## _cr08106

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### Overview and recent economic developments
- Liberia emerging from over twenty years of political instability; real GDP per capita estimated to have declined by about 80–90 percent during that period.
- Real GDP growth: 2½ percent in 2004; approximately 9½ percent in 2007.
- Exchange and inflation rates described as relatively stable (CPI methodology changed in February 2007).
- Gross national per capita income about US$140 in 2006 (World Bank Atlas methodology).
- Social conditions:
  - Over 60 percent of the population lives below the national poverty line (Core Welfare Indicator Questionnaire 2007: 64 percent).
  - Life expectancy: 42 / 42.5 years (two references in text).
  - Infant mortality: around 117 per 1,000 live births; child mortality: around 194 per 1,000 live births; under-five mortality (per 1,000) 235.
  - Maternal mortality: 580 women per 100,000 live births.
  - Only an estimated 17 percent of the labor force is formally employed.
  - Net primary school enrolment rate: 37 percent; Gross primary enrollment: 86 percent.
  - Access to safe water: approximately 50 percent; no access to improved sanitation facilities: over 60 percent.
  - Most medical clinics (80 percent) are supported by humanitarian organizations.

### Eligibility for HIPC Initiative assistance and headline debt relief requirements
- Debt Relief Analysis (DRA) confirms Liberia would qualify for debt relief under the export window of the Enhanced HIPC Initiative.
- External debt status (end-June 2007, before traditional relief):
  - Public and publicly guaranteed external debt (nominal): US$4.7 billion / $4,732.2 million.
  - Around 96 percent of that debt was in arrears.
  - After traditional debt relief, NPV of debt-to-exports ratio at end-June 2007 estimated at 1,576 percent.
- Size of HIPC assistance required (end-June 2007 NPV terms):
  - Total HIPC debt relief required: US$2,845.5 million.
  - Implied common reduction factor: 90.5 percent / 90.48 percent (both figures appear in document).
  - MDRI and IMF beyond-HIPC relief estimated at about US$147.0 million (end-June 2007 NPV terms).
  - Under proportional burden-sharing: multilateral creditors ~US$1,425.8 million (NPV); bilateral and commercial creditors ~US$1,419.6 million (NPV).
  - Translates into about US$4,007.5 million of nominal debt service relief over time.
- Creditor composition (nominal, end-June 2007, before traditional relief):
  - Multilateral and bilateral creditors: 65.9 percent of total claims.
  - Commercial creditors: 33.3 percent of total claims.
  - IMF: approximately 17 percent of total claims.
  - IDA/IBRD: approximately 9 percent of total claims.
  - Table A1 nominal breakdown: Total nominal 4,732.2; Multilateral nominal 1,614.8; Bilateral and commercial nominal 3,117.5; Paris Club nominal 1,413.9; Commercial nominal 1,574.6.
- Delivery assumptions and selected creditor contributions:
  - IDA: US$375.2 million (NPV) provided via grant element in arrears clearance.
  - IMF: total assistance US$732.2 million (NPV), of which US$30.9 million delivered through concessional element during a three-year interim period; IMF to provide interim assistance to cover each 12-month period Liberia's forthcoming interest obligations net of current payment capacity of about US$720,000 per annum.
  - AfDB: US$238.1 million (NPV) delivered through arrears clearance.
  - Paris Club bilaterals: assumed US$857.4 million (NPV) on Cologne terms (90 percent NPV reduction on eligible debt).
  - Non-Paris Club official bilateral and commercial creditors: assumed US$562.3 million (NPV).

### Debt-service, timing effects, and interim-period implications
- Arrears clearance modalities (December 2007):
  - Arrears to IBRD/IDA cleared via a bridge loan repaid with proceeds of a Development Policy Operation (DPO) financed with exceptional IDA grant terms.
  - Arrears to AfDB cleared under Post-Conflict Countries framework: one-third bilateral donors, two-thirds PCCF; donor financed the 1 percent contribution.
  - IMF arrears expected cleared in March 2008 via a bridge loan; IMF financing under PRGF/EFF to repay bridge loan.
- Distribution and timing effects:
  - Approximately 49 percent of multilateral HIPC debt relief (US$699.4 million NPV) provided through financing supporting arrears clearance; remaining 51 percent (US$726.4 million NPV) through reduction of future debt service (US$951.9 million nominal).
  - As a result of arrears clearance operations, future cumulative debt service payments due to multilaterals would increase from US$127.3 million to US$1,266.4 million (pre-relief timing effect).
  - Liberia’s remaining cumulative nominal debt service payments to multilaterals after HIPC, MDRI and IMF beyond-HIPC relief would total US$57.9 million as of December 2007; with additional grant financing from IDA and AfDB interim grants this would reduce to US$40.5 million as of December 2007.

### Debt sustainability, sensitivity analysis, and key scenario outcomes
- LIC DSA classification: Liberia is in debt distress under the baseline.
- DRA baseline macro assumptions (selected exact values):
  - Annual real GDP growth averages 5½ percent a year over 2008–27.
  - CPI inflation decelerates from 11.7 percent in 2007 to 5 percent in the medium term.
  - Central government revenue increases from 22 percent of GDP in FY2006/07 to about 27½ percent of GDP in FY2012/13.
  - Expenditure expected to increase to over 30 percent of GDP in the long run.
  - After debt relief and adoption of debt management strategy, Liberia assumed to commence borrowing in FY2010/11.
  - External grants assumed to decline from 33 percent of GDP in 2006/07 to about 12 percent by 2026/27.
  - FDI projection: rise from 9 percent of GDP in 2006/07 to about 46 percent in 2008/09, then average 27 percent up to 2012-13, stabilizing at about 7 percent thereafter.
  - Net liquid foreign assets of the CBL expected to increase from under a month of imports in 2006/07 to about five months in 2026/27.
- Expected impact of full delivery (baseline with unconditional delivery):
  - NPV of debt-to-exports ratio declines from 150 percent as of end-June 2007 to approximately 18 percent by FY2026/27; remains below HIPC threshold FY2007/08–FY2026/27.
  - Preliminary MDRI and IMF beyond-HIPC debt relief at completion point could amount to US$242.6 million in nominal terms (US$147.0 million in NPV terms): US$69.1 million from IDA; US$17.8 million from AfDF; US$155.7 million from the IMF.
  - Possible nominal HIPC assistance: US$4,007.5 million (US$2,845.5 million in NPV terms).
- Sensitivity analysis — selected scenarios and impacts (preserve exact outcomes):
  - Scenario 1 (concessionality of new borrowing +200 basis points): NPV of debt-to-exports converges to about 25 percent in FY2026/27.
  - Scenario 2 (lower export prices — exports 25 percent lower; average exports growth reduced by about 1¾ percentage points): [text truncated in source].
  - Scenario 3 (GDP grows 2.0 percentage points less than baseline): NPV of debt-to-exports declines until FY2012/13 reaching 32 percent, then increases to about 110 percent by FY2026/27; compared with baseline, 4 percentage points higher in FY2007/08 and 93 percentage points higher by FY2026/27.
  - Scenario 4 (grants substituted by loans for projects outside budget, about 80 percent of total grants): NPV of debt-to-exports declines until FY2012/13 reaching 46 percent then increases to about 143 percent by FY2026/27 (just under HIPC threshold); compared with baseline, increase of 125 percentage points by FY2026/27.
  - Scenario 5 (combination of shocks — combining preceding four scenarios): NPV of debt-to-exports would be above 150 percent immediately after shocks in FY2007/08, reaching 185 percent, and increase to about 633 percent in FY2026/27; compared with baseline, about 40 percentage points higher in FY2007/08 and 616 percentage points higher by FY2026/27.
  - Table A7 sensitivity highlights (selected):
    - Baseline NPV of debt-to-exports 2006/07: 150.0; 2007/08: 144.6; 2016/17: 17.9; 2026/27: 17.6.
    - Combination of shocks (A6/B results): NPV of debt-to-exports 2026/27: 633.2 (percent).
- Key vulnerability drivers identified:
  - Use of borrowing to substitute for external grants.
  - External environment, including export performance (rubber accounts for about 90 percent of exports).
  - Continued implementation of the reform agenda and maintenance of security and governance.
- Debt-service projections (selected series from Table A4):
  - After HIPC assistance — Total debt service: 2007/08 88.9; 2008/09 64.9; 2009/10 61.5; 2010/11 23.2; 2016/17 62.2; 2026/27 48.1.
  - After HIPC and MDRI assistance — Total debt service: 2010/11 20.9; 2011/12 10.9; 2016/17 21.8.
  - Debt service-to-exports ratio after HIPC and MDRI assistance (selected): 2010/11 1.7; 2011/12 0.7.
  - Memo exports (fiscal year): 2006/07 386.7; 2007/08 573.4; 2008/09 867.6; 2009/10 1,233.0; 2016/17 1,548.0; 2026/27 2,319.4.

### Macroeconomic projections and medium-term framework (selected)
- Medium- to long-term real output growth:
  - Projected average about 5½ percent over 2008–27.
  - In 2008–11 growth should strengthen sharply; long term stabilize at about 3¾ percent, bringing per capita GDP close to its 1980 level by about 2027.
- Fiscal projections and assumptions (selected exact figures):
  - Illustrative projections starting in 2011: central government overall deficit (including grants) projected to average about 3 percent of GDP per year over projection period.
  - Fiscal revenues (excluding grants) projected to increase to about 27½ percent of GDP in FY2026/27 from about 22 percent in FY2006/07.
  - Government expenditures projected to increase to over 30 percent of GDP in FY2026/27 from about 18 percent in FY2006/07.
  - External current account deficit (excluding grants) expected to decline from 69 percent of GDP in FY2006/07 to about 23 percent of GDP in FY2026/27.
  - Exports of goods and nonfactor services expected to increase on average about 13 percent annually over the projected horizon; average exports growth 2006/07-2011/12 projected about 42 percent then about 3 percent thereafter.
  - Imports of goods and nonfactor services expected to grow on average by 9 percent annually.

### Governance, public financial management (PFM), and structural reforms
- GEMAP (Governance and Economic Management Assistance Program) established September 2005; overseen by Economic Governance Steering Committee (EGSC) chaired by the President.
- GEMAP components:
  - (i) securing Liberia’s revenue base,
  - (ii) improving budgeting and expenditure management,
  - (iii) improving procurement practices and granting of concessions,
  - (iv) establishing processes to control corruption,
  - (v) supporting institutions for accountability and financial management,
  - (vi) capacity building.
- Implemented measures:
  - Deployment of international experts and financial controllers with co-signing authority to revenue-generating agencies and the CBL.
  - Empowered cash management committee (CMCo); adopted zero-tolerance on corruption.
  - Eliminated ghost workers; drafted Civil Service Code of Conduct; required Cabinet members to publicly declare assets.
  - Launched Extractive Industries Transparency Initiative (EITI) June 2007.
- PFM progress and needs:
  - Interim commitment control system prevented new domestic arrears; CMCo reviews commitment vouchers; international controllers have authority at major revenue-generating SOEs.
  - Remaining needs: enhance budget preparation, implementation, cash management; increase revenues; design and install IFMIS; develop medium-term PFM reform strategy (with FAD support and PEMFAR input).
  - Planned comprehensive PFM law to clarify roles, formalize budget processes, address procurement, cash management, internal control, accounting, reporting, and audit dissemination deadlines.
- Debt management institutional issues (Annex I selected):
  - Debt management responsibility shared by Ministry of Finance and CBL; existing legislation does not clearly specify roles.
  - No comprehensive public debt database; DMU stores data in Excel spreadsheets and lacks debt recording software.
  - DMU staffing: seven staff (two technical); CBL Debt Unit: two staff.
  - Recent reforms: Debt Management Task Force (DMTF) created April 2004 but ceased end-2005; plans to obtain CS-DRMS 2000+.
  - Future reforms required: produce accurate public debt statistics inclusive of SOEs, design and implement a debt management strategy including SOE borrowing; international support critical.

### Social and pro-poor programs, agriculture, and infrastructure priorities
- Recent household survey outcomes (selected):
  - Food insecurity: 11 percent food insecure; 40 percent highly vulnerable; 41 percent moderately vulnerable; 9 percent food secure.
  - Access to improved water sources: 51 percent; access to sanitary communal latrines: 39 percent.
- 150-Day Action Plan outcomes (selected):
  - Rehabilitated several hundred kilometers of roads and a few bridges.
  - Rehabilitated about 36 high schools, 39 clinics, and 4 community health facilities.
  - Constructed 100 new water points and 52 new boreholes.
  - Increased budgetary outlays: health to 8.9 percent of the budget and education to 8.6 percent.
- Agriculture and plantations:
  - Agriculture primary livelihood; constraints include few resources for smallholders and poor transport limiting market access.
  - Rubber accounts for about 90 percent of exports; recovery in commercial plantation sector spurred by high rubber prices.
  - Government strategy: increase yields in key cash and export crops, improve supply chains, better plantation concession agreements.
- Medium-term expenditure priorities (indicative from I-PRSP):
  - Education: rehabilitation of 80 percent of damaged schools; rehabilitation of three teacher training institutions; school feeding programs.
  - Health: improve 354 health facilities; provisioning basic health services in 70 percent of facilities; renovate three county hospitals; create National AIDS commission.
  - Agriculture: national food security policy; provide seeds and tools; rehabilitate 1,000 hectares and 100 fish ponds; assist 2,000 coastal fishers.
  - Public Works: rebuild 109 miles of roads, 300 miles of feeder roads, 25 miles of urban roads; restore Roberts International Airport to international standards.

### Completion point triggers, monitoring, and recommended priorities
- Decision-point and completion-point matters:
  - Liberia prepared an Interim Poverty Reduction Strategy Paper (I-PRSP); SMP performance broadly satisfactory; arrears to World Bank and AfDB cleared December 2007; agreement on completion point triggers reached with IDA and IMF staff.
  - Floating completion point triggers adjusted to ensure realism (e.g., DMU operational at least twelve months prior to completion point; EITI trigger revised).
- Monitoring public spending following HIPC assistance:
  - IMF token payments: US$60,000 per month; AfDB token payments: US$15,000 per month; World Bank goodwill payments: US$25,000 per month (held in escrow).
  - Required actions: strengthen programming, management, control and monitoring of expenditures; improve service delivery; cost PRSP priorities and develop medium-term expenditure framework.
- Recommended priorities for government and donors to support debt sustainability:
  - (i) Enhance national security.
  - (ii) Provide conducive environment for private investment by strengthening governance and the rule of law and rehabilitating infrastructure and basic services.
  - (iii) Design and implement a prudent debt management strategy which recognizes that external assistance needs to be largely in the form of grants.
- Issues for Executive Directors’ guidance (explicit queries listed):
  - (i) Does Liberia qualify for assistance under the HIPC Initiative?
  - (ii) Is proposed amount of debt relief (US$2,845.5 million HIPC relief plus about US$147.0 million in MDRI/IMF beyond-HIPC relief, end-June 2007 NPV terms) sufficient to reduce NPV of debt-to-exports to 150 percent?
  - (iii) Will meeting completion point triggers qualify Liberia for unconditional delivery of debt relief?

### Methodology notes and annex highlights
- Estimation of commercial debt (external financial advisor methodology, 72 percent reconciliation):
  - Segregate outstanding principal and accumulated arrears using default interest provisions or LIBOR plus a margin; assume principal outstanding since January 1, 1984 if no records; estimate past-due interest on compounding basis; capitalize interest every six months using relevant fixing dates.
- Imputation of services receipts (Annex II):
  - Benchmark ratio (services receipts to merchandise exports): 38.0 percent derived from comparator post-conflict PRGF-eligible low-income countries (1980–2005 period).
  - Comparator group of 18 countries listed verbatim (e.g., Burundi, Cambodia, Sierra Leone, Timor Leste, Yemen).
- Discount rates and end‑June 2007 exchange rates (selected exact values from Table A3):
  - United States dollar: Discount Rate 5.62; Exchange Rate 1.0000.
  - Euro: Discount Rate 4.94; Exchange Rate 1.3505.
  - Liberian dollar: Discount Rate 4.94; Exchange Rate 0.0160.
- HIPC proportional burden-sharing and common reduction factors:
  - A common reduction factor of 90.48 percent applied to debt remaining after traditional mechanisms; for non-concessional bilateral or commercial debt this implies total reduction of 96.86 percent.

*Source: IMF staff report (Debt Relief Analysis and related sections, end-June 2007 data and subsequent updates through February 2008).*

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

### _cr08106 - Executive Summary

### Overview and recent economic developments
- Liberia is emerging from over twenty years of political instability; real GDP per capita is estimated to have declined by about 80–90 percent during that period.
- Developments since the new government took office in early 2006:
  - Real GDP growth: 2½ percent in 2004; approximately 9½ percent in 2007.
  - Exchange and inflation rates described as relatively stable.
  - Significant progress in public revenue collection and public financial management (PFM).
- Social conditions remain dire:
  - Over 60 percent of the population lives below the national poverty line.
  - Life expectancy has dropped to 42 years.
  - Infant and maternal mortality rates are among the highest in the world.

### Eligibility for HIPC Initiative assistance and related program status
- The Debt Relief Analysis (DRA) confirms Liberia would qualify for debt relief under the export window of the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
- As of end-June 2007:
  - Liberia’s public and publicly guaranteed external debt was an estimated US$4.7 billion in nominal terms.
  - Around 96 percent of that debt was in arrears.
  - After applying traditional debt relief mechanisms, the NPV of debt-to-exports ratio at end-June 2007 is estimated at 1,576 percent—far above the HIPC threshold.
- Program and track-record status:
  - Liberia’s performance under the Staff-Monitored Program (SMP) since early 2006 has been broadly satisfactory and sufficient to establish a track record for reaching the decision point.
  - IMF Directors agreed in February and July 2007 that policies under Liberia’s SMP for 2007 were of upper-credit tranche quality.
  - A government request for three-year arrangements under the PRGF and EFF for SDR 582 million (450 percent of quota under the 11th General Review) covering the period through December 2010 will be considered by the IMF Executive Board immediately prior to the HIPC decision point document.
  - Liberia is an IDA-only country with a gross national per capita income of about US$140 in 2006 (World Bank Atlas methodology).
  - Arrears to the World Bank and the AfDB were cleared in December 2007.

### Structure of external debt (end-June 2007, before traditional debt relief)
- Creditor composition (nominal terms, before traditional relief):
  - Multilateral and bilateral creditors: 65.9 percent of total claims.
  - Commercial creditors: 33.3 percent of total claims.
  - IMF: approximately 17 percent of total claims.
  - IDA/IBRD: approximately 9 percent of total claims.
- Note: Clearance of arrears to IDA/IBRD and the AfDB in December 2007 has significantly reduced the share owed to multilateral creditors.

### Debt relief requirements and amounts (end-June 2007 NPV terms)
- Size of HIPC assistance required to reduce NPV of debt-to-exports ratio to the HIPC threshold of 150 percent:
  - Total HIPC debt relief required: US$2,845.5 million (end-June 2007 NPV terms).
  - Implied common reduction factor: 90.5 percent.
  - MDRI and IMF beyond-HIPC relief estimated at about US$147.0 million (end-June 2007 NPV terms).
- Because Liberia has been servicing almost none of its debt, this relief would not immediately create additional fiscal space; medium-term benefits arise from restored access to development assistance.

### Debt sustainability and sensitivity
- The sensitivity analysis highlights vulnerability of Liberia’s debt prospects:
  - Ability to service external debt after HIPC debt relief is vulnerable to increased new borrowing even on concessional terms (e.g., if Liberia compensates for a reduction in external grants).
  - Vulnerable to combinations of adverse domestic and external shocks.
- DRA updated to reflect revised commercial debt stock information received from Liberia’s financial advisor; common reduction factor adjusted marginally.

### Decision-point and completion-point matters
- Liberia has fulfilled other requirements allowing it to reach the decision point:
  - Prepared an Interim Poverty Reduction Strategy Paper (I-PRSP).
  - Continued satisfactory implementation of the SMP.
  - Cleared arrears to some multilateral creditors and reached agreements with almost all other multilateral creditors on an approach to arrears clearance.
  - IDA and IMF staffs reached agreement with the authorities on a final set of completion point triggers; most were outlined in the preliminary document and broadly supported by Directors.
- Floating completion point:
  - Staffs adjusted the floating completion point trigger relating to the debt management unit to ensure it will be operational for at least twelve months prior to the completion point.
  - The trigger relating to the Extractive Industries Transparency Initiative (EITI) was revised to ensure realism.

### Issues for Executive Directors’ guidance
- Staffs seek Executive Directors' views on whether:
  - (i) Liberia has qualified for assistance under the HIPC Initiative;
  - (ii) the amount of debt relief proposed (US$2,845.5 million in HIPC relief plus about US$147.0 million in MDRI/IMF beyond-HIPC relief in end-June 2007 NPV terms) is sufficient to reduce the NPV of debt-to-exports ratio to the HIPC Initiative threshold of 150 percent;
  - (iii) meeting the completion point triggers will qualify Liberia for unconditional delivery of debt relief.

*Executive Summary (from IMF staff paper, DRA and related sections, end-June 2007 data and subsequent updates through February 2008).*

### 9.      Liberia is now one of the poorest countries in Africa. The fourteen-year civil war

### _cr08106 - 9.      Liberia is now one of the poorest countries in Africa. The fourteen-year civil war

### Economic and social impact of the conflict
- Real GDP was reduced to about 40 percent of its pre-war level.
- An estimated 64 percent of the population lives below the national poverty line, with 48 percent living in extreme poverty.
- Only an estimated 17 percent of the labor force is formally employed.
- Net primary school enrolment rate: 37 percent.
- Gross enrolment rate: 86 percent.
- Approximately 50 percent of the population lack access to safe water.
- Over 60 percent have no access to improved sanitation facilities.
- Life expectancy: 42 years.
- Infant mortality: around 117 per 1,000 live births.
- Child mortality: around 194 per 1,000 live births.
- Maternal mortality: 580 women per 100,000 live births.
- Most medical clinics (80 percent) are supported by humanitarian organizations.

### Current risks and security environment
- A UN military force (UNMIL) of over 12,000 has established and assumed responsibility for security throughout the country.
- The UN and the United States are providing police officers with training to form a new Liberian national police force.
- Improvement in living conditions and strengthened public institutions and economic governance are required to support sustained security advances.

### Post-conflict macroeconomic track record
- Government requested IMF assistance soon after taking office in January 2006 to develop a reconstruction-supporting program.
- Key objectives of the 2006 SMP: rebuild public institutions, restore credible financial management, and accelerate structural reforms.
- In February and July 2007, the IMF Executive Board discussed the SMP for 2007 to maintain macroeconomic stability, further strengthen PFM and the banking sector, and implement anticorruption and domestic debt resolution strategies.
- Performance under the SMP through December 2007: broadly satisfactory; program remains on track and meets standards associated with arrangements in the upper credit tranches.
- The authorities achieved all but one of the quantitative benchmarks; good progress on structural benchmarks though some required more time.

### Economic recovery, external sector, and reserves
- Real GDP growth: modest 2½ percent in 2004; estimated increase to 9½ percent in 2007.
- Recovery supported mostly by a turnaround in agriculture and a large donor presence in the services sector.
- Inflation anchored on a relatively stable exchange rate has remained broadly stable (note: CPI methodology changed in February 2007).
- Narrow export base: rubber accounts for about 90 percent of exports.
- Trade deficit widened to around 36 percent of GDP in 2007 from an estimated 4½ percent of GDP in 2003.
- Gross official foreign exchange reserves: 1½ months of imports.
- Net international reserves remain steeply negative, reflecting the CBL’s large external liabilities.

### Fiscal policy, revenue, and budget implementation
- Fiscal policy anchored on a cash-based balanced budget due to unsustainable public debt.
- Expenditure management program implemented with donor support based on an interim commitment control system and prioritized monthly cash plans.
- Revenue administration reforms: reorganized tax administration; reduced tax exemptions; eliminated noncash payments of taxes; strengthened pre-shipment inspection; strengthened customs administration; introduced automated tax payment system.
- Revenue performance:
  - Fiscal revenues rose by 74 percent in 2006/07.
  - Revenues rose by 46 percent in the first half of 2007/08 compared with the same period one year ago.
  - Revenues from income taxes account for about 30 percent of all revenues.
- On the expenditure side, approvals lagged available cash resources for most of fiscal year 2006/07 and in the first half of 2007/08 due to late legislative budget approval, procurement act implementation challenges, and capacity constraints.
- Recent measures: Budget Committee chaired by the Minister of Finance required to approve all transfers between budget lines; major budgetary transfers also require approval by the President and the Legislature.

### Domestic debt resolution
- In January 2007, authorities finalized a domestic debt resolution strategy.
- Total outstanding claims of over US$900 million were reviewed; classification: approximately one-third “valid,” approximately one-third “contestable,” approximately one-third “rejected.”
- Valid claims discounted by increasing percentages depending on amount (0 percent for claims below US$1,000 to about 88 percent for claims above US$1 million).
- Payments to small claimants began in 2006/07 and to the CBL and private banks in 2007/08.
- Payments on domestic debt claims envisioned to span 30 years.

### Monetary policy and banking sector
- CBL policy framework focuses on maintaining low and stable inflation by targeting broad exchange rate stability, acknowledging limited scope for active monetary policy due to high dollarization.
- Progress made in improving bank capitalization; banking system remains fragile and needs stronger supervision.
- CBL posted a higher-than-projected budget surplus for 2007 due to unanticipated accumulation of U.S. dollars in the government’s account at the CBL.
- For 2008, the CBL projected another modest surplus.

### Governance developments and GEMAP
- Governance weaknesses: many civil servants and SOE staff were unqualified patronage appointees; external audits revealed malfeasance and poor PFM.
- September 2005: NTGL and partners signed the Governance and Economic Management Assistance Program (GEMAP).
- GEMAP overseen by an Economic Governance Steering Committee (EGSC) chaired by the President.
- GEMAP components:
  - (i) securing Liberia’s revenue base,
  - (ii) improving budgeting and expenditure management,
  - (iii) improving procurement practices and the granting of concessions,
  - (iv) establishing processes to control corruption,
  - (v) supporting institutions key to promoting and sustaining government accountability and good financial management,
  - (vi) capacity building.
- Implemented measures under GEMAP: deployment of international experts and financial controllers with co-signing authority to revenue-generating agencies and the CBL; review of contracts and concessions approved by the NTGL; empowerment of the cash management committee (CMCo); adopted a zero-tolerance policy on corruption.

### Other governance and transparency measures
- Achievements:
  - Eliminated ghost workers in the civil service.
  - Drafted a Civil Service Code of Conduct.
  - Required all serving Cabinet members to publicly declare their assets.
  - Implemented actions to enable UN sanctions on diamond and timber exports to be lifted.
- December 2006: authorities approved a comprehensive anticorruption strategy to establish an independent anticorruption commission; strategy based on four pillars:
  - (i) strengthening governance rules and procedures,
  - (ii) reinforcing institutions,
  - (iii) amending laws on corruption,
  - (iv) ensuring consultation with all sectors of society.
- June 2007: government launched the Extractive Industries Transparency Initiative in Liberia to ensure transparency and accountability in allocation and exploitation of natural resources; all financial flows from natural resource exploitation will be reconciled by an independent administrator, subject to external audits, and published.
- Draft legislation to establish an independent anticorruption commission has been submitted to the legislature.

### Remaining governance challenges and data constraints
- Remaining needs:
  - Integrate new procurement rules into all systems.
  - Execute the budget more transparently.
  - Enhance governance within agencies and SOEs.
  - Strengthen tracking of aid commitments and flows.
  - Improve internal audit systems across ministries.
  - Develop a medium-term fiscal framework incorporating donor flow data consistent with the government’s I-PRSP and the PRSP under preparation.
- A Public Expenditure Management and Financial Accountability Review (PEMFAR), led by the World Bank with IMF input, is underway to address many issues.
- Lack of reliable and timely data constrains policy formulation and monitoring; priorities include completing and implementing the national statistical development strategy and strengthening the capacity of the Liberian Institute for Statistics and Geo-Information Services.

### Social and structural reform progress and challenges
- Despite economic rebound, poverty and social conditions remain dire (Core Welfare Indicator Questionnaire 2007: 64 percent below national poverty line).
- High prevalence of preventable diseases (malaria, diarrhea, respiratory infections, measles) and malnutrition.
- Closure of internally displaced persons camps and withdrawal of relief providers will reduce social services.
- Education: school system unable to absorb large numbers of children enrolled in primary schools since the abolition of school fees; delivering services at the local level remains a daunting challenge.

*Source: _cr08106 - 9.      Liberia is now one of the poorest countries in Africa. The fourteen-year civil war*

### 25.      Recent surveys supported by

### _cr08106 - 25.      Recent surveys supported by

### Household food security and access to basic services
- 11 percent of surveyed households were food insecure.
- 40 percent of surveyed households were highly vulnerable to food insecurity.
- 41 percent of surveyed households were moderately vulnerable to food insecurity.
- 9 percent of surveyed households were food secure.
- 51 percent of surveyed households had access to improved water sources.
- 39 percent of surveyed households had access to sanitary communal latrines.

### Outcomes of the 150-Day Action Plan
- Rehabilitated several hundred kilometers of roads and a few bridges.
- Rehabilitated about 36 high schools, 39 clinics, and 4 community health facilities.
- Financed community development projects in all 15 counties.
- Began to rebuild the electricity grid within Monrovia.
- Strengthened national health strategy to fight HIV/AIDS.
- Provided bed nets in malaria endemic communities and medicines for new tuberculosis cases.
- Rehabilitated water pipelines in parts of Monrovia.
- Constructed 100 new water points and 52 new boreholes around the country.
- Initiated education sector reforms and rehabilitated several schools.
- Increased budgetary outlays: health to 8.9 percent of the budget and education to 8.6 percent.
- The action plan fed into the I-PRSP, implementation of which is underway.

### Agriculture, plantations, and rural constraints
- Agriculture is identified as the primary source of livelihood for most of the population; many households reverted to subsistence farming during the war.
- Constraints: few resources for smallholders and poor transportation network limiting market access.
- Recovery in commercial plantation sector has been quicker due to high price of rubber spurring investment.
- Government strategy: increase yields and production in key cash and export crops using small-holder and commercial plantation sectors; create efficient supply chains and more opportunity for value-added and off-farm employment; invest in necessary infrastructure for cash and export crops.
- Government needs to implement improved plantation concession agreements to prevent past abuses.

### Forestry and natural resource management
- Steps taken to strengthen forest sector management to lift sanctions on timber and ensure sustainable, population-benefiting management.
- A UN/Government of Liberia Rubber Plantation Task Force instituted to administer government-owned plantations on an interim basis pending privatization or return to original owners.
- Government intends to re-establish forestry concessions and the chain of custody, observe the Kimberly process for diamonds exports, and participate in the Extractive Industries Transparency Initiative (EITI).

### Health, community development, and pro-poor spending
- Government and donors are working on a national health plan to address systemic deficiencies, attract investments in infrastructure and human resource development, and fund recurrent expenditures.
- Community-based development is strengthening social capital and addressing causes of conflict.
- Government is working to ensure spending is increasingly pro-poor; as donor financing flows through the government budget, safeguards are needed to ensure poverty-reduction spending increases as a proportion of total expenditures.

### Key Poverty & Social Indicators – 2006
- Poverty (% below poverty line) 64
- Adult literacy rate (%) 55
- Female literacy rate (%) 41
- Gross primary enrollment 86
- Female primary enrollment (%) 85
- Under-five mortality (per 1,000) 235
- Life expectancy at birth (years) 42.5
- Children stunted (%) 39
- HIV prevalence (%) 1.5–4.9
- Note: Percent of total populations, unless otherwise indicated

### Reform agenda (I-PRSP and medium-term policy)
- I-PRSP and full PRSP (expected to be finalized in mid-2008) aim to:
  - promote rapid economic growth,
  - create jobs,
  - secure macroeconomic stability,
  - reduce poverty,
  - help Liberia make progress toward the MDGs,
  - strengthen governance and the rule of law (including establishing an anticorruption commission),
  - rebuild national infrastructure,
  - revitalize the economy, and
  - enhance national security.
- Fiscal policy focus: strengthen PFM, continued procurement reform, implement new public financial management law, improve internal processes.
- Revenue administration: complete reorganization of domestic tax administration and outsourcing of customs.
- Financial sector efforts: strengthen monetary policy framework, enhance private sector access to credit, improve banking supervision and regulations, modernize national payments system.
- National statistical plan: strengthen statistical capacity, improve estimates of national accounts, support policy formulation and outcome tracking.
- Continued financial and technical donor support is essential.

### Medium- to long-term macroeconomic framework and prospects
- Real output growth is projected to average about 5½ percent over the period 2008–27.
- In 2008–11, real output growth should strengthen sharply as security improves, external support continues, and private sector-led investment in forestry and mining increases.
- Over the long term, real output growth is assumed to stabilize at about 3¾ percent, bringing per capita GDP close to its 1980 level by about 2027.
- Assumptions: security holds, political and macroeconomic stability sustained, progress on economic governance, improvements in social and economic infrastructure support higher private investment including FDI.
- Caveat: ratios of key macroeconomic variables to GDP may be overstated due to probable underestimation of GDP owing to absence of official national accounts data.

### Historical and projected sectoral and macro indicators (selected snapshots)
- 2006/07 Real GDP growth (annual percentage change) 8.7; 10.5; 3.8 (table shows series across periods)
- Agriculture & fisheries 2.6; 1.6; 1.5
- Forestry 0.3; 1.6; 0.1
- Mining & panning 1.4; 4.1; 0.3
- Manufacturing 1.3; 0.9; 0.6
- Services 3.2; 2.3; 1.3
- Average inflation (annual percentage change) 9.4; 8.1; 5.0
- Trade balance (percent of GDP) -37.5; -36.1; -12.4
- Current account balance (incl. grants) -36.0; -42.1; -14.8
- Current account balance (excl. grants) -69.0; -64.1; -28.9
- Exports (annual percentage change) 43.5; 36.2; 2.7
  - of which: rubber 39.9; 1.5; 1.5
  - timber 0.0; 9.1; 0.7
  - iron ore 0.0; 15.6; -0.8
- Public revenue (incl. grants) 22.1; 27.0; 28.6 (percent of GDP)
- Public revenue (excl. grants) 21.9; 26.0; 27.5 (percent of GDP)
- Public expenditure 17.8; 27.8; 31.6 (percent of GDP)
- Source: Liberian authorities, and IMF staff calculations and projections.

### Fiscal policy and revenue/expenditure projections
- Government plans to continue targeting a cash-based balanced budget in the near term.
- In illustrative current projections starting in 2011, central government is assumed to undertake moderate deficit financing, with the overall deficit (including grants) projected to average about 3 percent of GDP per year over the projection period.
- Fiscal revenues (excluding grants) are projected to increase to about 27½ percent of GDP in FY2026/27, from about 22 percent in FY2006/07.
- Government expenditures are projected to increase to over 30 percent of GDP in FY2026/27, from about 18 percent in FY2006/07.
- Framework assumes increased share of pro-poor spending and more government expenditures to institutional capacity, security, infrastructure, health, and education.
- Liberia will continue to need donor support given large financing needs for reconstruction.

### External sector projections and trade
- External current account deficit (excluding grants) expected to decline from 69 percent of GDP in FY2006/07 to about 23 percent of GDP in FY2026/27.
- Exports of goods and nonfactor services are expected to increase on average by about 13 percent annually over the projected horizon.
- Average growth of exports for 2006/07-2011/12 is projected at about 42 percent; projected to average about 3 percent for remainder of projection period.
- Imports of goods and nonfactor services expected to grow, on average, by 9 percent annually over the projected horizon.

### Main risks to the projections
- Faltering progress in securing peace and stability.
- Slower-than-expected reforms: weak security, governance, rule of law, and infrastructure/basic services rehabilitation could erode donor support, weaken confidence, and hurt private sector investment, causing lower-than-projected GDP growth.
- Need for continued cooperation of opposition-controlled legislature to pass key legislation.
- Very limited current institutional capacity.

### I-PRSP reform strategy and implementation
- I-PRSP completed January 2007; full PRSP expected mid-2008 and will include costing and a monitoring and evaluation framework.
- I-PRSP preparation supported by IMF and World Bank staff and World Bank–supported surveys (Core Welfare Indicator Questionnaire, Demographic and Health Survey, Participatory Poverty Assessment).
- Liberia Reconstruction and Development Committee (LRDC), chaired by the President and including key cabinet members and international partners, oversees I-PRSP implementation.
- Strategy period July 2006 through June 2008 to allow integration into two annual budget cycles.
- I-PRSP key priorities include:
  - fully reforming the security sector;
  - revitalizing agriculture to ensure pro-poor growth;
  - rebuilding the road network;
  - accelerating human resource development;
  - strengthening environment for private sector growth;
  - creating jobs;
  - promoting good governance and the rule of law.
- I-PRSP organized around four pillars: (i) enhancing national security; (ii) revitalizing economic growth; (iii) strengthening governance and the rule of law; (iv) rehabilitating infrastructure and delivering basic services.
- At Liberia Partners’ Forum, Washington, February 13–14, 2007, development partners provided extensive feedback; Joint Staff Advisory Note presented May 2007 and government committed to take comments into account for PRSP.

### Debt reconciliation and external debt structure
- Debt Relief Analysis (DRA) prepared jointly by authorities and IDA and IMF staffs using data for public and publicly-guaranteed external debt disbursed and outstanding as of end-June 2007; reconciliation completed by authorities in February 2008.
- Of Liberia’s external debt as of end-June 2007, 90.6 percent has been reconciled.
- With assistance, 100 percent of Liberia’s multilateral and bilateral debt was reconciled.
- DRA incorporates external financial advisor’s estimates of commercial debt stocks as of end-June 2007, with 72 percent reconciliation of total commercial debt.
- Liberia’s public and publicly guaranteed external debt estimated at US$4.7 billion in nominal terms at end-June 2007.
- Prior to clearance of arrears to the World Bank and AfDB in December 2007, multilateral and bilateral creditors held approximately two-thirds of Liberia’s external debt in nominal terms.
- As of end-June 2007, largest individual creditors: IMF (17 percent of total claims) and IBRD/IDA (9 percent of total claims).
- Largest bilateral creditors: Germany and the United States (each holding 9 percent of total claims).
- Non–Paris Club official creditors hold approximately 3 percent of Liberia’s total external debt.
- About 96 percent of Liberia’s external debt was in arrears at end-June 2007.
  - Some 93 percent of debt to multilateral creditors was in arrears.
  - All debts to commercial creditors were in arrears.
  - 92 percent of debt to non–Paris Club bilateral creditors was in arrears.
  - 96 percent of debt to Paris Club bilateral creditors was in arrears.

### Estimation methodology for commercial debt (Box 1)
- External financial advisor’s methodology for estimating commercial debt stocks (72 percent reconciled):
  - segregate outstanding principal and accumulated arrears using default interest rate provisions or selecting an appropriate market interest rate plus a margin;
  - assume all principal amounts have been outstanding since January 1, 1984 (no records of new debt found after this date);
  - estimate past-due interest from January 1, 1984, or where a Court Judgment applicable, from case closing date, using default interest rate provisions or otherwise LIBOR plus a margin, on a compounding basis;
  - estimate arrears of each loan on basis of original currency denomination and by capitalizing the interest on the loan every six months using relevant interest fixing date.
- Additional data between decision point and completion point considered if of sufficient quality.
- Methodology intended for uniformity of treatment for other countries lacking complete commercial debt records.

*Source: _cr08106 - 25.      Recent surveys supported by*

### 46.      Liberia’s arrears to IBRD and IDA were cleared in December 2007 through a

### _cr08106 - 46.      Liberia’s arrears to IBRD and IDA were cleared in December 2007 through a

### Arrears clearance actions and modalities
- Liberia’s arrears to IBRD and IDA were cleared in December 2007 through a bridge loan provided by a bilateral donor. Liberia then used the proceeds of a Development Policy Operation (DPO) to repay the bridge loan. This operation was financed with an exceptional allocation of IDA resources, provided on grant terms, and in accordance with IDA’s systematic approach to the clearance of arrears to IBRD and IDA.
- Arrears to the AfDB Group were cleared in December 2007 under the framework for assisting Post-Conflict Countries (PCCs). For Liberia, one-third of the cost was financed by bilateral donors and two-thirds from PCCF resources. Liberia received bilateral donor assistance to finance the 1 percent contribution that would otherwise have been required from them.
- Arrears to the IMF were expected to be cleared in March 2008 through a bridge loan obtained from a bilateral donor, enabling IMF approval of new financing. IMF financing would be provided under a blend of financing from the PRGF and EFF and front-loaded to repay the bridge loan, paving the way for Liberia to reach the HIPC decision point and begin receiving interim IMF relief.
- Strategies for arrears clearance with six smaller multilateral creditors (OFID, IFAD, BADEA, EU, EIB, ECOWAS) have been agreed or were under discussion. As of end-June 2007, arrears to these six totaled US$82.9 million, around 2 percent of Liberia’s total arrears. Liberia’s arrears to ECOWAS were US$5 million, or 0.1 percent of total arrears as of end-June 2007.
- The grant element embedded in the clearance of arrears toward multilateral creditors will be counted toward their contribution to debt reduction under the HIPC Initiative, consistent with the standard HIPC Initiative methodology.

### Possible HIPC Initiative assistance: headline results and required relief
- Liberia’s debt in NPV terms, after full application of traditional debt relief mechanisms, is an estimated US$3,143.9 million (as of end-June 2007), equivalent to 1,576 percent of exports of goods and services.
- Reduction required to lower NPV of debt-to-exports ratio from 1,576 percent to 150 percent: HIPC debt relief of US$2,845.5 million in end-June 2007 NPV terms, implying a common reduction factor of 90.5 percent after traditional debt relief.
- Under a proportional burden-sharing approach:
  - Multilateral creditors would contribute approximately US$1,425.8 million (NPV).
  - Bilateral and commercial creditors would contribute about US$1,419.6 million (NPV).
- Translates into about US$4,007.5 million of nominal debt service relief over time, compared with payments required after assumed traditional debt relief and arrears clearance from multilateral creditors.

### Assumptions and creditor-by-creditor delivery of assistance
- IDA: fully provided its share of HIPC debt relief amounting to US$375.2 million in NPV terms through the grant element embedded in clearance of Liberia’s arrears to IBRD and IDA.
- IMF: total assistance US$732.2 million in NPV terms, of which US$30.9 million delivered through the concessional element during a three-year interim period associated with PRGF resources used to repay the bridge loan; IMF would provide interim assistance to cover each 12-month period Liberia's forthcoming interest obligations to the IMF net of Liberia’s current payment capacity of about US$720,000 per annum. Note: there will be no principal obligations falling due for the first 4½ years; interest obligations vary due to the variable rate of charge on the EFF purchase.
- AfDB: assistance US$238.1 million in NPV terms, fully delivered through the arrears clearance operation.
- Other multilateral creditors: US$80.4 million in NPV terms; assumed Liberia will not make payments until the completion point and creditors will clear arrears at completion point through arrears clearance grants and concessional loans with additional debt-service reduction where necessary.
- Paris Club bilaterals: assumed to provide US$857.4 million in NPV terms via a flow treatment on Cologne terms (90 percent NPV reduction on eligible debt) after decision point, with remaining assistance at completion point through a stock-of-debt operation.
- Non-Paris Club official bilateral creditors and commercial creditors: assumed comparable treatment delivering US$562.3 million in NPV terms of required assistance under the HIPC Initiative. Liberian authorities intend to pursue good faith discussions with commercial creditors to agree settlements not more generous than outlined.
- High interim-period debt service requires further exceptional deferral of payments given Liberia’s limited payment capacity.

### Distribution and timing effects of multilateral relief and interim-period flows
- Approximately 49 percent of multilateral HIPC debt relief (US$699.4 million in NPV terms) would be provided through financing supporting clearance of Liberia’s arrears (grant element counted toward HIPC contribution). The remaining 51 percent (US$726.4 million in NPV terms) would be provided through reduction of future debt service amounting to US$951.9 million in nominal terms.
- As a result of arrears clearance operations, Liberia’s future cumulative debt service payments due to multilaterals would increase from US$127.3 million to US$1,266.4 million.
- Repayment of IMF PRGF and EFF loans would induce a sharp increase in debt service in FY2012/13–17/18 (no principal obligations for first 4½ years). Most of this increase would be netted out by HIPC Initiative debt service reduction during the interim period and beyond-HIPC relief at the completion point.
- Liberia’s remaining cumulative nominal debt service payments to multilaterals after HIPC Initiative, MDRI and IMF beyond-HIPC relief would total US$57.9 million as of December 2007.
- With additional grant financing from IDA (including DPO grant support) and AfDB interim grants, multilaterals’ post-relief and interim-period assistance would further reduce Liberia’s debt service to US$40.5 million as of December 2007.

### Key macroeconomic assumptions underlying the DRA baseline
- Annual real GDP growth averages 5½ percent a year over 2008–27.
- CPI inflation decelerates from 11.7 percent in 2007 to 5 percent in the medium term.
- Central government revenue increases from 22 percent of GDP in FY2006/07 to about 27½ percent of GDP in FY2012/13, remaining there thereafter.
- Expenditure expected to increase to over 30 percent of GDP in the long run.
- After debt relief delivery and adoption of a debt management strategy, Liberia is assumed to commence borrowing in FY2010/11.
- Central government overall deficit (including grants), before HIPC assistance, projected to average 3 percent of GDP over the projection period.
- Official loan financing (excluding IMF) assumed concessional: 10-year grace period, 40 years maturity, and 0.75 percent interest rate; resulting grant element estimated at about 50 percent.
- External grants assumed to decline from 33 percent of GDP in 2006/07 to about 12 percent by 2026/27.
- External current account deficit (excluding grants) expected to narrow from 69 percent of GDP in FY2006/07 to about 23 percent in FY2026/27.
- FDI projected to rise from 9 percent of GDP in 2006/07 to about 46 percent in 2008/09, then average 27 percent of GDP up to 2012-13, stabilizing at about 7 percent thereafter.
- Net liquid foreign assets of the CBL expected to increase from under a month of imports in 2006/07 to about five months in 2026/27.

### Expected impact of HIPC, MDRI, and beyond-HIPC assistance on debt ratios
- Assuming unconditional delivery of HIPC Initiative assistance and the baseline macroeconomic assumptions, Liberia’s NPV of debt-to-exports ratio is expected to decline from 150 percent as of end-June 2007 to approximately 18 percent by FY2026/27, and to remain consistently below the HIPC threshold of 150 percent in FY2007/08–FY2026/27.
- On reaching the HIPC completion point (assumed last quarter of 2010), preliminary estimates indicate MDRI and IMF beyond-HIPC debt relief could amount to US$242.6 million in nominal terms (US$147.0 million in NPV terms), comprised of:
  - US$69.1 million from IDA,
  - US$17.8 million from AfDF,
  - US$155.7 million from the IMF.
- This compares with possible nominal HIPC Initiative assistance of US$4,007.5 million (US$2,845.5 million in NPV terms).
- Some Paris Club creditors are expected to cancel 100 percent of their claims at completion point, amounting to US$33.7 million in nominal terms (US$19.2 million in NPV terms).
- After completion point and delivery of MDRI, IMF beyond-HIPC, and additional multilateral and bilateral beyond-HIPC relief, Liberia’s NPV of debt-to-exports ratio would fall to below 17 percent over the projection period (through 2026/27), a reduction of about 22 percentage points at completion point compared with projections including only HIPC assistance.

### Sensitivity analysis: scenarios and impacts
- Five scenarios were simulated to test sustainability after HIPC assistance. Under each scenario debt indicators deteriorate; a combination of shocks (the first four scenarios) would cause indicators to breach the HIPC threshold.
- Scenario 1 (concessionality of new borrowing): new borrowing from FY2010/11 onward assumed to carry a 200-basis-point higher interest rate; exports unchanged. Under this scenario, Liberia’s NPV of debt-to-exports ratio slowly deteriorates relative to baseline and gradually converges to about 25 percent in FY2026/27.
- Scenario 2 (lower export prices): exports 25 percent lower than baseline, reducing average growth rate of exports by about 1¾ percentage points relative to baseline (from 14.2 percent to [text truncated in source]).

*Source: IMF staff report content (end-June 2007 data and projections as presented in the document)._*

### 12.5 percent), and the NPV of debt to exports, assuming full delivery of HIPC Initiative

### _cr08106 - 12.5 percent), and the NPV of debt to exports, assuming full delivery of HIPC Initiative

### Sensitivity analysis: alternative scenarios and projected NPV of debt-to-exports
- Baseline projection context (from which deviations are measured):
  - Baseline assumes average GDP growth of 8.3 percent FY2006/07–FY2016/17 and 3.8 percent in FY2017/18–FY2026/27.
- Scenario: Less concessional new borrowing (implicit from text)
  - NPV of debt-to-exports, assuming full delivery of HIPC Initiative assistance, declines until FY2012/13, reaching 51 percent.
  - NPV of debt-to-exports then gradually increases, reaching 116 percent by FY2026/27 (Table A7).
  - Compared with the baseline, this represents a deterioration of approximately 30 percentage points in FY2007/08, increasing to about 98 percentage points by FY2026/27.
- Scenario 3: Lower GDP growth (GDP grows 2.0 percentage points less than baseline)
  - Assumption: GDP grows 2.0 percentage points less than baseline due to slower progress on security, governance, rule of law, and infrastructure/basic services rehabilitation.
  - Resulting NPV of debt-to-exports, assuming full delivery of HIPC Initiative assistance, declines until FY2012/13, reaching 32 percent.
  - NPV of debt-to-exports then gradually increases to about 110 percent in FY2026/27.
  - Compared with the baseline, the debt-to-exports ratio would be about 4 percentage points higher in FY2007/08 and 93 percentage points higher by FY2026/27.
- Scenario 4: Grants substituted by loans for projects outside the budget (about 80 percent of total grants)
  - NPV of debt-to-exports, after assuming full delivery of HIPC Initiative assistance, declines until FY2012/13, reaching 46 percent.
  - NPV of debt-to-exports then gradually increases to about 143 percent by FY2026/27, just under the HIPC threshold.
  - Compared with the baseline scenario, this represents an increase of 125 percentage points by FY2026/27.
  - Interpretation: highlights importance of external grant assistance and adverse impact of additional borrowing on debt sustainability.
- Scenario 5: Combination of shocks (combining preceding four scenarios)
  - NPV of debt-to-exports, assuming full delivery of HIPC Initiative assistance, would be above 150 percent immediately after shocks in FY2007/08, reaching 185 percent.
  - NPV of debt-to-exports would then decline slightly before continuing to increase to about 633 percent in FY2026/27.
  - Compared with the baseline, debt-to-exports would be about 40 percentage points higher in FY2007/08 and 616 percentage points higher by FY2026/27.

### Key findings on vulnerabilities and policy implications
- The sensitivity analysis indicates Liberia’s ability to service external debt after HIPC relief is particularly vulnerable to:
  - Use of borrowing to compensate for limited external grant assistance.
  - The external environment (including exports performance).
  - Continued implementation of the reform agenda.
- Achievement of a robust external debt position will depend on:
  - Real GDP growth.
  - Export performance.
- Recommended priorities for government and donors to support debt sustainability:
  - (i) Enhance national security.
  - (ii) Provide a conducive environment for private investment by strengthening governance and the rule of law and rehabilitating infrastructure and basic services.
  - (iii) Design and implement a prudent debt management strategy which recognizes that external assistance needs to be largely in the form of grants.
- The importance of a debt management strategy is reflected in completion point triggers.

### The floating completion point: triggers and expectations
- Staff and authorities understandings on completion point triggers reflect economic, governance, and structural reforms outlined in the I-PRSP.
- Expectation: if the country maintains macroeconomic stability and makes good progress on its PRSP, all triggers could be achieved within three years of the HIPC decision point.
- Triggers emphasize transition from GEMAP-supported fiduciary arrangements to permanent systems ensuring efficient and effective use of public resources, and progress in critical aspects of the poverty reduction strategy.

### Monitoring public spending following HIPC assistance
- Cash-flow notes:
  - IMF token payments: US$60,000 per month.
  - AfDB token payments: US$15,000 per month.
  - World Bank goodwill payments: US$25,000 per month (held in an escrow account to be used for the benefit of Liberia).
- Debt relief must be accompanied by a strong program to ensure effective use of domestic and external resources reflecting PRS expenditure priorities.
- Required actions include:
  - Strengthening programming, management, control and monitoring of expenditures.
  - Improved service delivery in key sectors.
  - Costing PRSP priorities and developing a medium-term expenditure framework.
- Projected increase in the resource envelope over the medium term as a share of GDP combined with resumption in borrowing after completion will support increased expenditures as a share of GDP over the medium term.

### Public financial management (PFM) progress and needs
- Progress with IMF, World Bank, and AfDB technical assistance and GEMAP:
  - Interim commitment control system prevented new domestic arrears and ensures CMCo review of commitment vouchers.
  - An international expert co-signs for the CMCo and coordinates monitoring of the government’s account at the CBL.
  - International controllers have authority at major revenue-generating SOEs and Ministry of Lands, Mines and Energy; SOE revenues flow through monitored special accounts.
  - Progress in budget preparation and fiscal reporting improvements.
- Remaining needs:
  - Enhance budget preparation, implementation, and cash management.
  - Increase revenues further.
- Ongoing external support and technical assistance:
  - World Bank, IMF, AfDB provide PFM technical assistance and training to the Ministry of Finance; the United States to the Bureau of the Budget.
  - IMF provides financing to support the special advisor at the CBL and technical assistance in revenue mobilization to the Ministry of Finance.
  - U.S. assisted with a computerized payment system with full accountability checks.
  - World Bank supports procurement capacity building and training.
- Government developing a medium-term PFM reform strategy with FAD support and PEMFAR input led by the World Bank, including:
  - CFAA, CPAR, assessment of budget planning systems, and a PFM reform strategy with short-, medium-, and long-term action plans.
  - PEMFAR findings to compile standard PEFA ratings across as many of the 31 PEFA indicators as possible.
- A comprehensive PFM law is being developed to:
  - Clarify roles and responsibilities across PFM.
  - Formalize key stages in budget preparation and essential budget document elements.
  - Address budget execution, appropriations, commitments, procurement, cash management, internal control, accounting and reporting.
  - Stipulate deadlines for production and dissemination of annual accounts, financial statements, and external audit reports.
- Expenditure monitoring interim measures:
  - Government will track expenditure manually or using existing systems until IFMIS is designed and installed.
  - Certain budget codes will be designated as PRSP priority expenditures for tracking in existing authorization systems.

### Medium-term expenditure priorities (indicative from I-PRSP)
- Education:
  - Rehabilitation of 80 percent of damaged primary and secondary schools.
  - Rehabilitation of three teacher training institutions.
  - School feeding programs introduced.
  - Training facility for artisans and craftsmen opened.
- Health:
  - Improving 354 existing health facilities and provisioning the basic health services in 70 percent of health facilities.
  - Renovating and staffing three county hospitals.
  - Operating four facilities for youth offenders and four facilities for people with disabilities.
  - Preparing long-term health development plans specific to each county.
  - Creating a National AIDS commission and strengthening welfare institutions.
  - Rehabilitating nine potable water facilities; operating a new waste disposal system.
- Agricultural Development:
  - Preparing a national food security policy.
  - Providing seeds and tools to smallholders through regional seed centers.
  - Rehabilitating 1,000 hectares and 100 abandoned fish ponds.
  - Assisting 2,000 coastal fishers.
  - Providing 1,000 short-cycle ruminants.
  - Revitalizing the tree crops subsector; increasing investment in commercial plantations; reactivating extension services.
- Public Works:
  - Rebuilding 109 miles of roads, 300 miles of feeder roads, and 25 miles of urban roads.
  - Renovation of the road maintenance and training center.
  - Restoration of Roberts International Airport to international standards.

### Issues for Executive Directors (for discussion)
- Qualification and decision point:
  - Do Directors agree that Liberia qualifies for assistance under the HIPC Initiative and recommend approval for the decision point?
- Amount and delivery of assistance:
  - Total estimated Enhanced HIPC Initiative assistance to reduce NPV of debt-to-exports ratios to the 150 percent threshold: US$2,845.5 million in NPV terms.
  - Of this amount:
    - US$375.2 million in NPV terms provided by IDA through its recent DPO in support of Liberia’s arrears clearance.
    - US$732.2 million in NPV terms would be provided by the IMF.
  - Do IMF Directors agree that the IMF should provide interim assistance between the decision and completion points in line with existing guidelines?
- Floating completion point:
  - Do Directors agree that the HIPC floating completion point will be reached when the triggers in Box 3 have been met?
  - Note: Debt relief will be provided unconditionally only when completion point triggers have been met and satisfactory assurances of other creditors’ participation under the enhanced HIPC Initiative for Liberia have been received.

### Selected numeric and tabular highlights (as stated)
- NPV of debt-to-exports target (Percent): 150
- Total Estimated Enhanced HIPC Assistance: US$2,845.5 million (end-June 2007 NPV terms)
- Memorandum items (as listed):
  - NPV of debt: 3,145 / 1,569 / 1,576 (presented in table context)
  - Paris Club creditors: 948
  - Three-year average of exports: 199
  - Current-year exports: 266
  - NPV of debt-to-exports ratio: 1,576
- Composition of stock of external debt at end-June 2007 (Nominal stock: $4,732.2 million) — creditor group shares shown in figures:
  - World Bank: 9%
  - IMF: 17%
  - Paris Club: 30%
  - Commercial: 33%
  - AfDB Group: 6%
  - Other Multilaterals: 2%
  - Other Official Bilaterals: 3%
- Potential Costs of the HIPC Initiative by Creditor Group (Total Estimated Enhanced HIPC Assistance: $2,845.5 million, end-June 2007 NPV terms) — shares shown in figures:
  - World Bank Group: 13%
  - IMF: 26%
  - Paris Club: 31%
  - Commercial: 16%
  - AfDB Group: 8%
  - Other Multilaterals: 3%
  - Other Official Bilaterals: 3%
- Table A1 (selected nominal and NPV values at end-June 2007):
  - Total nominal: 4,732.2
  - Multilateral nominal: 1,614.8; World Bank nominal: 442.6; IMF nominal: 809.2; AfDB Group nominal: 271.3
  - Bilateral and commercial nominal: 3,117.5; Paris Club nominal: 1,413.9; Commercial nominal: 1,574.6
  - Note: Liberia's fiscal year runs from July to June.

*Sources: Liberian authorities and staff estimates (as presented in the document).*

### 90.48 percent is applied to debt remaining after traditional mechanisms. For non-concessional bilateral or commercial de

### _cr08106 - 90.48 percent is applied to debt remaining after traditional mechanisms. For non-concessional bilateral or commercial de

### HIPC Initiative proportional burden-sharing and creditor treatment
- A common reduction factor of 90.48 percent is applied to debt remaining after traditional mechanisms.
- For non-concessional bilateral or commercial debt this would imply a total reduction of 96.86 percent.
- Note: Exports of non-factor services are estimated using the methodology described in Annex II.

### Discount rates and end‑June 2007 exchange rates (Table A3)
- Discount Rate (Percent per annum) and Exchange Rate (Currency per U.S. dollar) at end-June 2007 (selected):
  - Canadian dollar: Discount Rate 5.01; Exchange Rate 0.9404
  - CFA franc: Discount Rate 4.94; Exchange Rate 0.0021
  - Chinese yuan: Discount Rate 5.07; Exchange Rate 0.1313
  - Danish kroner: Discount Rate 4.96; Exchange Rate 0.1815
  - Euro: Discount Rate 4.94; Exchange Rate 1.3505
  - Great Britain sterling: Discount Rate 5.92; Exchange Rate 2.0049
  - Liberian dollar: Discount Rate 4.94; Exchange Rate 0.0160
  - Japanese yen: Discount Rate 2.41; Exchange Rate 0.0081
  - Special drawing rights: Discount Rate 5.07; Exchange Rate 1.5156
  - United States dollar: Discount Rate 5.62; Exchange Rate 1.0000
- Memorandum item: Paris Club cutoff date: January 1, 1983.
- Sources: OECD; and IMF, International Financial Statistics.
- Notes:
  - 1/ Discount rates used are the average Commercial Interest Reference Rates published by the OECD.
  - 2/ Exchange rates are expressed as national currency per U.S. dollar at end-June 2007.

### External debt service projections, 2007/08–2026/27 (Table A4) — selected multi‑scenario levels (Millions of U.S. dollars)
- Before traditional debt relief — Total debt service:
  - 2007/08: 24.9
  - 2008/09: 20.6
  - 2009/10: 14.6
  - 2016/17: 8.3
  - 2026/27: 13.4
  - 2007/08-2016/17 average: 9.9
  - 2017/18-2026/27 average: 6.0
- Before traditional debt relief — Existing debt, Multilateral, Official bilateral, Commercial (selected):
  - Multilateral 2007/08: 7.2; World Bank Group 3.9; AfDB Group 2.9
  - Official bilateral 2007/08: 17.7; Paris Club 14.1; Non Paris Club 3.6
  - Commercial 2007/08: 0.0
- After traditional debt relief and multilateral arrears clearance — Total debt service:
  - 2007/08: 94.8
  - 2008/09: 115.0
  - 2009/10: 111.5
  - 2016/17: 277.8
  - 2026/27: 191.4
  - 2007/08-2016/17 average: 146.3
  - 2017/18-2026/27 average: 94.8 (table shows 146.3 and 94.8 in different rows; use row-specific figures above)
- After HIPC assistance — Total debt service:
  - 2007/08: 88.9
  - 2008/09: 64.9
  - 2009/10: 61.5
  - 2010/11: 23.2
  - 2016/17: 62.2
  - 2026/27: 48.1
  - Debt service to exports ratio after HIPC assistance (selected): 2007/08 23.0; 2008/09 11.3; 2009/10 7.1; 2010/11 1.9; 2011/12 1.0
  - Debt service to revenue ratio after HIPC assistance (selected): 2007/08 47.9; 2008/09 30.6; 2009/10 23.5; 2010/11 7.3; 2011/12 4.2
- After HIPC and MDRI assistance — Total debt service:
  - 2007/08: 88.9
  - 2008/09: 64.9
  - 2009/10: 61.5
  - 2010/11: 20.9
  - 2011/12: 10.9
  - 2016/17: 21.8
  - Debt service to exports ratio after HIPC and MDRI assistance (selected): 2007/08 23.0; 2008/09 11.3; 2009/10 7.1; 2010/11 1.7; 2011/12 0.7
  - Debt service to revenue ratio after HIPC and MDRI assistance (selected): 2007/08 47.9; 2008/09 30.6; 2009/10 23.5; 2010/11 6.6; 2011/12 2.9
- After additional bilateral and multilateral relief beyond enhanced HIPC and MDRI assistance — Total debt service:
  - 2007/08: 86.5
  - 2008/09: 59.6
  - 2009/10: 54.9
  - 2010/11: 16.4
  - 2016/17: 20.3
  - Debt service-to-exports ratio (selected): 2007/08 22.4; 2008/09 10.4; 2009/10 6.3; 2010/11 1.3
- Memorandum items (selected):
  - Exports of goods and nonfactor services (fiscal year exports, selected): 2006/07 386.7; 2007/08 573.4; 2008/09 867.6; 2009/10 1,233.0; 2016/17 1,548.0; 2026/27 2,319.4; 2007/08-2016/17 average 1,205.0; 2017/18-2026/27 average 1,889.5
  - Government revenues (central government revenues, excluding grants, selected): 2006/07 185.7; 2007/08 211.7; 2008/09 261.1; 2009/10 315.9; 2016/17 523.7; 2026/27 839.8; 2007/08-2016/17 average 359.2; 2017/18-2026/27 average 669.5

### Net Present Value (NPV) of external debt, 2006/07–2026/27 (Table A5) — selected scenarios and figures (Millions of U.S. dollars)
- I. Before traditional debt-relief — NPV of total debt (selected):
  - 2006/07: 4,683.2
  - 2007/08: 4,668.8
  - 2016/17: 4,721.5
  - 2026/27: 4,960.2
  - 2006/07-2016/17 average: 4,676.2
  - 2017/18-2026/27 average: 4,840.0
- II. After traditional debt relief and multilateral arrears clearance — NPV of total debt:
  - 2007/08: 2,498.2
  - 2008/09: 2,508.4
  - 2016/17: 1,785.2
  - 2026/27: 1,299.4
  - 2006/07-2016/17 average: 2,378.1
  - 2017/18-2026/27 average: 1,488.9
- III. After conditional delivery of enhanced HIPC assistance — NPV of total debt:
  - 2007/08: 1,955.2
  - 2008/09: 1,986.0
  - 2016/17: 260.4
  - 2026/27: 390.9
  - 2006/07-2016/17 average: 1,090.3
  - 2017/18-2026/27 average: 299.6
- IV. After unconditional delivery of enhanced HIPC assistance — NPV of total debt (selected):
  - 2006/07: 299.2
  - 2007/08: 403.5
  - 2009/10: 329.8
  - 2026/27: 391.8
  - NPV of outstanding debt under unconditional delivery (selected): 2006/07 299.2; 2007/08 372.0; 2009/10 295.2; 2026/27 54.7
- V. After conditional delivery of enhanced HIPC and MDRI assistance — NPV of total debt:
  - 2007/08: 1,955.2
  - 2008/09: 1,986.0
  - 2016/17: 194.3
  - 2026/27: 376.7
  - 2006/07-2016/17 average: 1,005.3
  - 2017/18-2026/27 average: 273.5
- VI. After conditional additional bilateral and multilateral relief beyond enhanced HIPC and MDRI assistance — NPV of total debt:
  - 2007/08: 1,942.2
  - 2008/09: 1,977.5
  - 2016/17: 179.7
  - 2026/27: 369.3

- Memorandum item — NPV of debt-to-exports ratio (percent) under selected scenarios:
  - Total debt (After conditional delivery of enhanced HIPC assistance) 2006/07: 1,939.8; 2007/08: 700.6; 2008/09: 486.1; 2009/10: 332.7; 2010/11: 36.8
  - Outstanding debt (After conditional delivery of enhanced HIPC assistance) 2006/07: 1,939.8; 2007/08: 689.3; 2008/09: 478.0; 2009/10: 327.0; 2010/11: 32.2

### External debt indicators (Table A6) — selected ratios and thresholds
- Before traditional debt relief (selected percent ratios):
  - NPV of debt-to-GDP ratio 2006/07: 697.0; 2007/08: 602.3; 2016/17: 260.8; 2026/27: 162.2
  - NPV of debt-to-exports ratio 2006/07: 2,347.6; 2007/08: 1,672.8; 2016/17: 325.2
  - Debt service-to-exports ratio 2007/08: 6.4; 2008/09: 3.6; 2009/10: 1.7; 2016/17: 0.5
  - Debt service-to-revenue ratio 2007/08: 13.4; 2008/09: 9.7; 2009/10: 5.6
- After traditional debt relief and multilateral arrears clearance (selected):
  - NPV of debt-to-GDP ratio 2007/08: 322.3; 2008/09: 289.2; 2016/17: 98.6
  - NPV of debt-to-exports ratio 2007/08: 895.1; 2008/09: 614.0; 2016/17: 122.9
  - Debt service-to-exports ratio 2007/08: 24.5; 2008/09: 20.1; 2009/10: 12.9; 2016/17: 17.7
  - Debt service-to-revenue ratio 2007/08: 51.1; 2008/09: 54.3; 2009/10: 42.7; 2016/17: 52.3
- After conditional delivery of enhanced HIPC assistance (baseline later scenarios):
  - Baseline NPV of debt-to-GDP ratio 2006/07: 575.9; 2007/08: 252.2; 2008/09: 228.9; 2016/17: 14.4
  - Debt service-to-exports ratio (after HIPC) 2007/08: 23.0; 2008/09: 11.3; 2009/10: 7.1; 2010/11: 1.9
  - Debt service-to-revenue ratio (after HIPC) 2007/08: 47.9; 2008/09: 30.6; 2009/10: 23.5; 2010/11: 7.3

### Sensitivity analysis (Table A7) — key scenario outcomes (percent)
- Baseline (after enhanced HIPC and MDRI assistance) — selected baseline ratios:
  - NPV of debt-to-GDP ratio 2006/07: 44.5; 2007/08: 52.1; 2016/17: 14.4; 2026/27: 12.8
  - NPV of debt-to-exports ratio 2006/07: 150.0; 2007/08: 144.6; 2016/17: 17.9; 2026/27: 17.6
  - NPV of debt-to-revenue ratio 2006/07: 203.8; 2007/08: 217.3; 2016/17: 52.4; 2026/27: 46.7
- Less concessional new borrowing (assumes interest rate on all new debt is 2 percentage points higher from 2010/11) — selected impacts:
  - NPV of debt-to-GDP ratio 2026/27: 18.1 (vs baseline 12.8 for 2026/27)
  - NPV of debt-to-exports ratio 2026/27: 24.9 (vs baseline 17.6)
  - Debt service-to-exports ratio peaks higher under shock scenarios (selected: 2026/27 6.0)
- Lower export growth (assumes on average 1¾ percentage points lower export growth in 2006/07-26/27) — selected impacts:
  - NPV of debt-to-GDP ratio 2007/08: 74.1 (vs baseline 52.1)
  - NPV of debt-to-exports ratio 2016/17: 69.6 (vs baseline 17.9)
  - Debt service-to-revenue ratio 2016/17: 15.8 (vs baseline 4.2)
- Lower GDP growth (assumes on average 1.8 percentage points lower GDP growth) — selected impacts:
  - NPV of debt-to-GDP ratio 2026/27: 81.7 (vs baseline 12.8)
  - NPV of debt-to-exports ratio 2026/27: 110.3 (vs baseline 17.6)
  - Debt service-to-revenue ratio increases markedly under adverse combinations of shocks.
- Grants vs Loans (assumes projects currently grant financed are instead financed with new borrowing) — selected impacts:
  - NPV of debt-to-GDP ratio 2026/27: 103.7
  - NPV of debt-to-exports ratio 2026/27: 142.6
  - Debt service-to-revenue ratio 2026/27: 36.8
- A combination of shocks (assumes combination of all shocks) — selected outcomes:
  - NPV of debt-to-GDP ratio 2026/27: 469.2
  - NPV of debt-to-exports ratio 2026/27: 633.2
  - Debt service-to-exports ratio 2026/27: 26.2
- Notes:
  - 5/ Assumes interest rate on all new debt is 2 percentage points higher than in baseline from 2010/11 onwards.
  - 6/ Assumes on average 1¾ percentage points lower export growth in 2006/07-26/27.
  - 7/ Assumes on average 1.8 percentage points lower GDP growth in 2006/07-26/27.
  - 8/ Grants vs Loans assumes government will finance projects currently financed through grants with new borrowing.

### HIPC Initiative status and IMF assistance delivery considerations (Tables A8–A9) — selected points
- Table A8 lists status of country cases under HIPC Initiative as of December 31, 2007 (completion points, decision points, assistance levels) and total assistance provided/committed: 35,996 (NPV) with breakdowns shown in table.
- Table A9: Liberia — possible delivery of IMF enhanced HIPC Initiative assistance and beyond-HIPC debt relief, FY2008–2021 (selected items, in millions of U.S. dollars)
  - Total IMF assistance under the enhanced HIPC Initiative is US$ 732.2 million in NPV terms (data available at end-June 2007). Of this amount, US$ 30.9 million represents the concessional element associated with the disbursement of a PRGF loan following Liberia's clearance of arrears to the IMF. The remaining balance of US$ 701.3 million will be provided as a grant toward debt relief under the HIPC Initiative.
  - Delivery schedule (percent of total assistance) shows phased deliveries: e.g., 0.9, 3.7, 3.7, 1.9, 2.1, 4.7, 12.1, 18.3, 15.3, 12.6, 10.8, 13.9 (table lists periodized flows).
  - Projected debt service due on IMF obligations (selected): 2008 Mar–Jun total 6.5; later years show large projected repayments (e.g., 2009 onward figures: 26.6; 26.7; 13.4; 15.9; 34.5; 123.1; 184.9; 182.8; 179.6; 175.6; 169.5).
  - IMF assistance — deposits into Liberia's Umbrella Account include interim assistance and completion point assistance: Completion point assistance 630.2; Completion point interest 80.4.
  - II. Debt relief provided at Completion Point (on stock basis in cash terms): Total 869.2; HIPC assistance 712.2; Beyond-HIPC 157.0.
  - III. Debt service due to the IMF after HIPC and beyond-HIPC debt relief (selected): numbers shown by period (e.g., 0.2; 0.7; 0.7; 0.4; 4.7; 0.3; 0.3; 1.4; 5.4; 8.2; 10.2; 12.2; 9.0; 4.9; 2.1).

*Sources: Liberian authorities and IMF staff estimates and projections; OECD; IMF, International Financial Statistics; Tables A2–A9 (extracted values as reported in the source PDF).*

### 2008. Beyond the completion point, EFF charges are based on assumed SDR interest rate (gradually rising to 5 percent) pl

### _cr08106 - 2008. Beyond the completion point, EFF charges are based on assumed SDR interest rate (gradually rising to 5 percent) pl

### EFF charges and interest assumptions
- Beyond the completion point, EFF charges are based on assumed SDR interest rate (gradually rising to 5 percent) plus 108 basis points and adjustments for deferred charges.
- Projected interest earnings on: (a) amounts held in the member's Umbrella Account; and (b) up to the completion point, amounts committed but not yet disbursed, are estimated based on assumed interest rates gradually rising to 5 percent in 2013 and beyond; actual interest earnings may be higher or lower.
- The remaining IMF's grant HIPC assistance would be disbursed into the member's account at the assumed completion point in December 2010, which is reflected in the calculation of interest.
- Debt service after HIPC assistance during the interim period reflects Liberia's current payment capacity of about US$720,000 per annum.

### Paris Club bilateral initiatives and delivery of debt relief (table highlights)
- The Paris Club creditors' delivery of debt relief under bilateral initiatives is presented by creditor and by coverage of pre-cutoff and post-cutoff date debt for ODA and non-ODA claims. Examples as presented:
  - Australia: HIPCs 100 100 100 100
  - Austria: HIPCs 100 - 100 - Case-by-case, flow Stock
  - Belgium: HIPCs 100 100 100 - 100 flow Stock
  - Canada: HIPCs 2/ -3/ -3/ 100 100 100 flow Stock (notes describe country-specific conditions)
  - Denmark: HIPCs 100 100 4/100 1004/100 flow Stock
  - France: HIPCs 100 100 100 - 100 flow 5/Stock
  - Germany: HIPCs 100 100 100 100 100 flow Stock
  - Italy: HIPCs 100 100 7/ 100 100 7/ 100 flow Stock
  - Japan: HIPCs 100 100 100 -- Stock
  - Netherlands, the: HIPCs 100 8/100 100 - 90 - 100 flow 8/Stock 8/
  - Norway: HIPCs 9/9/10/10/--
  - Russia: HIPCs S- 11/-11/100 100 - Stock
  - Spain: HIPCs 100 Case-by-case 100 Case-by-case - Stock
  - Switzerland: HIPCs - 13/-13/90 - 10014/-90 - 100 flow Stock
  - United Kingdom: HIPCs 100 100 100 100 15/100 flow 15/Stock
  - United States: HIPCs 100 100 100 100 16/100 flow Stock
- Source: Paris Club Secretariat.
- Selected footnotes (verbatim as in source):
  - "1/ Columns (1) to (7) describe the additional debt relief provided following a specific methodology under bilateral initiatives and need to be read as a whole for each creditor. In column (1), 'HIPCs' stands for eligible countries effectively qualifying for the HIPC process. A '100 percent' mention in the table indicates that the debt relief provided under the enhanced HIPC Initiative framework will be topped up to 100 percent through a bilateral initiative."
  - "2/ Canada: including Bangladesh. Canada has granted a moratorium of debt service as of January 2001 on all debt disbursed before end-March 1999 for 13 out of 17 HIPCs with debt service due to Canada. Eligible countries are Benin, Bolivia, Cameroon, Dem. Rep. Of Congo, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Rwanda, Senegal, Tanzania, and Zambia. 100% cancellation will be granted at completion point. As of July 2004, Canada has provided completion point stock of debt cancellation for Benin, Bolivia, Guyana, Senegal and Tanzania."
  - "5/ France: cancellation of 100 percent of debt service on pre-cutoff date commercial claims on the government as they fall due starting at the decision point. Once countries have reached their completion point, debt relief on ODA claims on the government will go to a special account and will be used for specific development projects."
  - "8/ The Netherlands: 100 percent ODA (pre- and post-cutoff date debt will be cancelled at decision point); for non-ODA: in some particular cases (Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Mali, Mozambique, Nicaragua, Rwanda, Tanzania, Uganda and Zambia), the Netherlands will write off 100 percent of the consolidated amounts on the flow at decision point; all other HIPCs will receive interim relief up to 90 percent reduction of the consolidated amounts. At completion point, all HIPCs will receive 100 per cent cancellation of the remaining stock of the pre-cutoff date debt."
  - "15/ United Kingdom: 'beyond 100 percent' full write-off of all debts of HIPCs as of their decision points, and reimbursement at the decision point of any debt service paid before the decision point."

### Debt service projections (selected numeric series and totals)
- Fiscal periods shown as in source: 2007/2008 Jul.-Mar., Apr.-Jun., Total, and Fiscal Years 2008/2009 through 2034/35.
- Debt service before HIPC Assistance (selected yearly values as presented):
  - 3.1, 0.7, 3.9, 3.8, 3.8, 3.8, 3.8, 3.7, 3.7, 3.7, 3.7, 3.6, 3.6, 3.6, 3.6, 3.5, 3.5, 3.2, 3.1, 3.1, 2.9, 2.8, 2.7, 2.2, 2.0, 2.0, 1.9, 0.6, 0.5, 0.1
  - Cumulative total shown: 82.5
- On IDA Credits (debt service before HIPC Assistance):
  - 3.1, 0.7, 3.9, 3.8, 3.8, 3.8, 3.8, 3.7, 3.7, 3.7, 3.7, 3.6, 3.6, 3.6, 3.6, 3.5, 3.5, 3.2, 3.1, 3.1, 2.9, 2.8, 2.7, 2.2, 2.0, 2.0, 1.9, 0.6, 0.5, 0.1
  - of which principal: 2.7, 0.6, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.0, 3.0, 3.0, 2.8, 2.7, 2.6, 2.1, 2.0, 1.9, 1.9, 0.6, 0.5, 0.1
  - of which interest: 0.5, 0.1, 0.6, 0.5, 0.5, 0.5, 0.5, 0.4, 0.4, 0.4, 0.4, 0.3, 0.3, 0.3, 0.3, 0.2, 0.2, 0.2, 0.2, 0.1, 0.1, 0.1, 0.1, 0.1, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
  - cumulative interest total shown: 6.8
- Debt Service after HIPC Assistance (selected yearly values as presented):
  - 1.6, 0.7, 2.3, 3.8, 3.8, 3.8, 3.8, 3.7, 3.7, 3.7, 3.7, 3.6, 3.6, 3.6, 3.6, 3.5, 3.5, 3.2, 3.1, 3.1, 2.9, 2.8, 2.7, 2.2, 2.0, 2.0, 1.9, 0.6, 0.5, 0.1
  - Cumulative total shown: 80.9
- On IDA Credits (debt service after HIPC Assistance):
  - 1.6, 0.7, 2.3, 3.8, 3.8, 3.8, 3.8, 3.7, 3.7, 3.7, 3.7, 3.6, 3.6, 3.6, 3.6, 3.5, 3.5, 3.2, 3.1, 3.1, 2.9, 2.8, 2.7, 2.2, 2.0, 2.0, 1.9, 0.6, 0.5, 0.1
  - of which principal: 1.4, 0.6, 2.0, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.0, 3.0, 3.0, 2.8, 2.7, 2.6, 2.1, 2.0, 1.9, 1.9, 0.6, 0.5, 0.1
  - of which interest: 0.2, 0.1, 0.3, 0.5, 0.5, 0.5, 0.5, 0.4, 0.4, 0.4, 0.4, 0.3, 0.3, 0.3, 0.3, 0.2, 0.2, 0.2, 0.2, 0.1, 0.1, 0.1, 0.1, 0.1, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
  - cumulative interest total shown: 6.6
- Savings on debt service to IDA (2007/08 include payments cleared as part of arrears clearance in December 2007):
  - Savings: 1.5, 0.0, 1.5, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
  - cumulative total shown: 1.5
  - of which principal: 1.3, 0.0, 1.3, 0.0, ... cumulative principal shown: 1.3
  - of which interest: 0.2, 0.0, 0.2, 0.0, ... cumulative interest shown: 0.2

### Annex I — Liberia: Debt Management (institutional, legal, capacity)
- Institutional responsibility:
  - Debt management is the responsibility of the Ministry of Finance and the Central Bank of Liberia (CBL).
  - Existing legislation does not clearly specify different tasks of each institution or responsibility for designing and implementing a cohesive debt strategy.
- Legal framework (four pieces of legislation summarized verbatim):
  - The constitution of 1986: article 34 states “no loan shall be raised by the government on behalf of the Republic or guarantees given for any public institution or authority otherwise than by or under the authority of legislative enactment.”
  - The executive law creating the Ministry of Finance, Chapter 21.3: one of the duties of the Deputy Minister of Finance for fiscal affairs is debt management.
  - The Revenue Code of Liberia Act of 2000: Section 2300 states “the president is authorized and empowered to negotiate, conclude and contract with any individual group, foreign government or any financial institution at home or abroad, long or short term loans for the overall development of the country.” Section 2301 gives the president the power to guarantee loans to state-owned enterprises (SOEs).
  - The 1999 Act to Authorize the Establishment of the CBL: lists among functions of the CBL “to provide credit to bank-financial institutions on a discretionary basis” and to “advise the central bank on financial and economic matters.” Parts VI–VIII regulate central bank operations, purchases, and central bank credits to the government.
- Debt recording and statistics:
  - The Debt Management Unit (DMU) of the Ministry of Finance is now the main source of public debt statistics; the DMU recently completed a review of domestic debt with assistance from KPMG Ghana.
  - As part of the HIPC process, Liberia has undertaken reconciliation of multilateral and bilateral external debt with assistance from the World Bank and IMF.
  - Houlihan Lokey were contracted with support from the government of Switzerland to work on reconciliation of commercial creditor data.
  - No comprehensive public debt database currently exists; the Unit does not have any debt recording software and stores data in various Excel spreadsheets.
  - Work processes constrained by limited technological capacity; no standard procedures for monitoring/recording incoming data, no explicit access controls or data back-up procedures, and no clear division of responsibility between staff members.
  - Many original loan agreements are missing; loan documentation is not filed systematically nor kept in a secure archive.
- Debt strategy and new borrowing:
  - Current debt strategy consists solely of the domestic debt resolution strategy.
  - Liberia has yet to produce a debt and new financing strategy or a domestic debt issuance policy.
  - The government proposes in the next few years to follow a “no borrowing” strategy.
- Contingent liabilities and guarantees:
  - No formal procedures to monitor contracting of debt by SOEs. Unless the creditor requires a state guarantee, SOEs do not need ministerial approval to take on new debts.
  - Last guarantee provided to Liberian Electricity Corporation in 2002 following ECOBANK request.
  - The Bureau of State Enterprises (BSE) monitors SOE financial performance and flags potential problems for the Ministry of Finance.
  - Significant portion of existing domestic debt inherited from SOEs that defaulted.
- Debt servicing and projections processes:
  - Payment process: DMU sends payment order to the Controller General → approves → forwarded to the Deputy Minister of Expenditure and Debt for signature → then to the CBL, which conducts debt payments.
  - In practice, systematic coordination is lacking; only small “good will” payments are currently being made to IMF, World Bank Group, and AfDB Group.
  - Government does not currently use computerized debt strategy tools (plans to obtain CS-DRMS 2000+); lack of reliable debt recording system limits capacity to make reliable debt service projections.
- Publication and transparency:
  - No national debt report currently produced.
  - Sources containing basic debt statistics:
    - Annual report of the MOF (last published for 2006).
    - Annual budget includes some provisions for debt servicing but no debt stock data.
    - Quarterly Economic Bulletin (QEB) produced by the CBL includes appendix tables summarizing public debt by quarter and creditor type.
- Staffing and capacity:
  - The Ministry of Finance’s DMU employs seven staff members; only two staff members are employed in a technical capacity; the other staff members work in a supportive role.
  - The Debt Unit of the CBL employs two staff.
  - The DMU has limited office space and an unreliable internet connection.
  - Training and capacity-building notes:
    - One Ministry of Finance staff member attended a CS-DRMS course in July 2005 but did not apply the knowledge.
    - Two CBL technical staff and one Ministry of Finance technical staff attended a Debt Sustainability Analysis workshop in March 2007.
    - Applications pending for Ministry of Finance staff to attend Loan Negotiation and Evaluation and Debt Restructuring courses (Crown Agents) and the External Debt Statistics course (IMF).
- Recent reform measures:
  - Debt Management Task Force (DMTF) created in April 2004 to coordinate debt management; represented by CBL, Ministry of Finance, Ministry of Planning and Economic Affairs, General Auditing Office and Bureau of the Budget.
  - DMTF was temporarily successful in reconciling domestic debt data and improving coordination but ceased to exist from end-2005, partly due to lack of funding.
- Future reforms required (verbatim focus):
  - Start producing accurate public debt statistics, inclusive of SOEs, on a timely basis and make them publicly available via a periodically published debt report.
  - Design and implement a debt management strategy, including borrowing by SOEs.
  - Support from the international community will be critical for achieving these goals.

### Annex II — Proposed methodology for imputing value of services receipts
- Rationale:
  - Lack of official or reliable source data on services receipts precluded usual calculation of net present value of external debt to exports (goods and services) for the HIPC eligibility assessment; therefore it was necessary to impute the value of services receipts.
- Method overview:
  - Staff used historic comparator country data to derive a benchmark ratio of services receipts to merchandise exports. This ratio was then applied to existing Liberian data for merchandise exports to impute services receipts for required periods.
  - Three main considerations in undertaking estimates: (a) choice of comparator country group; (b) data from which to derive the ratio; and (c) time period over which to sample data.
- Comparator group selection criteria:
  - Comparator country group includes countries that are (a) both PRGF-eligible and included in the World Bank’s group of low-income countries (WB LIC); and (b) post-conflict.
  - Using PRGF-eligibility alone was not sufficiently robust given large variation in results; applying stricter income criterion (below World Bank’s low-income classification 2005 cutoff of $875 per capita) was used to refine the group.
  - Further refinement based on shared characteristics impeding trade in services, such as a history of conflict.
- Proposed comparator country group (verbatim list):
  - The proposed comparator country group of low-income countries that are post-conflict covers 18 countries: Burundi, Cambodia, Central African Republic, Chad, Democratic Republic of Congo, Côte d'Ivoire, Ethiopia, Guinea, Guinea-Bissau, Haiti, Mozambique, Niger, Rwanda, Sierra Leone, Sudan, Tajikistan, Timor Leste, and Yemen.
- Methodological note:
  - This methodology is similar to the one developed and used in the case of Afghanistan and was endorsed by the Boards of IDA and the IMF during their discussion of the HIPC preliminary document for that country.
  - In the IMF’s Balance of Payments Manual (fifth edition) services cover travel and transportation as well as communication services, construction services, financial and insurance services, various business-related services (e.g., computer services), and government services (e.g., goods and services purchases by embassies).
  - Exports of goods and services data were required for 2003/04-05/06 for the preliminary DRA presented in this document.

*Source: Staff estimates; Paris Club Secretariat; excerpts from annexes in the provided IMF document.*

### 4.      The time period for calculating the benchmark ratio was chosen to cover the

### _cr08106 - 4.      The time period for calculating the benchmark ratio was chosen to cover the

### Benchmark period and comparator-group choice
- Time period for calculating the benchmark ratio: 1980–2005 (chosen to cover the longest available data time frame).
- Rationale:
  - Consideration given to potential differing impacts of conflict on merchandise exports versus services receipts (e.g., infrastructure damage, presence of foreigners).
  - Lack of consistent time-series data for comparator countries prevented identification of clear pre- and post-conflict patterns.
- Comparator-group criteria: described as “both relatively objective and well-justified.”
- Benchmark ratio adopted: 38.0 percent (total services receipts to merchandise exports).

### Estimates of Liberian services receipts (Table II.1 and Figure II.1)
- Acknowledged limitations: use of staff estimates entails subjectivity and uncertainty but is presented as a practical solution.
- Key comparative statistics cited:
  - Proposed benchmark ratio: 38.0 percent.
  - HIPC comparator statistics: median 26.5 percent; average 42.8 percent — comparator group benchmark (38.0 percent) falls between the HIPC median and average.
- Selected exact data strings from Table II.1 as presented:
  - Services2001/022002/032003/042004/052005/06 Ratio 1/ (Percent)(Millions of US dollars)
  - Merchandise Exports 2/ 147138106107134
  - Services Receipts Current IMF (MCD) Estimates in BoP2524192021
  - Comparator Group: Post-conflict and PRGF Eligible385652404151
  - Other Country Groups
    - Post-Conflict (all)38  5652404151
    - WB LIC 405955434354
    - WB IDA-only 6810194737392
    - PRGF-eligible 7010397757594
  - Notes:
    - 1/ Comparator ratio derived from the IMF's Balance of Payments Yearbook (database) based on data covering 1980-2005.
    - 2/ IMF estimates.
- Figure II.1: shows distribution of service credits as a percentage of merchandise exports across individual HIPCs, with labels and HIPC Average and HIPC Median referenced (visual detail preserved in source).

### Debt Sustainability Analysis (LIC DSA) — Baseline assumptions and macro framework
- Methodology:
  - LIC DSA framework used (common standard) with modifications for Liberia (stress tests and domestic contingent liabilities).
  - Distinction from HIPC DRA: LIC DSA compares forward-looking single-year denominators to policy-dependent indicative thresholds; HIPC DRA uses three-year backward-looking averages and uniform thresholds.
- Growth and investment assumptions:
  - Average annual real GDP growth projected to moderate from 10.5 percent in 2007/08–2012/13 to 3¾ percent in 2013/14–2026/27.
  - FDI-to-GDP ratio: projected decline from short- to medium-term exceptional levels above 30 percent to about 7 percent long-term.
  - FDI-related imports assumed to represent about 85 percent of FDI over the projection period.
- Fiscal and financing assumptions:
  - Government to maintain cash-based balanced budget until completion point.
  - Borrowing assumed to begin in 2010/11 to fund deficits of 1.5 percent of GDP in the initial year (2010/11) and 3 percent of GDP per year thereafter.
  - Two thirds of annual deficit financing assumed to be concessional external debt; remainder by local currency domestic debt.
  - Revenues assumed to increase from 24 percent of GDP in 2007/08 to 27½ percent of GDP (28.6 percent of GDP, including grants) in 2012/13.
  - Expenditures (excluding debt servicing financed by HIPC assistance) expected to peak at 31.6 percent of GDP in 2012/13.
- External position:
  - Current account deficit (excluding grants) projected to fall from about 69 percent in 2006/07 to around 23 percent in 2026/27.
  - External grants and FDI projected to fall from 42 percent in 2006/07 to around 19 percent in 2026/27.
  - Current account deficit (including grants) expected to decline to just below 11 percent of GDP by end of projection period.
  - Expected narrowing of private sector savings-investment deficit over the long term as income growth and financial intermediation improve.
- Baseline financing assumptions regarding debt relief:
  - Baseline assumes full delivery of traditional debt relief, multilateral arrears clearance and interim HIPC assistance.
  - Baseline does not reflect delivery of HIPC, MDRI and IMF beyond-HIPC assistance at completion point (this is analyzed in an alternative scenario).

### External debt sustainability findings
- Debt distress classification:
  - LIC DSA concludes Liberia is in debt distress.
- Key indicator behavior under baseline:
  - NPV of external debt-to-GDP ratio remains well above the 30 percent threshold.
  - NPV of external debt-to-exports ratio moves below the 100 percent threshold by 2016/17 (reflecting cumulative FDI effect on exports).
  - Debt service ratios (to exports and revenue) become manageable after 2018/19 due to high concessionality of outstanding debt.
  - Debt service ratios exceed thresholds (15 percent for exports and 25 percent for revenues) during 2011/12 to 2017/18, driven mainly by payments associated with the PRGF/EFF arrangements.
- Vulnerabilities and stress-test results:
  - Alternative scenarios and bound tests indicate significant vulnerability; most debt indicators deteriorate substantially under temporary shocks.
  - A permanent unfavorable shock to terms of new borrowing is not projected to cause drastic deterioration given assumed moderate, highly concessional new borrowing, but any deterioration complicates spending priorities.
- Impact of full debt relief:
  - Full delivery at completion point of HIPC, MDRI and IMF beyond-HIPC assistance (and possible bilateral/multilateral beyond-HIPC interim assistance) would place all three debt-burden indicators (NPV debt-to-GDP, NPV debt-to-exports, debt service-to-exports) significantly below indicative thresholds.

### Public sector debt dynamics
- Baseline trajectory:
  - Public debt (including domestic debt) expected to decline steadily as a percentage of GDP across the projection period.
  - Early decline driven by strong GDP growth and moderate borrowing; long-run decline supported by 3¾ percent GDP growth.
- Domestic debt specifics:
  - Stock of domestic debt at beginning of projection is substantial at around 40 percent of GDP.
  - Domestic debt restructured on concessional terms; new domestic borrowing assumed to average 1 percent of GDP after completion point.
- Stress-test sensitivities:
  - Public debt dynamics most vulnerable to GDP shocks.
  - One-time 30 percent depreciation shock in 2008/09 (bound test B4) has a large adverse impact on debt dynamics but should be interpreted with caution because about 95 percent of government revenues are collected in U.S. dollars.
  - Inclusion of part of domestic claims currently classified as “contestable” (bound test B5) would increase the debt stock in 2008/09 but not materially affect long-term debt ratios.

### Debt-distress conclusion and policy implications
- Conclusion:
  - The LIC DSA finds Liberia in debt distress under the baseline.
  - Debt relief under the HIPC Initiative, MDRI and beyond-HIPC assistance materially improves Liberia’s external debt position and brings debt indicators to a manageable level.
- Policy-relevant implications evident from the analysis:
  - Continued fiscal discipline and moderate, concessional borrowing are central to sustaining improving debt dynamics.
  - Full and timely delivery of HIPC, MDRI and beyond-HIPC assistance is critical to place Liberia’s debt indicators below indicative thresholds and reduce vulnerabilities from shocks.
  - Monitoring and mitigating exposure to shocks (especially GDP shocks and exchange-rate depreciation) remain important given the public debt sensitivity illustrated in stress tests.

*Source: Excerpt from IMF/World Bank Joint DSA for the Republic of Liberia (text and tables as presented in the supplied content).*

### 13.      Alternative scenarios and bound tests indicate that the evolution of Liberia’s

### 13. Alternative scenarios and bound tests indicate that the evolution of Liberia’s external debt position is subject to vulnerabilities

### Key findings on vulnerabilities and debt drivers
- The achievement of a robust external debt position will depend on real GDP growth, export and revenue performance as well as prudent debt management.
- The inclusion of domestic debt in the analysis does not significantly change the overall assessment of Liberia’s debt sustainability.
- Debt owed to the Central Bank of Liberia represents over 90 percent of the total domestic debt at end-June 2007 and was rescheduled on concessional terms with a 30 year maturity, 10 year grace period on principal, and interest rates increasing from 1.0 percent at the start of the repayment period to 2.5 percent for the latter part of the period. (footnote 10)
- The outcome of the further vetting of approximately $0.3 billion of “contestable” domestic claims is uncertain; the scenario assumes that the discounted value of claims will be 10 percent of GDP (approximately $80 million). (footnote 12)
- If Liberia were to start collecting a greater portion of revenues in Liberian dollars, resulting in a greater mismatch on the government’s balance sheet, the implications of this scenario would become more important. (footnote 11)

### Baseline debt indicators (selected exact figures from staff simulations and projections)
- External debt (nominal) 1/: 709.3 (level shown in table)
- NPV of external debt 4/: 689.4
- NPV of external debt in percent of exports: 2502.7
- Debt service-to-exports ratio (in percent): 80.0 (initial value shown in table)
- Total gross financing need (billions of U.S. dollars) (selected years shown): 0.2, 0.2, 0.2, 0.2, 0.1, 0.1, 0.2, 0.3, 0.2
- Non-interest current account deficit that stabilizes debt ratio (selected values): 140.5, 447.1, 90.7, 83.2, 64.7, 49.8, 37.5, 31.0, 12.0

### Key macroeconomic assumptions (exact figures from the baseline scenario)
- Real GDP growth (in percent) (selected sequence): 8.7, 3.0, 3.4, 9.5, 10.0, 12.7, 13.5, 10.9, 6.6, 10.5, 3.8, 3.8, 3.8
- GDP deflator in US dollar terms (change in percent) (selected sequence): 8.5, 4.0, 6.2, 5.4, 1.8, 2.3, 3.6, 4.0, 2.1, 3.2, 1.0, 1.6, 1.5
- Effective interest rate (percent) 5/: 3.0, 3.0, 1.0, 0.0, 2.3, 2.3, 2.9, 3.7, 3.6, 2.5, 3.5, 2.6, 3.1
- Growth of exports of G&S (US dollar terms, in percent) (selected): 25.2, 18.6, 32.7, 108.9, 48.3, 51.3, 42.1, 24.8, 5.1, 46.7, -8.6, 3.9, 2.7
- Growth of imports of G&S (US dollar terms, in percent) (selected): 31.3, 17.1, 16.1, 89.9, 37.7, 16.3, 14.7, 14.9, 2.3, 29.3, -7.8, 3.5, 2.5
- Aid flows (in billions of US dollars) 8/ (selected): 0.3, 0.3, 0.3, 0.3, 0.3, 0.4, 0.5, 0.6, 0.6
- Grant-equivalent financing (in percent of GDP) 9/ (selected): 0.0, 1.8, 1.5, 2.0, 1.7, 2.2, 2.3, 2.3, 2.3

### Public sector debt baseline (selected exact figures)
- Public sector debt 1/: 774.2 (level shown in table)
- o/w foreign-currency denominated: 766.3
- NPV of public sector debt: 753.8
- NPV of public sector debt-to-revenue ratio (in percent) 3/: 1257.7 (initial value shown)
- Debt service-to-revenue ratio (in percent) 3/4/: 12.7 (initial value shown)
- Gross financing need 2/ (selected years): 2.7, 0.0, 0.3, 2.3, 5.3, 12.0, 19.0, 14.4

### Alternative scenarios and stress tests (labels and representative outcomes)
- Alternative scenarios:
  - A1. Key variables at their historical averages in 2008/09-26/27 (baseline NPV of debt-to-GDP: 255 in 2007/08, series shown through 2026/27)
  - A2. New public sector loans on less favorable terms in 2008/09-26/27 (assumes interest rate on new borrowing is by 2 percentage points higher than in the baseline)
  - A3. Full delivery of HIPC Initiative, MDRI and beyond-HIPC assistance (shows large reductions in debt indicators in the projection period)
- Bound tests (examples with labels):
  - B1. Real GDP growth at historical average minus one standard deviation in 2008/09-09/10
  - B2. Export value growth at historical average minus one standard deviation in 2008/09-09/10
  - B3. US dollar GDP deflator at historical average minus one standard deviation in 2008/09-09/10
  - B4. Net non-debt creating flows at historical average minus one standard deviation in 2008/09-09/10
  - B5. Combination of B1-B4 using one-half standard deviation shocks
  - B6. One-time 30 percent nominal depreciation relative to the baseline in 2008/09

- Representative stress outcomes (selected exact values from sensitivity tables):
  - NPV of debt-to-GDP ratio, baseline 2007/08: 255 (percent). Under B6 (one-time 30 percent nominal depreciation) 2008/09: 330 (percent) in one panel of the sensitivity analysis.
  - NPV of debt-to-exports ratio, baseline 2007/08: 510 (percent). Under B2 (export value shock) values rise sharply in projections (examples include 642, 859, 618 in subsequent years shown in table).
  - NPV of debt-to-revenue ratio, baseline 2007/08: 1018 (percent). Under combined shocks and prolonged stress this ratio increases (selected cells show values up to 1109, 1283 in sensitivity panels).
  - Debt service-to-revenue ratio, baseline (selected): 13 (percent) progressing across projections; stress scenarios (e.g., one-time 30 percent real depreciation) raise this indicator (example 39 in 2008/09 under B4 in Table 2b).

### Implications and policy-relevant observations (derived from scenario structure and results)
- Debt sustainability is sensitive to:
  - Deviations in real GDP growth (B1), export value growth (B2), and US dollar GDP deflator (B3).
  - Changes in net non-debt creating flows (B4) and combined shocks (B5).
  - One-time exchange rate shocks (B6) can substantially raise NPV ratios and debt-service burdens in the near term.
- Full delivery of HIPC Initiative, MDRI and beyond-HIPC assistance (A3) materially reduces external debt indicators in the projections.
- The unusually high share of domestic debt owed to the Central Bank and its concessional rescheduling implies that domestic debt dynamics depend on the rescheduling assumptions and on whether government revenue collection changes currency composition (footnotes 10 and 11).

*Source: Staff simulations, projections, and accompanying tables and notes in the provided content.*

### 8. Beyond the completion point, EFF charges are based on assumed SDR interest rate (gradually rising to 5 percent) plus 

### _cr08106 - 8. Beyond the completion point, EFF charges are based on assumed SDR interest rate (gradually rising to 5 percent) plus

### EFF charges and interest assumptions
- Beyond the completion point, EFF charges are based on assumed SDR interest rate (gradually rising to 5 percent) plus 108 basis points and adjustments for deferred charges. 5/
- The remaining IMF's grant HIPC assistance would be disbursed into the member's account at the assumed completion point in December 2010, which is reflected in the calculation of interest.

### Projected interest earnings (assumptions and scope)
- 6/ Estimated interest earnings on:
  - (a) amounts held in the member's Umbrella Account; and
  - (b) up to the completion point, amounts committed but not yet disbursed.
- The projected interest earnings are estimated based on assumed interest rates which are gradually rising to 5 percent in 2013 and beyond; actual interest earnings may be higher or lower.

### Debt service and arrears
- 7/ Debt service after HIPC assistance during the interim period reflects Liberia's current payment capacity of about US$720,000 per annum.
- 8/ Associated with the stock of arrears at arrears clearance (subject to HIPC and beyond-HIPC assistance) and the first disbursement of new credit under the PRGF (subject to HIPC assistance).

*Content unit: _cr08106 - 8. Beyond the completion point, EFF charges are based on assumed SDR interest rate (gradually rising to 5 percent) plus*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08106.pdf_