## _cr05166

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### Executive Summary — Key Findings and Immediate Issues
- Following a sharp conflict-related economic contraction in 2003, activity is rebounding largely because of donor-related activities; recovery expected to be maintained in 2005 as reconstruction continues and rural activities resume.
- Liberia faces daunting reconstruction challenges; authorities agree deep reforms are needed to achieve sustainable growth, with particular attention to strengthening economic governance and reestablishing a transparent budget process.
- New governance problems have emerged and need prompt attention; authorities are working toward their resolution.
- After initial success implementing a balanced budget, financial management weakened: a domestically funded cash deficit was rolled back quickly, but large arrears emerged more recently.
- Central Bank of Liberia (CBL) has strengthened its financial position, developed a framework for monetary operations and bank restructuring, and resumed efforts to rebuild key statistics; licensing of new banks is a concern in the fragile financial environment.
- Authorities recognize need for corrective action to strengthen governance and fiscal management and are encouraged to develop expeditiously specific measures.
- A concrete action plan is required to support authorities’ wish for enhanced Fund support (policy advice and technical assistance) through end-2005 and to establish a track record for a staff-monitored program and possible de-escalation of the Fund’s remedial measures.

### Relations with the Fund and Arrears
- Liberia has been in continuous arrears to the Fund since 1984; at end-February 2005:
  - Liberia’s arrears to the Fund amounted to SDR 511 million, or 716 percent of quota.
  - Liberia’s forthcoming annual obligations are estimated at about SDR 8 million.
- Since NTGL took office (October 2003), cooperation with the Fund strengthened though reform momentum recently slackened.
  - Authorities have made monthly token payments of US$50,000 since January 2004.
  - Fiscal deficits emerged around mid-2004, equivalent to about 1 percent of GDP; planned increases of the CBL’s operating expenses for 2005 would have led to a deficit of US$2 million, compared with official reserves of US$4 million (December 2004).

### Recent Economic Developments and 2005 Outlook
- Conflict and recovery:
  - Fighting in mid-2003 led to widespread destruction and looting; about one-third of the population is still estimated to be internally displaced.
  - UNMIL deployed 15,000 peacekeepers. About 105,000 combatants were demobilized by end-October 2004; only about 25,000 weapons were collected.
  - UN economic sanctions (including timber) were extended one year at end-2004.
  - Donor disbursements slow: of US$520 million pledged in early 2004, actual disbursements are believed to be significantly lower; large part set aside (including into escrow accounts).
- Social indicators:
  - UNDP household survey (August 2000): 76 percent of population living on less than US$1 a day.
  - 2002: about one-third of the population suffered from tuberculosis; about one-fourth of infants died before reaching age 5.
- Output and sectoral developments:
  - Real GDP in 2003 dropped by 31 percent.
  - Activity rebounded in 2004; overall economic activity in 2004 estimated at about 70 percent of prewar level.
  - For 2005, real GDP projected to expand by 8.5 percent led by agriculture (mainly rubber), domestic manufacturing, and services.
- Prices, exchange rate, external sector:
  - Price and exchange rate volatility subsided; food prices stabilized; exchange rate returned to preconflict levels.
  - Official reserves increased modestly from low levels.
  - Trade deficit widened and was largely financed by external assistance; exports collapsed in 2003 but stabilized in 2004 largely due to rubber.
- Selected macro indicators (as reported)
  - Real GDP (percentage change): 2.9, 3.7, -31.3, 2.4, 8.5
  - Inflation (percentage change; period average): 12.1, 14.2, 10.3, 7.8, 5.0
  - Overall fiscal balance (incl. grants, percent of GDP): -0.7, -1.3, 0.7, -0.1, 0.0
  - Government revenue (percent of GDP): 12.8, 13.0, 11.0, 14.1, 17.7
  - Official exchange rate (Liberian dollars per U.S. dollar; end of period): 49.5, 65.0, 50.5, 54.5,...
  - Current account balance (incl. grants, percent of GDP): -24.5, -3.4, -18.2, -13.3, -19.9

### Medium-Term Scenarios (2004–2009)
- Two scenarios: optimistic (prudent macroeconomic and strong reform policies) and slower-growth (slower pace of reform and lower donor support).

- Optimistic scenario (2004–2009):
  - Real GDP growth (in percent): 2.4, 8.5, 17.2, 9.7, 9.1, 9.0
  - Fiscal balance: -0.1, 0.0, 0.0, 0.0, 0.0, 0.0
  - Fiscal revenues (including grants): 14.1, 17.7, 23.7, 25.0, 27.3, 29.1
  - Of which: grants: 0.2, 0.0, 5.9, 7.0, 8.1, 9.0
  - Current account balance (excl. grants): -51.8, -46.5, -42.0, -39.6, -37.2, -37.3
  - Grants (donor transfers, net): 38.4, 26.6, 21.8, 21.6, 21.2, 20.9
  - Net official reserves (in millions of U.S. dollars): 4.2, 11.7, 19.3, 26.8, 34.1, 41.3
  - Real GDP per capita (in U.S. dollars): 116, 123, 141, 150, 160, 170
  - Note: UN sanctions on timber expected to be lifted at end-2005 in this scenario.

- Slower-growth scenario (2004–2009):
  - Real GDP growth (in percent): 2.4, 8.5, 4.9, 7.7, 4.1, 3.2
  - Fiscal balance: -0.1, 0.0, 0.0, 0.0, 0.0, 0.0
  - Fiscal revenues (including grants): 14.1, 17.7, 19.6, 20.2, 22.6, 24.8
  - Of which: grants: 0.2, 0.0, 2.6, 4.0, 5.3, 6.6
  - Current account balance (excl. grants): -51.8, -46.5, -35.3, -31.2, -27.9, -27.7
  - Grant (donor transfers, net): 38.4, 26.6, 14.5, 13.6, 12.9, 10.2
  - Net official reserves (in millions of U.S. dollars): 4.2, 8.7, 13.4, 17.4, 21.0, 24.5
  - Real GDP per capita (in U.S. dollars): 116, 123, 126, 132, 134, 135
  - Note: UN sanctions on timber expected to be lifted at end-2006 in this scenario.

### Governance Issues and Specific Concerns
- Strengthening economic governance is indispensable; a committee established to follow up on corruption allegations including legal experts and representatives of political parties and civil society.
- Two cases under investigation of serious concern:
  - Modalities of large sales of iron ore.
  - Alleged disappearance during 2004 of a large number of blank import and export permits.
  - Specific numeric allegation: 700,000 tons of iron ore were sold at US$10 a ton, compared with reported international prices of about US$40 a ton, resulting in a potential revenue loss of about US$20 million.
- Timber sector and taxation reform:
  - Independent review of concessions started and expected to be finalized in time for the next sanctions review (June 2005).
  - Short-term timber taxation simplification accepted: two instruments—an area rental fee and taxes on timber exports.
  - Medium-term: export tax to be replaced with a tax on production.
- Petroleum sector: reforms continue with external assistance; World Bank providing technical support to move to competitive bidding for petroleum product imports.

### Fiscal Management: Concerns and Recommendations
- Need to reestablish a functioning and transparent budget process; recent weakening of financial management highlighted.
- Cash deficit that emerged mid-2004 was eliminated, but sizable arrears accumulated through end-2004 requiring stronger expenditure controls.
- Revenue-side issues and staff recommendations:
  - Delays with preshipment inspection agent (BIVAC) caused customs collection shortfalls; staff urged making BIVAC fully operational.
  - Petroleum importer offsetting taxes against loan repayment practice discontinued.
  - Income tax collections stronger than expected due to enforced withholding.
  - Staff urged elimination of existing tax concessions and not introducing new ones; mobilize higher budgetary revenue and channel to basic infrastructure, health, and education.
- Expenditure-side issues:
  - Cash-management committee not operating as intended; significant expenditures made without prior authorization; local-currency transactions not monitored.
  - Emergence of about US$12 million in arrears by end-2004 raised concerns; staff urged putting simple commitment control mechanisms in place and using earlier technical assistance recommendations.

### Monetary Policy, Banking Sector and CBL Financials
- Dollarization and monetary scope:
  - High dollarization limits scope for monetary and exchange rate policies; few instruments available.
  - Staff advised against moving to full dollarization given Liberia’s vulnerability to external shocks and high cost.
- CBL actions and plans:
  - Introduced foreign exchange auctions mid-2004 to ensure transparent FX allocation.
  - Short-term plans: set up liquidity-monitoring system and introduce a credit facility for banks.
  - Medium-term: establish a liquidity forecasting system, introduce repurchase agreements, develop an interbank foreign exchange market.
  - Long-term: develop money and securities markets.
  - CBL adopted restructuring and resolution policy; examination team began assessing one of three operating banks; ordered all banks to suspend new lending to delinquent borrowers.
  - CBL licensed two new banks with more stringent capital requirements and due diligence; staff cautioned against licensing additional new banks.
- Dollarization cost-benefit (Box 3) — key numeric points:
  - Initial cost of replacing the stock of domestic currency estimated at about US$36 million (equivalent to 8 percent of GDP).
  - To support a modest annual growth rate of 3-4 percent, an annual current account surplus of about US$7 million would be required to provide liquidity to the system.
  - Banks would need to be strengthened well above the 8 percent risk-adjusted capital ratio proposed by the Basel Committee before dollarization.
- CBL budget (cash basis) — selected figures (in thousands of U.S. dollars)
  - Income: 1,931 / 3,285 / 3,148 (2003 Estimate / 2004 Actual / 2005 Budget)
  - Interest income: 1,159 / 1,178 / 855
  - Non Interest income: 772 / 2,107 / 2,293
  - Expenditure: 3,514 / 4,815 / 4,823
  - Current: 3,209 / 4,410 / 3,893
  - Capital: 305 / 405 / 929
  - Balance: (1,583) / (1,530) / (1,675)
  - Balance (excluding extraordinary items) 1/: (1,583) / (983) / (637)
  - 1/ Extraordinary items include the cost for banknote importation, retirement benefits as a result of staff reduction, and replacement of damaged motor vehicles.
- CBL retrenchment:
  - Staff reduced from about 200 to 130.
  - In light of spending reduction and expected revenue pickup, CBL expected to eliminate its cash deficit later in 2005 or in early 2006.

### Public Debt, Arrears, and Debt Sustainability
- Stock-taking and preliminary data (end-2004):
  - Stock of public debt amounted to US$4.1 billion (841 percent of GDP).
  - US$3.8 billion owed to external creditors.
  - Remaining US$0.4 billion to domestic creditors.
  - Liberia’s external debt (as a ratio of exports of goods and services) estimated at 2,722 percent at end-2004.
  - HIPC Initiative threshold is 150 percent; HIPC Initiative extended to end-2006; assessment using end-December 2004 data would be one criterion of eligibility.
- Domestic arrears settlement strategy:
  - Payments for small claims to be prioritized.
  - A substantial reduction of face value of remaining claims to be sought.
  - Authorities concurred no payment would be made until strategy finalized.
- Public sector external debt outstanding (total, in millions of U.S. dollars)
  - 2000: 596.6
  - 2001: 601.5
  - 2002: 831.8
  - 2003: 766.4
  - 2004: 713.2
  - Projections 2005-09: 692.6; 657.6; 643.1; 634.5
- Arrears (accrual, +) (in millions of U.S. dollars)
  - 2000: 165.3
  - 2001: 117.5
  - 2002: 83.8
  - 2003: 72.9
  - 2004: 84.1
  - Projections 2005-09: 102.5; 114.6; 126.0; 137.8; 144.6
- External debt sustainability (key findings)
  - End-2004 preliminary NPV of external debt as ratio of GDP: 754 percent.
  - End-2004 preliminary NPV of external debt as ratio of exports: 2,722 percent.
  - Debt-service ratio at end-2004: 62 percent (primarily reflecting interest arrears and penalties).
  - Under slower-growth (baseline) scenario projected to decline to:
    - NPV debt-to-GDP: 582 percent by 2013.
    - NPV debt-to-exports: 1,640 percent by 2013.
  - Sensitivity analysis: debt situation unsustainable under baseline and most stress scenarios; worst outcomes from shocks to growth (B1), large nominal depreciation (B6), and export declines (B2).
- Policy implication: substantial external support, including extensive debt relief from the international community, will be required.

### Donor Assistance, World Bank Engagement, and Technical Assistance
- Donor disbursements in 2004: actual US$189 million vs pledged US$520 million.
- World Bank engagement:
  - LICUS Implementation Trust Fund (April 2004) for four activities totaling US$4.0 million.
  - Second grant US$25.0 million from Bank IBRD surplus endorsed Aug. 2004 and approved Oct. 2004; subgrants include US$5.0 million (Technical Assistance Component for Infrastructure Rehabilitation) and US$6.0 million (Community Empowerment).
  - Senior Country Officer in Monrovia since July 1, 2004.
- Donor and TA coordination:
  - United States: budget preparation, banking supervision, forestry management.
  - EU: focus on economic governance based on its audits.
  - Fund and World Bank: coordinated on expenditure management.
  - Fund: lead in tax and customs administration and financial sector issues.
  - World Bank: procurement, forestry, public enterprise reform, community-driven development.
- Technical assistance from IMF departments (selected missions 1995–2005) across MAE, MFD, FAD, STA.

### Data, Statistical Capacity, and Publication
- Serious data deficiencies hamper assessment and surveillance; many records lost during conflict.
- Institutional step: legislation passed July 2004 creating Liberia Institute of Statistics and Geo-Information Services as semiautonomous agency expected operational in FY 2005/06.
- Monetary statistics: CBL regularly reporting monetary, banking, and exchange rate statistics for IFS publication; quality and timeliness need improvement.
- Prices and CPI: CPI weights based on 1963-64 Monrovia household expenditure survey; base May 1998; surveys and publication lags problematic.
- Government finance statistics: regular reporting to staff begun but not reported to Government Financial Statistics Yearbook since 1988; data quality and consistency need improvement.
- Balance of payments and external debt: official BOP statistics not reported since 1988 Article IV consultation; Fund staff prepared provisional statistics with authorities.

### Staff Appraisal — Key Recommendations and Next Steps
- Immediate priorities:
  - Strengthen governance and fiscal transparency; reestablish transparent budget process and full financial audits where needed (e.g., maritime, timber, petroleum operations).
  - Reverse recent slippages in budget and CBL financial management; implement corrective measures.
  - Develop and adopt an expeditious concrete action plan to strengthen governance and fiscal management, secure enhanced Fund support through end-2005, and establish a track record for a staff-monitored program enabling possible de-escalation of Fund remedial measures.
- Fiscal measures:
  - Strengthen revenue collections (including full use of preshipment inspection arrangements) and eliminate tax concessions.
  - Strengthen expenditure controls and commitment control mechanisms; prevent re-emergence of domestic arrears.
- Monetary and financial sector measures:
  - Continue to accommodate demand for local currency while monitoring exchange rate movements.
  - Complete CBL restructuring and bank resolution exercise; exercise caution in granting new bank licenses.
  - Avoid premature use of central bank credit to finance fiscal deficits and avoid full dollarization.
- Data and statistical priorities:
  - Prepare national income statistics, improve CPI basket, and seek further technical assistance to build a core statistical database.
- Debt strategy:
  - Expedite stock-taking of external debt and develop a debt sustainability and external assistance strategy; substantial debt relief will be required.

*Source: _cr05166 - Executive Summary and selected sections (IMF staff paper).*

### Executive Summary ......................................................................................................

### _cr05166 - Executive Summary

### Executive Summary — Key Findings and Immediate Issues
- Following a sharp conflict-related economic contraction in 2003, activity is rebounding, largely as a result of donor-related activities. The recovery is expected to be maintained in 2005 as reconstruction continues and rural activities resume (following an improved security situation).
- Liberia faces daunting reconstruction challenges. The authorities agree that deep reforms are needed to achieve sustainable growth. Particular attention is required to strengthen economic governance and reestablish a transparent budget process.
- New governance problems have emerged that need to be addressed promptly. The authorities are working toward their resolution.
- After initial success in implementing a balanced budget, financial management has weakened. A domestically funded cash deficit was rolled back quickly, but large arrears have emerged more recently.
- The Central Bank of Liberia (CBL) has strengthened its financial position and developed a framework for monetary operations and bank restructuring. The CBL has also resumed efforts to rebuild some key economic statistics. The licensing of new banks is a concern in the current fragile financial environment.
- The authorities recognize the need for corrective action to strengthen governance and fiscal management. They are encouraged to develop expeditiously specific measures in these areas.
- A concrete action plan is also required to support the authorities’ wish for enhanced support from the Fund (in terms of policy advice and technical assistance) during the period leading up to elections and a new government (end-2005). Such a plan would also help establish a track record for a staff-monitored program (and possible beginning of deescalating the Fund’s remedial measures against Liberia).

### Introduction — Relations with the Fund and Recent Cooperation
- Article IV consultations focused on: Liberia’s medium-term economic outlook and policies for moving from a precarious postconflict situation to sustained high-quality growth; recent developments and the outlook for 2005; and policies for the remainder of the National Transitional Government of Liberia’s (NTGL) term (end-2005).
- Liberia has been in continuous arrears to the Fund since 1984. At end-February 2005:
  - Liberia’s arrears to the Fund amounted to SDR 511 million, or 716 percent of quota.
  - Liberia’s forthcoming annual obligations are estimated at about SDR 8 million.
- Since the NTGL took office (October 2003), cooperation with the Fund on policies and payments has strengthened, but the momentum of reforms has recently slackened.
  - The authorities have made monthly token payments of US$50,000 since January 2004.
  - During the October 2004 review, Directors commended successful implementation of the basic program for the first half of 2004 but stressed recent slippages in the budget and financial management of the CBL.
  - Fiscal deficits emerged around mid-2004, equivalent to about 1 percent of GDP; planned increases of the CBL’s operating expenses for 2005 would have led to a deficit of US$2 million, compared with official reserves of US$4 million (December 2004).
- Directors expressed willingness to consider initiation of de-escalating the Fund’s remedial measures against Liberia once steps to reverse recent policy slippages were implemented and understandings on an SMP for 2005 were reached.

### Background and Recent Economic Developments
- Political/economic context:
  - Fighting that extended to Monrovia in mid-2003 led to widespread destruction and looting; about one-third of the population is still estimated to be internally displaced.
  - The NTGL’s mandate: prepare the country for elections in October 2005 and rebuild some capacity for economic management. Government positions were assigned to the warring factions based on a power-sharing formula.
  - UNMIL deployed 15,000 peacekeepers. About 105,000 combatants were demobilized by end-October 2004, but only about 25,000 weapons were collected.
  - UN economic sanctions, also covering timber exports since mid-2003, were extended for one year at end-2004.
  - Donor disbursements have been slow despite pledges: a large part of the US$520 million pledged in early 2004 has been set aside (including into escrow accounts), but actual disbursements are believed to be significantly lower.
- Social indicators and poverty:
  - UNDP household survey (August 2000) indicated that 76 percent of the population was living on less than US$1 a day.
  - In 2002, about one-third of the population suffered from tuberculosis, and about one-fourth of infants died before reaching the age of 5.
- Output and sectoral developments:
  - Real GDP in 2003 is estimated to have dropped by 31 percent, reflecting a steep decline in the second half of the year due to hostilities and the UN ban on timber exports.
  - Activity rebounded in 2004, driven by external support, reconstruction, and a strong recovery in rubber production. Overall, economic activity in 2004 is estimated to have returned to about 70 percent of the prewar level.
  - GDP dynamics noted: GDP is estimated to have declined by 50 percent in the second half of 2003, compared to the first half of the year. The economy recovered by about 35 percent in the first half of 2004, compared to the second half of 2003 and a further 25 percent in the second half of 2004, vis-à-vis the first half.
- Prices, exchange rate, and external sector:
  - Price and exchange rate volatility subsided with the end of hostilities. Food prices stabilized as supply constraints eased; the exchange rate returned to preconflict levels reflecting return of private capital, donor inflows, and increased demand for local currency.
  - Official reserves have increased modestly from low levels.
  - External developments featured a widening trade deficit largely financed by external assistance. Exports collapsed in 2003 but stabilized in 2004, largely on account of rubber. Imports driven by externally funded humanitarian aid and strong remittances increased significantly.
- Fiscal developments:
  - Fiscal revenue collapsed during the internal conflict but has recovered markedly since the NTGL took office, reflecting steps to boost revenue and centralization of revenue collections at the Ministry of Finance and of government accounts at the CBL.
  - Following implementation of a balanced cash-based budget through about mid-2004, a domestically funded fiscal deficit, equivalent to about 1 percent of GDP, emerged in the latter part of the year. That deficit was quickly rolled back, but there was a large buildup of arrears through end-2004.
  - Until the NTGL took office, spending was mainly geared toward military outlays, resulting in sizable wage arrears. Expenditure has since shifted to rehabilitating government offices, paying regular public sector wages, and, more recently, restarting some education and health services.
- Outlook and short-term projection:
  - For 2005, the economic recovery is expected to strengthen, underpinned by continued donor activities and the UN peacekeeping mission.
  - Real GDP is projected to expand by 8.5 percent led by agriculture (mainly rubber), domestic manufacturing, and services.
  - With higher imports and increased production, domestic prices are expected to moderate further.
  - The trade deficit is projected to narrow on a further moderate increase of exports and decline of donor-funded imports for humanitarian assistance.

- Selected macro indicators reported in the source (as presented)
  - Real GDP (percentage change): 2.9, 3.7, -31.3, 2.4, 8.5
  - Inflation (percentage change; period average): 12.1, 14.2, 10.3, 7.8, 5.0
  - Overall fiscal balance (incl. grants, percent of GDP): -0.7, -1.3, 0.7, -0.1, 0.0
  - Government revenue (percent of GDP): 12.8, 13.0, 11.0, 14.1, 17.7
  - Official exchange rate (Liberian dollars per U.S. dollar; end of period): 49.5, 65.0, 50.5, 54.5,...
  - Current account balance (incl. grants, percent of GDP): -24.5, -3.4, -18.2, -13.3, -19.9

### Discussion of Economic Policies — Medium-Term Priorities and Staff Views
- Medium-Term Outlook and Policies:
  - Authorities stressed need for deep reforms to achieve sustainable growth, leveraging abundant natural resources and the private sector to create jobs and reduce poverty.
  - Staff suggested a two-phase recovery:
    - Phase 1: driven by international support for humanitarian assistance and reestablishment of basic services and infrastructure.
    - Phase 2: external support shifts to broader-based recovery (possibly direct budgetary assistance) and measures to reactivate the private sector.
  - Early reestablishment of confidence in key institutions is crucial: priorities include rebuilding the budget process, revenue-generating agencies, the CBL, the financial system, strengthening the judicial system, and introducing modern commercial legislation.
  - Main fiscal challenges: strengthen revenue collections and improve expenditure controls to channel resources to poverty-reducing activities. Given external and domestic financing constraints, the budget will need to remain balanced for some time.
  - Financial sector priorities: strengthen the CBL and the banking system; develop additional instruments to make monetary policy more effective.
  - External debt overhang: authorities identified large external debt as a key obstacle to medium-term sustainability. Staff emphasized that establishing a strong track record of reforms and prudent policies would be key to resolving the debt burden.

### Governance, Fiscal Management, and Program Implementation — Staff Recommendations
- Strengthen governance and fiscal transparency; reestablish a transparent budget process and full financial audits where needed (e.g., maritime, timber, petroleum operations).
- Reverse recent slippages in budget and CBL financial management; implement corrective measures to restore reform momentum.
- Develop and adopt an expeditious, concrete action plan to:
  - Strengthen governance and fiscal management.
  - Secure enhanced Fund support (policy advice and technical assistance) through end-2005.
  - Establish a track record for a staff-monitored program and enable possible de-escalation of Fund remedial measures against Liberia.

*Source: _cr05166 - Executive Summary (IMF staff paper)._

### 22.      To illustrate the positive effects of early and decisive reforms, the staff presented

### _cr05166 - 22.      To illustrate the positive effects of early and decisive reforms, the staff presented

### Medium-term scenarios (Liberia: Medium-Term Scenario, 2004-09)
- Two scenarios presented: an optimistic scenario (prudent macroeconomic and strong reform policies) and a slower-growth scenario (slower pace of reform and lower donor support).
- Optimistic scenario (2004–2009):
  - Real GDP growth (in percent): 2.4, 8.5, 17.2, 9.7, 9.1, 9.0
  - Fiscal balance: -0.1, 0.0, 0.0, 0.0, 0.0, 0.0
  - Fiscal revenues (including grants): 14.1, 17.7, 23.7, 25.0, 27.3, 29.1
  - Of which: grants: 0.2, 0.0, 5.9, 7.0, 8.1, 9.0
  - Current account balance (excl. grants): -51.8, -46.5, -42.0, -39.6, -37.2, -37.3
  - Grants (donor transfers, net): 38.4, 26.6, 21.8, 21.6, 21.2, 20.9
  - Net official reserves (in millions of U.S. dollars): 4.2, 11.7, 19.3, 26.8, 34.1, 41.3
  - Real GDP per capita (in U.S. dollars): 116, 123, 141, 150, 160, 170
  - Notes: 1/ In this scenario, UN sanctions on timber are expected to be lifted at end-2005.
- Slower-growth scenario (2004–2009):
  - Real GDP growth (in percent): 2.4, 8.5, 4.9, 7.7, 4.1, 3.2
  - Fiscal balance: -0.1, 0.0, 0.0, 0.0, 0.0, 0.0
  - Fiscal revenues (including grants): 14.1, 17.7, 19.6, 20.2, 22.6, 24.8
  - Of which: grants: 0.2, 0.0, 2.6, 4.0, 5.3, 6.6
  - Current account balance (excl. grants): -51.8, -46.5, -35.3, -31.2, -27.9, -27.7
  - Grant (donor transfers, net): 38.4, 26.6, 14.5, 13.6, 12.9, 10.2
  - Net official reserves (in millions of U.S. dollars): 4.2, 8.7, 13.4, 17.4, 21.0, 24.5
  - Real GDP per capita (in U.S. dollars): 116, 123, 126, 132, 134, 135
  - Notes: 2/ In this scenario, UN sanctions on timber are expected to be lifted at end-2006.
- Sources: Liberian authorities; and IMF staff estimates and projections.

### Governance issues
- Strengthening economic governance seen as indispensable for medium-term recovery, given pervasive mismanagement under previous governments.
- A committee established to follow up on corruption allegations against members of the transitional government and civil servants; membership includes legal experts and representatives of political parties and civil society. Staff encouraged making the committee fully operational as soon as feasible.
- Two cases under investigation of serious concern to transparency and accountability:
  - Modalities of large sales of iron ore.
  - Alleged disappearance during 2004 of a large number of blank import and export permits.
  - Specific numeric allegation: 700,000 tons of iron ore were sold at US$10 a ton, compared with reported international prices of about US$40 a ton, resulting in a potential revenue loss of about US$20 million.
- An audit of travel expenses was at a final stage; staff advised publishing results and corrective actions.
- Authorities wish to design a detailed governance-strengthening agenda based on audits of the CBL and main revenue-generating agencies; audits delayed partly for security reasons (conducted with EU support). Staff offered assistance in preparing an action plan once audits are available.
- Forestry sector: independent review of concessions started and expected to be finalized in time for the next sanctions review (June 2005); studies on financial systems and human resource needs conducted.
- Timber taxation reform:
  - Staff proposal accepted: short-term simplification to two instruments—an area rental fee and taxes on timber exports (streamlined system focused on ease of administration).
  - Over the medium term, export tax to be replaced with a tax on production.
- Petroleum sector reforms continue with external assistance; World Bank providing technical support to move to competitive bidding for petroleum product imports.

### Fiscal issues
- Need to reestablish a functioning and transparent budget process; recent weakening of financial management highlighted.
- Cash deficit that emerged around mid-2004 was eliminated, but sizable arrears accumulated through end-2004 requiring strengthening of expenditure controls to implement a balanced cash-based budget during 2004/05.
- Revenue-side developments and concerns:
  - Delays in implementing amended contract with external preshipment inspection agent (BIVAC) caused shortfalls in customs collections.
  - A petroleum importer’s practice to offset petroleum taxes against repayment of a loan to the previous government has been discontinued.
  - Income tax collections stronger than expected due to enforced withholding.
  - Staff urged authorities to make BIVAC arrangement fully operational; preshipment inspections on a large part of imports, including rice and petroleum products, had not yet started.
  - Staff pointed to favorable developments, including a surge in demand for petroleum products, which should boost the revenue base.
- Staff concerns about measures that could undermine the revenue base:
  - Generous import duty exemptions for a large international investment project (concession under review).
  - Temporary exemptions of duties on cement imports.
  - Proposed changes to the investment code contemplating wide-ranging exemptions for new international investment projects.
- Staff recommendation: eliminate existing tax concessions and not introduce new ones; mobilize higher budgetary revenue and channel it to basic infrastructure, health, and education.
- Expenditure-side issues:
  - Cash-management committee not operating as intended; significant expenditures still made without prior authorization; local-currency transactions not monitored. Authorities agreed to redouble efforts.
  - Emergence of about US$12 million in arrears by end-2004 raised serious concerns about commitment controls; staff urged putting simple commitment control mechanisms in place and using earlier technical assistance recommendations.

### Monetary and exchange rate issues
- High dollarization limits scope for monetary and exchange rate policies; only a few instruments for monetary operations.
- Recent complementary instrument: foreign exchange auctions (introduced mid-2004) to ensure transparent allocation of foreign exchange.
- CBL actions and plans:
  - Accommodated increased demand for local currency while avoiding exchange rate pressures and accumulating modest foreign reserves.
  - Plans: short term—set up a liquidity-monitoring system and introduce a credit facility for banks; medium term—establish a liquidity forecasting system, introduce repurchase agreements, and develop an interbank foreign exchange market; long term—develop money and securities markets.
  - CBL adopted a restructuring and resolution policy; an examination team began assessing one of the three operating banks; ordered all banks to suspend new lending to delinquent borrowers.
  - CBL licensed two new banks with more stringent capital requirements and due diligence; staff cautioned against licensing additional new banks in the current environment and urged continuous due diligence on recently licensed banks.
- Staff advice and cautions:
  - Continue to accommodate rebound in demand for local currency, while monitoring exchange rate movements as an indicator of supply-demand conditions.
  - Closely link implementation of CBL’s framework to economic conditions and improvements in banking sector health.
  - Caution against premature use of central bank lines of credit; issuance of securities should not be used to finance new fiscal deficits.
  - Staff advised against moving to full dollarization given Liberia’s vulnerability to external shocks and the high cost of dollarization for the financial system.
- Dollarization cost-benefit key numerical points (Box 3):
  - Initial cost of replacing the stock of domestic currency estimated at about US$36 million (equivalent to 8 percent of GDP).
  - To support a modest annual rate of growth of 3-4 percent, an annual current account surplus of about US$7 million would be required to provide liquidity to the system.
  - Banks would need to be strengthened well above the 8 percent risk-adjusted capital ratio proposed by the Basel Committee before dollarization.
- Foreign exchange auctions:
  - CBL satisfied with auctions but noted that allocating sizable foreign currency to auctions made it difficult to raise international reserves.
  - Authorities accepted staff suggestion to reduce amounts offered in auctions to facilitate reserve buildup.
  - Staff noted auction does not create exchange restriction or multiple currency practice because banks and exchange houses trade among themselves and the auction establishes a single rate used by the government.
- Banking system:
  - Fragile and undercapitalized, but liquidity position remained strong.
  - Staff welcomed CBL restructuring steps and encouraged swift completion of the restructuring exercise using regulatory flexibility.

### CBL budget (cash basis) — selected figures (in thousands of U.S. dollars)
- 2003 Estimate / 2004 Actual / 2005 Budget:
  - Income: 1,931 / 3,285 / 3,148
  - Interest income: 1,159 / 1,178 / 855
  - Non Interest income: 772 / 2,107 / 2,293
  - Expenditure: 3,514 / 4,815 / 4,823
  - Current: 3,209 / 4,410 / 3,893
  - Capital: 305 / 405 / 929
  - Balance: (1,583) / (1,530) / (1,675)
  - Balance (excluding extraordinary items) 1/: (1,583) / (983) / (637)
  - 1/ Extraordinary items include the cost for banknote importation, retirement benefits as a result of staff reduction, and replacement of damaged motor vehicles.

*Sources: Liberian authorities; and IMF staff estimates and projections.*

### 45.      Regarding the CBL’s financial situation, the staff welcomed the recently

### _cr05166 - 45.      Regarding the CBL’s financial situation, the staff welcomed the recently

### CBL financial situation and retrenchment
- Staff welcomed the recently concluded retrenchment program that led to a significant reduction of staff, with associated long-term cost savings.
- Staff was reduced from about 200 to 130.
- In light of the envisaged reduction in spending and an expected pickup in revenue, the CBL expected to eliminate its cash deficit later in 2005 or in early 2006.

### Donor issues and technical assistance
- Staff shared authorities’ concerns about the slow pace of disbursements; donors cited a low level of trust in Liberian financial management practices as a main cause for delays (Box 4).
- Staff encouraged authorities to address governance issues immediately and to improve transparency in overall financial management.
- Authorities had defined priorities for core areas of economic management; technical assistance provided by the Fund and other external partners was, overall, well coordinated.
- External partners and areas of assistance:
  - United States: assistance in budget preparation, banking supervision, and forestry management.
  - EU: intends to focus technical assistance on economic governance, based on its audits.
  - Fund and World Bank: closely coordinated on expenditure management.
  - Fund: lead in tax and customs administration and financial sector issues.
  - World Bank: focus on procurement, forestry and public enterprise reform, and community-driven development.

### Public debt
- Authorities made substantial progress in taking stock of domestic and external public debt; contacted creditors to obtain loan agreements and statements, as such information was largely lost during the conflict.
- Based on preliminary data at end-2004:
  - Stock of public debt amounted to US$4.1 billion (841 percent of GDP).
  - US$3.8 billion owed to external creditors.
  - Remaining US$0.4 billion to domestic creditors (including suppliers, commercial banks, the CBL, and civil servants).
- Some debt included in the inventory has not yet been verified and cross-claims have not been cleared.
- Liberia’s external debt (as a ratio of exports of goods and services) is estimated at 2,722 percent at end-2004.
- The HIPC Initiative threshold is 150 percent; HIPC Initiative had been extended to end-2006 and assessment using end-December 2004 data would be one criterion of eligibility.
- Staff urged authorities to expedite their stock-taking of external debt.
- Domestic arrears settlement strategy:
  - Payments for small claims would be prioritized.
  - A substantial reduction of the face value of the remaining claims would be sought.
  - Staff advised the strategy should contribute to achieving overall sustainability.
  - Authorities concurred that no payment would be made until the strategy is finalized.

### Donor assistance characteristics (Box 4)
- Actual disbursements in 2004: US$189 million, compared with pledged amount of US$520 million.
- Relative to GDP, external assistance is one of the largest of recent postconflict countries.
- There is less assistance for budgetary operations than in other postconflict countries.
- Import tariffs range from 2.5 to 25 percent; export taxes are 2.5 percent on unprocessed goods and 4 percent on precious metals.

### Trade regime and competitiveness
- Lack of reliable economic data precludes an analysis of Liberia’s external competitiveness.
- Largely destroyed infrastructure and lack of basic services are widely believed to hamper commercial and export activities.
- Liberia has a relatively open trade regime; rates for import and export taxes currently in effect are modest.
- Tax and custom revenues from trade transactions are expected to be phased out in line with a broadening of the domestic revenue base.
- Authorities indicated willingness to harmonize Liberia’s trade regime with ECOWAS’s once basic economic conditions have improved.

### Relations with the Fund
- Since NTGL took office in October 2003, overall cooperation with the Fund on policies and payments has strengthened.
- Emergence of financial management and governance issues requires authorities to redouble efforts to return to a solid reform path.
- Authorities agreed conditions for entering into a staff-monitored program (SMP) were not yet in place.
- Staff expressed willingness to assist authorities in strengthening weak areas to establish the track record that could lead to an SMP.
- Staff reviewed adequacy of token payments to the Fund; noted recovery of official reserves and potential to further strengthen budgetary revenue collections; encouraged authorities to increase their monthly token payments.
- Authorities indicated they would consider an increase in the context of the 2005/06 budget.

### Data issues
- Serious data deficiencies continue to hamper assessment of economic impact of policies and donor activities, as well as surveillance.
- Authorities acknowledged need to prepare national income statistics and to improve the outdated basket used to measure the consumer price index.
- Authorities have approached donors to conduct surveys of household income and expenditure, as well as living standards.
- Staff welcomed improvements in quality of monetary statistics (also reflecting Fund technical assistance) but regretted deterioration in reliability of fiscal information, attributable in part to existence of different sources of expenditure data and lack of reconciliation of revenue and expenditure information with associated financing flows.
- Authorities recognized need to strengthen reliability of key fiscal data.
- Authorities advised to seek further technical assistance from external partners to build a core statistical database.

### Staff appraisal — key findings and recommendations
- Improved security has created basis for some economic recovery; local economy benefiting from donor-related and reconstruction activities; prices and the exchange rate have stabilized.
- Significant risks remain:
  - Large number of demobilized ex-combatants needs reintegration.
  - Lack of cohesion within power-sharing government hinders implementation of sound policies and reforms.
  - Slow progress in rehabilitating basic infrastructure and services is disappointing.
- Medium-term challenges: rebuild economy and reduce pervasive poverty; decisive reforms needed immediately to rebuild budget process and other key economic institutions; gradual broadening of scope for monetary policy.
- Priority should be given to strengthening governance to maintain external financial and technical support.
- Concerns:
  - Recent slackening of NTGL’s pace of reform implementation and emergence of serious governance issues (including circumstances surrounding sales of iron ore and alleged disappearance of large number of import and export permits).
  - Staff urges authorities to act swiftly to clarify issues and to publish findings and intended actions to provide assurances of commitment to full accountability.
  - NTGL should act decisively to fulfill requirements for lifting of UN sanctions; external partners are coordinating an action plan.
- Financial management:
  - Recent weakening regrettable after initial success with a prudent balanced budget.
  - Emergence of large arrears is a considerable concern.
  - Authorities need to strengthen expenditure controls, including through full use of technical assistance recommendations.
  - Scope to bolster revenue collections through full implementation of long-standing recommendations, particularly in customs.
- Banking and monetary policy:
  - Staff welcomes steps to strengthen CBL’s financial position and to develop a framework for monetary operations and bank restructuring.
  - Authorities should use caution in granting new licenses for banks given current economic uncertainties and fragility of the banking system.
- Next steps for Fund support:
  - Concrete action plans needed before authorities can obtain enhanced support from the Fund in terms of policy advice and technical assistance in the period leading to a new government (end-2005).
  - Building a track record could lead to a staff-monitored program and start of de-escalating the Fund’s remedial measures against Liberia.

*Source: _cr05166 - 45.*

### 65.      It is proposed to hold the next Article IV consultation on the standard 12-month

### _cr05166 - 65.      It is proposed to hold the next Article IV consultation on the standard 12-month cycle.

### Macroeconomic outlook and prices
- It is proposed to hold the next Article IV consultation on the standard 12-month cycle.
- Real GDP (annual percentage change)
  - 2001: 2.9
  - 2002: 3.7
  - 2003: -31.3
  - 2004 (Est.): 2.4
  - 2005 (Proj.): 8.5
  - 2006 (Proj.): 4.9
  - 2007 (Proj.): 7.7
  - 2008 (Proj.): 4.1
  - 2009 (Proj.): 3.2
- Consumer prices (annual average)
  - 2001: 12.1
  - 2002: 14.2
  - 2003: 10.3
  - 2004 (Est.): 7.8
  - 2005 (Proj.): 5.0
  - 2006 (Proj.): 6.0
  - 2007 (Proj.): 5.5
  - 2008 (Proj.): 5.0
  - 2009 (Proj.): 4.0
- Consumer prices (end of period)
  - 2001: 19.3
  - 2002: 11.1
  - 2003: 5.0
  - 2004 (Est.): 16.1
  - 2005 (Proj.): 5.0
  - 2006 (Proj.): 6.0
  - 2007 (Proj.): 5.5
  - 2008 (Proj.): 5.0
  - 2009 (Proj.): 4.0
- Nominal GDP (in millions of U.S. dollars)
  - 2001: 543
  - 2002: 559
  - 2003: 435
  - 2004 (Est.): 492
  - 2005 (Proj.): 538
  - 2006 (Proj.): 568
  - 2007 (Proj.): 614
  - 2008 (Proj.): 646
  - 2009 (Proj.): 675
- GDP deflator (in U.S. dollars)
  - 2001: -5.9
  - 2002: -0.7
  - 2003: 13.3
  - 2004 (Est.): 10.4
  - 2005 (Proj.): 0.8
  - 2006 (Proj.): 0.6
  - 2007 (Proj.): 0.4
  - 2008 (Proj.): 1.1
  - 2009 (Proj.): 1.2

### External sector (U.S. dollar terms) and balance of payments
- Exports of goods, f.o.b. (annual percentage change)
  - 2001: 6.4
  - 2002: 30.1
  - 2003: -34.5
  - 2004 (Est.): -4.7
  - 2005 (Proj.): 0.3
  - 2006 (Proj.): 8.9
  - 2007 (Proj.): 44.7
  - 2008 (Proj.): 6.8
  - 2009 (Proj.): 3.2
- Imports of goods, f.o.b. (annual percentage change)
  - 2001: 6.4
  - 2002: -6.3
  - 2003: -3.6
  - 2004 (Est.): 91.4
  - 2005 (Proj.): -1.2
  - 2006 (Proj.): -14.2
  - 2007 (Proj.): 5.6
  - 2008 (Proj.): 3.5
  - 2009 (Proj.): 2.6
- Terms of trade (annual percentage change)
  - 2001: -21.3
  - 2002: 20.3
  - 2003: 21.1
  - 2004 (Est.): 4.9
  - 2005 (Proj.): -9.1
  - 2006 (Proj.): -8.7
  - 2007 (Proj.): -2.7
  - 2008 (Proj.): -1.0
  - 2009 (Proj.): -3.4
- Official exchange rate (Liberian dollars per U.S. dollar; end of period)
  - end-2004: 54.5 = US$1
  - Historical entries: 49.5; 65.0; 50.5; 54.5 (others shown as "...............")
- Current account balance, including grants (deficit, -) (in percent of GDP)
  - 2001: -24.5
  - 2002: -3.4
  - 2003: -18.2
  - 2004 (Est.): -13.3
  - 2005 (Proj.): -19.9
  - 2006 (Proj.): -20.8
  - 2007 (Proj.): -17.5
  - 2008 (Proj.): -14.9
  - 2009 (Proj.): -17.5
- Current account balance, excluding grants (deficit, -) (in percent of GDP)
  - 2001: -30.4
  - 2002: -11.0
  - 2003: -22.7
  - 2004 (Est.): -51.8
  - 2005 (Proj.): -46.5
  - 2006 (Proj.): -35.3
  - 2007 (Proj.): -31.2
  - 2008 (Proj.): -27.9
  - 2009 (Proj.): -27.7
- Trade balance (deficit, -) (in percent of GDP)
  - 2001: -5.0
  - 2002: 3.8
  - 2003: -7.1
  - 2004 (Est.): -33.4
  - 2005 (Proj.): -29.9
  - 2006 (Proj.): -20.0
  - 2007 (Proj.): -12.3
  - 2008 (Proj.): -11.3
  - 2009 (Proj.): -11.0
- Exports, f.o.b. (in percent of GDP)
  - 2001: 23.6
  - 2002: 29.8
  - 2003: 25.0
  - 2004 (Est.): 21.1
  - 2005 (Proj.): 19.4
  - 2006 (Proj.): 20.0
  - 2007 (Proj.): 26.8
  - 2008 (Proj.): 27.2
  - 2009 (Proj.): 26.8
- Imports, c.i.f. (in percent of GDP)
  - 2001: -28.6
  - 2002: -26.0
  - 2003: -32.2
  - 2004 (Est.): -54.5
  - 2005 (Proj.): -49.2
  - 2006 (Proj.): -40.0
  - 2007 (Proj.): -39.1
  - 2008 (Proj.): -38.5
  - 2009 (Proj.): -37.8
- Net official reserves (in millions of U.S. dollars)
  - 2004 (Est.): 0.4
  - 2005 (Proj.): -2.1
  - 2006 (Proj.): 4.2
  - 2007 (Proj.): 8.7
  - 2008 (Proj.): 13.4
  - 2009 (Proj.): 17.4
  - 2010 (Proj.): 21.0
  - 2011 (Proj.): 24.5
- Net official reserves (in months of imports)
  - 2004 (Est.): 0.0
  - 2005 (Proj.): -0.2
  - 2006 (Proj.): 0.2
  - 2007 (Proj.): 0.4
  - 2008 (Proj.): 0.7
  - 2009 (Proj.): 0.9
  - 2010 (Proj.): 1.0
  - 2011 (Proj.): 1.2

### Central government operations and fiscal stance
- Total revenue and grants (in percent of GDP)
  - 2001: -18.5
  - 2002: 4.7
  - 2003: -34.1
  - 2004 (Est.): 44.3
  - 2005 (Proj.): 37.4
  - 2006 (Proj.): 16.9
  - 2007 (Proj.): 11.5
  - 2008 (Proj.): 17.9
  - 2009 (Proj.): 14.9
- Of which: tax revenue (in percent of GDP)
  - 2001: -18.3
  - 2002: 15.8
  - 2003: -40.2
  - 2004 (Est.): 48.6
  - 2005 (Proj.): 13.6
  - 2006 (Proj.): 12.8
  - 2007 (Proj.): 8.7
  - 2008 (Proj.): 5.5
  - 2009 (Proj.): 4.8
- Total expenditure and net lending (in percent of GDP)
  - 2001: -12.2
  - 2002: 9.2
  - 2003: -43.8
  - 2004 (Est.): 55.0
  - 2005 (Proj.): 36.4
  - 2006 (Proj.): 16.9
  - 2007 (Proj.): 11.5
  - 2008 (Proj.): 17.9
  - 2009 (Proj.): 14.9
- Of which: current expenditure (in percent of GDP)
  - 2001: -14.9
  - 2002: -36.2
  - 2003: -5.6
  - 2004 (Est.): 144.1
  - 2005 (Proj.): 40.8
  - 2006 (Proj.): 5.3
  - 2007 (Proj.): 6.5
  - 2008 (Proj.): 7.1
  - 2009 (Proj.): 9.0
- Capital expenditure (in percent of GDP)
  - 2001: -8.6
  - 2002: 65.7
  - 2003: -62.2
  - 2004 (Est.): -51.9
  - 2005 (Proj.): 9.3
  - 2006 (Proj.): 107.8
  - 2007 (Proj.): 31.3
  - 2008 (Proj.): 52.6
  - 2009 (Proj.): 28.5
- Central government overall fiscal balance (cash basis, percent of GDP)
  - 2001: -0.7
  - 2002: -1.3
  - 2003: 0.7
  - 2004 (Est.): -0.1
  - 2005 (Proj.): 0.0
  - 2006 (Proj.): 0.0
  - 2007 (Proj.): 0.0
  - 2008 (Proj.): 0.0
  - 2009 (Proj.): 0.0
- Central government operations (calendar year; July–June fiscal year details provided)
  - Total revenue and grants (percent of GDP): 2001: 12.8; 2002: 13.0; 2003: 11.0; 2004 (Est.): 14.1; FY2004/05 actual and projections by period shown up to 24.8 in 2009.

### Money and banking (stocks and aggregates)
- Net foreign assets (in billions of Liberian dollars)
  - Dec-2002: -36.8
  - Dec-2003: -30.3
  - Dec-2004: -44.6
  - Projections 2005-09: -45.9; -47.7; -49.6; -51.6; -53.6
- Net domestic assets (in billions of Liberian dollars)
  - Dec-2002: 39.7
  - Dec-2003: 33.7
  - Dec-2004: 49.4
  - Projections 2005-09: 51.5; 53.9; 56.6; 59.2; 61.9
- Net domestic credit (in billions of Liberian dollars)
  - Dec-2002: 53.6
  - Dec-2003: 44.9
  - Dec-2004: 62.3
  - Projections 2005-09: 65.5; 68.3; 71.7; 75.3; 78.9
- Reserve money (rate of growth)
  - Projections (2005-09): 15.1; 29.9; 15.0; 13.2; 11.2; 9.6; 8.4 (series begins earlier with "......15.129.9...")
- Broad money (rate of growth)
  - Projections (2005-09): 14.7; 43.1; 18.3; 10.5; 12.4; 9.6; 7.5 (series begins earlier with "......14.743.118.3...")
- Broad money (M2, in billions of Liberian dollars)
  - 2002: 2,899
  - 2003: 2,703
  - 2004: 3,326
  - Projections 2005-09: 3,680; 4,759; 5,230; 5,629; 6,221; 6,994; 7,667; 8,243 (table shows growth through 2009)
- Velocity (GDP relative to broad money)
  - 2001: 12.5
  - 2002: 8.2
  - 2003: 6.6
  - 2004: 7.4
  - Projections 2005-09: 5.7; 5.8; 5.4; 5.3; 5.3; 5.3; 5.2

### Public sector external debt and arrears
- Public sector external debt outstanding (total, in millions of U.S. dollars)
  - 2000: 596.6
  - 2001: 601.5
  - 2002: 831.8
  - 2003: 766.4
  - 2004: 713.2
  - Projections 2005-09: 692.6; 657.6; 643.1; 634.5
- Current account balance including grants (in millions of U.S. dollars)
  - 2001: -133.2
  - 2002: -19.2
  - 2003: -79.2
  - 2004 (Est.): -65.5
  - Projections 2005-09: -107.0; -118.2; -107.6; -96.5; -118.5
- Trade balance (in millions of U.S. dollars)
  - 2001: -27.1
  - 2002: 21.1
  - 2003: -31.1
  - 2004 (Est.): -164.2
  - Projections 2005-09: -160.7; -113.8; -75.8; -73.0; -73.9
- Arrears (accrual, +) (in millions of U.S. dollars)
  - 2000: 165.3
  - 2001: 117.5
  - 2002: 83.8
  - 2003: 72.9
  - 2004: 84.1
  - Projections 2005-09: 102.5; 114.6; 126.0; 137.8; 144.6
- Use of Fund credit (net change in arrears, in millions of U.S. dollars)
  - 2000: 13.7
  - 2001: 15.4
  - 2002: 8.7
  - 2003: 7.9
  - 2004: 10.1
  - Projections 2005-09: 10.1; 10.1; 10.8; 10.8; 10.8
- Increase in non-Fund arrears (in millions of U.S. dollars)
  - 2000: 151.5
  - 2001: 102.0
  - 2002: 75.2
  - 2003: 65.0
  - 2004: 74.1
  - Projections 2005-09: 92.4; 103.9; 115.2; 127.0; 133.8

### External debt sustainability (DSA) — key findings and scenarios
- Baseline assessment (based on low-income external debt template):
  - End-2004 preliminary NPV of external debt as ratio of GDP: 754 percent.
  - End-2004 preliminary NPV of external debt as ratio of exports of goods and services: 2,722 percent.
  - Debt-service ratio at end-2004: 62 percent (primarily reflecting interest arrears and penalties).
  - Under the slower-growth (baseline) scenario, projected to decline to:
    - NPV debt-to-GDP: 582 percent by 2013.
    - NPV debt-to-exports: 1,640 percent by 2013.
- Scenario and stress-test results (selected entries from Table 1b and narrative):
  - A1 (historical averages 2005-23): NPV debt-to-GDP declines to 416 percent by 2013 and 217 percent by 2023.
  - A2 (higher growth 2005-23): NPV debt-to-GDP declines to 374 percent by 2013 and 193 percent by 2023.
  - B1 (one-time shock: real GDP growth at historical average minus one standard deviation in 2005-06): NPV debt-to-GDP rises to 917 percent in 2005 and remains elevated through projections.
  - B6 (one-time 30 percent nominal depreciation relative to baseline in 2005): NPV debt-to-GDP rises to 1,127 percent in 2005 and remains very high in subsequent years.
  - Debt-service ratio under alternative scenarios: baseline 62 percent in 2004; A1 and A2 reduce ratios over time; stress tests (e.g., B1) keep ratios elevated.
- Sensitivity analysis highlights:
  - The debt situation is unsustainable under baseline and most stress scenarios.
  - Worst outcomes arise from shocks to economic growth (B1), large nominal depreciation (B6), and declines in export growth (B2).
  - Historical-trend scenario (A1) shows more favorable dynamics but still leaves debt indicators well above HIPC Initiative thresholds.
- Policy implications and recommendations (as stated in the text)
  - Liberia needs a strong commitment to pursue sound macroeconomic and structural policies.
  - Substantial external support, including extensive debt relief from the international community, will be required to address the external debt problem.
- Data caveats noted in the DSA
  - Most records on external debt were lost during conflict; end-2004 data reflect multilateral creditor statements yet to be reconciled.
  - Bilateral and commercial external debt data have not been updated in many years and reflect authority and staff estimates.
  - Baseline assumes continued accumulation of arrears and no access to new borrowing because of the protracted arrears situation.

### Fiscal and sectoral details (selected aggregates and items)
- Trade and composition (exports and imports, 2000-09 series, in millions of U.S. dollars)
  - Exports, f.o.b.: 2000: 120.3; 2001: 127.9; 2002: 166.5; 2003: 108.9; 2004 (Est.): 103.8; projections through 2009 up to 181.1.
  - Of which: rubber (selected years): 2000: 57.1; 2001: 54.0; 2002: 59.2; 2003: 43.9; 2004: 93.4; projections to 2009 shown.
  - Of which: timber (selected years): 2000: 61.0; 2001: 69.2; 2002: 100.4; 2003: 54.6; 2004: 0.0; projections include restart of timber exports in later years.
  - Imports, f.o.b.: 2000: -145.8; 2001: -155.0; 2002: -145.3; 2003: -140.0; 2004 (Est.): -268.1; projections through 2009 shown up to -255.0.
  - Major import components (Petroleum; Rice; Donor + FDI related; Other) reported with time series.
- Central government operations (detailed FY 2004/05 entries and projections in millions of U.S. dollars and percent of GDP) with line items:
  - Total revenue and grants, tax revenue, maritime revenues, stumpage fees and land rental, taxes on international trade, goods and services tax, petroleum sales tax, nontax revenue (including telecommunication concessions noted), grants (budget support and project), total expenditure and net lending, current expenditure, wages and salaries, goods and services, interest on debt (external and domestic), domestic arrears clearance, subsidies/transfers/net lending, capital expenditure (internally and externally financed), overall surplus/deficit, financing, and statistical discrepancies — all reported in tables with historical and projected values.

### Monetary survey and banking sector details
- Monetary survey (2002-09) shows:
  - Net foreign assets, net domestic assets, net domestic credit, net claims on government, claims on private sector, other items net.
  - Currency outside banks and commercial banks' reserves at CBL.
  - Commercial bank deposits, demand deposits, time/savings deposits, Liberian and U.S. dollar breakdowns.
  - Broad money composition and U.S. dollar component (including memorandum items in U.S. dollars).
  - CBL's net foreign reserves in millions of U.S. dollars (2001-09 series culminating in 24.5 by 2009).
  - Notes on data: one bank excluded from deposits since May 2003; U.S. dollar component excluding U.S. dollars in circulation.

### Relations with the Fund, exchange rate arrangement, and technical assistance
- Membership and status
  - Liberia: Joined 03/28/1962; Article XIV.
- General Resources Account and SDR positions
  - Quota: 71.3 (SDR million); 100.0 percent of quota.
  - Fund holdings of currency: 272.1; 381.6 (percent of quota or other context shown in table).
  - Net cumulative SDR allocation: 21.0; 100.0 percent of allocation; holdings: 0.0.
- Outstanding purchases and loans (SDR million; percent of quota)
  - Stand-By Arrangements: 166.1; 232.9 (percent of quota entries shown).
  - Contingency and Compensatory: 34.7; 48.7.
  - Trust Fund: 22.9; 32.1.
- Latest financial arrangements (historical Stand-By entries shown with approval and expiration dates and amounts approved/drawn).
- Projected obligations to the Fund (SDR million; based on existing use of resources and holdings of SDRs)
  - Principal overdue as of 2/28/2005: 223.7
  - Charges/interest: 287.1
  - Forthcoming charges/interest by year: 2005: 6.0; 2006: 8.0; 2007: 8.0; 2008: 8.0
  - Total (overdue + forthcoming): 510.8; forthcoming obligations shown as 6.0; 8.0; 8.0; 8.0
- Exchange rate arrangement
  - Currency: Liberian dollar; U.S. dollar also legal tender.
  - Arrangement: independent float; exchange rate market determined; foreign exchange dealers permitted to buy and sell currencies.
  - Liberia’s exchange rate at end-December 2004: L$54.5 = US$1.
- Article IV consultation history
  - The 2002 Article IV consultation discussions were held in Monrovia during December 2002.
  - The staff report (Country Report No. 03/274) was discussed by the Executive Board on March 5, 2003.
- Technical assistance (selected missions and advisors by IMF department and year)
  - MAE: missions/advisors on currency arrangement reform and banking commission and system reform (1995, 1998, 1998–2001).
  - MFD: missions on monetary operations, foreign exchange auctions, banking supervision, payments system (May 2004; Aug. 2004; Feb. 2005).
  - FAD: missions/advisors on budget preparation and expenditure execution, fiscal reform, tax reform, public expenditure management, forestry tax policy (1997–2005; multiple visits in 2003–2005).
  - STA: missions on multisector statistics, money and banking statistics, balance of payments, government finance statistics, national accounts, monetary and financial statistics (1997–2004).
- Resident Representative
  - There is currently no resident representative in Liberia (as of report).

### Key conclusions and policy priorities (from source text)
- Liberia’s external public debt is significantly higher than HIPC Initiative indicative thresholds based on preliminary end-2004 data.
- Debt dynamics are sensitive to growth, export performance, exchange rate changes, and net non-debt creating flows; adverse shocks can substantially worsen debt indicators.
- Addressing the external debt problem will require:
  - A strong commitment to sound macroeconomic and structural policies by Liberian authorities.
  - Substantial external support from the international community, including extensive debt relief.

*Sources: Liberian authorities; and IMF staff estimates and projections.*

### 2004. In March 2004, the Executive Directors of the Bank discussed the Liberia Country Re-

### _cr05166 - 2004. In March 2004, the Executive Directors of the Bank discussed the Liberia Country Re-

### World Bank engagement and financing for Liberia
- Bank approved use of the LICUS Implementation Trust Fund for Liberia in April 2004 to fund four activities totaling US$4.0 million in:
  - community empowerment, including a rapid social assessment;
  - public procurement and financial management;
  - forestry sector management; and
  - coordination and implementation of the Results-Focused Transition Framework (RFTF).
- High-level coordination mechanisms established:
  - RFTF Implementation and Monitoring Committee (RIMCO) with nine sector cluster working groups.
  - The Bank is vice-chair of RIMCO and co-chairs the Working Committee on Economic Policy and Development Strategy.
- A second grant, US$25.0 million from Bank IBRD surplus (TFLIB), was endorsed in August 2004 and approved in October 2004 to extend and add activities in infrastructure (transportation, sanitation, power, water, telecommunications).
  - First subgrant: Technical Assistance Component for Infrastructure Rehabilitation, US$5.0 million, approved December 2004.
  - Second subgrant: Community Empowerment, US$6.0 million, approved February 2005.
  - Other subgrants under preparation.
- Bank presence: Senior Country Officer in Monrovia since July 1, 2004 to improve coordination.

### World Bank Group statement of Loans/Credits/Grants for Liberia (Summary in U.S. Dollars at March 1, 2005)
- IBRD and IDA totals presented exactly as in source:
  - Original Principal: IBRD 155,950,000; IDA 114,500,000; Total 270,450,000
  - Cancellations: IBRD 14,693,266; IDA 22,765,013; Total 37,458,279
  - Disbursed: IBRD 141,256,734; IDA 91,541,500; Total 232,798,234
  - Undisbursed: IBRD 0; IDA 0; Total 0
  - Repaid: IBRD 42,874,103; IDA 723,744; Total 43,597,847
  - Due: IBRD 97,977,632; IDA 109,690,501; Total 207,668,133
  - Exchange adjustment: IBRD 59,812,555; IDA 0; Total 59,812,555
  - Borrowers’ obligation: IBRD 157,790,188; IDA 109,690,501; Total 267,480,689
  - Sold third party: IBRD 405,000; IDA 0; Total 405,000
  - Repaid third party: IBRD 405,000; IDA 0; Total 405,000
  - Due third party: IBRD 0; IDA 0; Total 0
- Source contact at World Bank: Michael Diliberti (202)473-8766.

### Statistical capacity, data quality, and institutional reforms
- Overall assessment:
  - Substantial weaknesses in Liberia’s economic and financial statistics due to civil war–related destruction of databases and loss of capacity.
  - STA missions visited Monrovia in 2003 and 2004 and assisted in rebuilding capacity for national accounts, monetary and fiscal statistics, and balance of payments.
- Institutional development:
  - New legislation passed in July 2004 creating the Liberia Institute of Statistics and Geo-Information Services as a semiautonomous agency, expected to be operational in FY 2005/06, to lead national coordination and reestablishment of economic and social statistics.
- Monetary and banking statistics:
  - CBL now regularly reporting monetary, banking, and exchange rate statistics for IFS publication, but quality and timeliness need improvement.
  - August 2004 mission compiled monetary data for June 2002–June 2004; progress toward international standards noted, but important weaknesses persist:
    - Need for proper accounting for foreign reserves.
    - Appropriate segregation of required reserves by currency denomination.
    - Better classification of other assets and liabilities.
    - Weak responses from commercial banks to follow-up requests and explanations.
  - Money and banking data reported monthly to IFS usually with a two-month lag; latest return includes data up to December 2004.
- Prices and real sector:
  - Consumer price index by MPEA Price Unit began in late 1998 with May 1998 base; weights based on a 1963-64 Monrovia household expenditure survey.
  - Loss of 1988-89 price survey database during the civil war; targeted sampling frequencies vary and actual collections are often delayed; publication lag about six months.
  - Annual sectoral production estimates prepared by National Accounts Unit (MPEA); Fund staff estimated total GDP by sectoral origin for 1997-2004 with MPEA assistance.
  - No estimate available for GDP by expenditure; a household survey required for more reliable data.
- Government finance statistics:
  - Authorities have begun regular reporting of fiscal accounts to staff but have not reported to the Government Financial Statistics Yearbook since 1988 nor to IFS for several years.
  - Ministry of Finance provides monthly disaggregated data on revenue and current and capital expenditure, but data quality and consistency need improvement; data on domestic arrears and financing items are unreliable.
- Balance of payments and external debt:
  - Official balance of payments statistics have not been reported since the 1988 Article IV consultation; Fund staff prepared provisional statistics with CBL, MoC, MPEA, MoF.
  - Some current and financial account components compiled (trade and related services, government expenditures, remittances, nonresident deposits), but primary source data lacking and component classification errors persist.
  - Need for technical assistance for capacity building and reconciliation of significant trade data discrepancies among agencies.
  - CBL completed a census of foreign direct investment enterprises to prepare for an investment survey (following July 2004 STA mission recommendations).
  - Significant gaps in records of external public debt, particularly bilateral and commercial creditors; a task force from CBL, MoF, MPEA, GAO, and BOB working to obtain loan agreements and statements to update MoF external debt database.

### Surveillance indicators and data dissemination (as of March 18, 2005)
- Table of Common Indicators Required for Surveillance: dates and reporting frequencies preserved exactly as shown for key series (selection):
  - Exchange Rates: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data D; Frequency of Reporting M; Frequency of publication B
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities1: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Reserve/Base Money: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Broad Money: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Central Bank Balance Sheet: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Consolidated Balance Sheet of the Banking System: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Interest Rates: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Consumer Price Index: Date of latest observation Dec. 2005; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication B
  - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation Dec. 2004; Date received Feb. 2005; Frequency of Data Q; Frequency of Reporting B; Frequency of publication B
  - Exports and Imports of Goods and Services: Date of latest observation Dec. 2004; Date received Jan. 2005; Frequency of Data M; Frequency of Reporting Q; Frequency of publication B
  - Gross External Debt: Date of latest observation Dec. 2004; Date received Feb. 2005; Frequency of Data Q; Frequency of Reporting B; Frequency of publication B
- Footnotes preserved from source:
  - 1 Includes reserve assets pledged or otherwise encumbered.
  - 2 Foreign, domestic bank, and domestic nonbank financing.
  - 3 The general government consists of the central government (budgetary funds, extrabudgetary funds, and social security funds) and state and local governments.
  - 4 Daily (D); Weekly (W); Monthly (M); Bi-monthly (B); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

### Millennium Development Goals (selected indicators and trends from World Bank WDI April 2004)
- Selected numeric indicators preserved exactly as in source table (years shown: 1990, 1995, 2001, 2002 where provided):
  - Prevalence of child malnutrition (% of children under 5): 26.5 (one of the year columns)
  - Population below minimum level of dietary energy consumption (%): 33.0; 38.0; 42.0
  - Net primary enrollment ratio (% of relevant age group): 69.9 (one of the year columns)
  - Youth literacy rate (% ages 15-24): 57.2; 64.2; 69.8; 70.8
  - Ratio of young literate females to males (% ages 15-24): 51.2; 56.9; 63.1; 64.2
  - Share of women employed in the nonagricultural sector (%): 28.3
  - Proportion of seats held by women in national parliament (%): 6.0 (one of the year columns)
  - Under 5 mortality rate (per 1,000): 235; 235; 235; 235
  - Infant mortality rate (per 1,000 live births): 157; 157; 157; 157
  - Immunization, measles (% of children under 12 months): 78; 57 (as presented)
  - Maternal mortality ratio (modeled estimate, per 100,000 live births): 760.0 (one column)
  - Births attended by skilled health staff (% of total): 50.9 (one column)
  - Number of children orphaned by HIV/AIDS: 31,000 (one column)
  - Incidence of tuberculosis (per 100,000 people): 251.0; 246.7
  - Tuberculosis cases detected under DOTS (%): 29.0 (one column)
  - Forest area (% of total land area): 44.0; 36.1
  - Nationally protected areas (% of total land area): 1.3; 1.3; 2.6
  - CO2 emissions (metric tons per capita): 0.2; 0.1; 0.1
  - Fixed line and mobile telephones (per 1,000 people): 3.6; 1.6; 2.8
- Source: World Bank, World Development Indicators database, April 2004.
- Notes preserved exactly as in source regarding MDG targets and data caveats.

### IMF Article IV consultation: Executive Board summary (PIN No.05/64, May 18, 2005)
- Context and recent developments:
  - Executive Board concluded Article IV consultation on April 20, 2005.
  - Political and economic developments in 2003-04: intensification of internal hostilities followed by NTGL introduction and resumption of external assistance.
  - Real GDP rebounded in 2004 after a steep decline in the second half of 2003 due to hostilities and UN ban on timber exports.
  - Food prices stabilized and exchange rate returned to preconflict levels reflecting private capital return, donor inflows, and increased demand for local currency.
  - Official reserves increased modestly from low levels.
- Fiscal and monetary developments:
  - Initial success in implementing a balanced cash-based budget, but fiscal management weakened with large buildup of arrears through end-2004.
  - Cash-management committee introduced but significant expenditures were made without authorization.
  - Revenue collections slowed in second half of 2004, reflecting delays in extending preshipment inspections to all imports and exports.
  - Money supply expanded significantly in 2004; commercial bank deposits increased by about 50 percent during 2004 reflecting donor activities and remittance inflows.
  - CBL gradually moving toward financial soundness aiming to eliminate its cash deficit by early 2006; banking sector remains weakened by the conflict.
- External sector and debt:
  - External developments in 2004 driven by increased donor activity and stagnating exports; imports increased considerably (humanitarian assistance and petroleum) while exports stabilized at a low level due to UN timber sanction despite doubling of rubber exports in 2004.
  - Overall balance of payments deficit financed by accumulation of external arrears.
  - Preliminary end-2004 external debt: US$3.8 billion, reaching an unsustainable 2,722 percent as a ratio of exports of goods and services on an NPV basis.
- Governance issues:
  - Governance concerns emerged in late 2004, including issues around sales of iron ore and alleged disappearance of import and export permits; a committee is being put in place to address these issues.
- Outlook for 2005:
  - Economic recovery expected to strengthen underpinned by continued consolidation of security situation and reconstruction activities.
  - Real GDP is projected to grow by [text ends in source].

*Source: Extracted content from the supplied IMF/World Bank document text.*

### 8.5 percent, led by agriculture, domestic manufacturing, and services. With higher imports and

### _cr05166 - 8.5 percent, led by agriculture, domestic manufacturing, and services. With higher imports and

### Executive Board Assessment: macroeconomic summary and risks
- Recent improvements: security situation improved; initial progress on important reforms.
- Economic outcomes from pick-up in donor-related and reconstruction activities:
  - Rebound of economic activity.
  - Stabilization of prices and the exchange rate.
  - Modest increase in official reserves.
- Remaining fragility and challenges:
  - Macroeconomic position is still fragile.
  - Activity remains below the pre-war level.
  - Poverty is widespread.
  - Public debt is large and unsustainable.
- Political and social governance constraints:
  - Large number of ex-combatants still needs integration into economic life.
  - Lack of cohesion within the power-sharing government hinders policy implementation.
  - Flow of external assistance and private investment depends on actions to strengthen institutions, reduce corruption, and improve governance.
- Fiscal management concerns:
  - Regretted recent weakening of government fiscal management.
  - Commended rollback of domestically financed budget deficit.
  - Concern over emergence of large arrears to finance unplanned spending.
  - Stressed need to strengthen expenditure controls and a well-functioning cash management system.
  - Urged bolstering revenue collection, strengthening tax and customs administration, and reducing tax concessions.
  - Encouraged authorities to use Fund staff advice in these areas.
- Transparency, accountability, and anticorruption:
  - Welcomed establishment of an anti-corruption commission; encouraged rapid full operationalization.
  - Investigations into sales of iron ore and alleged disappearance of import/export permits should be swift and publicly released.
  - Decisive actions required to fulfill requirements for lifting UN sanctions.
- Central Bank of Liberia (CBL) and monetary concerns:
  - Welcomed steps to strengthen CBL financial position and monetary operations framework; develop inter-bank foreign exchange market.
  - Commended CBL actions to reduce operational outlays, aiming to eliminate its deficit by early 2006.
  - Most Directors doubted advisability of full dollarization; a few did not rule it out.
  - Encouraged bank restructuring and stronger supervision; advised caution in granting new commercial bank licenses.
- Debt and data:
  - Welcomed progress in stock-taking of domestic and external debt; urged expedited process to develop debt sustainability strategy.
  - Noted limited availability and quality of key economic data; stressed need to strengthen fiscal data.
- Request for action plan:
  - Called on authorities to formulate a concrete action plan addressing weaknesses in economic management and governance to facilitate further staff support and possible staff-monitored program leading to de-escalation of Fund remedial measures.
  - Welcomed authorities’ intention to consider increasing payments to the Fund in the 2005/06 budget, if possible.

### Key projections, targets, and sectoral drivers
- Real GDP growth target for 2005:
  - Main objective: increase output growth by 8.5 percent mainly because of projected improved performance in agriculture and service sectors.
- Inflation target:
  - Lower inflation to 5 percent in 2005.
- Fiscal target:
  - Stronger fiscal policies aimed at a balanced cash-based budget for 2005 and beyond.
- Revenue objective:
  - Revenue expected to increase to 17.7 percent of GDP in 2005, from 13.9 percent in 2004.
- CBL operational target:
  - Eliminate CBL deficit by early 2006.

### Fiscal policy measures and governance actions
- Revenue measures:
  - Boost revenue collections through improved tax administration and control.
  - Gradually reduce tax exemptions.
  - Streamline forestry taxation to enhance transparency and collection efficiency.
- Expenditure control measures:
  - Reinforce commitment controls.
  - Prevent spending outside control of the Cash-Management Committee (CMC).
  - Avoid re-emergence of domestic arrears.
- Governance and anticorruption:
  - Anti-Corruption Task Force established to investigate allegations against public officials and civil servants.
  - ECOWAS auditors invited to conduct forensic audits of ministries and agencies.
  - Forensic audit team presently in Monrovia; EU-sponsored audits of revenue-generating agencies expected.
  - Suspension of senior officials of the National Social Security and Welfare Corporation for mismanagement.

### Monetary policy and banking sector actions
- Dollarization and monetary scope:
  - High degree of dollarization precludes more active monetary policies; authorities aim to gradually restore Liberian dollar as medium of transactions as demand for local currency strengthens.
- Monetary instruments and operations:
  - CBL has used indirect instruments to respond to growing demand for local currency and exchange rate pressures.
  - Planned establishment of liquidity forecasting system to better monitor market developments.
  - CBL intends to reduce amounts of foreign currency offered for sale in auctions to facilitate build-up of international reserves.
- Banking sector measures:
  - Bank restructuring and resolution policy adopted and under implementation.
  - Emphasis on strengthening banking sector capitalization and supervision.

### External sector, debt, and arrears
- Trade and external balance projections (selected figures from table):
  - Real GDP growth: 2004 Est. 2.4; 2005 Proj. 8.5.
  - Consumer prices (annual average): 2002 Est. 12.1; 2003 Est. 14.2; 2004 Est. 10.3; 2005 Proj. 5.0.
  - Nominal GDP (in millions of U.S. dollars): 2001 543; 2002 559; 2003 435; 2004 492; 2005 538.
  - Exports of goods, f.o.b. (annual % change): 2001 6.4; 2002 30.1; 2003 -34.5; 2004 -4.7; 2005 0.3.
  - Imports of goods, f.o.b. (annual % change): 2001 6.4; 2002 -6.3; 2003 -3.6; 2004 91.4; 2005 -1.2.
  - Current account balance, including grants (deficit, -) (in percent of GDP): 2001 -24.5; 2002 -3.4; 2003 -18.2; 2004 -13.3; 2005 -19.9.
  - Public sector external debt outstanding (total) (in percent of GDP): 2001 596.6; 2002 601.5; 2003 831.8; 2004 766.4; 2005 713.2.
  - Current account balance including grants (deficit, -) (in millions of U.S. dollars): 2001 -133.2; 2002 -19.2; 2003 -79.2; 2004 -65.5; 2005 -107.0.
  - Trade balance (deficit, -) (in millions of U.S. dollars): 2001 -27.1; 2002 21.1; 2003 -31.1; 2004 -164.2; 2005 -160.7.
  - Net official reserves (in millions of U.S. dollars): 2002 0.4; 2003 -2.1; 2004 4.2; 2005 8.7.
  - Net official reserves (in months of imports of goods and services): 2002 0.0; 2003 -0.2; 2004 0.2; 2005 0.4.
- External debt and sustainability:
  - Liberia’s medium- and long-term external sustainability depends on prudent domestic policies and adequate external debt relief from the international community.
  - Risk that strong reform implementation without timely external assistance could jeopardize Liberia’s capacity to service external debt even at minimum levels.
- Overdue financial obligations to the IMF:
  - Authorities commit to monthly payments to the Fund; authorities encourage Board to support staff recommendation that no remedial measures be taken at this time.

### Recent economic developments and outlook (authorities’ statement)
- 2004 outcomes:
  - Real GDP growth estimated at 2.4 percent in 2004 after a prior-year decline of 31 percent.
  - Recovery aided by revival of rubber production and reconstruction activities supported by external assistance.
  - Inflation decelerated to 7.8 percent as food prices stabilized.
  - Increased demand for local currency and donor inflows helped reduce exchange rate volatility.
  - Progress in implementing a cash-based budget reflecting recovery in fiscal revenue; expenditures redirected to rehabilitation activities and priority social sectors.
- Policy priorities stated by authorities:
  - Maintain political stability and consolidate peace, including demobilization of ex-combatants and planned October 2005 elections.
  - Strengthen institutions (financial, legal, regulatory) to attract private investment.
  - Continue strong macroeconomic and reform policies within available human and financial resource constraints.
  - Seek continued external financial and technical support and regularization of relations with international financial community and bilateral creditors.
- Poverty and human development concerns:
  - High levels of poverty and deteriorated social infrastructure from prolonged conflict.
  - One-third of population displaced during conflicts; need to invest in human capital and social infrastructure.
  - Authorities view community-driven development and improved social services as central to poverty reduction.
- Request for ongoing Fund support:
  - Authorities emphasize need for an enhanced partnership with the Fund, including agreement on a staff-monitored program and continued technical assistance to build capacity for improved economic management.

*Sources: Liberian authorities; and IMF Staff estimates and projections.*

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