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---

### Executive Summary
- Real GDP growth: expected to recover to about 8 percent in 2006; staff projection elsewhere: 7.7 percent for 2006; 2005 outturn: 5.3 percent.
- Inflation: year-on-year inflation at 6.6 percent in June 2006, compared with 7 percent in December 2005; expected to remain in single digits.
- External sector: significant increase in world rubber prices expected to boost rubber export receipts, more than offsetting the projected increase in the oil import bill; trade deficit projected to remain largely unchanged.
- Program performance: all SMP quantitative benchmarks for March and June were met; most structural benchmarks met, some with delays.
- Fiscal management: revenue increased by 18 percent in February–June 2006 compared with February–June 2005; revenues 19 percent higher than projected in the recast budget for February–June.
- CBL financial position: budgeted deficit US$2.5 million; outturn deficit US$0.4 million at end-June 2006.
- 2006/07 budget: approved by the legislature on August 22; revenue projected to rise 43 percent over estimated outturn for 2005/06.
- Risks: difficult relations with the legislature, serious capacity constraints, and the need for strong donor support.

### Recent Developments and Program Performance
- Mission and coverage:
  - First review discussions: Monrovia, July 20–28, 2006.
  - Staff team: Mr. Powell (head), Mr. Erasmus, Mr. Leichter (AFR), Mr. Arnason (PDR), Mr. Nyberg (FIN), Mr. Tharkur (Resident Representative); Mr. Mamba and World Bank staff participated in some discussions.
  - Meetings with ministers of Finance, Planning and Economic Affairs, Lands, Mines and Energy, Agriculture; Governor of CBL; senior officials; private sector; donors; briefing to President Johnson-Sirleaf.
- Security: relatively stable; UNMIL forces responding to isolated incidents.
- Exchange rate and money:
  - Liberian dollar traded between 56 and 59 per U.S. dollar during January–June 2006.
  - Real effective exchange rate: depreciated by 8.6 percent (end-May) from end-2005.
  - Broad money (excludes U.S. dollars outside banks): expanded at rates in the range of 25-40 percent (year-on-year) during January–June 2006.
- Fiscal execution (Recast Budget, February–June 2006; Millions of U.S. dollars):
  - Total Revenue and grants: Recast 38.9; Cash basis 46.1; Estimated outturn 46.1.
  - Grants: 1.0 (Recast); 1.0 (Cash and outturn).
  - Total expenditure and net lending: Recast 44.1; Cash basis 31.7; Estimated outturn 49.1.
  - Overall surplus/deficit: Recast -5.2; Cash basis 14.4; Estimated outturn -3.0.
  - GOL account at CBL (beginning): 5.3; at end (cash basis): Recast 0.0; Cash basis 19.5; Estimated outturn 2.3.
  - Note: Cash basis balance is actual balance on June 30 converted using the market exchange rate.
- SMP implementation: all quantitative benchmarks through end-June achieved; most structural benchmarks achieved though some delayed.

### Fiscal Policy and 2006/07 Budget
- Budget process and approvals:
  - Authorities submitted a cash-based balanced budget on June 29; approved by legislature on August 22; signed into law August 28.
  - Approved changes: transfers from two state owned enterprises amounting to US$750,000, raising projected revenues to US$120.9 million; shifted US$2 million from contingent expenditure to main budget and offset by shifting US$2 million originally for domestic arrears clearance to contingent expenditure; contingent expenditures US$9 million.
- Revenue projections and composition (Millions of U.S. dollars):
  - 2005/06 total revenue: 84.6.
  - 2006/07 total revenue projection: 120.9 (change 43.0 percent).
  - 2005/06 tax revenue: 79.4; 2006/07 tax revenue projection: 106.2 (change 33.9 percent).
  - 2005/06 nontax revenue: 5.2; 2006/07 nontax revenue projection: 14.7 (change 181.0 percent).
- Key revenue measures and expected contributions:
  - Reduction of duty and tax exemptions on rice: from US$0.6 million in 2005/06 to US$10.3 million in 2006/07.
  - Petroleum revenue: from US$4.1 million to US$13.8 million.
  - Collection of overdue taxes expected to contribute US$4.8 million in 2006/07.
  - Other measures: apply GST on imports to duty paid value; GST on domestic supplies applied to sales price inclusive of excise taxes; uniform excise tax of 15 percent on alcoholic beverages (imported and domestic); increase excise tax on cigarettes to 15 percent; update unit values for land and building taxes.
- Implementation priorities:
  - Strengthen tax and customs administration; reduce tax exemptions through timely completion of contracts and concessions review; strengthen the Large Taxpayers Unit (LTU).
  - Strict adherence to prioritized monthly cash plans by line ministries; contingent expenditures to be identified in cash plans.

### Commitment Control, Procurement, and Expenditure Execution
- Commitment control system substantially strengthened; noted consequences:
  - Led to uneven monthly expenditures during February–June.
  - Large quantity of purchase orders approved toward end of fiscal year.
- Operational constraints:
  - In absence of approved 2006/07 budget, CMCo could not approve any expenditure during July and most of August.
  - Line ministries able to continue functioning initially on surge in approvals in late-May and June.
- Staff concerns:
  - Possible wage arrears for July may have been incurred; civil service wages due within first week following end of calendar month; such arrears would constitute breach of a continuous quantitative benchmark.
  - Urged government to ensure no new commitments without approved purchase orders.

### Domestic Debt Verification and Resolution (Box 1 highlights)
- Domestic debt and arrears as of March 31, 2006: estimated at US$754 million, or 142 percent of 2005 GDP; US$483 million has been internally verified.
- Composition of verified and unverified claims (March 31, 2006):
  - CBL debt – US$260.9 million of verified claims.
  - Commercial bank debt – US$20.5 million.
  - Salary arrears:
    - During February–June 2006, US$3.8 million was paid to settle all existing wage arrears from NTGL period.
    - Thirteen months of salary arrears from pre-NTGL period remain outstanding, totaling US$16.4 million.
  - SOEs, vendors and bonds – total claims estimated at US$411 million; over 80 percent vendor claims, most of rest SOE claims.
- Institutional arrangements:
  - Interministerial vetting committee (MoF, CBL, other agencies) began meeting in June to vet domestic debt and recommend resolution strategies and a roadmap.
  - Government decided to hire an external auditor for claims above: US$10,000 for services; US$25,000 for goods; US$50,000 for public works.
  - These claims constitute 95 percent of pre-NTGL domestic debt and arrears under consideration.
  - Domestic debt resolution strategy expected by end-September.
- Prior TA recommendations:
  - Pay salary arrears in full.
  - Settle vendor claims and bonds at a discount rate that increases with size of claim; small claims settled in full.
- Staff emphasized completing verification and finalizing debt resolution strategy by end-September.

### Monetary Policy and Financial Sector Issues
- Monetary objective: contain inflation by maintaining a stable exchange rate.
- Foreign exchange operations: regular foreign exchange auctions held since end-March.
- CBL operations and balance:
  - CBL outturn deficit of US$0.4 million at end-June vs budgeted deficit of US$2.5 million, due to expenditure control and delayed payment for printing new currency.
  - Staff welcomed improvement but noted vulnerability due to large unremunerated claims on government; stressed CBL should target a balanced cash-based budget in 2007.
  - CBL agreed Liberian dollar component of money supply should be expanded cautiously to maintain a broadly stable exchange rate.
- Banking sector restructuring:
  - Need to finalize restructuring strategies for the banking sector; CBL and two commercial banks with large unremunerated claims to cooperate in assessing resolution scenarios.

### Economic Governance, GEMAP, and Anti-corruption
- GEMAP implementation:
  - Deployment of international experts to main revenue agencies, CBL, BoB, and Ministry of Lands, Mines and Energy.
  - Internationally recruited experts with co-signatory authority placed at main revenue-generating agencies.
  - Fund-recruited Chief Administrator at the CBL since February 2006; term extended to August 2007.
- Concessions and contracts:
  - Framework for reviewing concessions and contracts from NTGL finalized; program approved by EGSC in early May 2006.
  - Complete review of concessions, contracts, and licenses by end-September 2006 targeted; review likely to take longer though most important contracts targeted by end-September.
- Anti-corruption:
  - Draft anticorruption policy paper prepared; substantial progress developing national anti-corruption strategy (expected finalized by end-September).
  - Incoming ministers required to declare assets; draft civil service code of conduct prepared; legislative ratification obtained for UN and AU anticorruption conventions.
- Other governance measures:
  - New travel ordinance issued on April 1; implementation of ECOWAS audit recommendations; publishing ECOWAS audit of previous government; preparing for judicial action against officials named in audit.

### External Debt, Arrears, and External Relations
- Staff judgment: Liberia’s external debt is clearly unsustainable.
- Public sector external debt (medium and long term; selected figures as presented):
  - Debt outstanding, including arrears: 3,364; 3,735; 3,660; 3,763; 3,876 (table context).
  - Debt outstanding (percent of exports of goods and services): 2,420; 2,742; 2,538; 1,966; 1,901.
  - Debt outstanding (percent of GDP): 820; 812; 690; 569; 534.
- Debt service charges (percent of exports / percent of GDP): 74.9, 83.9, 118.4, 139.0, 147.4; (in percent of GDP) 18.3, 18.3, 22.3, 21.0, 20.3.
- Balance of payments (selected, percent of GDP):
  - Current account balance including grants: -11.4, -2.8, -1.6, -5.4, -12.3.
  - Current account balance excluding grants: -16.2, -44.0, -55.7, -51.2, -53.3.
  - Trade balance: -4.6, -28.7, -30.1, -24.7, -26.5.
- Central Bank net foreign exchange position (millions of U.S. dollars and months of imports): -1.3; 3.3; 6.5; 19.9; 34.9 and months: -0.1, 0.1, 0.2, 0.6, 0.9.
- Memorandum: "Apart from token payments to international financial institutions, Liberia is not servicing its external debt."
- Paris Club and bilateral creditor engagement progressing; non-Paris Club bilateral debt (China, Kuwait, Saudi Arabia, and Taiwan Province of China) at end-2005 accounted for about 3 percent of total debt outstanding.

### Data, Technical Assistance, and Capacity Building
- Data availability snapshot (as of July 31, 2006): latest observations and reporting frequencies for exchange rates, reserves, broad money, central bank balance sheet, CPI, government finance (most June 2006; some Dec. 2005, Jun. 2005 entries).
- Technical assistance (selected):
  - MFD, FAD, STA missions and long-term advisors documented across monetary operations, bank restructuring, public financial management, tax administration, statistics.
  - Fund TA contributed to monetary policy framework, reinstated regular foreign exchange auctions, strengthened Money Management Committee, assistance on bank restructuring, and public financial management.
  - Under GEMAP, assistance from World Bank, UNMIL, EU, DFID, ECOWAS, and the United States on governance, contract review, anticorruption, procurement, debt resolution strategy, and forestry reform.
- Resident representative posted in Monrovia since April 3, 2006.

### Monitoring, Benchmarks, and Next Steps
- SMP benchmarks and adjustments:
  - All quantitative benchmarks through end-June achieved; most structural benchmarks achieved though some delayed.
  - Remaining actions: complete outstanding structural benchmarks by end-September 2006; strengthen LTU; complete concessions/contracts review; prioritize monthly cash plans for line ministries.
  - Quantitative benchmarks recast as cumulative targets rather than quarterly flow targets.
  - End-September floor on revenue collections raised to be consistent with the 2006/07 budget.
  - Floor on the cash-based fiscal balance revised to allow clearance of checks issued before end-2005/06 and to spend uncommitted CBL balance at end-June 2006.
  - Preliminary quarterly benchmarks agreed for remainder of 2006/07 as precursor to a possible Rights Accumulation Program (RAP).
- Fund support: continued TA in tax administration, public financial management, financial sector, and statistics.

### Medium-term Scenarios and Projections (Table 5: 2006–11)
- Baseline scenario (percent of GDP unless indicated):
  - Real GDP growth (percent): 7.7; 7.7; 8.1; 8.2; 9.4; 10.5 (2006–2011).
  - Consumer price index (percent, annual average): 8.0; 7.5; 7.0; 6.5; 6.0; 5.0.
  - Fiscal balance (including grants): 0.3; 0.0; 0.0; 0.0; 0.0; 0.0.
  - Fiscal revenues (including grants): 17.0; 20.9; 22.3; 22.6; 22.7; 22.9.
    - Grants (2/): 1.3; 3.6; 5.0; 5.2; 5.3; 5.5.
  - Current account balance (excl. grants): -51.2; -53.3; -53.1; -49.6; -45.1; -35.3.
  - Grants (donor transfers, net): 45.8; 40.9; 37.4; 34.1; 30.1; 28.2.
  - Net official reserves (millions of U.S. dollars): 19.9; 34.9; 49.9; 64.8; 79.8; 95.7.
  - Real GDP per capita (U.S. dollars, 1992 prices): 129; 135; 143; 151; 161; 174.
- Lower-case scenario:
  - Real GDP growth (percent): 7.7; 3.8; 3.8; 4.4; 5.8; 5.6.
  - Consumer price index (percent): 8.0; 6.5; 6.0; 5.5; 5.0; 5.0.
  - Fiscal revenues (including grants): 17.0; 17.9; 19.0; 19.0; 19.1; 19.1.
    - Grants (4/): 1.3; 2.4; 3.4; 3.5; 3.5; 3.6.
  - Current account balance (excl. grants): -51.2; -52.5; -54.8; -52.9; -48.0; -40.8.
  - Net official reserves (millions of U.S. dollars): 19.9; 32.9; 45.9; 58.8; 71.8; 84.7.
  - Real GDP per capita (U.S. dollars): 129; 130; 132; 135; 139; 144.
- Notes: Baseline assumes effective GEMAP implementation and prudent policies; lower-case assumes slower reforms and lower donor support.

### Staff Appraisal, Authorities' Assessment, and Key Policy Implications
- Staff appraisal:
  - Despite severe capacity constraints, government made considerable progress and program is broadly on track.
  - Public expenditure management improved via interim commitment control system; international financial experts deployed under GEMAP.
  - Near-term priorities: finalize anticorruption strategy, complete domestic debt verification and resolution strategy, adhere to prioritized monthly cash plans, approve legislation to merge BoB and Bureau of Maritime Affairs into Ministry of Finance, achieve end-September benchmarks.
- Authorities' assessment and requests:
  - Authorities stressed strong commitment to macroeconomic stability and reconstruction; performed well under SMP meeting benchmarks.
  - Requested de-escalation of remedial measures; sought donor support for arrears clearance and HIPC/MDRI debt relief; requested consideration for a RAP following SMP.
  - Emphasized urgent need for grants from international community to deepen reforms and support reconstruction.
- Key policy implications and next steps:
  - Achieving SMP objectives and credible policy performance essential to mobilize international support to resolve external debt overhang.
  - Continue strengthening revenue administration (LTU reorganization, overdue tax collection strategy), strict adherence to commitment control and prioritized monthly cash plans.
  - Effective implementation of GEMAP and prudent macroeconomic policies under baseline associated with substantially higher donor inflows and rising net official reserves (from 19.9 to 95.7 millions of U.S. dollars over 2006–11) and strong real GDP per capita gains (from 129 to 174, 1992 U.S. dollars).

*Prepared by the African Department (in consultation with other departments); Approved by David Andrews and Matthew Fisher; September 14, 2006. Source: IMF staff report excerpt (sections 11–29, Box 1 and Box 2) and Appendix I/II materials as contained in the supplied text.*

### 2006. The views expressed in the staff report are those of the staff team and do not

### INTERNATIONAL MONETARY FUND — LIBERIA: First Review of Performance Under the Staff-Monitored Program

### Executive Summary
- Real GDP growth: expected to recover to about 8 percent in 2006, from 5.3 percent in 2005; staff projection elsewhere: 7.7 percent for 2006.
- Inflation: expected to remain in single digits; year-on-year inflation at 6.6 percent in June 2006, compared with 7 percent in December 2005.
- External sector: significant increase in world rubber prices expected to boost rubber export receipts, more than offsetting the projected increase in the oil import bill; trade deficit projected to remain largely unchanged.
- Program performance: all SMP quantitative benchmarks for March and June were met; most structural benchmarks met, some with delays.
- Fiscal management: revenue increased by 18 percent in February-June 2006 compared with February-June 2005 (text also cites actual revenues 19 percent higher than projected in the recast budget for February-June).
- Central Bank of Liberia (CBL) financial position: budgeted deficit US$2.5 million; outturn deficit US$0.4 million at end-June 2006.
- 2006/07 budget: approved by the legislature on August 22; revenue projected to rise 43 percent over estimated outturn for 2005/06.
- Risks: difficult relations with the legislature, serious capacity constraints, and the need for strong donor support.

### Recent Developments and Performance Under the Program
- Mission and coverage:
  - First review discussions: Monrovia, July 20-28, 2006.
  - Staff team: Mr. Powell (head), Mr. Erasmus, Mr. Leichter (AFR), Mr. Arnason (PDR), Mr. Nyberg (FIN), Mr. Tharkur (Resident Representative); Mr. Mamba and World Bank staff participated in some discussions.
  - Meetings: ministers of Finance, Planning and Economic Affairs, Lands, Mines and Energy, Agriculture; Governor of CBL; senior officials; private sector; donors; briefing to President Johnson-Sirleaf.
- Security: security situation relatively stable; UNMIL forces responding to isolated incidents.
- Monetary and price developments:
  - Liberian dollar exchange: traded in a narrow range between 56 and 59 Liberian dollars per U.S. dollar during January-June 2006.
  - Real effective exchange rate: depreciated by 8.6 percent (end-May) from end-2005.
  - Broad money (excludes U.S. dollars outside banks): expanded at rates in the range of 25-40 percent (year-on-year) during January-June 2006.
- Fiscal execution (Recast Budget, February–June 2006; Millions of U.S. dollars):
  - Total Revenue and grants: Recast 38.9; Cash basis 46.1; Estimated outturn 46.1.
  - Grants: ...1.0; 1.0 (cash and outturn).
  - Total expenditure and net lending: Recast 44.1; Cash basis 31.7; Estimated outturn 49.1.
  - Overall surplus/deficit: Recast -5.2; Cash basis 14.4; Estimated outturn -3.0.
  - GOL account at CBL (beginning of period) (cash basis): 5.3.
  - GOL account at CBL (end of period) (cash basis): Recast 0.0; Cash basis 19.5; Estimated outturn 2.3.
  - Note: Cash basis balance is actual balance on June 30 converted using the market exchange rate.
- Governance and institutional reforms:
  - GEMAP deployment of international experts to main revenue agencies, CBL, BoB, and Ministry of Lands, Mines and Energy.
  - Framework for reviewing concessions and contracts from NTGL finalized.
  - Draft anticorruption policy prepared.
  - Civil service reforms: reduction of ghost workers and political appointees; draft civil service code of conduct; ministers required to publicly declare assets.
- Sanctions: UN sanctions on timber exports provisionally lifted on June 20, 2006; diamond sanctions extended for six months; permanent removal of timber sanctions contingent on forestry legislation; timber exports and tax receipts projected to pick up in 2007.
- SMP implementation: all quantitative benchmarks through end-June achieved; most structural benchmarks achieved though some delayed.

### Policy Discussion and Outlook for the Remainder of 2006
- Overall: continued strong effort required to implement outstanding structural benchmarks by end-September 2006; serious capacity constraints; timely donor support critical.
- Macroeconomic assumptions: largely unchanged from original program projections; baseline and lower-case scenarios updated for lifting of timber sanctions and potential lifting of diamond sanctions by end-2006.
- Fiscal Policy
  - 2006/07 budget process:
    - Authorities submitted a cash-based balanced budget on June 29; approved by legislature on August 22; signed into law August 28.
    - Approved budget changes: transfers from two state owned enterprises amounting to US$750,000, raising projected revenues to US$120.9 million; shifted US$2 million from contingent expenditure to main budget and offset by shifting US$2 million originally for domestic arrears clearance to contingent expenditure; contingent expenditures US$9 million.
  - Revenue projections and composition (Millions of U.S. dollars):
    - 2005/06 total revenue: 84.6.
    - 2006/07 total revenue projection: 120.9 (change 43.0 percent).
    - 2005/06 tax revenue: 79.4; 2006/07 tax revenue projection: 106.2 (change 33.9 percent).
    - 2005/06 nontax revenue: 5.2; 2006/07 nontax revenue projection: 14.7 (change 181.0 percent).
  - Key revenue measures and expected contributions:
    - Reduction of duty and tax exemptions on rice and petroleum expected to increase revenue from US$0.6 million in 2005/06 to US$10.3 million in 2006/07 (rice), and from US$4.1 million to US$13.8 million (petroleum).
    - Collection of overdue taxes expected to contribute US$4.8 million to revenue in 2006/07.
    - These higher revenues represent about 80 percent of the projected increase in public revenue.
    - Other measures: (i) application of the goods and services tax (GST) on imports to the duty paid value; (ii) application of the GST on domestic supplies on the sales price, inclusive of excise taxes; (iii) uniform excise tax of 15 percent on imported and domestic alcoholic beverages, and increasing excise tax on cigarettes to 15 percent; (iv) updating unit values for land and building taxes.
  - Implementation priorities:
    - Achieving revenue target will require strengthening tax and customs administration, reducing tax exemptions through timely completion of contracts and concessions review, and strengthening the Large Taxpayers Unit (LTU).
    - Authorities expect overdue tax collection strategy to boost revenues in second half of fiscal year; LTU strengthening to consider FAD advice.
    - Strict adherence to prioritized monthly cash plans by line ministries emphasized to ensure expenditures do not exceed available revenues; contingent expenditures to be identified in cash plans to allow adjustments if revenues fall short.
- Monetary Policy and Financial Sector Issues
  - CBL outturn: deficit of US$0.4 million at end-June, compared with budgeted deficit of US$2.5 million, due to expenditure control and delayed payment for printing new currency.
  - Exchange rate stability: Liberian dollar traded between 56 and 59 per U.S. dollar in Jan–Jun 2006.
  - Broad money growth: 25–40 percent (year-on-year) during Jan–Jun 2006 (excludes U.S. dollars outside banks).
- Economic Governance
  - Implementation of GEMAP; strengthening of revenue agencies and oversight.
  - Ongoing concessions and contracts review; anticorruption policy drafting.
  - Civil service cleaning and declarations of assets for ministers.
- Debt, Arrears, and External Relations
  - Separate paper accompanies this report reviewing Liberia’s overdue obligations to the Fund.
- De-escalation and Program Risks
  - Authorities requested de-escalation of remedial measures based on SMP performance to date (see updated Letter of Intent, Appendix I).
  - Risks highlighted: difficult relations with legislature (delayed passage of 2006/07 budget), serious capacity constraints greater than anticipated, and dependence on donor support.

### Monitoring, Benchmarks, and Next Steps
- SMP quantitative and structural benchmarks:
  - All quantitative benchmarks through end-June achieved (see Table 1A, Appendix I).
  - Most structural benchmarks achieved; some with temporary delays (see Table 2, Appendix I).
- Remaining actions:
  - Complete outstanding structural benchmarks by end-September 2006.
  - Prioritize monthly cash plans for all line ministries to guide 2006/07 budget implementation.
  - Strengthen LTU and complete concessions/contracts review to realize projected revenue gains.
  - Continue governance and capacity-building reforms under GEMAP.

*Prepared by the African Department (in consultation with other departments); Approved by David Andrews and Matthew Fisher; September 14, 2006.*

### 11.      The commitment control system has been considerably strengthened. The staff

### 11.      The commitment control system has been considerably strengthened. The staff

### Commitment control, procurement, and expenditure execution
- The commitment control system has been considerably strengthened; staff welcomed rigorous implementation but noted:
  - It led to uneven monthly expenditures during February-June.
  - A large quantity of purchase orders had been approved toward the end of the fiscal year.
- Authorities:
  - Stressed that all regulations were observed.
  - Agreed that implementation of the new procurement guidelines requires continued assistance to line ministries to ensure voucher requests are supported by appropriate documentation and are approved in a timely manner.
- In the absence of an approved 2006/07 budget, the CMCo could not approve any expenditure during July and most of August.
- Authorities informed staff that line ministries were able to continue functioning during the initial part of the fiscal year on the basis of the surge in expenditure approvals in late-May and June.
- Staff urged government to continue guidance to line ministries to ensure no new commitments are made without first securing an approved purchase order.
- Available information suggests wage arrears relating to wages for July may have been incurred; civil service wages are due within the first week following the end of a calendar month; this would constitute a breach of a continuous quantitative benchmark.

### Domestic debt verification and resolution (Box 1 highlights)
- Domestic debt and arrears on March 31, 2006 are estimated at US$754 million, or 142 percent of 2005 GDP, of which US$483 million has been internally verified.
- Composition of verified and unverified claims (March 31, 2006):
  - CBL debt – US$260.9 million of verified claims (CBL is the largest creditor).
  - Commercial bank debt – US$20.5 million.
  - Salary arrears:
    - During February-June 2006, US$3.8 million was paid to settle all existing wage arrears from the period of the NTGL.
    - Thirteen months of salary arrears from the pre-NTGL period remain outstanding, totaling US$16.4 million.
  - State-owned enterprises (SOEs), vendors and bonds – total claims estimated at US$411 million, of which over 80 percent are vendor claims and most of the rest are SOE claims.
- Institutional arrangements and process:
  - Interministerial vetting committee (MoF, CBL, other agencies) began meeting in June to vet domestic debt and recommend resolution strategies and a roadmap for a national debt management strategy.
  - Government decided to hire an external auditor for claims above:
    - US$10,000 for services,
    - US$25,000 for goods,
    - US$50,000 for public works.
  - The tender closed in late July. These claims constitute 95 percent of pre-NTGL domestic debt and arrears under consideration; the committee will consider the rest.
  - A domestic debt resolution strategy is expected by end-September.
- Previous TA recommendations:
  - Salary arrears be paid in full.
  - Vendor claims and bonds be settled at a discount rate that increases with the size of the claim; small claims settled in full.
- Progress has been slower than envisaged; staff emphasized importance of completing verification of domestic claims and finalizing a debt resolution strategy by end-September.

### Monetary policy and financial sector issues
- Monetary policy objective: contain inflation by maintaining a stable exchange rate.
- Consistent with the SMP, regular foreign exchange auctions have been held since end-March.
- Staff noted the currency had depreciated toward the bottom of the range considered by the authorities broadly consistent with exchange rate stability.
- CBL agreed with staff suggestion that the Liberian dollar component of money supply should be expanded cautiously to maintain a broadly stable exchange rate.
- Monetary policy framework improvements since February:
  - Focus of the Money Management and Policy Review Committee clarified; it regularly considered a broad range of economic indicators for domestic liquidity assessment.
  - Staff encouraged authorities to begin using the revised liquidity monitoring framework developed with assistance from MFD.
- CBL financial position:
  - Staff welcomed improvement in the financial position of the CBL but noted vulnerability due to large unremunerated claims on the government.
  - Staff stressed CBL should further improve financial position during 2007 and target a balanced cash-based budget.
  - CBL staff concurred that CBL operations should not continue to be a drain on Liberia’s scarce foreign reserves; resolving government arrears to the bank is a priority.
- Banking sector restructuring:
  - Staff and authorities discussed finalizing restructuring strategies for the banking sector.
  - Important that the CBL and the two commercial banks with large unremunerated claims cooperate in assessing impacts of alternative resolution scenarios to inform the domestic debt resolution strategy.

### Economic governance and anticorruption
- Authorities have made considerable progress in strengthening economic governance.
- Staff welcomed progress but stressed the importance of completing the review of contracts and concessions as soon as possible.
  - Delays in commencing the review were partly due to delays in finalizing donor financing for international experts required under GEMAP.
- Staff welcomed the draft anticorruption policy paper and urged completion of a comprehensive national anticorruption strategy, including an implementation matrix, with international assistance.
- Authorities are considering the appropriate institutional framework (independent anticorruption institution vs. pursuing strategy within existing judicial system).

### Interim Poverty Reduction Strategy Paper (I-PRSP)
- Substantial progress made in preparing an I-PRSP.
- A draft I-PRSP is being finalized in consultation with stakeholders and development partners.
- Authorities aim to submit the finalized I-PRSP to Fund and World Bank staffs by end-September.
- Fund staff provided assistance including development of updated baseline and alternative medium-term macroeconomic scenarios.

### External debt, arrears, and debt relief prospects
- Authorities remain keen on arrears clearance and debt relief.
- Staff indicated it is too early for a precise timetable; strong performance under the SMP is a precondition for moving forward.
- Any consideration of a rights accumulation program (RAP) following the SMP will require adequate financial assurances to cover the Fund’s subsequent debt relief to Liberia.
- Staff urged continued work with bilateral and commercial creditors to reconcile loan-by-loan debt data to facilitate preparation of a preliminary HIPC document.
- Progress: Paris Club creditors have provided updated creditor statements and copies of most original commercial loan agreements have been obtained.
- Note: Non-Paris Club bilateral debt (China, Kuwait, Saudi Arabia, and Taiwan Province of China) at end-2005 accounted for about 3 percent of total debt outstanding.

### Program risks, monitoring, and technical assistance
- Main program risks:
  - Capacity constraints in ministries causing delays in spending execution and implementation of structural measures.
  - Tensions between government and legislature delaying key legislation (e.g., 2006/07 budget) and complicating expenditure management.
- Mitigating actions and monitoring:
  - Timely technical assistance (TA) from international community is a pre-condition for success; the Fund has provided extensive TA in fiscal and monetary policy, and statistics.
  - Performance under the SMP will be monitored using quantitative and structural benchmarks for end-September.
  - End-September floor on revenue collections raised to be consistent with the 2006/07 budget.
  - Floor on the cash-based fiscal balance revised to allow clearance of checks issued before end-2005/06 and to spend uncommitted CBL balance at end-June 2006.
  - For the CBL, quantitative benchmarks revised to reflect actual outturn to end-June 2006.
  - Quantitative benchmarks recast as cumulative targets rather than quarterly flow targets to allow carry-over of unspent balances and avoid automatic adjustment of CBL reserve accumulation targets.
  - Preliminary quarterly benchmarks agreed for remainder of 2006/07 as precursor to a possible RAP.
- Box 2: Fund’s support for capacity building (summary of TA and deployments):
  - Deployment of international expert as Chief Administrator (CA) to the CBL since February 2006; CA term extended to August 2007.
  - Fund TA contributed to monetary policy framework, reinstated regular foreign exchange auctions, strengthened Money Management Committee terms of reference.
  - Assistance on Bank Restructuring and Resolution Policy and improving supervision of troubled banks.
  - Continuous assistance from Fund regional advisor central to strengthening interim commitment control system; purchase orders now required to be validated by the BGA.
  - Fund missions on public financial management, tax policy, revenue administration, government finance statistics, and consumer price index.
  - Additional TA planned: two MFD missions, two FAD missions, deployment of a regional public financial management expert, and two STA missions.
  - Under GEMAP, authorities received assistance from World Bank, UNMIL, EU, DFID, ECOWAS, and the United States on governance, contract review, anticorruption, procurement, debt resolution strategy, and forestry reform.

### Staff appraisal and near-term priorities
- Staff view:
  - Despite severe capacity constraints, government has made considerable progress and the program is broadly on track.
  - Most quantitative and structural benchmarks for end-March and end-June were met.
  - Public expenditure management improved via interim commitment control system and strengthened cooperation among line ministries, MoF, and BoB.
  - International financial experts deployed under GEMAP to main revenue-generating agencies.
  - Encouraging measures to strengthen CBL management and tax collection.
- Near-term priorities and concerns:
  - Quickly establish an anticorruption strategy in cooperation with international partners.
  - Finalize verification of the stock of domestic debt without further delay to develop a domestic debt resolution strategy.
  - 2006/07 budget is based on an ambitious revenue target; adherence to prioritized monthly cash plans is critical given uncertainty in revenue growth.
  - Approval of legislation to merge the BoB and the Bureau of Maritime Affairs into the Ministry of Finance is important to strengthen public financial management and improve budget implementation.
  - Achieving end-September benchmarks will be challenging; review of concessions and contracts likely to take longer than originally planned though major contracts should be considered by end-September.
- Fund commitment: continue to provide timely technical assistance in tax administration, public financial management, financial sector, and statistics.

*Source: IMF staff report excerpt (sections 11–29, Box 1 and Box 2).*

### 30.       Liberia’s external debt is clearly unsustainable. However, the staff believes that

### Liberia’s external debt is clearly unsustainable. However, the staff believes that achieving the objectives of the SMP will provide a basis for generating the support from the international community required to resolve Liberia’s large external debt overhang.

### Macroeconomic program progress and policy commitments
- The staff-monitored program (SMP) was agreed with IMF staff in February and approved in April.
- Key SMP objectives: rebuild public institutions, restore credible financial management, and accelerate structural reforms.
- SMP quantitative benchmarks through end-June were met; most structural benchmarks were met with some temporary delays.
- The government submitted a balanced budget proposal for the 2006/07 fiscal year to the legislature on June 29; the legislature approved the budget on August 22.
- Commitment control and cash management actions:
  - Strengthened role of the Cash Management Committee to ensure the Bureau of the Budget does not make allotments that exceed revenues and line ministries do not make commitments that exceed their allotments.
  - Public announcement: to be valid, all government purchase orders must be stamped with a special seal from the Bureau of General Accounting (continuous benchmark from end-June).
  - Prioritized monthly cash plans will be strictly adhered to in the 2006/07 fiscal year.

### Revenue administration and tax measures
- Revenue performance improved: overall revenues for February–June 2006 rose 18 percent over the corresponding period the year before and exceeded the program floor.
- Measures taken:
  - More comprehensive implementation of pre-shipment inspections of all imports and exports.
  - Strengthening of the Large Tax Payer Unit (LTU) (benchmark for end-March).
  - Elimination of noncash methods for the settlement of tax obligations.
- LTU coverage:
  - Number of taxpayers covered by the LTU fell short of the end-June benchmark; audits underway and target expected to be met by end-September 2006.
  - A reorganization and further strengthening of the LTU is being considered following an audit by the Auditor General; wider revenue administration review to be based on technical assistance from the Fiscal Affairs Department.
- Overdue tax obligations:
  - Strategy developed (benchmark for end-June): identification of businesses with overdue obligations, notification for payment sent; persistent nonpayment will trigger warning notices and possible closure under the Liberian Revenue Code.

### Fiscal outcomes (selected figures from tables and narrative)
- Central government (cash basis) overall fiscal balance (selected annual/period figures):
  - Overall fiscal balance (cash basis): 0.7, -0.1, -0.1, 0.3, 0.0 (years listed in table header context).
- Central government operations (millions of U.S. dollars, summary):
  - Total revenue and grants (2006/07 budget projection): 135.9
  - Total revenue (2006/07 projection): 120.9
  - Tax revenue (2006/07 projection): 106.2
  - Grants (2006/07 projection): 15.0
  - Total expenditure and net lending (2006/07 projection): 153.3
  - Current expenditure (2006/07 projection): 122.5
  - Wages and salaries (2006/07 projection): 45.6
  - Capital expenditure (2006/07 projection): 30.8 (of which externally financed: 15.0)
  - Overall surplus or deficit (cash basis) for the fiscal period row: -12.6, 7.5, 3.4, 17.4, -17.4 (as presented in table)
- Fiscal ratios (percent of GDP, selected):
  - Total revenue and grants: -34.3, 44.8, 17.2, 38.9, 35.1 (table context)
  - Total expenditure and net lending: -43.8, 55.3, 17.2, 34.9, 37.8 (table context)

### External sector, debt, and reserves (selected figures)
- Staff judgment: Liberia’s external debt is clearly unsustainable.
- Public sector external debt (medium and long term):
  - Debt outstanding, including arrears: 3,364; 3,735; 3,660; 3,763; 3,876 (table context, presumably 2003–2007)
  - Debt outstanding (percent of exports of goods and services): 2,420; 2,742; 2,538; 1,966; 1,901
  - Debt outstanding (percent of GDP): 820; 812; 690; 569; 534
- Debt service charges (percent of exports / percent of GDP as presented): 74.9, 83.9, 118.4, 139.0, 147.4; (in percent of GDP) 18.3, 18.3, 22.3, 21.0, 20.3
- Balance of payments (selected):
  - Current account balance including grants (deficit, -): -11.4, -2.8, -1.6, -5.4, -12.3 (percent of GDP)
  - Current account balance excluding grants (deficit, -): -16.2, -44.0, -55.7, -51.2, -53.3 (percent of GDP)
  - Trade balance (deficit, -): -4.6, -28.7, -30.1, -24.7, -26.5 (percent of GDP)
- Central Bank of Liberia (CBL) net foreign exchange position:
  - Levels and months-of-imports equivalents: -1.3; 3.3; 6.5; 19.9; 34.9 (millions of U.S. dollars) and months of imports: -0.1, 0.1, 0.2, 0.6, 0.9 (table context)
- Memorandum: "Apart from token payments to international financial institutions, Liberia is not servicing its external debt."

### Monetary and financial sector (selected)
- Broad money (M2) (stocks, billions of Liberian dollars): 3.1; 4.7; 6.4; 7.9; 9.2
  - Liberian dollar component: 1.6; 2.2; 2.8; 3.4; 4.2
  - U.S. dollar component: 1.5; 2.5; 3.6; 4.5; 4.9
- Broad money (annual change): 8.3, 49.3, 35.7, 24.8, 15.7
- Reserve money (in billions of Liberian dollars): 1,561; 2,050; 2,609; 3,378; 4,232
- Claims on private sector (millions of Liberian dollars): 1,136; 1,651; 2,064; 3,062; 3,360
- Money multiplier and velocity:
  - Money Multiplier: 2.0; 2.3; 2.4; 2.4; 2.2
  - Velocity (GDP relative to broad money): 6.6; 5.3; 4.7; 4.8; 4.5

### Medium-term scenarios and projections (Table 5: 2006–11)
Baseline scenario (1/; percent of GDP unless otherwise indicated)
- Real GDP growth (percent): 7.7; 7.7; 8.1; 8.2; 9.4; 10.5 (2006–2011 columns)
- Consumer price index (percent, annual average): 8.0; 7.5; 7.0; 6.5; 6.0; 5.0
- Fiscal balance (including grants): 0.3; 0.0; 0.0; 0.0; 0.0; 0.0
- Fiscal revenues (including grants): 17.0; 20.9; 22.3; 22.6; 22.7; 22.9
  - Of which: grants (2/): 1.3; 3.6; 5.0; 5.2; 5.3; 5.5
- Current account balance (excl. grants): -51.2; -53.3; -53.1; -49.6; -45.1; -35.3
- Grants (donor transfers, net): 45.8; 40.9; 37.4; 34.1; 30.1; 28.2
- Net official reserves (millions of U.S. dollars): 19.9; 34.9; 49.9; 64.8; 79.8; 95.7
- Real GDP per capita (U.S. dollars, 1992 prices): 129; 135; 143; 151; 161; 174

Lower-case scenario (3/)
- Real GDP growth (percent): 7.7; 3.8; 3.8; 4.4; 5.8; 5.6
- Consumer price index (percent, annual average): 8.0; 6.5; 6.0; 5.5; 5.0; 5.0
- Fiscal balance (including grants): 0.3; 0.0; 0.0; 0.0; 0.0; 0.0
- Fiscal revenues (including grants): 17.0; 17.9; 19.0; 19.0; 19.1; 19.1
  - Of which: grants (4/): 1.3; 2.4; 3.4; 3.5; 3.5; 3.6
- Current account balance (excl. grants): -51.2; -52.5; -54.8; -52.9; -48.0; -40.8
- Grant (donor transfers, net): 45.8; 30.0; 27.7; 25.4; 22.0; 21.1
- Net official reserves (millions of U.S. dollars): 19.9; 32.9; 45.9; 58.8; 71.8; 84.7
- Real GDP per capita (U.S. dollars): 129; 130; 132; 135; 139; 144

Notes attached to scenarios:
- Baseline scenario (1/) assumes prudent macroeconomic and reform policies, with effective implementation of the GEMAP.
- Grants (2/) in baseline: assumed steady rise at about half the rate of nominal GDP growth based on reconstruction needs and assumed strong policy performance.
- Lower-case scenario (3/) is based on a slower pace of reform with lower donor support.
- Grants (4/) in lower-case: assumed to equal about two-thirds of those in the baseline scenario.

### Key policy implications and next steps
- Achieving SMP objectives and credible policy performance is seen as essential to mobilize international community support to resolve Liberia’s large external debt overhang.
- Continued strengthening of revenue administration (LTU reorganization, overdue tax collection strategy) and strict adherence to the commitment control system and prioritized monthly cash plans are central to maintaining fiscal discipline.
- Effective implementation of GEMAP and prudent macroeconomic policies under the baseline scenario are associated with substantially higher donor inflows, rising net official reserves (from 19.9 to 95.7 millions of U.S. dollars over 2006–11), and strong real GDP per capita gains (from 129 to 174, 1992 U.S. dollars).

*Source: IMF staff report and Appendix I: Letter of Intent (September 12, 2006).*

### 7.      Going beyond understandings in the SMP, we have submitted legislation that would

### _cr06412 - 7.      Going beyond understandings in the SMP, we have submitted legislation that would

### Fiscal management and budgetary reforms
- Submitted legislation to prevent the executive from making changes to budget allocations exceeding 30 percent of a ministry’s or agency’s approved budget without the approval of the legislature.
- Submitted draft legislation to allow full integration of the Bureau of Budget and the Bureau of Maritime Affairs into the Ministry of Finance; legislation was not submitted until after passage of the 2006/07 budget to facilitate timely approval.
- President instructed heads of the Bureau of Budget and Bureau of Maritime Affairs to report directly to the Minister of Finance (February), meeting the substance of the draft legislation and improving budget execution and budget formulation.
- 2006/07 budget targets a cash balance and targets an increase in revenues of 43 percent over the 2005/06 fiscal year.
- Social-sector and rural spending increases in the 2006/07 budget:
  - Social services subsector (includes education and health care) increased by 56 percent, to a quarter of all government expenditure.
  - Community services slated to increase by 183 percent.
  - Rural development, including agriculture and forestry, slated to increase by 278 percent.
- Plans to broaden the revenue base by eliminating some tax and tariff exemptions and to implement significant strengthening of revenue administration.

### Domestic debt verification and resolution
- Verification of the stock of the government’s domestic debt (a benchmark for end-June) proved more challenging than envisaged.
- Appointed an interministerial vetting committee to verify smaller claims and selected, through international tender, an external auditor to verify larger claims.
- Verification of outstanding claims is a crucial first step toward finalizing the domestic debt resolution strategy by end-September.
- The interministerial committee will also provide input for designing the domestic debt resolution strategy and developing a debt management policy for government.

### Monetary policy and CBL operations
- Monetary policy has been effective in maintaining inflation in single digits.
- Given high dollarization, expansion of the Liberian component of money supply will continue to be limited to maintain a broadly stable exchange rate while meeting reserve accumulation targets under the SMP.
- CBL actions:
  - Held regular foreign exchange auctions since end-March (a continuous benchmark from end-March), contributing to relative exchange rate stability.
  - Clarified the role of the Money Management and Policy Review Committee (a continuous benchmark from end-March).
  - Posted the final monetary policy framework paper on the CBL website (a benchmark for end-March) in March.
  - Financial management at the CBL has been strengthened; CBL will target a balanced cash-based budget in line with SMP commitments.
  - A financial restructuring plan for the CBL will be completed by end-September 2006; an external audit of the CBL (a benchmark for end-September) will be undertaken in early October.
  - Requested a voluntary safeguards assessment in anticipation of a Fund-supported program.

### Governance, anti-corruption, and GEMAP implementation
- Steps consistent with GEMAP and SMP:
  - Internationally recruited experts with co-signatory authority placed at main revenue-generating agencies.
  - A Fund-recruited expert serving as Chief Administrator at the CBL since February.
- Concessions/contracts review:
  - Program for reviewing all concessions, contracts, and licenses granted under the previous transitional government (a benchmark for end-April) approved by the GEMAP steering committee in May; review underway and likely completed only by end-2006 due to delays in appointing internationally recruited experts.
  - Expect review of most important contracts (e.g., MITTAL Steel and Firestone) to be completed by end-September 2006.
- Anti-corruption measures and progress:
  - New travel ordinance issued on April 1 (a benchmark for end-March), incorporating main recommendations of the ECOWAS-financed audit report.
  - Substantial progress developing a national anti-corruption strategy (a benchmark for end-May); draft anti-corruption policy paper completed and under donor consultation.
  - Strategy expected to be finalized by end-September 2006 after approvals.
  - Legislative ratification obtained for anticorruption conventions of the United Nations and African Union.
  - Implemented measures: incoming ministers required to declare assets, drafting a code of conduct for the civil service, publishing ECOWAS audit of the previous government, preparing for judicial action against officials named in that audit.

### Poverty reduction and I-PRSP
- Draft Interim Poverty Reduction Strategy Paper (I-PRSP) completed and being finalized in consultation with stakeholders and development partners.
- Expectation to send the final I-PRSP document to the IMF and World Bank by end-September 2006.

### Program cooperation, sanctions, and capacity building
- Request that the IMF consider initiating the process of de-escalation of remedial measures applied against Liberia, as evidence of credible strengthening of cooperation under the SMP.
- U.N. Security Council provisionally lifted sanctions on timber exports in recognition of strengthened forestry management; progress made toward Kimberley Process compliance for diamonds.
- Working with development partners to address capacity constraints, including concept of a Senior Executive Service and civil service reforms.

### Key quantitative indicators and benchmarks (as stated)
- Table excerpt highlights (flow and cumulative bases; values preserved exactly as presented):
  - Floors, ceilings, and other indicators (selected figures as presented in the source):
    - Floor on revenue collections (selected entries): 8.1; 14.1; 18.1; 24.7; 27.0; 20.3.
    - Floor on cash-based fiscal balance (selected entries): 5.2; 0.0; 9.7; 0.0; 4.7; 0.0.
    - Floor on token payments to the Fund (in US$) (selected entries): 60,000; 120,000; 120,000; 180,000; 180,000; 180,000.
    - For Jun. 06 / Dec. 06 / Mar. 07 / Jun. 07 (Millions of U.S. dollars) (Table 1B selected rows):
      - Floor on revenue collections: 84.6; 20.3; 24.7; 50.9; 84.5; 120.9.
      - Floor on cash-based fiscal balance (1/): 19.5; 0.0; -19.5; -19.5; -19.5; -19.5.
      - Ceiling on expenses (CBL, selected): 2.6; 3.6; 5.0; 6.0; ...
      - Floor on the CBL’s net foreign exchange position (selected): 13.6; 16.7; 16.1; 19.9; ...
      - Floor on token payments to the Fund (in US$) (continuous basis, selected): 680,000; 180,000; 180,000; 360,000; 540,000; 720,000.
    - Note text clarifications preserved:
      - 1/ The fiscal balance, on a cash basis, is defined as the difference between (a) total central government revenue plus budget support (excluding project grants), and (b) total current expenditure plus investment expenditure (excluding foreign-financed investment expenditure).
      - 2/ The floor on revenue collections is total revenue for 2005/06 and the floor on cash-based fiscal balance is accumulated government surpluses at the CBL as of end-June. After taking into account commitments made, but not cashed, the balance of the government account at the CBL at end-June 2006 was $2.1 million.
      - 3/ The original program data for September 2006 reflects actual outturn at end-June, plus the original flow targets for September.

### Structural benchmarks (SMP February–September 2006) — status highlights
- Fiscal management (selected measures and status):
  - Strengthen the Large Taxpayer Unit (LTU): End-March 2006 — Done.
  - Increase the number of large taxpayers from 60 to 110 by auditing hidden taxpayers and/or lowering threshold value: End-June 2006 — Ongoing; expected to be completed by end-September.
  - Develop a timetable to ensure approval of the 2006/07 budget: End-March 2006 — Done.
  - Submit budget for legislative approval prior to commencement of fiscal year: End-June 2006 — Done.
  - Develop a strategy to deal with overdue tax obligations: End-June 2006 — Done.
  - Implement an interim commitment control system: Continuous from end-June 2006 — Ongoing; expected to become effective after approval of the 2006/07 budget.
  - Integrate the Bureau of the Budget and the Bureau of Maritime Affairs into the Ministry of Finance: End-June 2006 — Ongoing; legislation expected to be submitted after approval of the 2006/07 budget.
  - Establish the stock of domestic debt of the GOL, and complete the verification process: End-June 2006 — Ongoing; expected to be completed by end-September.
  - Finalize the domestic debt resolution strategy, consistent with a restructuring plan for the CBL: End-September 2006.
- CBL operations (selected measures and status):
  - Revise terms of reference for the money management committee and ensure operation: Continuous from end-March 2006 — Done.
  - Publicize final Monetary Policy Framework paper on the CBL website: End-March 2006 — Done.
  - Formulate a financial restructuring plan for CBL with IMF TA: End-September 2006.
  - Hold regular weekly or biweekly foreign exchange auctions: Continuous from end-March 2006 — Done.
  - Conduct an external audit of the CBL by auditors of international reputation: End-September 2006.
- Governance and other issues (selected measures and status):
  - Finalize program to prioritize and review all concessions, contracts, and licenses granted under NTGL, and identify associated revenue flows: End-April 2006 — Done, approved by EGSC in early May 2006.
  - Complete review of concessions, contracts, and licenses granted under NTGL: End-September 2006.
  - Implement recommendations of audit of travel expenses, including revision of policy on travel allowances: Continuous from end-March 2006 — Done, issued on April 1, 2006.
  - Develop a national anti-corruption strategy, including a policy matrix for implementation: End-May 2006 — Ongoing; expected to be completed by end-September.
  - Post on MoF’s website complete financial statements of revenue-generating agencies, endorsed by financial controllers: End-September 2006.
  - Submit a status report, endorsed by the Economic Governance Steering Committee, on implementation of GEMAP: End-September 2006.

*Source: _cr06412 - 7.      Going beyond understandings in the SMP, we have submitted legislation that would*

### Appendix II. Liberia—Relations with the Fund

### Appendix II. Liberia—Relations with the Fund

### I. Membership
- Status: Joined 03/28/1962; Article XIV

### II. General Resources Account
- Quota: 71.3 (SDR Million) — 100.0 percent of quota
- Fund holdings of currency: 271.8 (SDR Million) — 381.2 percent of quota
- Reserve position in Fund: 0.0 (SDR Million) — 0.0 percent of quota

### III. SDR Department
- Net cumulative allocation: 21.0 (SDR Million) — 100.0 percent of allocation
- Holdings: 0.0 (SDR Million) — 0.0 percent of allocation

### IV. Outstanding Purchases and Loans
- Stand-By Arrangements: 165.8 (SDR Million) — 232.5 percent of quota
- Contingency and Compensatory: 34.7 (SDR Million) — 48.7 percent of quota
- Trust Fund: 22.9 (SDR Million) — 32.1 percent of quota

### V. Latest Financial Arrangements
- Stand-By approved 12/07/1984; expiration 12/06/1985; Amount Approved (SDR Million) 42.8; Amount Drawn (SDR Million) 8.5
- Stand-By approved 09/14/1983; expiration 09/13/1984; Amount Approved (SDR Million) 55.0; Amount Drawn (SDR Million) 55.0

### VI. Projected Obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs)
- Overdue principal as of 7/31/2006: 223.38 (SDR million)
- Charges/interest total: 298.42 (SDR million)
- Forthcoming charges/interest by year:
  - 2006: 6.09 (SDR million)
  - 2007: 12.28 (SDR million)
  - 2008: 12.29 (SDR million)
  - 2009: 12.27 (SDR million)
  - 2010: 12.28 (SDR million)
- Total obligations (Principal + Charges/interest): 521.80 (SDR million); forthcoming charges/interest listed above
- Note: "The projection of charges and interest assumes that overdue principal at the report date (if any) will remain outstanding, but that forthcoming obligations will be settled on time."

### VII. Exchange Rate Arrangement
- Currency: Liberian dollar; U.S. dollar is also legal tender
- Arrangement: managed float, with no predetermined path for the exchange rate
- Market practice: exchange rate of the Liberian dollar is market determined; all foreign exchange dealers, including banks, are permitted to buy and sell currencies, including the U.S. dollar
- Exchange rate at end-July 2006: L$59.5=US$1

### VIII. Article IV Consultation
- 2006 Article IV consultation discussions: held in Monrovia during February 16-March 1, 2006
- Staff report: Country Report No. 06/166, 5/08/06
- Executive Board discussion date: April 26, 2006

### IX. Technical Assistance (missions, advisors, and dates)
- MAE:
  - Mission: currency arrangement reform — 1995
  - Mission: currency arrangement and financial system reform — 1998
  - Advisor: banking commission — short term 1998
  - Advisor: general operations — long term 1998–2000
  - Advisor: audit and accounting — long term 1998–2000
  - Advisor: research — long term 1998–2000
  - Advisor: banking supervision — long term 1999–2001
- MFD:
  - Mission: assessment of technical assistance needs — 2003
  - Mission: monetary operations, foreign exchange, auctions, banking supervision, payments system — May 2004
  - Mission: monetary operations, foreign exchange auctions, banking supervision, payments system — Aug. 2004
  - Mission: monetary operations, foreign exchange auctions, payments system — Feb. 2005
  - Mission: bank restructuring — May 2005
  - Mission: monetary operations, foreign exchange auctions, banking supervision, payments system — Aug. 2005
  - Mission: negotiation on chief administrator post — Dec. 2005
  - Chief Administrator for the CBL — MFD — Feb. 2006
  - Mission: bank restructuring, monetary operations, payment systems, and central bank accounting — June 2006
- FAD:
  - Mission: budget preparation and expenditure execution — 1997
  - Mission: strategy for fiscal reform — 1998
  - Advisor: budget preparation and classification — short and long term 1998–2000
  - Advisor: budget execution — short and long term 1998–2000
  - Mission: tax reform — 1999
  - Mission: preparation of tax code — 1999
  - Mission: tax administration — 1999
  - Advisor: tax administration — short term 2000
  - Mission: assessment of technical assistance needs — Dec. 2003
  - Mission: public expenditure management — May 2004; July 2004; Dec. 2004; Feb. 2005; May 2005; Dec. 2005; Feb. 2006
  - Mission: tax administration — Sept. 2004
  - Mission: forestry tax policy — Feb. 2005
  - Mission: public financial management — March 2006
  - Mission: tax policy — May 2006
  - Mission: revenue administration — Aug. 2006
- STA:
  - Mission: preassessment for multisector statistics — 1997
  - Mission: multisector statistics — 1998
  - Mission: money and banking statistics — 1999 (two missions listed)
  - Mission: money and banking statistics — 2000
  - Advisor: balance of payments compilation — short term 2000
  - Mission: balance of payments statistics — 2000; May 2004; July 2004
  - Mission: assessment for technical assistance needs — Dec. 2003
  - Mission: government finance statistics — July 2004; Jan. 2006; June 2006
  - Mission: national accounts — July 2004
  - Mission: monetary and financial statistics — Aug. 2004
  - Mission: consumer price statistics — May 2006

### X. Resident Representative
- A resident representative has been posted in Monrovia since April 3, 2006.

*Appendix II. Liberia—Relations with the Fund (As of July 31, 2006)*

### 11.      Significant gaps exist in the records of external public debt, particularly those related

### _cr06412 - 11.      Significant gaps exist in the records of external public debt, particularly those related

### External debt recording gaps and task force activity
- "Significant gaps exist in the records of external public debt, particularly those related to bilateral and commercial creditors."
- A task force comprising staff seconded from the CBL, MoF, MPEA, General Auditing Office (GAO) and the Bureau of the Budget (BOB) is making progress in obtaining loan agreements and financial statements from external creditors to update the external debt database maintained by the MoF.
- An external expert has been contracted to assist the country deal with the international debt verification and resolution and the Paris Club and other bilateral and commercial creditors are being engaged.

### Capacity building and technical assistance
- STA trained three Liberian officials in 2005—one in balance of payments and two in debt statistics.
- "STA is planning a follow-up balance of payments technical assistance mission to Liberia in FY 2007."

### Data availability snapshot (as of July 31, 2006)
- Exchange Rates: Date of latest observation "July 2006"; Date received "Aug. 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 "Jun. 2006"; Date received "Jul. 2006"; Frequency of Data "M"; Frequency of Reporting "M"; Frequency of publication "B".
- Reserve/Base Money: Date of latest observation "Jun. 2006"; Date received "Jul. 2006"; Frequency of Data "M"; Frequency of Reporting "M"; Frequency of publication "B".
- Broad Money: Date of latest observation "Jun. 2006"; Date received "Jul. 2006"; Frequency of Data "M"; Frequency of Reporting "M"; Frequency of publication "B".
- Central Bank Balance Sheet: Date of latest observation "Jun. 2006"; Date received "Jul. 2006"; Frequency of Data "M"; Frequency of Reporting "M"; Frequency of publication "B".
- Consolidated Balance Sheet of the Banking System: Date of latest observation "Jun. 2006"; Date received "Jul. 2006"; Frequency of Data "M"; Frequency of Reporting "M"; Frequency of publication "B".
- Interest Rates: Date of latest observation "May 2006"; Date received "Jul. 2006"; Frequency of Data "M"; Frequency of Reporting "M"; Frequency of publication "B".
- Consumer Price Index: Date of latest observation "Jun. 2006"; Date received "Jul 2006"; 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 "Jun. 2006"; Date received "Jul. 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 "Sep. 2005"; Date received "Feb. 2006"; 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".
- Notes on frequencies: "Daily (D); Weekly (W); Monthly (M); Bi-monthly (B); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA)"
- Footnotes preserved: "Includes reserve assets pledged or otherwise encumbered." ; "Foreign, domestic bank, and domestic nonbank financing." ; "The general government consists of the central government (budgetary funds, extrabudgetary funds, and social security funds) and state and local governments."

### IMF decision and macroeconomic context (Press Release No. 06/210; October 2, 2006)
- The Executive Board decided to initiate the de-escalation of the IMF’s remedial measures that have been applied against Liberia and lifted the declaration of noncooperation that had been in place since March 30, 1990.
- The Board decided it "could consider lifting the suspension of Liberia’s voting and related rights following satisfactory performance regarding economic policies and payments to the IMF during an evaluation period of approximately 12 months from the date of the Board decision."
- Macroeconomic developments cited: "GDP growth expected to continue to recover to about 8 percent" and "inflation projected to be in the single digits in 2006."
- The Board noted: "Substantial financial support from the international community for clearance of arrears and debt relief for Liberia will be needed."
- John Lipsky statement excerpts: Liberia established "an encouraging track record of policy cooperation and payments under the staff-monitored program that began in February 2006." Actions could pave the way for Liberia to benefit from debt relief under the Highly Indebted Poor Country Initiative and the Multilateral Debt Relief Initiative.

### Authorities' assessment, reforms, and key policy priorities (Statement by Peter Ngumbullu and Bhadala T. Mamba; October 2, 2006)
Findings and progress
- "The Liberian authorities have displayed strong commitment to restoring macroeconomic stability and begun the process of reconstruction after decades of civil war..."
- "They have performed exceptionally well and established a commendable track record under the Staff Monitored Program (SMP), meeting all the quantitative and structural benchmarks."
- Financial management strengthened with "strict adherence to a commitment control system" and a "cash-based balanced budget for fiscal year 2006/07 was approved in late August."
- "Monthly token payments to the IMF" have been made.
- "Significant progress has already been made in the verification of domestic debt arrears by an inter-ministerial committee."
- "The Central Bank has made significant progress in improving its financial health, deal with its budget deficit and address the dollarization issue."

Policy priorities and reform measures
- Fiscal consolidation underpinned by "aggressive revenue collection, strong expenditure control and structural reforms."
- Maintain the Cash Management Committee (CMC) operations to ensure expenditures do not exceed available revenues and "no out of budget allotments are made."
- Strengthen revenue collection by reviewing tax exemptions, collecting tax arrears, "rationalizing the tax rates and expand the tax base reducing the over reliance on tariff revenues."
- Payroll audit and civil service census to inform civil service reforms.
- Streamline civil service rules and review structures/functions of ministries; reduce wage and rental arrears and make civil servant salary payments current.
- Infuse Liberian dollar gradually while safeguarding the exchange rate; increase foreign reserve holdings and modernize the monetary and financial sector.
- Improve investment climate: develop a new investment code, review bureaucratic processes, review previously issued concessional contracts via Contracts and Concessions Review Committee (CCRC).
- Establish Rimco Support Office (RSO) to collect information on aid flows and coordinate them.
- Draft anti-corruption paper and development of a comprehensive national strategy and institutional framework.

Requests to the international community and IMF
- Urgent need for financial inflows in the form of grants from the international community to deepen reforms and support reconstruction.
- Request for donor community to expedite mobilization of financial assistance for arrears clearance and HIPC/MDRI debt relief.
- Request Board’s approval to graduate to a Rights Accumulation Program (RAP) with the Fund after the current SMP to accelerate debt relief under HIPC and MDRI.
- Seek IMF assistance in dealing with dollarization and in catalyzing donor backing for arrears clearance.

### Risks, social priorities, and conclusions
- Major risk: "the lack of immediate financial inflows to kick-start and deepen the reforms and the slow progress in securing firm commitments from the donor community to clear arrears and finance the country’s HIPC and MDRI debt relief."
- Poverty reduction priorities: adopt the Interim Poverty Reduction Strategy (IPRSP), align full PRSP with macroeconomic framework and budgetary processes, focus on water, sanitation, health access, reintegration of internally displaced persons and ex-combatants.
- Conclusions emphasize urgency: donors urged to "quickly raise the resources needed for Liberia’s arrears clearance" and the Fund urged "to catalyze this process." Authorities stress continued international support for institution rebuilding, technical assistance, and financial resources to sustain recovery.

*Source: IMF staff and Liberian authorities statements and Press Release No. 06/210 (as contained in the supplied text).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06412.pdf_