## _cr06166 ## Source details **Canonical URL:** [_cr06166](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06166.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06166.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06166.pdf.json) --- ### Executive Summary — macro outlook and context - Postconflict reconstruction following about fifteen years of intermittent civil war through 2003; real GDP per capita (in 2005 prices) declined from US$1,269 in 1980 to US$163 in 2005. - Social and labor indicators: unemployment reportedly over 80 percent; about 76 percent living on less than US$1 a day (UNDP household survey 2000); HIV/AIDS prevalence about 10-12 percent; about one-fourth of infants die before age 5. - Real GDP growth and projections: - 2004: 2.6 percent (est.) - 2005: 5.3 percent (est.) - 2006: 7.7 percent (proj.) - Inflation (period average): - 2001: 12.1 - 2002: 14.2 - 2003: 10.3 - 2004: 3.6 - 2005: 6.9 - 2006: 8.0 (proj.) - Key vulnerabilities: destroyed infrastructure, eroded human capital, dysfunctional public institutions, endemic corruption, weak banking sector, low international reserves, sizeable domestic arrears (US$20 million end-January 2006 excluding CBL and commercial banks, about 25 percent of the annual budget). ### Institutional rebuilding and GEMAP - GEMAP objectives and modalities: - improve financial management and accountability in key budgetary institutions and the CBL by deploying international experts with binding co-signature authority alongside Liberian counterparts; - strengthen the judicial system and combat corruption; - provide technical assistance to rebuild local capacity in economic management; - institute joint oversight by a steering committee chaired by the Head of State with key ministers and local donor representatives. - Operational timing: GEMAP expected to become fully operational by mid-2006 and could remain until the enhanced HIPC completion point. - Government 150-day program endorsed by President Ellen Johnson-Sirleaf (inaugurated January 16, 2006) aligned with GEMAP priorities (sound financial management, increase revenue, control expenditure, operationalize GEMAP experts). ### Medium-term prospects and scenarios (Box 1) - Baseline scenario (strong GEMAP implementation, lift of UN timber sanctions by mid-2007, large FDI flows): - Real GDP growth (percent, 2005–2010): 5.3, 7.7, 8.0, 8.3, 8.4, 9.6 - Consumer price index (percent, annual average, 2005–2010): 6.9, 8.0, 7.5, 7.0, 6.5, 6.0 - Fiscal balance (percent of GDP): 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 - Fiscal revenues (including grants, percent of GDP): 15.2, 19.0, 21.0, 21.4, 21.5, 21.6 - Grants (percent of GDP): 0.7, 4.0, 5.4, 5.5, 5.7, 5.7 - Current account balance (excl. grants): -54.2, -59.3, -60.4, -54.3, -48.8, -42.3 - Grant (donor transfers, net): 52.3, 48.5, 42.9, 38.9, 35.4, 31.2 - CBL's net foreign exchange position (millions of U.S. dollars): 9.0, 16.1, 27.1, 39.6, 54.0, 69.0 - Real GDP per capita (U.S. dollars, 2005 price): 163, 171, 181, 191, 202, 216 - Lower-case scenario (slower reform, lower donor support, timber sanctions lifted mid-2009): - Real GDP growth (percent, 2005–2010): 5.3, 7.7, 3.8, 3.4, 4.1, 5.9 - Consumer price index (percent): 6.9, 8.0, 6.5, 6.0, 5.5, 5.0 - Fiscal revenues (including grants, percent of GDP): 15.2, 18.8, 18.6, 19.1, 19.2, 19.3 - Grants (percent of GDP): 0.7, 4.0, 4.0, 4.6, 4.5, 4.5 - Current account balance (excl. grants): -54.2, -60.9, -47.2, -43.2, -41.7, -35.3 - Grant (donor transfers, net): 52.3, 48.5, 31.4, 28.8, 26.4, 21.8 - CBL's net foreign exchange position (millions of U.S. dollars): 9.0, 16.1, 25.4, 35.4, 45.1, 55.1 - Real GDP per capita (U.S. dollars, 2005 price): 163, 171, 174, 175, 178, 184 - Scenario notes: - Baseline assumes donor inflows rise steadily and UN timber sanctions lifted by mid-2007. - Lower-case assumes donor inflows equal to two-thirds of baseline and later lifting of timber sanctions (mid-2009). ### Fiscal policy, revenue measures, and expenditure management - Short/medium-term fiscal stance: - Government to pursue balanced budgets on a cash basis given financing constraints; budget to remain balanced for some time. - For remainder of 2005/06 fiscal year (July–June) agreed balanced cash budget prioritizing core functions and clearance of recent civil service pay arrears. - Revenue measures and targets: - Current efforts expected to raise public revenues to around 15–16 percent of GDP in coming years. - Key measures: strengthen the Large Taxpayer Unit (LTU) including creation of an audit unit; request Fund TA on tax policy reforms to broaden base and reduce trade-tax dependence; enforce pre-shipment inspections; discontinue settlement of tax obligations by delivery of goods/services; review and rationalize duty exemptions. - Under GEMAP place external experts as financial controllers at revenue-generating agencies. - Expenditure control and commitment control: - Full implementation of a comprehensive commitment control system by end-June 2006. - Reestablishment and empowerment of the Cash Management Committee (CMCo); CMCo documents to be publicized on MoF web site. - Past deficiencies identified (indiscriminate allotments by BoB, commitments exceeding allotments, spending outside CMCo) and remedial steps specified (merge BoB into MoF by July 2006; require BGA validation of purchase orders). - Structural benchmarks (selected targets and dates): - Strengthen LTU and create audit unit: End-March 2006. - Increase number of large taxpayers from 60 to 110: End-June 2006. - Establish stock of domestic debt and complete verification: End-June 2006. - Finalize domestic debt resolution strategy consistent with CBL restructuring plan: End-September 2006. ### Monetary policy, exchange rate, and banking sector soundness - Monetary policy framework: - Exchange rate used as main transmission mechanism in a highly dollarized economy; about 80-90 percent of transactions thought to be in US dollars. - Staff supports CBL framework that helped hold inflation to about 7 percent in 2005 and recommends cautious expansion of Liberian dollar money supply to maintain broad exchange rate stability. - CBL to manage Liberian dollar liquidity; scarce foreign reserves should not be used to defend the exchange rate against exogenous shocks. - Demand for local currency: - CBL expects strengthening demand for Liberian dollars in 2006 as displaced persons return and rural activity recovers. - Banking sector indicators and concerns (2003–2005): - Commercial banking sector: five operating banks; end-2005 gross assets US$129.5 million (about 24 percent of nominal GDP). - Capital adequacy ratio 1/: -2.0, -4.4, -2.2 - Nonperforming loans to total loans: 62.0, 23.8, 18.4 - Noninterest income to total revenue: 81.0, 84.8, 81.4 - Net loans to deposits: 31.0, 34.0, 36.3 - Nonperforming loan ratio close to 20 percent at end-2005. - Banking sector highly liquid but fragile; overall risk-weighted capital adequacy ratio negative. - Staff recommendations: - CBL to monitor banking developments, implement regulatory guidelines on credit risk management, develop restructuring plans for undercapitalized banks consistent with Bank Restructuring and Resolution Policy (2005). - CBL placed resident supervisor at one bank; restructuring plans developed for two banks; plans for remaining banks expected by end-March 2006. - No new bank licenses to be granted for the time being. ### Central Bank of Liberia (CBL) finances and operations - CBL budget (2004 Act., 2005 Act., 2006 Proj., in millions of U.S. dollars): - Cash income: 2.8; 3.4; 3.8 - Cash expenditure: 4.5; 5.5; 4.0 - Recurrent budget balance: (1.7); (2.1); (0.2) - Capital expenditure: 0.4; 2.8; 2.2 - Overall budget balance: (2.1); (4.9); (2.5) - Staff concerns and agreed actions: - Continued weakness in CBL financial position; target a balanced current budget (excluding capital and one-off retirement costs) for remainder of year. - Commission a comprehensive external audit of 2005 accounts by auditors of international repute (EU expected to assist). - Context: government’s failure to service US dollar debts to CBL contributed to cash deficit and lower CBL net foreign assets; US$2.8 million spent end-December 2005/early January 2006 on printing new currency. - Governor and Deputy Governor replaced in February 2006; Chief Administrator with co-signature in place from February 6, 2006. ### Governance, anti-corruption, and sanctions (timber and diamonds) - GEMAP implementation: - External experts posted at MoF and CBL; other experts to be deployed at key revenue-generating agencies by mid-2006; GEMAP operationalized via regular government-donor meetings. - UN sanctions on diamonds and timber: - Sanctions imposed in 2003; renewed December 2005 for six months; UN expert panel to report in June 2006. - Timber sector pre-sanctions: about 18 percent of real GDP, 5 percent of formal employment, and 60 percent of exports in 2002. - Government measures to lift sanctions: public nullification of existing forestry concessions (January 2006); future concessions to follow Public Procurement and Concession Act of 2005; establish Certificate of Origin regime for diamonds with view to joining Kimberly Process. - Staff urged taking all steps necessary to allow lifting of sanctions. ### Donor activities, technical assistance, and external financing - Donor disbursements and projections: - Donor disbursements estimated at US$460 million during 2004–2005 and projected to continue at similar pace in 2006. - Donor assistance expected to increase in 2006 to about US$245 million. - UNMIL peacekeepers and officials projected to spend about US$58 million in Liberia in 2006; cost of UNMIL about US$1 billion per year (most not entering Liberian economy directly). - Donor funds in 2004–2005 were spent entirely outside government budget; about three-fourths spent on social development and community revitalization. - Coordination: - GEMAP as key coordination framework; IMF leads on tax and customs administration and financial sector issues; World Bank focuses on procurement, forestry, public enterprise reform, community-driven development. - Three more experts expected at key revenue-generating agencies by end-April. ### Public debt, arrears, and sustainability assessment - External public debt (preliminary end-2005 nominal): US$3.7 billion. - End-2005 NPV debt-to-GDP: 790 percent. - End-2005 NPV debt-to-exports: 3,040 percent. - Domestic arrears: - Authorities estimate unverified domestic arrears about US$0.7 billion (most to CBL and commercial banks), plus significant arrears on salaries, pensions, suppliers. - Debt dynamics and baseline projections: - Baseline projections with strong growth reduce NPV debt-to-GDP to 460 percent by 2010 and 240 percent by 2024; NPV debt-to-exports to 1,540 percent by 2010 and 780 percent by 2024. - Conclusion: external debt unsustainable; resolution requires exceptionally deep debt relief and strong policies. - Banking-sector exposure: government debt to commercial banks accounted for 9 percent of total assets (December 2005); government debt accounted for 58 percent of CBL total assets. ### Staff‑Monitored Program (SMP): arrangement, targets, and monitoring - SMP period: February–September 2006; fully consistent with GEMAP and government 150-day plan. - SMP aims: achieve significant and irreversible progress in rebuilding key government institutions via quantitative and structural benchmarks. - Key quantitative indicators (selected, flow basis, in millions of US$): - Floor on revenue collections (selected periods): 13.6 (Oct.-Dec. 05 Act.), 8.1 (Jan. 06 Act.), 14.1 (Feb.-Mar.06 Prog.), 24.7 (Apr.-Jun.06 Prog.), 20.3 (Jul.-Sep.06 Prog.). - Floor on cash-based fiscal balance 1/: -1.1 (Oct.-Dec. 05 Act.), 5.2 (Jan. 06 Act.), 0.0 (Feb.-Mar.06 Prog.), 0.0 (Apr.-Jun.06 Prog.), 0.0 (Jul.-Sep.06 Prog.). - Token payments to the Fund (US$): 170,000 (Oct.-Dec. 05 Act.), 60,000 (Jan. 06 Act.), 120,000 (Feb.-Mar.06 Prog.), 180,000 (Apr.-Jun.06 Prog.), 180,000 (Jul.-Sep.06 Prog.). - CBL floor on changes in net foreign exchange position (millions US$): 2.7 (Oct.-Dec. 05 Act.), -0.9 (Jan. 06 Act.), 0.2 (Feb.-Mar.06 Prog.), 1.8 (Apr.-Jun.06 Prog.), 3.1 (Jul.-Sep.06 Prog.). - Ceilings on new domestic and external borrowing: 0.0 for relevant periods in Table 1. - Structural benchmarks (selected from Table 2 with target dates): - Create LTU audit unit and revise LTU procedures: End-March 2006. - Increase number of large taxpayers to 110: End-June 2006. - Publicize Monetary Policy Framework and revise Money Management Committee TOR: Continuous from end-March 2006 / End-March 2006. - Conduct external audit of CBL by auditors of international repute: End-September 2006. - Finalize program to prioritize and review concessions/contracts granted under NTGL: End-April 2006; complete review by End-September 2006. - Develop national anti-corruption strategy with implementation matrix: End-May 2006. - Post financial statements of revenue-generating agencies endorsed by financial controllers on MoF website: End-September 2006. - Monitoring and reporting: - Program-Monitoring Committee of senior officials to report monthly; IMF Resident Representative observer status. - Monthly data reporting requirements with specified deadlines (e.g., monthly revenue/expenditure reports three weeks after month-end; monetary survey within three weeks; structural indicator status within two weeks). ### Key risks, staff appraisal, and Executive Board assessment - Main risks: - Fragile peace and security; need for legislative political support; heavy reliance on international TA for structural benchmarks; weak fiscal administration; potential widening trade deficit as donor-funded imports rise relative to exports. - Staff appraisal and recommended priorities: - Reestablish effective budget process; strengthen capacity in key institutions; quickly operationalize GEMAP experts; implement public expenditure controls (merge BoB into MoF, require BGA stamp on purchase orders, implement commitment control). - Raise fiscal revenues (enforce pre-shipment inspections, secure port and ensure duties paid, review duty exemptions). - Maintain monetary policy focused on exchange rate stability to contain inflation in a highly dollarized economy; be ready to accommodate increased demand for Liberian dollars while not using scarce reserves to defend rate. - Strengthen CBL financial position: control staffing and capital spending, implement procurement guidelines, move quickly to a balanced CBL budget, commission external audit, and prepare restructuring plans. - Executive Board emphasized: strengthen public financial management, improve economic governance, rebuild capacity and infrastructure, implement national anti-corruption strategy, verify and resolve domestic and external arrears, and use SMP performance as basis for de-escalation of Fund remedial measures and progress toward HIPC/MDRI. *Source: Excerpts from IMF staff report and Technical Memorandum of Understanding for the Staff‑Monitored Program covering February–September 2006 (IMF Country Report _cr06166).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Introduction - Liberia faces daunting reconstruction challenges following about fifteen years of intermittent civil war through 2003. - Real GDP per capita (in 2005 prices) is estimated to have declined by almost 90 percent from US$1,269 in 1980 to US$163 in 2005. - Unemployment reportedly remains at over 80 percent, and a similar percentage of the population subsists on less than US$1 a day, with no access to basic health, education, and other social services. - The Governance and Economic Management Assistance Program (GEMAP) agreed in September 2005 aims to: - improve financial management and accountability in all key budgetary institutions and the Central Bank of Liberia (CBL), including deploying international experts with binding co-signature authority alongside Liberian counterparts; - strengthen the judicial system and combat corruption; - provide technical assistance to rebuild local capacity in economic management; - institute joint oversight by a steering committee chaired by the Head of State and comprising key ministers and local donor representatives. - The GEMAP is expected to become fully operational by mid-2006 and could remain in place until Liberia reaches the completion point under the enhanced HIPC Initiative. - The new President, Mrs. Ellen Johnson-Sirleaf, inaugurated on January 16, 2006, endorsed the GEMAP and set out key objectives and deliverables for the first 150 days of the administration. ### Recent Economic Developments - Real GDP growth and projections: - 2004: 2.6 percent (est.) - 2005: 5.3 percent (est.) - 2006: 7.7 percent (proj.) - Inflation (period average): - 2001: 12.1 - 2002: 14.2 - 2003: 10.3 - 2004: 3.6 - 2005: 6.9 - 2006: 8.0 (proj.) - Fiscal and external indicators (selected): - Overall fiscal balance (incl. grants, percent of GDP): 2001 -0.7; 2002 -1.3; 2003 0.6; 2004 0.0; 2005 0.0; 2006 0.0 (proj.) - Government revenue (excl. grants, percent of GDP): 2001 11.9; 2002 13.0; 2003 10.2; 2004 13.7; 2005 14.5; 2006 15.0 (proj.) - Official exchange rate (Liberian dollars per U.S. dollar; end of period): 2001 49.5; 2002 65.0; 2003 50.5; 2004 54.5; 2005 56.5 - CBL's net foreign exchange position (in millions of US dollar): 2002 0.5; 2003 -0.3; 2004 3.8; 2005 9.0; 2006 16.1 (proj.) - Current account balance (incl. grants, percent of GDP): 2001 -24.5; 2002 -3.4; 2003 -18.2; 2004 -13.2; 2005 -1.9; 2006 -10.8 (proj.) - Recovery drivers and sector contributions: - 2005 recovery driven largely by donor activities and the resumption of rural activity; overall economic activity in 2005 returned to about 75 percent of the prewar level. - Sectoral contributors: agriculture and services expected to lead 2006 growth. - Price and exchange rate: - Liberian dollar trading in a range of 55–60 Liberian dollars per U.S. dollar for the last 12 months. - Signs of a rise in inflation partly reflecting higher donor expenditure. - External position: - External trade deficit increased sharply during the postconflict period to about 30 percent of GDP. - Exports depressed by UN ban on timber and diamond exports and decline in rubber production; imports sustained by humanitarian aid, donor assistance, and UNMIL presence. - International reserves remained at a very low level. - Fiscal management and arrears: - Revenue collection increased by about 3½ percent of GDP in 2004 but collections slowed significantly toward end-2005. - Sizeable domestic arrears emerged: at end-January 2006, domestic arrears accumulated under the NTGL (excluding those to the CBL, and commercial banks) amounted to US$20 million, about 25 percent of the annual budget. - Monetary and banking: - Year-on-year growth in Liberian dollar currency in circulation accelerated during 2005 from about 18 percent in May to nearly 30 percent in late 2005. - Liberian dollar component of broad money growth was 26 percent in December 2005. - The banking sector remains weak with low profitability and poor asset quality. - Governance: - New concessions and contracts granted in a nontransparent manner and on terms unfavorable to the Government under the NTGL. - EU-sponsored audits and an ECOWAS audit revealed pervasive mismanagement of public funds in 2004-05. ### Discussion of Economic Policies - Policy objectives: - Macroeconomic policy over the medium term will be designed to support reconstruction and create a stable macroeconomic environment to facilitate private sector development. - The government will pursue balanced budgets on a cash basis for some time, reflecting domestic and external financing constraints, supported by a monetary policy geared to containing inflation. - Early government actions and reform efforts: - Enforcement of pre-shipment inspections for imports and exports. - More prudent budget allotments for line ministries. - Reestablishment of the Cash Management Committee (CMCo) to contain expenditures within available cash revenues. - Initiation of a review of all concessions and contracts signed by the NTGL. - The CBL is taking steps to strengthen budgetary management though it remains cash-deficit. - Governance and capacity building: - The new government formulated a comprehensive program for its first 150 days in office aiming to: (i) establish sound financial management and budgeting, (ii) increase revenue and control expenditure, and (iii) implement the GEMAP. - Reestablishment of confidence in institutions is considered crucial to maintaining stability, securing sustained external support, and encouraging private investment. ### Program Arrangement: Staff-Monitored Program (SMP) - A staff-monitored program (SMP) has been agreed for the period February–September 2006. - The SMP is fully consistent with GEMAP and with the new government’s program of key priorities and deliverables for the first 150 days. - The SMP aims at achieving significant and irreversible progress in rebuilding key government institutions and is based on an ambitious set of quantitative and structural benchmarks considered necessary to maintain momentum for economic reform. ### Key Risks and Outlook - For 2006, the economy is expected to continue to recover, based on strong donor inflows and a revival of rural activities. - Real GDP projected to grow by about 8 percent in 2006, led by agriculture and services. - Inflation expected to remain modest and contained to single digits. - Trade deficit projected to widen further due to a gradual decline in rubber exports and further increase in donor-funded imports. - Main vulnerabilities: - Large reconstruction needs: destroyed physical infrastructure and eroded human capital. - Dysfunctional public institutions and endemic corruption. - Weak banking sector and low international reserves. - Fiscal management risks from poor revenue administration and nontransparent expenditure practices. *Executive Summary, IMF Country Report _cr06166.* ### 17. The government stressed that a key element of its strategy in the short- and ### _cr06166 - 17. The government stressed that a key element of its strategy in the short- and ### Institutional rebuilding and GEMAP - Key element of short- and medium-term strategy: achieve significant progress in rebuilding key institutions, as envisaged under the GEMAP (Box 1). - Objectives include: - putting in place a functioning budgetary process, including planning, execution, internal controls, and regular reporting; - strengthening the main revenue-generating agencies so that they can fulfill their role in a fully transparent and accountable fashion. - Authorities fully endorsed the GEMAP to establish a sustained track record of economic management as a prerequisite for normalizing relations with international financial institutions and addressing the debt overhang. - External financial and technical assistance seen as necessary for reconstruction. ### Medium-term prospects and scenarios (Box 1) - Baseline scenario assumptions: - strong implementation of reforms under the GEMAP triggering significant financial and technical donor support; - lifting of UN sanctions on timber and diamond exports in 2007 could attract large FDI flows; - strong recovery in forestry and minerals supports higher real GDP growth of about 8 percent annually during 2006-10. - Lower-case scenario assumptions: - slower pace of reform and lower donor support; - modest growth insufficient to create significant new employment opportunities or raise living standards; - Real GDP would grow by about 4 percent annually as existing capacity is gradually brought back into production; - real GDP per capita would be lower by 15 percent by 2010 than under the baseline scenario; - FDI flows lower by 2–3 percent of GDP compared with the baseline; inflation also lower due to less demand pressure from donor inflows. - Baseline scenario numerical projections (2005-2010): - Real GDP growth (in percent): 5.3, 7.7, 8.0, 8.3, 8.4, 9.6 - Consumer price index (in percent, annual average): 6.9, 8.0, 7.5, 7.0, 6.5, 6.0 - Fiscal balance: 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 - Fiscal revenues (including grants): 15.2, 19.0, 21.0, 21.4, 21.5, 21.6 - Of which: grants: 0.7, 4.0, 5.4, 5.5, 5.7, 5.7 - Current account balance (excl. grants): -54.2, -59.3, -60.4, -54.3, -48.8, -42.3 - Grant (donor transfers, net): 52.3, 48.5, 42.9, 38.9, 35.4, 31.2 - CBL's net foreign exchange position (in millions of U.S. dollars): 9.0, 16.1, 27.1, 39.6, 54.0, 69.0 - Real GDP per capita (in U.S. dollars, 2005 price): 163, 171, 181, 191, 202, 216 - Lower-case scenario numerical projections (2005-2010): - Real GDP growth (in percent): 5.3, 7.7, 3.8, 3.4, 4.1, 5.9 - Consumer price index (in percent): 6.9, 8.0, 6.5, 6.0, 5.5, 5.0 - Fiscal balance: 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 - Fiscal revenues (including grants): 15.2, 18.8, 18.6, 19.1, 19.2, 19.3 - Of which: grants: 0.7, 4.0, 4.0, 4.6, 4.5, 4.5 - Current account balance (excl. grants): -54.2, -60.9, -47.2, -43.2, -41.7, -35.3 - Grant (donor transfers, net): 52.3, 48.5, 31.4, 28.8, 26.4, 21.8 - CBL's net foreign exchange position (in millions of U.S. dollars): 9.0, 16.1, 25.4, 35.4, 45.1, 55.1 - Real GDP per capita (in U.S. dollars, 2005 price): 163, 171, 174, 175, 178, 184 - Scenario notes: - 1/ In the baseline scenario, UN sanctions on timber are assumed to be lifted by mid-2007. - 3/ In the lower-case scenario, UN sanctions on timber are assumed to be lifted by mid-2009. - 4/ The lower-case scenario assumes donor inflows equal to two-thirds of those in the baseline. - 2/ A steady rise is assumed for donor inflows at about half the rate of nominal GDP growth under strong policy performance. ### Fiscal issues and revenue measures (Section C) - Main fiscal challenges: strengthen revenue collection and improve expenditure control to channel available resources to poverty-reducing activities, while ensuring transparency and accountability. - Budget stance: - In light of external and domestic financing constraints, the budget should remain balanced for some time. - For the remainder of the 2005/06 fiscal year (July to June), the government agreed to a balanced cash budget that prioritizes expenditures to maintain core functions and ensure clearance of recent civil service pay arrears. - Revenue-side measures: - Current efforts expected to raise public revenues to around 15–16 percent of GDP in the coming years. - Authorities committed to implement key revenue-enhancing measures, including strengthening the Large Taxpayer Unit (LTU) by creating an audit unit within the LTU. - Request for Fund technical assistance on tax policy reforms to broaden the revenue base and reduce dependence on trade taxation. - Agreed actions to enhance transparency and equitable treatment of taxpayers: - discontinue the practice of allowing settlement of tax obligations through delivery of goods or services; - establish a program to address overdue tax/duty obligations; - review and rationalize the extensive list of duty exemptions. - Transparency in resource flows from revenue-generating agencies to be enhanced with placement of external experts as financial controllers at these agencies (as envisaged under GEMAP). - Expenditure-side measures: - Immediate actions to enhance revenue collection and strengthen expenditure control, consistent with previous technical assistance recommendations. - Importance of strengthening commitment control and proper cash management to avoid domestic arrears. - Authorities committed to fully implement a comprehensive commitment control system by end-June 2006. - Poverty reduction and budgetary transparency: - Any additional resources to be spent for poverty-reducing expenditures. - Progress with reform effort expected to attract grants, including budgetary support, once budget process is strengthened. - Interim Poverty Reduction Strategy Paper (I-PRSP) intended to be prepared by end-September 2006. - New legislation planned by mid-2006 to limit discretion to change budget allocations without legislative approval. - Budget to be posted on the Ministry of Finance website with regularly updated information on implementation progress. ### Expenditure management (Box 2) - Past steps taken: - NTGL centralized accounts at the CBL, established a cash management system under the CMCo, and took steps to implement an interim commitment control system in mid-2004 based on Fund technical assistance. - Identified deficiencies in prior system: 1. Indiscriminate allotments for line ministries by the Bureau of the Budget (BoB) without consultation with the Ministry of Finance (MoF) about actual revenue collection. 2. Commitments made by line ministries in excess of their allotments; purchasing orders deemed official commitments without approval of the Bureau of General Auditing (BGA) at the MoF. 3. Spending decisions made outside the CMCo. - Steps taken under the new government: 1. BoB shall make allotments in consultation with the MoF; BoB scheduled to be merged into the MoF by July 2006. 2. Government to make a public announcement that it will certify commitments and validate all purchase orders with the BGA stamp to avoid over-commitments. 3. External experts in place at the CMCo and the CBL with co-signatory authority to ensure no disbursements are made on the margin of the CMCo; CMCo documents being publicized on the MoF’s web site. ### Monetary and exchange rate issues (Section D) - Monetary policy framework: - Staff supports the CBL’s framework which helped hold inflation to about 7 percent in 2005. - Framework recognizes the exchange rate as the main transmission mechanism in a highly dollarized and very open Liberian economy. - CBL lacks credible monetary indicators that capture U.S. dollar liabilities; will continue to use exchange rate as an indicator of domestic monetary conditions and manage Liberian dollar liquidity to maintain broad exchange rate stability. - Demand for local currency: - Staff cautioned that trends in demand for local currency should be carefully assessed. - CBL expects a further strengthening in demand for Liberian dollars in 2006 as displaced persons and refugees return to rural homes and economic activity recovers. - Staff suggested cautious expansion of money supply in local currency to maintain broadly stable exchange rate; scarce foreign reserves should not be used to defend the exchange rate in event of downward pressure due to exogenous shocks. - Note: About 80-90 percent of transactions are thought to be in US dollars. - Medium-term monetary policy development: - CBL plans to prepare for: - introduction of purchase auctions of foreign exchange; - establishment of a liquidity monitoring framework; - over the medium-term, development of money and capital markets. - Staff stressed that use of securities should only be considered once unsustainable public debt and weak CBL financial position are addressed. - Institutional arrangements: - Money Management Committee established; initially engaged in administrative issues. - Staff urged expanding Committee mandate to include preparation of monetary operations and implementation of monetary policy. ### Banking sector soundness (Box 3 and accompanying text) - Structure and aggregate: - Commercial banking sector consists of five operating banks (with two recently licensed); at end-2005 overall gross assets amounted to US$129.5 million, about 24 percent of nominal GDP. - Liberian banks predominantly foreign-owned; public sector ownership limited to one bank with about 20 percent shareholding. - Key indicators and concerns: - Banking sector highly liquid but fragile. - Overall risk-weighted capital adequacy ratio has been negative. - Nonperforming loan ratio close to 20 percent at end-2005. - Income structure weak with substantial reliance on non-interest income (fees and commissions), representing around 80 percent of total revenue. - Financial soundness indicators (2003-2005): - Capital adequacy ratio 1/ : -2.0, -4.4, -2.2 - Nonperforming loans to total loans: 62.0, 23.8, 18.4 - Noninterest income to total revenue: 81.0, 84.8, 81.4 - Net loans to deposits: 31.0, 34.0, 36.3 - 1/ Adjusted by the Central Bank of Liberia based on its assessment. - Staff recommendations and authorities’ actions: - Staff encouraged CBL to monitor banking developments closely, implement regulatory guidelines on credit risk management, and develop restructuring plans for undercapitalized banks consistent with the Bank Restructuring and Resolution Policy (2005). - CBL placed a resident supervisor at one bank; restructuring plans developed for two banks; plans for remaining banks expected by end-March 2006. - No new bank licenses to be granted for the time being. ### Central Bank of Liberia (CBL) financial position and budget - Staff concerned at continued weakness in the CBL financial position despite a retrenchment program in early 2005; urged steps to eliminate the cash deficit. - CBL agreed to target a balanced current budget (excluding capital spending and one-off costs related to retirement of previous executive management) for the remainder of the year. - New CBL management will commission a comprehensive external audit by auditors of international repute with expected assistance from the EU. - CBL budget (2004-2006, in millions of U.S. dollars): - Cash income: 2.8 (2004 Act.), 3.4 (2005 Act.), 3.8 (2006 Proj.) - Cash expenditure: 4.5 (2004 Act.), 5.5 (2005 Act.), 4.0 (2006 Proj.) - Recurrent budget balance: (1.7), (2.1), (0.2) - Capital expenditure: 0.4 (2004 Act.), 2.8 (2005 Act.), 2.2 (2006 Proj.) - Overall budget balance: (2.1), (4.9), (2.5) - Contextual notes: - Government’s failure to service its debts to the CBL, denominated in U.S. dollars, leads to the cash deficit and lower CBL net foreign assets. - US$2.8 million was spent in end-December 2005/early January 2006 on printing new currency. - Both Governor and Deputy Governor were replaced in February 2006. ### Governance issues (Section E) - GEMAP implementation: - GEMAP being implemented in full collaboration with Liberia’s international partners. - Regular meetings among government and local donor representatives to operationalize GEMAP and review implementation. - External experts posted at the Ministry of Finance and the CBL to ensure full functioning of the CMCo. - Other experts to be deployed at key revenue-generating agencies by mid-2006. - Anti-corruption and oversight: - Staff endorsed government’s goal of formulating a national anti-corruption strategy, drawing on UNDP and DFID anti-corruption program studies. - Government intends to request international expert support for investigation of serious fraud, corruption, and economic crimes. - Revenue-agency transparency: - External experts to be placed as financial controllers at revenue-generating agencies to enhance transparency (as envisaged under GEMAP). *Sources: Liberian authorities; and Fund staff estimates and projections.* ### 37. The staff encouraged the new government to take all steps necessary to allow for ### _cr06166 - 37. The staff encouraged the new government to take all steps necessary to allow for ### United Nations sanctions on diamonds and timber (Box 4) - Background and timeline: - In 2003, the UN Security Council imposed sanctions on Liberian diamond and timber exports. - In December 2005, the Council renewed the measures for a further period of six months. - A panel of UN experts will assess progress and report to the Council in June 2006. - Sector impacts (pre-sanctions): - Timber sector constituted about 18 percent of real GDP, 5 percent of formal sector employment, and 60 percent of exports in 2002. - Government actions planned to lift sanctions: - Timber: - Public announcement nullifying all existing forestry concessions in January 2006. - Future concessions to be allocated using the Public Procurement and Concession Act of 2005 guidelines, which require competitive bidding. - Planning a system to establish control over forest resources. - Diamond: - Establish an effective Certificate of Origin regime for trade in Liberian rough diamonds that is transparent and internationally verifiable with a view to joining the Kimberly process. - Staff recommendation: - Staff encouraged the new government to take all steps necessary to allow for the lifting of UN sanctions on timber and diamond exports. - Implementation support: - The new government is currently working with key external partners toward fulfilling the conditions for a lifting of the sanctions on timber exports. ### Donor activities and technical assistance (Section F; Box 5) - Recent donor disbursements and projections: - Donor disbursements are estimated at US$460 million during 2004–2005 and projected to continue at a similar pace in 2006. - Donor assistance, based on stated intentions, is expected to increase in 2006 to about US$245 million. - UNMIL peacekeepers and officials are projected to spend about US$58 million in Liberia in 2006. - The cost of UNMIL is put at about US$1 billion per year (most of which does not enter the Liberian economy directly). - Allocation and modalities: - Donor funds in 2004–2005 were spent entirely outside the government’s budget. - About three-fourths of these funds were spent in social development and community revitalization, including disarmament, demobilization, resettlement and reintegration. - Coordination and technical assistance: - GEMAP serves as a key framework to coordinate international donor activities and ensure effective technical assistance. - United States: assistance in budget preparation and forestry management. - EU: focus on economic governance and support for financial controllers of major state-owned enterprises. - IMF and World Bank: close coordination on expenditure management; IMF leads on tax and customs administration and financial sector issues; World Bank focuses on procurement, forestry and public enterprise reform, and community-driven development. - Operational staffing note: - Three more experts are expected at key revenue-generating agencies by end-April. ### Public debt (Section G) - External debt stock and sustainability: - Preliminary data for end-2005: stock of external public debt amounted to US$3.7 billion in nominal terms. - At end-2005, the NPV of debt to GDP and exports ratios were 790 percent and 3,040 percent, respectively—well above LIC DSA framework thresholds. - Data and reconciliation challenges: - Liberia’s records on external debt were largely lost during the period of conflict. - Authorities have attempted to contact external creditors; responses have been incomplete, particularly for commercial debt where current holders often differ from original creditors. - Staff urged further efforts to fully reconcile external debt data with creditors to move toward the HIPC decision point. - Domestic arrears and resolution needs: - Authorities estimate the stock of unverified domestic arrears at about US$0.7 billion, most to the CBL and commercial banks, with significant arrears on salaries, pensions, and suppliers. - Staff urged completion of verification of outstanding domestic claims as a precursor to a domestic debt resolution strategy. - Proposed options by US experts envisage larger reductions (80-90 percent of the obligations) for larger creditors (with a claim more than US$1 million), and less for smaller creditors. - Staff emphasized the need to develop a strategy to normalize relations with creditors and to define restructuring strategies for both commercial banks and the CBL in advance. - Banking-sector exposure: - In December 2005, government debt to the commercial banks accounted for 9 percent of total assets, and for the CBL, government debt accounted for 58 percent of total assets. - Policy commitment: - Authorities indicated they would not contract or guarantee any new public sector external debt before the debt overhang has been resolved. ### Trade regime and competitiveness (Section H) - Structural constraints: - External competitiveness severely eroded by destruction of infrastructure and loss of human capital due to conflict. - Lack of reliable economic data prevents computation of standard competitiveness indicators. - Authorities highlighted lack of basic infrastructure (transport, telecommunications) and utilities (electricity, water, sanitation) as major obstacles, more so than domestic cost levels. - Uncertain business climate from political instability and erratic regulatory implementation discourages investment. - Exchange rate and monetary stance: - The nominal exchange rate of the Liberian dollar vis-à-vis the US dollar has stabilized over the last two years. - Trade policy: - Import tariffs set at a relatively moderate level ranging from 2.5 to 25 percent. - In exceptional cases, a rate of 42.5 percent is charged. - Export taxes are 2.5 percent on unprocessed goods and 4 percent on precious metals. - Staff encouraged the authorities to review the tariff regime and consider benefits of regional and international trade integration. - Authorities expressed desire to harmonize Liberia’s trade regime with ECOWAS and interest in fast-track WTO membership. ### Relations with the Fund (Section I) - Policy implementation and payments: - Authorities committed to policy implementation through quick steps addressing long-standing fiscal and governance problems. - Authorities intend to continue monthly token payments of US$60,000 to the Fund, and to make regular payments to the World Bank and the AfDB (US$25,000 per month to the former and US$15,000 to the latter). - Consequences and possible programs: - Continuation of regular payments and sound policies would form the basis for the Fund’s Executive Board to consider de-escalating the Fund’s remedial measures against Liberia. - If sufficient financing assurances and resources for eventual debt relief become available, strong performance under the SMP could form the basis for a subsequent rights accumulation program (RAP), potentially leading to a comprehensive arrears clearance operation, a decision point under the HIPC initiative, and eventually eligibility under the MDRI. - Under the current sunset clause of the enhanced HIPC Initiative, Liberia would need to have started a Fund-supported program by end-December 2006. ### Data issues (Section J) - Major deficiencies: - Serious data deficiencies hamper surveillance; need for timely and reliable national income and balance of payments statistics. - Recent and planned improvements: - In January 2006, authorities began compiling data for a new consumer price basket, expected to replace the previous basket in January 2007. - Improvements in monetary statistics were welcomed, reflecting Fund technical assistance. - Little improvement in fiscal information reliability due to neglect of a monthly reconciliation exercise based on CBL account statements; authorities agreed to conduct the exercise regularly. ### Program risks and monitoring (Section IV) - Key risks: - Fragile peace and security. - Need for political support from the legislature. - Reliance on international technical assistance to meet structural benchmarks (domestic debt resolution, bank restructuring, review of concessions and contracts). - Monitoring arrangements: - A committee of key officials will closely monitor program implementation. - Reports on program implementation will be communicated to Fund staff through the Resident Representative. - Quantitative and structural benchmarks specified in Tables 1 and 2 of the MEFP. - Three test dates for the staff-monitored program: end-March, end-June, and end-September 2006. ### Staff appraisal and policy recommendations (Sections V and related paragraphs) - Overall assessment: - Liberia faces daunting reconstruction challenges as a postconflict country with weak government capacity for economic management. - New government inherited a severely mismanaged economy characterized by endemic corruption and dysfunctional public institutions. - Immediate priorities and recommended actions: - Reestablish an effective budget process and strengthen capacity in key economic institutions to improve economic governance. - Quickly operationalize GEMAP by putting GEMAP experts in place. - Implement public expenditure management measures: - Bring the Bureau of the Budget into the Ministry of Finance. - Fully implement interim commitment control system so only purchase orders with the Bureau of General Accounting’s seal are valid. - Enact legislation to limit the administration’s power to change budget priorities and allotments between line ministries without prior legislative approval. - Raise fiscal revenues by: - Continuing rigorous enforcement of pre-shipment inspections. - Maintaining security at the port and ensuring all duties are paid, including on rice and petroleum. - Reviewing tax and duty exemptions granted by the NTGL. - Strengthen donor coordination and channel increasing donor support through the budget as governance and public expenditure management improve. - Monetary and central bank recommendations: - Maintain current monetary policy framework aiming to contain inflation by maintaining a stable exchange rate, given high dollarization and lack of other credible monetary indicators. - Be ready to accommodate increased demand for the Liberian dollar and avoid using scarce foreign exchange reserves to defend the exchange rate against exogenous shocks. - Address CBL fiscal position: - Concern that the CBL has been drawing on reserves to finance its cash deficit. - New CBL management should strengthen the CBL’s financial position by strictly controlling staffing and capital spending costs and effectively implementing introduced procurement guidelines. - Move as quickly as possible to a balanced budget in the CBL’s operations given very low official reserves and liquidity impacts, to secure support for eventual CBL restructuring. *Source: IMF staff report content as provided in the supplied PDF excerpts.* ### 58. The staff welcomes the new government’s resolve to address long-standing ### The staff welcomes the new government’s resolve to address long-standing ### Governance, anti-corruption, and institutional strengthening - The staff welcomes the government’s resolve to address long-standing economic governance concerns, as envisaged under the GEMAP. - Important near-term actions: - Develop quickly a national anti-corruption strategy. - Develop a domestic debt resolution strategy in collaboration with international partners. - Make fast progress in fulfilling the requirements for the lifting of UN sanctions, which would have a significant and positive impact on economic activity and government revenues. - Implementation challenges and recommendations: - Authorities should ensure each government agency cooperates fully in bringing systemic improvements to fruition. - Effort is needed to utilize available technical assistance effectively so that capacity is developed in ministries to transform current plans into reality. - The staff is encouraged by the government’s enthusiasm and determination to implement a policy of zero tolerance for corruption and to strengthen the effectiveness of public institutions, but notes past difficulty of implementing new measures in an environment of highly constrained resources and capacities. ### Statistics, data reconstruction, and technical assistance - There is a critical need to build on initial steps to reconstruct a core statistical database to enable effective economic policy making. - Priority statistical areas for further technical assistance: - National accounts. - Consumer price index. - Balance of payments. - Basic data on social indicators. - The Fund plans to extend further technical assistance in the areas of fiscal and monetary operations to help reconstruct the statistical database. ### Staff‑Monitored Program (SMP) and debt overhang - The SMP is centered on ambitious macroeconomic and structural benchmarks. - The program provides a window of opportunity to make progress toward the eventual resolution of Liberia’s debt overhang. - Satisfactory implementation of the SMP would: - Provide a basis for the Fund to consider the de-escalation of the remedial measures that the Fund has imposed on Liberia. - If sufficient indications of support from donors are forthcoming, strong performance under the SMP could form a basis for a subsequent program, which in turn could lead to the eventual resolution of Liberia’s debt overhang. ### Article IV consultation timing - It is proposed to hold the next Article IV consultation on the standard 12-month cycle. ### Selected key statistics and fiscal/monetary indicators (as presented) - National income and prices (annual percentage change, 2002–2006 row formatting preserved): - Real GDP3.7-31.32.65.37.7 - Consumer prices (annual average) 1/14.210.33.66.98.0 - Consumer prices (end of period) 1/11.15.07.57.08.0 - Nominal GDP (in millions of U.S. dollars)559435497548624 - GDP deflator (in U.S. dollars)-0.713.311.34.95.7 - Central government operations (selected lines, 2002–2006 row formatting preserved): - Total revenue and grants4.7-34.745.720.342.8 - Of which: tax revenue15.8-39.049.413.316.9 - Total expenditure and net lending9.2-44.058.114.746.1 - Of which: current expenditure-36.2-6.0150.117.719.3 - capital expenditure65.7-62.2-51.9-3.6249.7 - Money and banking (stocks, in billions of Liberian dollars, 2002–2006 row formatting preserved): - Net foreign assets-36.8-30.3-44.6-49.2-51.1 - Net domestic assets39.733.549.355.558.5 - Net domestic credit54.545.663.069.872.6 - Net claims on government52.343.660.366.669.9 - Broad money (rate of growth) 2/n.a.8.349.335.716.2 - Velocity (GDP relative to broad money) 12.56.65.84.94.8 - External sector (selected, 2002–2006 row formatting preserved): - Current account balance, including grants (deficit, -) -3.4-18.2-13.2-1.9-10.8 - Of which: public interest payments due-11.2-12.1-12.8-14.9-15.9 - Current account balance, excluding grants (deficit, -) -11.0-22.7-51.3-54.2-59.3 - Trade balance (deficit, -)3.8-7.1-33.1-29.4-31.4 - Balance of payments projections (selected, 2002–2010 formatting preserved): - Exports, f.o.b.166109104112115127147182242 - Imports, f.o.b-145-140-268-274-311-340-366-397-436 - Current account balance-19-79-66-10-67-123-121-119-112 - Public sector external debt (medium and long term) Debt outstanding, including arrears3,0513,3643,7353,6593,7803,9064,0364,1654,284 - Debt service charges 84.472.984.1100.6118.2123.7128.7129.2128.1 - Monetary survey (selected end‑period levels, 2002–2006 formatting preserved): - Net foreign assets-36,812-30,335-44,646-49,287-49,161-51,100 - CBL's net foreign exchange position33-15-205-356-510-916 - Broad money (M2)4/2,8983,1394,6875,4336,3627,394 - U.S. dollar component of broad money (In percent of broad money, excluding banknotes)54.949.053.157.856.355.7 - Velocity (GDP relative to broad money)12.56.65.84.94.8 *Source: Excerpt from IMF staff report (_cr06166).* ### 1. Following the signing of the peace agreement in Accra, the National Transitional ### _cr06166 - 1. Following the signing of the peace agreement in Accra, the National Transitional ### Background and political transition - National Transitional Government of Liberia (NTGL) took office in October 2003 following the signing of the peace agreement in Accra. - UN established UNMIL in parallel; security gradually improved. - Presidential elections in October and November 2005 held in a relatively secure environment. - Mrs. Ellen Johnson-Sirleaf won the run-off election on November 8 and was inaugurated as President on January 16, 2006. - New government inherited a severely mismanaged economy characterized by endemic corruption and dysfunctional public institutions. - Government is formulating a “150-day plan” of priority short-term reforms and deliverables consistent with the Governance and Economic Management Assistance Program (GEMAP). - GEMAP key features are described in Attachment III (referenced in source). ### Current economic situation - Deep social and economic damage from recent history: - Real GDP per capita (in 2005 prices) declined from US$1,269 in 1980 to US$163 in 2005 (almost 90 percent decline). - Unemployment estimated to be over 80 percent. - UNDP household survey (2000) indicated 76 percent of the population living on less than US$1 per day. - Liberia’s HIV/AIDS prevalence rate estimated at about 10-12 percent. - About one-fourth of infants die before reaching the age of 5. - Physical and human capital destruction (roads, railways, electricity and water, telecommunications; human capital through conflict, emigration, lack of education, poor health) constrain growth potential. - Management capacity and timely data shortages hamper formulation and implementation of consistent macroeconomic policy. - Output and prices: - Real GDP declined by about 31 percent in 2003 due to domestic instability and UN ban on exports of timber and diamonds. - Real output growth estimated at 2.6 percent in 2004 and 5.3 percent in 2005. - Exchange rate returned to preconflict levels after a 23 percent depreciation in 2002; trading in a range of 55–57 Liberian dollars per U.S. dollar. - Recent signs of rising prices partly reflecting higher donor expenditure. - Fiscal management and public finances: - Fiscal management deteriorated toward end-NTGL period; revenue collection stagnated toward end-2005 due to breakdown of customs controls. - Expenditure decisions taken non-transparently, circumventing Cash Management Committee (CMCo). - Excessive allotments and indiscriminate issuance of vouchers undermined a balanced cash-based budget. - Domestic arrears at end-January 2006 (excluding those to the Central Bank of Liberia (CBL) and commercial banks) amounted to US$20 million, about 25 percent of the annual budget. - Governance: - New concessions and contracts (mainly in mineral sectors) were granted nontransparently and on unfavorable terms. - 2004–05 audits (EU-sponsored and ECOWAS) revealed pervasive mismanagement of public funds. - Banking sector and central bank: - Commercial banks fragile due to low profitability and poor asset quality but liquid because of donor-related deposits and low private-sector loan demand. - CBL incurred an income shortfall from substantial unserviced government claims and drew on international reserves, slowing reserve accumulation. - External environment and debt: - Donor assistance increased substantially above pre-conflict levels. - Imports almost doubled in 2004 and remained at that level in 2005; exports remained low due to UN ban on timber and diamonds. - Balance of payments deficit rose in 2004 and 2005, financed largely by accumulation of external payments arrears. - Liberia’s external debt in arrears for more than two decades and unsustainable: - At end-2005, ratio of debt to exports estimated at about 3,040 percent. - At end-2005, ratio of debt to GDP amounted to about 790 percent. ### The government’s economic program: February – September 2006 (overview) - Government established Liberia Reconstruction and Development Committee (LRDC) with four pillars: - (i) economic revitalization; - (ii) infrastructure and basic services; - (iii) governance and the rule of law; - (iv) security. - Short-run key aims: - Re-establish functioning budgetary process (planning, execution, internal and external controls, and regular reporting). - Rebuild main revenue-generating agencies to operate transparently and accountably. - Make operations of the CBL and banking system fully market-based and transparent. - Implemented public finance and transparency measures: - Fully enforcing pre-shipment inspections by BIVAC. - Ensuring prudent allotments by the Bureau of the Budget in collaboration with the Ministry of Finance. - Reestablishing the CMCo to contain spending commitments within available cash revenues. - Developing a plan to review all concessions and contracts signed by the NTGL and placing a moratorium on awarding new concessions until a transparent bidding process is established. - Program assumptions and macro projections: - Assumes effective implementation of GEMAP, prudent macroeconomic policies, gradual revitalization of exports once UN sanctions are lifted, and post-war reconstruction. - Real GDP projected to grow by around 7–8 percent in 2006. - Average annual inflation projected to remain modest at around 8 percent, anchored on a stable exchange rate. - Trade deficit projected to widen as donor-financed imports grow faster than exports. - Official reserves projected to increase modestly; cover of non-donor financed imports rising from 0.5 months at end-2005 to 0.8 months at end-2006. - Restoration of physical infrastructure and sustained high growth will require substantial external support for an extended period. - Social strategy: - Government will develop a poverty reduction strategy and prepare an interim Poverty Reduction Strategy Paper (I-PRSP) by end-September 2006. ### A. Fiscal policy (findings and measures) - Fiscal strategy: - Government will pursue a balanced budget for the foreseeable future; deficit spending only if external donor support on grant terms becomes available. - Revenue measures: - Implement reforms to enhance efficiency of revenue collection and broaden the tax base (see Table 2 referenced). - Enforce pre-shipment inspections for imports and exports. - Strengthen the Large Taxpayer Unit. - Establish a program to address overdue tax/duty obligations. - Under GEMAP, external experts will assist five revenue-generating agencies (National Port Authority (NPA), Roberts International Airport (RIA), Liberia Petroleum Refining Corporation (LPRC), Forestry Development Agency (FDA), Bureau of Maritime Affairs (BMA)) to enhance transparency of resource flows. - Government will integrate the Bureau of the Budget and the Bureau of Maritime Affairs into the Ministry of Finance by end-June 2006. - With IMF technical assistance on tax policy, aim to shift revenue gradually from trade-based structure to domestic activities. - Expenditure controls: - CMCo (with external experts at MoF and CBL) to ensure spending decisions made within actual revenue collections and follow prioritized cash plans for all ministries and institutions. - Continue technical assistance from IMF, World Bank and others to strengthen public expenditure management, including implementing an interim commitment control system. - Ensure full and effective implementation of newly adopted procurement policy. - For remainder of 2005/06 fiscal year (July to June), prioritize expenditures to maintain core functions and pursue the 150-day plan; budget for 2005/06 will be amended accordingly. - Budget process and transparency: - Limit discretion to change budget allocations between line ministries without legislative approval; legislation to be introduced with submission of 2006/07 budget by end-June 2006. - Budget (including revisions) to be posted on Ministry of Finance website with regularly updated implementation progress. - Timetable for preparation of 2006/07 budget to be established by end-March 2006. - Debt and arrears strategy: - Government intends to review domestic debt resolution strategy developed in 2005 and consider options with regard to resources and banking sector consequences. - Immediate step: establish stock of domestic debt and complete verification. - Subsequently finalize domestic debt resolution strategy consistent with a restructuring plan for CBL. ### B. Monetary and exchange rate policy (findings and measures) - CBL objectives and tools: - Principal objective: maintain price stability. - Given high dollarization, monetary policy role limited; exchange rate used as key indicator of demand for local currency. - Regular foreign exchange auctions resumed to control pace of increase in domestic liquidity, using U.S. dollar supply from government for payment of civil service salaries and wages in Liberian dollars. - Explore statutory reserve requirement system if additional actions needed to manage domestic liquidity. - Reserve and exchange rate targets: - CBL will build up foreign reserves to maintain exchange rate stability. - Target: strengthen net foreign exchange position to a minimum of US$13.2 million by end-September 2006 (see Table 1 referenced). - CBL will not use its scarce resources to defend the local currency in the event of downward pressures. - Long-term reforms: - CBL expects to develop capacity to manage liquidity through monetary instruments and prepare framework for eventual issuance of short-term securities. - Strengthen liquidity monitoring framework. - Currency arrangement and de-dollarization: - Maintain present dual currency arrangement with Liberian and U.S. dollar as legal tender. - Pursuit of credible monetary policy, sustainable fiscal policy, and financial system development expected to gradually increase demand for local currency and allow gradual de-dollarization. - Expansion of domestic currency to be carefully managed consistent with demand for Liberian dollars and exchange rate stability. - Banking supervision and CBL governance: - Strengthen supervision in accordance with Bank Restructuring and Resolution Policy adopted January 2005. - Additional measures: - (i) no new banks will be licensed for the time being; - (ii) CBL will place resident supervisors with troubled banks. - CBL may not achieve a balanced budget in 2006 but will eliminate the cash deficit over the next few years. - Management and governance strengthening measures: - Chief Administrator at CBL with binding co-signature assumed position on February 6, 2006. - Recently appointed Executive Governor expected to strengthen CBL management. - CBL will commission an external audit of its accounts for the 2005 financial year by an auditor of international repute. ### C. Structural reforms - Investment climate and capacity building: - Government will seek international policy advice and technical assistance to support capacity building in public sector, including civil service reform and strengthening judicial system. - Anti-corruption: - Government will stand firm against corruption and request international expert support in investigating serious fraud, corruption and economic crimes. - Government plans to develop by end-May 2006 a comprehensive anti-corruption strategy inclusive of a policy matrix for implementation. - Economic governance and transparency (GEMAP implementation): - Conducting stocktaking exercise for all concessions and contracts given under NTGL and, with external assistance, will formulate a strategic plan to address these concessions. - Improve controls over granting of concessions and contracts by implementing a basic procurement system via establishment of the Public Procurement and Concessions Commission. - Join the Kimberley Process Certification Scheme and the Extractive Industries Transparency Initiative (EITI). - Pursue trade reform and seek WTO membership. - In cooperation with World Bank and partners, develop concrete plan of action to meet conditions for lifting UN sanctions on exports of timber and diamonds. *Source: Memorandum on Economic and Financial Policies (MEFP) covering February–September 2006 (Attachment I).* ### 26. The government has initiated a comprehensive program for the first 150 days of its ### _cr06166 - 26. The government has initiated a comprehensive program for the first 150 days of its ### First 150 days program: objectives and priority actions - Rehabilitation of public infrastructure: roads, electricity generation, provision of water, renovation of Monrovia port, schools, and health clinics. - Improve education and health services by assignment of more teachers and health workers, and strengthening programs to combat malaria, HIV/AIDS, and other diseases. - Promote employment, inter alia, through targeted public works programs. - Continue preparatory work for a civil service reform program. - Improve security. - Support revitalization of agriculture through targeted support to farmers. ### Technical and financial assistance needs - Short-term objectives: build program implementation and monitoring capacity, and put in place administrative capacity to lay the foundation for monitoring a Fund-supported program and programs of other development partners. - Priority institutions for capacity strengthening (as envisaged under GEMAP): Ministry of Finance, other key agencies, and the Central Bank of Liberia (CBL). - Government has requested technical and financial support from the IMF, World Bank, and other development partners. - Data gaps: much of Liberia’s database was destroyed during conflict. Significant international support required to rebuild: - Improve basic economic indicators: national accounts, consumer price index, balance of payments. - Improve basic social indicators: support for a national census and household survey. ### Relations with the IMF and other international creditors - Government commitments under the staff monitored program (SMP): - Continue monthly payments of US$60,000 to the IMF. - Continue monthly payments of US$25,000 to the World Bank. - Continue monthly payments of US$15,000 to the African Development Bank. - Government view: establish sufficient track record of sound economic management under the SMP to de-escalate IMF remedial measures and to reach a subsequent IMF-supported program. - Debt strategy: - Contact bilateral and commercial creditors to seek a comprehensive resolution of the debt overhang. - Consult with multilateral institutions (IMF, World Bank, African Development Bank) on modalities for eliminating arrears with those institutions. - Aim to eventually seek comprehensive debt relief through the HIPC and the Multilateral Debt Relief (MDR) Initiatives. - Recognize that developing a strong track record under the SMP is an important first step. ### Quantitative indicators (Table 1 highlights and definitions) - Quantitative indicators for end-March, end-June, and end-September 2006 include: - floor on government revenue; - floor on the fiscal balance (on a cash basis); - ceiling on noncash tax/duty payment; - ceiling on new domestic borrowing; - ceiling on new domestic payments arrears of the government; - ceiling on new external debt contracted or guaranteed; - ceiling on the CBL’s cash expenses; - ceiling on new payments arrears of the CBL; - floor on the CBL’s cash balance (on a cash basis); - floor on the net changes of CBL’s net foreign exchange position; - token payments to the Fund. - Definitions (selected, exact wording preserved): - Government revenue: all tax and non-tax receipts transferred into the GOL general accounts at the CBL and excludes external loans and grants. Measured on a cash basis. - Fiscal balance (cash basis): difference between (a) total central government revenue (excluding grants) and (b) total current expenditure plus investment expenditure (excluding foreign-financed investment). - Noncash tax/duty payment: settlement of duty/tax obligations by delivering goods or services without cash paid by taxpayers. - New domestic borrowing: new claims on the central government by the banking system (including the CBL) starting February 1, 2006; comprises stock of all outstanding claims on the central government by the banking system, less all deposits held by the central government with the banking system. - New domestic payments arrears of the government: difference between payments due on commitments engaged since February 1, 2006 and actual payments made on those commitments; government payments due include all expenditure for which commitment vouchers have been officially approved by the Bureau of General Accounting of the Ministry of Finance, non-discretionary expenditure (such as wages and salaries, pensions, utilities, and other expenditures for which commitments are automatic and not at the discretion of the government, including domestic debt). - Indicators for external debt: cumulative ceilings on new external debt contracted or guaranteed by the government from February 1, 2006; applies to debt as defined in IMF Guidelines and also to commitments contracted or guaranteed for which value has not been received. - CBL’s cash expenses: sum of (i) recurrent expenditures and (ii) capital spending, on a cash basis; ceiling fully adjusted for the CBL’s cost of the forthcoming external audit of the CBL by auditors of international repute. - New payments arrears of the CBL: difference between payments due on commitments engaged since March 1, 2006 and actual payments made on those commitments; CBL commitments due include all expenditure for which goods and services have been delivered but not been paid. - CBL’s cash balance: difference between (a) total recurrent revenues of the CBL (the sum of interest income and non-interest income) on a cash basis; and (b) total current expenditure plus capital expenditure on a cash basis. - CBL’s net foreign exchange position: difference between (a) the CBL’s gross foreign liquid assets, as currently defined in the Monetary Survey Data, and (b) the sum of its gross foreign liquid liabilities and liquid liabilities denominated in US dollar, as currently indicated in the table on monetary sector. - Token payments to the IMF: defined as a monthly payment of US$60,000. The IMF staff may request the authorities to deposit payments into an escrow account established at another institution overseas. - Selected reported figures from program tables (flow basis, In millions of US$): - Floor on revenue collections: 13.6 (Oct.-Dec. 05 Act.), 8.1 (Jan. 06 Act.), 14.1 (Feb.-Mar.06 Prog.), 24.7 (Apr.-Jun.06 Prog.), 20.3 (Jul.-Sep.06 Prog.). - Floor on cash-based fiscal balance 1/: -1.1 (Oct.-Dec. 05 Act.), 5.2 (Jan. 06 Act.), 0.0 (Feb.-Mar.06 Prog.), 0.0 (Apr.-Jun.06 Prog.), 0.0 (Jul.-Sep.06 Prog.). - Token payments to the Fund (in US$): 170,000 (Oct.-Dec. 05 Act.), 60,000 (Jan. 06 Act.), 120,000 (Feb.-Mar.06 Prog.), 180,000 (Apr.-Jun.06 Prog.), 180,000 (Jul.-Sep.06 Prog.). - CBL indicators (selected): Floor on the changes in CBL’s net foreign exchange position: 2.7 (Oct.-Dec. 05 Act.), -0.9 (Jan. 06 Act.), 0.2 (Feb.-Mar.06 Prog.), 1.8 (Apr.-Jun.06 Prog.), 3.1 (Jul.-Sep.06 Prog.). - CBL ceiling on expenses (In millions of US$): n.a. (Oct.-Dec. 05 Act.), 1.2 (Jan. 06 Act.), 0.9 (Feb.-Mar.06 Prog.), 2.2 (Apr.-Jun.06 Prog.), 0.9 (Jul.-Sep.06 Prog.). - Ceilings on new domestic borrowing and new external borrowing: 0.0 reported for relevant periods in Table 1. 1/ The fiscal balance, on a cash basis, is defined as the difference between (a) total central government revenue (excluding grants); and (b) total current expenditure plus investment expenditure (excluding spending through budget support and foreign-financed investment). ### Structural benchmarks (Table 2 summary and targets) - Fiscal management measures and target dates: - Strengthen the Large Taxpayer Unit (LTU): End-March 2006. - Create a large taxpayer audit unit inside the LTU with reallocation of staff within MoF. - Introduce a monthly information exchange to the LTU from BIVAC. - Increase the number of large taxpayers from 60 to 110 through auditing hidden taxpayers and/or lowering threshold value: End-June 2006. - Develop a timetable to ensure approval of 2006/07 budget: End-March 2006. - Submit budget for legislative approval prior to commencement of fiscal year: End-June 2006. - Develop a strategy to deal with overdue tax obligations: End-June 2006. - Implement an interim commitment control system in accordance with FAD TA recommendations: Continuous from end-June 2006. - Integrate the Bureau of the Budget and the Bureau of Maritime Affairs into the Ministry of Finance: End-June 2006. - Establish the stock of domestic debt of the GOL, and complete process of verification: End-June 2006. - Finalize the domestic debt resolution strategy, consistent with a restructuring plan for the CBL: End-September 2006. - CBL operations measures and target dates: - Revise TOR for the money management committee and ensure operation in accordance with TOR: Continuous from end-March 2006. - Publicize the final Monetary Policy Framework paper on the CBL website: End-March 2006. - Formulate a financial restructuring plan for CBL in collaboration with GOL, supported by IMF TA experts: End-September 2006. - Hold regular weekly or bi-weekly foreign exchange auctions: Continuous from end-March 2006. - Conduct an external audit of the CBL by auditors of international repute: End-September 2006. - Governance and other issues measures and target dates: - Finalize program for prioritizing and reviewing concessions, contracts, and licenses granted under NTGL, and identifying associated revenue flows, with assistance from international partners: End-April 2006. - Complete review of concessions, contracts, and licenses granted under NTGL, with assistance from international partners: End-September 2006. - Implement recommendations of audit of travel expenses, including revision of policy on travel allowances: Continuous from end-March 2006. - Develop a national anti-corruption strategy for the GOL, inclusive of a policy matrix for implementation, with assistance from international partners: End-May 2006. - Post on website of the MoF complete financial statements of revenue-generating agencies (National Ports Authority, Roberts International Airport, Liberian Petroleum Refining Corporation, Forestry Development Authority, and Bureau of Maritime Affairs), endorsed by financial controllers: End-September 2006. - Submit a status report, endorsed by the Economic Governance Steering Committee, on implementation of the Governance and Economic Management Assistance Program: End-September 2006. ### Program monitoring and data reporting requirements - Program-Monitoring Committee: - Composition: senior officials from the Ministry of Finance, the Central Bank of Liberia, and other relevant agencies. The IMF Resident Representative will have observer status. - Responsibilities: monitor program performance, recommend policy responses, inform the Fund regularly, and transmit supporting materials for evaluation of performance criteria and benchmarks. - Reporting cadence: monthly progress report on the program within four weeks of the end of each month, using the latest available data. - Data reporting to the IMF (periodicity and deadlines preserved): - Detailed reports on revenue and expenditure by budget line and a completed summary table on central government operations: monthly, three weeks after the end of the month. - Outstanding appropriation, allotment, commitment, and disbursement of the fiscal year 2005/06 and 2006/07 by ministries and agencies: monthly, three weeks after the end of the month. - The monthly cash plan: monthly, before the beginning of the month. - Disbursements of budget support grants and loans, by donor: within two weeks after the end of the month. - Table providing the end-of-period stock of domestic arrears accumulated during the program period, by budget category (wages, goods and services, etc.): within four weeks after the end of the month. - The amount of new domestic debt contracted or guaranteed by the government: within two weeks after the end of the month. - The amount of new external debt contracted or guaranteed by the government: within two weeks after the end of the month. - The balance sheet of the central bank from the monetary survey: monthly, within three weeks after the end of the month. - The monetary survey, combined with the balance sheet of the commercial banks: monthly, within six weeks after the end of the month. - Detailed reports on CBL cash revenues and expenditures in US dollar and Liberian dollar terms, and on aggregated basis (including both recurrent and capital spending): monthly, within three weeks after the end of the month. - Outstanding commitment and disbursement of the CBL expenses: within three weeks after the end of the month. - Detailed report on foreign exchange auctions and the CBL’s direct foreign exchange transactions with the government, including amount, date, and rate: monthly, within three weeks after the end of the month. - Indicators to assess overall economic trends (consumer price index, foreign exchange rates, trade data, production data): monthly, within six weeks after the end of the month. - A table with a description of the status of implementation of the structural indicators in Table 2 of the MEFP: within two weeks after the end of the month. *Source: Technical Memorandum of Understanding for the Staff-Monitored Program for 2006, Liberia, April 12, 2006 (excerpts).* ### 18. The above data will be provided to the local office of the IMF in Liberia ### _cr06166 - 18. The above data will be provided to the local office of the IMF in Liberia ### Governance and Economic Management Assistance Program (GEMAP) - Launched: September 2005 by Liberia’s key international partners (US, EU, UN, and ECOWAS); endorsed by the new government. - Objective: Strengthen governance and financial management in response to prior financial mismanagement. - Key features: - Financial Management and Accountability: - Deployment of international experts with binding co-signature authority in selected institutions and enterprises. - Offering international management contracts for five state-owned enterprises (SOEs) through competitive bidding. - Establishing escrow accounts for revenue generated by SOEs. - Strict enforcement of Executive Order No. 2: centralization of authority to collect revenue at the Ministry of Finance, and of government accounts at the Central Bank of Liberia. - Improving Budgeting and Expenditure Management: - Capacity building; revamping business processes. - Providing an Integrated Financial Management Information System (IFMIS). - Deploying international experts with binding co-signature authority. - Ensuring effective commitment control. - Developing realistic cash and procurement plans. - Establishing an empowered Technical Secretariat for the Cash Management Committee (CMCo). - Improving Procurement Practices and Granting of Concessions: - Implementation of the new procurement law and a basic procurement system requiring mandatory listing, open competitive bidding, and publication of tender results. - Adequate media coverage of tender results. - Deployment of specialized expertise for granting concessions, contracts, and licenses. - Support for the Contracts and Monopolies Commission (CMC) to strengthen compliance and review powers. - Liberia to join the Kimberley Process Certification Scheme and the Extractive Industries Transparency Initiative (EITI). - Establishing Effective Processes to Control Corruption: - International community to provide policy advice, technical assistance, and support for renovation of facilities. - Technical support from the sub-region to assist investigations of fraud, corruption, and economic crimes. - Consideration of establishing an independent Anti-Corruption Commission. - Supporting Key Institutions: - International assistance to General Auditing Office (GAO), General Services Agency (GSA), Governance Reform Commission (GRC), and Contracts and Monopolies Commission (CMC). - Use of international experts with co-signature authority; awarding of a contract for an external audit agent to support the GAO; provision of technical assistance to the Ministry of Finance and the GRC. - Capacity Building: - Revitalization of the Institute of Public Administration to support revision of the Civil Service Manual and preparation of a Code of Conduct for Civil Servants. ### Assessing Debt Sustainability — summary findings - End-2005 estimated nominal external debt: US$3.7 billion. - Composition estimates: - US$1.6 billion owed to multilateral creditors (of which US$740 million to the Fund). - US$1 billion to bilateral creditors (of which US$830 million to Paris Club members). - About US$1.1 billion (including accrued interest and penalty interest) to commercial creditors and suppliers. - Most debt in prolonged arrears. - LIC DSA template (end-2005) indicators: - NPV of external debt relative to GDP: 790 percent. - NPV of external debt relative to exports of goods and services: 3,040 percent. - These exceed LIC DSA thresholds for a poor policy performer (30 percent and 100 percent, respectively). - Baseline scenario projections (staff’s medium-term baseline assumptions): - Assumptions: real GDP growth ~8 percent per year during 2006-10 and 5 percent per year thereafter; exports expand rapidly during 2006-10 as timber exports recover; Liberia continues to accumulate arrears and has no access to new borrowing for the projection period. - NPV of debt-to-GDP ratio: declines to 460 percent by 2010 and 240 percent by 2024. - NPV of debt-to-exports ratio: declines to 1,540 percent by 2010 and 780 percent by 2024. - Alternative scenarios and stress tests: - Historical scenario (variables at 1999–2004 averages): decline in debt indicators slower than baseline; NPV debt-to-GDP and debt-to-exports in 2024 at 470 percent and 1,560 percent, respectively (about twice baseline levels). - Most extreme stress test (one standard deviation shock to exports in 2006–07): debt indicators rise sharply then converge slowly toward historical scenario levels. - Conclusion: Liberia’s external debt is unsustainable; addressing it requires: - Strong commitment to sound macroeconomic and structural policies; - Substantial international support, including exceptionally deep debt relief. ### Key numeric indicators and projections (selected from Table A1 / text) - External debt (nominal) series (selected): 2002: 545.5; 2003: 772.8; 2004: 751.9; 2005: 667.3. - Change in external debt (selected): 2003: 227.2; 2004: -20.9; 2005: -84.6. - Identified net debt-creating flows (selected): 2002: -13.8; 2003: 174.9; 2004: -80.6; 2005: -35.1. - Endogenous debt dynamics (selected): 2003: 166.4; 2004: -84.6; 2005: -20.6. - NPV of external debt (selected years): 2003: 932.2; 2004: 900.0; 2005: 788.6; 2006: 702.1; 2007: 632.6; 2008: 568.8; 2009: 520.1; 2010: 463.5; 2014: 367.9; 2024: 236.5. - NPV of external debt in percent of exports (selected years): 2003: 2,919.4; 2004: 3,282.3; 2005: 3,040.6; 2006: 3,068.5; 2007: 2,832.9; 2008: 2,381.6; 2009: 1,977.5; 2010: 1,537.4; 2014: 1,220.3; 2024: 784.3. - Debt service-to-exports ratio (in percent) (selected years): 2003: 48.6; 2004: 54.8; 2005: 71.9; 2006: 84.3; 2007: 80.6; 2008: 70.1; 2009: 56.3; 2010: 43.5; 2014: 26.9; 2024: 23.8. - Total gross financing need (billions of U.S. dollars) (selected): 2003: 0.1; 2004: 0.1; 2005: 0.0; later years generally 0.1; projection 2014: 0.1; 2024: 0.3. - Key macroeconomic assumptions (selected): - Real GDP growth (in percent) series (selected): 2002: 3.7; 2003: -31.3; 2004: 2.6; 2005: 0.7; 2006: 20.4; 2007: 5.3; 2008: 7.7; 2009: 8.0; 2010: 8.3; 2011: 8.4; 2014 average: 9.6; 2014-24 average: 7.9 / 5.0 for later periods as table indicates. - GDP deflator in US dollar terms (change in percent) (selected): 2002: -0.7; 2003: 13.3; 2004: 11.3; 2005: 3.8; 2006: 8.2; 2007: 4.9; 2008: 5.7; 2009: 3.8; 2010: 4.0; 2011: 3.9. - Effective interest rate (percent) (selected): 2002: 1.9; 2003: 1.6; 2004: 1.6; 2005: 2.5; 2006: 1.1; 2007: 2.2; 2008: 2.8; 2009: 2.8; 2010: 2.9. - Growth of exports of G&S (US dollar terms, in percent) (selected): 2002: 29.3; 2003: -33.3; 2004: -2.0; 2005: 13.4; 2006: 39.5; 2007: 4.4; 2008: 0.4; 2009: 9.4; 2010: 20.5; 2011: 24.0; 2014 average: 30.2; 2014-24 average: 14.8 / 7.0 indicated. - Nominal GDP (billions of US dollars) memorandum: 2002: 0.6; 2003: 0.4; 2004: 0.5; 2005: 0.5; 2006: 0.6; 2007: 0.7; 2008: 0.8; 2009: 0.9; 2010: 1.0; 2014: 1.3; 2024: 2.6. ### Sensitivity analyses (Table A2 and Figure A1) — selected outcomes - Baseline NPV of debt-to-GDP ratio: 789 (2005) declining in projections (see table). - Alternative scenarios: - A1 (key variables at historical averages in 2006-24): NPV debt-to-GDP and NPV debt-to-exports remain substantially above thresholds (table shows series). - Bound tests B1–B6 (various one-standard-deviation and combined shocks) show NPV of debt-to-GDP, NPV of debt-to-exports, and debt service ratios under stress remain at levels indicating unsustainability (detailed series in Table A2 and Figure A1). ### Liberia: Relations with the Fund (as of February 28, 2006) - Membership: Joined 03/28/1962; Article XIV. - Quota: 71.3 (SDR million) = 100.0 percent of quota. - Fund holdings of currency: 271.9 (SDR million); Reserve position in Fund: 0.0. - SDR Department: Net cumulative allocation 21.0 (SDR million) = 100.0 percent; Holdings 0.0. - Outstanding Purchases and Loans (SDR million; % quota): - Stand-By Arrangements: 166.0 = 232.8 percent of quota. - Contingency and Compensatory: 34.7 = 48.7 percent. - Trust Fund: 22.9 = 32.1 percent. - Latest financial arrangements (selected Stand-By approvals and drawn amounts): - Stand-By 12/07/1984–12/06/1985: Approved (SDR Million) 42.8; Drawn 8.5. - Stand-By 09/14/1983–09/13/1984: Approved 55.0; Drawn 55.0. - Stand-By 09/29/1982–09/13/1983: Approved 55.0; Drawn 35.0. - Projected Obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs): - Overdue principal as of 2/28/2006: Principal 223.55; Charges/interest 295.63. - Forthcoming charges/interest: 2006: 8.29; 2007: 11.06; 2008: 11.07; 2009: 11.05; 2010: 11.06. - Total overdue and forthcoming (Total): 519.18; forthcoming rows list 8.29, 11.06, 11.07, 11.05, 11.06. - Exchange rate arrangement: - Currency: Liberian dollar; U.S. dollar also legal tender. - Arrangement: independent float; market determined exchange rate. - Exchange rate at end-February 2006: L$56.8=US$1. - Article IV consultation: - 2005 Article IV consultation discussions held in Accra during February 2005. - Staff report: Country Report No. 05/166, 5/20/05; discussed by the Executive Board on April 20, 2005. - Technical assistance (selected entries by Department and date): - MAE missions/advisors: currency arrangement reform (1995); currency arrangement and financial system reform (1998); banking commission advisor (short term 1998); general operations advisor (long term 1998–2000); audit and accounting advisor (long term 1998–2000); research advisor (long term 1998–2000); banking supervision advisor (long term 1999–2001); assessment of technical assistance needs (MFD 2003); monetary operations and related missions (MFD May 2004, Aug. 2004, Feb. 2005, May. 2005, Aug. 2005); negotiation on chief administrator post (MFD Dec. 2005); Chief Administrator for the CBL (MFD Feb. 2006). - FAD missions/advisors: budget preparation and expenditure execution (1997); strategy for fiscal reform (1998); budget preparation and classification advisor (short and long term 1998–2000); tax reform missions (1999); tax code preparation (1999); tax administration missions/advisors (1999–2000); assessment of technical assistance needs (Dec. 2003); multiple public expenditure management missions (May 2004; July 2004; Dec. 2004; Feb. 2005; May. 2005; Dec. 2005; Feb. 2006); forestry tax policy (FAD Feb. 2005). - STA missions/advisors: multisector statistics preassessment (1997); multisector statistics (1998); money and banking statistics missions (1999, 2000); balance of payments and other statistics missions and advisors across 2000–2004; government finance statistics (Jan. 2006). - Resident Representative: - A resident representative has been posted in Monrovia since April 3, 2006. ### Liberia: Relations with the World Bank Group (as of March 12, 2005 / update to March 12, 2006 noted) - Historical context: - World Bank suspended disbursements to Liberia in December 1986; loans placed in non-accrual status in June 1987. - To that date, disbursements totaled US$141.3 million from 22 IBRD loans and US$91.5 million from 17 IDA credits; only US$43.6 million of these disbursements has been repaid. - Arrears and obligations: - By 12 March 2006, Liberia’s arrears to the World Bank had mounted to US$435.3 million (reflecting further interest charges). - Outstanding obligation of US$2.2 million to the World Bank since 24 August 2005 to fulfill the Maintenance of Value (MOV) clause in the Bank's Articles of Agreement. - Post-conflict engagement: - Following the Comprehensive Peace Agreement in August 2003 and installation of the National Transitional Government of Liberia in October 2003, the Bank co-hosted with the UN and US the International Reconstruction Conference for Liberia in February 2004. *Source: Staff simulations and text from the chapter.* ### 2004. In March 2004, the Executive Directors of the Bank discussed the Liberia Country Re- ### _cr06166 - 2004. In March 2004, the Executive Directors of the Bank discussed the Liberia Country Re- ### World Bank financial support and program activities - April 2004: a US$4.0 million grant from the Bank’s newly created LICUS Implementation Trust Fund approved to fund four activities in: - community empowerment, including a rapid social assessment; - public procurement and financial management; - forestry sector management; - coordination and implementation of the Results-Focused Transition Framework (RFTF). - August 2004: a US$25.0 million grant from Bank IBRD surplus was endorsed by the Executive Directors of the Bank and approved by the Bank’s Board of Governors in October 2004 (the TFLIB). - Purpose: extends funding of the above activities, funds additional activities in infrastructure, and provides support for the internationally-supported Governance and Economic Management Assistance Program (GEMAP) agreed with the NTGL in September 2005. - Sub-grants from TFLIB: - Technical Assistance Component for Infrastructure Rehabilitation: US$5.0 million, approved December 2004. - Community Empowerment: US$6.0 million, approved February 2005. - Other sub-grants are being prepared. - Operational presence: - Since July 2004 the Bank has a Senior Country Officer in Monrovia to coordinate the Bank’s activities in Liberia. - Institutional coordination and participation: - The working environment is characterized by close coordination among the Government, the Bank, the IMF, the UN group, bilateral donors, local and international NGOs, and civil society. - Coordination mechanisms mentioned: RFTF Implementation and Monitoring Committee during transition; Liberia Reconstruction and Development Committee; Economic Governance Steering Committee of the GEMAP and its Technical Team. - December 2005: the Bank became a member of the International Consultative Group on Liberia. ### World Bank Group statement of loans/credits/grants for Liberia (Summary in U.S. Dollars at March 12, 2006) - IBRD / IDA / Total (as presented in source) - Original Principal: 155,950,000 114,500,000 270,450,000 - Cancellations: 14,693,265 22,765,012 37,458,277 - Disbursed: 141,256,735 91,541,498 232,798,233 - Undisbursed: 0 0 0 - Repaid: 42,874,104 723,744 43,597,848 - Due: 97,977,632 105,903,740 203,881,372 - Exchange adjustment: 47,553,454 0 47,553,454 - Borrowers’ obligation: 145,531,086 105,803,740 251,434,826 - Sold third party: 405,000 0 405,000 - Repaid third party: 405,000 0 405,000 - Due third party: 0 0 0 - Source: World Bank, Integrated Controller’s System. - Contact person at World Bank: Michael Diliberti 202-473-8766. ### Statistical capacity, data weaknesses, and development efforts - Overarching issue: - Substantial weaknesses in Liberia's economic statistics due to civil war destruction of databases and loss of administrative and institutional capacity. - Institutional developments: - July 2004: new legislation creating the Liberia Institute of Statistics and Geo-Information Services as a semi-autonomous agency; expected to be operational in FY 2005/06 with lead role for national coordination and reestablishment of economic and social statistics. - Liberia is one of fifteen countries participating in the Fund’s General Data Dissemination System (GDDS) Project for Anglophone African Countries and has posted metadata and detailed plans on the Fund’s DSBB on October 24, 2005. - Monetary and financial statistics: - The Central Bank of Liberia (CBL) is regularly reporting monetary and financial and exchange rate statistics for IFS, but quality and timeliness need improvement. - CBL publications: Liberia Financial Statistics (bimonthly, lag about six months) and quarterly Financial and Economic Bulletin (covering previous four quarters, lag about six months). - August 2004 MFS mission: reviewed methodology, established procedures, suggested changes in CBL accounting records and commercial banks’ reports; mission compiled monetary data for June 2002–June 2004. - Remaining weaknesses: accounting for foreign reserves, segregation of required reserves by currency denomination, classification of other assets and liabilities; bank responses to follow-up and explanations remain weak. - A MFS mission in 2006 expected to introduce standardized forms and develop an integrated monetary database. - Monetary and financial statistics reported monthly to IFS usually with a two-month lag; latest return includes data up to January 2006. - Real sector and prices: - Annual estimates of production by sector prepared by the National Accounts Unit of MPEA; Fund staff estimated total GDP by sectoral origin for 1997–2004 with MPEA assistance. No estimate for GDP by expenditure; a household survey required. - Price statistics: Price Unit of MPEA began producing a consumer price index in late 1998 (May 1998 base); weights based on a 1963–64 Monrovia household expenditure survey. Targeted sampling frequencies vary; a June 2004 survey updated rent and personal care and health services subgroups for Monrovia CPI. Monthly data reported to Fund generally with about six months lag. - Government finance statistics: - Authorities provide fiscal accounts regularly to staff but have not reported data for GFSY since 1988 nor provided data for IFS for several years. - Ministry of Finance provides monthly disaggregated data on government revenue, current and capital expenditure. - Considerable scope for improvement: data on domestic arrears and financing items are unreliable. - Balance of payments and external debt: - Official BOP statistics not reported comprehensively since 1988 Article IV consultation; Fund staff prepared provisional BOP statistics with CBL, MoC, MPEA, MoF. - Progress on current and financial account components: trade and related services, government expenditures, remittances, nonresident deposits; but gaps in primary source data and errors distinguishing services, income, transfers require technical assistance. - Need to resolve and reconcile significant discrepancies in trade data reported by various agencies. - CBL completed a census of foreign direct investment enterprises preparing for an investment survey following STA mission recommendations in July 2004. - 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 financial statements from external creditors to update MoF external debt database. - STA training in 2005: three Liberian officials trained—one attended BOP course in Washington May/June 2005; two attended external debt statistics courses in Washington (July 2005) and Tunis, Tunisia (November 2005). - STA planning a follow-up balance of payments TA mission to Liberia in FY 2007. ### Table of Common Indicators Required for Surveillance (AS OF MARCH 13, 2006) — selected entries (dates and frequencies preserved) - Exchange Rates: Date of latest observation Jan. 2006; Date received Mar. 2006; Frequency of Data D; Frequency of Reporting M; Frequency of publication B - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Jan. 2006; Date received Mar. 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Reserve/Base Money: Date of latest observation Jan. 2006; Date received Mar. 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Broad Money: Date of latest observation Jan. 2006; Date received Mar. 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Central Bank Balance Sheet: Date of latest observation Jan. 2006; Date received Mar. 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Consolidated Balance Sheet of the Banking System: Date of latest observation Jan. 2006; Date received Mar. 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Interest Rates: Date of latest observation Jan. 2006; Date received Mar. 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Consumer Price Index: Date of latest observation Dec. 2005; Date received Mar. 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 Jan. 2006; Date received Mar. 2006; 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 Oct. 2004; Date received Dec. 2005; Frequency of Data Q; Frequency of Reporting B; Frequency of publication B - Exports and Imports of Goods and Services: Date of latest observation Jun. 2005; Date received Oct. 2005; Frequency of Data M; Frequency of Reporting Q; Frequency of publication B - Gross External Debt: Date of latest observation Dec. 2005; Date received Feb. 2006; Frequency of Data Q; Frequency of Reporting B; Frequency of publication B ### Key socio-economic indicators (selected values reproduced exactly) - Population (millions): 2.4 2.7 3.2 3.3 3.4 3.4 - Gross national income ($ million): 928 279 438 476 378 384 - GNI per capita ($): 400 100 140 140 100 110 - Adult literacy rate (percent of people of ages 15 and over): 39.2 45.3 54.8 55.9 55.9 ... - Total fertility rate (births for women): 6.8 6.5 6.0 5.8 5.8 5.8 - Life expectancy at birth (years): 45.1 44.1 47.2 47.1 47.1 47.1 - Aid (% of GNI): 7.3 28.8 9.2 11.0 28.0 ... - Prevalence of child malnutrition (percent of children under 5): 26.5 - Population below minimum level of dietary energy consumption (in percent): 33.0 38.0 42.0 ... 46.0 ... - Net primary enrollment ratio (percent of relevant age group): 69.9 - Youth literacy rate (percent of ages 15-24): 57.2 64.2 69.8 70.8 70.8 ... - Ratio of young literate females to males (percent of ages 15-24): 51.2 56.9 63.1 64.2 64.2 ... - Proportion of seats held by women in national parliament (in percent): 6.0 8.0 8.0 - Under five mortality rate (per 1000): 235 235 235 235 235 235 - Infant mortality rate (per 1000 live births): 157 157 157 157 157 157 - Immunization, measles (percent of children under 12 months): 78.0 57.0 53.0 53.0 - Maternal mortality ratio (modeled estimate per 100,000 live births): 760.0 - Births attended by skilled health staff (percent of total): 50.9 - Number of children orphaned by HIV/AIDS: 5.9 5.9 - Incidence of tuberculosis (per 100.000 people): 31,000 ... 36,000 36,000 - Forest area (percent of total land area): 44.0 ... 36.1 ... - Nationally protected areas (percent of total land area): 1.3 1.3 2.6 1.7 1.7 - CO2 emissions (metric tons per capita): 0.2 0.1 0.1 ... - Access to an improved water source (percent of population): 62.0 ... - Access to improved sanitation (percent of population): 26.0 ... - Fixed line and mobile telephones (per 1,000 people): 3.6 1.6 2.8 ... *Source: IMF staff compilation from the Liberia Country Report content provided.* ### 29. Personal computers (per 1,000 people) ### 29. Personal computers (per 1,000 people) ### Background and recent developments - Real GDP is estimated to have grown by 5.3 percent in 2005, following growth of 2.6 percent in 2004. - The Liberian dollar has been trading in a range of 55–60 Liberian dollars per U.S. dollar for the last 12 months. - International reserves remained at a very low level, reflecting the continued financial weakness of the Central Bank of Liberia (CBL). - Recently there have been signs of a rise in inflation, in part reflecting higher donor expenditure. ### Short-term outlook and projections - For 2006, real GDP is projected to grow by about 8 percent, led by agriculture and services. - Inflation is expected to remain modest, being contained to single digits. - With a gradual decline in rubber exports and further increase in donor-funded imports, the trade deficit is projected to widen further. ### Executive Board assessment — key findings and recommendations - Commended the new authorities’ resolve to work closely with international partners and welcomed the agreement on an ambitious macroeconomic program for February-September 2006 to be monitored by Fund staff. - Emphasized that strengthening public financial management, improving economic governance, and rebuilding essential capacity and infrastructure are essential for sustained recovery and poverty reduction. - Welcomed the authorities’ endorsement of the Governance and Economic Management Program (GEMAP). - Encouraged further decisive steps to strengthen public expenditure management, including establishing an effective and transparent budgeting process (planning, execution, internal controls). - Stressed short-run importance of ensuring allotments to line Ministries are consistent with available resources and fully implementing the interim commitment control system to prevent accumulation of new payments arrears. - Urged efforts to raise public revenues: continue rigorous enforcement of pre-shipment inspections, strengthen the Large Taxpayer Unit, and review and rationalize the extensive list of duty exemptions. - Highlighted the weak financial position of the CBL as a constraint on rebuilding foreign exchange reserves and on monetary/exchange rate policy; welcomed efforts to minimize the CBL’s cash deficit in 2006 and urged elimination of this deficit as soon as possible. - Called for strengthening regulatory functions of the central bank and restructuring undercapitalized banks. - Supported maintaining price stability through a broadly stable exchange rate in the current dollarized environment, while cautioning that demand trends for local currency should be carefully assessed. - Urged development and implementation of a national anti-corruption strategy and completion of review of concessions, contracts and licenses granted under the previous government. - Encouraged increased transparency in the forestry sector in line with Extractive Industries Transparency Initiative (EITI) guidelines. - Noted the need to verify outstanding public obligations (domestic and external) with donor and creditor support, develop a strategy to address domestic payments arrears, and that satisfactory implementation of the Staff Monitored Program (SMP) and continued repayments to the Fund are important for de-escalation of Fund remedial measures and progress toward HIPC and Multilateral Debt Relief Initiative participation. ### Selected economic and financial indicators (2002–06) — key figures preserved exactly as presented - Real GDP: 2002: 3.7-; 2003: -31.3; 2004: 2.6; 2005: 5.3; 2006: 7.7 (Est./Proj. labels as in source) - Consumer prices (annual average) 1/: 2002: 14.2; 2003: 10.3; 2004: 3.6; 2005: 6.9; 2006: 8.0 - Nominal GDP (in millions of U.S. dollars): 2002: 559; 2003: 435; 2004: 497; 2005: 548; 2006: 624 - GDP deflator (in U.S. dollars): 2002: -0.7; 2003: 13.3; 2004: 11.3; 2005: 4.9; 2006: 5.7 - Official exchange rate (Liberian dollars per U.S. dollar; end of period): 2002: 65.0; 2003: 50.5; 2004: 54.5; 2005: 56.5; 2006: ... - Broad money (rate of growth) 2/: n.a.; 2003: 8.3; 2004: 49.3; 2005: 35.7; 2006: 16.2 - Reserve money: n.a.; 2003: 17.6; 2004: 31.4; 2005: 27.2; 2006: 15.6 - Velocity (GDP relative to broad money): 2002: 12.5; 2003: 6.6; 2004: 5.8; 2005: 4.9; 2006: 4.8 Central government operations (January-December) — in percent of GDP: - Total revenue and grants: 2002: 13.0; 2003: 10.9; 2004: 13.9; 2005: 15.2; 2006: 19.0 - Of which: total revenue: 2002: 13.0; 2003: 10.2; 2004: 13.7; 2005: 14.5; 2006: 15.0 - Total expenditure and net lending: 2002: 14.3; 2003: 10.3; 2004: 14.3; 2005: 14.8; 2006: 19.0 - Of which: current expenditure: 2002: 4.6; 2003: 5.6; 2004: 12.3; 2005: 13.1; 2006: 13.7 - Overall fiscal balance (cash basis): 2002: -1.3; 2003: 0.6; 2004: 0.0; 2005: 0.0; 2006: 0.0 External sector (in percent of GDP and levels): - Current account balance, including grants (deficit, -): 2002: -3.4; 2003: -18.2; 2004: -13.2; 2005: -1.9; 2006: -10.8 - Of which: public interest payments due: 2002: -11.2; 2003: -12.1; 2004: -12.8; 2005: -14.9; 2006: -15.9 - Current account balance, excluding grants (deficit, -): 2002: -11.0; 2003: -22.7; 2004: -51.3; 2005: -54.2; 2006: -59.3 - Trade balance (deficit, -): 2002: 3.8; 2003: -7.1; 2004: -33.1; 2005: -29.4; 2006: -31.4 - Exports, f.o.b.: 2002: 29.8; 2003: 25.0; 2004: 20.9; 2005: 20.5; 2006: 18.4 - Imports, f.o.b.: 2002: -26.0; 2003: -32.2; 2004: -54.0; 2005: -49.9; 2006: -49.8 - Public sector external debt outstanding (total): 2002: 545.5; 2003: 772.8; 2004: 751.9; 2005: 667.3; 2006: 605.4 Monetary and external position (in millions of U.S. dollars, unless otherwise indicated): - Current account balance including grants (deficit, -): 2002: -19.2; 2003: -79.2; 2004: -65.5; 2005: -10.3; 2006: -67.4 - Trade balance (deficit, -): 2002: 21.1; 2003: -31.1; 2004: -164.2; 2005: -161.4; 2006: -195.9 - CBL’s net foreign exchange position: 2002: 0.5; 2003: -0.3; 2004: 3.8; 2005: 9.0; 2006: 16.1 - (in months of imports of goods and services): 2002: 0.0; 2003: 0.0; 2004: 0.1; 2005: 0.3; 2006: 0.5 Notes in source: - 1/ Technical adjustments are made to the CPI for 2004 and 2005 in light of the replacement of some items subject to CPI survey in mid-2004. - 2/ Defined as Liberian currency outside banks plus demand, time, and savings deposits in Liberian and U.S. dollars. ### Government statement — implemented measures and reform agenda - Immediate measures taken: - Enforcement of pre-shipment inspections (extended to rice and petroleum). - Operationalization of the Cash Management Committee (CMCo). - Measures to increase transparency in diamond and timber resource management. - Review of all contracts signed by the transitional government. - Actions to stop the hemorrhage in the CBL’s finances. - Requirement for ministers to declare assets upon assumption of office. - Fiscal outcomes noted: - Revenues collected in January-March 2006 were some 34 percent higher than during the same period last year, and above the SMP projections. - For the first time in many months, civil servants’ salaries are current and basic operational spending can be financed. - Policy and reform priorities: - Submit legislation to reintegrate the Bureau of the Budget and the Bureau of Maritime Affairs into the Ministry of Finance. - Implement a new public procurement code and strengthen financial management via the CMCo. - Implement IMF recommendations on public expenditure management to strengthen budget preparation, execution, and reporting. - Rationalize and introduce a more competitive import tariff structure and expand the tax base, with measures to be considered in the 2006/2007 budget and on the basis of a forthcoming IMF mission on tax policy. - Comprehensive civil service reforms, building on a civil service census to address payroll irregularities; seek donor support for reintegration of redundant civil servants. - Formulate and implement an anti-corruption strategy; prepare a Code of Conduct for public servants. - Review constraints to private sector investment and consider reforms to encourage growth in the secondary sector beyond traditional rubber, timber, and iron ore sources. - Social and strategic initiatives: - 150-day plan focused on security, economic revitalization, infrastructure and basic social services, and governance and the rule of law. - Work underway on an Interim Poverty Reduction Strategy to be completed by end-June 2006. *Source: World Development Indicators database, April 2005; Public Information Notice (PIN) No. 06/47, May 2, 2006; IMF Executive Board discussion and accompanying statement and indicators as presented in the source content.* ### 11. We are cognizant of the need to modernize Liberia’s monetary and financial sector in ### _cr06166 - 11. We are cognizant of the need to modernize Liberia’s monetary and financial sector in ### Monetary and financial sector modernization - Objective: modernize Liberia’s monetary and financial sector to keep inflation within manageable levels, support fiscal policy efforts, and create an enabling environment for promoting investment and economic growth. - Critical action: restructuring of the Central Bank to pursue effective monetary policy and ensure the stability of the financial system. - Support sought: Fund technical assistance and advice aimed at implementing a lasting solution supportive of sustained growth and development. ### Peace consolidation and security - Recent developments reinforcing peace: - Establishment of the Truth and Reconciliation Commission. - Continued presence of UN troops over the medium term. - Government view: these developments should enhance consolidation of Liberia’s fragile peace; government expresses deep gratitude for continued UN presence. ### Developing and enhancing capacity - Current capacity constraints: - Long years of war and mismanagement have undermined capacity and depleted skilled human resources; many skilled personnel left the country. - Ministries, government agencies, and the private sector are severely short of qualified personnel and skilled staff, particularly at the middle levels. - Concern that capacity building is not being accorded the priority it deserves by donors. - Strategy and short-term measures: - Capacity development will require repatriation of Diaspora Liberians, technical assistance to build skills, and creating an environment and civil service that rewards utilization of knowledge and skills. - Government is working on a capacity development strategy to coordinate donor initiatives. - Short-term work underway with UNDP, and to be initiated with the International Organization for Migration, to support more adequate remuneration on a temporary basis for returning skilled Liberians. ### External assistance and partnership - Reconstruction challenge: given the magnitude and complexity of reconstruction and development, coordinated and sustained international support is critical, including debt relief to address the crippling external debt overhang. - Track record and arrears: - A track record is already underway, with additional progress to be achieved under the SMP. - Government believes the basis is being established for the early clearance of arrears with the three multilateral institutions-IMF, World Bank and the AfDB. - Government hopes for a de-escalation of the Fund’s remedial measures against Liberia in line with the track record. - Government requests consideration of lifting the declaration of non-cooperation as formal recognition of Liberia’s commitment and effort to normalize relations with the Fund. - Partner commitments and coordination: - Gratitude for new financial commitments made during these first three months; expectation of speedy disbursement and additional new commitments aligned with the reconstruction agenda. - Partnership sought goes beyond financial resources to strategic engagement during and beyond I-PRSP preparation. - Forum established: Liberia Reconstruction and Development Committee (LRDC) chaired by the President, with sub-committees consistent with the 150-day plan (security, economic revitalization, infrastructure and basic services, and governance and the rule of law). - Government looks to the international community for assistance in rebuilding institutions and capacity, policy advice, and technical assistance. - Commitment to ensure international support is well coordinated, efficiently utilized and accounted for. - Two partnership meetings planned to discuss medium-term strategy, acceleration of disbursements from existing donor commitments, and steps to clear external arrears in July and September this year. ### Conclusion and overarching needs - Challenge summary: - Government faces monumental challenges of implementing reforms to lay the basis for reconstruction and development while showing concrete progress quickly to consolidate Liberia’s fragile peace and meet high public expectations. - Requirements for success: - Urgent debt relief and sustained, coordinated donor support for many years. - Continued effort to build the track record required to make the case for donor support. - Acknowledgements: - Government thankful for the hard work of Fund staff enabling Executive Board consideration of an SMP at an early date. - Government encouraged by goodwill shown by partners and looks forward to continued engagement to consolidate peace and improve lives of Liberia’s desperately poor people. *Source: _cr06166 - 11. We are cognizant of the need to modernize Liberia’s monetary and financial sector in* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06166.pdf_