## 1. Selected Economic and Financial Indicators, 2006–10 (_cr08108) ## Source details **Canonical URL:** [1. Selected Economic and Financial Indicators, 2006–10 (_cr08108)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08108.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08108.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08108.pdf.json) --- ### Executive summary — key findings and projections - Real GDP growth accelerated to 9½ percent in 2007 from about 8 percent in 2006; program target is annual average real GDP growth of about 11½ percent through 2010. - Inflation: year-on-year total CPI broadly stable in low double digits in 2007; prospects for 2008 project inflation to decline to a single-digit rate. - Trade and external: - Trade deficit narrowed in 2007 due to slower import growth and strong export growth; trade deficit projected to substantially widen in 2008, financed in part by a significant increase in foreign direct investment (FDI). - Current account deficit excluding grants expected to widen to about 94 percent of GDP in 2008. - Official transfers expected to average about $600 million a year through 2011. - Program performance under SMP through December 2007: - Performance broadly satisfactory and met the standard of upper credit tranche conditionality, except for continued accrual of external payments arrears. - Achieved all but one quantitative benchmark; CBL expenditure ceiling was exceeded by 31 percent (printing banknotes), but CBL recorded a surplus of US$1.8 million. - Poverty and social indicators: - Per capita GDP was US$195 in 2007. - Liberia remains unlikely to achieve any of the MDGs by 2015 under current circumstances. - Risks: - Considerable. Key risks include cooperation of opposition-controlled legislature and limited institutional capacity. ### Recent developments and program stance - Growth drivers: agriculture, mining, and services supported the 2007 expansion. - Monetary and exchange rate: - Broad money (M2) growth rose in 2007, largely driven by U.S. dollar liabilities; staff estimates U.S. dollar currency in circulation and deposits accounts for about 95 percent of total broad money. - Exchange rate: broad exchange rate stability around L$/US$1 in 2007; exchange rate at end-January 2008 reported as L$63.5=US$1. - Fiscal: - Fiscal policy anchored on a balanced cash-based budget. - 2007/08 budget projects a deficit of 1.8 percent of GDP financed mostly by 2006/07 surplus. - Budget revisions by the legislature included a substantial increase in civil service wages and $14.3 million (7.2 percent of expenditures) to implement domestic debt strategy and pay arrears. - Revenues (excluding grants) targeted to rise by about 3 percentage points to 26½ percent of GDP. - Financial sector: - Continue bank restructuring, resolve abandoned/nonoperating banks; capital adequacy ratio of system exceeded 8 percent by end-2007. - CBL safeguards assessment recommendations: adopt IFRS by 2008, strengthen audits, controls, and data reporting. ### Medium-term program design and targets - Program: three-year PRGF/EFF-supported program to sustain economic reconstruction, create stable macroeconomic environment, underpin rapid growth, job creation, poverty reduction, and progress toward MDGs; centers on strengthening economic governance to prepare for exit from GEMAP and HIPC completion. - Fiscal framework: - Government budget to remain balanced on a cash basis. - Program assumes no new domestic or external borrowing until domestic debt claims resolved, institutional capacity expanded, and a comprehensive debt management strategy drafted. - Macroeconomic targets and assumptions: - Authorities’ program directed to achieving annual average real GDP growth of about 11½ percent through 2010 and keeping inflation in single digits. - Current account deficit excluding grants expected to be substantial throughout the period; trade deficit projected to widen to 62 percent of GDP in 2008. - External debt sustainability predicated on comprehensive debt restructuring via the HIPC Initiative, MDRI and beyond-HIPC relief. - CBL numeric target: - Floor on CBL’s net foreign exchange position targeted to reach a minimum of US$47.6 million by year-end (calendar-year target: Dec. 08: 47.5 in program tables). ### Key quantitative projections and selected indicators (verbatim excerpts) - Real GDP: "7.8 9.5 9.6 10.3 14.8" - Consumer prices (annual average): "1 7.2 11.4 10.6 9.0 8.0" - Consumer prices (end of period): "1 8.9 11.7 9.5 8.5 7.5" - Nominal GDP (US$ millions): "611.6 732.2 818.2 916.8 1,082.6" - Real GDP per capita (constant 1992 US$): "2 121.0 126.4 131.7 138.6 152.5" - Exports of goods, f.o.b.: "43.0 43.8 46.8 49.3 52.7" - Imports of goods, f.o.b.: "36.5 21.6 73.2 16.5 11.3" - Total revenue and grants (selected lines): "6.5 73.3 25.2 19.4 23.1" - Broad money (M2) (annual change): "34.4 40.1 23.2 20.4 25.0" - Gross official reserves (months of imports): "1.0 1.5 1.0 1.1 1.2" - Balance of payments (selected verbatim lines): - Trade balance: "-243 -260 -511 -486 -335" - Exports, f.o.b.: "158 227 333 498 760" - Imports, f.o.b.: "-401 -487 -844 -984 -1,095" - Current account balance: "-228 -255 -529 -581 -447" - Capital and financial account: "96 117 442 486 347" - Overall balance: "-133 -138 -87 -95 -64" - Central government operations (selected verbatim lines): - Total revenue and grants: "85.6 148.3 185.7 221.7 272.9 329.8" - Total expenditure and net lending: "73.5 123.0 188.7 318.5 368.4 444.1" - Wages and salaries: "32.5 40.6 67.5 75.8 87.4 105.0" - Capital expenditure: "6.3 16.6 21.1 21.0 45.0 71.5" - Overall surplus or deficit: "3 12.1 25.3 -3.0 -96.8 -95.5 -114.4" - Stock of domestic debt (percent of GDP): "42.9 36.6 31.8 27.5 25.0" - Monetary and banking (selected verbatim lines): - CBL's gross foreign reserves: "4,281 7,457 8,936 11,970 15,456" - Broad money (M2): "8,549 11,977 14,753 17,764 22,203" - L$ component: "3,473 4,566 5,751 6,963 8,677" - US$ component: "5,075 7,411 9,001 10,801 13,525" - Financial soundness indicators (selected verbatim lines): - Number of banks: "3 3 5 5 6" - Regulatory capital to risk-weighted assets: "-2.0 -4.4 2.3 12.3 22.7" - Nonperforming loans to total loans: "62.0 23.8 15.5 42.4 19.2" ### Access, exceptional financing, and repayment capacity - Total proposed Fund financing: "Total : SDR 550.03 Million" (PRGF: SDR 207.26 Million; EFF: SDR 342.77 Million). - Proposed PRGF access: SDR 38.76 million—30 percent of Liberia’s quota (reference in text). - Bridge loan refinancing: - SDR 200.3 million (155 percent of quota) drawn from PRGF resources and SDR 342.8 million (265 percent of quota) under an extended arrangement. - Immediate disbursement allowed: amount equivalent to SDR 550.03 million; remaining SDR 31.76 million to be drawn in six installments per schedule. - Prospective repayments and Fund credit position (selected verbatim lines): - Prospective drawings PRGF: "214.3 11.4 8.9 4.4 -" - EFF: "342.8 - - - -" - Projected debt service to the Fund (selected years): "12.5 16.8 16.9 20.9 50.0 97.2 116.2 114.4 112.3 108.9 56.2 4.3 2.2 0.4" - Fund credit outstanding (selected): "557.0 568.5 28.6 33.0 33.0 33.0 30.9 26.8 20.9 14.0 6.9 2.7 0.4 (0.0)" - Percent of GDP: "98.3 88.1 3.7 3.7 3.2 3.1 2.8 2.3 1.7 1.1 0.5 0.2 0.0 0.0" - Staff judgment: proposed access is consistent with Liberia’s capacity to repay the Fund conditional on timely delivery of HIPC interim assistance and completion-point and beyond-HIPC debt relief. ### Debt sustainability and HIPC/MDRI - DSA findings: - At end-June 2007, NPV of debt-to-exports ratio: "1,576 percent" (well above HIPC threshold of 150 percent). - NPV of external debt-to-GDP remains above threshold (30 percent) throughout projection period. - NPV of external debt-to-exports ratio moves below threshold (100 percent) by 2016/17. - Debt service ratios exceed thresholds up to 2017/18. - Staff expects Liberia to receive debt relief by end-2010 in the context of HIPC and MDR Initiatives and beyond-HIPC relief; resolution of arrears to private creditors could involve World Bank’s Debt Reduction Facility for IDA-only countries. ### Structural benchmarks, program monitoring, and data needs - First-year monitoring (Jan–Dec 2008): - Biannual quantitative performance criteria: end-June and end-December 2008. - Indicative targets: end-March and end-September 2008. - Selected fiscal quantitative targets (cumulative; US$ millions): floor on revenue collections — Mar. 08: 139.5; Jun. 08: 185.7; Sep. 08: 43.3; Dec. 08: 91.7. - CBL calendar-year targets (US$ millions): floor on net foreign exchange position — Mar. 08: 36.4; Jun. 08: 40.0; Sep. 08: 43.9; Dec. 08: 47.5. - Key structural benchmarks (first year highlights and targets): - Adopt legislation to limit transfers between budget lines without legislative approval to a cumulative total of no more than 30 percent — Target: End-March 2008. - Prepare a chart of accounts consistent with GFSM 2001 — Target: End-March 2008. - Adopt legislation to merge the Bureau of the Budget into the Ministry of Finance — Target: End-June 2008; complete merger — Target: End-December 2008. - Publish list of banks licensed to operate in Liberia — Target: End-March 2008. - Establish off-site inspection system and submit first written reports — Target: End-June 2008. - Finalize a comprehensive civil service reform strategy — Target: End-June 2008. - Finalize debt management strategy — Target: End-June 2008. - Establish a functioning Liberia Anticorruption Commission — Target: End-September 2008. - Develop a comprehensive national statistical development strategy — Target: End-March 2008. - Technical Memorandum of Understanding (TMU) specifies detailed definitions for program variables and extensive reporting requirements (daily, weekly, monthly, quarterly), including monthly revenue/expenditure by cash and commitment basis, CBL balance sheet and SRFs, foreign exchange auction reports, and harmonized CPI series. ### Public financial management, tax policy and civil service reform - PFM reforms: - With FAD assistance, prepare comprehensive PFM law to clarify roles, formalize budget stages, address budget execution, procurement, cash management, accounting, reporting, and deadlines for financial statements and audits. - Prepare a medium-term macrofiscal framework to support PRSP and integrate multiyear revenue and expenditure projections into budget process. - Revenue mobilization and tax policy: - Target increase in revenues (excluding grants) of about 3 percentage points to 26½ percent of GDP; program aims average revenue growth (excluding grants) of 18 percent per year up to 2010. - 2008 fiscal measures include strengthening taxpayer auditing, implementing integrated tax automation, outsourcing customs administration, and continuing LRC revision. - Tax policy measures consistent with FAD recommendations: reduce top corporate tax rate from 35 percent to 30 percent; reduce top personal income tax rate from 35 percent to 25 percent; increase GST from 7 percent to 10 percent for all goods and services except food. - Civil service reform: - Complete medium-term comprehensive civil service reform strategy by mid-2008 (June 2008); first phase of Senior Executive Service to fill 21 of 100 positions. - Increase civil service wages over time as part of comprehensive reform; 2007/08 budget supports increase in minimum government wage from US$30 to US$55. ### Monetary policy, dollarization and financial sector reforms - Monetary policy objective: price stability anchored on exchange rate stability in a highly dollarized economy. - Operational guidance: - With low foreign reserves, authorities should not target a specific exchange rate level or defend it against downward pressure from exogenous shocks. - Strengthen liquidity management tools, improve Ministry of Finance–CBL coordination, improve foreign exchange data, and consider deposit/credit auctions. - Relaunch publicization of monetary policy and disseminate economic data regularly. - Dedollarization measures (market-driven options): require tax payments and government spending in Liberian dollars; introduce higher-denomination bank notes; improve note quality; report public revenue and expenditure in Liberian dollars. - CBL financial management: - CBL recorded a surplus of US$1.8 million in 2007; external audit for 2006 completed in August 2007 with no opinion due to inconsistent accounting application. - Actions taken to adopt IFRS from 2008; continued improvement of internal management and financial controls recommended. - CBL capitalization may require recapitalization due to government claims not discounted and below-market interest rates. ### Governance, anticorruption, natural resources and infrastructure - Governance: - National anticorruption strategy adopted in 2006; legislation for independent anticorruption commission submitted to legislature; plan to establish commission once legislation passed. - Launched Liberia Extractive Industries Transparency Initiative (LEITI) in July 2007; all financial flows from natural resource exploitation to be reconciled, externally audited, and published. - Natural resources: - Forestry: implement new forestry law, finalize commodity and expenditure tracking, begin auctions of timber sales and forest management contracts. - Mining: draft national mineral policy and legal/fiscal minerals framework underway. - Infrastructure: - Progress restoring electricity generation in Monrovia and rehabilitating roads, health facilities, and schools; donor support needed to sustain rebuilding. ### Technical assistance, capacity building and statistical issues - Extensive TA provided since 2003 across monetary, fiscal, financial sector, auditing, statistics, governance, judiciary and security sectors. - Resident advisors under GEMAP with cosigning authority helped establish transparent financial management systems. - Statistical capacity: - National statistical capacity minimal after years of conflict; real GDP likely underestimated. - LISGIS created in July 2004; national statistical development strategy to be finalized by April 2008. - HCPI adopted January 2007; CPI compiled since October 2005. - Significant data gaps remain (external public debt records, trade data discrepancies, limited source data for balance of payments); STA and other TA missions assisting. ### Program risks, donor dependence and staff recommendations - Program risks: - Considerable: limited capacity, need for legislature cooperation, vulnerability to external shocks. - Several structural benchmarks require donor support. - Donor dependence: - Substantial grant financing and technical assistance required, particularly in the first year, to finance reconstruction and meet program benchmarks (e.g., anticorruption commission, civil service reform). - Staff recommendations and commitments: - Continue strengthening PFM and transparency; adopt PFM law; finalize debt management strategy; resolve domestic debt claims before new domestic borrowing. - Maintain balanced cash-based budget and no new external or domestic borrowing until debt sustainability restored and institutions strengthened. - Complete safeguards assessment update for CBL and provide Fund with required information for prompt completion. - Ensure timely provision of HIPC interim assistance and delivery of debt relief to underpin repayment capacity and program success. *Source: IMF staff report excerpts and tables from content unit _cr08108.* ### 1. Selected Economic and Financial Indicators, 2006–10 .......................................................24 ### 1. Selected Economic and Financial Indicators, 2006–10 ### Executive summary — key findings and projections - Post-war recovery continued: real GDP growth is estimated to have accelerated to 9½ percent in 2007 from about 8 percent in 2006. - Inflation remained broadly stable in the low double digits in 2007; prospects for 2008 project inflation to decline to a single-digit rate. - Trade balance developments: - The trade deficit narrowed in 2007 on account of slower import growth and continued strong export growth. - The trade deficit is projected to substantially widen in 2008, financed in part by a significant increase in foreign direct investment. - Program performance under the SMP through December 2007: - Performance was broadly satisfactory and, in staff’s view, met the standard of upper credit tranche conditionality, with the exception of the continued accrual of external payments arrears. - The authorities achieved all but one of the quantitative benchmarks and made good progress on structural benchmarks, although several required more time than programmed. - Poverty and social indicators: - Real GDP remains below pre-war levels; per capita GDP was US$195 in 2007. - Liberia remains one of the poorest countries in the world and is unlikely to achieve any of the MDGs by 2015 under current circumstances. - Program objectives: - The main objectives of the authorities’ three-year PRGF/EFF-supported program are to sustain economic reconstruction by creating a stable macroeconomic environment to underpin rapid economic growth, job creation, poverty reduction, and progress toward the MDGs. - The program centers on strengthening economic governance to prepare Liberia to exit the GEMAP once it reaches the HIPC Initiative completion point. - Macroeconomic policy stance: - Fiscal policy anchored on a balanced cash-based budget. - Monetary policy aims at maintaining price stability by focusing on the exchange rate of the Liberian dollar to the U.S. dollar. - Risks: - Considerable. Key risks include ensuring cooperation of the opposition-controlled legislature for passage of key legislation and enhancing very limited institutional capacity. ### Recent economic developments and performance under the SMP - Growth and sectoral drivers: - Real GDP growth rose further in 2007, supported mostly by agriculture, mining, and services. - Prices and exchange rate: - Inflation: year-on-year total CPI broadly stable in low double digits in 2007; total, excluding food followed similar pattern. - Exchange rate: trend shows broad exchange rate stability of L$/US$1 in 2007. - External sector and trade: - Slower import growth combined with continued strong export growth contributed to a modest narrowing in the trade deficit (2007). - Fiscal developments and cash management: - Revenue performance continued to exceed program targets, but expenditure on average lagged available cash resources (2006/07–2007/08). - Monetary aggregates: - Broad money (M2) growth rose during 2007, mostly on account of U.S. dollar liabilities; year-on-year growth shows larger US$ component versus L$ component. - SMP implementation: - Authorities made solid progress through December 2007 (MEFP ¶12); achieved all but one quantitative benchmark (see Table 1, Appendix I) and progressing on structural benchmarks (Table 2, Appendix I), though some with delay. - Exception noted: ceiling on CBL expenditure was exceeded by 31 percent because of higher capital expenditure related to printing Liberian dollar banknotes; however, the CBL still achieved a surplus of US$1.8 million. ### The medium-term program — structure, targets, and institutional reforms - Program purpose: - A three-year PRGF-EFF-supported program to sustain reforms in core Fund areas as part of an internationally coordinated effort, supporting the authorities’ poverty reduction strategy. - Key pillars of the poverty reduction strategy (I-PRSP, July 2006–June 2008): - (i) enhancing national security; - (ii) revitalizing economic growth; - (iii) strengthening governance and the rule of law; - (iv) rehabilitating infrastructure and delivering basic services. - Fiscal framework and debt stance: - Government budget to remain balanced on a cash basis. - The three-year program does not assume any new domestic or external borrowing. - Domestic borrowing to finance reconstruction or support economic management to be considered only after resolution of domestic debt claims, expansion of institutional capacity, and drafting of a comprehensive debt management strategy. - Public financial management (PFM) reforms: - With FAD assistance, authorities are developing a comprehensive PFM law to replace the fragmented legal framework; law will: - clarify roles/responsibilities across PFM; - formalize key stages in budget preparation and prescribe essential budget document elements; - comprehensively address budget execution (appropriations, commitments, procurement, cash management, internal control, accounting, reporting); - stipulate deadlines for production and dissemination of annual accounts, financial statements, and external audit reports. - Expected outcome: improved PFM to encourage future donor budget support for poverty reduction objectives. - Revenue mobilization: - Program targets an increase in revenues (excluding grants) of about 3 percentage points, to 26½ percent of GDP, via enhanced tax and customs administration, improved taxpayer compliance, and broadening of the tax base. - Note: revenue-to-GDP ratio should be interpreted cautiously because GDP is likely underestimated (Country Report No. 07/49). - Monetary policy and financial sector reforms: - Strengthen monetary policy framework by developing new liquidity management tools, improving Ministry of Finance–Central Bank coordination, improving data on foreign exchange volumes, and considering introduction of deposit auctions. - Relaunch efforts to publicize the monetary policy framework. - Continue bank restructuring, resolve abandoned/nonoperating banks, and improve private access to credit. - With MCM technical assistance, strengthen banking supervision; plan to establish a modern national payments system. - Central Bank of Liberia (CBL) position: - CBL’s financial position improved but may require recapitalization due to claims against government not discounted and interest rates significantly below market rates. - Consistent with safeguards assessment and MCM recommendations, authorities will continue to improve internal management and financial controls to allow eventual exit of the Fund-supported special advisor working with the CBL as part of GEMAP. - Growth and external financing assumptions: - Authorities’ program directed to achieving annual average real GDP growth of about 11½ percent through 2010 (Box 1) and keeping inflation in single digits. - Liberia’s external position expected to improve as export volumes rise and FDI increases, but remains vulnerable to external shocks. - Current account deficit excluding grants expected to be substantial throughout the period, reflecting strong import growth from FDI-funded projects. - Official transfers expected to average about $600 million a year through 2011 to help finance the deficit. - External debt sustainability predicated on comprehensive debt restructuring through the HIPC Initiative and beyond-HIPC debt relief. - Statistics capacity: - After years of conflict, national statistical capacity is minimal; renewed effort required to complete and implement components of the comprehensive medium-term national statistical plan (MEFP ¶21). ### Discussions on the program for 2008 — selected fiscal details - Fiscal year 2007/08 budget: - Projects a deficit of 1.8 percent of GDP, to be financed mostly by the estimated surplus from 2006/07. - The legislature revised the budget significantly after presidential submission, including: - a substantial increase in civil service wages; - US$3 million (1.5 percent of expenditures) for a county development program to be administered by local authorities outside the commitment control system; - a significant increase in appropriations for the legislature. - The budget included $14.3 million (7.2 percent of expenditures) to implement the domestic debt strategy and pay other salary and foreign mission arrears. - Program implementation priorities for first year: - Authorities and staff agreed measures planned for the first year are macrocritical and consistent with the poverty reduction strategy. *Source: IMF staff report excerpt (Selected tables and text from "1. Selected Economic and Financial Indicators, 2006–10" and related executive summary and program discussion).* ### 3.8 percent of GDP in 2006/07 to 4.8 percent of GDP in the 2007/08 budget, but declined ### _cr08108 - 3.8 percent of GDP in 2006/07 to 4.8 percent of GDP in the 2007/08 budget, but declined ### Fiscal stance and budget planning - Fiscal balance and cash management - Authorities are planning a supplementary budget using the revenue overperformance in the first half of the fiscal year and a budget support grant from the World Bank. - To ensure a balanced cash budget, the authorities will consult closely with staff before they finalize spending proposals. - Spending composition and risks - Increase in current expenditure in 2007/08 is being financed in part by one-off sources of revenues (about 3.7 percent of GDP), implying that capital expenditures will decline as a percentage of GDP in 2008/09. - Transfers between budget line items late in the 2006/07 fiscal year resulted in an outturn that differed significantly from the budget approved by the legislature. - Interim measures require that (i) the Budget Committee, chaired by the Minister of Finance, approve all transfers between budget lines and (ii) all major transfers are approved by the President and the legislature. ### Revenues and tax administration - Revenue outturns and drivers - Revenues are budgeted to increase by over 2 percent of GDP in 2007/08 largely due to a one-time $15 million payment from Arcelor Mittal (1.9 percent of GDP). - Resumption of timber and diamond production with the lifting of UN sanctions and collection of GSM fees after approval of the telecommunications law will also boost revenues in 2007/08 and over the medium term. - Tax administration and policy - Continued efforts to strengthen domestic tax administration, including full implementation of tax identification numbers (TINs), will help sustain gains in income tax revenues (MEFP ¶¶ 24-25). - Authorities expect that considered tax policy measures, such as lowering personal and corporate tax rates and increasing the goods and services tax rate, will not affect revenue until 2008/09. ### Budget execution, commitment control and PFM - Commitment control system - The commitment control system has ensured that expenditures do not exceed available revenues and that procurement guidelines are being followed, but budget execution could be better. - Staff expressed concern that administration of county development funds outside the interim commitment control system and a pilot program of quarterly transfers to select autonomous ministries and agencies risk undermining the credibility of the commitment control system, despite strict reporting requirements. - Institutional reforms recommended - Staff emphasized that passage of legislation to merge the Bureau of the Budget into the Ministry of Finance and limit transfers between budget line items is needed to enhance PFM over the medium term. - Authorities are increasing capacity of ministries and agencies to draft realistic and prioritized monthly cash plans to guide budget implementation. ### Transparency and auditing - Current practices - The Ministry of Finance is posting quarterly fiscal reports on its website. - Capacity gaps and recommendations - There is a need for more stringent internal and external auditing systems through increasing the capacity of the General Auditing Commission and formulating an internal audit strategy for ministries and agencies. - Continued efforts to increase the predictability and transparency of public spending should increase the confidence of donors considering budget support. ### Medium-term macrofiscal framework and civil service reform - Integration and planning - A medium-term macrofiscal framework is essential to the success of the poverty reduction strategy and civil service reform. - Multiyear revenue and expenditure projections being developed as the PRSP is prepared need to be integrated into a reinforced budget preparation process. - Early consultations with the legislature will be essential; a new chart of accounts would be useful starting with the 2008/09 budget. - Civil service wages - Staff and authorities agreed on the need to increase civil service wages over time, but staff reiterated that the increase should be considered only as part of comprehensive civil service reform and be consistent with fiscal sustainability and finalized in time to inform preparation of the 2008/09 budget. ### Monetary policy and exchange rate management - Policy objective and anchor - The primary objective of monetary policy is price stability; it will continue to be anchored on exchange rate stability. - In a highly dollarized and open economy, the exchange rate is the key variable through which monetary imbalances affect prices. - Operational constraints and guidance - With foreign reserves low, the authorities should not attempt to target a specific level of the exchange rate, or to defend it against downward pressure from exogenous shocks. - Authorities agreed on the need to accelerate efforts to strengthen the monetary policy framework (MEFP ¶ 31) and with the staff recommendation to relaunch efforts to publicize monetary policy and regularly disseminate data on economic variables. - Measures to promote dedollarization (to be market-driven) - Measures outlined that could support demand for the Liberian dollar include: (i) requiring tax payments and government spending to be made in Liberian dollars; (ii) introducing higher-denomination bank notes; (iii) improving the quality of bank notes; and (iv) reporting public revenue and expenditure in Liberian dollars. - Note: Both the Liberian and the U.S. dollar are legal tender. Liberia is highly dollarized; staff estimates that U.S. dollar currency in circulation and deposits accounts for about 95 percent of total broad money. ### Financial sector reforms and central bank oversight - Bank recapitalization and supervision - Progress has been made on recapitalizing banks; bank claims on the government have been regularized. - Need to further improve regulatory oversight by instituting a regular program of onsite inspections and adopting a comprehensive template for offsite inspections. - Authorities agreed to require banks to promptly address identified deficiencies. - Resolution of abandoned/nonoperating banks - Given a weak legal system, it would be prudent in the short run to consider alternatives such as publicizing which institutions are currently licensed by the CBL, while over the longer term continuing to seek their liquidation. - CBL audits and safeguards - The external audit of the CBL’s financial accounts for 2006 was completed in August 2007; auditors expressed no opinion, mainly because of the inconsistent application of the CBL’s accounting system. - Actions have been taken to ensure adoption of the International Financial Reporting Standards with effect from the 2008 financial year, and the timely selection of the auditor for the 2007 audit was noted. - Staff emphasized the need to complete the CBL safeguards assessment and encouraged the authorities to provide the Fund with required information to ensure prompt completion. ### External sector outlook and debt relief - Current account and financing - The external current account deficit excluding grants is projected to widen to about 94 percent of GDP in 2008 with solid growth in imports of goods and services to support increasing economic activity, notably significantly higher FDI. - Official transfers are expected to decline to about 29 percent of GDP, resulting in a deficit including grants of 65 percent of GDP. - Large inflow of FDI into the mining sector in 2007 and projected increase in 2008 will help finance the current account deficit and support further accumulation of international reserves. - Debt sustainability and HIPC/MDRI - Assuming full delivery of debt relief through HIPC Initiative, MDRI and beyond-HIPC assistance, Liberia is expected to regain external debt sustainability. - The staff analysis shows Liberia was eligible for HIPC debt relief based on end-June 2007 data: debt in NPV terms corresponded to 1,576 percent of exports of goods and services, well above the HIPC threshold of 150 percent. - Liberia is expected to receive debt relief by end-2010 in the context of the HIPC and MDR Initiatives and beyond-HIPC debt relief, including assistance from other multilateral financial institutions, the Paris Club, and other official bilateral creditors. - Liberia also expects to resolve its arrears to private creditors in an agreement which could involve the use of the World Bank’s Debt Reduction Facility for IDA-only countries. - Debt sustainability analysis findings - The low-income country debt sustainability analysis reveals that Liberia is in debt distress. - The NPV of external debt-to-GDP ratio remains above the threshold (30 percent) throughout the projection period. - The NPV of external debt-to-exports ratio moves below the threshold (100 percent) by 2016/17. - Liberia’s debt service ratios are above their respective thresholds (15 percent for exports and 25 percent for revenues) up to 2017/18. - Stock of domestic debt at the beginning of the projection period is around 40 percent of GDP; it has been restructured on concessional terms, and new domestic borrowing, assumed to commence after the completion point, averages 1 percent of GDP. ### Trade, tariffs and private sector development - Structural constraints and studies - Authorities face structural and administrative challenges in facilitating external trade; a diagnostic trade integration study will offer recommendations for addressing bottlenecks in stimulating exports and private sector competitiveness. - Authorities intend to finalize a strategy for phased adoption of a tariff regime consistent with the ECOWAS common external tariff (CET) and begin studying the economic impact of an Economic Partnership Agreement with the European Union. - Natural resources and regulatory reforms - Government policies emphasize solid regulation to better manage natural resources and increase agricultural productivity. - In forestry, efforts aim to implement the new forestry law and finalize arrangements for commodity and expenditure tracking systems; auctions of timber sales and forest management contracts are expected to begin in the current fiscal year. - Drafting of a national mineral policy and a legal and fiscal minerals framework is underway. - A Public-Private Sector Dialogue has been established with World Bank assistance for legal and regulatory reforms, capacity strengthening, and improving infrastructure services and access to finance. ### Governance, anticorruption and infrastructure - Governance and anticorruption - A national anticorruption strategy was adopted in 2006; legislation establishing an independent anticorruption commission has been submitted to the legislature. - With donor assistance the authorities are preparing an operational and financial plan for establishing the commission once the legislation is passed. - In July 2007 the government launched the Liberia Extractive Industries Transparency Initiative (LEITI) 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, externally audited, and published. - Infrastructure rebuilding - With assistance from international partners, efforts to rebuild infrastructure continue: some progress restoring electricity generation capacity in Monrovia and rehabilitating roads, health facilities, and schools. - Continued donor support is necessary to ensure that infrastructure rebuilding supports the authorities’ growth-enhancing policies. ### Technical assistance and capacity building - Donor support and areas of TA - Liberia has received extensive technical assistance (TA) since 2003 in areas including monetary and fiscal policy, financial sector reform, civil service reform, auditing, statistics, governance, and judiciary and security sector reform. - The GEMAP placed resident advisors with cosigning authority at key ministries, SOEs, and the CBL to help establish transparent financial management systems and build local capacity. - The IMF has provided TA on fiscal policy (PFM, tax policy, natural resource taxation, tax and customs administration), monetary policy (monetary policy framework, bank supervision, central bank accounting, national payments system, micro finance), and statistics (fiscal and monetary, national accounts, consumer prices, and balance of payments). - Capacity constraints and financing needs - Liberia must continue to rely on donor assistance to address significant capacity constraints. - Further assistance from donors, especially financial support, in the first year of the program is important to support efforts to complete and implement a comprehensive civil service reform strategy and set up the anticorruption commission. - There is a dedicated website for LEITI: www.eitiliberia.org. ### Access, program monitoring and risks - Fund access and use - In addition to amounts necessary to repay the bridge loan used to clear arrears to the Fund (SDR 543 million), PRGF access is proposed at SDR 38.76 million—30 percent of Liberia’s quota. - The additional access would be used primarily to build up reserves at the CBL. - Authorities intend to place the initial disbursements in Liberia’s SDR account at the Fund to rebuild its SDR holdings to its net cumulative SDR allocation of SDR 21.0 million and thus limit the incurrence of net SDR charges. - Bridge loan refinancing and arrangement structure - For refinancing the bridge loan, SDR 200.3 million (155 percent of quota) would be drawn from PRGF resources and SDR 342.8 million (265 percent of quota) under an extended arrangement. - Access under the extended arrangement exceeds the annual limit of 100 percent of quota that applies for arrangements within the GRA; this request is based on the exceptional circumstances of Liberia's large need. - The entire amount of the extended arrangement will be available in the first purchase, and if drawn as expected, the extended arrangement will lapse. Program monitoring will continue under the three-year PRGF arrangement. - Repayment capacity and contingent risks - The proposed PRGF access level reflects Liberia’s balance of payments needs, minimal reserves, the strength of the program, and Liberia’s capacity to repay the Fund. - Liberia’s capacity to repay the Fund is contingent on the timely provision of HIPC interim assistance and completion point and beyond-HIPC debt relief. - Assuming satisfactory performance under the PRGF and extended arrangements, there is limited risk from Liberia’s failure to repay the Fund; the authorities’ strong commitment to program implementation under prior SMPs helps mitigate repayment risk. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 37. The proposed access is consistent with Liberia’s capacity to repay the Fund. ### _cr08108 - 37. The proposed access is consistent with Liberia’s capacity to repay the Fund. ### Access and capacity to repay - If Liberia reaches the HIPC completion point in 2010, it would receive 100 percent relief on eligible Fund debt. - Projected repayments to the Fund would peak in 2018 at 2.1 percent of fiscal revenue (excluding grants) and 0.7 percent of exports of goods and services. ### Program coverage and monitoring - The first year of the program covers the period through December 2008. - Monitoring framework: - Biannual quantitative performance criteria for June 30 and December 31, 2008. - Indicative targets for March 31 and September 30, 2008. - Structural conditionality is consistent with the government’s I-PRSP. ### Risks, capacity constraints, and donor dependence - Considerable risks stem from: - Continued significant capacity constraints. - The need for cooperation of the opposition-led legislature. - Several structural benchmarks in the program’s first year require donor support. ### Data and statistical capacity - Liberia’s statistical capacity is weak; serious data deficiencies hamper surveillance. - With Fund TA (Box 2), authorities have begun improving data production and dissemination, particularly monetary and fiscal statistics. - Staff judges data improvements adequate to monitor program implementation. ### Staff appraisal of past implementation - Implementation of the SMP through December 2007 was broadly satisfactory and met the standard of upper credit tranche conditionality, except for continued accrual of external payments arrears. - Most quantitative benchmarks were achieved. - Revenue performance: - Improved tax and customs administration and enforcement allowed the government to continue exceeding revenue targets by wide margins. - Expenditure control: - Rigorous implementation of the commitment control system ended past practices of financing expenditures through domestic arrears. - The challenge is to achieve expenditure targets without weakening approval, control, and monitoring procedures. ### Structural reforms and legislative action - Most SMP structural benchmarks were achieved, some with delay. - Progress welcomed in: - Reinforcing commercial banks. - Improving CBL accounting and audit procedures. - Drafting legislation for an independent anti-corruption commission. - Merging the Bureau of Budget into the Ministry of Finance. - Limiting budget transfers without legislative approval. - Revising the investment code. - Tightening the administrative procedures law. - Critical need for the legislature to act to maintain program momentum. - Importance of finalizing the medium-term statistics plan, an outstanding benchmark for last December. ### Central Bank of Liberia (CBL) performance and risks - CBL expenditures in 2007 exceeded the agreed SMP ceiling, but the bank recorded a surplus and met the target for increasing its foreign assets. - Unexpectedly high CBL income reflected slow government U.S. dollar spending, raising interest income on government deposits held abroad. - It is important to ensure the CBL budget remains balanced and that the CBL continues to meet foreign asset targets even if interest income falls when government spending draws down balances. ### Inflation, dollarization, and monetary policy - Inflation remains in double digits, mainly because of higher food and oil prices. - High dollarization limits scope for active monetary policy. - Meeting medium-term inflation objectives will require: - Further efforts to improve monetary policy. - Strengthening financial sector balance sheets and supervision. - Dedollarization should be market-driven and supported by continued economic stability, a sounder banking sector, and a track record of peace and stability. ### 2008–10 program assessment and financing stance - The program for 2008-10 is ambitious and builds on SMP successes. - Authorities committed to a balanced cash-based budget, with no external or domestic borrowing until: - All domestic claims have been resolved. - There is a clear debt management strategy. - Necessary institutions have been built up. - Focus areas include further improving PFM, building the financial sector, and implementing the anti-corruption strategy to help attract donor support—preferably on grant terms. - Debt sustainability analysis in the accompanying HIPC Decision Point document highlights risks associated with new borrowing. ### Exceptional access and arrears clearance - Repaying the bridge loan needed to clear Liberia’s arrears to the Fund requires exceptional access under both the PRGF and EFF. - Staff considers an upfront disbursement of the entire amount under the EFF to be appropriate in view of large financing requirements for clearing arrears. *Source: _cr08108 - 37. The proposed access is consistent with Liberia’s capacity to repay the Fund.* ### 47. If the program is to continue to be successful, prompt action on key legislation is ### _cr08108 - 47. If the program is to continue to be successful, prompt action on key legislation is ### Program assessment, risks, and external support - "If the program is to continue to be successful, prompt action on key legislation is necessary, as is technical and financial support from donors." - "While the PRGF/EFF program is subject to considerable risks, the authorities deserve the support of the international community." - "The Fund-supported program is a pillar of the reform program needed for Liberia to qualify for debt relief." ### Selected economic indicators and projections (excerpts) - "Real GDP7.89.59.610.314.8" - "Consumer prices (annual average) 1 7.211.410.69.08.0" - "Consumer prices (end of period) 1 8.911.79.58.57.5" - "Nominal GDP (US$ millions)611.6732.2818.2916.81,082.6" - "GDP deflator (US$)7.49.42.01.62.9" - "Real GDP per capita (constant 1992 US$) 2 121.0126.4131.7138.6152.5" - "Exports of goods, f.o.b.43.043.846.849.352.7" - "Imports of goods, f.o.b.36.521.673.216.511.3" - "Official exchange rate (L$/US$; end of period) 59.562.5........." - "Total revenue and grants6.573.325.219.423.1" - "Total expenditure and net lending-3.767.453.468.815.7" - "Broad money (M2) 4 34.440.123.220.425.0" - "Reserve money23.926.720.621.424.5" - "Gross official reserves46.285.191.6119.8147.5 (months of imports of goods and services)1.01.51.01.11.2" (Note: figures above are presented verbatim from the source tables and projections.) ### Balance of payments and financing (selected lines verbatim) - "Trade balance-243-260-511-486-335" - "Exports, f.o.b.158227333498760" - "Imports, f.o.b-401-487-844-984-1,095" - "Current transfers (net)274291298277286" - "Donor transfers (net) 2 213230237215223" - "Current account balance-228-255-529-581-447" - "Capital and financial account96117442486347" - "Overall balance-133-138-87-95-64" - "Change in gross reserves -38-39-7-28-28" - "Arrears (accrual +) 5 148-516-3,86900" - "Prospective debt relief and rescheduling 6 06653,9005583" - "Financing gap 7 00685436" ### Central government operations (selected fiscal lines verbatim) - "Total revenue and grants85.6148.3185.7221.7272.9329.8" - "Total revenue84.6146.8185.7211.7261.1315.9" - "Tax revenue81.0140.0149.5186.1222.2260.9" - "Total expenditure and net lending73.5123.0188.7318.5368.4444.1" - "Current expenditure67.2106.4167.6297.5323.4372.7" - "Wages and salaries32.540.667.575.887.4105.0" - "Interest on debt1.40.57.6118.5115.0121.1" - "Capital expenditure6.316.621.121.045.071.5" - "Overall surplus or deficit 3 12.125.3-3.0-96.8-95.5-114.4" - "Stock of domestic debt (percent of GDP)42.936.631.827.525.0" ### Monetary and banking sector (selected lines verbatim) - "Net foreign assets-45,248-47,233-51,958-54,53115,673" - "CBL's gross foreign reserves4,2817,4578,93611,97015,456" - "Broad money (M2) 4 8,54911,97714,75317,76422,203" - "L$ component 3,4734,5665,7516,9638,677" - "US$ component5,0757,4119,00110,80113,525" - "Broad money (annual change)34.440.123.220.425.0" - "CBL's net foreign exchange position (millions of US$)21.732.144.559.078.0" - "Nominal GDP36,38945,76455,58266,69383,516" ### Financial soundness indicators (selected lines verbatim) - "Number of banks33556" - "Regulatory capital to risk-weighted assets-2.0-4.42.312.322.7" - "Nonperforming loans to total loans62.023.815.542.419.2" - "Return on assets-24.0-3.00.5-0.50.2" - "Return on equity-32.5-32.63.2-4.11.5" ### External financing, PRGF/EFF arrangements, and disbursement schedule - "Total : SDR 550.03 Million" - "PRGF: SDR 207.26 Million" - "EFF: SDR 342.77 Million" - Disbursement schedule and conditions (verbatim listing from table): - "March 14, 2008 Executive Board approval of the three-year PRGF/EFF arrangements" - "PRGF: SDR 7.00 Million October 31, 2008 Observance of the performance criteria for June 30, 2008, completion of the first review of the arrangements, and financing assurances review" - "PRGF: SDR 7.00 Million April 30, 2009 Observance of the performance criteria for December 31, 2008, completion of the second review of the arrangements, and financing assurances review" - "PRGF: SDR 4.44 Million October 31, 2009 Observance of the performance criteria for June 30, 2009, completion of the third review of the arrangements, and financing assurances review" - "PRGF: SDR 4.44 Million April 30, 2010 Observance of the performance criteria for December 31, 2009, completion of the fourth review of the arrangements, and financing assurances review" - "PRGF: SDR 4.44 Million October 31, 2010 Observance of the performance criteria for June 30, 2010, completion of the fifth review of the arrangements, and financing assurances review" - "PRGF: SDR 4.44 Million March 13, 2011 Observance of the performance criteria for December 31, 2010, completion of the sixth review of the arrangements, and financing assurances review" - "Total financing requirement3141,0175,5128201,580" and "Available financing314352688711588" (Table 6) - "Financing gap = I-II06654,824109992" and "Unfinanced gap 1 00685436" ### Fund credit position and projected payments (selected lines verbatim) - "Prospective drawings 1 PRGF 214.3 11.4 8.9 4.4 -" - "EFF 342.8 - - - -" - "Projected debt service to the Fund 2 12.5 16.8 16.9 20.9 50.0 97.2 116.2 114.4 112.3 108.9 56.2 4.3 2.2 0.4" - "Fund credit outstanding 4 557.0 568.5 28.6 33.0 33.0 33.0 30.9 26.8 20.9 14.0 6.9 2.7 0.4 (0.0)" - "Percent of GDP 98.3 88.1 3.7 3.7 3.2 3.1 2.8 2.3 1.7 1.1 0.5 0.2 0.0 0.0" *Source: Excerpts from the IMF staff report and accompanying tables and figures in the provided content unit.* ### 2008. Beyond the HIPC completion point, EFF charges are based on the assumed SDR interest rate (gradually rising to 5 pe ### _cr08108 - 2008. Beyond the HIPC completion point, EFF charges are based on the assumed SDR interest rate (gradually rising to 5 percent) ### General indicators and Millennium Development Goals (selected statistics) - Population (millions): 2.1 (1990), 2.1 (1995), 3.1 (2000), 3.3 (2005) - Gross national income ($ billions): 0.6 (1990), 0.3 (1995), 0.4 (2000), 0.4 (2005) - GNI per capita ($): 280.0 (1990), 110.0 (1995), 130.0 (2000), 130.0 (2005) - Adult literacy rate (percent of people of ages 15 and over): 39.0 (1990) - Total fertility rate (births for women): 6.9 (1990), 6.8 (1995), 6.8 (2000), 6.8 (2005) - Life expectancy at birth (years): 43.0 (1990), 41.0 (1995), 42.0 (2000), 42.0 (2005) - Trade (% of GDP): 54.7 (2000), 86.8 (2005) - Prevalence of child malnutrition (percent of children under 5): 26.5 - Net primary enrollment ratio (percent of relevant age group): 66.0 - Youth literacy rate (in percent of ages 15-24): 57.0 - Ratio of girls to boys in primary and secondary education (in percent): 73.0 - Ratio of young literate females to males (percent of ages 15-24): 51.0 - Share of women employed in the nonagricultural sector (in percent): 23.6 - Proportion of seats held by women in national parliament (in percent): 6.0 (1990), 8.0 (1995), 13.0 (2000) - Under five mortality rate (per 1000): 235.0 (1990,1995,2000,2005) - Infant mortality rate (per 1000 live births): 157.0 (1990,1995,2000,2005) - Immunization, measles (percent of children under 12 months): 52.0 (2000), 94.0 (2005) - Maternal mortality ratio (modeled estimate per 100,000 live births): 760.0 - Births attended by skilled health staff (percent of total): 51.0 - Contraceptive prevalence rate (percent of women of ages 15-49): 10.0 - Incidence of tuberculosis (per 100,000 people): 113.0 (1990), 197.0 (1995), 269.0 (2000), 301.0 (2005) - Tuberculosis cases detected under DOTS (in percent): 31.0 (1995), 28.0 (2000), 50.0 (2005) - Forest area (percent of total land area): 42.0 (1990), 36.0 (2000), 33.0 (2005) - Nationally protected areas (percent of total land area): 15.8 - CO2 emissions (metric tons per capita): 0.2 (1990), 0.2 (1995), 0.1 (2000), 0.1 (2005) - Access to an improved water source (percent of population): 55.0 (1990), 61.0 (2005) - Access to improved sanitation (percent of population): 39.0 (1990), 27.0 (2005) - Aid per capita (current US$): 53.0 (1990), 57.0 (1995), 22.0 (2000), 72.0 (2005) - Fixed line and mobile telephones (per 1,000 people): 4.0 (1990), 2.0 (1995), 3.0 (2000) - Source: World Development Indicators database ### Letter of Intent — government commitments and program request (Monrovia, February 27, 2008) - Government asserts "tremendous progress" since early 2006: economic reconstruction, macroeconomic stability, and strengthened governance. - Requests three-year arrangements under: - PRGF in the amount of SDR 239.02 million - EFF in the amount of SDR 342.77 million - Also requests access to interim assistance under the Enhanced HIPC Initiative; provided necessary information to IMF and World Bank for Liberia to qualify for enhanced HIPC assistance. - Commits to: - Implement comprehensive program to strengthen public financial management, monetary policy, the financial sector and governance. - Consult closely with IMF staff on policy revisions and provide information necessary to monitor implementation. - Two program and financing assurances reviews to be conducted in the first year, expected by end-October 2008 and end-April 2009. - Continue consultations with the IMF while Liberia has outstanding financial obligations arising from loan disbursements under the arrangements. - Make public the contents of the letter, the attached MEFP, the technical memorandum of understanding, and the staff report. ### Economic developments and performance on the Staff-Monitored Program (SMP) - Growth and prices: - Real GDP growth: 2.6 percent in 2004, rising to 9½ percent in 2007. - Exchange rate of the Liberian dollar to the U.S. dollar: depreciated by 4.8 percent in the 12 months through December 2007. - Year-on-year inflation (new harmonized CPI): December 2007 inflation was 11.7 percent; excluding food, 5.7 percent. - Fiscal performance and revenue administration: - Fiscal year 2006/07: revenue excluding grants exceeded SMP target of US$120.9 million by 21 percent. - Revenue-strengthening measures included: reorganizing domestic tax administration; reducing tax exemptions; eliminating noncash payment of taxes; reinforcing preshipment inspection; strengthening customs; introducing an automated tax payment system (with USAID help). - First-phase review of the Liberia Revenue Code (LRC) and all tax regulations completed with IMF assistance; submitted administrative procedure law and revised national investment code for legislative approval. - Expenditure management: - Introduced interim commitment control system; revised public procurement guidelines. - Spending accelerated significantly in the last two months of fiscal year 2006/07, allowing full implementation of the budget on a commitment basis. - In the first half of the current fiscal year, spending outpaced the same period a year ago by 30 percent. - Civil servants are now paid on time; commitment to ensure all civil servants are paid before end of each month. - 2007/08 budget: - Targets a deficit of 1.8 percent of GDP, financed mostly by the 2006/07 budget surplus. - Budget allocates US$36.9 million to health and education (more than 18 percent of the budget), representing 4.8 percent of GDP (up from 3.8 percent in 2006/07). - Supports increase in the minimum government wage from US$30 per month to US$55. - Revenues in the first six months of the current fiscal year increased 46 percent compared to the same period a year ago. - Monetary and financial sector developments: - CBL used foreign exchange auctions to keep exchange rate relatively stable; increased frequency and size of auctions in response to downward pressure. - Reserve money growth: 26.7 percent in 2007 from 23.9 percent in 2006. - Broad money growth (M2): 40.1 percent in 2007 from 34.4 percent in 2006. - Net CBL liquid foreign exchange assets rose by US$13.2 million in 2007. - CBL achieved a budget surplus of US$1.8 million in 2007 against a target of US$0.05 million. - Financial sector reforms: Manual for the Reconstruction, Closing, and Liquidation of Insolvent Banks drafted; Compliance Committee established; comprehensive on-site inspections completed for all operating banks; capital adequacy ratio of the system exceeded 8 percent by end-2007. - Progress on recapitalization; four formerly licensed abandoned and nonoperating banks submitted to courts for resolution; license granted to one nonbank financial institution. - Work commenced on legal and regulatory framework for the microfinance sector (supported by IFC and UNDP). - External sector: - Trade balance narrowed slightly in 2007 (to about 36 percent of GDP). - Export growth increased by 44 percent in 2007, driven by rubber and resumption of diamond exports. - Rubber exports accounted for about 90 percent of total exports. - Overall balance of payments estimated to have stayed in deficit, more than offset by accumulation of external payments arrears. - Debt sustainability: - HIPC debt sustainability analysis confirmed Liberia eligible for enhanced HIPC Initiative. - At end-June 2007: NPV of debt to exports estimated at 1,576 percent; ratio of debt to GDP was 468 percent. - Note: NPV refers to NPV of debt after traditional debt relief. ### Performance under SMP benchmarks - Achievements through December 2007: - Achieved all but one of the quantitative SMP benchmarks. - Achieved all but one of the structural benchmarks. - CBL reached program objective of a balanced budget, achieving surplus of US$1.8 million despite missing expenditure ceiling due to higher capital expenditure. - Preparing a medium-term national statistical plan (end-December 2007 benchmark) expected to be finalized by end-March 2008. ### Policies for the three-year PRGF/EFF program — medium-term strategy (pillars) - Consolidating peace and security: - Draft a medium-term national security strategy; train security forces; create an early warning system; identify jobs for ex-combatants; integrate and resettle internally displaced people and refugees; reduce unemployment. - Revitalizing the economy: - Maintain macroeconomic stability; support recovery in agriculture, mining, and forestry; improve management of state-owned enterprises; support private sector development via infrastructure improvement, increased access to financing, land ownership and tenure reform, rationalization of corporate and import taxes, investment code reform, and overhauling burdensome administrative and regulatory procedures. - Strengthening governance and the rule of law: - Reform and rebuild the public sector; decentralize political governance; strengthen rule of law and respect for human rights; introduce conflict management mechanisms; encourage broad participation in governance; reduce corruption. - Rehabilitating infrastructure and delivering basic services: - Rebuild physical and social infrastructure including roads, ports, telecommunications, electricity generation, water and sanitation, schools and health care facilities; improve service delivery. *Source: IMF document _cr08108 (2008) — Letter of Intent, Memorandum of Economic and Financial Policies, and supporting material.* ### 14. The program for 2008–10 targets annual real GDP growth of 11½ percent. This is ### 14. The program for 2008–10 targets annual real GDP growth of 11½ percent. This is ### Economic outlook and macro targets - Program target: annual real GDP growth of 11½ percent for 2008–10. - Growth drivers cited: - resumption of logging and diamond mining since U.N. sanctions were lifted; - new investments in iron ore and gold mining; - increased activity in cocoa, coffee, and oil palm production; - improved prospects for light manufacturing; - continued strong performance in the service sector. - Inflation aim: contain inflation to single digits based on prospects for increasing food production and continued prudent macroeconomic policies. - External current account: expected to be large due to substantial import requirements for rehabilitation and reconstruction; continued concessional financial support from international partners is emphasized. - 2008 specific outlook: - Real GDP growth projected to remain at about 9½ percent in 2008. - Inflation expected to fall to the single digits. - Trade deficit projected to widen to 62 percent of GDP in 2008 as economic recovery continues and donor-financed imports stay high. - Current account deficit, excluding grants, expected to widen by about 27 percentage points, to 94 percent of GDP in 2008; projected to shrink over the medium term as domestic savings rise. ### Public financial management (PFM) and transparency - Intention to draw up a medium-term strategy (two to three years) of PFM reforms with IMF and World Bank technical assistance, potentially donor-supported. - As PFM improves, expectation that donors will offer increased budget support to better coordinate and allocate resources. - Objective to establish a strong PFM system and phase out the cash management committee at the Ministry of Finance. - Planned measures for 2008: - Draft a medium-term strategy to reform PFM and a comprehensive PFM law for submission to the legislature by mid-2008. - Complete merger of the Bureau of the Budget (BoB) into the Ministry of Finance by year-end. - Ensure BoB works closely with the Ministry in a reinvigorated Budget Committee chaired by the Minister of Finance. - Increase transparency of transfers between budget lines and require legislative approval for large transfers. - Develop guidelines to ensure county development fund expenditures are executed transparently. - Strengthen budget preparation, with frequent consultation with the legislature to ensure timely approval. - Continue interim commitment control system to keep public expenditure within available monthly cash revenues and prioritized cash plans. - Strengthen payment system, eliminate weaknesses in ministries preparing spending vouchers, and improve cash management approval and procurement planning through training procurement committees. - Improve comprehensiveness and timeliness of fiscal reports, prepare a GFSM-compatible chart of accounts, and report public expenditures on both a commitment and cash basis. - Develop a strategy to improve internal auditing. - Continue directing more resources to health, education, infrastructure, and rural development. ### Civil service reform and staffing - Civil service reform deemed crucial for institution and capacity building. - Progress noted: removing ghost names from the payroll, increasing basic salaries, introducing a senior executive service program. - Government will complete a medium-term comprehensive civil service reform strategy by mid-2008, covering compensation and pension reform. - Comprehensive civil service reform to be undertaken with DFID and World Bank support, restructuring compensation and building capacity. - Actions to create fiscal space: - Continue removing ghost workers from the public payroll. - Comprehensively review ministries and agencies to identify functional requirements and staffing levels. - Senior Executive Service: complete first phase by filling the first 21 of 100 positions; comprehensive civil service reform strategy to be ready by June 2008. ### Revenue, tax and customs policy - Program aims to increase revenues by advancing comprehensive tax and customs reforms, improving taxpayer compliance, and broadening the tax base. - Target: increase in revenues (excluding grants) by an average of 18 percent per year up to 2010. - 2008 fiscal measures: - Strengthen taxpayer auditing, enforcement, and taxpayer services. - Begin implementation of the integrated tax automation system. - Strengthen administration of property taxes. - Implement outsourcing of customs administration. - Continue revising the LRC (Liberia Revenue Code). - Begin considering feasibility of transitioning to a value-added tax and establishing a revenue authority. - Tax reform elements consistent with FAD recommendations: - Reduce the top corporate income tax rate from 35 percent to 30 percent. - Reduce the top personal income tax rate from 35 percent to 25 percent. - Increase the goods and services tax (GST) from 7 percent to 10 percent for all goods and services except food, and reduce the threshold. - Phase in implementation of the ECOWAS common external tariff (CET). - Introduce additional tax categories for businesses with turnover above the GST threshold. - Facilitate tax payments at commercial banks. ### Fiscal stance, borrowing and domestic debt resolution - Government will continue to target a balanced budget and does not plan new domestic or external borrowing until: - (i) external and domestic debt is back on a sustainable footing; - (ii) a debt management strategy covering both external and domestic debt has been finalized; - (iii) institutional arrangements for debt management have been strengthened. - Interim financing needs: substantial grant financing from donors to support economic reconstruction and infrastructure financing challenges. - Domestic debt resolution: - Payments made to most small claimants; begun regular payments on restructured claims of financial institutions. - Reconciling and consolidating obligations to state-owned enterprises; external auditor appointed to verify previously contestable claims. - Preparations to establish a trust fund to ensure long-term resources for the strategy. ### Monetary, exchange rate, and financial sector reforms - Primary objective of monetary policy: price stability. - Given dual currency and dollarized environment, exchange rate is main transmission mechanism; CBL will use it as main indicator of domestic monetary conditions. - CBL will manage Liberian dollar liquidity aiming for relative exchange rate stability; principal tool: foreign exchange auction. - Strengthening monetary policy via: - Collecting more data on volumes in the foreign exchange market and remittance flows. - Regularizing large numbers of informal foreign currency traders. - Finalizing plans for possible introduction of credit and deposit auctions. - Enhancing public understanding of monetary policy. - CBL target: net liquid foreign exchange position to reach a minimum of US$47.6 million by year-end. - CBL to continue assessing dual currency arrangement; government to take steps to support demand for Liberian currency. - Bank restructuring and supervision: - CBL working to ensure banks will be restructured and recapitalized. - Compliance Committee to monitor implementation of corrective measures. - Onsite inspections at each bank twice a year. - IMF technical assistance: resident adviser for the Supervision Department; hiring of additional staff budgeted. - CBL to consider banking license applications from internationally reputable banks outside Liberia, while carefully managing entry. - CBL financial management: - Board approved a balanced budget for 2008. - Efforts to improve financial position, rebuild net foreign exchange assets, introduce additional monetary policy instruments. - With IMF assistance, preparations to implement International Financial Reporting Standards as the accounting framework in 2008. - CBL capitalization: undercapitalization identified as a major constraint; government will explore ways to address CBL capitalization over time. - CBL financial position improvements since early 2006 include arrangement with Government of Liberia to service its obligation to the CBL and maintenance of positive government account balances at the CBL. ### External sector, debt strategy and trade policy - Objective to rebuild international reserves; CBL intends to use initial PRGF and EFF disbursements to rebuild Liberia’s SDR holdings up to its allocation of SDR21 million. - Given unsustainable external debt, debt management strategy will emphasize financing development through grants and regularizing relations with external creditors. - Government will observe zero ceiling on new external borrowing set by the PRGF and EFF until debt is sustainable. - Intend to request debt relief from the Paris Club; some members have committed to granting full relief on all debt in arrears. Seek comparable relief from other bilateral and private creditors. - Estimated stock of debt to private creditors: US$1.5 billion as of June 30, 2007. - Any commercial debt resolution would be contingent on donor generosity and adhere to HIPC guidelines. - Trade policy: - Liberia’s trade regime described as relatively liberal; average unweighted tariff compares favorably with neighboring countries. - Intend to commence transition to the ECOWAS CET in 2008 and fully harmonize before 2012. - Balance of payments: with partner support, balance of payments expected to be manageable medium term despite large investment and reconstruction needs putting pressure on current account. ### Structural reforms, governance and state-owned enterprises - Structural reform areas: - Fiscal and financial sector reforms. - Reform of security and judicial sectors. - Rebuilding physical and social infrastructure. - Private sector development via reforms in agriculture, mining, and forestry. - Steps to remove barriers to formal sector entry identified by World Bank Foreign Investment Advisory Services. - Forestry: finalizing arrangements to resume logging and timber exports; contract concluded to manage chain of custody to better secure forestry revenues. - Implementing the Liberia Extractive Industries Transparency Initiative with donor support. - Anticorruption: - Begin implementing recently approved anticorruption strategy. - Once supporting legislation passed, establish Liberia Anticorruption Commission with power to investigate and prosecute corruption; expected to begin operating within the year. - Continued financial and technical donor support needed to make the Commission fully functional. - State-owned enterprises and divestiture: - Plan to deal with legacy of direct state involvement in commercial enterprises; guided by President’s vision that government should only do what private sector cannot/should not do. - Port reform prioritized with initiation of a BoT to improve facilities, revenues, and import/export processes. - Complete dissolution of moribund institutions while rehabilitating strategic institutions. - Move state-owned enterprises toward increased private participation and market competition. - Government will divest shares in commercial banking institutions, making shares available to the Liberian public. ### Data, statistics and technical assistance - National statistical capacity minimal after years of civil war; much activity in informal sector and limited information on formal sectors, so real GDP may be underestimated. - Steps taken: - Prepare a national statistical development strategy (NSDS) with donor support; expected to be finalized by April 2008. - LISGIS completed a core welfare indicators questionnaire and a demographic and health survey informing PRSP preparation. - National population census and a business establishment survey are underway. - Government will finalize a prioritized NSDS and present it to international partners to seek financial and technical support for implementation. - IMF approved a resident technical advisor for the CBL for one year to improve balance of payments data. - IMF technical assistance sought for payments system initiative; additional partner support required for necessary technology. ### Program monitoring and quantitative benchmarks - First year of the three-year PRGF- and EFF-supported program to be monitored by biannual quantitative performance criteria for June 30 and December 31, 2008, and indicative targets for March 31 and September 30, 2008. - Structural conditionality for the program draws on the I-PRSP. - CBL specific numeric target: - floor on CBL’s net foreign exchange position targeted to reach a minimum of US$47.6 million by year-end. - Quantitative indicators and structural benchmarks presented in associated program tables (see Table 1, Table 2 references in the source). *Source: IMF country report text (excerpt).* ### Section 204(e) of the Liberia Revenue Code of 2000, as well as ### Section 204(e) of the Liberia Revenue Code of 2000, as well as ### Structural benchmarks and implementation status (Jan 2007–Mar 2008) - Section 204(e) of the Liberia Revenue Code of 2000, and the 2004 Act amending the code, allowed the government to enter into ad hoc tax concession agreements with individual investors. - Reorganize administration of domestic taxes by taxpayer segmentation. - Target: End-June 2007 - Status: Implemented by end-June - Adopt legislation to merge the Bureau of the Budget into the Ministry of Finance and to limit transfers between budget lines without legislative approval to a cumulative total of no more than 30 percent. - Target: End-March 2008 - Prepare a chart of accounts, consistent with GFSM 2001-compatible budgetary classifications. - Target: End-March 2008 - Financial Sector benchmarks and status: - Establish clear audit selection and rotation procedures and criteria for the CBL to select an internationally reputable audit firm to conduct the CBL’s future external audits, pursuant to ISA, beginning in fiscal year 2007. - Target: End-March 2007 - Status: Implemented by mid-June 2007 - Develop a restructuring plan for the remaining undercapitalized banks consistent with the CBL’s Bank Reconstruction and Resolution Policy. - Target: End-June 2007 - Status: Implemented by January 2008 - Appoint an auditor, consistent with the criteria above, to audit the CBL’s financial accounts for 2007. - Target: End-September 2007 - Status: Implemented by end-September - Publish a list of banks licensed to operate in Liberia as part of the strategy for the final resolution of abandoned and nonoperating banks. - Target: End-March 2008 - Other Areas: - Replace the Monrovia CPI with the Harmonized CPI. - Target: End-February 2007 - Status: Implemented by end-February 2007 - Submit required legislation for establishment of an independent anticorruption agency for legislative approval, consistent with the government’s anticorruption strategy. - Target: End-September 2007 - Status: Implemented by end-September 2007 - Submit for legislative enactment an administrative procedure law that establishes a transparent process for the issuance of regulations pursuant to the Liberia Revenue Code of 2000, and submit legislation to repeal other laws and revoke regulations that are inconsistent with the law. - Target: End-September 2007 - Status: Implemented by January 2008 - Develop a comprehensive national statistical development strategy. - Target: End-December 2007 - Status: Ongoing ### Quantitative performance criteria and indicative targets (Table 3 excerpt: Liberia, 2008; Millions of US$) - Quarterly program headings (columns labeled Mar. 08, Jun. 08, Sep. 08, Dec. 08) - Fiscal (cumulative; fiscal year basis) - Floor on revenue collections: - Mar. 08: 139.5 - Jun. 08: 185.7 - Sep. 08: 43.3 - Dec. 08: 91.7 - Floor on fiscal balance (starting in September 2007, defined on commitment basis as noted in TMU): - Mar. 08: -13.7 - Jun. 08: -13.7 - Sep. 08: 0.0 - Dec. 08: 0.0 - Ceiling on new noncash tax/duty payment (continuous basis): - Mar. 08: 0.0 - Jun. 08: 0.0 - Sep. 08: 0.0 - Dec. 08: 0.0 - Ceiling on new domestic borrowing (continuous basis): - Mar. 08: 0.0 - Jun. 08: 0.0 - Sep. 08: 0.0 - Dec. 08: 0.0 - Ceiling on new external borrowing (continuous basis): - Mar. 08: 0.0 - Jun. 08: 0.0 - Sep. 08: 0.0 - Dec. 08: 0.0 - Ceiling on new external arrears (continuous basis): - Mar. 08: 0.0 - Jun. 08: 0.0 - Sep. 08: 0.0 - Dec. 08: 0.0 - CBL (cumulative; calendar year basis) - Ceiling on expenses: - Mar. 08: 3.9 - Jun. 08: 5.5 - Sep. 08: 6.9 - Dec. 08: 8.5 - Ceiling on payments arrears (continuous basis): - Mar. 08: 0.0 - Jun. 08: 0.0 - Sep. 08: 0.0 - Dec. 08: 0.0 - Floor on CBL’s cash-based budget balance: - Mar. 08: -1.7 - Jun. 08: -1.1 - Sep. 08: -0.3 - Dec. 08: 0.4 - Floor on the CBL’s net foreign exchange position: - Mar. 08: 36.4 - Jun. 08: 40.0 - Sep. 08: 43.9 - Dec. 08: 47.5 - Note annotations: - 1: Performance criteria at end-June and end-December 2008. - 2: Cumulative; fiscal year basis. - 3: Starting in September 2007, the fiscal balance, on a commitment basis, is defined as the difference between (a) total central government revenue plus budget support (excluding project grants), and (b) total current expenditure plus investment expenditure (excluding foreign-financed investment expenditure), payment of arrears, amortization, and payments to the domestic trust fund. The program target for the floor on fiscal balance allows for a deficit given the accumulation of surpluses in the government's account at the central bank from the previous fiscal year. - 4: Cumulative; calendar year basis. - Additional performance criterion caption: Ceiling on new domestic arrears/payables (excluding the arrears arising from the current debt outstanding) (continuous basis) ### Performance criteria and structural benchmarks for the first year of the PRGF/EFF arrangements (January–December 2008) (Table 4 highlights) - Fiscal policy measures and dates: - Adopt legislation to limit transfers between budget lines without legislative approval to a cumulative total of no more than 30 percent. - Target: End-March 2008 - Prepare a chart of accounts consistent with GFSM 2001-compatible budgetary classifications. - Target: End-March 2008 - Adopt legislation to merge the Bureau of the Budget into the Ministry of Finance. - Target: End-June 2008 - Develop an internal audit strategy for the central government. - Target: End-June 2008 - Complete the merger of the Bureau of the Budget into the Ministry of Finance. - Target: End-December 2008 - Submit a draft PFM law to the legislature. - Target: End-December 2008 - Develop a medium-term macrofiscal framework for the purpose of preparing the 2009/10 budget. - Target: End-December 2008 - Financial sector measures and dates: - Publish a list of banks licensed to operate in Liberia as part of the strategy for resolution of abandoned and nonoperating banks. - Target: End-March 2008 - Establish a system of off-site inspection by requiring quarterly submission of prescribed data by all banks, and submit the first written reports to the Banking Compliance Committee. - Target: End-June 2008 - Other areas: - Finalize a comprehensive civil service reform strategy, endorsed by the cabinet. - Target: End-June 2008 - Finalize debt management strategy, endorsed by the cabinet. - Target: End-June 2008 - Establish a functioning Liberia Anticorruption Commission, consistent with Liberia’s anticorruption legislation. - Target: End-September 2008 - Develop a comprehensive national statistical development strategy. - Target: End-March 2008 ### Technical Memorandum of Understanding (TMU) — Definitions and program monitoring - Purpose: - Sets out understandings between the Liberian authorities and the IMF on definitions of quantitative and structural performance criteria and benchmarks for the three-year PRGF/EFF program, and reporting requirements. - Definitions valid for the start of the program and may be revisited during reviews. - I. Quantitative performance criteria and benchmarks - A. Test Dates: - Quantitative performance benchmarks set for end-March, end-June, end-September, and end-December 2008. - B. Definitions and Computation: - Government definition: central Government of Liberia (GoL); excludes legally autonomous state-owned enterprises whose budgets are not included in the central government budget. - Presentation currency: U.S. dollars; revenues and expenditures denominated in Liberian dollars converted at end-of-period exchange rate. - Government revenue: all tax and nontax receipts transferred into the U.S. dollar GoL accounts at the Central Bank of Liberia (CBL), including income and transfers from state-owned enterprises and public institutions (excluding external loans and grants). GoL accounts at the CBL include the GoL General Account No. 2, the GoL Special Rice Fund, and the Liberian dollar account at the CBL, which is the GoL General Account. Any new accounts opened by the GoL at the CBL or any other local financial agency shall be reported to the IMF. For program purposes, revenues measured on the basis of cash deposits in the four accounts specified converted to U.S. dollars using the end-of-period exchange rate. - Fiscal balance: difference between (a) government revenue (including budget support grants, but excluding earmarked external loans and grants) and (b) government current expenditure plus capital expenditure (excluding foreign-financed expenditure for earmarked purposes), payment of arrears, amortization, and payments to the domestic trust fund on a commitment basis. - Noncash tax/duty payment: any noncash settlement of duty/tax obligations to the GoL through the exchange of goods or services. - New domestic borrowing: new claims on the central government after the start of the program; measured by change in stock of all outstanding claims (loans, advances, government debt instruments) by the banking system; includes issuance of debt instruments by the GoL to the nonbank sector. All claims in Liberian dollars converted at end-of-period exchange rate. - New domestic arrears/payables: difference between government payment commitments and actual payments made on such commitments, providing for a processing period of no more than 15 days from the date of commitment. Actual payments defined as date of issuance of checks by the Ministry of Finance. Government payment commitments include all expenditure for which commitment vouchers have been officially stamped with the Bureau of General Accounting (BGA) seal, and expenditures now automatically approved (wages and salaries, pensions, debt payments to the CBL and commercial banks, CBL bank charges, transfers of ECOWAS levies into the ECOWAS account). - Contracting or guaranteeing of new external debt by the public sector: external debt defined to include commitments contracted or guaranteed for which value has not been received; public sector consists of central government, state-owned enterprises, and the CBL. - Government undertakes not to incur arrears on external debt that it owes or guarantees, except for arrears arising from government debt being renegotiated with creditors, including Paris Club creditors. Arrears on external debt defined as any unpaid obligation on the contractual due date; if creditor grants a grace period, arrears are incurred once the grace period expires. - CBL expenses: sum of (i) recurrent expenditures and (ii) capital expenditure, on a cash basis. - Arrears of the CBL: difference between payments due on commitments from the start of the program and actual payments made on those commitments; CBL commitments due include all expenditure for which goods and services have been delivered but have not been paid for. - CBL cash-based budget balance: difference between (a) total revenues (sum of interest and noninterest income) on a cash basis and (b) total current expenditure plus capital expenditure, on a cash basis. - Net CBL foreign exchange position: difference between (a) the CBL’s gross foreign liquid reserves, as currently defined in the monthly monetary survey, and (b) the sum of its gross foreign liquid liabilities and liquid liabilities denominated in U.S. dollars, as currently defined in the monthly monetary survey. - II. Program monitoring - A. Program–Monitoring Committee: - Maintain a program-monitoring committee composed of senior officials from the Ministry of Finance, the CBL, and other relevant agencies; the IMF Resident Representative will have observer status. - Committee responsibilities: monitor performance, recommend policy responses, inform the IMF regularly about progress, transmit materials necessary for evaluation of benchmarks. - Committee shall provide the IMF with a progress report on the program on a monthly basis within four weeks of the end of each month, using the latest available data. - B. Data reporting to the IMF — Ministry of Finance to coordinate and regularly report: - Detailed reports on monthly revenue and expenditure on both a cash and a commitment basis by budget line and a completed summary table on central government operations (monthly, within three weeks after the end of the month). - Outstanding appropriations, allotments, commitments, and disbursements for line ministries and agencies (monthly, within three weeks after the end of the month). - Disbursements of budget support grants and loans, by donor (monthly, within three weeks after the end of the month). - Daily balances in the GoL accounts at the CBL (U.S. dollar—GoL General Account No. 2 and the GoL Special Rice Fund—and Liberian dollar accounts—the GoL/CBL Civil Servant Payroll Account No.2 and the GoL General Account). Any new accounts opened by the GoL at the CBL or at any other local financial agency shall be reported to the IMF (daily, within three days from the date of the statement). - End-of-month balances of all operating and other accounts of the line ministries and agencies receiving budgetary appropriations (monthly within three weeks after the end of the month). - A table providing the end-of-period stock of domestic arrears accumulated and payments made on arrears during the period, by budget category (wages, goods, and services, etc) (monthly, within three weeks after the end of the month). - The amount of new domestic debt contracted or guaranteed by the public sector (monthly, within three weeks after the end of the month). - A detailed report on monthly payments on domestic debt by category and the domestic debt stock (monthly, within three weeks after the end of the month). - The amount of new external debt contracted or guaranteed by the public sector (monthly, within three weeks after the end of the month). - The balance sheet of the CBL in the monthly monetary survey (monthly, within two weeks after the end of the month). - The full monthly monetary survey of the monetary sector (monthly, within three weeks after the end of the month). - Monthly detailed table of commercial bank loans and advances by sector (within two weeks of the end of the month). - Core financial soundness indicators by individual financial institution, including overall profitability of the banking sector (quarterly, within three weeks after the end of the quarter). - The monthly report on CBL cash revenues and expenditures in U.S. and Liberian dollar terms, on an aggregated basis, including both recurrent and capital expenditure (monthly, within two weeks after the end of the month). - CBL expenditures on a commitment basis (monthly, within two weeks after the end of the month). - The report on sales/purchases by the CBL through foreign exchange auctions held by the CBL, including U.S. dollars offered and sold, the auction rate, the number of accepted and rejected bids, and the total value of bids and of rejected bids (weekly). - Regular sale of U.S. dollars by the Ministry of Finance to the CBL, including amount, date, and rate of exchange (monthly, within two weeks after the end of the month). - Indicators of overall economic trends, including: - Detailed tables of the monthly harmonized consumer price index (within two weeks after the end of the month). - Daily foreign exchange rates (weekly). - Export volumes and values by major commodity, import values by SITC classification, import volumes of rice (by commercial and noncommercial use) and petroleum products (monthly, within three weeks after the end of the month). - Interest rates and commercial bank remittance inflows and outflows (monthly, within three weeks after the end of the month). - Production data in value and volume (monthly, within six weeks after the end of the month). - The report on the status of implementation of the structural performance criteria and benchmarks specified in Table 2 of the MEFP (monthly, within three weeks after the end of the month). - Data submission logistics: - Above data and reports to be provided in hard copies and electronically to the IMF Resident Representative to Liberia, Mr. Tharkur (mtharkur@imf.org), with copies to the local IMF economist, Mr. Deline (adeline@imf.org), for transfer to the African Department of the IMF in Washington, D.C. ### Annex — Guidelines on Performance Criteria with Respect to Foreign Debt (excerpt) - Definition of “debt” for these guidelines: - Debt means a current, i.e., not contingent, liability created under a contractual arrangement through provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) in time. - Primary forms: - (i) Loans (advances of money made on the basis of an undertaking that the obligor will repay; includes deposits, bonds, debentures, commercial loans, buyers' credits, and temporary exchanges equivalent to fully collateralized loans such as repurchase agreements and official swap arrangements). - (ii) Suppliers' credits (contracts where the supplier permits the obligor to defer payments until after goods delivered or services provided). - (iii) Leases (arrangements where property is provided for use for specified period(s) shorter than expected service life; debt defined as present value at inception of all lease payments expected to be made during the agreement period, excluding payments covering operation, repair, or maintenance). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on obligations not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. *Source: IMF staff report content as provided in the supplied PDF excerpt.* ### Appendix II – Request for Exceptional Access for Poverty Reduction and Growth ### Appendix II – Request for Exceptional Access for Poverty Reduction and Growth ### Introduction - Evaluates the case for exceptional access under the proposed PRGF/EFF in light of the four substantive exceptional access criteria in capital account crises. - Notes: In non-capital account cases, requests for access above the limits need to be justified “in light of the four substantive criteria.” Observance of all criteria is not required; the Board may grant exceptional access under the exceptional circumstances clause. ### Exceptional Access Criteria in Capital Account Crises - Criterion 1 ― Balance of payments pressures in the capital account: - Liberia is not experiencing capital account pressures requiring Fund financing beyond normal limits and is unlikely to face such pressures at the time of its request for exceptional access. - Most of Liberia’s external debt (about 96 percent) is in arrears. - During the period prior to the HIPC Initiative completion point, debt repayments are expected to be contained to a manageable level and in line with very limited payment capacity. - Criterion 2 ― High probability that debt will remain sustainable: - A decision point HIPC debt sustainability analysis (DSA) by IMF and World Bank staffs confirms Liberia’s debt is unsustainable unless it receives substantial debt relief, including under the enhanced HIPC and MDR Initiatives. - The DSA shows that even full delivery of debt relief following the HIPC completion point would result in debt being sustainable only if new external financing remains highly concessional. - Debt sustainability would remain highly vulnerable to adverse exogenous shocks. - Criterion 3 ― Prospects of regaining private capital market access: - Liberia has not had access to capital markets since the early 1980s and is not projected to seek non-concessional private financing. - Criterion 4 ― Prospect of program success (policy, institutional, political capacity): - Track record under SMPs since February 2006 demonstrates authorities’ commitment to implement strong policies despite limited institutional capacity. - The PRGF/EFF program includes substantial measures to improve policy making and governance institutions. ### Overall Assessment - Staff supports the authorities’ request for new three-year arrangements. - Since not all four criteria are met, approval is proposed by invoking the exceptional circumstances clause. - Rationale: - Authorities have formulated an ambitious policy framework addressing fundamental structural weaknesses and vulnerabilities. - Fund financial support at this juncture can assist Liberia in building reserves and laying the basis for a lasting exit from future Fund financial assistance. - The proposed access level is described as at the middle-to-lower end of other exceptional access cases. ### Relations with the Fund — Key Financial and Institutional Facts - Membership: Joined 03/28/1962; Article XIV. - General Resources Account (SDR Million % Quota): - Quota 71.3 100.0 - Fund holdings of currency 271.1 380.2 - Reserve position in Fund 0.0 0.0 - SDR Department (SDR Million % Allocation): - Net cumulative allocation 21.0 100.0 - Holdings 0.0 0.0 - Outstanding Purchases and Loans (SDR Million % Quota): - Stand-By Arrangements 165.1 231.5 - Contingency and Compensatory 34.7 48.7 - Trust Fund 22.9 32.1 - Latest Financial Arrangements (selected): - Stand-By 12/07/1984–12/06/1985 Approved (SDR Million) 42.8; Drawn 8.5 - Stand-By 09/14/1983–09/13/1984 Approved (SDR Million) 55.0; Drawn 55.0 - Projected Obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs): - Overdue Principal 12/31/2007: 222.67 - Charges/interest: 317.58 - Forthcoming obligations by year (2008–2012): 11.42, 11.38, 11.38, 11.38, 11.39 - Total: 540.25 11.42 11.38 11.38 11.38 11.39 - Note: Projections assume overdue principal at the report date will remain outstanding, but forthcoming obligations will be settled on time. - Arrears and payments: - Liberia has been in continuous arrears to the Fund since 1984. - The Fund issued a declaration of noncooperation in 1990; voting rights were suspended in March 2003. - Liberia’s arrears to the Fund at end-January 2008 amounted to SDR 540 million (758 percent of quota). - The authorities have been making monthly token payments of US$60,000 to the Fund since November 2005, up from US$50,000 since January 2004. ### Safeguards Assessment and Exchange Rate Arrangement - Safeguards assessment (voluntary) of the Central Bank of Liberia (CBL) under the 2006 SMP found significant vulnerabilities in external and internal audit mechanisms, financial reporting, and internal controls. - Recommendations: strengthen external audit and audit oversight; adopt International Financial Reporting Standards for implementation by 2008; establish controls over reporting of monetary data to the Fund. - Many recommendations already implemented; safeguards assessment will need updating before the first review under the PRGF/EFF-supported program. - Exchange rate arrangement: - Liberia maintains an exchange rate system free of restrictions on payments for current and capital transfers. - Currency: Liberian dollar; U.S. dollar also legal tender. - Arrangement: managed float, market determined, no predetermined path. - Exchange rate at end-January 2008 was L$63.5=US$1. ### Technical Assistance (selected missions and focus areas) - IMF technical assistance and missions across departments include assessments and support for: - Monetary operations, foreign exchange auctions, banking supervision, payments system (MFD/MCM; 2004–2007). - Bank restructuring, central bank accounting, and payments system (MCM; 2005–2007). - Public expenditure management, tax administration, revenue administration, customs administration, extractive industries tax policy, and public financial management (FAD; 2003–2007). - Balance of payments, national accounts, monetary and financial statistics, CPI, government finance statistics (STA; 2004–2007). - Legal missions on revenue code and tax legislation (LEG; 2006–2007). - Resident experts and advisors have been posted in areas including chief administrator for the CBL, foreign exchange auction, central bank accounting, bank supervision, payments system, and balance of payments (appointments through Jan. 2008). - A resident representative has been posted in Monrovia since April 2, 2006. ### Relations with the World Bank Group — Key Points and Financials - December 2007: Liberia cleared arrears to the World Bank for a total of US$400.5 million, bringing Liberia into accrual status. - World Bank support since 2003 has included IDA pre-arrears and trust-funded grants totaling around $140 million, including $11 million from the LICUS Trust Fund and a $25 million allocation from IBRD surplus to a Trust Fund for Liberia. - An Interim Strategy Note, based on the government’s I-PRSP, was discussed in June 2007. A full Country Assistance Strategy is being prepared for early FY09, with IDA post-conflict assistance expected on the order of $35-40 million per year. - As of February 2008, the current Liberia portfolio includes 4 IDA grants totaling US$101 million with an undisbursed balance of US$83 million. - IDA Lending Operations (As of February 2008; in millions of U.S. Dollars): - Emergency Infrastructure Project — Approval Date 20-Jun-06 — IDA Commitments in US$ Million 46,500,000.00 — Undisbursed Amount of Active Projects 29,556,399.61 - Community Empowerment II — Approval Date 14-Jun-07 — IDA Commitments in US$ Million 5,000,000.00 — Undisbursed 4,900,737.18 - Health Systems Reconstruction — Approval Date 14-Jun-07 — IDA Commitments in US$ Million 8,500,000.00 — Undisbursed 8,030,888.67 - LR-Agriculture & Infrastructure Development Project — Approval Date 31-Jul-07 — IDA Commitments in US$ Million 37,000,000.00 — Undisbursed 36,631,765.11 - Reengagement and Reform Support Program — Approval Date 5-Dec-07 — IDA Commitments in US$ Million 4,000,000.00 — Undisbursed 4,000,000.00 - Total IDA Commitments: 101,000,000.00; Total Undisbursed: 83,119,790.57 - IMF–World Bank collaboration: - Close collaboration in policy advice; successful implementation of structural measures under the medium-term program hinges on complementary World Bank action, especially in business climate improvements, poverty reduction policies, and nonrenewable resource management. *Prepared by the African Department (In collaboration with other departments); Approved by Thomas Krueger and Matthew Fisher; February 27, 2008.* ### 1. Fiscal area ### 1. Fiscal area ### Major fiscal and public sector reform areas - Civil service reform — World Bank - Expenditure monitoring and control — World Bank - Public Expenditure and Financial Accountability — IMF/World Bank - Tax administration, policy and legislation — IMF ### Related sectors and cross-cutting areas (listed in source) - Monetary and Financial sector - Banking sector reform — IMF/World Bank - Technical Assistance (Central Bank) — IMF/World Bank - Governance - GEMAP — The World Bank/IMF - Extractive Industries Transparency Initiative (EITI) — World Bank - Kimberly Process — World Bank - Private sector development - Business climate — World Bank - Agriculture, forestry and mining sector reform — World Bank - Other - External trade — IMF - Transport — World Bank - Urban development — World Bank - Decentralization — World Bank ### Findings on lead roles and coordination - Areas in which the World Bank leads and there is no direct IMF involvement: - The Bank is supporting the preparation of the Poverty Reduction Strategy and will continue to provide support for strengthening statistical capacity and assist the Liberia Institute of Statistics & Geo-Information Services (LISGIS) with poverty diagnostics. - In collaboration with LISGIS, a Core Welfare Indicator Questionnaire (CWIQ) was undertaken, providing baseline data on dimensions of poverty. - The Bank is assisting LISGIS with the development of a monitoring and evaluation system for the PRS. - Areas in which the World Bank leads and its analysis serves as input into the IMF: - The Bank is leading an ongoing PEMFAR (Public Expenditure Management and Financial Accountability Review), including a PEFA (Public Expenditure and Financial Accountability) assessment to assist national authorities to (i) diagnose the condition of country public expenditure, procurement and financial accountability systems, and (ii) develop a practical sequence of reform and capacity-building actions that encourage country ownership, reduce transaction costs, enhance donor harmonization and better address developmental and fiduciary concerns leading to improved impact of reforms. - The Bank is facilitating a Diagnostic Trade Integration Study (draft completed), which includes detailed analyses of growth potential in Liberia’s export sectors. - The Bank is providing technical assistance to help develop a comprehensive civil service reform strategy. - Areas where the Fund takes the lead role and its analysis serves as input into the World Bank-supported program: - The Fund leads the dialogue on fiscal matters, which sets the overall envelope for public expenditures. - The IMF is providing technical assistance in the area of revenue administration. - The IMF leads the dialogue on policies to contain various expenditures in the public sector to ensure consistency with a cash-based balanced budget, and developing medium term projections to ensure fiscal sustainability. In these areas, the Bank takes into account IMF policy recommendations and ensures its own policy advice is consistent. - Areas in which the IMF leads, and there is no direct World Bank involvement: - Dialogue on monetary policy, interest rates, the exchange rate, the balance of payments, and related statistical and measurement issues. ### Operational implications (implicit in source) - Coordination between Bank and Fund: Bank-led diagnostic and capacity-building work (PEMFAR/PEFA, Diagnostic Trade Integration Study, civil service reform) feeds into IMF fiscal envelope and revenue administration dialogue. - Division of labor: Bank leads PRS support, statistics strengthening (via LISGIS), and many sectoral reforms; IMF leads fiscal policy, revenue administration, monetary and balance of payments policies. ### Source attribution *Source: _cr08108 - 1. Fiscal area* ### Appendix III. Liberia—Statistical Issues ### Overview - Severe weaknesses in economic statistics hamper effective surveillance, largely because the civil war caused widespread destruction of databases and the loss of administrative and institutional capacity. - Several STA missions have visited Monrovia in recent years to assist authorities in rebuilding capacity to compile statistics in national accounts, price, monetary, fiscal and balance of payments statistics. - Persistent weaknesses have required Fund staff to estimate historical data, particularly on output. - The government passed legislation in July 2004 to create the Liberia Institute of Statistics and Geo-Information Services (LISGIS) as a semi-autonomous agency to coordinate and reestablish national economic and social statistics. - Liberia is one of twenty-two countries participating in the Fund’s General Data Dissemination System (GDDS) Project for Anglophone Africa (funded by the U.K. Department for International Development) and has posted metadata and plans on the DSBB since October 24, 2005. ### Monetary and publication practices - The Central Bank of Liberia (CBL) regularly reports monetary, financial and exchange rate statistics for publication in International Financial Statistics (IFS), but timeliness needs improvement. - The CBL publishes data on money and banking, prices, output, fiscal operations, debt, interest, exchange rates, and foreign trade on a bi-monthly basis with a lag of about six months in the Liberia Financial Statistics. - The CBL publishes the quarterly Financial and Economic Bulletin, covering the previous four quarters, with a lag of about six months. ### Real sector - Annual estimates of production by sector are prepared by LISGIS. - Fund staff estimated total GDP by sectoral origin for the period 1997–2006 with assistance from MPEA and LISGIS. - National accounts would benefit from: - (i) Establishment of a national business register. - (ii) Resumption of an annual Establishment Survey and National Accounts Questionnaire for manufacturing, mining, utilities and agriculture. - Estimates for GDP by expenditure are not available. - A Household Income and Expenditure Survey is needed as a basis for more reliable data. ### Prices - In January 2007, the authorities, in line with STA recommendations, formally adopted the Harmonized Consumer Price Index (HCPI). - The HCPI is based on an expanded basket consistent with the ECOWAS harmonized market basket, and updated weights (using consumption patterns in neighboring countries in the absence of an updated household survey). - Authorities have compiled data for this index since October 2005. - Prior to January 2007, price data were based on the Monrovia Consumer Price Index (MCPI) with a basket of 79 items weighted according to a household income and expenditure survey from 1964. ### Government finance statistics - Authorities regularly provide staff with information on fiscal accounts on a cash and commitment basis. - The Ministry of Finance (MoF) provides monthly disaggregated data on government revenue and on current and capital expenditure. - There is scope for improving quality of government finance statistics, including reporting on financing items and expenditures on domestic debt and arrears. - Efforts have begun to move to the GFSM 2001, including participation of an official in a Fund-sponsored GFS training course. - The authorities have not reported data for publication in the Government Financial Statistics Yearbook (GFSY) since 1988 and have not reported data for publication in the IFS for several years. ### Monetary statistics - The CBL has made progress in transitioning compilation of monetary data to a new system based on the IMF’s Monetary and Financial Statistics Manual methodology. - The CBL has started compiling standardized report forms (SRFs) for reporting monetary data to the IMF. - Further steps are needed to strengthen the CBL’s accounting system, including: - Proper accounting of foreign reserves. - Segregating required reserves by currency denomination. - Adequate classification of other assets and liabilities. - Reporting of preliminary statistics by commercial banks has improved, but bank responses to requests for explanations and follow-up to inconsistencies remain weak. - An STA follow-up mission in November 2007 resolved several outstanding methodological issues, assisted the CBL to update SRFs, and developed an integrated monetary data base producing alternative outputs for authorities, STA and AFR. - The mission recommended that the CBL submit monthly SRF data to STA for publication. ### Balance of payments and external debt - Official balance of payments statistics are not reported comprehensively; Fund staff prepared provisional balance of payments statistics in cooperation with CBL, Ministry of Commerce (MoC), MPEA, and MoF. - The CBL is responsible for compiling the balance of payments in coordination with other agencies. - Some progress has been made in compiling certain current and financial account components—mainly on trade and related services, government expenditures, remittances, and nonresident deposits in the financial account—but: - There is a lack of primary source data. - Errors exist in distinguishing between components in services, income and transfers. - An effort should be made to resolve and reconcile significant discrepancies in trade data reported by various agencies. - The CBL completed a census of foreign direct investment enterprises in preparation for an investment survey following STA mission recommendations. - In November 2006 an STA mission set out recommendations to strengthen compilation of balance of payments statistics in the CBL including training of staff. - In March 2007, STA approved a long-term advisor to assist the CBL in improving balance of payments data. - An official from the CBL attended the IMF’s balance of payments statistics course in Washington in May/June 2007. *Source: _cr08108 - 1. Fiscal area* ### 10. Significant gaps exist in the records of external public debt, particularly those related ### _cr08108 - 10. Significant gaps exist in the records of external public debt, particularly those related ### External public debt data gaps and capacity-building efforts - Significant gaps exist in the records of external public debt, particularly those related to bilateral and commercial creditors. - An STA mission in November 2006 identified inadequate staffing and poor coordination with data providers as key impediments to improving balance of payments statistics. - A task force comprising staff seconded from the CBL, MoF, MPEA, General Auditing Office (GAO) and the Bureau of the Budget (BoB) is making progress in obtaining loan agreements and financial statements from external creditors to update the external debt database maintained by the MoF. - Training and technical assistance: - STA trained three officials in 2005—one in balance of payments and two in debt statistics. - Another official from the CBL was selected for the 2007 INS BOP course in Washington D.C. - The authorities engaged an international financial advisor to assist with rebuilding the database on external commercial debt. ### Key data observations (as of January 31, 2008) - Exchange Rates: Date of latest observation Jan. 2008; Date received Dec. 2007; Frequency of Data D; Frequency of Reporting M; Frequency of publication B - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Dec. 2007; Date received Jan 2008; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Reserve/Base Money: Date of latest observation Dec. 2007; Date received Jan. 2008; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Broad Money: Date of latest observation Dec. 2007; Date received Jan. 2008; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Central Bank Balance Sheet: Date of latest observation Dec. 2007; Date received Jan. 2008; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Consolidated Balance Sheet of the Banking System: Date of latest observation Dec. 2007; Date received Jan. 2008; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Interest Rates: Date of latest observation Dec. 2007; Date received Jan. 2008; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Consumer Price Index: Date of latest observation Jan. 2008; Date received Feb. 2008; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation Apr. 2007; Date received May 2007; Frequency of Data M; Frequency of Reporting M; Frequency of publication B - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation Mar. 2006; Date received May 2006; Frequency of Data Q; Frequency of Reporting B; Frequency of publication B - External Current Account Balance: Date of latest observation 2006; Date received Jan. 2008; Frequency of Data A; Frequency of Reporting I; Frequency of publication I - Exports and Imports of Goods and Services: Date of latest observation Dec. 2005; Date received Dec. 2005; Frequency of Data M; Frequency of Reporting Q; Frequency of publication B - Gross External Debt: Date of latest observation Jun. 2007; Date received Oct. 2007; Frequency of Data Q; Frequency of Reporting B; Frequency of publication B - Notes on frequencies: Daily (D); Weekly (W); Monthly (M); Bi-monthly (B); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA) ### IMF Executive Board decisions and financial support (Press Release No. 08/52, March 14, 2008) - Executive Board approved measures to fully normalize Liberia’s financial relations after protracted arrears. - IMF committed combined SDR 582 million (about US$952 million) of financial support. - Bridge loan used to clear overdue obligations: equivalent to SDR 543 million (about US$888 million). - Arrangements approved: - PRGF: three-year arrangement under the Poverty Reduction and Growth Facility of SDR 239.02 million (about US$391 million). - EFF: SDR 342.77 million (about US$561 million) arrangement under the Extended Fund Facility in support of the Liberia government’s economic program covering 2008-10. - Immediate disbursement allowed: amount equivalent to SDR 550.03 million (about US$900 million) under the arrangements. - Remaining disbursement: SDR 31.76 million (about US$52 million) to be drawn in six installments. - Executive Board agreed Liberia has taken steps necessary to reach the Decision Point under the enhanced HIPC Initiative. ### Program assessment, performance under the SMP, and structural benchmarks - Performance under the Staff Monitored Program (SMP) through December 2007 has been satisfactory and meets standards for upper credit tranche conditionality. - Outstanding issues: - Continued accrual of external payments arrears on old debt, partly due to delays in securing donor pledges for arrears clearance and in reaching the HIPC decision point. - Authorities undertook not to incur arrears on external debt that Liberia owes or guarantees, except for external payments arrears already arising from government debt being renegotiated with creditors. - Quantitative benchmarks: - All achieved last year except the one relating to Central Bank of Liberia (CBL) expenditure. - CBL expenditures in 2007 exceeded the SMP ceiling due to capital expenditure related to printing Liberian dollar banknotes; despite that, CBL achieved a surplus and met the target for increasing foreign assets. - Structural benchmarks: - Good progress overall, though some required more time than programmed. - One outstanding benchmark from December 2007 relating to the development of a statistics plan; authorities aim to finalize the medium-term statistics plan and reach agreement with the TA provider to meet a new end-March benchmark. - Authorities have commenced efforts to improve data production and dissemination, including for monetary and fiscal statistics. ### Debt relief, repayment capacity analysis, and donor support needs - Authorities expect satisfactory performance under the PRGF/EFF-supported program will pave the way for comprehensive treatment of external debt through HIPC and other debt relief (including MDRI and beyond-HIPC relief). - Liberia expects to resolve arrears to private creditors through an appropriate agreement. - Analysis of repayment capacity shows little risk to the Fund so long as performance is satisfactory under the PRGF and extended arrangements. - Sustained donor support is vital: - Timely financial and technical support from donors is essential for program success. - Further assistance—especially financial support starting in the first year of the program—remains critical to meet benchmarks (such as that relating to the anti-corruption commission). - Grant financing is crucial for reconstruction and rehabilitation given that the debt sustainability analysis indicates Liberia is in debt distress and faces risks associated with new borrowing. - Urges donor community to provide adequate grant resources to enable recovery and achieve sustainable growth. ### Policy recommendations and commitments - Continue to strengthen public expenditure management and financial transparency; adopt a comprehensive public financial management law to improve budget preparation and implementation. - Finalize legal and other arrangements to establish an independent anti-corruption commission to firmly establish an environment of zero tolerance for corruption. - Strengthen instruments for managing domestic liquidity given the still-low level of international reserves while maintaining broad exchange rate stability. - Maintain strong commitment to the economic program to achieve key benchmarks and reach the HIPC completion point. - Ensure continued strong donor engagement and grant-based financing to support reconstruction, meet program benchmarks, and mitigate borrowing constraints. *IMF press materials and staff assessment as contained in the supplied document.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08108.pdf_