource constraints, macroeconomic imbalances, and longstanding fragility continue to challenge the authorities’ efforts to improve living standards.
- An initial rush to deliver election promises led at times to shortcomings in execution, weakening governance and fiscal management.
- After over a year of grappling with these challenges, a consensus on the need for broad-based reform emerged, leading to a request for a Fund-supported program.

### Request
- The authorities request Fund support in the form of a four-year arrangement under the Extended Credit Facility (ECF) of SDR155 million (60 percent of quota).
- The arrangement is intended to guide policies and reforms aimed at:
  - restoring macroeconomic stability;
  - providing a foundation for sustainable growth;
  - addressing weaknesses in governance.

### Main policy commitments
- The authorities passed a credible budget for FY2020 that consolidates public finances, including:
  - rightsizing the compensation of employees and implementing comprehensive civil service reform;
  - protecting funds for critical social spending.
- Measures and systems have been put in place to greatly improve fiscal monitoring and control.
- Beyond FY2020, the authorities intend to mobilize domestic revenue to finance the development agenda.
- To reduce inflation in 2019, the authorities significantly tightened the monetary policy stance.
- To address the weak external position, commitments include:
  - reducing the operational deficit of the Central Bank of Liberia (CBL);
  - enhancing the CBL’s ability to monitor flows of foreign exchange;
  - improving the structure and management of FX auctions to ensure efficient, market-based allocation of scarce foreign exchange.
- On governance, the authorities prioritized central bank reforms, including major changes to the legal framework that enhance independence.

### Risks to the program
- Risks are assessed as high despite mitigation measures.
- Principal risks include:
  - expenditure overruns;
  - domestic revenue shortfalls;
  - monetization of fiscal deficits (recourse to CBL overdrafts);
  - domestic payment arrears;
  - high CBL operational losses;
  - heightened civil unrest.
- Program design includes prior actions, quantitative performance criteria, and indicative targets to minimize these risks.

### Staff’s view
- IMF staff supports the authorities’ request for ECF access at the level requested.
- ECF disbursement would:
  - support the authorities’ strong adjustment efforts;
  - help catalyze significant donor financing in the form of grants;
  - provide a framework to implement the authorities’ reform agenda.

### Recent economic developments and vulnerabilities
- Inflation and exchange rate depreciation remain high at 30 percent as of end-September 2019, driven mostly by sustained growth in monetary aggregates.
- Real GDP growth slowed in 2019, largely driven by falling demand as indicated by taxes and bank credit.
- Macroeconomic imbalances increased relative to the 2019 Article IV consultation:
  - Domestic arrears at end-June FY2019 totaled US$90 million (2.8 percent of GDP), versus US$30 million estimated at Article IV; about half were wage arrears, cleared by end-September by drawing on the CBL overdraft facility.
  - Reconciled end-FY2019 arrears are now estimated at US$52 million (1.6 percent of GDP).
  - The fiscal situation in Q1 FY2020 was severely constrained by much lower-than-anticipated revenue, partly due to delays in passing the FY2020 budget.
  - CBL operational expenses (excluding cost of monetary operations) increased to US$39 million in 2019 (original budget), compared to US$23 million in 2018 (outturn), largely due to increased employment at the CBL.
- Vulnerability to shocks has risen as fiscal buffers were depleted and external buffers reduced:
  - US$90 million (3 percent of GDP) of government deposits were spent in the last six months of 2018, leaving no fiscal buffers.
  - Gross official foreign reserves fell from 2.4 months of import cover at end-2018 to 2.2 months in the first half of 2019 due to financing of the CBL’s operational budget, FX intervention, and lending to the government.
  - Note: gross reserves for end-2018 were revised down from US$358 million (Article IV) to US$313 million at the end-year external audit; vault cash was revised from US$97 million to US$52 million following audit reclassifications.

### Program objectives, outlook, and external support
- Program focus:
  - restoring macroeconomic stability while protecting the poorest;
  - placing Liberia on a fiscally sustainable growth path aligned with the PAPD;
  - addressing governance and public sector institutional weaknesses.
- The program aims to catalyze substantial external grant support. Budget support grants anticipated for FY2020 total US$61 million, equal to 13 percent of domestic revenue.
- Macroeconomic projections under the program:
  - Real GDP growth projected to recover to above 5 percent in the medium term.
  - Inflation projected to decline to 15 percent within a year and reach single digits during the program period.
- The speed of growth recovery beyond 2020 depends on how quickly fiscal space is created for social and development spending given limited budget resources and the size of compensation of employees.

### Fiscal risks and FY2020 budget execution (Box 1 summary)
- Domestic revenue in FY2020Q1 (July–September 2019) fell short by about US$26 million versus projection, due to:
  - temporary factors (deferred PIT collections because of public wage arrears);
  - losses from late implementation of new revenue measures after the budget was passed in October rather than June 2019;
  - underperformance across major categories, pronounced for PIT and international trade taxes.
- As of end-October, the Liberia Revenue Authority (LRA) had collected US$123.7 million.
- If the same underperformance continues, the revenue shortfall compared to the approved budget could be as high as US$52 million, which would require a recast FY2020 budget and new high-quality revenue measures.
- Q1 allotment and execution dynamics (Box Table 1):
  - Revenue by quarter (US$ millions, FY2020 Budget): Q1 84; Q2 106; Q3 149; Q4 136; FY2020 total 474; Budget 526.
  - Domestic revenue by quarter: Q1 84; Q2 100; Q3 109; Q4 121; FY2020 total 413; Budget 465.
  - Budget support by quarter: Q1 0; Q2 6; Q3 40; Q4 15; FY2020 total 61; Budget 61.
  - Expenditure (allotment) by quarter: Q1 118; Q2 79; Q3 141; Q4 136; FY2020 total 474; Budget 526.
  - Compensation of employees by quarter: Q1 74; Q2 50; Q3 99; Q4 74; FY2020 total 297; Budget 297.
  - Other primary expenditure by quarter: Q1 25; Q2 13; Q3 34; Q4 45; FY2020 total 116; Budget 168.
  - Debt service by quarter: Q1 19; Q2 17; Q3 8; Q4 17; FY2020 total 61; Budget 61.
  - Primary expenditure (commitment) by quarter: Q1 55; Q2 107; Q3 133; Q4 119; FY2020 total 413; Budget 526.
  - The allotment in Q1 (US$118 million) was in line with the budget but significantly higher than the revenue outturn (US$84 million), leading to held-back wage and other payments.
  - The Q2 allotment path shows a sharp contraction: wages from US$74 million in Q1 to US$50 million in Q2; non-compensation primary expenditure from US$25 million in Q1 to US$13 million in Q2.
- The government is determined to avoid arrears and central bank borrowing, but the risk of slippages is sizeable given pressure to clear wage arrears amid strikes and demonstrations.

### Policies supporting the program — Fiscal governance and sustainability
- Background:
  - Liberia’s fiscal position weakened as external grants fell from 19 percent of GDP in FY2016 to 13.8 percent in FY2019.
  - Domestic revenue generation remained weak while expenditure did not adjust commensurately, and weak cash management and controls resulted in sizable domestic arrears and government debt to the central bank.
- Program emphasis:
  - Address fiscal consolidation, domestic revenue mobilization, and robust cash management and control systems at the Ministry of Finance and Development Planning (MFDP) and the CBL (these were set as prior actions for program approval).
  - Prioritize parsimony and policy focus in program design given governance concerns and past program interruptions.

### Capacity development and mission
- IMF engagement combined surveillance with intensive technical assistance (TA) targeted at fiscal and central bank governance reforms.
- Discussions were held in Monrovia (June 11–24 and September 1–16, 2019) with a staff team including Ms. Saito (head), Mr. Jenya, Ms. Tejada (AFR), Mr. Anderson (SPR), and Ms. Lattie (MCM), with assistance from the Resident Representative Office and attendance by Mr. Jappah (OED).
- The mission met with President Weah; Finance Minister Tweah; Central Bank Governor Patray; Commerce Minister Tarpeh; representatives of the Legislature; and other senior officials and development partners.

*Source: Executive Summary, 1lbrea2019002 - EXECUTIVE SUMMARY*

### 14.      Up until the end of FY2019, fiscal spending became increasingly skewed towards labor

### 14.      Up until the end of FY2019, fiscal spending became increasingly skewed towards labor

### Fiscal spending and compensation of employees
- Compensation of employees at end-FY2019 was 10 percent of GDP, which was 4 percentage points of GDP above the regional average and amounted to about US$120 million per year.
- Use of general allowances for more than half of compensation payments resulted in large wage disparities across similar tasks, levels of education, and work experience.
- Disorderly spending cuts, especially in recent years, safeguarded compensation of employees over other spending and crowded out development spending, constraining growth potential.

### Revenue mobilization and the Liberian Revenue Authority (LRA)
- The LRA has started implementation of its Domestic Revenue Mobilization Strategy; potential yield is still unknown.
- Recent TA indicates underdeveloped processes and a complex IT environment have compromised the quality of tax data.
- Top three priorities to rebuild revenue administration processes and systems:
  - Establish for each taxpayer only one tax account per tax type and ensure one return per tax type.
  - Provide and use an Information Technology Tax System (ITAS) that is fit for purpose.
  - Monitor and publish institutional performance through established key performance indicators on a quarterly basis.
- Considered tax policy measures include: expansion of the Personal Income Tax (PIT) base, increasing the Goods and Services Tax (GST) rate and tax base, following the ECOWAS CET migration plan to transition to Year 3 and Year 4, finalizing review of investment incentive agreements and exemptions, and several excise tax measures proposed by IMF TA.

### Fiscal policy under the ECF arrangement and medium-term anchors
- Medium-term fiscal objective: bring the primary deficit, including off-budget transactions, of 5.2 percent of GDP estimate for FY2019 down to a debt-stabilizing level of 2.5 percent of GDP over the medium term (Debt Sustainability Analysis Table 2).
- Size of adjustment reduced relative to reform scenario of 2019 Article IV consultation to reduce burden on the most vulnerable groups.
- A quantitative performance criterion (QPC) is set on the primary fiscal balance excluding grants and off-budget transactions for program monitoring.

### Feasible size of adjustment for fragile situations (Box 2)
- Revision financed by reducing government’s debt service to the CBL and using freed resources for primary expenditure.
- Government’s debt service to the CBL in the reform scenario averaged about 2 percent of GDP (or 13 percent of revenue) and was allocated mostly to amortization.
- Proposed path allows smaller net repayments to the CBL by allowing roll-over of loans that originated from CBL’s on-lending of ECF/RCF budget support to the government (US$107 million).
- Outstanding stock of government debt on the CBL’s balance sheet estimated at US$497 million as of end-October 2019 will be restructured and consolidated into a long-term loan; interest on this loan set at 4 percent (up from an effective rate of 1 percent previously).
- Principal payments on the consolidated loan delayed to 2029.
- Result: debt stabilizes at a higher level in the medium term but present value of debt stock is lower because of extension of the grace period.

### FY2020 budget and wage rationalization (prior action)
- Total compensation of employees was reduced by 10 percent, equivalent to a cut of around 1 percentage point of GDP.
- Previous discretion in wage payments eliminated through consolidation of base wage and allowances.
- Improvement in income distribution achieved by raising wages at the bottom end of the distribution.
- Wage payments centralized through the Civil Service Agency (CSA).
- Authorities reclassified the entire civil service, graded 75,000 public employees, and close to 30 percent are registered with verified national identification repository number.
- Discretionary allowances, formerly about 60 percent of total compensation, eliminated and merged into the civil service wage.
- Civil service wage scale adjusted down twice in July and September to bring down compensation of employees to US$297 million.
  - July adjustment: those paid above category- and grade-specific median reduced to median; those below minimum wage of US$100 per month raised to that level.
  - September adjustment: those paid above $500 per month shared further cuts to deliver compensation of employees of $297 million.
- Overall FY2020 budget aims to improve the primary fiscal balance excluding grants and off-budget transactions by 0.9 percentage point of GDP.

### Revenue measures (Text Table 1 summary)
- Total proposed revenue measures: US$26.8 million, 0.9 percent of GDP.
- Selected measures and amounts (Million U.S. dollars; Percent of GDP):
  - ECOWAS CET migration plan to Year 2: 6.00; 0.19
  - Implementation of the new excise law: 0.60; 0.02
  - State Owned Enterprises total: 11.74; 0.37
    - Liberia Telecommunications Corporation (LIBTELCO): 1.89; 0.06 (modify revenue sharing ratio from 61/39 to 69/31)
    - Liberia Maritime Authority (LMA): 3.35; 0.11 (enforce collection; LMA is supposed to pay minimum of about US$10 million annually and US$12 million additionally)
    - National Port Authority (NPA): 5.00; 0.16
    - Liberia Airport Authority (LAA): 0.50; 0.02
    - National Fisheries and Aquaculture Authority (NaFAA): 1.00; 0.03
    - Royalty - Mittal: 3.00; 0.10 (modify royalty formula)
  - One-off measures total: 5.50; 0.17
    - Audit of the telecom: 1.00; 0.03 (technical audit expected in FY2020Q3)
    - Liberia Petroleum Refining Company: 2.00; 0.06 (budget support)
    - Collection of Road Fund Arrears: 2.40; 0.08
    - Administrative fees from MAC: 0.10; 0.00

### Fiscal cash management, reporting, and arrears
- Formal procedures established to ensure all payment vouchers issued can be paid in full and on time.
- Segregation of duties: Budget Department makes allotments; Fiscal Affairs Department issues financial budgets (cash release schedules) based on up-to-date liquidity and revenue information.
- Regular meetings of the Liquidity Management Committee and the Treasury Management Committees established.
- Authorities have been submitting updated budget execution reports and cash plans to staff on a weekly basis since June 2019.
- To reduce fiscal risks from domestic arrears incurred in FY2019:
  - Strict cash control measures deployed and a ceiling on domestic arrears set under the program.
  - Authorities are establishing the outstanding stock of arrears as of end-FY2019 based on granular cash and commitment data by spending agency and detailed economic classification.
  - Commit to having these arrears verified by the General Audit Commission (GAC).
  - Modalities for clearing arrears to be decided in consultation with staff; could include budgetary provisions starting in FY2021 and securitization where necessary.

### Debt sustainability and fiscal risks
- DSA suggests Liberia remains at moderate risk of external debt distress and high risk of overall public debt distress, with limited space to accommodate shocks.
- DSA incorporates government’s domestic debt to the central bank and SOEs’ debt guaranteed by the government.
- DSA now incorporates US$45 million of domestic arrears repayment over the medium term, assuming the government can reject or negotiate haircuts on some outstanding arrears.
- Baseline: Liberia would remain at moderate risk of external debt distress, but could edge closer to high risk with small adverse changes in debt terms or failure to adjust primary expenditure to available revenue.
- Authorities committed to ceiling on non-concessional borrowing, limiting contraction of loans on nonconcessional terms, refraining from nontransparent collateralized agreements, and ensuring new debt is contracted transparently.

### Central Bank of Liberia (CBL): lowering inflation and improving operational capacity
- Inflation accelerated significantly in 2018 and remains high; initial exchange rate depreciation-induced rise in prices followed by rapid increase in Liberian dollar money supply due to CBL credit extension to government and financing of CBL’s large deficit.
- CBL safeguard framework weakened significantly; recent safeguards assessment highlighted serious governance and control issues.
- Actions taken in November 2019:
  - New interest-rate based monetary policy instruments implemented, consistent with Fund technical advice.
  - Rate on overnight Standing Deposit Facility (SDF) initially set at 30 percent.
  - Interest rate on Standing Credit Facility (SCF) re-aligned at 5 percentage points above the SDF rate.
  - CBL will auction Central Bank Bills (CBBs) to commercial banks and the general public at graduating rates based on tenors.
  - CBL has begun to sensitize banks to the new monetary policy framework.
- Groundwork to ensure CBL financial wherewithal:
  - Agreement due to be signed between MFDP and CBL to provide enough interest income to the CBL; agreement will quantify, regularize, and securitize all outstanding USD and LD credit to the government.
  - Reverting to central bank financing and arrears under the new agreement will risk attainment of the ceiling on gross credit to government (QPC).
- To safeguard reserves, Board approved significant cuts to the CBL’s 2020 budget:
  - US$14.6 million reduction in expenditure (excluding cost of monetary operations) from previously budgeted US$38.8 million.
  - Reduction to be achieved through wage reduction of US$5.3 million and expenditure rationalization.
  - A ceiling has been set on the CBL’s operational and capital expenses excluding the cost of monetary operations (QPC).
- Interest income from the government and revised budget expected to stabilize foreign reserves and meet program reserve targets.

*IMF Country Report No. 19/169, Annex VI (excerpts).*

### 27.      Measures to address governance and control issues at the CBL were identified by IMF

### 27.      Measures to address governance and control issues at the CBL were identified by IMF

### Measures implemented and prior actions on CBL governance and controls
- Permanent Board members of the CBL were appointed; the Legislature confirmed the newly appointed CBL board members on July 18, 2019.
- An internationally reputable firm is to be appointed to co-source the CBL’s key internal audit activity (PA).
- The CBL updated its Action Plan of reform to include improvements to currency operations and controls, informed by:
  - the independent forensic audit carried out by Kroll Associates, and
  - an IMF TA on currency operations and controls that took place during November 4–8, 2019.
- Continuation of semi-annual external audits of foreign reserves and regular submission of foreign exchange data (introduced at the end of the previous program).

### External vulnerabilities and competitiveness (Background and program response)
- Staff assessment: the external sector position is substantially weaker than warranted by fundamentals and desirable policies (Annex IV).
- Key issues:
  - the current account deficit remains large and is weaker than the norm,
  - gross international reserves have declined further and are below reserve adequacy levels.
- Policy priorities: improving competitiveness and the business environment, fiscal adjustment, and increased exchange rate flexibility.

- CBL administrative measures to manage FX shortages:
  - Regulation mandated that 25 percent of FX from remittance inflows be surrendered to the CBL; originally intended for auctioning to importers.
  - For January to August 2019 auctions were suspended; the CBL allocated a fraction of the 25 percent back to banks in proportion to receipt; banks sold this FX to importers at the CBL’s daily exchange rate plus a margin of LD 1 per U.S. dollar.
  - Market reports suggested allocation may have been targeted, mainly to importers of fuel and food.

- Considered CFMs (approved by Cabinet but not implemented):
  - introduction of an export repatriation requirement,
  - increase in remittance surrender requirement from 25 percent to 50 percent.

### Program elements to rebuild external buffers and FX transparency
- Program will eliminate two main sources of foreign reserve loss:
  - passage of a credible fiscal budget (¶17) and stronger fiscal cash management and controls (¶18) to avoid central bank credit to fund spending,
  - significant curtailment of CBL operational losses (¶26).

- CBL capacity and reporting improvements (PA):
  - continuing to contract external auditors for semi-annual special audits of foreign exchange; the last one will be submitted by end-November 2019.
  - since July 2019, the CBL has been submitting daily foreign exchange data on a weekly basis; data quality improved and is adequate for program monitoring and safeguarding of Fund resources.

- Commitment to resume non-discriminatory FX auctions consistent with Article VIII (MEFP ¶28):
  - Auction guidelines emphasize transparent price determination and avoidance of discriminatory provision that could lead to multiple currency practices (MCPs) and exchange restrictions (ERs); publication of the auction is required.
  - Auction mechanism: single price auction system that (i) guarantees access by all licensed intermediaries (authorized dealers) in good standing; (ii) does not impose constraints on the price bidders can submit; (iii) determines allotment solely on the price submitted.
  - These principles were applied to the FX auction held on September 4, 2019; the CBL resorted to bilateral USD sales to banks to meet public cash demand.

- Authorities’ stance on CFMs and macro adjustments:
  - Authorities accepted CFMs should not substitute for warranted macro adjustments.
  - They decided not to implement the cabinet-approved export repatriation requirement or the increase in surrender requirement and will refrain from introducing additional CFMs.
  - The existing surrender requirement of 25 percent on remittances is considered appropriate only as a temporary measure.
  - A Fund mission is tentatively planned for the time of the first program review to examine exchange system practices and any misalignments between CBL transactional rates and FX auction rates, evaluate Article VIII consistency, and provide recommendations if needed.

- Quick-win measures to improve competitiveness:
  - strictly adhere to the automatic fuel pricing mechanism to prevent fuel shortages,
  - ensure the fee charged for the container tracking system is reduced to levels prevailing in neighboring countries.

### Financial sector stability: background and program actions
- Banking sector challenges:
  - high nonperforming loans and reduced liquidity,
  - poor underwriting standards, financial sector statistics, and reporting practices (Fund TA),
  - shortages of foreign exchange liquidity.
- Government issued bonds in May to clear US$65 million of arrears to the banking sector; discussions with nonresident banks to discount these bonds to improve domestic banks’ FX liquidity and free up funding for additional bank credit.
  - Note on bonds: they pay a coupon of 4 percent per annum and amortize in 7 equal payments for the next 7 years; held by seven banks.

- Program measures:
  - CBL will enforce compliance with reporting requirements, including open FX positions, and improve data quality and verification (MEFP ¶31).
  - CBL will prepare an overview of the banking system by end-June 2020 via a detailed assessment of credit quality, underwriting standards, and adequacy of provisioning, using Fund TA as backstop if necessary.
  - If information remains insufficient, an Asset Quality Review (AQR) would be conducted as a follow-up.
  - CBL completed on-site examinations of financial institutions that have overdrawn balances at the CBL as of end-September 2019.
  - By end-December 2019, CBL will appoint a reputable external auditor to review the examinations’ findings.
  - The authorities will postpone the use of the Bond Discount Facility (BDF) until the CBL finishes its on-site examinations; only banks demonstrating solvency and liquidity within regulatory values after discounting will be allowed to proceed.

- Legal and market infrastructure reforms:
  - CBL intends to propose amendments to the Financial Institutions Act (FIA) to empower regulatory and supervisory resolution powers; aim to submit amendments to the Legislature by end-September 2020 with Fund TA, and issue regulations and operational guidelines on bank resolution by December 2020.
  - Medium-term objective to automate the collateral management system and establish an appropriate legal environment governing the interbank market, including for horizontal repurchase agreements.

### Improving governance and anti-corruption measures
- Mixed progress on governance:
  - Legislation enacted over the past year: Land Rights Act, Power Theft Act, Whistleblower Protection Act, Freedom of Information Law.
  - Liberia threatened with delisting from EITI due to past improprieties in LEITI management and failure to produce required reports.
  - Country subject to GIABA’s expedited follow-up process on AML/CFT improvements since its last mutual evaluation.

- Program measures to strengthen governance:
  - Improve PFM (¶18), strengthen central bank governance (¶27), improve fiscal, SOE, and foreign exchange data reporting (¶18, ¶21, ¶32), and strengthen tax administration and tax collection from SOEs (Text Table 1).
  - Strengthen anti-corruption regime by amending the Penal Code to criminalize all acts of corruption and establish a special fast track process for prosecuting corruption by end-June 2020 (SB, MEFP ¶43).
  - Use AML tools to combat corruption by issuing regulations on opening and managing accounts of politically exposed persons (PEPs) and strengthening fit and proper provisions when licensing financial institutions.
  - Strictly enforce asset declaration regime by centralizing submissions to the Liberian Anti-Corruption Commission (LACC), providing verification powers including dissuasive and proportionate sanctions for noncompliance, and granting public access to asset disclosure information in accordance with the current Code of Conduct (MEFP ¶43).
  - Mitigation measures for LEITI delisting risk:
    - replacement of LEITI management with internationally recognized individuals,
    - close consultation with EITI through periodic progress briefings and provision of regular status updates,
    - agreement with EITI to combine overdue 10th and 11th Annual Reports, and engagement of an internationally recognized consulting company to prepare the combined report.

### Statistical issues and capacity development
- Considerable IMF TA mobilized for program preparation:
  - STA and MCM supported improvements in fiscal, monetary, and foreign exchange data reporting.
  - MCM and LEG provided TA on introducing a new monetary policy framework.
  - FAD provided TA on PFM and cash management and controls; LEG provided TA on AML/CFT issues.
  - Additional TA on tax policy measures (FAD), CBL operational budget analysis (MCM), and currency management and controls (MCM) after the program request.

- Going forward:
  - Program supported by focused capacity development in PFM, statistics, and domestic revenue mobilization (Annex III).

### Request for Fund support: ECF, access, and phasing
- Staff proposal:
  - a four-year Extended Credit Facility (ECF)-supported program to address protracted balance of payments problems and catalyze donor grant support.
  - A program of four years (Table 6) to implement the ambitious structural reform agenda.

- Access and phasing:
  - Staff propose access of 60 percent of quota phased in nine broadly even disbursements (Table 7).
  - Access level: 60 percent of quota (SDR 155 million or US$214.3 million) estimated sufficient to close the balance of payments financing gap and help the CBL rebuild buffers (gross official foreign exchange reserves will recover to 2.6 months of imports by 2023).
  - Comparison to norms: proposed access is below the access norm of 120 percent of quota (or 160 percent of quota for a 4-year program) for a low-income country with outstanding IMF credit under all facilities of less than 100 percent of quota.
  - Liberia’s outstanding purchases and loans are 59.77 percent of quota as of April 30, 2019.
  - Relative to GDP, cumulative IMF credit under the program peaks at 8.3 percent of GDP (Table 8).
  - Program is fully financed for the next twelve months with good prospects thereafter.

### Social spending, capacity to repay, and safeguards
- Social spending and PRS alignment:
  - Program aligns with the authorities’ PAPD to boost growth via physical and human capital investment within a stable macro environment.
  - Program establishes an indicative floor on-budget spending on teachers and core clinical health workers and spending on the home-grown school feeding program.

- Capacity to repay:
  - Staff considers Liberia has adequate capacity to repay the Fund (Table 8) based on track record, program strength, catalytic potential for external support, favorable medium-term outlook, and a sustainable debt position.

- Safeguards assessments:
  - Safeguards Assessment reports identified governance and control issues at the CBL that were implemented as prior actions for program approval (see measures listed above).

*Source: 1lbrea2019002 - 27.      Measures to address governance and control issues at the CBL were identified by IMF*

### 48.      The 2019 update safeguards assessment, which is substantially completed, found that

### 48.      The 2019 update safeguards assessment, which is substantially completed, found that 

### Safeguards assessment — findings
- Governance and controls at the CBL have deteriorated significantly.
- The central bank has had significant lending to the government that exceeded limits in the CBL Act.
- The lack of a permanent Board of Directors impacted governance, accountability, and oversight.
- A recent Kroll report on currency operations and the external auditors’ findings highlighted a need to strengthen internal controls.
- A number of the recommended remedial actions have been included in program conditionality under the new arrangement.

### STAFF APPRAISAL — program goals and priorities
- The goals of the program are appropriately focused given capacity constraints.
- Short-term focus: regaining macroeconomic stability, particularly price stability, to arrest ongoing deterioration in living standards of the poorest Liberians.
- Expected outcomes if measures are implemented: strengthen private sector confidence over the short- and medium terms, increase the level and quality of private investment, and lay foundations for high, fiscally sustainable, and inclusive growth into the medium term.

### Fiscal policy and budget credibility
- Success of the economic program is predicated on strict adherence to the fiscal limits laid out in relevant budget laws.
- Given fiscal slippages of the last two years, it is critical that recently instituted fiscal control processes be fully implemented to prevent domestic payment arrears amid high downside risk to the domestic revenue projection.
- Significant improvement in fiscal reporting, undertaken as a prior action for program approval, has provided the technical means for success in this area.
- Adherence to the budget prohibition on government borrowing from the CBL is key to preventing unprogrammed reserve losses or undercutting the disinflation effort.
- Strengthening tax policy and administration over the program period is critical to ensure the public sector can operate effectively; essential actions include:
  - Proper mapping of tax payers, tax types, and tax accounts.
  - Procuring an upgraded Information Technology Tax System (ITAS).

### Wage policy and civil service reform
- Staff notes the critical role wage policy and civil service reform played in the creation of a credible FY2020 budget.
- The reduction of the nominal compensation of employees was socially difficult but necessary to bring the budget into balance and prevent further crowding out of productive expenditure.
- The restructuring was carried out progressively, redistributing income towards the lowest paid employees, while increasing transparency and equity.
- Over the medium term, it will be necessary to hold the line firmly on the size of the compensation of employees and explore further economies and savings to free up resources for development.

### Monetary policy
- Staff supports the authorities’ recent adoption of new, interest rate-based instruments of monetary policy and their aggressive deployment to reduce inflation.
- The new instruments are appropriate to the current monetary and external conditions in Liberia and, if properly implemented and managed, are expected to be effective in reducing Liberia’s inflation rate over the medium term.

### External vulnerabilities and reserves
- External vulnerabilities are significant and will require careful management.
- Foreign reserve stocks have fallen to low levels.
- Improving reserve levels will require:
  - Adhering to the program prohibition on borrowing from the CBL.
  - Successful containment of the CBL’s operational expenses.
  - Sharp limits on foreign exchange intervention.
- The foreign exchange market, though somewhat fragmented, appears to be allocating resources efficiently; preserving this will require close adherence to the obligations of Article VIII and avoidance of new MCPs and ERs.

### Debt sustainability
- The program preserves fiscal and debt sustainability.
- The DSA indicates Liberia would edge closer to a high risk of external debt distress with only a small change in the terms or a failure to adjust primary expenditure to the available revenue envelope over the medium term.
- Authorities are committed to:
  - Adhering to the ceiling on non-concessional borrowing.
  - Refraining from nontransparent collateralized agreements.
  - Ensuring that new debt is contracted transparently.

### Financial sector stability
- Measures to protect and improve financial sector stability are appropriate.
- Important steps include improving data reporting requirements, obtaining an overview of the health of the banking system, and taking decisive measures to ensure financial stability.
- Finalizing the Financial Institutions Act amendments will ensure the CBL has the required instruments and authority should remediation be necessary.

### Governance and anti-corruption
- Governance improvements are key to attracting and retaining high quality private investment to support economic growth.
- The program contains a critical mass of measures sufficient to visibly impact the reality and perception of Liberia’s anti-corruption program.
- Medium-term economic success will require strong follow-through on these commitments.

*IMF staff appraisal excerpts as presented in the source content.*

### 57.      Staff supports the authorities’ request for a new 4-year ECF-arrangement with access

### 1lbrea2019002 - 57. Staff supports the authorities’ request for a new 4-year ECF-arrangement with access equivalent to SDR 155 million (60 percent of quota)

### Program endorsement
- Staff supports the authorities’ request for a new 4-year ECF-arrangement with access equivalent to SDR 155 million (60 percent of quota).
- Staff believes the authorities are fully cognizant of the scope of the economic challenges they face and that they recognize the need for full commitment to the reform measures encapsulated in the proposed program.

### External sector and foreign exchange developments
- Exchange rate: has begun to depreciate rapidly since April 2019, reflecting the much-reduced availability of foreign exchange in the economy.
- Gross official reserves (millions of U.S. dollars): 376, 313, 261, 279, 173, 308, 333, 354, 381, 368 (series shown in tables).
- CBL net international reserves (millions of U.S. dollars): 110, 69, 95, 44, 127, 54, 63, 74, 89, 109 (series shown in tables).
- Drivers of reserve decline: much-reduced volume of remittance inflows (surrenders) to the CBL remain low, while the CBL’s operational expenses and the CBL credit to the government remain high.

### Monetary developments and inflation
- Inflation: "The inflation rate remains on par with the rate of deprecation at about 30 percent y-o-y in July 2019."
- Consumer prices (annual average) series in Table 1: 13.2, 21.2, 24.5, 28.0, 20.5, 21.3, 13.5, 11.0, 8.5, 7.0 (annual averages by year as reported).
- Monetary aggregates: growth of monetary aggregates began to slow because of the shortage of the stock of banknotes.
- Private sector credit growth: remains in negative territory since March 2019; credit to private sector (annual percent change) series in Table 1: 25.3, 4.7, 5.3, -0.3, 2.4, 1.3, 3.7, 4.5, 5.0, 6.2.
- Broad money (M2) and reserves (Table 4, monetary survey): Gross official reserves 376, 313, 261, 279, 173, 308, 333, 354, 381, 368; Broad money (annual change) in USD: 7.9, 4.9, 9.7, -15.8, 3.5, -4.2, -1.4, 2.3, 4.1, 6.4.

### Real sector and recent activity indicators
- Real GDP (annual percent change) series in Table 1: 2.5, 1.2, 0.4, -1.4, 1.6, 1.4, 3.4, 4.2, 4.9, 5.4.
- Mining & panning (percent of real GDP series): 28.8, 24.2, 13.2, 13.2, 9.7, 9.7, 6.8, 6.6, 5.6, 6.0.
- Non-mining growth (annual percent change) series in Table 1: 0.2, -1.3, -1.4, -3.4, 0.2, 0.0, 2.7, 3.8, 4.8, 5.3.
- Leading indicators: tax base on international trade rising in H1 2019; cement and beverages show no significant change in consumption or construction; imports of staple goods rebounded with imports of rice nearly doubling in the first half of 2019; fuel import volumes remain below what is considered adequate.

### Fiscal performance and outlook
- FY2020: anticipating a large budget support, but domestic revenue is coming in low relative to historical averages and shortfalls are across the board.
- Fiscal composition: with limited resources, expenditure in FY2020 has been reduced and its composition is skewed to current spending.
- Overall fiscal balance, including grants (percent of GDP) series in Table 1: -4.8, -4.8, -6.1, -6.1, -6.8, -4.7, -3.7, -3.4, -4.0, -3.8.
- Total revenue and grants (percent of GDP) series in Table 1: 31.0, 25.9, 28.0, 28.2, 28.4, 29.9, 29.8, 29.3, 28.4, 27.8.
- Total revenue (percent of GDP) series in Table 1: 14.3, 12.9, 13.7, 14.4, 14.1, 14.9, 15.9, 16.5, 17.0, 17.5.
- Grants (percent of GDP) series in Table 1: 16.7, 13.0, 14.3, 13.8, 14.2, 15.1, 13.9, 12.8, 11.4, 10.3.
- Capital expenditure (percent of GDP) series in Table 1: 12.9, 9.5, 11.3, 11.0, 12.0, 11.9, 11.5, 11.5, 12.2, 11.5.

### Balance of payments and financing
- Trade balance (millions of U.S. dollars) series in Table 2: -663, -601, -473, -446, -434, -414, -385, -368, -373, -378.
- Exports, f.o.b. (millions of U.S. dollars) series in Table 2: 427, 543, 579, 578, 631, 630, 685, 737, 790, 850.
- Imports, c.i.f. (millions of U.S. dollars) series in Table 2: -1,090, -1,144, -1,052, -1,024, -1,065, -1,044, -1,070, -1,105, -1,163, -1,228.
- Current account balance (millions of U.S. dollars) series in Table 2: -769, -765, -751, -665, -743, -662, -687, -662, -699, -713.
- Current account balance (percent of GDP) including grants series in Table 2: -23.4, -23.4, -23.3, -21.1, -23.1, -21.4, -21.9, -19.7, -19.7, -18.9.
- Financing requirement and sources (Table 6): Total Financing Requirement (estimates) for 2017–24 listed as -1,371; -1,182; -1,088; -1,143; -1,135; -1,087; -1,110; -1,090. Total Sources series: 1,371; 1,182; 1,065; 1,096; 1,089; 1,041; 1,061; 1,090.
- Proposed ECF is included among financing sources where applicable.

### ECF arrangement: disbursement schedule and conditions
- Total for the ECF arrangement: 155.0 (Millions of SDR).
- Schedule of disbursements under ECF arrangement, 2019–23 (Millions of SDR, % of Quota):
  - December 9, 2019: 17.0; 6.59 percent of quota — Executive Board Approval of Four Year ECF arrangement.
  - June 1, 2020: 17.0; 6.59 percent of quota — Observance of performance criteria for December 31, 2019, and completion of first review.
  - December 1, 2020: 17.0; 6.59 percent of quota — Observance of performance criteria for June 30, 2020, and completion of second review.
  - June 1, 2021: 17.0; 6.59 percent of quota — Observance of performance criteria for December 31, 2020, and completion of third review.
  - December 1, 2021: 17.0; 6.59 percent of quota — Observance of performance criteria for June 30, 2021, and completion of fourth review.
  - June 1, 2022: 17.0; 6.59 percent of quota — Observance of performance criteria for December 31, 2021, and completion of fifth review.
  - December 1, 2022: 17.0; 6.59 percent of quota — Observance of performance criteria for June 30, 2022, and completion of sixth review.
  - June 1, 2023: 18.0; 6.98 percent of quota — Observance of performance criteria for December 31, 2022, and completion of seventh review.
  - November 15, 2023: 18.0; 6.98 percent of quota — Observance of performance criteria for June 30, 2023, and completion of eight review.
- Disbursement notes: Disbursement is also subject to continuous performance criteria.

### Indicators of capacity to repay the IMF (selected figures)
- Proposed ECF total access: SDR 155 million (60 percent of quota).
- Fund obligations (repayments of principal, in millions of SDRs) based on existing and prospective credit: 10.5 (2019), 20.0 (2020), 23.0 (2021), 26.3 (2022), 27.3 (2023), 24.4 (2024), 18.3 (2025), 20.4 (2026), 21.7 (2027), 25.6 (2028), 31.0 (2029).
- Total obligations in millions of U.S.$ (selected years): 14.5 (2019), 27.9 (2020), 31.9 (2021), 36.6 (2022), 38.0 (2023), 33.9 (2024), 25.5 (2025), 28.4 (2026), 30.1 (2027), 35.6 (2028), 43.1 (2029).
- Outstanding Fund credit (in millions of SDRs) series reported: 162.6, 176.6, 187.6, 195.3, 204.0, 179.6, 161.3, 141.0, 119.3, 93.7, 62.7.
- Outstanding Fund credit (in millions of US$) series reported: 226.2, 245.6, 260.9, 271.6, 283.7, 249.8, 224.4, 196.0, 165.9, 130.3, 87.2.
- Memorandum: Exports of goods and services (in millions of US$) projections: 805, 857, 902, 954, 1,007, 1,074, 1,151, 1,230, 1,315, 1,405, 1,495 (series shown in Table 8).

*Source: IMF staff estimates and projections as presented in the provided content unit.*

### Annex I. Tax Revenue Measures

### Annex I. Tax Revenue Measures

### Overview and context
- The Liberia Revenue Authority (LRA) faces enormous pressure to increase domestic revenue mobilization in a challenging environment.
- Revenue envelope for FY2020 is estimated at 16.8 percent of GDP, of which:
  - tax-to-GDP ratio is estimated at 12.5 percent,
  - other revenue at 2.4 percent,
  - external budget support estimated at 2 percent.
- Authorities have begun implementing a Domestic Revenue Mobilization (DRM) Strategy emphasizing diversification, expanding tax bases, replacing the Goods and Services Tax (GST) with a Value Added Tax (VAT), simplifying the tax code, and improving tax administration.
- Modernization of excise taxes (switch from ad valorem to specific rates and use of excise duty stamps) has been enacted for some nonfuel commodities, but implementation is delayed (for example, procurement delays for stamps).
- Limited costing and revenue impact analysis has been undertaken; potential yields of many measures remain unknown.
- FAD identifies operational challenges: undeveloped processes, complex IT environment, manual capture of taxpayer data, inconsistent or unavailable key data (taxes paid, returns filed, taxpayer balances).

### Revenue administration issues — findings and priority actions
- Medium-term structural measures recommended:
  - Ensure proper mapping of taxpayers, tax types, and tax accounts.
  - Procure and use an Information Technology Tax System (ITAS).
  - Monitor and publicize institutional performance using Key Performance Indicators (KPIs) at least quarterly.
- Short-term helpful measures:
  - Adopt procedures to enforce collection of tax arrears by large taxpayers.
  - Design and implement regulations requiring proper tax registration for obtaining licenses (business, mining, professional, etc.).
- Top three priorities to rebuild revenue administration processes and systems:
  - Ensure one tax account per taxpayer per tax type and one tax return per tax-type per period, implemented in stages:
    - 1st stage: define new processes and procedures with participation of internal units (Enterprise Risk Management and Compliance Division, Legal and Board Affairs Department);
    - 2nd stage: implement procedures including mechanisms to prevent opening multiple accounts per tax-type per taxpayer;
    - 3rd stage: cleanse the large taxpayers’ accounts;
    - 4th stage: cleanse the top half of medium taxpayers’ accounts.
  - Provide and use an ITAS fit for purpose to support tax administration processes.
  - Monitor and publicize institutional performance (through established KPIs) at least quarterly.
- Potential structural benchmarks (SBs) to strengthen collection:
  - Operationalize the LRA Board Charter (appointment of all members, regular meetings, execution of powers).
  - Adopt staged procedures to enforce collection of tax arrears:
    - 1st stage: at least 10 percent of large taxpayers’ debts;
    - 2nd stage: at least 25 percent of large taxpayers’ debts.
  - Require tax registration to obtain licenses (professional, business, mining).
  - Implement interface with commercial banks for automated processing of bank and mobile payments; ensure bank-provided information contains TIN, tax period, and amount per tax-type paid.
  - Enforce legal requirement that all withholdees, including employees, must have a TIN.
  - Establish a baseline to measure outcomes from the compliance risk strategy (measure and monitor at least quarterly).
  - Establish an operational valuation risk analysis function at Customs to identify declared values requiring verification.

### Tax policy issues — findings, options, and estimated impacts
- FAD TA mission identified short- to medium-term options amounting to about 3 percent of GDP (annual impact: FY18/19 terms), summarized below:
  - Changes to direct taxes could yield up to 2.2 percent of GDP.
  - Changes to indirect taxes could yield about 1.1 percent of GDP.
  - Additional 0.7 to 1.2 percent of GDP could be mobilized through changes in natural resource taxation and eliminating certain investment incentives.
- Key findings to guide policy design:
  - Improving progressivity and expanding the base of the Personal Income Tax (PIT) are the most viable and revenue-productive measures.
  - Several excise tax measures in aggregate could improve revenue by 0.5-1.5 percent of GDP, depending on the size of tax changes.
  - Expanding the GST base to encompass a wider range of services would help pave the way for introducing VAT in the medium term.
  - It will be important to follow the ECOWAS Common External Tariff (CET) migration plan, which is entering the second year of its four-year path.
  - Increasing revenue from natural resource sectors faces challenges: large share of revenues generated under contractual arrangements, extensive investment incentives and exemptions, and high utilization of license fees and charges on inputs weaken profit-based tax potential; increasing artisanal mining revenue requires better control and enforcement.
  - A successful bid for offshore petroleum exploration blocks could yield substantial short-to-medium-term revenues.
  - Allowing existing investment incentives to expire at the end of their statutory five-year terms would yield 0.5 percent of GDP over the medium term.

- Table 1 — Summary of major tax revenue measures (selected measures and estimated revenue impacts shown exactly as in source):
  - Overall identified options: about 3 percent of GDP (annual impact: FY18/19 terms).
  - Direct Taxes (selected items):
    - Expand PIT to include all government wage components 0.2 ST
    - Adopt tax credit approach (instead of deduction approach) for PIT liability calculation 0.2 ST
    - Eliminate basic exemption for in-kind benefits 0 STx
    - Improve PIT progressivity:
      - (1) Moderate increase 0.7 - 0.9 ST
      - (2) +Substantive increase 1.6 - 1.8 ST/MT
    - Review and improve BIT design (various elements) +++ MT
    - Require annual filing by individual businesses (sole traders) + ST
    - Improved discovery and valuation of properties and better enforcement of property tax + ST/MT x
  - Indirect Taxes (selected items):
    - GST: Broaden base to include a wider range of services 0.02 ST x
    - GST: Increase rate to 11 percent (on current base) 0.2 ST x
    - Excise: New excise tax law on cigarette and alcohol <0.1 ST
    - Excise: Equalize tax rates for domestic and imported goods 0.3 ST
    - Excise: Increase excise tax on wine 0.01 ST
    - Excise: Introduce excise tax on fuel 0.3 ST x
    - Excise: Expand base of excise to all imported vehicles 0.1 ST x
    - Excise: Gradually increase excise (at least) in line with inflation + MT
    - Telcom: Introduction of price floor + ST
    - Telcom: Introduce regulatory fee/additional GST of 5 percent 0.1 ST
    - Customs: Remove waivers for members of the legislature 0.02 ST x
  - Natural Resource Taxation (selected items):
    - Free equity conversion to additional royalty 0.2 ** MT
    - Free equity conversion to five-year fixed payment 0.7 ** MT
    - Petroleum licensing round (concession fees) + + ST/MT
    - Raise income tax rate on forestry to 30 percent 0.0 ST
  - Other (General):
    - Allow investment incentives to expire 0.5 ** ST/M
    - Disallow election in currency in which taxes are paid + ST
    - Efficiency gains from improved enforcement +++ MT x
  - Notes from table:
    - *Annual impact: FY18/19 terms
    - **Simple average over five years
    - Direct Taxes / Indirect taxes / Natural Resource Taxation / Other (General) categorizations preserved as in source.

### Implementation stance and program design
- Given LRA operational weaknesses, revenue measures during the first program year are realistic and in line with FY2019 revenue outturn.
- Initial program focus is on establishing a fiscal monitoring system while near-term domestic revenue measures are discussed and adopted.
- Staff balanced potential revenue measures with the need for parsimony in conditionality, considering authorities’ absorption capacity and institutional challenges.

*Source: Annex I. Tax Revenue Measures (1lbrea2019002).*

### 7.      Gross international reserves have declined further. Reserves are estimated to have fallen

### 1lbrea2019002 - 7.      Gross international reserves have declined further. Reserves are estimated to have fallen

### Reserves developments
- Gross international reserves are estimated to have fallen to US$313 million at end-2018, equal to 2.4 months of imports.
- The decline is attributed to FX interventions, the drawdown of government deposits, financing of CBL operational losses, and central bank credit to the government.
- So far in 2019, reserves have declined further to US$278 million (2.2 months of imports).

### Assessment of reserve adequacy
- At end-2018, Liberia’s gross international reserves were equal to 2.4 months of imports.
- The reserve adequacy model for credit constrained economies suggests an adequate level is around 3.3 months of imports.
- Conclusion: the current level of reserves is judged to be below the reserve adequacy level.

### Policy implications and recommendations
- Facilitate a real effective exchange rate depreciation, in tandem with fiscal and monetary tightening, to promote competitiveness and allow the nominal exchange rate to adjust flexibly.
- Tighten fiscal and monetary policy to mitigate the inflationary effects of depreciation.
- Focus on rebuilding reserves above the reserve adequacy level to increase resilience to external shocks.

### EBA-Lite Model summary (Table 1 highlights)
- CA-Actual: -23.4%
- Cyclical Contributions (from model): -0.7%
- Cyclically adjusted CA: -22.7%
- CA-Norm: -5.6%
- Cyclically adjusted CA Norm: -4.9%
- Multilaterally Consistent Cyclically adjusted CA Norm: -4.3%
- CA-Gap: -18.4%
  - of/which Policy gap: -0.4%
- Elasticity: -0.26
- REER Gap: 72%
- EBA-Lite REER Model Summary:
  - REER Gap: -26.2%
  - of/which Policy gap: -10.6%

### Public sector arrears — background and strategy (Annex V)
- Background findings:
  - The gap between commitment and cash expenditure widened from $21 million in FY2017 to $52 million in FY2019.
  - Cumulative expenditure on a cash basis remains in line with revenue collected, but commitment vs. payment differences inflate apparent arrears.
  - Expenditure controls deteriorated following the fall in budget support loans and grants and domestic revenue underperformance.
- Fiscal sustainability risks:
  - Mismatch between resources and expenditure led to central bank financing, disruptive budget execution, and using next-year revenue to clear outstanding payments.
  - Social spending, production, and infrastructure are most vulnerable to budget allocation changes.
- Strategy components:
  I. Stopping accumulation of new arrears — key actions:
    - MFDP to continue weekly submission to the IMF of fiscal and cash management flash reports; (started in July, 2019)
    - Resume liquidity management committee meeting, update cash plans regularly, align allotments with available cash; (started in August, 2019)
    - Issue Ministerial or Executive Orders that only Purchase Orders printed directly from IFMIS will be accepted; (November, 2019)
  II. Measuring the size of arrears — key actions:
    - Prepare granular information by spending agency and detailed economic classification on cash expenses and commitment for FY2019; (received in November, 2019)
    - Establish granular information on invoices outstanding and differentiate causes of payment delays; (Before December, 2019)
    - Establish the size and composition of the outstanding arrears aided by an audit; (Audit complete by end-March, 2020)
  III. Liquidating the stock of arrears — considerations and key actions:
    - Options include budget provisions, securitization (promissory notes, treasury bills, treasury bonds), or deferral of new capital investments until ongoing projects are completed.
    - Risks: securitization adds to government debt and interest bill and creates moral hazard; promissory notes may be discounted by banks at punitive rates; arrears should not be offset against tax liabilities.
    - Key actions:
      - Aging analysis of the arrears to distinguish systemic issues from processing inefficiencies (December, 2019 — aligned with II 2).
      - Prioritize repayment through a transparent process and communicate criteria, timeframe, verification and settlement processes (by May, 2020, assuming the stock of arrears has been determined).
      - Decide on modalities of clearing arrears, potentially via a multi-year approach and a variety of instruments including (i) budget provisions for paying arrears; (ii) securitization; and (iii) deferring new capital investments (by May 2020, assuming the total stock and amounts in priority categories are known).

### Definition and types of arrears (Box 1 — key points)
- Government expenditure arrears are financial obligations incurred by the public sector for which payments have not been made by the due date.
- Specific definitions by type:
  - Compensation of employees or transfers to households: arrear created as soon as legally or contractually defined date for payment has passed.
  - Payment to commercial contractors: arrears when (1) goods delivered/service rendered/asset created; (2) invoice received; (3) delivery verified; and (4) payment due date or allowed payment days have passed.
  - Consumption of public utilities: arrear once the regular payment due date has passed.
  - Mandatory transfers to statutory funds or subnational governments: arrear once the due date specified in law/regulation/calendar has passed.
  - Tax refunds: obligation becomes an arrear once refund is due and deadline has passed.
  - Payment of interest or principal on government debt: arrear as soon as the scheduled date for payment has passed.
- Note: Arrears on amortization of debt are not defined as expenditure arrears for financial reporting purposes but should be disclosed and included in any arrears clearance strategy.

### Central Bank Policy Solvency Analysis, 2019–25 (Annex VI)
- Purpose: assess whether the Central Bank of Liberia (CBL) has sufficient resources to perform its legal monetary policy mandate and operational functions without recourse to the government.
- Baseline scenario — assumptions:
  - Nominal interest rates are assumed to equal nominal GDP growth.
  - Required reserve ratio on local currency: 25 percent; on USD deposits: 10 percent.
  - Government will service all its obligations to the CBL as scheduled, reducing CBL credit to government sharply and allowing the CBL to accumulate reserves.
  - 90 percent of forecasted stock of monetary operations liabilities are held on overnight balances; 10 percent in longer term instruments.
  - Operational cost of the CBL assumed in line with the revised budget for 2019–20.
- Baseline scenario — results and implications:
  - The CBL is not policy solvent under the baseline scenario — income is not high enough to cover operational costs and cost of mopping up excess liquidity.
  - Cumulative net deficit of LD51 billion by 2024 due to declining interest income from GOL claims as GOL amortizes legacy debt principal.
  - The CBL will only manage to cover between 10 and 20 percent of its total cost (operating cost and cost of monetary operations) between 2020 and 2024.
  - Even with GOL setting aside US$245.7 million in its budget to service debt to the CBL between FY2019–24, the CBL’s net income position remains weak and needs to adjust operational costs down further to improve policy solvency.
  - Despite constraints, frontloaded repayment of bridge loans and repayment of ECF and RCF loans on schedule help the CBL to rebuild gross reserves from about US$304 million at end-2019 (30 percent of balance sheet) to around US$473 million (47 percent of the balance sheet) at end 2024.
- Alternative scenario — assumptions and design:
  - Regularize about US$212.4 million credit claims from bridge loans, new borrowing to repay ECF and RCF budget support of US$107.8 million, and balances of the suspense account of US$76.6 million into a new instrument that attracts a market-based interest rate of 6 percent (rate calculated as Libor plus a risk premium of 3 percentage points).
  - Amortization of principal on the new instrument begins in 2029; GOL required to service all interest due on this bond between 2020 and 2028.
  - For the legacy debt of US$250 million, GOL continues to pay interest of 2 percent and amortizes half of the scheduled amounts until 2024, with maturity extended from 2038 to 2040 and higher amortization towards the end.

*Source: 1lbrea2019002 (IMF).*

### 4.      The CBL’s policy solvency in the alternative scenario improves relative to the baseline

### 4.      The CBL’s policy solvency in the alternative scenario improves relative to the baseline

### Alternative scenario vs. baseline: solvency and reserves
- High outstanding debt to the CBL: USD456 million by 2024 compared to USD287 million under the baseline.
- Cumulative losses of the CBL are cut by a half to LD35 billion (Figure 1).
- Income-Cost ratio (measure whether alternative income stream will sustain monetary operations cost) improves to cover close to 76 percent of the total cost of the CBL by 2024 but remains below the 100 percent target (Figure 1).
- Net income remains negative in the alternative scenario, indicating need for adjustment in operational costs (Figure 2).
- Foreign reserves under the alternative scenario are lower than the baseline: US$403 million by 2024, as postponement of amortization of principal on the bundled obligations constrains reserve build-up.

### Fiscal impact of the alternative scenario
- The alternative scenario improves the fiscal position in the short-to-medium term relative to the baseline, but the situation remains tight.
- Debt service to the CBL averages US$23 million between 2020 and 2024—compared to average of US$37.2 million in debt service of debt with existing MOUs under the baseline.
- Of the US$23 million average debt service between 2020 and 2024, US$15.9 per year, on average, is allocated to interest payment (Table 2).
- The alternative scenario regularizes GOL’s debt with the CBL for which an MOU has not been signed yet and provides a credible and predictable repayment path that the GOL can accommodate into its budget while guaranteeing funds to repay the ECF and RCF budget support.
- Total debt service (domestic and external) during FY2020-24 remains at an average of 13 percent of revenue.
- Policy guidance: the GOL should continue to work to increase revenue mobilization, improve spending efficiency, and prioritize concessional financing in its new borrowing.

### Drivers of remaining insolvency and policy implications
- Even with extremely generous assumptions on GOL repayment to the CBL, the CBL is not policy solvent by 2024.
- Improvement in net income under the alternative scenario comes at the expense of reserves; income coverage of operational costs remains below 1.0.
- Given that income covers monetary policy sterilization costs in both scenarios, the principal determinant of policy solvency (ability to operate without recourse to GOL) is reducing operational expenses.
- Operational expenses on average account for close to 86 percent of total expenses; therefore, achieving policy solvency requires substantial reductions in operational expenses.
- Footnote: The CBL achieves policy solvency (ability to operate without recourse to the government) by committing to reduce its operational expenses during the program period which was agreed after the analysis was conducted.

### Key statistics and figures (as presented)
- CBL cumulative losses (alternative scenario): LD35 billion.
- Income-Cost ratio (alternative scenario, 2024): close to 76 percent.
- Foreign reserves (alternative scenario, 2024): US$403 million.
- Outstanding debt to CBL (alternative scenario, 2024): USD456 million.
- Outstanding debt to CBL (baseline, 2024): USD287 million.
- Debt service to CBL (average, 2020–2024) — alternative: US$23 million; baseline: US$37.2 million.
- Interest component of average annual debt service (2020–2024): US$15.9 per year, on average.
- Total debt service (domestic and external) during FY2020-24: average 13 percent of revenue.
- Operational expenses share of total expenses: close to 86 percent.

### Selected balance sheet and income items (CBL Policy Solvency Analysis, 2019–24) — selected rows preserved as in source
- Operating Expenses (USD million), baseline row: 35.65, 31.56, 30.01, 25.02, 23.14, 22.82.
- Total Expenses (Op. Exp + MP Cost), baseline row (USD million): 39.36, 35.95, 33.74, 27.32, 24.29, 23.44.
- Net Income (baseline, USD million): (35.56), (32.14), (30.15), (23.90), (19.94), (19.28).
- Operating Expenses (USD million), proposed row: 35.65, 31.56, 30.01, 25.02, 23.14, 22.82.
- Total Expenses (Op. Exp + MP Cost), proposed row (USD million): 42.90, 35.07, 32.91, 26.83, 23.84, 22.89.
- Net Income (proposed, USD million): (39.09), (24.99), (22.24), (15.25), (10.03), (7.98).

*Source: 4. The CBL’s policy solvency in the alternative scenario improves relative to the baseline (content unit 1lbrea2019002).*

### 7. Our financial sector is experiencing stress from several sources, and the challenging

### 1lbrea2019002 - 7. Our financial sector is experiencing stress from several sources, and the challenging

### Financial sector stress and credit
- Inflation, depreciation of the Liberian dollar, and weakening economic activity have exacerbated non-performing assets in the banking system.
- Stock of private sector credit was 13.3 percent of GDP at end-June 2019.

### External vulnerability and reserves
- Gross reserves in 2018 fell by about US$63 million to US$313 million, equal to 2.4 months of import cover.
- Reserves fell further by end-September 2019 and now cover 2.1 months of imports.
- CBL’s outstanding stock of government debt on its balance sheet was estimated at US$497 million as of end-October 2019.
- Interest on the long-term loan from government to CBL will be set at 4 percent per annum, with amortization of principal commencing in 2029.

### Human capital and infrastructure deficits
- Less than 10 percent of roads are paved; remainder often impassable in the long rainy season.
- As of 2017:
  - 51 percent of children between ages six and eleven are not in age-appropriate grades.
  - 34 percent of children ages six to eleven were out of school.
  - 32 percent of children under five years old suffer from malnutrition severe enough to impact future development.

### Outlook and macroeconomic projections
- Immediate outlook: difficult adjustment necessary to secure non-inflationary growth over the program horizon.
- Inflation forecast:
  - Year-on-year inflation is expected to remain around 27.5 percent by end-2019.
  - Forecast to decline to 7 percent by end-2023.
- Growth forecast:
  - Negative growth for this year of about -1.4 percent.
  - Growth expected to reach 1½ percent by end-2020.
  - Medium-term acceleration to an annual rate of around 5½ percent by 2024.
- Policy path emphasized: Fund-supported program, tight and consistent monetary policy, business climate improvements, structural reforms, and increased private sector investment.

### Program objectives and priorities
- Three main objectives:
  - Restore macroeconomic balance by holding expenditure consistent with the resource envelope and rationalizing the wage bill.
  - Put Liberia on a fiscally sustainable growth path with balanced accumulation of infrastructure and human capital, calibrated external financing to remain at moderate risk of external debt distress, and business climate improvements.
  - Address governance and institutional weaknesses in the public sector, including central budgetary government, the CBL, SOEs, and systemic banks.

### Fiscal policy actions and FY2020 budget
- FY2020 budget:
  - Enacted based on realistic estimated resource envelope projected in June 2019.
  - Agreed as a prior action for program approval.
- Wage bill restructuring:
  - Civil service employs less than 2 percent of the population and close to 20 percent of the formal workforce.
  - Initial correction capped total compensation expenditure for FY2020 at US$297 million, 9.5 percent of GDP, a nominal reduction from the previous year of about 9 percent.
  - General and special allowances that accounted for over 40 percent of total compensation were eliminated.
  - Salaries of about 20 percent of the total public sector workforce, mostly in the lower salary range, saw pay increases due to restructuring.
  - Since July 1, 2019, all central government employees graded and paid through automated payroll jointly operated by the CSA and MFDP, though about 2/3 of employees are still in the process of submitting and verifying NIDR numbers.
  - Structural benchmarks (SB):
    - Regulation to centralize hiring and HR management: MACs (except security sector and integrity agencies) cannot complete hiring without CSA registration.
    - Regulation to require biometric identification for payment: end-June 2020 deadline, with no government worker paid without biometric ID from end-June 2020; detailed compliance information to be provided to the Fund (SB).
  - Plan to increase share of public sector wages paid in Liberian dollars to between 20 and 35 percent of total remuneration; calculation and fixed nominal payment mechanics specified for each fiscal year.
  - Personal income tax base will be total remuneration paid through the automated payroll; PIT bracket schedule in US dollars defined in FY2020 budget law.
- Additional fiscal resources and tax measures:
  - Secured additional US$26.8 million (0.9 percent of GDP) through tax policy measures starting July 1, 2019, including:
    - Taxable income of public servants calculated from total remuneration.
    - Migration to Year 2 ECOWAS CET tariffs.
    - Implementation of new excise tax law.
    - Modifying SOE revenue sharing from an average of 58 percent government / 42 percent retained by SOE to 70/30 percent.
    - Additional one-off measures.
- Monetary policy support and CBL financing:
  - With budget fully financed, no recourse to CBL financing during the program.
  - Ceiling established on CBL’s gross direct credit to central government as a performance criterion (PC).
  - Agreement to formalize long-term loan terms on CBL balance sheet to restore viable financial position and support monetary policy implementation.
- Fiscal envelope and composition:
  - Relative to FY2019, resource envelope rose by 2 percentage points of GDP:
    - 1.6 percentage points increase from higher cash grants.
    - Remainder from tax increases in income, profits and capital gains, international tax, and higher non-tax revenue from negotiated transfers from SOEs.
  - Wage bill reduction of 1 percentage point of GDP freed space to protect key spending components.
  - Contingency fund of US$3 million (0.1 percent of GDP) included in budget for emergencies; individual expenditures to be reported in quarterly fiscal publication and shared with IMF staff.

### Arrears, SOEs, and monitoring
- Arrears:
  - Government accumulated sizeable arrears from FY2019 and previous years; working with MACs to establish total amount.
  - Plan: GAC to verify claims before negotiating repayment strategies; cash payments expected to start in FY2021; some cleared through issuance of FC/DC denominated, transferable bonds.
- SOEs and contingent liabilities:
  - All loans contracted by SOEs will be approved by the debt management committee as stated in the law.
  - SOEs required to provide quarterly financial reports to the SOE unit of the MFDP.
- Fiscal monitoring and reporting improvements:
  - Developed four fiscal reporting tables (included in Table 4 of the TMU) providing comprehensive view of central government revenue, expenditure, and overall fiscal position.
  - Data now fully reconciled with bank balances and produced weekly with no more than a four-day lag; production began on June 7 and shared with the Fund as a prior action for program approval.

*Source: 1lbrea2019002*

### 23. We will closely monitor and evaluate our fiscal situation on a regular basis to ensure it

### 23. We will closely monitor and evaluate our fiscal situation on a regular basis to ensure it

### Fiscal framework and program monitoring
- Fiscal anchor: monitored using the debt-stabilizing primary balance.
- Performance criterion: ceiling on the on-budget primary balance excluding grants to monitor on-budget activities fully under central government control.
- Indicative target (IT): floor on revenue collection to avoid poor revenue performance locking the country into a low-investment, low-growth outcome.
- Continuous performance criterion: ceiling on the ratification of new non-concessional external debt of the public sector (operationalized with measures and undertakings outlined in ¶32-35).
- Continuous performance criterion: ceiling on new external arrears of the central government.
- Indicative target (IT): ceiling on new domestic arrears or payables to prevent accumulation of additional domestic arrears.
- Indicative target (IT): floor on social and other priority spending to safeguard social protection and physical and human capital development; comprises payments from the budget for wages of school teachers and clinical health workers and on the home-grown school feeding program.
- FY2020 measure: implementation of the Grant and Subsidy Policy approved in the FY2019 Budget Act to empower key entities in the social development sectors to allocate limited fiscal resources more effectively.
- Indicative target (IT): total on-budget capital spending to safeguard funding for domestically financed public investment program.
- Contingency: committed to submit a recast budget to the Legislature by end January 2020 if the updated revenue projection as of end December 2019 falls short of US$526 million budget.

### Monetary policy framework and instruments
- Rationale: deterioration in external position over the last 2–3 years reduced CBL’s scope for foreign exchange intervention and influence over monetary conditions.
- New framework approved September 2019 with IMF technical assistance; expanded policy toolkit includes:
  - Standing Deposit Facility (SDF)
  - Standing Credit Facility (SCF)
  - Intra-day Liquidity Facility (ILF)
  - Sale of central bank bills (CBBs) to the bank and nonbank public
- Governance and committees:
  - First Monetary Policy Technical Committee (MPTC) meeting: June 2019
  - Second MPTC meeting: October 2019
  - First Monetary Policy Advisory Committee (MPAC) meeting: October 2019
  - Board of Governors approved adjustments in interest rates of SDF, SCF and CBBs in early November 2019
- Policy design:
  - SCF rate set to complete establishment of an upward sloping yield curve.
  - Strengthen communication strategy to yield desired effect.
  - Continue introducing refinements and seek further technical assistance.

### Objectives and operational measures for monetary transmission
- Aim: give CBL control over Liberian dollar liquidity to influence monetary conditions.
- Interbank market deepening:
  - Modernize interbank market by automating the collateral management system and establishing an appropriate legal environment.
- Policy rate mechanics:
  - SDF interest rate will serve as a policy rate floor to signal stance and anchor the interest rate structure.
  - CBL will consistently set policy rate to ensure positive real returns on Liberian dollar savings.
  - Expected outcome: increased competition for deposits, higher retail deposit rates, and improved store-of-value function of Liberian dollar.
- SCF design:
  - Effective SCF rate set at about 500 bps above the SDF interest rate to assure banks of liquidity access (subject to suitable collateral).
- Reserve requirements adjustment:
  - Liberian dollar reserve ratio reduced from 25 to 15 percent.
  - US dollar reserve ratio increased from 10 to 15 percent.
  - At least a portion of the additional reserve requirement on US dollar deposits to be held in Liberian dollars to neutralize impact on sequestered Liberian dollars.

### Liquidity management and instruments
- Initial reliance on sale of CBBs to absorb excess liquidity, targeting non-bank private sector increasingly.
- Introduced shorter maturity CBBs to increase sales at current confidence levels.
- Commitment: government will forgo any recourse to CBL financing and ensure policy solvency.
- Indicative target (IT): ceiling on the stock of net domestic assets of the CBL to operationalize and monitor monetary policy stance.
- Openness to other measures including hikes in interest rates to increase CBB marketability.

### Reserve rebuilding and foreign exchange policy
- Reserve trajectory:
  - Reserves declined from 2.4 months of import cover for 2018 to 2.1 months of import cover for the first half of 2019.
  - Anticipated recovery to 2.3 months of import cover by end-2020.
  - Anticipated increase to 2.6 months by the end of the program period.
- Performance criterion: floor on the change in the CBL’s net foreign exchange position.
- Exchange rate policy:
  - CBL will allow exchange rate to adjust to market fundamentals; intervene only for short-term smoothing, reserve rebuilding, and correcting market imperfections.
  - Maintain surrender requirement on foreign currency remittance inflows at 25 percent until macroeconomic stability is restored; will be closely monitored and removed once no longer needed.
  - Neutralize monetary impact of foreign exchange surrender through more active sales of CBBs.
- Auction framework and Article VIII commitments:
  - Exchange rate system to be consistent with acceptance of responsibilities under Article VIII of the Fund’s Articles of Agreement.
  - CBL will intervene in the foreign exchange market only through competitive auctions open to all interested parties.
  - Auction improvements (reflected in revised Auction Regulations issued by the CBL on September 10, 2019): (i) access to all licensed intermediaries in good standing; (ii) no constraint on bidder price submissions; (iii) allotment determined solely on price submitted; (iv) publication of auction results; (v) advance public disclosure of amount of foreign exchange to be auctioned.
- CBL operational and budgetary adjustments:
  - CBL revised 2019 and 2020 budgets as a prior action for program approval with IMF technical assistance; include expenditure-reducing measures.
  - CBL will match the civil service in effecting a 10 percent reduction in its wage bill.
  - Other cuts: 28 percent cut in stationary, 33 percent cut in travel, 18 percent cut in vehicle operating expenses, 33 percent reduction in non-currency printing capital spending.
  - Currency composition changes:
    - Wage payments and Board expenses switched to 35 percent in Liberian dollars and 65 percent in US dollar distribution (now paid by government); for 2020: wage payments and Board expenses to 40 percent in Liberian dollars.
    - All other expenses: switch to 60 percent in Liberian dollars.
  - With measures in place, CBL’s cumulative operating expenditure (excluding interest payments) contained to US$32.9 million in 2019 and to US$24.2 million in 2020.
  - Target: reduce use of gross reserves to finance operational losses down to zero in 2020.
- Performance criterion: ceiling on the CBL’s operational and capital expenses excluding interest expense on monetary policy instruments.

### Monitoring of foreign exchange flows
- Since June (2019), weekly reconciled reports on foreign exchange movement prepared in collaboration with IMF staff and shared with Fund staff as a prior action for program approval.
- Commitment: continue to prepare and share weekly reconciled reports to monitor inflows and outflows and detect deviations early.

### Banking supervision and financial sector reforms
- Nonperforming loans (NPLs):
  - NPLs stood at 13.8 percent at end-December 2018 compared to 14.9 percent at end December 2017.
- Identified weaknesses:
  - Poor underwriting standards and poor data quality of reporting to the CBL, often in breach of CBL regulations.
- Assessment and remediation timeline:
  - By end-June 2020: conduct a detailed assessment of credit underwriting standards across banks and provide an assessment of credit quality and adequacy of provisioning based on banks’ internal data; request TA if necessary.
  - If unclear after assessment, undertake an Asset Quality Review (AQR) as a second step.
  - November 2019: completed on-site examinations of financial institutions that have overdrawn balances at the CBL as of end-September 2019 (first step of the detailed assessment).
  - By end-December 2019: appoint a reputable external auditor to review the examinations’ findings.
  - As information becomes available, in consultation with Fund staff, take measures needed to ensure financial stability, which may include actions related to asset classification, provisioning, treatment of non-performing loans, capitalization, and reorganizations.
- Legal and regulatory reforms:
  - By end-January 2020: submit comments on the desk review of the Financial Institutions Act (FIA) to IMF staff and request drafting TA.
  - Objective: submit amendments to the Legislature to strengthen the bank resolution regime by end-September 2020.
  - Post-passage: issue updated regulations and operational guidelines on bank resolution.
  - Include legal provisions to enable CBL to impose additional liquidity buffers set at the level of individual banks.
  - Ensure emergency liquidity assistance (ELA) and resolution frameworks remain effective as backstops.
  - All measures added to the CBL Action Plan (SB).
- Data quality and supervision enhancements:
  - IMF FSIs mission (April 2019) found significant strengthening needed: incorrect risk weighted assets calculation in some cases, overstated regulatory capital, inconsistent treatment of exposures to government.
  - CBL working with banks to correct reporting errors and provided training on computation of risk-weighted assets.
  - Government issued a bond of US$65 million to clear its arrears to commercial banks.
  - First step to assess financial stability risks: CBL to enforce compliance with reporting requirements and improve data quality and verification; working with IMF staff to determine key steps including high frequency liquidity monitoring design and production.

_Italic source: 1lbrea2019002 - 23. We will closely monitor and evaluate our fiscal situation on a regular basis to ensure it_

### 32. The Debt Sustainability Analysis (DSA) suggests that Liberia remains at moderate risk

### 32. The Debt Sustainability Analysis (DSA) suggests that Liberia remains at moderate risk

### Debt outlook and medium-term strategy
- DSA assessment: moderate risk of external debt distress and high risk of overall public debt distress with limited space to accommodate shocks.
- External debt stock at end FY2019: $1,016 million (34.9 percent of GDP), comprising mostly of multilateral loans.
- Medium-term debt-stabilizing primary deficit (on-budget activities) target: 1.4 percent of GDP.
- Anticipated external borrowing disbursements in the medium term: $930 million, most on concessional terms.
- Implied increase in annual disbursement: from US$145 in FY2019 to an average of US$186 per year.
- Ratified loans with undisbursed balances: about US$340 million.
- Planned non-concessional borrowing: disburse an average of $50 million per year (with due consideration to terms and absorption capacity).

### Debt contracting and monitoring capacity
- Commitment to:
  - limit contraction of loans on non-concessional terms,
  - refrain from nontransparent collateralized agreements,
  - ensure new debt is contracted transparently.
- Risk noted: a slight worsening of borrowing terms, or further weakening of monitoring capacity, could move the country into high-risk of debt distress.
- Debt Management Unit (DMU) capacity improvements:
  - DMU has received scoping technical assistance from the IMF’s Statistics Department and other development partners on debt monitoring and government financial statistics.
  - Debt statistics records and debt service projections have been revamped; DMU stands ready to provide monthly updates to IMF staff.
  - Four staff have taken basic training on the new Debt Sustainability Framework (DSF).
  - DMU can derive long-term debt service projections from an upgraded CS-DRMS, but has concerns about the capability and reliability of the backup system.
  - Improvement to the current IT environment is needed in the year ahead.

### Public Financial Management — cash and budget execution
- Need to better integrate cash management with budget execution to support timely budget execution without accumulating arrears.
- New practices and committees:
  - Liquidity Management Committee (LMC) will review updated cash plans monthly and provide recommendations to the Treasury Management Committee (TMC).
  - TMC will set a formal overall limit for quarterly allotments and recommend monthly financial budgets (cash releases) through IFMIS based on up-to-date liquidity information and disbursement requirements.
- Roles and control:
  - Budget Department: responsible for making allotments and distributing resources to line ministries.
  - Fiscal Affairs Department of MFDP: responsible for issuing financial budgets (cash releases) through IFMIS.
- Operational adjustments:
  - LMC and TMC have resumed meetings and are implementing strategies to keep cash allocations in line with available resources and the approved fiscal year budget.
  - In absence of a CBL overdraft facility, periodic sales of treasury bills to the private sector are used to manage minor cyclical revenue inflows and short-term cash needs.

### Fiscal reporting, MACs, and sanctions
- Improved weekly reconciled fiscal reporting format provides accurate depiction of MACs’ spending and purposes.
- Current issues:
  - About 50 percent of MACs that use their own bank accounts do not submit required ex post financial statements, contributing to a disclaimer of opinion by the Auditor-General.
- Reporting and enforcement timetable:
  - Beginning April 2020: quarterly, reconciled reporting required from the 9 largest MACs that effect part of their spending through their own bank accounts; information to be provided through quarterly financial statements to the Reporting and Reconciliation Unit.
  - Starting January 2020: the eleven Advance-Receiving Institutions that effect all their expenditure through their own bank accounts will report monthly through the IFMIS system.
  - Maximum allotment now limited to one month; previous practice of issuing quarterly pre-funding payments to MACs discontinued.
  - For MACs receiving advances under code 321502: sanctions for failure to submit financial statements within 2 weeks of the end of the month, or for reports judged inaccurate by the Comptroller General; sanctions to be detailed in a circular by the CAG office before December 2019.
  - Rollout to remaining cash-receiving entities as resources permit.

### Capacity building and IFMIS controls
- IMF technical assistance requested to upgrade capacity of Accounting Services and Expenditure Management Units within the Fiscal Affairs Department of the MFDP.
- New PFM Regulations prepared to enforce use of IFMIS as the central repository for processing all transactions relating to budget execution (all MACs with no exceptions).
- Procurement and payment controls:
  - All government contracts must be accompanied by an IFMIS-generated purchase order.
  - Invoices must be accompanied by an IFMIS payment voucher.
  - These measures aim to enforce standard commitment and budget execution processes with embedded IFMIS controls to improve transparency and data accuracy.

### Treasury Single Account (TSA) roadmap
- TSA concept note and roadmap with milestones to be approved at cabinet level by March 2020.
- Precursor actions: inventory and rationalization of bank accounts with the CBL and commercial banks by June 2020 (SB), including:
  - review and refine policy restricting number of bank accounts held by MACs;
  - complete stock-taking exercise of bank accounts;
  - instruct MACs to close commercial bank accounts and transfer balances to the CBL (excluding donor funded projects, salaries funding accounts, and revenue collection accounts);
  - CBL to set up bank accounts following closure and transfer of cash balances by commercial banks;
  - supply list of remaining commercial bank accounts to IMF staff with rationale.
- Desired TSA structure: “TSA single structure with sweeping” in which:
  - all revenue is swept to the center;
  - quarterly and monthly cash allocations to MACs are eliminated and replaced with credit limits in their CBL-based expenditure accounts;
  - all expenditure takes place either through IFMIS or through Zero Balance Accounts held by MACs.
- Account limits: with exception of donor-linked project accounts, each MAC will be limited to one Liberian dollar account and one US dollar account, both to be held at the CBL.

### Electronic fund transfer (EFT) system
- Coordination with the World Bank to implement an EFT system to automate reconciliations and provide real-time cash balance information.
- CBL has prepared project documentation and defined processes for MFDP to send payment instructions electronically to the CBL.
- Expected benefits: increased efficiencies in business processes, cost savings, reduced operational risks for MFDP, CBL, and commercial banks.
- EFT project inauguration expected this autumn, with loan financing from the World Bank approved in July 2019.

### Monitoring of SOEs and contingent liabilities
- Regular monthly high-level meetings between SOE CEOs and government officials to ensure 8 largest SOEs provide quarterly financial performance reports to the State-Owned Enterprise Reporting and Coordination Unit (SOERCU) at the MFDP; these reports will be shared with IMF staff.
- SOERCU will prepare comprehensive reports based on SOE data and share with IMF staff (SB).
- Debt Management Unit, with assistance from SOERCU, will establish a database on government on-lending and guarantees to SOEs to clarify terms and facilitate early detection of problems leading to government claims.
- Ensure terms and conditions under which any debt-financed funds have been transferred to SOEs are clarified to establish and monitor repayment responsibilities and ensure proper recording in government and SOE accounts.
- Technical assistance to study potential re-organization of the Maritime Authority, including analysis of transferring duties to the Ministry of Finance and Development Planning.
- Interim measure: seek ways to have all revenue accruing from Liberian International Ship & Corporate Registry (LISCR) for operation of shipping and corporate registries directly deposited in LRA accounts.

### Public Procurement
- Publish on the PPCC website all information on procurement opportunities and awards.
- Revise PPCC regulations to require MACs to publish all relevant procurement information (from planning to awards).
- Set up a reliable and comprehensive procurement database as first step toward an e-procurement system to collect, maintain, and publish public procurement information for monitoring efficiency and compliance.
- Implement a compliancy audit program with a team of audit experts and an annual audit program to ensure MACs follow correct procurement procedures.

### Governance and anti-corruption measures
- Adopt and submit to the National Legislature amendments to the Penal Code to criminalize all corruption acts in line with the United Nations Convention against Corruption, including:
  - bribery of foreign and international organization’s officials,
  - illicit enrichment,
  - abuse of power,
  - trading in influence,
  - obstruction of justice (SB, Table 3).
- Introduce legislation to establish a special, fast track process for prosecuting corruption.
- Approve and submit amendments to AML/CFT laws to upgrade the AML/CFT framework in line with the FATF Recommendations and IMF technical advice.
- Approve and submit amendments to the LACC Act and the Code of Conduct to upgrade the asset declaration system by:
  - centralizing submission of asset declarations to the LACC,
  - providing LACC with verification powers and dissuasive and proportionate sanctions for non-compliance,
  - granting public access to asset disclosure information in accordance with existing code of conduct.
- Utilize the new CSA database of public employees to tag positions requiring declarations; establish deadlines and suspend salary payments for noncompliance.
- Implement recommendations from GAC audits timely and transparently.
- Enforce LRA’s legal right to conduct tax audits of all taxpayers, including public entities and SOEs, and establish sanctions for noncompliance.

### Central Bank of Liberia (CBL) governance and reporting
- Draft amendments to the CBL Act completed to modernize the monetary policy framework, establish price stability as prime mandate, and improve CBL governance; to be submitted to the Legislature when it returns to session in February 2020 (SB).
- Actions to restore CBL internal oversight and accountability:
  - Legislature has confirmed appointment of executive and non-executive CBL Board members in accordance with current CBL Act (PA).
  - Updated CBL Action Plan consistent with IMF technical advice and Kroll Associates recommendations, with revised time-bound deliverables (PA).
  - Appointed a reputable firm to co-source CBL’s Internal Audit function in critical operations based on Fund staff-advised terms of reference (PA).
  - Commit to implement actions in the revised CBL Action Plan and provide updated Action Plan on a quarterly basis (SB).
  - Ensure semi-annual special audits of CBL foreign exchange movements are submitted six weeks after end of reporting period and shared with Fund staff no later than eight weeks after end of period, as specified in Action Plan.
  - CBL to prepare weekly reports on daily foreign exchange cash flows and other domestic indicators, shared with Fund staff on Wednesday each week for previous working days Wednesday-Tuesday; these weekly reports will replace previous monthly foreign exchange withdrawal reports.
  - A consecutive series of four such weekly reports have been transmitted to the Fund as a PA.
  - CBL Internal Audit Department to randomly check accuracy of daily data at least five times a month, plus on last day of each month, and send report to CBL Management; this report to be shared with IMF staff with no more than a lag of five working days from end of each month.

### Tax policy measures (additional to FY2020 budget)
- Expected revenue increase over the program period: 3.1 percentage points of GDP.
- Measures and expected yields:
  - Increase Goods and Services Tax (GST) rate from 10 to 11 percent; expand tax base by applying tax to all goods and services except a limited explicitly listed subset of exemptions. Expected revenue: 0.3 percent of GDP.
  - Follow ECOWAS CET migration plan to transition to Year 3 and subsequently Year 4; increase in effective tariff rates already factored into baseline revenue forecast.
  - Finalize review of investment incentive agreements and exemptions and allow existing investment incentives to expire. Potential yield: 0.5 percent of GDP.
  - Improve progressivity and expand base of the Personal Income Tax (PIT). Potential yield: between 0.7 to 1.8 percentage points of GDP.
  - Explore adding other commodities to the new excise tax base, including fuel and all imported vehicles. Potential yield: about 0.4 percentage point of GDP.
  - Improve discovery and valuation of properties and better enforce property tax; potential yield unknown at this stage.

### Revenue administration priorities (LRA)
- Establish for each taxpayer only one account per tax type and ensure taxpayers file one return per tax-type.
- Provide and use an Information Technology Tax System (ITAS) fit for purpose to support tax administration processes.
- Monitor and publish institutional performance through established Key Performance Indicators on a quarterly basis.

### Social Expenditure
- (Section header present; no further details provided in the supplied content.)

*Source: 1lbrea2019002 - 32. The Debt Sustainability Analysis (DSA) suggests that Liberia remains at moderate risk*

### 47. We will maintain an adequate level of social spending in our program. While physical

### 47. We will maintain an adequate level of social spending in our program.

### Social spending and human capital
- Physical capital accumulation, particularly in roads, is a key pillar of the development strategy, but human capital development and basic social protection are equally crucial for the longer-term development outturn.
- In FY2020 the authorities seek to fully implement the Grant and Subsidy Policy approved in the FY2019 Budget Law to have key entities in the social sectors directly responsible for targeting limited resources.
- A floor for social spending has been established as an indicative target under the program (defined in the TMU), concentrated in:
  - critical health and education workers, and
  - funding for a school feeding program.
- The authorities recognize the need to safeguard spending in the education sector, noting that their level of spending in this area is only about half that in other Sub-Saharan Countries and that education outcomes (enrollment and completion at all school levels) are very low.
- Enhanced support and scaling up of school feeding programs is emphasized for its dual benefit of increasing enrollment and providing nutrition to rural children.

### Business climate reforms and policies
- Administrative burdens will be reduced to lower costs and delays, and to create greater efficiency in production, employment, and growth.
  - The import permit declaration requirement has been abolished; importers now may import goods subject only to notifying the government of pending imports.
  - Tenor of work permits and residency permits extended from one to five years.
  - The fee charged for importers utilizing the container tracking system will be reduced to levels prevailing in neighboring countries.
- Fuel pricing
  - The government will adhere to the automatic fuel pricing formula to remove uncertainty for fuel importers and to avoid fuel subsidies.
- Land Rights Act
  - Passage of the Land Rights Act mandates a participatory methodology for securing land rights voluntarily from traditional holders to produce unambiguous tenure; the authorities will operationalize this through drafting and adoption of regulations and stakeholder consultations.
- Regular government–business forum
  - A regular forum will be established for business and government officials to discuss ways to improve the investment and business climate and to monitor and implement steps to improve World Bank Ease of Doing Business indicators.
- Bond discounting and bank liquidity
  - Under certain conditions, consideration will be given to helping banks discount government-issued bonds (yielding 4 percent coupon payments with principal to be repaid over the next seven years) to improve foreign exchange liquidity and fund additional credit.
  - Any bond discounting operation using a bond discount facility (BDF) of AFREXIM Bank will require government intervention for legalities and will be held off until the CBL completes planned on-site examinations of relevant banks.
  - Only banks that can demonstrate they will maintain solvency and liquidity levels within regulatory values after discounting will be allowed to proceed.
- Additional actions to improve business climate (to be undertaken going forward):
  - Passing the new Customs Code by June 2020 to make trade easier, more predictable, and faster.
  - Reducing the number of road checkpoints to the minimum required (currently over 60 between the Sierra Leone and Guinean border).
  - Delaying imposition of recent Liberia Agriculture Commodities Regulatory Agency regulations mandating that all cocoa be sold through state-controlled warehouses at predetermined prices until their impact can be ascertained with development partners.
  - Reevaluate the requirement for businesses to seek ministry of labor permission before increasing expat staff.

### Statistics improvements
- Continue to work with IMF technical assistance in the following areas:
  - Pursue improvements to fiscal and debt statistics drawing on recent IMF TA to improve scope and coverage, classifications, and comprehensiveness of transactions and stocks. MFDP has obtained a formal memorandum of understanding from stakeholders (LRA, CBL, MCC, NASSCORP, and LISGIS) specifying that information and data sharing can be freely provided to IMF staff.
  - Follow through on IMF TA recommendations on monetary statistics and financial soundness indicators to ensure timely availability of this data.
  - Expedite finalizing the rebasing of GDP by the production approach using results of the National Accounts Annual Survey (NAAS) and administrative data sources for areas not covered by the survey; thereafter complete GDP compilation using the expenditure approach.
  - Follow through on IMF TA recommendations to further improve price statistics after successfully rebasing the CPI from 2004 to 2016.

### Program monitoring framework
- The program will be monitored by quantitative performance criteria (QPCs), structural benchmarks, indicative targets (ITs), and semi-annual reviews.
- The first review is expected to be completed on or after June 1, 2020 based on end-December 2019 and other relevant performance criteria; the second review on or after December 1, 2020 based on end-June 2020 and other relevant performance criteria.
- Performance criteria, indicative targets, and structural benchmarks are defined in the technical memorandum of understanding (TMU), which also defines the scope and frequency of data reporting for program monitoring purposes.

### Key quantitative performance criteria and indicative targets (selected from Table 1)
- Performance Criteria (cumulative from the beginning of the fiscal year unless otherwise indicated):
  - Floor on fiscal primary balance: Sep. 2019 = -0.3; Dec. 2019 = -0.7; Mar. 2020 = -1.2; Jun. 2020 = -1.6; Sep. 2020 = 5.2; Dec. 2020 = 10.4.
  - Ceiling on contracted new non-concessional external debt of the public sector (continuous basis): Sep. 2019 = 100.0; Dec. 2019 = 100.0; Mar. 2020 = 125.0; Jun. 2020 = 125.0; Sep. 2020 = 125.0; Dec. 2020 = 125.0.
  - Ceiling on new external arrears of the central government (continuous basis): Sep. 2019 = 0.0; Dec. 2019 = 0.0; Mar. 2020 = 0.0; Jun. 2020 = 0.0; Sep. 2020 = 0.0; Dec. 2020 = 0.0.
  - Ceiling on the CBL’s operational and capital expenses (cumulative from beginning of calendar year): Sep. 2019 = 27.4; Dec. 2019 = 32.9; Mar. 2020 = 9.3; Jun. 2020 = 14.1; Sep. 2020 = 19.4; Dec. 2020 = 24.2.
  - Floor on the change in the CBL’s net international reserves (cumulative from beginning of calendar year): Sep. 2019 = -22.1; Dec. 2019 = -25.7; Mar. 2020 = 2.5; Jun. 2020 = 5.0; Sep. 2020 = 7.4; Dec. 2020 = 9.9.
  - Ceiling on CBL's gross direct credit to central government: Sep. 2019 = 487.5; Dec. 2019 = 487.5; Mar. 2020 = 487.5; Jun. 2020 = 487.5; Sep. 2020 = 487.5; Dec. 2020 = 487.5.

- Indicative Targets (cumulative where noted):
  - Floor on total revenue collection of the central government: Sep. 2019 = 84.0; Dec. 2019 = 184.0; Mar. 2020 = 293.0; Jun. 2020 = 414.0; Sep. 2020 = 108.5; Dec. 2020 = 218.6.
  - Ceiling on new domestic arrears/payables of the central government (continuous basis): Sep. 2019 = 52.0; Dec. 2019 = n.a.; Mar. 2020 = n.a.; Jun. 2020 = 0.0; Sep. 2020 = n.a.; Dec. 2020 = n.a.
  - Floor on social and other priority spending (cumulative from beginning of fiscal year): Sep. 2019 = 14.7; Dec. 2019 = 29.3; Mar. 2020 = 44.0; Jun. 2020 = 58.7; Sep. 2020 = 14.7; Dec. 2020 = 29.3.
  - Floor on on-budget capital spending (cumulative from beginning of fiscal year): Sep. 2019 = 2.2; Dec. 2019 = 4.3; Mar. 2020 = 6.5; Jun. 2020 = 8.7; Sep. 2020 = 3.1; Dec. 2020 = 6.3.
  - Ceiling on net domestic assets of the CBL: Sep. 2019 = 220.0; Dec. 2019 = 250.3; Mar. 2020 = 242.6; Jun. 2020 = 223.6; Sep. 2020 = 220.7; Dec. 2020 = 236.9.

- Memorandum items (selected):
  - Ceiling on disbursement of concessional external debt: Sep. 2019 = 30.0; Dec. 2019 = 65.0; Mar. 2020 = 100.0; Jun. 2020 = 130.0; Sep. 2020 = 175.0; Dec. 2020 = 215.0.
  - Floor on wage bill of school teachers (cumulative): Sep. 2019 = 8.3; Dec. 2019 = 16.7; Mar. 2020 = 25.0; Jun. 2020 = 33.4; Sep. 2020 = 8.3; Dec. 2020 = 16.7.
  - Floor on wage bill of core and non-core clinical health workers (cumulative): Sep. 2019 = 6.2; Dec. 2019 = 12.4; Mar. 2020 = 18.6; Jun. 2020 = 24.8; Sep. 2020 = 6.2; Dec. 2020 = 12.4.
  - Floor on spending on home-grown school feeding program (cumulative): Sep. 2019 = 0.13; Dec. 2019 = 0.25; Mar. 2020 = 0.38; Jun. 2020 = 0.50; Sep. 2020 = 0.25; Dec. 2020 = 0.50.

### Prior actions, governance, and structural benchmarks (selected highlights)
- Prior actions completed (examples):
  - Approval of a FY2020 fiscal budget fully consistent with the fiscal program discussed with IMF staff — Done.
  - Resume regular meetings of the Liquidity Management Committee — Done.
  - Establish at least a one-month track record of regular weekly fiscal reporting (with no more than a 4-day lag) as defined in the TMU — Done.
  - Restructure the civil service wage bill such that: (i) the wage bill is limited to US$297 million in FY2020; (ii) general and specific allowances are eliminated as forms of compensation; (iii) all employees assigned registered job title, official pay grade, and registered salary — Done.
  - All non-executive CBL Board members appointed and confirmed in accordance with the current CBL Act — Done.
  - CBL to incorporate Kroll Associates recommendations into the CBL Action Plan — Done.
  - CBL to have established a track record of at least four weeks of weekly reports detailing foreign exchange flows to IMF staff — Done.
- Prior actions to be completed within 5 days of the Board meeting (examples):
  - Implement ELA provisions and enhance monitoring with respect to financial institutions that have overdrawn balances at the CBL (assess eligibility, collateral, government guarantees, liquidity monitoring).
  - Finalize appointment of a firm to co-source the CBL’s Internal Audit activity in critical operations.
- Structural benchmarks (target dates and rationale, selected):
  - Improve and clean civil service payroll registry (biometric ID regulation and no payment without biometric ID): Target date August 15, 2020 — Necessary to eliminate ghost workers.
  - Issue/amend regulation on hiring of public servants to require CSA and MFDP joint control and registration of hires: Target date End-January 2020 — Improve payroll efficiency and controls.
  - Eight largest SOEs to provide quarterly financial reports for FY2019Q1–Q4 and FY2020Q1 by end-March 2020; SOE Unit to provide comprehensive report by end-May 2020 — End-May 2020 — Enhance transparency of major revenue source.
  - Complete inventory and rationalize bank accounts with the CBL and commercial banks (preparatory measure for eventual adoption of a treasury single account): Target date End-June 2020.
  - Submit amendments to the CBL Act consistent with Fund staff advice to the National Legislature: Target date End-March 2020 — Promote greater CBL independence.
  - Fully implement priority actions of the updated CBL Action Plan with quarterly updates starting with End-March 2020.
  - Submit amendments to anti-corruption and penal laws to upgrade the anti-corruption framework in line with the UNCAC, including criminalizing illicit enrichment and bribery of foreign officials and establishing a special fast-track process for prosecuting corruption: Target date End-September 2020.

*Source: Liberian authorities and IMF staff estimates and projections.*

### 2.      For the purpose of the program, foreign currency denominated values for 2019 will be

### 1lbrea2019002 - 2.      For the purpose of the program, foreign currency denominated values for 2019 will be

### Exchange rates (Program exchange rates, as of end-October 2019)
- Program exchange rate: LD 211.50/US$
- Cross rates (Currency units per SDR; Liberian Dollars per Currency Unit; US dollars per Currency Unit):
  - US dollars: 1.38; 211.50; 1.00
  - British Pound Sterling: 1.06; 274.09; 1.30
  - Japanese Yen: 150.12; 1.94; 0.01
  - Euro: 1.24; 235.90; 1.12
  - SDR: 1.00; 291.74; 1.38

### Definitions — Coverage and measurement
- Government (for program purposes):
  - Defined as the budgetary central government of Liberia (GoL).
  - Excludes extrabudgetary units of the central government, public nonfinancial corporations, public financial corporations, social security funds, and local government.
  - Operations of the budgetary central government will be presented in U.S. dollars with Liberian dollar revenues and expenditures converted at the period average exchange rate.
- Budgetary central government:
  - Entities with budgets covered by the main budget controlled by the Ministry of Finance and Development Planning.
  - Coverage includes on-budget operations and off-budget transactions managed by these entities.
- Revenue collection of the budgetary central government:
  - Includes all tax and non-tax receipts transferred into GoL revenue accounts at the CBL for the relevant fiscal year, including income and transfers from state-owned enterprises and public institutions, and budget support loans and grants.
  - Tax revenue includes taxes on income, profits, capital gains, goods and services, international trade, and other taxes (including property tax and social contribution by foreign concessions).
  - Non-tax revenue includes property income (dividends and interest income, royalty and rent, and assets sales), administrative fees, fines, penalties and forfeits, as well as other non-tax revenue (voluntary transfers and other grants, sales of other goods and services, withholding on other payments by government (non-resident), and taxes on financial and capital transactions).
  - External loans and grants for off-budget projects managed by the budgetary central government are excluded unless otherwise stated.
  - For program purposes, revenue is measured in U.S. dollars, with GoL revenue account receipts in Liberian dollars converted to U.S. dollars using the period average exchange rate.
- Public sector:
  - Defined as the general government (central government, local government and social security funds), public nonfinancial corporations and public financial corporations.
  - Public corporations: resident institutional units controlled by government that are principally engaged in production of market goods or services.
- Public external debt:
  - Debt of the central Government owed to non-residents, including commitments contracted or guaranteed for which value has not been received.
  - Considered contracted once all conditions for its entrance into effect have been met, including ratification, if required.
  - Considered guaranteed when all conditions for entry into effect, including ratification, have been met for both external debt and the guarantee.

### Quantitative Performance Criteria (QPC) — Coverage and dates
- QPCs proposed for December 31, 2019, and June 30, 2020 with respect to:
  - Primary fiscal balance (floor),
  - New arrears on public external debt (ceiling),
  - New non-concessional public external debt contracted or guaranteed (ceiling),
  - CBL’s operational and capital expenditure (ceiling),
  - CBL’s net international reserves (floor), and
  - CBL’s gross direct credit to government (ceiling).

### Primary fiscal balance — Definition and measurement
- Floor applies to cumulative flow of primary fiscal balance since beginning of fiscal year (July 1 to June 30).
- Primary fiscal balance relates to revenue and expenditure of the budgetary central government (paragraph 4).
- Monitoring focuses on on-budget operations only.
- Primary balance for monitoring defined as difference between:
  - Revenue excluding budget-support grants and loans, and
  - Expenditure net of interest payments (including on-budget gross investment in nonfinancial assets).
- Revenue defined as all revenue collected by the LRA.
- Expenditure measured on a commitment basis:
  - Non-payroll expenditures: commitment occurs when a payment voucher has been issued following receipt of goods or services.
  - Payroll expenditure: commitment is when the payment is approved.
- Primary fiscal balance used for debt sustainability analysis: calculated using revenue and expenditure of the budgetary central government including off-budget transactions.
- Adjuster:
  - If cumulative budget support grants and concessional budget support loans received up to relevant quarter in FY2019/20 exceed amounts stated in Table 2, the floor for the primary fiscal balance excluding grants in that quarter will be adjusted downward by the amount of the excess.
  - Criteria in paragraph 12 used to determine concessionality.

### New arrears on public external debt (QPC)
- Zero ceiling on payment arrears on public external debt.
- External payment arrears accrue when undisputed payments (interest or amortization) on Government debts to non-residents are not made within contract terms (accounting for contractual grace periods).
- Excludes arrears arising from external payments being renegotiated and arrears on debts in dispute.
- Data source: primarily Debt Management Unit of the Ministry of Finance and Development Planning; other fiscal and monetary sources used where gaps arise.
- Monitored on a continuous basis.

### New non-concessional public external debt contracted or guaranteed (QPC)
- Continuous ceiling on contracting and guaranteeing by the public sector of new non-concessional external debt.
- Concessionality definition (paragraph 12):
  - A debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element = (nominal value - NPV) / nominal value, expressed as percent of nominal value.
  - NPV calculated by discounting future debt-service payments at a discount rate of 5 percent at time of contracting.
  - Loans from private entities not considered concessional unless accompanied by a grant/grant element from a foreign official entity such that combined grant element ≥ 35 percent.
- Non-concessional public external debt:
  - External debt that does not meet the concessionality definition.
  - Reported by the Debt Management Unit and measured in U.S. dollars at current exchange rates.

### Adjustor to the Primary Balance Excluding Grants, FY2020 (Table 2)
- Table 2 (Millions of U.S. dollars, Cumulative):
  - Budget support:
    - FY2020Q1 Outturn: 0.0
    - FY2020Q2: 6.0
    - FY2020Q3: 46.0
    - FY2020Q4*: 61.0
  - Primary fiscal balance excluding grants:
    - FY2020Q1 Outturn: 28.9
    - FY2020Q2: 21.9
    - FY2020Q3: -2.3
    - FY2020Q4*: 0.0
  - *As reported at end-September after full reconciliation of the fiscal year.

### CBL’s operational and capital expenditure (QPC)
- Ceiling applies on CBL operational and capital expenditure.
- Defined as sum of total operating expenses and capital expenditure excluding interest paid on CBL instruments and facilities.
- Budget measured in U.S. dollars, with Liberian dollar expenditures converted at the period-average exchange rate.

### CBL’s Net International Reserves (NIR) (QPC)
- NIR defined as difference between gross official reserve assets and gross reserve liabilities.
- Net foreign exchange position presented in U.S. dollars.
- Assets and liabilities denominated in SDRs valued at a fixed rate of the U.S. dollar against SDR at the program exchange rate (Table 1).
- Other currencies valued at cross rates against the U.S. dollar using program exchange rates (Table 1).
- Gross official reserve assets include:
  - (i) monetary gold holdings;
  - (ii) holdings of SDRs;
  - (iii) the reserve position in the IMF;
  - (iv) foreign convertible currency holdings;
  - (v) foreign currency denominated deposits held in central banks and other investment-grade banks and institutions abroad;
  - (vi) loans to foreign banks of investment-grade redeemable upon demand;
  - (vii) investment-grade foreign securities;
  - (viii) other unpledged convertible liquid claims on non-residents.
- Exclusions from gross official reserve assets:
  - (i) any foreign currency claims on residents;
  - (ii) Resident banks’ foreign currency assets held at the CBL;
  - (iii) capital subscriptions in international institutions;
  - (iv) foreign assets in nonconvertible currencies;
  - (v) mutilated foreign currency bank notes in vault and in transit;
  - (vi) gross reserves encumbered or pledged, including but not limited to assets blocked as collateral, assets lent that are not available before maturity and not marketable, assets blocked for letters of credit, assets ring-fenced in accordance with guarantees.
- Gross reserve liabilities defined as sum of:
  - (i) outstanding liabilities of the CBL to the IMF;
  - (ii) all short-term foreign currency liabilities of the CBL to non-residents with original maturity up to, and including, one year;
  - (iii) all foreign currency deposits of the government with the CBL.
- SDR allocations are excluded from gross reserve liabilities.
- For QPC on NIR calculation:
  - End-of-the-month foreign exchange numbers audited by the Internal Audit Department of the CBL will be used, except IMF accounts numbers (Reserve tranche position, SDR holdings, Use of Fund resources) taken from IMF records.

### CBL’s gross direct credit to government (QPC)
- Ceiling applies on CBL’s gross direct credit to the Central Government (paragraph 3).
- CBL gross direct credit to the Government defined as sum of all claims on the government in local and foreign currency, including:
  - loans to the Government in local currency including all suspense accounts;
  - loans to the Government in foreign currency including all suspense accounts;
  - securities in local currency (other than shares);
  - securities in foreign currency (other than shares);
  - negative balances (overdrafts) on deposits of the central government in local currency including “other deposits”;
  - negative balances (overdrafts) on deposits of the central government in foreign currency including “other deposits”;
  - all other claims on the government in local currency.

### Indicative targets (Dec 31, 2019 and June 30, 2020)
- Indicative targets set with respect to:
  - Total revenue collection of the budgetary central government (floor),
  - New domestic arrears/payables of the budgetary central government (ceiling),
  - Social and other priority spending (floor),
  - On-budget capital spending (floor),
  - Net domestic assets of the CBL (ceiling).

### Total revenue collection (indicative target)
- Total revenue for the indicative target is revenue collection of the budgetary central government (paragraph 5) including budget support loans and grants.

### New domestic arrears/payables of the budgetary central government (indicative target)
- Ceiling applies on new domestic arrears/payables: calculated as difference between government payment commitments and actual payments made, allowing a processing period of no more than 90 days from the end of the fiscal year.
- Actual payments defined as issuance date of checks by the Ministry of Finance and Development Planning.
- Government payment commitments include all expenditure for which commitment vouchers have been approved by the Expenditure Department, and expenditures now automatically approved (wages and salaries, pensions, debt payments to the CBL and commercial banks, CBL bank charges, transfers of ECOWAS levies into the ECOWAS account).
- Accounts payable defined as difference between expenditure on commitment and cash basis.

### Social and other priority spending (indicative target)
- For end-December 2019 and end-June 2020, social spending defined as education, health, and social development services.
- Education spending includes:
  - Total wage bill of teachers by subsector (early childhood, primary, junior high, and senior higher).
  - Spending on home-grown school feeding program.
- Health spending includes:
  - Total wage bill of core clinical health workers (physician, physician assistant, midwife, registered nurses) and noncore clinical health workers (clinical support, EHT, dentist, lab technician and pharmacist).
- Payments counted as payment vouchers approved by the Ministry of Finance and Development Planning.

### On-budget capital spending (indicative target)
- Defined as gross investment in nonfinancial assets as stated in the budgetary central government statement of operations table.
- Excludes off-budget projects.
- Indicative target based on annual gross investment and will be tested in June 2020 based on gross investment over FY 2019/2020.

### Net domestic assets of the CBL (indicative target)
- Net domestic assets (NDA) of the CBL defined as monetary base expressed in U.S. dollars minus the net foreign assets of the CBL (converted into U.S. dollars at program exchange rates).
- Definitions applied:
  - Monetary base expressed in U.S. dollars = monetary base expressed in Liberian dollars divided by the Liberian dollar/USD exchange rate published by the CBL for the relevant test date.
  - Monetary base expressed in Liberian dollars = stock of Liberian dollars in circulation (including vault cash of ODCs in Liberian dollars) plus reserve deposits of ODCs at the CBL in both Liberian dollars and U.S. dollars.
  - Net foreign assets of the CBL = foreign assets of the CBL minus foreign liabilities of the CBL (expressed in U.S. dollars).
  - Foreign assets of the CBL = sum of gross reserves and other foreign assets.
    - Gross reserves are gross official reserve assets (paragraph 16) but include: (i) any foreign currency claims on residents; and (ii) Resident banks’ foreign currency assets held at the CBL.
    - Other foreign assets include but not limited to foreign currency trade credit/advances of non-resident.
  - Foreign liabilities of the CBL = sum of short-term foreign liabilities and other foreign liabilities.
    - Short-term foreign liabilities include but not limited to use of Fund credit and loans.
    - Other foreign liabilities include but not limited to other foreign currency loans to nonresidents and SDR allocation.

### Data reporting
- (Section D begins; specifics of data reporting not included in supplied content.)

*International Monetary Fund — Liberia program document excerpt*

### 26.      To allow monitoring of developments under the program, the Ministry of Finance and

### 1lbrea2019002 - 26.      To allow monitoring of developments under the program, the Ministry of Finance and

### Program monitoring: data reporting framework (Table 4 — summary of reporting agencies, reports, frequency, timing)
- Reporting agencies: MFDP (Ministry of Finance and Development Planning), CBL (Central Bank of Liberia), LRA (Liberia Revenue Authority).
- MFDP: monthly report on status of implementation of the performance criteria and structural benchmarks specified in Tables 1 and 3 of the MEFP — Monthly — Within three weeks after the end of the month.
- MFDP: monthly fiscal reconciliation reports, where cash revenue and expenditure with spending commitments are reconciled — Monthly — Within three weeks after the end of the month.
- LRA: daily LRA unreconciled revenue performance report — Daily — Within three days.
- MFDP: detailed reports on monthly revenue and expenditure on both a cash and a commitment basis by budget line and a completed summary table on central government operations — Monthly — Within three weeks after the end of the month.
- MFDP: detailed report on disbursements of budget support, grants and budgeted and off-budget loans, by donor and by project — Monthly — Within three weeks after the end of the month.
- MFDP: detailed report on monthly social spending lines monitored for the program purpose on commitment and cash basis — Monthly — Within three weeks after the end of the month.
- MFDP: table providing the end-of-period stock of domestic arrears accumulated and payments made on arrears during the program period, by budget category (wages, goods and services, etc.), including payment and stock of existing arrears from the previous ECF Arrangement — Monthly — Within three weeks after the end of the month.
- MFDP: outstanding appropriations, allotments and commitments, and disbursements for line ministries and agencies — Monthly — Within three weeks after the end of the month.
- MFDP: weekly cash plan report detailing i) weekly revenue and expenditure cash flows (including opening balance of revenue account, cash inflows, cash outflows, sources of financing, surplus/deficit, outstanding checks, and net of closing bank balance and outstanding checks); ii) monthly cash plan for the remaining of the fiscal year — Weekly — Within five days after the end of the week.
- MFDP: weekly fiscal report detailing i) summary of budget expenditure on allotment, commitment, cash basis, and liabilities by economic code; ii) detailed budget execution; iii) cumulative revenue and expenditure by currency; iv) expenditure by Ministries and Agencies — Weekly — Within five days after the end of the week.
- CBL: monthly sweeping reports showing the end of the month balances of the GoL accounts at the CBL and of all operations and other accounts at the CBL of the M&As — Monthly — Within three weeks after the end of the month.
- CBL: CBL’s claims on and liabilities to Central Government by account: end-of-month balances of all operating and other accounts at the CBL of the line ministries and agencies receiving budgetary appropriations — Monthly — Within three weeks after the end of the month.
- CBL: CBL’s claims on and liabilities to Public Nonfinancial Corporations by account: end-of-month balances of all operating and other accounts at the CBL of all public nonfinancial corporations — Monthly — Within three weeks after the end of the month.
- MFDP: quarterly reports of state-owned enterprise financial operations submitted to the Ministry of Finance and Development Planning — Quarterly — Within 45 days after the end of the quarter.

### Balance of payments and public external debt (selected MFDP / CBL reporting requirements)
- CBL: export volumes and values by major commodity, import values by standard international trade classification (SITC), import volumes of rice (by commercial and noncommercial use) and petroleum products — Monthly — Within three weeks after the end of the month.
- CBL: remittance flows for money transfer operators (MTOs) and commercial bank wire. Data to be reported as gross inflows and gross outflows for each component — Monthly — Within three weeks after the end of the month.
- MFDP: the amount of new external debt contracted or guaranteed by the Government, as well as projects in the pipeline or cancelled — Monthly — Within three weeks after the end of the month.
- MFDP: the amount of new domestic debt contracted or guaranteed by the Government — Monthly — Within three weeks after the end of the month.
- MFDP: detailed report on monthly disbursement of external debt by loan, category and creditors; and distinguishing between loan and grant components in cases of projects with mixed funding modalities — Monthly — Within three weeks after the end of the month.
- MFDP: detailed report on monthly payments on external debt by category and creditors and the stock of external debt — Monthly — Within three weeks after the end of the month.
- MFDP: detailed report on monthly payments on domestic debt by category and the domestic debt stock — Monthly — Within three weeks after the end of the month.

### Monetary and financial sector reporting
- CBL: end-of-month balance sheet of the CBL (1SR) and the Central Bank Survey (1SG) — Monthly — Within three weeks after the end of the month.
- CBL: end-of-month balance sheet of the other depository corporations (ODCs) (2SR) and the Other Depository Corporations Survey (2SG) — Monthly — Within three weeks after the end of the month.
- CBL: the Depository Corporations Survey (3SG) — Monthly — Within three weeks after the end of the month.
- CBL: CBL cash budget weekly outturn relative to forecast following the template provided below — Weekly — Within five days after the end of the week.
- CBL: a full set of monthly Financial Soundness Indicators (FSIs) regularly calculated by the CBL, including capital adequacy, profitability and liquidity ratio — Monthly — Within three weeks after the end of the month.
- CBL: the income statements of ODCs as reported to the CBL — Monthly — Within three weeks after the end of the month.
- CBL: the detailed table of commercial banks’ loans and advances by sector — Monthly — Within three weeks after the end of the Month.
- CBL: amounts offered, demanded and placed in Government of Liberia Treasury bill/ Treasury bond auctions; including minimum bid rate and amount, maximum bid rate and amount, and weighted average bid rates — Monthly — Within one week after the end of month.
- CBL: interest rates: average monthly interest rates on loans and deposits — Monthly — Within three weeks after the end of month.
- CBL: a detailed report on liquidity forecasting up to 6 months ahead, including: (i) projected government’s cash flows (revenue, expenditure, repayments and disbursements of loans including T-bills) by currency; (ii) projected flows to the CBL’s net exchange position, including but not limited to planned U.S. dollar sales in the foreign exchange auction, and planned foreign exchange transactions with the Government; and (iii) projected flows of Liberian dollar liquidity, including but not limited to planned CBL Notes issuance — Monthly — Within three weeks after the end of month.
- CBL: production data in value and volume — Quarterly — Within six weeks after the end of the quarter.

### Foreign exchange and reserve assets reporting
- CBL: daily reporting of gross foreign exchange inflows and outflows and their components, plus memo items (total inbound remittances through MTOs, exchange rate for surrender purchases, published indicative buying and selling rates) — Weekly — Within five days after the end of the week.
- CBL: daily foreign exchange transactional level data — Weekly — Within five days after the end of the week.
- CBL: Internal Audit Department (IAD)’s verification report on foreign exchange (random check on the accuracy of the daily data at least five times a month, plus on the last day of each month) — Monthly — Within five days after the end of the month.
- CBL: daily reporting for monetary operations and accounts of the ODCs at the CBL: Standing Deposit Facility (SDF) (outstanding, requested, recalls, SDF interest rate); Standing Credit Facility (SCF) (outstanding, SCF interest rate); CBL bills (outstanding, maturing, and the amount, tenor and average interest rate of new CBL bill issuances); ODC accounts at the CBL (the average reserve maintenance period (RMP), reserve requirement for RMP, and excess reserves in foreign currency and those in local currency); and currency in circulation (CIC) (currency issuance, currency redemption, USD withdrawal, USD deposit) — Weekly — Within five days after the end of the week.
- CBL: CBL FX auctions summary of bids and bidders, including data on: number of participants (commercial banks and clients); maximum bid rate and volume; minimum bid rate and volume; average bid rate; largest transaction size (client and commercial bank); smallest transaction size (client and commercial bank) — Weekly — Within five days after the end of the week.

### Reporting logistics and additional provisions
- All the above data and reports will be provided electronically to the IMF Resident Representative to Liberia, with copies to the local IMF economist, Mr. Deline (adeline@imf.org) for further transfer to the African Department of the IMF in Washington, D.C.
- The GoL and CBL commit to provide the Fund with such information as the Fund requests in connection with the progress in implementing the policies and reaching the objectives of the program.
- The CBL will also provide detailed balance sheet data to IMF staff when requested.

### Table 5: Reporting requirements for the CBL’s cash budget (template structure)
- Weekly template columns: Week 1 Budget, Week 1 Actual, Week 2 Budget, Week 2 Actual, ...
- Income lines include: Interest income; o/w from GOL; Other income.
- Expenditure lines include: Current expenditure; Personnel costs; o/w in Liberian Dollar; Other expenses; o/w in Liberian dollar; interest payments; Capital expenditure; o/w currency printing; In Liberian dollar.
- (Table 5 provides a week-by-week budget vs. actual template for income and expenditure lines.)

### CBL Action Plan: Priority Items (Attachment III — selected items, responsibilities, due dates, status/comments)
- Governance of the CBL
  - Amendments to the CBL Act to be submitted to the Legislature by end-March 2020 — Responsible: BOG — Status/comment: In progress (SB). Draft amended Act to be submitted to the President and onwards to the National Legislature in the first quarter of 2020.
  - Amendments to include changes to the legal framework for the CBL’s Internal and External Audits (Section 46).
- Financial statements and month-end procedures
  - Enhance annual and interim financial statement disclosures starting with 2019 Financial Statement — Responsible: Finance Department (FD) — Status: Not started.
  - Establish month-end closing procedures — Due: End-December 2019 — Status: Not started.
- Enterprise Risk Management
  - Submit quarterly compliance reports to BOG beginning with a report for 2019 Q4 — Responsible: BOG / ERMD — Due: 30 days after the end of the quarter beginning with a report for 2019 Q4 — Status: Completed (mechanism approved); reopened (compliance reports need to be submitted to and discussed by the BOG).
- Internal Controls and auditing
  - Enhance reporting practices on foreign exchange withdrawals starting with report for November 2019; semi-annual external audits on foreign exchange reserves — Responsible: FD — Due: Within six weeks after every six months — Status: In progress; KPMG auditing January-September 2019.
  - IAD to work with co-sourcing internal firm to strengthen risk-based auditing quarterly beginning with 2019 Q4 — Responsible: BAC — Status: Near completion (PA).
- Bank supervision and resolution
  - Complete on-site examinations of financial institutions that have overdrawn balances at the CBL as of end-September 2019 — Responsible: RSD — Due: End-November 2019 — Status: Completed.
  - Appoint reputable external auditor to review findings of on-site examinations — Due: End-December 2019 — Status: In progress.
  - Conduct detailed assessment of credit underwriting standards across banks — Responsible: RSD — Due: End-June 2020 — Status: In progress.
  - If unclear, conduct Asset Quality Review (AQR) — Due: End-December 2020 — Status: Not started.
  - Introduce a Special Resolution Regime (SRR); submit amendments to the Financial Institutions Act of 1999 to anchor SRR in legislation — Responsible: Legal Counselor — Due: End-September 2020 — Status/comment: CBL commenced revision of the New FIA of 1999; expected to submit a zero draft to management at end of November 2019.
  - Approve operational guidelines and establish institutional capacity for SRR — Responsible: BOG / RSD — Due dates: End-December 2020 (guidelines); End-March 2021 (capacity).
  - Strengthen compliance-based regime for imposing supervisory corrective measures to achieve compliance with Basel Core Principles #11 — Responsible: RSD — Due: End-March 2020 — Status: Not started; Regulation on Supervisory Intervention approved by the BoG and issued to banks.
- Cash and currency management (Banking Department — BD)
  - Improve inventory management of cash (vault stock movements recorded by vault coordinator; record vault stocks in system immediately upon receipt) — Due: End-November 2019 — Status: Not started.
  - Improve data collection and reporting (daily records in numbers of notes and value; record by denomination and level of fitness) — Due: End-December 2019 — Status: Not started.
  - Develop methodology for forecasting future demand for bank notes by denomination, including benchmark stocks — Due: End-June 2020 — Status: Not started.
  - Destroy unfit notes starting with end-December 2019 — Status: In progress.
  - Transfer currency held at waterside reserve vault to reserve vault at the CBL — Due: End-December 2019 — Status: Not started.
  - Enhance control of access to restricted areas (swiping devices) — Due: End-June 2020 — Status: In progress.
  - Set up dual control security strategy (e.g., two door lock-system) — Due: End-December 2020 — Status: In progress.
  - Improve vault security measures — Due: End-December 2019 — Status: In progress.
  - Submit emergency procurement request to the Legislature to ensure printing of sufficient Liberian dollar banknotes — Responsible: BOG / Ministry of State — Due: End-January 2020 — Status: In progress.
  - Ensure open tender process for design/printing/supply of Liberian dollar banknotes after emergency procurement request — Continuous — Status/comment: CBL to request technical advice if needed.

*Based on the text of the provided content unit (Tables 4 and 5, Attachments III and IV) as supplied.*

### 1. The CBL and GOL hereby agree to consolidate and reschedule the total debt in Liberian

### 1lbrea2019002 - 1. The CBL and GOL hereby agree to consolidate and reschedule the total debt in Liberian

### Agreement scope and definitions
- The CBL and GOL agree to consolidate and reschedule the total debt in Liberian Dollars (LD) and United States Dollars (USD) owed the CBL by the GOL as of October 31, 2019 as provided in this Agreement.
- Effectiveness and replacement:
  - This Agreement is effective from the date it enters into force until the remaining balance of the consolidated debt, as provided in this Agreement, is repaid in full.
  - This Agreement will replace existing Loan Agreements, Memoranda of Agreement or other signed documentation that outlined terms and conditions of such loans listed at the inception of those agreements.
  - This Agreement will treat with CBL claims on the GOL that do not currently have existing agreements, resulting in the consolidation of CBL claims on the GOL into a single agreement called the GOL Consolidated Loan.
  - This Agreement must be read alongside the Schedules I-II, as appended to this Agreement.
- Definitions (selected):
  - “CBL Loans” enumerated as: (i) CBL Bridge (2019) Loan; (ii) IMF Reconciliation Balance; (iii) Extended Credit Facility Loan (2014) for Budget Support; (iv) Rapid Credit Facility Loan (2015) for Budget Support; (v) Extended Credit (2016) for Budget Support; (vi) CBL Restructured Capital Notes; (vii) CBL Long-term Loan; (viii) Obligation Escrow Accounts; and (ix) Other Claims.
  - “GOL Consolidated Loan” means the sum of the outstanding claims of the CBL on the GOL as at October 31, 2019 as provided in Schedule I and provided by the CBL as verified claims as provided by its external auditors.
  - “Loan Principal” is the principal value of the GOL Consolidated Loan as of the date of consolidation.
  - “Loan Interest” means interest on the GOL Consolidated Loan due and payable in accordance with the terms of this Agreement.
  - “Remaining Balance” means the sum of (i) any undue installments of the Loan Principal; (ii) any due but unpaid principal payment of the Loan Principal and (iii) any due but unpaid payments of the Loan Interest.
  - “Fiscal year” means the calendar for government budgetary cycle beginning in July of the current year and ending in June of the following year.

### Terms and conditions of payment (Article IV)
- Consolidated Debt amount:
  - The amount of the Consolidated Debt to be represented by the GOL Consolidated Loan is [US$436,358,101.87].
  - The amount of debt denominated in Liberian Dollars shall be converted to United States Dollars at the prevailing exchange rate as of October 31, 2019 and as published as the reference exchange rate by the CBL.
- Amortization schedule:
  - The Loan Principal shall be repaid in one hundred and eighty [180] equal and consecutive monthly installments of [US$2,424,212.00], commencing on [30 January 2029], until the Loan Principal is repaid in full.
- Interest:
  - The interest rate for the Loan Interest shall be four percent per annum.
  - The Loan Interest shall accrue daily on the Remaining Balance and be paid monthly.
  - The first Loan Interest is payable 30 calendar days after the Agreement enters into force, and thereafter, on a 30-day calendar cycle.
  - The calculation of the Loan Interest is on the basis of a 360-day count.
- Special accrual provisions:
  - Accrual of the Loan Bond Interest shall not start on the portion of the amount of the Loan Principal attributed to the claims defined as the Extended Credit Facility Loan (2014) for Budget Support; Rapid Credit Facility Loan (2015) for Budget Support; and Extended Credit (2016) for Budget Support; until the due date for such amounts, as per Schedule II.
  - Accrual of Loan Interest on the claims indicated above shall commence on the due date of such amount and Loan Interest payment determined using the calendar days from the due date up to the next payment date for Loan Interest.
  - Interest shall continue to accrue at the specified rate on (i) any due but unpaid portion of the Loan Principal; and (ii) any due but unfulfilled payments of the Loan Interest.
  - Any payment by the GOL shall first be applied to reduce the balance of (i) and (ii) if there is any such balance.
- Currency and conversion:
  - The GOL Consolidated Loan is payable in United States Dollars.
  - At the discretion of the CBL, the CBL can receive any payment in Liberia dollars. The amount payable by the GOL shall be converted to Liberia dollars at the prevailing exchange rate applicable on the payment date and as published as the reference exchange rate by the CBL.
- Settlement logistics:
  - The CBL is authorized to debit the respective GOL Account as a means of receiving the payments on the GOL Consolidated Loan.
  - If the settlement date for the Loan Interest payment or amortization of the Loan Principal falls on a non-business day, the CBL shall receive the payment on the next subsequent business day.
  - The CBL shall issue a confirmation to the GOL upon the receipt of each payment of Loan Interest and Loan Principal repayment.
  - The CBL shall send a copy of the confirmation of payment and a report on the Remaining Balance as of the date of confirmation to the International Monetary Fund.

### Amendments, immobilization, and communications (Article V)
- Amendments:
  - Any change of the terms and conditions must be effected in writing and a new agreement, reflecting the agreed changes, be duly signed by the relevant parties.
  - Any changes to the Articles of this agreement shall be communicated to the International Monetary Fund by the CBL prior to the new agreement coming into force.
- Immobilization and conversion to security:
  - Both parties may immobilize, using the Central Securities Depository, the Remaining Balance of the Consolidated Loan at any time when the Agreement is in force.
  - Where the Consolidated Loan converts to a GOL security, all terms and conditions of payment for the Consolidated Loan shall remain as specified in Article IV.

### Administrative and ancillary excerpts (selected other informational annex material)
- Safeguards assessment (2019):
  - The 2019 safeguards assessment notes a significant deterioration in the governance and control frameworks of the CBL.
  - Issues cited include lack of a permanent Board for almost two years, changes to the Governor, both Deputy Governors, and senior management, and deterioration in the financial position of the CBL following extension of credit to government in excess of legal limits.
  - Many priority recommendations have been included as structural measures under the new arrangement.
- Exchange rate arrangement:
  - The currency of Liberia is the Liberian dollar. The U.S. dollar is also legal tender.
  - The de jure exchange rate regime classification is ‘managed floating’.
  - Since July 2018, the exchange rate has followed a depreciating trend within a 2 percent band against the U.S. dollar.
  - The de facto exchange rate arrangement was reclassified to “crawl-like” from “other managed”, effective July 23, 2018.
- Selected financial and IMF data (as of October 31, 2019):
  - Quota: 258.40 SDR Million (100.00 percent)
  - Fund holdings of currency: 226.08 SDR Million (87.49 percent)
  - Reserve Tranche Position: 32.33 SDR Million (12.51 percent)
  - Net cumulative allocation (SDR Department): 123.98 SDR Million (100.00 percent)
  - Holdings (SDR Department): 145.5 SDR Million (117.36 percent)
  - Outstanding Purchases and Loans: RCF loans 32.30 SDR Million (12.50 percent); ECF arrangements 116.56 SDR Million (45.11 percent)
  - Latest Financial Arrangements (selected):
    - ECF Nov. 19, 2012 – Nov. 17, 2017: 111.66 SDR Million approved, 111.66 SDR Million drawn
    - ECF Mar. 14, 2008 – May 17, 2012: 247.90 SDR Million approved, 247.90 SDR Million drawn
    - EFF Mar. 14, 2008 – Sep. 25, 2008: 342.77 SDR Million approved, 342.77 SDR Million drawn
  - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
    - 2019: Principal 3.25; Charges/Interest 0.00; Total 3.25
    - 2020: Principal 20.04; Charges/Interest 0.00; Total 20.04
    - 2021: Principal 22.97; Charges/Interest 0.00; Total 22.97
    - 2022: Principal 26.28; Charges/Interest 0.00; Total 26.29
    - 2023: Principal 27.32; Charges/Interest 0.00; Total 27.32
- Statistical issues (as of November 7, 2019):
  - General: Data provision has serious shortcomings that significantly hamper surveillance, notably national accounts, government finance, and balance of payments statistics.
  - National accounts: Comprehensive national accounts data are not available; LISGIS is rebasing national accounts to base year 2016 with results expected to be published in 2021.
  - Price statistics: An updated CPI introduced from the January 2019 publication using 2016 HIES weights; prices currently collected only in Monrovia with plans to introduce national collection.
  - Government Finance Statistics: Reporting to STA has lapsed; last available data covered budgetary central government and corresponded to 2013; expenditure transactions recorded largely on commitment basis while others on cash basis.
  - Monetary and Financial Statistics: CBL completed compilation of monetary data based on STA SRFs and needs to implement January 2019 TA recommendations.
  - External sector statistics: Balance of payments compiled quarterly since August 2016 on a BPM6 basis and submitted to STA since start of 2017; preliminary annual IIP recently started.

*Source: 1lbrea2019002 - 1. The CBL and GOL hereby agree to consolidate and reschedule the total debt in Liberian*

### 2005. Metadata for most data categories were

### REQUEST FOR A FOUR-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—DEBT SUSTAINABILITY ANALYSIS

### Reporting to STA and Data Coverage
- Liberia reports quarterly balance of payments data, annual IIP for the IFS and BOPSY.
- Liberia does not submit FSIs to STA for publication on the IMF website and annual government finance statistics submissions for the GFSY have lapsed.
- Metadata for most data categories were updated in November 2013.
- No Data ROSC mission has been conducted.
- Frequency and latest observations for key indicators (as presented):
  - Exchange Rates: Date of Latest Observation 10/2019; Date Received 11/2019; Frequency D; Frequency of Reporting M; Frequency of Publication M
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 10/2019; 11/2019; D; M; Q
  - Reserve/Base Money: 9/2019; 11/2019; M; M; Q
  - Broad Money: 9/2019; 11/2019; M; M; Q
  - Central Bank Balance Sheet: 9/2019; 11/2019; M; M; Q
  - Consolidated Balance Sheet of the Banking System: 9/2019; 11/2019; M; M; Q
  - Interest Rates: 9/2019; 11/2019; M; M; Q
  - Consumer Price Index: 9/2019; 11/2019; M; M; Q
  - Revenue, Expenditure, Balance and Composition of Financing – Budgetary Central Government: 10/2019; 11/2019; W; M; W; Q
  - Stocks of Central Government and Central Government-Guaranteed Debt: 6/2019; 9/2019; M; M; Q
  - External Current Account Balance: 6/2019; 9/2019; Q; Q; Q
  - Exports and Imports of Goods and Services: 6/2019; 9/2019; M; Q; M; Q; Q
  - GDP/GNP: 2017; 11/19/2018; A; A; I
  - Gross External Debt: 6/2019; 9/2019; M; M; Q
  - International Investment Position: Q4/2017; 6/2018; Q; Q; Q

### Key DSA Findings and Risk Assessment
- Risk of external debt distress: Moderate
- Overall risk of debt distress: High
- Granularity in the risk rating: Limited space to accommodate shocks
- Application of judgment: No
- The DSA indicates Liberia would reach high risk of external debt distress with only a small change in the terms of external debt or a failure to adjust primary expenditure to the available revenue envelope over the medium term under baseline assumptions.
- Policy guidance included:
  - Authorities should remain below the ceiling on non-concessional borrowing and refrain from risky collateralized agreements.
  - Ensure that new debt is contracted transparently (MEFP ¶36).
  - Consider the country’s low absorption capacity when taking on new financing.

### Public Debt Coverage (Scope of DSA)
- The DSA covers:
  - Central government debt
  - Central government guaranteed debt
  - Central bank debt contracted on behalf of the government
- Included debt elements:
  - Government borrowing from CBL included: $254.5 million (7.8 percent of GDP) legacy war-time USD-denominated debt.
  - About $242.5 million in the form of bridge loans, suspense account, and on-lending of IMF budget support.
  - $65 million in arrears to the construction sector.
  - Largest SOE debt noted: World Bank loan to Liberia Electricity Corporation (LEC) for Mt. Coffee hydropower rehabilitation.
- Non-included elements due to data constraints; contingent liabilities shock from SOE debt kept at default value of 2 percent.

- Default shock components presented (in percent of GDP):
  - Other elements of the general government not captured in 1.0: 0.5
  - SoE's debt (guaranteed and not guaranteed by the government) 1/2percent of GDP: 2.0
  - PPP: 35 percent of PPP stock: 6.1
  - Financial market (default minimum 5 percent of GDP): 5.0
  - Total (2+3+4+5) (in percent of GDP): 13.6

### Background Context
- DSA conducted in context of a request for an Extended Credit Facility arrangement.
- Last LIC-DSA considered by the Executive Board in May 2019 as part of the 2019 Article IV consultation.
- Liberia continues to be subject to the IDA Non-Concessional Borrowing Policy (NCBP).
- Public external debt stock at end-FY2019: $1,016 million (34.9 percent of GDP).
- Total public and publicly guaranteed debt at end-FY2019 estimated at 51.8 percent of GDP.
- Post-HIPC (completed 2010), debt accumulated rapidly due to scaled-up infrastructure spending and responses to adverse shocks.
- Noted events and actions:
  - Two external loan agreements totaling US$957.2 million (29 percent of GDP) ratified in May 2018; authorities later indicated they successfully cancelled them.
  - Government issued domestic bonds in May to clear US$65 million of arrears to the domestic banking sector; discussions with nonresident banks about a bond discount facility that could change debt holder composition.

### Structure of External Public Debt (as of June-2019)
- Total external public debt: 1,016 USD millions; Percent of Total 100.0; Percent of GDP 34.9
- Multilateral total: 889 USD millions; Percent of Total 87.5; Percent of GDP 30.6
  - IMF: 209 USD millions; Percent of Total 20.6; Percent of GDP 7.2
  - World Bank: 440 USD millions; Percent of Total 43.3; Percent of GDP 15.1
  - AfDB: 129 USD millions; Percent of Total 12.6; Percent of GDP 4.4
  - EIB: 54 USD millions; Percent of Total 5.3; Percent of GDP 1.9
  - Other Multilateral: 57 USD millions; Percent of Total 5.6; Percent of GDP 2.0
- Bilateral (Non-Paris Club): 127 USD millions; Percent of Total 12.5; Percent of GDP 4.4
  - China: 55 USD millions; Percent of Total 5.4; Percent of GDP 1.9
  - Kuwait: 17 USD millions; Percent of Total 1.7; Percent of GDP 0.6
  - Saudi Arabia: 51 USD millions; Percent of Total 5.0; Percent of GDP 1.7
  - Other Bilateral: 5 USD millions; Percent of Total 0.5; Percent of GDP 0.2

### Underlying Macroeconomic Assumptions (Baseline)
- Growth and GDP:
  - Nominal GDP (million US dollar) and average growth paths compared to 2019 Article IV (Text Table 4 shows FY2019 and FY2019–24 averages; specific table entries included in source).
  - Real GDP growth path revised from 0.4 percent for 2019 (2019 Article IV) to -1.4 percent for 2019.
  - Growth projected to recover to 1.4 percent in 2020 and projected to reach 5.4 percent in 2024.
- Inflation:
  - Average headline inflation increased to 21.2 percent in 2018 (compared to 11.7 estimated previously).
  - Inflation forecast at 28 in 2019.
  - Inflation expected to decline to 15 percent by the end of 2020 and remain about 7 percent in the medium term.
- Fiscal:
  - Fiscal deficit of budgetary central government widened to 4.8 percent of GDP in FY2018 and to 5.2 percent of GDP in FY2019.
  - Consolidation set to start in FY2020 with deficit declining to 3.8 percent of GDP by FY2024.
  - Consolidation anchored by debt-stabilizing primary balance of -3.2 percent of GDP.
- External sector:
  - Current account deficit estimates for 2019 declined from 23.4 to 21.1 percent of GDP.
  - CBL foreign reserves fell from 2.4 months of import cover at end-2018 to 2.1 months; reserves expected to increase to 2.6 months of imports in 2023.

### Financing Mix and Borrowing Terms (Baseline)
- External borrowing:
  - Public external debt projected to increase by about $930 million in the medium term.
  - Average grant element of new borrowing projected to remain at an average of 44.3 percent over the program period.
  - Baseline assumes non-concessional loans averaging $44 million per year.
- Domestic borrowing:
  - Baseline assumes central government no longer relies on central bank financing to fill budgetary needs but borrows to repay past ECF and RCF budget support amounting US$107.8 million.
  - Debt service to the CBL averaging US$23 million between 2020 and 2024—compared to an average of US$37.2 million under existing MOUs.
  - Of the US$23 million average, US$15.9 million per year, on average, allocated to interest payments.
  - Baseline assumes repayment of US$45 million of arrears between FY2021–24 with a combination of on-budget allocation and issuance of domestic debt instruments.
  - Real interest rate projected to remain negative in the medium term.

### Realism of Baseline Assumptions and Historical Debt Dynamics
- The DSA aligns past debt drivers with revisions under a Fund-supported program.
- Downward revision of borrowing envelope combined with higher real GDP growth explains most of the decrease in external-debt-to-GDP ratio compared to the 2019 Article IV DSA.
- Current DSA assumes less financing on non-concessional terms relative to the 2019 Article IV DSA.
- Past unexpected debt accumulation:
  - An unexpected increase in debt of about 12 percent of GDP over recent shocks (Ebola epidemic and commodity price shock), above the median of LIC DSA countries and toward the upper end of the interquartile range (25 percent–75 percent).
  - Drivers of unexpected debt accumulation were shared among unexpected increases in primary fiscal deficits, unexpected decline in growth, and unexpected depreciation of the real exchange rate.
- Residual financing (net private financing under other investment flows) includes current transfers (remittances) not captured by official statistics and contributed to past current account deficits.

*Prepared by the International Monetary Fund and the World Bank. November 26, 2019.*

### 9.      The improvement in the primary balance in the next three years is towards the upper

### 1lbrea2019002 - 9.      The improvement in the primary balance in the next three years is towards the upper

### Realism of the fiscal projection
- The second DSF realism tool assesses the realism of the fiscal projection.
- The anticipated adjustment in the primary balance is 2.5 percentage points of GDP in the next three years and is in the top quartile of adjustments for the range of countries producing the LIC DSA.
- The growth projection for 2020 is described as optimistic relative to what is suggested by the fiscal multiplier realism tool because the baseline growth in 2019 is unusually low due to weakening confidence amidst deteriorating macroeconomic conditions, which are projected to improve somewhat in 2020.

### Country classification and Composite Indicator (CI)
- Liberia’s debt-carrying capacity based on the Composite Indicator (CI) is assessed as weak.
- The CI rating in the previous DSA was medium; downward revisions to the path of real growth reduced the CI score from 2.78 at the time to 2.5 in the April 2019 WEO and to 2.41 in the October 2019 WEO. As a result, the corresponding rating has been downgraded to weak.
- Liberia was recently downgraded to “weak quality of debt monitoring” in line with the country’s debt-recording capacity.
- CI thresholds (as defined in the source): weak if CI value is below 2.69, medium if between 2.69 and 3.05, strong if above 3.05.

- Text Table: CI score components (as presented)
  - CPIA: Coefficient 0.385, 10-year average value 2.983, (A*B) = 1.1548, Contribution 48%
  - Real growth rate (in percent): Coefficient 2.71, 10-year average value 0.427, (A*B) = 0.010, Contribution 0.%
  - Import coverage of reserves (in percent): Coefficient 4.05, 10-year average value 13.582, (A*B) = 0.552, Contribution 23%
  - Import coverage of reserves^2 (in percent): Coefficient -3.99, 10-year average value 1.845, (A*B) = -0.07, Contribution -3%
  - Remittances (in percent): Coefficient 2.02, 10-year average value 15.010, (A*B) = 0.301, Contribution 13%
  - World economic growth (in percent): Coefficient 13.52, 10-year average value 3.499, (A*B) = 0.472, Contribution 20%
  - CI Score: 2.41 (100%), CI rating: Weak

- External debt burden thresholds (as presented)
  - PV of debt in % of Exports: 140 180 240
  - PV of debt in % of GDP: 30 40 55
  - Debt service in % of Exports: 10 15 21
  - Debt service in % of Revenue: 14 18 23

- External debt burden thresholds (alternative listing included in the source)
  - PV of debt in % of Exports: 140
  - PV of debt in % of GDP: 30
  - Debt service in % of Exports: 10
  - Debt service in % of Revenue: 14

- TOTAL public debt benchmark: PV of total public debt in percent of GDP: 35

### External DSA findings
- Liberia remains at moderate risk of external debt distress with very limited space to accommodate shocks.
- The PV of debt-to-GDP and the PV of debt-to-export ratios are set to remain below their policy dependent threshold:
  - PV of debt-to-GDP peaks at just below 30 percent between FY2022-26.
  - PV of debt-to-exports remains below 140 percent in the medium-to long-term.
- Debt-service to revenue ratio remains below the threshold of 14 percent, peaking at 12.4 percent in FY2023.
- Debt-service to exports ratio remains below the threshold, peaking in 2030 at 8.6 percent.

- Standard stress tests show further deterioration of the macroeconomic outlook will lead to breaches of policy dependent thresholds:
  - A shock of one-standard deviation in the primary balance, nominal export growth, other non-debt creating flows, and a one-time depreciation of the size needed to close the real exchange overvaluation will all result in breaching the thresholds on the PV of debt-to-GDP ratio.
  - A shock to the primary balance, exports, or other debt creating flows will lead to breaching the threshold on the PV of debt-to-exports ratio.

### Public DSA findings
- Public sector debt indicators show limited borrowing space, with the PV of public debt-to-GDP ratio showing an extended breach.
  - The indicator increases from an estimate of 40.1 percent in FY2019 to 45.9 percent in FY2021 and declines to 36.4 percent in FY2030.
  - The PV of debt-to-revenue ratio will increase to 156.4 percent in FY2023 and decline slowly to 126.8 percent by 2030.
  - The debt-service-to-revenue ratio will increase to 10.5 percent by FY2023 and remain above 7 percent in subsequent years.

- Under standard sensitivity analysis, the PV of debt-to-GDP breaches the relevant threshold.
  - A deterioration of other flows results in the largest breach of the threshold on the PV of debt-to-GDP ratio, followed by shocks to exports and the primary balance, real GDP growth, or a one-time depreciation.
  - The contingent liability stress test is estimated to lead to a one-off increase in the debt-to-GDP ratio of 13.6 percent, capturing the combined shock of SOE’s external debt default, PPPs’ distress, and financial market vulnerabilities that are not included in the covered data.

- Given these risks and the extended breach of the PV of debt-to-GDP threshold, Liberia is assessed to have a high risk of overall public debt distress.

### Risk rating and vulnerabilities
- Liberia has limited borrowing space; careful consideration to the terms of new external borrowing and the country’s absorptive capacity is needed.
- The authorities’ ambitious infrastructure program to rehabilitate the national road network will raise the PV of debt relative to foreign exchange earning capacity.
- The projected disbursement path for FY2019–24 is beyond what the authorities have been able to absorb in the past but reflects ambition to secure large infrastructure loans.
- If projects are carefully selected and implemented, borrowing beyond past absorptive capacity may generate enough GDP growth to compensate for increased nominal debt levels.
- The effect of road rehabilitation on aggregate demand from financing options under consideration could be limited because only a small part of the total cost would likely be sourced locally.
- Continued efforts to improve debt monitoring capacity, including improvements to the current IT environment, are essential to derive accurate long-term debt service projections and ensure timely debt service.

- The proposed revision to the adjustment path will keep the thrust of the previous DSA assessment, though debt stabilizes at a higher level in the medium term.
  - Most domestic debt is intra-government borrowing (with the CBL); the increase in the level for 2019 reflects the government’s recognition of existing debt.
  - The proposed repayment plan allows for a manageable level of net repayments to the CBL—freeing resources for needed primary expenditure—while still ensuring policy solvency of the central bank.

- Risks to the outlook are tilted to the downside:
  - Upside risks: an increase in commodity prices, an increase in iron ore production, and an increase in donor grants could ease macroeconomic pressures. If planned non-concessional borrowing beyond absorptive capacity does not materialize, debt will remain at more sustainable levels.
  - Downside risks: potential contingent liabilities to the banking sector, a drop in commodity prices, or a failure to mobilize fiscal resources to close the financing gap could further deteriorate macroeconomic conditions and increase the risk of debt distress.

*International Monetary Fund — Liberia DSA chapter excerpt*

### 19.      The authorities broadly agreed with the importance of maintaining debt sustainability

### 1lbrea2019002 - 19. The authorities broadly agreed with the importance of maintaining debt sustainability

### Authorities' commitments and policy stance
- Authorities committed to refrain from additional central bank financing and buildup of arrears.
- Authorities reiterated preference for concessional financing, noting that borrowing space is limited and sensitive to the terms of new loans.
- Authorities committed to remain below the ceiling on non-concessional borrowing and to refrain from nontransparent collateralized agreements, while ensuring that new debt is contracted transparently.
- Authorities emphasized the need to advance their Pro-Poor Agenda and requested international community assistance through budget support, project grants, and financing for infrastructure projects.

### Central Bank and fiscal measures
- The Central Bank of Liberia (CBL) and the government signed an agreement bundling all CBL credit to the government into a long-term bond that pays interest of 4 percent.
  - The agreement signed on December 6, 2019 covers the amount of US$487 million.
- The CBL has reduced spending and is on track to meet the ceiling on the CBL’s operational and capital spending.
  - Measures included laying-off about one-third of staff in October and November, and renegotiation of procurement contracts.
- The process to print additional Liberian dollar banknotes is underway; authorities committed to restrict the new printing to additional notes needed to meet demand rather than a full currency replacement.
- Exchange rate movements cited:
  - Exchange rate appreciated to L189/US$ as of December 5.
  - Exchange rate at end-October was L211/US$.

### Financial sector liquidity and reserve risks
- Financial sector liquidity shortages elevated downside risks to the end-December 2019 Net International Reserve (NIR) target, which was described as ambitiously set.
- Increased FX liquidity demand in recent weeks resulted in a lower NIR than the target for end-December according to the latest data; staff will monitor closely.

### Selected DSA baseline indicators and projections (external and public debt)
- External debt (nominal), percent of GDP:
  - 2017: 24.9
  - 2018: 28.5
  - 2019: 34.9
  - 2020: 41.7
  - 2021: 45.8
  - 2022: 48.1
  - 2023: 48.8
  - 2024: 49.0
  - 2025: 48.6
  - 2030: 41.2
  - 2040: 29.7
- Change in external debt:
  - 2017: 5.9
  - 2018: 3.6
  - 2019: 6.4
  - 2020: 6.7
  - 2021: 4.1
  - 2022: 2.4
  - 2023: 0.7
  - 2024: 0.2
  - 2025: -0.4
  - 2030: -1.8
  - 2040: -1.2
- Identified net debt-creating flows (select):
  - 2017: 16.1
  - 2018: 14.4
  - 2019: 13.4
  - 2020: 12.2
  - 2021: 11.0
  - 2022: 8.0
- Non-interest current account deficit (percent of GDP), select years:
  - 2017: 23.5
  - 2018: 23.1
  - 2019: 20.5
  - 2020: 20.7
  - 2021: 21.6
  - 2022: 19.9
- Exports (percent of GDP), select years:
  - 2017: 22.7
  - 2018: 23.7
  - 2019: 25.1
  - 2020: 27.4
  - 2021: 28.9
  - 2022: 29.4
- PV of PPG external debt-to-GDP ratio (selected projection points shown in table):
  - 2020: 21.0
  - 2021: 25.0
  - 2022: 27.8
  - 2023: 29.3
  - 2024: 29.8
  - 2025: 29.8
  - 2026: 29.9
  - 2030: 25.2
  - 2040: 20.2
- PPG debt service-to-exports ratio (selected):
  - 2017: 1.3
  - 2018: 2.8
  - 2019: 3.5
  - 2020: 4.7
  - 2021: 6.1
  - 2022: 6.5
  - 2023: 7.3
  - 2024: 7.1
  - 2025: 5.6
  - 2030: 8.6
  - 2040: 7.5
- PPG debt service-to-revenue ratio (selected):
  - 2017: 2.1
  - 2018: 5.1
  - 2019: 6.1
  - 2020: 8.7
  - 2021: 11.0
  - 2022: 11.7
  - 2023: 12.4
  - 2024: 11.8
  - 2025: 9.3
  - 2030: 12.2
  - 2040: 9.0
- Gross external financing need (Million of U.S. dollars):
  - 2017: 530.8
  - 2018: 490.8
  - 2019: 431.7
  - 2020: 404.7
  - 2021: 414.0
  - 2022: 358.0
  - 2023: 402.9
  - 2024: 419.5
  - 2025: 381.7
  - 2030: 692.5
  - 2040: 798.6

### Key macroeconomic assumptions (selected)
- Real GDP growth (percent), select years:
  - 2017: 0.4
  - 2018: 1.8
  - 2019: -0.1
  - 2020: 0.0
  - 2021: 2.4
  - 2022: 3.8
  - 2023: 4.6
  - 2024: 5.2
  - 2025: 5.4
  - 2030: 5.2
  - 2040: 3.3
- GDP deflator in US dollar terms (change in percent), select years:
  - 2017: 0.2
  - 2018: -0.9
  - 2019: -1.9
  - 2020: -
  - 2021: 2.6
  - 2022: -2.7
  - 2023: 0.4
  - 2024: 1.9
  - 2025: 0.9
  - 2030: 1.6
  - 2040: 2.9
- Effective interest rate (percent), select years:
  - 2017: 0.9
  - 2018: 1.2
  - 2019: 0.9
  - 2020: 1.4
  - 2021: 1.1
  - 2022: 1.2
  - 2023: 1.2
  - 2024: 1.2
  - 2025: 0.7
  - 2030: 1.0
  - 2040: 1.3
- Growth of exports of G&S (US dollar terms, in percent), select:
  - 2017: -4.6
  - 2018: 5.5
  - 2019: 3.8
  - 2020: 6.5
  - 2021: 5.2
  - 2022: 5.8
  - 2023: 5.5
  - 2024: 6.7
  - 2025: 7.2
  - 2030: 6.9
  - 2040: 4.9
- Government revenues (excluding grants, percent of GDP), select:
  - 2017: 14.3
  - 2018: 12.9
  - 2019: 14.4
  - 2020: 14.9
  - 2021: 15.9
  - 2022: 16.5
  - 2023: 17.0
  - 2024: 17.5
  - 2025: 17.5
  - 2030: 19.2
  - 2040: 20.0

### Public sector debt indicators (selected)
- Public sector debt (percent of GDP), select years:
  - 2017: 37.2
  - 2018: 39.7
  - 2019: 51.8
  - 2020: 58.4
  - 2021: 61.8
  - 2022: 62.8
  - 2023: 62.1
  - 2024: 61.3
  - 2025: 59.4
  - 2030: 52.0
  - 2040: 60.3
- Change in public sector debt:
  - 2017: 8.9
  - 2018: 2.5
  - 2019: 12.1
  - 2020: 6.6
  - 2021: 3.4
  - 2022: 1.0
  - 2023: -0.7
  - 2024: -0.9
  - 2025: -1.9
  - 2030: -1.2
  - 2040: 1.6
- Primary deficit (percent of GDP), select years:
  - 2017: 4.5
  - 2018: 4.2
  - 2019: 5.1
  - 2020: 3.7
  - 2021: 2.8
  - 2022: 2.4
  - 2023: 2.7
  - 2024: 2.5
  - 2025: 3.1
  - 2030: 3.7
  - 2040: 3.5
- PV of public debt-to-GDP ratio (selected projection points):
  - 2020: 40.1
  - 2021: 44.2
  - 2022: 45.9
  - 2023: 45.7
  - 2024: 44.4
  - 2025: 43.1
  - 2026: 41.5
  - 2030: 36.4
  - 2040: 51.1

### Stress tests, sensitivity, and realism tools (high-level)
- Multiple stress-test charts and tables presented cover:
  - Debt service-to-revenue ratio, PV of debt-to-exports, PV of debt-to-GDP, debt service-to-exports.
  - Alternative scenarios, bound tests (real GDP growth, primary balance, exports, other flows, depreciation), and tailored tests (combined contingent liabilities, natural disaster, commodity price, market financing).
- Table 3 and Table 4 provide sensitivity analysis for key indicators of Public and PPG external debt and Public debt for 2020–30, with thresholds and scenarios; bold values indicate breaches of benchmarks or thresholds.

*Source: IMF staff report text and Debt Sustainability Analysis tables and figures contained in the provided content unit.*

### Introduction and Context

### Introduction and Context

### Authorities' stance and program request
- Liberian authorities appreciate the constructive policy dialogue with staff during recent negotiations for an Extended Credit Facility (ECF) arrangement and broadly concur with the staff appraisal and policy recommendations.
- Liberia developed the Pro-poor Agenda for Prosperity and Development (PAPD 2018-23) to address poverty and unemployment, human capital and infrastructure gaps, and to promote the private sector as an engine of growth.
- Authorities request Fund support to implement economic reform measures aimed at restoring macroeconomic stability under an ECF arrangement; the ECF will anchor policy implementation and unlock development finance to support realization of PAPD objectives.

### Recent Economic Developments and Outlook
- Growth:
  - Economic growth is expected to decline from 1.2 percent in 2018 to -1.4 percent in 2019, largely driven by slowing demand reflected by slow credit growth and consumption.
  - Growth is projected to rebound to 1.4 percent by end 2020, reaching 5.5 percent by 2024, due to an increase in mining activity and higher agriculture and fisheries production.
- Inflation:
  - Inflation increased to 30 percent at end September 2019, from 21 percent during the same period in 2018.
  - The rise reflects a marked depreciation of the Liberian dollar and significant money supply growth.
  - Inflation is expected to decline, reaching single digits in the medium term.
- External sector and reserves:
  - Current account deficit projected to marginally improve from 23.4 percent of GDP at end 2018 to 21.1 percent in 2019, reflecting modest expansion in gold and iron ore exports.
  - Remittance inflows have experienced a steep decline, which has affected the external position.
  - Reserves declined from 2.4 months of imports in 2018 to 2.1 months in the first half of 2019.

### Fiscal Policy, Public Financial and Debt Management
- Revenue mobilization:
  - LRA has stepped up enforcement to raise revenue by a minimum of 3 percent of GDP over the medium term, in line with the Domestic Resource Mobilization Strategy (2018-2022).
  - Measures include targeted audits within key sectors; deployment of electronic fiscal devices at major business entities; migration to phase 2 of the ECOWAS Common External Tariff (CET) expected to increase the average effective tax rate; modification of the revenue sharing ratio with State-Owned Enterprises (SoEs); planned increase in the Goods and Services Tax (GST) rate and broadening its coverage while streamlining exemptions.
- Expenditure control and wage reforms:
  - Comprehensive restructuring of the civil service wage system to create space for productive spending, including harmonization of the wage bill across government departments expected to reduce total compensation by 1 percentage point of GDP.
  - This reduction occurs despite the absorption of over 4,000 health workers on the payroll, whose salaries were previously financed through donor projects.
  - Measures include centralization of civil service hiring, payroll management and record keeping to contain non-productive expenditures.
- Budget credibility and cash management:
  - National Legislature passed amendments to the public finance management (PFM) Act in September 2019.
  - To reduce domestic arrears, contain fiscal slippages, and improve reporting, the budget’s business process has been fully aligned with disbursement requirements of spending entities.
  - To smooth seasonality of revenue flows and meet short-term cash requirements, periodic sales of treasury bills will be initiated and central bank financing eliminated during the program.
  - A proposal on the establishment of a Treasury Single Account (TSA) will be submitted for Cabinet’s endorsement in March 2020.
- Debt policy and oversight:
  - Authorities committed to ensuring long term debt sustainability by eliminating central bank financing and the accumulation of new arrears.
  - They will adhere to the ceiling on non-concessional borrowing, limit contraction of loans on non-concessional terms, refrain from non-transparent collateralized agreements, and ensure new debt is contracted transparently.
  - All SoE debt will be subjected to intense scrutiny and approval by the Debt Management Committee to contain fiscal risks and associated contingent liabilities.

### Monetary and Financial Sector Policies
- Monetary policy framework and instruments:
  - CBL introduced a new monetary policy framework in September 2019 with an expanded and modernized policy toolkit of interest-rate based instruments.
  - The framework aims to establish a yield curve, support financial intermediation, and deepen interbank and financial markets.
  - Reserve requirement ratios for local currency deposits and FX have been harmonized; amended Required Reserves Regulations to support implementation will be issued in December 2019.
  - Foreign exchange interventions will be limited to smoothing volatile market conditions and supporting operations aimed at building reserves.
- Central bank governance, independence and operational adjustments:
  - Amendments to the Central Banking Act have been completed; all executive and non-executive Board members have been formally appointed.
  - An Action Plan incorporating recommendations of the Kroll Report and a recent review of IMF TA on currency management has been updated for implementation.
  - A reputable audit firm has been engaged to backstop the central bank’s Internal Audit Department.
  - CBL developing risk-based approaches to AML/CFT supervision with Fund TA support.
  - CBL adjusted its 2020 budget downwards, including significant double-digit cuts in wages and operating costs, and shifted the currency composition of its spending, including on salaries.
  - Plan to sign an MoU with fiscal authorities aggregating all existing debt into an interest-bearing long-term negotiable bond.
- Financial sector stability and supervision:
  - CBL will enforce compliance with reporting requirements, including for open FX positions, and improve data quality.
  - CBL is working on a plan to address key recommendations from a recent IMF mission on Financial Soundness Indicators (FSI).
  - A detailed assessment of the credit quality of the banking system, underwriting standards and adequacy of provisioning levels will be conducted by end June 2020.
  - An asset quality review (AQR) of the entire sector will follow.
  - Additional efforts will address non-performing loans (NPLs) and strengthen guidelines on bank resolution.
  - Amendments to the Financial Institutions Act are expected to be legislated in September 2020 to strengthen operational guidelines on bank resolution.

### Structural Policies
- Governance, anti-corruption and legal alignment:
  - Authorities plan to introduce legislation by the end of the current fiscal year that criminalizes bribery of foreign officials and illicit enrichment, aligning the local Penal Code with the United Nations Convention Against Corruption (UNCAC).
  - Plans include provisions for establishing a special fast-track court to prosecute corruption; amending the AML/CFT framework consistent with FATF recommendations; and strengthening the anti-corruption act in respect of asset declaration.
- Business environment and regulatory reforms:
  - Steps to improve the business environment include streamlined business and property registration processes.
  - A new Customs Code will be enacted by June 2020 to simplify customs administration.
  - Foreclosures and insolvency cases are recording shorter durations for resolution.
  - Tenures of work permits and residence permits extended from one (1) to five (5) years.
  - Existing laws complementing reforms include the Land Rights Act, Whistleblower Protection Act, Freedom of Information Law, and the Power Theft Act.
  - The Business Climate Working Group, launched in October 2018, continues to meet regularly.
- Procurement and ICT modernization:
  - Authorities are reviewing public procurement regulations and pursuing an e-Procurement platform to facilitate performance monitoring, improve efficiency and transparency, and engender compliance with international best practice.
  - ICT infrastructure upgrades are underway to improve interfacing of tax payment platforms and enhance data quality.

### Conclusion
- Authorities believe full implementation of transparent and well-conceived policies articulated in the Memorandum of Economic and Financial Policies (MEFP), within an ECF arrangement, would lead to a positive medium-term outcome.
- They are committed to a frontloaded and credible fiscal adjustment path, supported by an appropriate monetary stance and a modernized monetary policy framework.
- These efforts will be complemented by ongoing and planned structural reforms to address governance gaps and improve the business environment.
- Authorities continue to value the Fund’s policy advice and technical support and look forward to approval of their request for an ECF by the Executive Board.

*Source: Introduction and Context (1lbrea2019002).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1lbrea2019002.pdf_