## _cr11174 - 32.5 percent of quota. ## Source details **Canonical URL:** [_cr11174 - 32.5 percent of quota.](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11174.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11174.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11174.pdf.json) --- ### Introduction and recent developments - Real GDP growth: estimated real GDP growth of 5½ percent in 2010 compared with 4½ percent in 2009. - Sector drivers: construction and tertiary activities contributed to 2010 growth; decline in rubber production and infrastructure constraints limited timber export expansion. - Inflation and exchange rate: - Twelve-month consumer price inflation in the range of 6–9 percent since January 2010. - Exchange rate against the US dollar broadly stable; Central Bank sales in the foreign currency auction marginally lower in 2010 than the previous year. - Gross official reserves boosted to over three months import coverage at end-2010. - Social and political context: - Legislative and presidential elections scheduled for October 2011. - Refugees from Côte d’Ivoire stabilized at around 165,000. - UN and international agencies providing humanitarian assistance; government facilitating. - Program performance: - All performance criteria through end-December 2010 were comfortably met. - Three structural benchmarks through end-March 2011 (publication of national accounts statistics, extension of the ASYCUDA system, financial reporting of state enterprises) slower than expected. ### Macroeconomic outlook - Near-term: - Real output growth expected to accelerate to about 6 percent in 2011 with start of iron ore production in Q3 2011. - Rising food and fuel import prices will raise inflation during 2011; inflation expected to remain in single digits with broad exchange rate stability. - Modest increase in reserves anticipated as counterpart to increased demand for local currency holdings. - Medium-term: - Favorable prospects supported by large foreign investment commitments and steady non-mining GDP growth. - New investment in iron ore and commercial agriculture and rebound in rubber prices expected to drive growth pickup. - Program request: - Authorities requested extension of the ECF to end-2011 to cover economic and structural reforms; continuation of prudent macroeconomic policies and consolidation of reforms launched since 2008. ### Fiscal policies — recent outturns, FY2012 budget and risks - FY2011 (first three quarters) fiscal position: - Overall inflows well above budgeted levels even after accounting for a delay of US$22 million in budgetary grants to FY2012. - Tax revenue boosted by an unanticipated petroleum sector payment, postponement of income tax cuts to January 2011, and higher customs revenues. - Execution difficulties in the investment program led to an estimated fiscal surplus of 2½ percent of annual GDP at end-March 2011. - Delayed grants: - US$15 million delayed due to African Development Bank revisions; balance reflects delays meeting World Bank disbursement triggers. - Mid-FY2011 expenditure adjustments: - Supplementary budget proposed to reallocate spending toward urgent priorities totaling 3½ percent of GDP. - Authorities indicated potential to accelerate end-year spending financed by drawing down deposits. - Adjustments to FY2011 budget expenditure (authority summary): - Capital: 10 (US$ millions) — 1.0 (Percent of GDP) - Current: 21 (US$ millions) — 1.9 (Percent of GDP) - Security & elections: 7 — 0.7 - Health: 7 — 0.6 - Other: 7 — 0.7 - Transfer to reserve fund: 1 — 0.1 - Domestic arrears: 6 — 0.6 - Total: 39 (US$ millions) — 3.6 (Percent of GDP) - FY2012 budget (submitted May 5) design and assumptions: - Based on realistic revenue estimates, prudent borrowing consistent with post-HIPC debt management strategy, and prioritization of expenditures. - Core tax revenue estimates incorporate tax policy changes in the Liberia Revenue Code; aggregate effect: somewhat lower tax revenues (additional indirect taxes on services outweighed by income tax reductions and customs revenue declines). - Foreign borrowing assumptions: World Bank IDA disbursements of US$20 million (1.6 percent of GDP), of which US$5 million is budget support. - No domestic borrowing envisaged; FY2012 budget contains US$88 million (7 percent of GDP) of contingent revenues and grants and matching contingent expenditures. - Capital spending including World Bank loan financed projects increases to US$68 million (5.4 percent of GDP). - Project execution capacity risk and recommendations: - Causes of FY2011 capital shortfalls: delayed budget passage; lack of capacity to design projects and meet procurement standards; limited number of private contractors. - Recommendations (Box 2): - Pass the annual budget more timely; - Re-appropriate funds for FY2011 projects at advanced preparatory stages; - Consolidate project budget into fewer, larger projects; - Begin procurement early, prior to budget passage; - Increase capacity in line ministries/agencies for project design and procurement. - Response to food and fuel price rises: - Projected rice and fuel price increases of 25 percent in 2011 would raise the import bill by US$50 million (4.3 percent of GDP); trade balance impact partially offset by rising rubber prices. - Measures: fuel import duty exemptions for schools, clinics, hospitals and the state-owned electricity company (revenue loss equivalent to 0.2 percent of GDP); subsidy to Monrovia Transit Authority being considered (0.1 percent GDP). - Social mitigation: WFP school feeding programs in urban areas; food-for-work and cash-for-work in rural areas until next harvest. ### Monetary and financial policy - Objectives and program: - 2011 monetary policy aims to maintain broad exchange rate stability while protecting foreign currency reserve position. - 2011 monetary program envisages an underlying increase of foreign exchange reserves of US$10 million plus Fund purchases. - Program incorporates a margin in the foreign reserves floor to accommodate CBL operational needs including additional foreign exchange auction sales, a credit stimulus scheme, and potential CBL cash-flow operating deficit related to planned headquarters rehabilitation. - Staff noted CBL reserve position strengthened (including SDR allocation in 2009) but underlying rate of increase modest given high dollarization. - Liquidity management and instruments: - High dollarization and excess Liberian dollar liquidity limit monetary policy effectiveness. - Weekly foreign exchange auctions effective but volumes modest. - Launch of a local currency Treasury bill market intended to enhance liquidity management capacity. - Staff supports introduction of central bank notes if treasury bill program delayed. - Other financial measures: - Central Bank of Liberia credit stimulus initiative detailed (Box 4). ### Banking sector performance and risks (Financial section) - 2010 bank sector performance: - Financial intermediation increased in 2010; banking sector balance sheet expanded by nearly one third. - Credit expansion accompanied by significant increase in share of non-performing loans (NPLs). - CBL responses: - Shortened cycle of on-site targeted credit examinations and off-site surveillance. - Encouraged commercial banks to strengthen internal risk management guidelines. - Publication of the Commercial Code expected to improve asset recovery framework. - System indicators (selected exact figures preserved): - Banking sector balance sheet (Millions of US dollars): - Dec-07: Assets 231.2; Loans 69.9; Deposits 138.6; Capital 5.5; Deposit dollarization (%) 85.6 - Dec-08: Assets 317.8; Loans 102.1; Deposits 207.7; Capital 3.8; Deposit dollarization (%) 86.7 - Dec-09: Assets 411.6; Loans 134.8; Deposits 284.7; Capital 5.2; Deposit dollarization (%) 88.8 - Dec-10: Assets 562.5; Loans 186.4; Deposits 402.9; Capital 128.1; Deposit dollarization (%) 88.8 - NPL ratios and provisions: - Nonperforming loans to total loans: Dec-07: 16.4; Dec-08: 17.4; Dec-09: 10.9; Dec-10: 25.1 - Loan loss provisions to NPLs: Dec-07: 97.1; Dec-08: 59.6; Dec-09: 78.8; Dec-10: 55.6 - Value of NPLs (Millions US$): Dec-07: 9.4; Dec-08: 15.2; Dec-09: 13.7; Dec-10: 37.9 - Value of provisions (Millions US$): Dec-07: 9.2; Dec-08: 9.1; Dec-09: 10.8; Dec-10: 21.1 - Value of NPLs not provisioned (Millions US$): Dec-07: 0.3; Dec-08: 6.1; Dec-09: 2.9; Dec-10: 16.8 - Ratio of NPLs not provisioned to capital: Dec-07: 0.9; Dec-08: 15.1; Dec-09: 3.9; Dec-10: 18.4 - Capital adequacy and liquidity (Percent): - Regulatory capital to risk-weighted assets: Dec-07: 28.4; Dec-08: 22.0; Dec-09: 28.1; Dec-10: 27.4 - Liquid assets to net assets: Dec-07: 61.1; Dec-08: 55.0; Dec-09: 51.8; Dec-10: 56.6 - Profitability (Percent): - Return on assets: Dec-07: 0.6; Dec-08: 0.7; Dec-09: 0.6; Dec-10: 0.5 - Return on equity: Dec-07: 4.5; Dec-08: 5.4; Dec-09: 3.4; Dec-10: 0.3 - CBL Credit Stimulus Initiative (Box 4): - Launched November 2010: US$5 million of CBL funds deposited at commercial banks at 3 percent interest, 3 year maturity, 6 months grace. - For lending to SMEs in 15 eligible manufacturing industries; loans at least 12-month maturity, interest capped at 8 percent; banks accept all credit risk. - Staff assessment: proposed lending margin of 5 percent considered insufficient relative to regional peer average (7 percent plus annual inflation). ### Financial sector reforms and inclusion - System-wide adoption of IFRS scheduled to start by end-2012. - Structural benchmarks and actions: - Establish financial reporting by state owned enterprises (MEFP ¶13). - Launch pilot IFMIS phase mid-2011. - Create small mining tax assessment team in LTU. - Extend customs data system to international airport; introduce ITAS in LTU. - Financial sector initiatives for inclusive growth (MEFP ¶18): - Develop road map for capital market development and interim regulations (end-December 2011 structural benchmark). - Facilitate mobile banking; encourage microfinance sector expansion; extend WAMZ payments system to Liberia. ### Program modalities, financing, and monitoring - Authorities requested 9-month extension of the ECF to March 31, 2012. - Proposed augmentation of the ECF arrangement: SDR 8.88 million (equivalent to about 6.8 percent of quota and 1.2 percent of GDP) to close a residual financing gap and bring cumulative access to 32.5 percent of quota. - Proposed disbursements and schedule (selected): - Seventh disbursement: SDR 4.44 million upon completion of the sixth review. - Additional access SDR 8.88 million to be equally disbursed after completion of program reviews on September 15, 2011 and March 15, 2012. - Program monitoring modifications: - New indicative floor on education and health spending in FY2012 (MEFP ¶10). - Discontinue performance criterion on the CBL payment arrears (MEFP ¶21). - Establish performance criteria for June 30, 2011 and December 31, 2011 (MEFP Table 1b). - Seventh and eighth reviews scheduled for September 15, 2011 and March 15, 2012. ### Economic projections and key indicators (selected figures preserved) - Real GDP growth (selected): - 2009: 4.6 - 2010 (Prel.): 8.8 - 2011 (5th Rev): 6.8 - 2012 (Proj.): 11.7 - 2013 (Proj.): 9.6 - 2014 (Proj.): 7.8 - Consumer prices (average): - 2009: 7.4 - 2010 (Prel.): 7.4 - 2011 (5th Rev): 7.3 - 2012 (Proj.): 4.2 - Gross official reserves (US$ millions, selected): - 2009: 312.2 - 2010 (Prel.): 317.1 - 2011 (5th Rev): 391.4 - 2012 (Proj.): 336.8 - 2013 (Proj.): 425.1 - Import coverage of reserves excluding UNMIL imports (months): - 2009: 3.2 - 2010 (Prel.): 2.6 - 2011 (5th Rev): 3.4 - 2012 (Proj.): 2.0 - Overall fiscal balance (including grants, percent of GDP): - FY2009: -1.6; FY2010: 0.6; FY2011: 0.6; FY2012: -0.5; FY2013: 1.3 - Current account balance (including official grants, percent of GDP): - 2009: -38.3; 2010: -40.4; 2011: -43.5; 2012: -59.2; 2013: -37.8 - Trade balance (US$ millions, selected): - Trade balance: 2009: -421; 2010: -445; 2011 (5th Rev): -459; 2012 (Proj.): -735 - Exports, f.o.b.: 2009: 153; 2010: 207; 2011: 215; 2012: 315 - Imports, f.o.b.: 2009: -574; 2010: -652; 2011: -674; 2012: -1,050 - Monetary aggregates (annual change): - Broad money (M2): 2009: 24.1; 2010: 13.9; 2011: 33.5 - Reserve money: 2009: 2.1; 2010: 10.8; 2011: 3.2 - CBL gross official foreign reserves (table notes): - CBL's gross foreign reserves: 2010: 372.5; 2011 (Prel.): 379.1; 2011 (5th Rev): 467.0 ### Debt, debt relief, and sustainability - Delivery of debt relief at completion point: - Debt relief (SDR Million): 548.53 - Liberia Administered Account: 116.20 - Remaining HIPC resources: 432.33 - Delivery Date: June 2010 - GRA Eligible: 342.77 - PRGT Eligible: 205.76 - Total: 548.53 - DSA findings: - Update confirms low risk of debt distress. - Net present value of external debt projected to remain low and sustainable throughout projection period. - PV of external debt (percent of GDP), baseline examples: - 2010/11: 8.2; 2015/16: 12.3; 2019/20: 14.8; 2029/30: 17.3 - Public sector debt (percent of GDP), baseline: - 2010/11: 10.8; 2015/16: 17.5; 2019/20: 21.6; 2029/30: 26.8 - Debt indicators sensitive to lower exports and less favorable borrowing terms; stress tests show varying outcomes (selected stress test results preserved in Box 1). ### Box 1 — Key baseline macroeconomic assumptions (selected) - Growth: - Real annual growth average 7¾ percent during 2011/12-2015/16; average 4¼ percent during 2016/17-2029/30. - Inflation: - Inflation in local currency assumed to decelerate starting 2010/11 and stabilize at 5 percent by 2013/14. - External: - Exports growth projected to average 24 percent during 2010/11–2015/16; import growth projected 15 percent for 2010/11–2012/13. - Current account deficit expected to increase during construction, reaching 68 percent in FY2012/13, then decline to 31 percent in FY2014/15. - Borrowing: - Ceiling on annual foreign currency borrowing of 3 percent of GDP in NPV terms. - Nominal external borrowing expected to restart 2011/12 at 1½ percent of GDP and rise to 5 percent of GDP by FY2014/15 (nominal), then decline to 2 percent by 2022/23. - Stress tests (selected outcomes): - Higher interest rates on new borrowing (2 percentage points higher): PV of external debt reaches 25 percent in 2020/21 and 30 percent by end of projection. - Combined stress test: PV of external debt-to-GDP ratio 24 percent in 2012/13, peaking at 27 percent in 2020/21. ### Program monitoring, data reporting, and technical assistance - External financing adjustor: - Ceilings for CBL gross credit to government and CBL net domestic assets adjusted by difference between actual and programmed external budget support and ratified concession signature payments up to US$20 million, cumulative from July 1. - Cumulative program external budget support and ratified concession signature payments: - Dec 2010: 27.8; Mar 2011: 54.4; Jun 2011: 92.6; Sep 2011: 0.0; Dec 2011: 51.1 - Program-monitoring committee: - Senior officials from Ministry of Finance, CBL, and other agencies; IMF Resident Representative observer. - Monthly progress reports to IMF within four weeks of month end. - Data reporting (selected reporting requirements and timing preserved): - Ministry of Finance: detailed monthly revenue/expenditure reports (monthly, within three weeks after month end); outstanding appropriations and arrears tables (monthly); disbursements of budget support by donor (monthly). - CBL: daily balances in GoL accounts (daily, within three days); monthly monetary survey and balance sheet (monthly, within three weeks); weekly report on foreign exchange auctions. - Monetary and financial sector: detailed commercial bank loans by sector (monthly, within three weeks); financial soundness indicators by institution (quarterly, within three weeks). - Market and real sector: monthly harmonized CPI (within three weeks); daily foreign exchange rates (weekly); export/import data by SITC (monthly, within three weeks). - Technical assistance 2008–11: missions across customs, revenue administration, PFM, monetary operations, banking supervision, national accounts, payment systems, and debt management (selected entries preserved). ### Staff appraisal — key judgments and recommendations - Staff welcomes continued progress; economy on upward trajectory, boosted by FDI. - Budgetary control remains firm; financial sector expanding while supervision strengthened. - Capacity bottlenecks delayed FY2011 capital investment program, posing risk to rapid growth and causing temporary government deposits build-up at CBL. - FY2012 budget provides prudent framework with upside potential from contingent revenues and grants. - CBL becoming more proactive in financial sector development while maintaining stability; concerns over rising NPLs: - Need to improve credit environment via introduction of Commercial Code and new commercial court. - Staff calls on remaining creditors to offer terms comparable to most official and commercial creditors. - External risks risen due to international fuel and food price increases; donor support remains important to cushion vulnerable populations. *Source: _cr11174 - 32.5 percent of quota.* ### 32.5 percent of quota. ### _cr11174 - 32.5 percent of quota. ### Introduction and recent developments - Real GDP growth picked up moderately in 2010: estimated real GDP growth of 5½ percent compared with 4½ percent in 2009. - Sector drivers: construction and tertiary activities contributed to the 2010 growth; decline in rubber production and infrastructure constraints limited timber export expansion. - Inflation and exchange rate: - Twelve-month consumer price inflation in the range of 6–9 percent since January 2010. - Exchange rate against the US dollar broadly stable; Central Bank sales in the foreign currency auction marginally lower in 2010 than the previous year. - Gross official reserves boosted to over three months import coverage at end-2010. - Social and political context: - Legislative and presidential elections scheduled for October 2011. - Spillovers from unrest in Côte d’Ivoire produced refugees and combatants in south east Liberia; refugee numbers stabilized at around 165,000 with new arrivals down and some returns underway. - UN and international agencies providing humanitarian assistance; government playing a facilitating role. - Program performance: - All performance criteria through end-December 2010 were comfortably met. - Implementation of three structural benchmarks through end-March 2011 (publication of national accounts statistics, extension of the ASYCUDA system, financial reporting of state enterprises) was slower than expected, though broader reform implementation advanced. ### Macroeconomic outlook - Near-term outlook: - Real output growth expected to accelerate to about 6 percent in 2011 with the start of iron ore production in the third quarter. - Rising food and fuel import prices will raise inflation during 2011, though inflation is expected to remain in single digits with broad exchange rate stability. - A modest increase in reserves is anticipated as the counterpart to increased demand for local currency holdings. - Medium-term prospects: - Favorable, supported by large foreign investment commitments and steady non-mining GDP growth. - New investment in iron ore and commercial agriculture and a rebound in rubber prices expected to drive overall growth pickup. - Program request: - Authorities requested an extension of the ECF to cover implementation of economic and structural reforms through end-2011, in parallel with an extension of their Poverty Reduction Strategy. - Program envisages continuation of prudent macroeconomic policies and consolidation and completion of structural reforms launched since 2008. ### Fiscal policies — recent outturns, FY2012 budget and risks - FY2011 (first three quarters) fiscal position: - Overall inflows well above budgeted levels even after accounting for a delay of US$22 million in budgetary grants to FY2012. - Tax revenue boosted by a petroleum sector payment not anticipated in the budget, postponement of income tax cuts to January 2011, and higher customs revenues. - Significant difficulties executing the investment program led to an estimated fiscal surplus of 2½ percent of annual GDP at end-March 2011. - Details on delayed grants: - US$15 million of delayed budgetary grants result from revisions to the medium-term financing envelope from the African Development Bank; the balance reflects delays in meeting World Bank disbursement triggers. - Mid-FY2011 expenditure adjustments: - Budget contingency expenditures activated and a supplementary budget proposed to reallocate spending toward urgent priorities totaling 3½ percent of GDP. - Authorities indicated potential to accelerate end-year spending financed by drawing down deposits. - Adjustments to FY2011 budget expenditure (summary provided by authorities): - Capital: 10 (US$ millions) — 1.0 (Percent of GDP) - Current: 21 (US$ millions) — 1.9 (Percent of GDP) - Security & elections: 7 — 0.7 - Health: 7 — 0.6 - Other: 7 — 0.7 - Transfer to reserve fund: 1 — 0.1 - Domestic arrears: 6 — 0.6 - Total: 39 (US$ millions) — 3.6 (Percent of GDP) - FY2012 budget (submitted May 5) design and assumptions: - Based on realistic revenue estimates, prudent borrowing consistent with post-HIPC debt management strategy, and prioritization of expenditures. - Core tax revenue estimates incorporate tax policy changes in the Liberian Revenue Code submitted alongside the budget; aggregate effect: somewhat lower tax revenues as additional indirect taxes on services are outweighed by losses from income tax reductions and customs revenue declines (including switch to GATT valuation, fuel import duty exemptions, phased ECOWAS CET adoption with frontloaded rate reductions). - Foreign borrowing assumptions conservative: envisaged World Bank IDA disbursements of US$20 million (1.6 percent of GDP), of which US$5 million is budget support and the remainder project financing. - No domestic borrowing envisaged; expectation that core revenues bolstered by significant contingent revenues. - FY2012 budget contains US$88 million (7 percent of GDP) of contingent revenues and grants and matching contingent expenditures; contingent revenues to be reviewed quarterly and additional expenditure subject to staff discussion in program reviews. - Staff considers budgeted expenditure level sustainable; no across-the-board wage increases proposed; targeted increases for teachers, health workers and security forces. - Social and priority spending to be monitored through an indicative target covering education and health spending. - Capital spending including World Bank loan financed projects increases to US$68 million (5.4 percent of GDP), slightly above expected FY2011 outturn. - Project execution capacity risk and recommendations: - Authorities view capacity constraints in project execution as a budgetary risk. - Box 1 identified causes of FY2011 capital spending shortfalls: delay in passage of FY2011 budget; lack of capacity to design projects and meet procurement standards; limited number of private sector contractors creating bottlenecks and higher costs. - Box 2 recommendations to improve project budget execution: - Passing the annual budget in a more timely manner; - Assigning priority to re-appropriating funds for FY2011 projects at advanced preparatory stages; - Consolidating the project budget into fewer, larger projects to better leverage scarce capacity; - Beginning the procurement process early, prior to passage of the budget; - Increasing capacity in line ministries and agencies in designing projects and navigating the procurement process. - Response to rising food and fuel prices and fiscal implications: - Projected rice and fuel price increases of 25 percent in 2011 would raise the import bill by US$50 million (4.3 percent of GDP); trade balance impact partially offset by rising rubber prices. - Measures: fuel import duty exemptions authorized for schools, clinics, hospitals and the state-owned electricity company (revenue loss equivalent to 0.2 percent of GDP); subsidy to Monrovia Transit Authority being considered (0.1 percent GDP) to stabilize public transport prices. - Social mitigation: working with WFP on school feeding programs in urban areas and food-for-work and cash-for-work programs in rural areas until next harvest season. ### Monetary and financial policy - Objectives and program: - Monetary policy in 2011 aims to maintain broad exchange rate stability while protecting the foreign currency reserve position. - 2011 monetary program envisages an underlying increase of foreign exchange reserves of US$10 million plus Fund purchases. - Program incorporates a margin in setting the foreign reserves floor to accommodate CBL operational needs including additional foreign exchange auction sales to address exchange rate volatility, a credit stimulus scheme, and potential cash-flow operating deficit at the CBL related to planned rehabilitation of its headquarters. - Staff noted that while CBL reserve position strengthened (including the SDR allocation in 2009), the underlying rate of increase is modest given high levels of dollarization. - Liquidity management and instruments: - High dollarization and excess Liberian dollar liquidity limit monetary policy effectiveness. - Weekly foreign exchange auctions to manage liquidity are effective but volumes modest. - Launch of a local currency Treasury bill market intended to enhance liquidity management capacity. - Staff support authorities’ intention to introduce central bank notes if the treasury bill program faces further delay. - Other financial measures: - Mention of a Central Bank of Liberia credit stimulus initiative (Box 4 referenced in table of contents). *Source: _cr11174 - 32.5 percent of quota.* ### 15. Financial ### 15. Financial ### Banking sector performance and risks - Financial intermediation increased in 2010; the banking sector balance sheet expanded by nearly one third. - The credit expansion was accompanied by a significant increase in the share of non-performing loans (NPLs). - Risks in the banking system require careful monitoring (MEFP ¶16). - To address rising NPLs: - The CBL shortened the cycle of on-site targeted credit examinations and off-site surveillance. - The CBL encouraged commercial banks to strengthen internal risk management guidelines. - Publication of the Commercial Code (delayed by technical revisions) could improve the legal framework for asset recovery and help the NPL situation. ### Supervision, reporting, and cross-border cooperation - The transition to risk-based supervision remains on course (MEFP ¶17). - Implementation efforts include: - Building staffing capacity. - Improving computerization. - Strengthening on- and off-site bank supervision. - System-wide adoption of international financial reporting standards (IFRS) is on track and scheduled to start by end-2012. - Cross-border consolidated supervision is improving through a memorandum of understanding with the West African Monetary Zone (WAMZ) for supervisory cooperation and exchange of information. ### Structural reforms and poverty reduction strategy - Authorities aim to consolidate ongoing fiscal reforms in the remainder of 2011. - Structural benchmarks and actions: - A revised structural benchmark: establishing financial reporting by state owned enterprises as required by law (MEFP ¶13). - New benchmarks: launch pilot phase of the Financial Management IT System in mid-2011; create a small mining tax assessment team in the Large Taxpayer Unit (LTU) to prepare for anticipated expansion of the minerals sector (MEFP ¶24). - Revenue administration reforms: - Extend the customs data system to the international airport (completing a delayed benchmark). - Introduce a new IT system for tax administration in phases, starting in the LTU (MEFP ¶24). - Audit capacity strengthening (MEFP ¶24): - General Auditing Commission to assist key ministries to implement existing external audit recommendations. - Complete audits of consolidated government accounts for FY2009 and FY2010. - Establish Central Internal Audit Governance Board and separate audit committees in eight key ministries. - Expand revenue transparency through implementing the Extractive Industries Transparency Initiative++ (value chain approach to fiscal terms and payments in mining, agriculture and forestry). ### Financial sector policies to support inclusive growth - Reforms focus on expanding financing options for the private sector (MEFP ¶18). - Key interventions for 2011: - Develop a road map for capital market development and interim regulations (end-December 2011 structural benchmark). - Facilitate mobile banking. - Encourage expansion of the microfinance sector. - Extend the WAMZ payments system to Liberia. ### CBL Credit Stimulus Initiative (Box 4) - Launched November 2010 to expand SME access to credit. - Terms: - US$5 million of CBL funds deposited at commercial banks at below market terms: 3 percent interest, 3 year maturity and 6 months grace. - Funds for lending to SMEs in 15 eligible manufacturing industries. - Loans must be at least 12-months maturity, with interest capped at 8 percent. - Banks may on-lend; banks accept all credit risk. - Staff assessment: - Success depends on banks identifying lending opportunities with risk at or below the proposed lending margin of 5 percent — well below a regional peer group average (7 percent plus annual inflation rate). - Staff views the interest margin as insufficient for a profitable expansion of SME credit. ### National accounts and statistics - Continued efforts needed to finalize compilation of national accounts statistics (MEFP ¶27). - A draft report for 2008 prepared by LISGIS suggests economic activity has been significantly underestimated, though data sources may not support very reliable estimates. - A desk-based review is underway to validate the data. ### Debt and external policies - Substantial progress in finalizing rescheduling agreements with remaining creditors (MEFP ¶25). - Bilateral agreements finalized with all but one Paris Club creditor before the March 2011 deadline; agreement with the remaining creditor is imminent. - Agreement signed with Kuwait in line with HIPC Initiative terms. - Discussions with other official creditors have advanced except with Taiwan, Province of China. - External debt sustainability: - An update of the external debt sustainability analysis (DSA) confirms the low risk of debt distress rating. - The net present value of external debt would remain low and sustainable throughout the projection period. - Debt ratios are sensitive to lower exports and less favorable financial terms of new borrowing. - Public debt vulnerable to lower GDP growth (in line with the historical average) and a higher pace of debt accumulation. - Concessional borrowing expected to resume in FY2012 with four projects recently approved by the World Bank; two additional projects under negotiation. - The authorities issued a state guarantee to a state enterprise in the amount of US$0.25 million for borrowing from a domestic commercial bank. ### Program modalities, financing, and monitoring - Authorities requested a 9-month extension of the ECF arrangement to March 31, 2012 to complete and consolidate reforms launched under the program. - Staff supports the request given a continued balance of payments need, evidenced by a large current account deficit, and still moderate holdings of foreign reserves. - Proposed augmentation of the ECF arrangement: SDR 8.88 million (equivalent to about 6.8 percent of quota and 1.2 percent of GDP) — the level of annual access provided in the second and third years of the arrangement — to close a residual financing gap and bring cumulative access to 32.5 percent of quota. - The capacity to repay the Fund remains high (Table 6). - Program monitoring modifications supported by staff: - New indicative floor on education and health spending in FY2012 (MEFP ¶10). - Discontinue performance criterion on the CBL payment arrears (no longer critical to program objectives) (MEFP ¶21). - Establish performance criteria for June 30, 2011 and December 31, 2011 (MEFP Table 1b). - Seventh and eighth reviews scheduled for September 15, 2011 and March 15, 2012 respectively. ### Staff appraisal — key judgments and recommendations - Staff welcomes continued progress in program implementation; economy on an upward trajectory, boosted by foreign direct investment. - Budgetary control remains firm; financial sector expanding while bank supervision is being strengthened. - Capacity bottlenecks delayed the FY2011 capital investment program, posing a risk to achieving more rapid growth and leading to temporary build-up of government deposits at the CBL. - Authorities have taken measures to increase spending in other needed areas in FY2011 and begun tackling impediments to public investment. - The FY2012 budget provides a prudent framework for core revenue and expenditures, with some upside potential from lumpy contingent revenues and grants. - The CBL is becoming more proactive in developing the financial sector while maintaining macroeconomic stability (liquidity management tools, credit to private sector, payments system, mobile banking). - With rising NPLs, efforts needed to improve the credit environment, particularly through introduction of the Commercial Code and start up of a new commercial court. - Staff calls on remaining creditors to offer terms comparable to those offered by the vast majority of official and commercial creditors. - External risks have risen due to increases in international fuel and food prices; authorities have passed through fuel price increases. - The FY2012 budget contains targeted measures; donor support to selectively cushion food price increases remains of high importance given the large proportion of the population vulnerable to price increases of staple foods. *Source: _cr11174 - 15. Financial* ### 31. Staff supports the completion of the sixth program review, and the proposed ### _cr11174 - 31. Staff supports the completion of the sixth program review, and the proposed ### Program review, extension, and augmentation - Staff supports the completion of the sixth program review, and the proposed extension and augmentation of the arrangement. - The extended arrangement will: - support a continued gradual increase of foreign exchange reserves, - encourage much-needed catalytic financing for budgetary purposes, - provide a framework for the authorities to monitor their ongoing reform efforts. - Authorities request: - completion of the sixth review and approval of the seventh disbursement in the amount of SDR 4.44 million, - extension of the Extended Credit Facility (ECF) to March 31, 2012, - additional access in the amount of SDR 8.88 million to be equally disbursed after completion of program reviews on September 15, 2011 and March 15, 2012. - Request letter dated Monrovia, June 7, 2011, signed by: - Augustine Ngafuan, Minister of Finance, Ministry of Finance, - Joseph Mills Jones, Executive Governor, Central Bank of Liberia. ### Recent economic developments (highlights from Figures and Tables) - Real GDP growth (selected values reported in tables): - 2009: 4.6 - 2010 (Prel.): 8.8 - 2011 (5th Rev): 6.8 - 2012 (Proj.): 11.7 - 2013 (Proj.): 9.6 - 2014 (Proj.): 7.8 - Consumer prices (average): - 2009: 7.4 - 2010 (Prel.): 7.4 - 2011 (5th Rev): 7.3 - 2012 (Proj.): 4.2 - 2013 (Proj.): 8.1 - 2014 (Proj.): 5.8 - Gross official reserves (millions of US dollars): - 2009: 312.2 - 2010 (Prel.): 317.1 - 2011 (5th Rev): 391.4 - 2012 (Proj.): 336.8 - 2013 (Proj.): 425.1 - 2014 (Proj.): 452.0 - 2015 (Proj.): 462.0 - Import coverage of reserves excluding UNMIL imports (months): - 2009: 3.2 - 2010 (Prel.): 2.6 - 2011 (5th Rev): 3.4 - 2012 (Proj.): 2.0 - 2013 (Proj.): 2.7 - 2014 (Proj.): 2.1 - 2015 (Proj.): 2.1 ### Medium-term fiscal and balance of payments outlook (selected indicators) - Overall fiscal balance (including grants, percent of GDP): - FY2009: -1.6 - FY2010: 0.6 - FY2011: 0.6 - FY2012: -0.5 - FY2013: 1.3 - FY2014: -1.1 - FY2015: -3.5 - Overall fiscal balance (excluding grants, percent of GDP): - FY2009: -4.3 - FY2010: -0.8 - FY2011: -0.8 - FY2012: -6.4 - FY2013: -2.2 - FY2014: -4.2 - FY2015: -7.1 - Composition of revenues and expenditures (percent of GDP, FY2009–FY2013 shown in tables): - Total revenue and grants: FY2009: 27.1; FY2010: 31.0; FY2011: 30.8; FY2012: 35.3; FY2013: 34.5; FY2014: 29.0; FY2015: 31.7 - Total expenditure and net lending: FY2009: 28.7; FY2010: 30.4; FY2011: 30.2; FY2012: 35.8; FY2013: 33.2; FY2014: 30.1; FY2015: 35.2 - Capital expenditure (percent of GDP): FY2009: 3.9; FY2010: 3.4; FY2011: 3.4; FY2012: 8.3; FY2013: 5.1; FY2014: 5.4; FY2015: 9.1 - Public debt: - Public external debt (percent of GDP): FY2009: 1.9; FY2010: 0.6; FY2011: 8.9; FY2012: 11.3; FY2013: 15.6; FY2014: 10.9; FY2015: 11.7; FY2016: 13.7 - Central government domestic debt (percent of GDP): FY2009: 34.2; FY2010: 31.5; FY2011: 31.4; FY2012: 29.7; FY2013: 27.3; FY2014: 24.3; FY2015: 22.3 ### Balance of payments and external financing (selected figures) - Current account balance (including official grants, percent of GDP): - 2009: -38.3 - 2010: -40.4 - 2011: -43.5 - 2012: -59.2 - 2013: -37.8 - 2014: -62.9 - 2015: -64.6 - Current account balance (excluding grants, percent of GDP): - 2009: -142.8 - 2010: -152.0 - 2011: -142.4 - 2012: -149.3 - 2013: -121.6 - 2014: -127.8 - 2015: -117.7 - Trade balance (percent of GDP): - 2009: -47.8 - 2010: -46.1 - 2011: -46.4 - 2012: -70.4 - 2013: -54.6 - 2014: -56.0 - 2015: -40.3 - Table 2 (Balance of Payments, US$ millions) selected lines: - Trade balance: 2009: -421; 2010: -445; 2011 (5th Rev): -459; 2012 (Proj.): -735; 2013 (Proj.): -630 - Exports, f.o.b.: 2009: 153; 2010: 207; 2011: 215; 2012: 315; 2013: 304 - Imports, f.o.b.: 2009: -574; 2010: -652; 2011: -674; 2012: -1,050; 2013: -934 - Donor transfers (net): 2009: 920; 2010: 1,019; 2011: 978; 2012: 967; 2013: 967 - Current account balance (US$ millions): 2009: -337; 2010: -395; 2011: -431; 2012: -624; 2013: -436 ### Monetary sector and banking (selected indicators) - Broad money (M2) (annual change): - 2009: 24.1 - 2010: 13.9 - 2011: 33.5 - 2012 (Proj.): 5.4 - 2013 (Proj.): 15.2 - 2014 (Proj.): 16.5 - 2015 (Proj.): 10.3 - Reserve money (annual change): - 2009: 2.1 - 2010: 10.8 - 2011: 3.2 - 2012 (Proj.): 2.0 - 2013 (Proj.): 8.7 - 2014 (Proj.): 13.4 - 2015 (Proj.): 11.8 - Central Bank (CBL) gross official foreign reserves (millions of US dollars, table notes): - CBL's gross foreign reserves: 2010: 372.5; 2011 (Prel.): 379.1; 2011 (5th Rev): 467.0; 2012 (Proj.): 401.2; 2013 (Proj.): 465.0; 2014 (Proj.): 496.0; 2015 (Proj.): 519.9 - CBL's gross official foreign reserves (excluding certain items): 2009: 312.2; 2010: 317.1; 2011: 391.4; 2012: 336.8; 2013: 425.1; 2014: 452.0; 2015: 462.0 ### Fund financing, schedule, and projections - Total ECF/EFF arrangements: SDR 550.03 million (ECF: SDR 207.26 million; EFF: SDR 342.77 million). - Schedule of ECF disbursements (selected actual and conditional items): - ECF: SDR 7.00 million — December 29, 2008 (Executive Board approval of the first review under the three-year ECF arrangements). - ECF: SDR 7.00 million — May 14, 2009 (Executive Board approval of the second review). - ECF: SDR 4.44 million — December 21, 2009 (third review). - ECF: SDR 4.44 million — July 2, 2010 (fourth review). - ECF: SDR 4.44 million — December 22, 2010 (fifth review). - ECF: SDR 4.44 million — June 22, 2011 (observance of performance criteria for December 31, 2010; completion of the sixth review). - ECF: SDR 4.44 million — September 15, 2011 (observance of performance criteria for June 30, 2011; completion of the seventh review). - ECF: SDR 4.44 million — March 15, 2012 (observance of performance criteria for December 31, 2011; completion of the eighth review). - Table 6 (Fund credit position and projected payments to the Fund, 2011–22, Millions of SDRs): - Prospective drawings: ECF 8.80 (2011), 4.40 (2012) - Fund credit outstanding (end-period values shown in table): e.g., 37.6; 42.0; 42.0; 39.9; 36.2; 30.3; 22.6; 13.0; 7.0; 2.6; 0.3; 0 - Projected debt service to the Fund (selected years, Millions of SDRs): 2012: 0.10; 2013: 1.10; 2014: 4.20; 2015: 6.78; 2016: 9.98; 2017: 12.75; 2018: 15.66; 2019: 13.05; 2020: 12.45; 2021: 11.22; 2022: 10.44 - Repayments and repurchases (selected years): 2014: 2.10; 2015: 3.69; 2016: 5.90; 2017: 7.68; 2018: 9.62; 2019: 6.02; 2020: 4.44; 2021: 2.22; 2022: 0.44 ### External financing requirements and sources (2010–15 summary) - Table 8 (US$ millions, 2010–15 projections): - I. Total financing requirement (2010 estimate): -4,462; 2011: -1,432; 2012: -1,753; 2013: -1,767; 2014: -1,421; 2015: -698 - Current account (excluding donor grants), 2010: -1,408; 2011: -1,404; 2012: -1,730; 2013: -1,751; 2014: -1,392; 2015: -684 - Debt amortization: 2010: -1,536; 2011: -4; 2012: -6; 2013: -6; 2014: -8; 2015: -10 - Reduction in arrears (2010): -1,439 - II. Total available financing, 2010: 2,901; 2011: 1,418; 2012: 1,745; 2013: 1,767; 2014: 1,421; 2015: 698 - Donor transfers (2010): 978; Debt forgiveness (2010): 1,439; Foreign direct investment (2010): 398; Official medium- and long-term flows (2010): 0; Private financing (2010): 861 - III. Exceptional financing (2010): 1,561 (IMF: 141) - IV. Financing Gap: 0 for projections shown ### Supplementary Letter of Intent and MEFP - Authorities submitted a Supplementary Letter of Intent (Monrovia, June 7, 2011) requesting sixth review completion, seventh disbursement, ECF extension to March 31, 2012, and additional access of SDR 8.88 million. - Authorities commit to: - take further measures if appropriate to achieve program objectives, - consult closely with IMF staff before revisions, - provide the Fund with necessary information to monitor implementation, - consent to publication on the IMF website of the letter, accompanying memorandum of policies, and the related staff report for the Sixth Review under the ECF. *Sources: Liberian authorities; and IMF staff estimates and projections, as presented in the supplied content.* ### 1. Estimates for 2010 suggest that GDP growth continued to pick up, although less ### _cr11174 - 1. Estimates for 2010 suggest that GDP growth continued to pick up, although less ### Economic performance and external environment (2010) - GDP growth continued to pick up in 2010, although less rapidly than initially hoped. - Growth supported by food production and services. - Rubber production continued to decline due to the aging tree stock. - Expected restart of timber exports was delayed by bottlenecks in the transport infrastructure. - External environment initially somewhat benign with rising rubber export prices; imported food and fuel price increases became increasingly apparent by end-2010. ### Financial sector developments (2010) - Inflation in single digits and the exchange rate broadly stable. - Financial markets expanded substantially. - The banking service branch network expanded significantly in 2010. - Banking sector balance sheet expanded by nearly one third. - Credit expansion accompanied by an increase in the share of nonperforming loans. ### Fiscal developments and FY2011 execution - Strong tax revenue performance in FY2011. - Tax revenues expected to exceed budgeted levels due to buoyant income tax, withholding tax, and customs receipts. - Projected budgetary grants will likely fall short of budget estimates due to temporary delays. - Current spending on track; capital expenditure well short of budget so far in FY2011 because of capacity constraints in public and private sectors. - Steps taken to address slow capital execution (see procurement and PFM measures). - A supplementary budget of US$24 million approved by the legislature in April 2011: - Supplementary expenditure allocated to capital spending, urgent current spending, and domestic arrears clearance in approximately equal proportions. - US$15 million from a one-time petroleum payment allocated to deferred expenditure as provided for in the FY2011 budget. ### Performance under the ECF-supported program (through end-December 2010) - All quantitative performance criteria through end-December 2010 were comfortably met. - Implementation of remaining three structural benchmarks slower than expected: - Publication of national accounts data delayed; provisional or experimental data expected after consultations with data users. - ASYCUDA system extended to the Monrovia oil terminal; extension to the international airport delayed due to funding difficulties. - Regular financial reporting by state owned enterprises to the Ministry of Finance, as envisaged in the Public Financial Management Act, has been slow to start and will require corrective actions. ### Program objectives (2011) - Principal objectives: maintain broad macroeconomic and financial stability; promote broad-based growth of employment; deliver improved public services as detailed in the Liberian Poverty Reduction Strategy (PRS). - PRS implementation advanced but slowed by capacity constraints in April 2010–March 2011; PRS extended to end-2011. - Preparations begun for a successor, Liberia Economic Growth Strategy, beginning 2012, aiming for middle-income status by 2030. - Strengthening justice and security via formation of five regional hubs with UN Peacebuilding Commission support over 2011–15. ### Macroeconomic outlook and risks (2011 and medium term) - Prospects favorable provided external risks are contained. - Iron ore exports expected to start in the third quarter of 2011, supporting more rapid income growth. - Risks centered on a continued rise in international food and fuel prices, which would raise inflation and squeeze private consumption. - Influx of Ivorian refugees placing pressure on food supplies in border areas and raising security costs. - Balance of trade weakening mainly due to higher food and fuel import prices, partially offset by higher rubber export prices. - Request for extension of the ECF arrangement with additional access of SDR 8.8 million to maintain adequate foreign exchange reserves. ### FY2012 fiscal framework and assumptions - FY2012 budget submitted May 5, 2011 aims to balance macroeconomic stability and development concerns. - Core revenue estimates based on amended Liberia Revenue Code (submitted May 2011) incorporating income tax reductions and sales tax increases on selected services, non-tax payments under ratified concession agreements, and donor support commitments. - Budget envisages significant contingent revenues and grants from not yet ratified concessions in iron ore and palm oil sectors, withholding taxes from transfer of offshore oil exploration blocks, and receipts from monetizing a bilateral commodity grant expected in early 2012. - Total expenditure in FY2012 will depend on realization of contingent revenues and grants. - Core spending to cover minimum spending requirements of ministries and agencies, full requirements for education and health sectors, priority infrastructure projects, and debt servicing. - Contingent spending allocations and execution procedures defined in an annex to the budget; quarterly review of contingent budget performance to be undertaken. - No envisaged need for additional financing except concessional financing from the World Bank for budget support and projects: US$20 million, 1.6 percent of GDP. - PRS indicative program target: US$88.9 million or 23.9 percent of total spending devoted to education and health (see Technical Memorandum of Understanding). ### Capital spending strategy (FY2012) - FY2012 capital program focused on fewer strategic projects in ports, energy and transport. - FY2011 implementation delays caused by capacity constraints in line ministries for project design; procurement delays for multiple relatively small projects; late budget passage; limited equipment and experience of resident contractors. - FY2012 will concentrate funds on fewer and larger projects to accelerate implementation; continue emphasis on infrastructure and leveraging private and donor financing where possible. ### Fiscal risk management and social protection - Continued increase in food and fuel prices identified as principal fiscal risk in FY2012. - Mitigation for vulnerable populations to be expanded with donor support via targeted transfer measures: - “conditional cash/voucher” programs in urban areas; - “cash- and food-for-work” programs in rural areas; - school feeding programs. - If staple food prices, particularly rice, rise significantly higher than expected, consideration of temporary, well-targeted consumption subsidies; FY2012 budget may need revision. - To mitigate rising fuel prices, considering subsidies for public transportation. ### Oversight of state-owned enterprises - Strengthen oversight of state-owned enterprises’ financial operations due to potential fiscal risks. - Increase resources of the PFM Reform Coordination Unit to produce a first quarterly report detailing state enterprise financial activities and plans. - Set this report as a structural benchmark for the Seventh Review (rephased from Sixth Review). ### Monetary policy and reserves - Principal objective of monetary policy: support price stability. - Due to dependence on food and fuel imports, inflation likely to increase during 2011; monetary and fiscal discipline to help prevent second-round inflationary impact. - CBL to continue using foreign exchange auction to maintain broad exchange rate stability. - Introduction of Government of Liberia treasury bills expected to commence soon as an additional liquidity management tool. - Demand for Liberian dollars could increase by the equivalent of US$10 million during 2011, reflected in CBL net purchases in the foreign exchange auction. - End-2011 reserve target (including holdings of SDRs) to increase by US$14.1 million from the end-December 2010 target of US$274.5 million to preserve flexibility for monetary policy and potential local currency treasury bill impacts. ### Banking supervision, financial sector initiatives, and market development - Banking system remains liquid and well capitalized; credit growth brisk; concern over increase in nonperforming loans. - CBL actions: - Intensified on-site targeted credit examinations and more robust off-site surveillance under risk-based supervision methodology. - Assisting commercial banks to strengthen internal risk management guidelines. - Spearheaded development of a new Commercial Code and law to establish a new commercial court—both approved by the Legislature in 2010—to improve enforcement of financial contracts. - Progress on risk-based supervision: - Walk-through evaluation of risk management systems of individual commercial banks completed in 2010. - 2011 focus: on-site examination training for CBL staff and pilot examinations of each commercial bank. - Commercial banks required to adopt IFRS by end-2012; CBL building banks’ capacity; IMF technical assistance requested to help ensure smooth transition to IFRS. - Payment systems and intermediation modernization: - December 2010: CBL launched a credit stimulus initiative with a total placement of US$5 million with several commercial banks to support medium-term credit needs of Liberian-owned small to medium-sized businesses. - CBL examining modalities to increase affordable finance to microfinance institutions. - Project begun December 2010 to modernize the payments system aiming to extend the West African Monetary Zone payments system to Liberia; legal framework to be formulated timely. - CBL plans to work with commercial banks to introduce mobile banking; regulatory and supervisory framework development underway. - Capital market development: - Commencement of the treasury bill market seen as a major first step toward financial market development. - CBL may consider introducing Central Bank Notes if conditions warrant; will develop a road map and interim regulations (new structural benchmark for 8th ECF Review). - CBL internal controls and reporting: - Internal auditor conducted a Monetary Data Reporting Package (MDRP) audit for second half of 2010; MDRP audit report completed February 2011 highlighted minor discrepancies between CBL accounting records and data reported to the Fund. Compliance with program targets not affected and corrections made. - CBL has operated a balanced operational budget without accumulating arrears for several years; request to discontinue the continuous performance criterion for CBL arrears. ### Public financial management, revenue administration, governance, and procurement - PFM improvements and recent key actions: - Comprehensive PFM Reforms Strategy and Medium-Term Action Plan to be finalized in May 2011, designed for incremental reforms with centralized control and capacity building focus. - Strategic plans for comprehensive reform of tax administration and customs developed. - Extensive training underway in IPSAS, new IT systems, and public procurement system; training to help ministries and agencies interpret and comply with the PFM law. - Internal audit capacity gap being addressed through an internal audit strategy building capacity in eight critical ministries. - Civil Service Agency largely completed a biometric employee verification and identification system. - Measures to accelerate procurement: - Reduced time for administrative steps by prioritizing project expenditure. - For FY2012 preparation, ministries and agencies required to submit draft bid documents with project proposals and encouraged to begin bidding prior to budget approval. - Technical assistance urgently needed to help line ministries fulfill procurement requirements in a timely fashion. - IT systems and benchmarks: - Key IT programs under development to become operational: - Pilot phase of IFMIS to be launched in the Ministry of Finance, CSA, GAC and Central Bank of Liberia (new benchmark Seventh Review of the ECF). - ASYCUDA to be extended to the international airport (revised benchmark for Seventh Review). - ITAS system in tax administration to become operational in phases starting in April 2011 in the Large Taxpayer Unit. - Plan to establish a small mining concessions tax assessment team in the Large Taxpayer unit (new benchmark Eighth Review) to monitor fiscal aspects and obligations of larger projects; technical assistance to be sought. - Review of National Oil Company of Liberia (NOCAL) and Petroleum acts to remove fiscal provisions and separate regulatory and commercial functions; draft amendments anticipated by end-2011. - Audit and transparency measures: - Strengthen audit capacity to reduce fraud and waste; General Auditing Commission to assist key ministries (including Health, Education, and Public Works) by assessing compliance with basic financial controls, agreeing remedial actions, and monitoring implementation during the remainder of 2011. - External audits of consolidated government accounts for FY2009 and FY2010 to be submitted to the legislature by mid-2011. - Appointment of a Central Internal Audit Governance Board and establishment of audit committees in eight key ministries. - Finalize costing of reform strategy in the Bureau of Internal Revenue and Customs and develop detailed action plans for the 2011/12 fiscal year. ### Debt management and external policies - Substantial progress on external debt rescheduling and debt reduction: - Finalized all but one bilateral agreement with Paris Club creditors before the March 2011 deadline; final bilateral close to completion. - China provided full cancellation of eligible non-Paris Club official debt; agreement reached with Kuwait on terms broadly comparable to HIPC debt reduction. - Negotiations advanced with other non-Paris Club creditors: ECOWAS, the Saudi Fund, BADEA and OFID. - Little progress with Taiwan, Province of China (almost half of the total non Paris Club official debt). - External debt outlook improved; commitment to maintaining sustainable debt levels. - Forthcoming publication and dissemination of guidelines for Government guarantees to strengthen the debt management framework. *Source: _cr11174 - 1. Estimates for 2010 suggest that GDP growth continued to pick up, although less* ### 27. We are committed to improving the quality of macroeconomic statistics, in ### _cr11174 - 27. We are committed to improving the quality of macroeconomic statistics, in ### National accounts and statistical improvements - A draft 2008 Supply and Use Table (SUT) is likely to result in a significant upward revision of estimates of GDP. - The data are under review to ensure as reliable a data set as possible in the current circumstances. - Final data are unlikely to be released prior to the completion of the 2012 household expenditure survey. ### Quantitative performance criteria and indicative targets (selected figures) - Table 1a (Liberia, 2010) — Floors, ceilings, and memorandum items (Millions of US dollars, unless otherwise indicated): - Floor on total revenue collection of the central government (Mar. 10 / Jun. 10 / Sep. 10 / Dec. 10): - 181.5, 185.3, 204.9, 277.6 (Prog./Adj. target/Actual columns shown in the source table) - 260.0, 275.0, 48.2, 48.2, 71.6, 103.1, 103.1, 167.9 (as displayed in table cells) - Floor on social and other priority spending (percent of total revenue and grants collected, indicative target): - 60.0, 60.0, 60.1, 60.0, 60.0, 70.7, ..., ..., ..., 65.0, 65.0, 83.6 (table cells preserved) - Ceiling on gross borrowing by the public sector in foreign currency: - 46.0, 46.0, 0.0, 46.0, 46.0, 0.0 (as shown) - Ceiling on new domestic borrowing of the central government (continuous basis): - 0.0, 0.0, 0.0, 2.5, 2.5, 0.0, 5.0, 5.0, 0.0 (table formatting preserved) - Floor on CBL’s net foreign exchange position: - 251.5, 251.5, 268.5, 261.6, 254.6, 270.7, 264.6, 264.6, 280.4, 274.5, 274.5, 287.5 (cells preserved) - Ceiling on net domestic assets of the CBL (indicative target) (selected rows): - -37.7, -37.7, -67.2, -28.1, -28.1, -98.8 (as displayed) - Memorandum item: Programmed receipt of one-time signing bonuses and Social Development Fund contributions from new iron ore projects: - 20.0, ..., 23.8, 47.4, ..., 29.9, 0.0, ..., 10.0, 0.0, ..., 10.6 (cells preserved) - Memorandum item: Programmed receipt of external budget support and ratified concession payments: - ........., ........., 11.0...10.027.8...34.4 (table cells preserved) - Table 1b (Liberia, 2011–12) — Program and projection figures (Millions of US dollars, unless otherwise indicated): - Floor on total revenue collection of the central government (Mar. 11 / Jun. 11 / Sep. 11 / Dec. 11 / Mar. 12 / Jun. 12): - 210.6, 327.1, 61.6, 170.6, 239.6, 317.7 (Program/Projection columns as shown) - Floor on social and other priority spending (percent of total revenue and grants collected, indicative target): - 65.0 (as indicated for one period) - Floor on primary education and primary healthcare spending (percent of total budgeted expenditure, excluding contingencies, indicative target): - 21.9 (selected periods displayed) - Ceiling on gross borrowing by the public sector in foreign currency: - 46.0, 46.0, 46.0, 46.0, 46.0, 46.0 - Ceiling on new domestic borrowing of the central government: - 7.5, 10.0, 12.5, 12.5, 12.5, 12.5 - Floor on CBL’s net foreign exchange position: - 267.0, 276.5, 279.0, 288.6, 292.3, 303.1 - Ceiling on net domestic assets of the CBL (indicative target): - -82.9, -77.6, -68.7, -73.3, -53.8, -47.6 - Memorandum item: Programmed receipt of one-time signing bonuses and Social Development Fund contributions from new iron ore projects: - 32.4, 42.5, 0.0, 22.7, 22.7, 22.7 - Memorandum item: Programmed receipt of external budget support and ratified concession payments: - 54.4, 92.6, 0.0, 51.1, 51.1, 51.1 ### Structural benchmarks (Table 2, September 2010–December 2011) - Publication of validated national accounts data for 2008 by the Statistical agency LISGIS: - Target Date: February 2011 - Justification: Provision of critical data for economic surveillance and macroeconomic policy. - Status: Not met. Draft report circulated to stakeholders in February 2011. - Extend ASYCUDA system to the Monrovia oil terminal and international airport: - Target Date: End- December 2010 (Re-phased to Seventh Review) - Justification: Trade facilitation and tax administration enhancement. - Status: Not met. ASYCUDA extended to the oil terminal, but extension to airport was delayed due to lack of finance. - Regular quarterly reporting of state owned enterprise (SoE) financial operations to Ministry of Finance: - Target Date: End-January 2011 (Re-phased to Seventh Review) - Justification: Essential for program monitoring of public sector borrowing. - Status: Not met. Poor compliance by SoEs. Corrective measures identified by Ministry of Finance. - Launch of pilot phase of the Integrated Financial Management Information System (IFMIS) linking Ministry of Finance, Civil Service Agency, Central Bank and GAC: - Target Date: Seventh Review - Justification: Critical to improving reporting and monitoring of budget implementation. - Status: (Not met/implementation detail not provided in table cells) - Create a small mining tax assessment team in the Large Taxpayer Unit with technical assistance if needed: - Target Date: Eighth Review - Justification: Taxation of concessions is a major element in the projected revenue increase over the medium term. - Development by the Central Bank of Liberia of a road map and interim regulations for capital market development: - Target Date: Eighth Review - Justification: Undeveloped capital markets are an important impediment to private sector development. ### Technical Memorandum of Understanding — key definitions and program rules (selected) - Government and public sector definitions: - Government = central Government of Liberia (GoL). Excludes legally autonomous state-owned enterprises whose budgets are not included in the central government budget. - Public sector comprises the central government, the Central Bank of Liberia (CBL), public enterprises, and other official sector entities. - Measurement conventions: - Central government operations are presented in U.S. dollars with Liberian dollar items converted at end-of-period exchange rate. - Total revenue collection includes all tax and nontax receipts transferred into the U.S. dollar GoL accounts at the CBL, including income and transfers from state-owned enterprises and public institutions (excluding external loans and grants). - GoL accounts at the CBL include: GoL General Account No. 2, GoL Special Rice Fund, and the Liberian dollar account at the CBL comprising the GoL General Account. - Revenues are measured on the basis of cash deposits in the four specified accounts converted to U.S. dollars using the end of period exchange rate. - Adjuster for total revenue floor: - The program floor on total revenue collection will be adjusted downward to the extent that signing bonuses and payments into Social Development Funds from new iron ore projects fall short of the program schedule, cumulative within the fiscal year. - Program path for cumulative signing bonuses and Social Development Fund payments from new iron ore projects (In millions of U.S. dollars, cumulative from start of fiscal year): - December 2010: 0.0 - March 2011: 37.4 - June 2011: 42.5 - September 2011: 0.0 - December 2011: 22.7 - FY2012 education and health spending definition: - Evaluated as a share of total budgeted expenditure (excluding contingency expenditure, off budget expenditure, and donor-financed items). - Education units listed (payment vouchers approved by the Ministry of Finance): Ministry of Education; University of Liberia; Monrovia Consolidated School System (MCSS); Booker Washington Institution (BWI); Forestry Training Institution (FTI); Cuttington University (CUC); National Commission on Higher Education (NCHE); W. V. S. Tubman Technical College (WVSTC); West African Examination Council (WAEC). - Health units listed: Ministry of Health and Welfare; JFK Medical Center (JFKMC); Phebe Hospital; LIBR (as listed). - Definitions of fiscal and monetary program variables: - Overall fiscal balance definitions differ for periods through end-June 2010 and from July 1, 2010 (commitment basis and treatment of arrears and amortization specified). - Noncash tax/duty payment: any noncash settlement of duty/tax obligations to the GoL through exchange of goods or services. - Gross borrowing by the public sector in foreign currency: cumulated new foreign currency claims by residents and non-residents from July 1, 2010 on the public sector excluding borrowing for reserve management purposes by the CBL. - New domestic borrowing of the central government: change in stock of all outstanding claims on the central government since program start, including banking system claims plus net issuance to nonbank sector; Liberian dollar claims converted at end-of-period exchange rate. - New domestic arrears/payables: difference between government payment commitments and actual payments, allowing a processing period of no more than 15 days from commitment date; actual payments defined as date of issuance of checks by Ministry of Finance. - External arrears policy: government undertakes not to incur payment arrears on external debt it owes or guarantees, except arrears arising from renegotiation; arrears defined as unpaid obligation on contractual due date (with creditor grace periods noted). - Contracting/guaranteeing of new external debt: applies to borrowing with non-residents with original maturities of one year or more; includes commitments contracted or guaranteed for which value has not been received. - Concessionality rule: debt is concessional if, on date of signature, present value/face value ratio computed on OECD reference interest rates is less than 65 percent (grant element at least 35 percent). - Ceiling for nonconcessional external debt by public sector: set at zero continuously throughout program except as agreed with Fund staff; excludes short-term import-related credits, rescheduling arrangements, borrowing from the Fund. - CBL gross credit to central government: sum of claims on central government (loans, advances, accounts receivable, government debt instruments) excluding CBL purchases of treasury bills in secondary market and non-competitive purchases in primary market; expressed in U.S. dollars. Claims denominated in Liberian dollars valued at fixed rate 72.00 as of September 30, 2009; other currencies valued at cross-rates as of September 30, 2009. - Net foreign exchange position of the CBL: difference between (a) CBL’s gross foreign reserves including SDR holdings and (b) sum of its gross foreign liquid liabilities and liquid liabilities denominated in U.S. dollars; floor at end-June 2011 and end-December 2011 is US$25 million below the projected net foreign exchange position. In event of delays to ECF disbursement, the floor adjusts down by cumulative amount of financing relative to programmed schedule. SDR holdings valued at fixed rate 1.5844 as of September 30, 2009; other currencies at cross-rates as of September 30, 2009. - Net domestic assets (NDA) of the CBL: base money minus net foreign assets of the CBL converted into U.S. dollars at program exchange rates (paragraph 14 definitions). Base money = currency in circulation + reserve deposits of commercial banks at the CBL + sight deposits of commercial banks at the CBL + vault cash of commercial banks. Net foreign assets = foreign assets minus foreign liabilities of the CBL balance sheet. *Source: Attachment II, Technical Memorandum of Understanding and associated tables from the program documentation provided in the content unit.* ### 17. External financing adjustor. The program ceilings for CBL gross credit to ### _cr11174 - 17. External financing adjustor. The program ceilings for CBL gross credit to ### External financing adjustor - The program ceilings for CBL gross credit to government and CBL net domestic assets will be adjusted upward, and the program floor on the net foreign exchange position of the CBL will be adjusted downward, by the amount of the difference between actual and programmed external budget support and ratified concession signature payments up to a maximum of US$20 million. - The adjuster will be calculated on a cumulative basis from the start of the financial year (July 1). - Cumulative Program External Budget Support and Ratified Concession Signature Payments (In millions of U.S. dollars): - December 2010: 27.8 - March 2011: 54.4 - June 2011: 92.6 - September 2011: 0.0 - December 2011: 51.1 ### Program monitoring — institutional arrangements - A program-monitoring committee shall be maintained, composed of senior officials from the Ministry of Finance, the CBL, and other relevant agencies. - The IMF Resident Representative will have observer status on the committee. - Committee responsibilities: - Monitor performance of the program. - Recommend policy responses. - Inform the IMF regularly about program progress. - Transmit supporting materials necessary for evaluation of benchmarks. - Reporting cadence: The 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. ### Data reporting to the IMF — required datasets and timing - The Ministry of Finance will coordinate and regularly report the following information to IMF staff: - Fiscal and budgetary reporting: - 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 and 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). - A table providing the end-of-period stock of domestic arrears accumulated and payments made on arrears during the program 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 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 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). - Quarterly reports of state owned enterprise financial operations submitted to Ministry of Finance. - Central Bank of Liberia (CBL) reporting: - Daily balances in the GoL accounts at the CBL. These comprise the U.S. dollar: GoL General Account No. 2; 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 also (daily, within three days from the date of the statement). - Balance sheet of the CBL in the monthly monetary survey (monthly, within three 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). - CBL cash revenues and expenditures in U.S. dollar and Liberian dollar terms, on an aggregated basis (including both recurrent and capital expenditure), and CBL expenditures on a commitment basis (periodically in the context of program reviews). - The report on foreign exchange sales/purchases by the CBL through foreign exchange auctions held by the CBL (weekly), including U.S. dollars offered and sold, the auction rate, the number of accepted and rejected bids, the total value of bids and of rejected bids, foreign exchange auction sales to non-bank customers. - Monetary and financial sector reporting: - The detailed table of commercial banks loans and advances by sector (monthly, within three week of end of month). - The core set of financial soundness indicators by individual financial institution, including the overall profitability of the banking sector (quarterly, within three weeks after the end of the quarter). - The detailed table of commercial banks loans and advances by sector (monthly, within three weeks of end of month). - The report on monthly payments on foreign currency debt by category and the domestic debt stock (monthly, within three weeks after the end of the month). - The detailed table of commercial banks loans and advances by sector (monthly, within three week of end of month). - The detailed table of commercial banks loans and advances by sector (monthly, within three week of end of month). - The detailed table of commercial banks loans and advances by sector (monthly, within three week of end of month). - Market and real sector indicators: - Indicators of overall economic trends, including but not limited to: - detailed tables of the monthly harmonized consumer price index (within three weeks after the end of the month); - daily foreign exchange rates (weekly); - export volumes and values by major commodity, import values by standard international trade classification (SITC), import volumes of rice (by commercial and non-commercial 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). - Other: - Regular sale of U.S. dollars by the Ministry of Finance to the CBL, including amount date, and rate of exchange (monthly, within three weeks after the end of the month). - Submission format and recipients: - The above data and reports will be provided in hard copies and electronically to the IMF Resident Representative to Liberia, with copies to the local IMF economist, Mr. Deline (adeline@imf.org) for further transfer to the African Department of the IMF in Washington, D.C. ### Banking sector — key financial stability findings (Appendix III) - 2010 overview: - No major challenges to financial system stability in 2010 due to strong capitalization and ample liquidity of commercial banks. - Brisk credit expansion accompanied by an increase in the share of nonperforming loans and low bank profitability; these pose potential vulnerabilities. - Sector expansion and intermediation: - Two new banks began full commercial banking activities in 2010; bank branches rose from 55 to 74. - Financial intermediation (M2 to GDP) increased to 42.9 percent at end-2010. - Deposit growth outpaced lending, resulting in loan-to-deposit ratios below 50 percent. - Deposit dollarization remained elevated and stable. - Capitalization and liquidity: - Risk-weighted capital adequacy ratios are above 25 percent for the system as a whole. - Minimum capital requirement phased in to US$10 million completed by December 2010. - System liquidity to net assets ratio is well above 50 percent at end-2010. - Banking sector balance sheet (Appendix III Table 1, Millions of US dollars): - Dec-07: Assets 231.2; Loans 69.9; Deposits 138.6; Capital 5.5; Deposit dollarization (%) 85.6 - Dec-08: Assets 317.8; Loans 102.1; Deposits 207.7; Capital 3.8; Deposit dollarization (%) 86.7 - Dec-09: Assets 411.6; Loans 134.8; Deposits 284.7; Capital 5.2; Deposit dollarization (%) 88.8 - Dec-10: Assets 562.5; Loans 186.4; Deposits 402.9; Capital 128.1; Deposit dollarization (%) 88.8 - Note: Figures in parenthesis in the table show percentage changes compared with the previous year. Source: Central Bank of Liberia. - Capital adequacy and liquidity indicators (Appendix III Table 2, Percent): - Dec-07: Regulatory capital to risk-weighted assets 28.4; Liquid assets to net assets 61.1 - Dec-08: Regulatory capital to risk-weighted assets 22.0; Liquid assets to net assets 55.0 - Dec-09: Regulatory capital to risk-weighted assets 28.1; Liquid assets to net assets 51.8 - Dec-10: Regulatory capital to risk-weighted assets 27.4; Liquid assets to net assets 56.6 - Source: Central Bank of Liberia. - Nonperforming loans (NPLs) deterioration (Appendix III Table 3): - Nonperforming loans to total loans: - Dec-07: 16.4 - Dec-08: 17.4 - Dec-09: 10.9 - Dec-10: 25.1 - Loan loss provisions to nonperforming loans: - Dec-07: 97.1 - Dec-08: 59.6 - Dec-09: 78.8 - Dec-10: 55.6 - Value of NPLs (Millions of US dollar): - Dec-07: 9.4 - Dec-08: 15.2 - Dec-09: 13.7 - Dec-10: 37.9 - Value of provisions (Millions of US dollars): - Dec-07: 9.2 - Dec-08: 9.1 - Dec-09: 10.8 - Dec-10: 21.1 - Value of NPLs not provisioned (Millions of US dollars): - Dec-07: 0.3 - Dec-08: 6.1 - Dec-09: 2.9 - Dec-10: 16.8 - Ratio of NPLs not provisioned to capital: - Dec-07: 0.9 - Dec-08: 15.1 - Dec-09: 3.9 - Dec-10: 18.4 - Source: Central Bank of Liberia. - Credit concentration and vulnerabilities: - Lending concentrated in services sector and trading, with short maturities. - Increased vulnerability in 2010 due to interest arrears by selected fuel and cement importers with high loan exposures. - A single borrower exposure limit set at 20 percent of a bank’s net worth; exceptions to this limit contribute to concentration risks. - Profitability: - Banking sector profitability remains low. - Appendix III Table 4 (Percent): - Return on assets: - Dec-07: 0.6 - Dec-08: 0.7 - Dec-09: 0.6 - Dec-10: 0.5 - Return on equity: - Dec-07: 4.5 - Dec-08: 5.4 - Dec-09: 3.4 - Dec-10: 0.3 - Noninterest income to total income: - Dec-07: 71.9 - Dec-08: 66.4 - Dec-09: 61.7 - Dec-10: 53.9 - Source: Central Bank of Liberia. - Outlook and policy directions: - Key challenges: raising asset quality and earnings. - The banking system expected to continue steady growth in 2011, supporting firm lending growth but potentially moderated by more conservative lending policies. - Short maturity of liabilities limits long-term lending; a market for longer-term corporate debt instruments is beginning to develop. - The launch of the treasury bill program is expected to help improve profitability and reduce excess liquidity. - High foreign ownership (eight of nine commercial banks majority foreign-owned; five Nigerian-owned banks accounted for 71 percent of assets in 2009) poses cross-border risks; enhanced collaboration with parent-country regulators recommended. ### Nonbank sector — microfinance institutions (MFIs) - MFIs grew rapidly in 2010 but from a small base and do not pose a significant systemic risk. - Growth metrics in 2010: - MFI clients increased by 327 percent (59,300 clients). - Outstanding loan portfolio increased by 472 percent (micro loans of US$13.3 million equivalent to about 1 percent of GDP). - Regulatory and supervisory developments: - CBL issued a prudential regulation enabling MFIs to take deposits. - Focus moving toward building capacity in supervising MFIs with assistance from development partners and regional central banks. - Risks to surveillance: - Low quality of data reported to the CBL, lack of staff resources, and insufficient expertise may pose risks to effective financial sector surveillance. *Sources: Liberian authorities; and staff estimates.* ### 8. Delivery of Debt Relief at the Completion Point: ### 8. Delivery of Debt Relief at the Completion Point: ### Debt relief delivery - Debt relief (SDR Million): 548.53 - Financed by: - Liberia Administered Account: 116.20 - Remaining HIPC resources: 432.33 ### Debt relief by facility (SDR Million) - Delivery Date: June 2010 - GRA Eligible: 342.77 - PRGT Eligible: 205.76 - Total: 548.53 ### Safeguards Assessment - A safeguards assessment of the Central Bank of Liberia (CBL) has been initiated in the context of the forthcoming augmentation. - The previous assessment (completed in 2008) found: - CBL had largely addressed recommended measures to increase transparency. - Internal audit capacity and effectiveness of Audit Committee oversight of CBL financial reporting, audit, and control systems needed strengthening. - A priority measure: engage external auditor to conduct special periodic audits of the Monetary Data Reporting Package (MDRP) reported to the fund. - Latest audit of the MDRP: - Handed over to the CBL internal audit department beginning with the second half of 2010. - Highlighted minor discrepancies between data reported to the IMF and CBL accounting records. - Discrepancies were subsequently corrected and did not impact the performance target. ### Exchange rate arrangement - Liberia maintains an exchange rate system that is free of restrictions on payments for current and capital transfers. - Currency: the Liberian dollar; the U.S. dollar is also legal tender. - Since the beginning of 2009, the Liberian dollar has fluctuated more against the U.S. dollar. - De facto exchange rate arrangement: classified as ‘other managed’. - Liberia’s exchange rate at end-March 2011: L$72.20=US$1. ### Article IV Consultation - The 2010 Article IV consultation discussions were held in Monrovia during September 21–October 1, 2010. - The staff report (Country Report No. 10/373, December 2010) was discussed by the Executive Board on December 8, 2010 and is posted on the IMF website. ### Technical assistance 2008–11 (summary of topics and timing) - Areas and missions included (selected entries with Department and Date as listed): - Customs Administration — FAD — January 2008 - Revenue Administration and Tax Administration — FAD — April 2008 - Review of Revenue Administration Reforms and Technical Assistance Needs — FAD — February 2009 - PFM—Drafting Regulations — FAD — February–March 2009 - Monetary Operations — MCM — March 2009 - Balance of Payments — STA — January 2008 - Banking Supervision — MCM — September 2008 - Accounting — MCM — January 2009 - GFS — STA — April–May 2009 - PFM Regulations Drafting — FAD — May 2009 - Legal Drafting — LEG — May 2009 - Foreign Exchange Operations — MCM — June 2009 - Accounting Standards — MCM — August–September 2009 - Tax Administration — FAD — September 2009 - Monetary Finance Statistics — STA — March–April 2010 - National Accounts — STA — April 2010 - Central Bank Accounting Standards — MCM — May 2010 - Monetary Operations — MCM — June–July 2010 - Revenue Administration — FAD — July 2010 - Drafting Tax Legislation — LEG — July 2010 - Banking Supervision — MCM — August 2010 - PFM — FAD — October 2010 - Revenue Department Strategic Plan — FAD — November–December 2010 - Bank Payment Systems — MCM — December 2010 - National Accounts — STA — January 2011 - Central Bank Accounting — MCM — January–February 2011 - Cash Flow planning and Government Banking Arrangements — FAD — February 2011 - Legal Drafting — LEG — March 2011 - Central Bank Modernization — MCM — March–April 2011 - Balance of Payments — STA — March–April 2011 - MTEF — FAD — March 2011 - PFM Strategy — FAD — March–April 2011 - Bank Payment Systems — MCM — May 2011 - Resident advisors and long-term support (selected): - Banking Supervision — MCM — February 2007–August 2008 - Payment Systems — MCM — April 2007–October 2007 - Long-term Advisor for the CBL — MCM — August 2007–October 2009 - Public Financial Management — FAD — July 2008–Present ### Resident Representative - A resident representative has been posted in Monrovia since April 2, 2006. - Mr. Sobolev assumed the position in July 2009 replacing Mr. Tharkur. ### Joint World Bank-IMF Work Program, 2010–11 (selected entries) - World Bank work program (selected): - Liberia Poverty Assessment — January 2010 — Expected delivery date: September 2011 — Status: Ongoing (Phase 1 completed; dissemination Workshop held in March 2011) - Fourth Reengagement and Reform Support Program (RRSPIV) — November 2010 — Expected delivery date: September 2011 — Status: Policy discussions - Poverty Reduction Strategy - Support — November 2010 — Expected delivery date: June 2011 — Status: Ongoing - IMF work program (selected): - Fifth Review of ECF — October 2010 — Expected delivery date: December 2010 — Status: Completed December 2010 - Assist authorities in setting up macroeconomic framework tool — October 2010 — Expected delivery date: January 2011 — Status: Completed October 2010 - Sixth review of ECF — March–April 2011 — Expected delivery date: June 2011 — Status: Scheduled June 2011 - Evaluation of delays in domestically funded investment program and recommendations for improvement — March–April 2011 — Expected delivery date: April 2011 — Status: Completed April 2011 - Jointly performed (selected): - Assist the authorities in developing MTEF/PSIP framework for 2011/12 budget — April 2011 (Fund) / October 2010 (Bank) — Status: Completed (Fund) - Assist the authorities in compiling 2008 National Accounts — July 2010 (Fund) / October 2010 (Bank) — Expected delivery date: February 2011 (Fund) — Status: Ongoing: subject to technical delays ### Statistical issues (as of May 1, 2011) - General: Data have serious shortcomings that significantly hamper surveillance; most serious in national accounts and balance of payments statistics. - National Accounts: - Comprehensive national accounts data are not available. - Fund staff estimate GDP by sector using the production approach and primary source data from the Liberia Institute of Statistics and Geo-Information Services. - Estimates for GDP by expenditure are not available. - High degree of uncertainty regarding level and growth rate of real GDP, sectoral components, and all ratios to nominal GDP. - Liberia participates in the National Accounts Module of the Enhanced Data Dissemination Initiative (EDDI). - National business register and national accounts questionnaires established in December 2008. - Second round of national accounts establishment survey completed after low response rates from the first one; data are being compiled. - Fund providing TA to verify and validate source data for the formal economy; challenges remain estimating informal sector activities. - Household Expenditure and Income Survey planned for 2012. - Desk-based review with Fund assistance underway to address methodological issues related to supply and use tables (SUT) for 2008; lack of reliable and consistent SUT data undermines accuracy and coverage of GDP estimates. - Price statistics: - A consumer price index for Monrovia compiled since 2005. - Harmonized Consumer Price Index providing national coverage officially adopted in 2007. - Government finance statistics: - Ministry of Finance provides monthly disaggregated data on budgetary central government revenue (cash basis) and expenditure (cash and commitment basis). - Areas needing improvement: lack of legal framework to collect statistics; limited data sharing and coordination among agencies; inconsistent institutional coverage with other datasets; omission of nonmonetary transactions; limited data on stocks of financial assets, liabilities, and arrears; incorrect reference exchange rate for conversion from Liberian dollars to U.S. dollars. - Monetary statistics: - Data provision adequate for surveillance. - CBL has made progress adopting IMF’s Monetary and Financial Statistics Manual (MFSM) methodology. - Reporting of monetary and financial statistics (MFS) suspended since June 2009. - STA mission in March 2010 assisted with standardized report forms and collecting data from commercial banks per MFSM. - Balance of payments: - Reporting not comprehensive; Fund staff prepare provisional balance of payments statistics for surveillance. - Areas needing improvement: primary source data, compilation, timeliness in dissemination—especially trade and services, foreign direct investment, government expenditures, remittances, and nonresident deposits data. - Data standards and quality: - Participant in the General Data Dissemination System (GDDS) since October 2005. - Liberia has not yet received a mission to produce the Data Module of the Reports on the Observance of Standards and Codes (data ROSC). - Reporting to STA: - Authorities report annual balance of payments data and government finance statistics to the related publications (IFS, GFSY, and BOPSY). ### Debt Sustainability Analysis — Key findings and baseline assumptions - An update of the Debt Sustainability Analysis (DSA) indicates that Liberia has a low risk of debt distress. - Macroeconomic assumptions include the restart of iron ore and timber exports in 2011/12, which will substantially improve the current account over the medium term. - In the immediate period ahead, the trade balance will deteriorate on account of large FDI-related imports for the mining sector. - Since the 2010 DSA there have been no changes in the debt management policy. - The DSA assumes a ceiling on annual foreign currency borrowing of 3 percent of GDP in NPV terms. - Projected net present value of the external debt stock would remain low and sustainable with all debt indicators well below policy-related thresholds. - Key assumptions under the baseline: - Profile of external and public debt indicators similar to the 2010 DSA; confirms low risk of debt distress. - Following HIPC completion point in June 2010, Paris Club creditors canceled in full the remaining outstanding debt. - All but one of the related bilateral agreements were signed before the March 2011 deadline. - Negotiations advanced with remaining non-Paris Club creditors; agreement recently reached with Kuwait on comparable terms. - Discussions with ECOWAS, BADEA and OFID have also advanced somewhat. - Latest bilateral agreements reduce end-2010/11 external debt stock from 17 percent (projected in 2010 DSA) to 10.6 percent of GDP. - Scenario caveats and risks: - Baseline assumes more gradual expansion of mining and timber sectors due to transport infrastructure rehabilitation difficulties. - Baseline cautiously assumes only one iron ore concession operates over the forecast period despite ratification of four large long-term iron ore concession agreements and a fifth under negotiation. - Upside and downside risks substantial: - Upside: faster-than-expected operation of concessions would raise GDP, export earnings, and fiscal revenues. - Downside: decline in commodity prices could delay investment implementation and reduce production. - External debt dynamics: - Following full cancellation of Paris Club debt and agreement with remaining commercial creditors, nominal external debt declined to 10.6 percent of GDP in 2010/11. - Under assumption of new borrowing at an annual average of 3 percent of GDP, DSA confirms all debt indicators expected to remain below policy-related thresholds. - PV of external debt-to-GDP ratio projected to rise from roughly 8 percent in 2010/11 to 15 percent by 2019/2020, and remain below 20 percent up to 2029/30. - Ratios of debt and debt service to exports and to revenues expected to remain well below threshold values. - Debt Sustainability Framework indicative ceilings for Liberia: - (i) 30 percent of GDP for the PV of external debt; - (ii) 100 percent for the ratio of PV of external debt to exports; - (iii) 200 percent for the ratio of PV of external debt to revenue. *Source: _cr11174 - 8. Delivery of Debt Relief at the Completion Point (IMF/World Bank document, June 8, 2011).* ### Box 1. Key Baseline Macroeconomic Assumptions ### Box 1. Key Baseline Macroeconomic Assumptions ### Baseline real GDP and growth profile - Real annual growth is expected to average 7¾ percent during 2011/12-2015/16 as production from the first iron ore mine rises to full capacity. - Average annual growth rates would then slow to an average of 4¼ percent during 2016/17 to 2029/30. - Activity at any of the other iron ore concessions, the initiation of petroleum production, or higher non-mineral sector activity could raise annual growth rates substantially. ### Inflation and monetary/fiscal stance - Inflation in local currency is assumed to decelerate starting 2010/11, and to stabilize at 5 percent by 2013/14. - This outcome is supported by restrained monetary and fiscal policies over the projection period. - The fiscal deficit is assumed to average 3½ percent of GDP and is used mainly to finance development projects with relatively high import contents. ### External sector: trade, exports, imports, and current account - Trade deficit: initially weakens due to strong imports associated with mining-related construction, then improves as construction winds down and exports approach full capacity in FY2014/15. - Exports: - Exports of goods and services are projected to grow on average by 24 percent during 2010/11–2015/16 as mining exports increase to capacity. - Thereafter, the export growth rate is projected to slow to an average of 4 percent over 2016/17 to 2029/30. - Exports are expected to increase faster than assumed in the 2010 DSA, due to higher prices in commodity sectors, particularly for rubber and iron ore. - Imports: - Import growth is projected to average 15 percent for 2010/11–2012/13 due to the construction phase of the mining project. - Import growth is assumed to slow to about 4 percent by 2018. - Current account: - The current account deficit is expected to increase during construction, reaching 68 percent in FY2012/13. - It is projected to rapidly decline to 31 percent in FY2014/15 at the conclusion of the investment phase, and then fluctuate at around 10 percent afterwards. ### Fiscal revenues and borrowing assumptions - Tax revenues are projected to decline to 20 percent of GDP in 2011/12 due to tax policy changes, and to broadly stabilize at this level throughout the period. - Fiscal revenues associated with the single iron ore project in the projection are back loaded, with two thirds expected in the second half of the period. - External borrowing policy: - Annual borrowing (disbursement basis) in line with the medium-term fiscal anchor of annual borrowing in foreign currency of up to 3 percent of GDP in NPV terms (same as 2010 DSA). - Nominal external borrowing is expected to restart in 2011/12 at 1½ percent of GDP. - It is assumed to rise to 5 percent of GDP by FY2014/15 (nominal terms) and then decline gradually to stabilize at 2 percent of GDP in 2022/23. - All new external borrowing is assumed to be on concessional (IDA) terms. - Domestic borrowing: - Supplied through a planned Treasury bill market, assumed constant at 1 percent of GDP per year beginning in 2012/13. - External grants (excluding UNMIL) are expected to progressively decline from 37 percent of GDP in 2010/11 to about 28 percent in 2014/15 and to 16 percent by the end of the projections period. ### Debt sustainability, stress tests, and scenario outcomes - General: Results remain broadly unchanged under alternative scenarios and stress tests, except for the historical scenario. - PV of external debt-to-GDP ratio sensitivities: - Baseline: 12 percent in 2011/12 (implicit baseline reference). - Exports stress test (historical average minus one standard deviation): PV of external debt-to-GDP ratio would increase from 12 percent in 2011/12 and stabilize at 22 percent in 2020/21. - FDI stress test (historical average minus one standard deviation): PV of external debt-to-GDP ratio rises from 10½ percent in 2011/12 to 16 percent in 2020/21, and further to 18 percent by the end of the projection period. - Higher interest rates on new borrowing (interest rate 2 percentage points higher than in the baseline): PV of external debt will reach 25 percent in 2020/21, and 30 percent by the end of the projection period. - Declines in growth (shocks to annual growth of one standard deviation from historical levels): PV of external debt deteriorates over the projection period from 8 to 18 percent of GDP, only one percentage point higher than in the baseline. - Combined stress test (exports, FDI and GDP growth at historical values minus one-half a standard deviation): PV of external debt-to-GDP ratio would be 24 percent in 2012/13, peaking at 27 percent in 2020/21. - External debt-to-exports ratio under stress: - Combined shock: ratio will reach 42 percent in 2020/21 and gradually increase to 46 percent in 2028/29. - Lower exports alone: ratio will reach 32 percent in 2020/21 and 36 percent by end-2029/30. - PV of external debt-to-revenue ratio: shows sensitivity to exports and less favorable borrowing terms, but all indicators remain below the applicable threshold (no numeric threshold given in the source). - Public sector debt (baseline dynamics and alternative scenarios): - PV of public debt-to-GDP ratio rises from 11 percent in 2010/11 to 22 percent in 2019/20 and continues to increase gradually to reach 27 percent in 2029/30. - PV of debt-to-revenue ratio would rise steadily, reaching 85 percent in 2025/26 after which it begins a gradual decline. - Debt service-to-revenue ratio will reach its peak of 5 percent only at the end of the projection period. - Alternative public debt scenarios: - Permanently lower annual GDP growth: PV of debt-to-GDP ratio increases from 11 percent in 2010/11 to 29 percent in 2020/21 and reaches 47 percent by the end of the projection period. - 10 percent of GDP increase in debt accumulation: PV of debt-to-GDP ratio increases from 11 percent in 2010/11 to 29 percent in 2020/21 and reaches 33 percent in 2029/30. - PV of public debt-to-revenue ratio under permanently lower GDP growth: about 135 percent in 2020/21 and 174 percent in 2029/30. - Debt service-to-revenue ratio under the lower permanent GDP growth scenario will peak at 10 percent in 2029/30. ### Staff assessment note on historical scenario - Staff does not consider the breach of the historical scenario test as a potential risk, mainly because the historical period was characterized by very low foreign direct investment levels, limited production, and large current account deficits following the end of an extensive period of political and social instability. *Box 1. Key Baseline Macroeconomic Assumptions — source document content.* ### 8. Following the additional debt relief provided by Paris Club creditors, Liberia’s ### Following the additional debt relief provided by Paris Club creditors, Liberia’s ### Medium-term debt outlook and risk assessment - Liberia’s debt outlook has improved somewhat in the medium term following additional Paris Club creditor debt relief. - The country’s low risk of debt distress has been confirmed. - The debt position “continues to show some sensitivity to shocks, particularly to the assumption of higher interest rates on new external borrowing.” - Baseline scenario assumption: annual average new external borrowing of 3 percent of GDP on concessional terms. - Under the baseline scenario, Liberia’s debt indicators “remain well below the relevant indicative thresholds, and these are not breached under any of the relevant stress tests.” ### Baseline debt indicators and projections (selected) - PV of external debt (percent of GDP), baseline projections: - 2010/11: 8.2 - 2015/16: 12.3 - 2019/20: 14.8 - 2024/25: 16.5 - 2029/30: 17.3 - PV of debt-to-exports ratio (baseline): - 2010/11: 14.0 - 2015/16: 11.8 - 2019/20: 16.6 - 2024/25: 21.5 - 2029/30: 24.4 - PV of PPG external debt (in percent of exports), baseline: - 2010/11: 14.04 - 2019/20: 16.6 - 2029/30: 24.4 - PV of PPG external debt (in percent of government revenues), baseline: - 2010/11: 26.40 - 2019/20: 53.0 - 2029/30: 55.2 - Debt service-to-exports ratio (in percent), baseline: - 2010/11: 0.69 - 2015/16: 0.7 - 2019/20: 0.7 - 2029/30: 0.9 - PPG debt service-to-revenue ratio (in percent), baseline: - 2010/11: 1.30 - 2019/20: 2.3 - 2029/30: 2.0 ### Sensitivity analysis and stress tests (high-level outcomes) - Most extreme stress tests identify the test that yields the highest ratio in 2019/20 (figures b, d, e, and f correspond to loans on less favorable terms; figure c corresponds to export values growing at historical average minus one standard deviation). - Table 2 alternative scenarios examples (PV of debt-to-GDP ratio, percent): - A1 (key variables at historical averages): 2019/20: 95.3; 2029/30: 106.1 - A2 (new public sector loans on less favorable terms): 2019/20: 24.1; 2029/30: 30.0 - B1–B6 (bound tests) show varying results; for example, B6 (one-time 30 percent nominal depreciation in 2011/12) projects PV debt-to-GDP ratio of 20.1 in 2019/20 and 23.5 in 2029/30. - Table 2 (PV of debt-to-exports ratio, percent) sample outcomes: - Baseline 2019/20: 16.6; baseline 2029/30: 24.4 - A1 2019/20: 107.1; A1 2029/30: 150.1 - A2 2019/20: 27.2; A2 2029/30: 42.4 - Table 2 (PV of debt-to-revenue ratio, percent) sample outcomes: - Baseline 2019/20: 53.0; baseline 2029/30: 55.2 - A1 2019/20: 341.4; A1 2029/30: 338.9 - A2 2019/20: 86.5; A2 2029/30: 95.7 - Stress scenarios that assume historically poor outcomes (A1) or permanent shocks can produce large breaches of thresholds; less-favorable-financing (A2) raises debt but to a lesser extent. ### Key macroeconomic and financing assumptions (selected) - Real GDP growth (in percent), sample: - 2010/11: 6.4 - 2011/12: 1.8 - 2013/14: 8.3 - 2016/17: 7.7 - 2019/20: 7.2 - 2029/30: 4.3 - GDP deflator in US dollar terms (change in percent), sample: - 2010/11: 6.7 - 2011/12: 3.4 - 2013/14: 8.1 - 2019/20: 1.7 - 2029/30: 2.2 - Effective interest rate (percent), sample: - 2010/11: 0.0 - 2013/14: 1.2 - 2019/20: 0.7 - 2029/30: 0.7 - Growth of exports of goods & services (US dollar terms, in percent), sample: - 2010/11: 15.1 - 2013/14: 28.4 - 2019/20: 20.3 - 2029/30: 3.8 - Grant-equivalent financing (in percent of GDP), sample: - 2010/11: 4.0 - 2012/13: 5.2 - 2015/16: 6.0 - 2019/20: 5.3 - 2029/30: 5.0 - Government revenues (excluding grants, in percent of GDP), sample: - 2010/11: 31.0 - 2013/14: 31.2 - 2019/20: 27.9 - 2029/30: 27.8 - Aid flows (Millions of US dollars), sample: - 2010/11: 38.1 - 2013/14: 115.4 - 2019/20: 162.4 - Grants component (o/w Grants), 2019/20: 85.6 - Concessional loans component (o/w Concessional loans), 2011/12: 20.0; 2012/13: 42.6; 2013/14: 60.6 ### Public sector debt and sustainability (selected, Table 3) - Public sector debt (percent of GDP), baseline: - 2010/11: 10.8 - 2015/16: 17.5 - 2019/20: 21.6 - 2029/30: 26.8 - PV of public sector debt (percent of GDP), baseline: - 2010/11: 10.8 - 2015/16: 17.5 - 2019/20: 21.6 - 2029/30: 26.8 - PV of public sector debt-to-revenue and grants ratio (percent), baseline: - 2010/11: 31.2 - 2015/16: 50.3 - 2019/20: 68.6 - 2029/30: 76.8 - Gross financing need (percent of GDP), baseline: - 2010/11: -0.9 - 2015/16: 6.0 - 2019/20: 3.9 - 2029/30: 2.7 - Debt service-to-revenue and grants ratio (percent), baseline: - 2010/11: 1.7 - 2015/16: 3.1 - 2019/20: 4.0 - 2029/30: 4.5 ### Identified vulnerabilities and sensitivities - Debt dynamics are sensitive to: - Higher interest rates on new external borrowing (A2 scenario assumes interest rate on new borrowing is 2 percentage points higher than baseline). - Adverse macroeconomic shocks (e.g., lower export growth, lower real GDP growth, USD deflator shocks, exchange rate depreciation). - Historical-data reliability caveat: Given lack of reliability of historical data, the DSA uses only FY2004/05 to FY2009/10 data; the historical scenario breaches PV of debt-to-GDP threshold but staff does not consider this a reliable indicator of potential debt distress because it results mainly from high current account deficits after return of political stability. ### Policy implications and recommendations (reported) - Budget for FY2012: - Anticipates resumption of external borrowing on concessional terms consistent with long-term debt sustainability. - Emphasis on social and other priority spending; use of realistic revenue estimates. - Contingency plans in place to allocate efficiently uncertain revenues and grants. - Public investment program: - Renewed efforts needed to address capacity constraints that hamper execution. - Reform agendas to continue: - Financial sector reforms to preserve stability, improve infrastructure, and promote intermediation. - Public financial management, tax policy, tax administration, and statistics improvements. - Compile a comprehensive set of national accounts to improve economic management and planning. - Financial oversight: - Non-performing loans are rising in the banking sector; strong financial oversight is essential. ### IMF program actions and financing (Press Release No. 11/258, June 27, 2011) - IMF Executive Board completed the sixth review under the Extended Credit Facility (ECF) and approved a disbursement equal to SDR 4.44 million (about US$7 million). - Total disbursements under the arrangement after this disbursement: SDR 239.02 million (about US$379.7 million). - Executive Board approved: - Extension of the arrangement through March 31, 2012. - Augmentation of access of SDR 8.88 million (about US$13 million), equivalent to about 6.9 percent of quota. - Total access under the arrangement after augmentation: SDR 247.9 million (about US$394 million). - Past IMF debt relief: Liberia subsequently received debt relief from the IMF (about US$730 million); SDR 205.8 million of that was applied towards the current ECF arrangement. *Sources: Country authorities; and staff estimates and projections. Press Release No. 11/258, June 27, 2011.* ### Introduction ### Introduction ### Recent Economic Developments - Real GDP growth in 2010 is estimated at 5.6 percent, up from 4.5 percent in 2009, attributed largely to strong performance in the agriculture and services sectors. - Consumer price developments: the quarterly average inflation rate rose marginally by 0.5 percent to 6.2 percent at end-March 2011, due mainly to the re-emergence of the global food and fuel price increases. - Broad exchange rate stability experienced in 2010 continued in the first five months of 2011, reflecting interventions by the Central Bank of Liberia (CBL) and the growth in US dollar remittances. - Gross international reserves increased to 3.4 months of imports of goods and services in 2010 from 3.2 months in 2009. ### Program Performance - All performance criteria through end-December 2010 were met. - Slower-than-expected implementation of three structural benchmarks through end-March 2011: - Publication of national accounts statistics. - Extension of the ASYCUDA system. - Financial reporting of state enterprises. - Authorities' remedial actions: - Efforts to publish provisional national accounts data after consultation with data users. - Plan to extend ASYCUDA to the international airport once funding is secured. - Regularize financial reporting by state-owned enterprises to the Ministry of Finance in the coming months. ### Outlook - Overriding policy objective for 2011 and beyond: strengthen macroeconomic policy, deepen structural reforms and improve the business environment to enhance growth, employment creation and poverty reduction. - Growth projections and drivers: - Growth over the medium term is expected to remain strong with the economy expanding on average about 8 percent over the next five years. - Growth to be aided by the enclave sector, especially iron ore and potentially petroleum, as well as agriculture and forestry. - Inflation and reserves projections: - Increasing fuel and food prices will accelerate inflation during 2011, though it is expected to remain below the average rates seen during the 2008 fuel and food price hikes with broad exchange rate stability. - Gross international reserves of the CBL in terms of months of import cover is estimated to decrease from 3.4 percent in 2010 to 2.7 percent and 2.1 percent in 2011 and 2012 respectively, due mainly to the higher import costs of fuel and food coupled with the expected high growth and development-related imports. ### Fiscal Policy - Fiscal framework: - Fiscal policy to remain consistent with the Public Financial Law of 2009. - A Budget Framework Paper (BFP) outlines macroeconomic assumptions and financing plans for the FY 2011/2012 budget. - Debt strategy restricts deficit financing to a maximum of 3 percent of GDP. - BFP highlights potential risks to the budget from rising price volatility. - Key considerations for FY 2011/2012 budget implementation: - Align the budget more closely to national policy objectives, especially targeting the unfinished PRS deliverables. - Effective programming and expenditure planning to avoid painful streamlining of expenditure. - Promote government investment. - Carefully manage the post-HIPC public debt portfolio. - Prepare for emergency expenditures. - Medium-term planning: - These measures will pave the way for launching the Medium Term Expenditure Framework (MTEF) in FY 2012/2013 as required by law and in conformity with international best practice. ### Monetary and Exchange Rate Policies - Policy focus: maintenance of broad exchange rate stability and low inflation. - Key instruments given limited tools: required reserve ratio and the weekly foreign exchange auction to influence domestic liquidity. - Planned instrument development: probable introduction of a treasury bills market in 2011 to broaden policy instruments. - CBL interventions: - Continued intervention in the foreign exchange market to maintain broad exchange rate stability. - Development of a liquidity monitoring framework to inform intervention decisions and provide the basis for liquidity forecasting. - Continued efforts to improve forecasting capability. ### Financial Sector Policy - Banking sector performance and stability: - Banking industry exhibits resilience with growth in assets, capital and reserves. - Positive developments in regulation and supervision, operating environment, and transparency and disclosure. - Non-performing loans: - NPLs as a ratio of gross loans continued to increase and stood at 28.5 percent at end-February 2011. - Growth in NPLs is a key challenge, impeding profitability and posing a potential threat to continued private sector lending. - Supervisory and legal measures: - CBL has intensified on-site credit examinations and encouraged commercial banks to improve risk management systems. - Establishment of a special commercial court and a new commercial code to improve the credit environment and culture. - Consumer protection and financial products: - CBL amended its directive on display of interest rates and computation of lending rates to promote greater disclosure by commercial banks. - Requirement for banks to display lending and deposit rates at conspicuous locations within premises. - Development of finance lease services: - CBL, in collaboration with the International Finance Corporation (IFC), hosted workshops in February and March, 2011 to develop finance lease skills. - CBL promulgated a finance lease regulation to provide a framework for banks to engage in finance lease activities to support SME development and reconstruction. ### Debt Management Policy - Post-HIPC considerations: - Authorities recognize borrowing opportunities post-HIPC completion point but emphasize responsibility to maintain sustainable debt and fiscal prudence. - Borrowed funds to be used principally for critical investment in infrastructure projects that aid economic growth. - Governance and tools: - All loans to be approved and monitored by the Debt Management Committee and adhere to reporting requirements in the PFM. - Implementation and enforcement of fiscal rules as contained in the Debt Management Strategy (DMS). - Adoption of the Commonwealth Secretariat Debt Recording management system (CSDRMS) to ensure public debt remains within acceptable post-HIPC completion debt sustainability thresholds. ### Structural Reforms - Public financial management and decentralization: - Plan to extend aspects of the PFM framework to local governments consistent with the PFM action plan and commitment to future fiscal decentralization. - Payment and cash management systems: - Use of Payment Reassurance Real Time Information System (PARIS) to shorten time between issuance of checks and encashment and connect the Ministry of Finance with CBL and commercial banks to expedite check clearing. - Full implementation of cash management and liquidity forecasting through establishment of a Cash Forecasting Unit (CFU) within the Ministry of Finance to monitor and report balances, project short- and medium-term cash flows and provide forward estimates of potential demand for cash. - Foreign exchange bureau reforms: - CBL developed a reform agenda to modernize foreign exchange bureau activities, including restructuring the association. - Reform measures include: - Upgrading guidelines for regulating and supervising foreign exchange business. - Re-licensing of all existing bureaus effective May 1, 2011. - Classification of foreign exchange operators into two categories based on minimum deposit requirements and incentive packages. - Reforms to be implemented in stages within specified timeframes up to end-January 2012. - Non-bank financial institutions and capital markets: - FIRST Initiative approved technical assistance to develop a regulatory and supervisory framework for non-bank financial institutions, hands-on training of CBL staff, and the development of a capital market. ### Conclusion - Authorities reiterate unwavering commitment to continuous implementation of prudent economic policies that have led to macroeconomic stability, non-volatile growth, increased FDI flows and debt cancellation. - Authorities appreciate IMF and international community support and count on continuation of such support to lift Liberia to middle-income status by 2030. *Source: Introduction (IMF staff report excerpt).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11174.pdf_