## _cr14299

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---

### Recent developments and epidemiological outlook
- Ebola epidemic intensifying in Liberia, overwhelming health systems.
- Since May the epidemic spread rapidly; cases and deaths now significantly exceed those in Guinea and Sierra Leone.
- Government actions: emergency task force headed by the President; state of emergency declared; borders closed except major entry points; internal quarantines in worst affected areas.
- Epidemiologists estimate it may take another nine to twelve months to bring the outbreak fully under control.
- Security concerns: riots in Monrovia on August 20, 2014 after quarantines; withdrawal of a UNMIL contingent raises concerns about maintaining order if food shortages become widespread.

### Macroeconomic impact and projections
- Real GDP growth:
  - Pre-outbreak staff projection: 2014 growth slowing from 8¾ percent in 2013 to 6 percent in 2014.
  - Revised projection due to Ebola: Real GDP growth projected to decline from 6 to 2½ percent in 2014.
  - 2015 projection: growth would weaken from 6¾ to 4½ percent.
  - Staff appraisal: Real GDP growth in 2014 and 2015 would decline by about 2.7 percentage points on average as the three main sectors are affected.
- Tabled real GDP figures (selected):
  - Real GDP: 2012: 8.3; 2013: 8.7; 2014 (Third Review): 5.9; 2014 (Proj.): 2.5; 2015 (Third Review): 6.8; 2015 (Proj.): 4.5.
  - Real GDP excluding mining sector: 2012: 3.3; 2013: 4.3; 2014 (Third Review): 6.1; 2014 (Proj.): 3.1; 2015 (Third Review): 7.1; 2015 (Proj.): 5.6.
- Inflation:
  - Rose to about 11 percent in June 2014 from 8½ percent at end-2013, reflecting pass-through of 10 percent depreciation since the beginning of the year.
  - Staff and authorities project inflation to reach 13.1 percent at end-year (2014), compared with 7.7 percent at the time of the third review.
  - Projection for 2015: inflation could reach 8 percent at end-year (7½ percent previously).
  - Tabled consumer prices (annual average): 2012: 6.8; 2013: 7.6; 2014 (Third Review): 8.3; 2014 (Proj.): 11.4; 2015 (Third Review): 7.7; 2015 (Proj.): 9.7.
  - Tabled consumer prices (end of period): 2012: 7.7; 2013: 8.5; 2014 (Third Review): 7.7; 2014 (Proj.): 13.1; 2015 (Third Review): 7.5; 2015 (Proj.): 8.1.
- Trade and external sector:
  - End-June 2014: capital goods imports about US$200 million lower than previously projected.
  - Current account would widen reflecting drop in exports (iron ore and rubber) and increased imports (rice and other foodstuffs); external financing gap of about US$93 million.
  - Reserves coverage could decline to approximately 2.2 months of imports compared to 2.8 months projected at the time of the third ECF review, absent additional financing or adjustment.
  - Balance of payments selected lines (millions of U.S. dollars): Exports, f.o.b.: 2012: 479; 2013: 559; 2014 (Third Review): 560; 2014 (Proj.): 467; 2015 (Third Review): 598; 2015 (Proj.): 430. Imports, f.o.b.: 2012: -1,067; 2013: -1,146; 2014 (Third Review): -1,460; 2014 (Proj.): -1,231; 2015 (Third Review): -1,321; 2015 (Proj.): -1,278.
  - Current account balance (millions of U.S. dollars): 2012: -489; 2013: -679; 2014 (Third Review): -987; 2014 (Proj.): -754; 2015 (Third Review): -837; 2015 (Proj.): -892.
- Program performance through end-June 2014:
  - Net international reserves reached US$236 million at end-June, meeting adjusted reserves target.
  - End-June revenue floor missed by US$21.6 million or 1.1 percent of GDP.
  - Budget support fell short by US$15.2 million (0.7 percent of GDP), triggering the program adjustor.
  - Two out of four indicative targets missed: (i) social and other priority spending below indicative floor; (ii) net domestic assets missed due to decline in commercial banks’ U.S. dollar required reserves following a reserves requirement reduction.

### Fiscal impact, spending needs, and financing
- Central Government Ebola impact (Millions of U.S. dollars, FY basis):
  - Impact on revenue: 45.7 (FY2015) and 49.9 (FY2016).
  - Impact on spending: 67.2 (FY2015) and 0.0 (FY2016).
  - Emergency EVD-related spending: 20.0 (FY2015) and 0.0 (FY2016).
  - Social spending: 47.1 (FY2015) and 0.0 (FY2016).
  - Total impact: 112.8 (FY2015) and 49.9 (FY2016).
  - Spending adjustment: -20.0 (FY2015) and -19.9 (FY2016).
  - Fiscal financing need: 92.8 (FY2015) and 30.0 (FY2016).
  - Domestic: 0.0 (FY2015) and 0.0 (FY2016).
  - External: 68.3 (FY2015) and 30.0 (FY2016).
  - Donor support: 19.0 (FY2015) and 30.0 (FY2016).
  - IMF contribution: 49.3 (FY2015) and 0.0 (FY2016).
  - Uncovered gap: 24.5 (FY2015) and 0.0 (FY2016).
  - Note: FY2015 includes US$20 million in reallocations from the capital spending budget.
- Overall fiscal effect:
  - Revenue collections estimated to decline by some US$46 million relative to the draft budget.
  - Authorities identified US$20 million in additional expenditures directly related to fighting the epidemic; additional Ebola-related spending needs estimated at about US$47 million.
  - Reallocations within draft budget, including reducing programmed capital spending by about US$20 million, can only partially cover needs.
  - Preliminary estimates: FY2015 fiscal deficit could increase by at least US$93 million to 11.8 percent of GDP, compared to 7.1 percent of GDP projected at the time of the third ECF review.
- Financing assumptions and donor support:
  - Staff and authorities anticipate the residual fiscal financing gap would be covered in full by additional donor resources and, if needed, expenditure re-prioritization.
  - Staff recommends limiting reallocations of capital spending to non-priority projects.
  - Staff’s balance of payments projections assume disbursement of US$18 million in budget support (from the World Bank and USAID) for the remainder of 2014 committed before the outbreak.
  - Additional budget support by the African Development Bank and the World Bank in 2014 would amount to at least US$19 million and help cover about 20.5 percent of the fiscal gap.
  - Staff estimates residual financing gap after the ECF augmentation would be covered in full by additional donor support.
- Tabled central government operations (millions of U.S. dollars, selected):
  - Total revenue and grants: FY2012: 458.9; FY2013: 555.1; FY2014 (Third Review): 551.4; FY2014 (Proj.): 551.0; FY2015 (Third Review): 558.9; FY2015 (Proj.): 513.2.
  - Total expenditure and net lending: FY2012: 514.0; FY2013: 584.0; FY2014 (Third Review): 628.5; FY2014 (Proj.): 628.1; FY2015 (Third Review): 717.6; FY2015 (Proj.): 764.7.
  - Overall balance including grants: FY2012: -55.1; FY2013: -28.9; FY2014 (Third Review): -77.1; FY2014 (Proj.): -77.1; FY2015 (Third Review): -158.7; FY2015 (Proj.): -251.5.
  - Of the FY2015 identified financing, IMF-ECF augmentation is shown as 48.4 (millions of U.S. dollars) and additional financing/adjustment measures as 25.4 (millions of U.S. dollars).

### Monetary policy and financial sector implications
- Central Bank of Liberia (CBL) actions:
  - CBL interventions increased by about US$9.7 million in July and August 2014 to meet exchange rate pressures and surge in foreign exchange demand.
  - Authorities plan to issue additional CBL notes to mop up Liberian dollar liquidity.
  - Commercial banks’ U.S. dollar reserves are excluded from the definition of base money under the program and counted as domestic liabilities.
  - Appendix note: CBL intervened in the foreign exchange auction by offering an additional amount of US$6.9 million in July.
- Financial sector risks and measures:
  - Deceleration of economic activity could worsen credit quality and increase nonperforming loans.
  - Authorities agree with staff that enforcing very high provisioning standards is warranted, though this would contribute to decline in credit growth.
  - Private credit growth slowed to 14 percent in June (y/y) following lower U.S. dollar deposits mobilization.
  - CBL will closely monitor banking system and apply necessary prudential measures.

### Social impact and vulnerable groups
- Outbreak expected to disproportionately affect the poor and vulnerable:
  - Higher prices of basic goods and loss of income will hit poor consumers’ purchasing power.
  - Rural and self-employed services workers account for about 80 percent of total employment and are likely to lose income.
  - FAO warned of grave food security concerns due to disruptions to food production and distribution.
  - Existing safety net programs (school feeding and cash for work) cannot be activated under current circumstances.
- Risk of social unrest elevated given livelihoods disruption, quarantines, and reduced international peacekeeper presence (UNMIL drawdown removed presence in about half of Liberia’s 15 counties).

### Proposed Fund augmentation, program adjustors, and safeguards
- Authorities’ request:
  - Augmentation of access under the existing ECF arrangement and immediate disbursement of SDR 32.3 million, equivalent to 25 percent of quota.
  - Fund financing to be made available in full to the government to address urgent balance of payment needs; proposed augmentation would cover approximately half of the currently-estimated incremental external financing gap.
- Program adjustor measures:
  - Modify end-December net foreign reserves floor, and ceilings on both CBL’s gross direct credit to the central government and CBL’s net domestic assets by the full amount of the ECF augmentation to allow on-lending.
  - Government of Liberia and CBL to establish a framework agreement on respective roles and responsibilities for servicing financial obligations to the Fund.
  - Amendment to TMU: paragraph 17bis — adjust program ceilings and floor by the full amount of the ECF augmentation (25 percent of quota) for end-December 2014 targets.
- Assessment and authorization:
  - Staff supports an ad-hoc augmentation given urgent external financing need.
  - Possible ECF augmentation authorized under ad hoc review: SDR 32.300 million.
  - Schedule of ECF disbursements (total: SDR 83.98 million) includes multiple SDR 7.382 million tranches and one SDR 32.300 million augmentation.
  - Even with augmentation, total access under the ECF would remain normal, at 88.8 percent of quota.
- Safeguards and capacity to repay:
  - Debt service to the Fund projected to peak at about 3½ percent of domestic revenue and 1.7 percent of exports of goods and services, respectively, in 2020, but should remain manageable through 2026.
  - Safeguards update to the 2013 assessment to be conducted in context of augmentation.
  - Progress: appointment of an internationally reputable external audit firm.
  - Outstanding recommendations: external peer review of CBL cash operations and strengthening internal audit function.

### Staff appraisal, policy recommendations, and next steps
- Staff appraisal:
  - Epidemic spreading fast, overwhelming health system; expected heavy toll on economy and jeopardizing gains from a decade of peace.
  - Brunt of impact expected through at least end-Q1 2015.
  - Medium-term risks include delays in rebuilding energy and transport infrastructure and mining projects.
- Policy recommendations and initial responses:
  - Fiscal policy: fiscal costs of this one-off shock should be accommodated fully subject to availability of financing; staff and authorities anticipate donor resources will cover residual gap; staff recommends limiting capital spending reallocations to non-priority projects.
  - Monetary policy: CBL should use available instruments to contain inflation and meet import demand; planned issuance of additional CBL notes to mop up liquidity.
  - Financial sector: enforce high provisioning standards to preserve bank soundness, recognizing this may reduce credit growth.
  - Social protection: urgently step up social protection programs, prioritizing reaching poor and vulnerable groups despite operational challenges.
  - Donor coordination: large-scale, well-coordinated international effort urgently needed; proposed Fund augmentation would catalyze additional donor support.
- Monitoring and next steps:
  - Staff will undertake a comprehensive review of program policies at the time of the next review, reassessing external and fiscal financing needs and rationale for modifying program targets in light of developments.
  - Staff notes that preliminary financing needs and donor contributions remain fluid and subject to change in coming weeks.
- Program support:
  - Staff supports modification of performance criteria and of end-December 2014 program targets to allow for the equivalent of the ECF augmentation to be on-lent to the government.
  - Staff would support a waiver of non-observance for the missed end-June revenue floor at the next ECF review given corrective measures by the LRA and subsequent improvements in income tax collections; remaining shortfalls in sales and import taxes of about US$5 million consistent with decline in activity.

### Key quantitative items and program notes (selected exact figures)
- SDR 32.3 million (25 percent of quota) — requested augmentation and disbursement.
- IMF Executive Board approval line: SDR 32.300 million (augmentation of access of 25 percent of quota under an ad hoc review).
- IMF press release summary: IMF Executive Board approved emergency financing totaling US$130 million for Guinea, Liberia, and Sierra Leone; Liberia’s immediate financing: US$49 million (increasing ECF availability to US$130 million).
- External financing and gap (Table 6, selected):
  - Total financing requirement (millions of U.S. dollars): 2012: -1,436; 2013: -1,661; 2014 (Third Review): -1,921; 2014 (Proj.): -1,641.
  - Total available financing (millions of U.S. dollars): 2012: 1,436; 2013: 1,661; 2014 (Third Review): 1,921; 2014 (Proj.): 1,548.
  - Residual financing gap shown in analysis as -93 (millions of U.S. dollars) for 2014 (Third Review).
- Central bank and program ceilings examples (Table 1 entries as presented):
  - Floor on total revenue collection examples: 230.3, 214.5, 347.8, 335.6, 492.1, 492.1, 470.5, 125.0, 245.0, 245.0.
  - Floor on CBL’s net foreign exchange position examples: 217.0, 237.3, 221.0, 230.2, 245.0, 229.8, 236.0, 249.0, 253.0, 201.8.
  - Ceiling on CBL's gross direct credit to central government examples: 284.9, 264.4, 284.9, 266.7, 260.9, 276.1, 267.5, 260.4, 260.4, 308.8.
  - Indicative ceiling on net domestic assets of the CBL examples: 3.0, -23.7, 3.0, -22.8, -25.0, -9.8, 4.5, -25.0, -25.0, 26.2.
  - Programmed receipt of external budget support grants and committed external loans examples: 53.3, 31.1, 55.9, 31.1, 61.6, 61.6, 46.4, 2.5, 18.0, 18.0.
- Monetary aggregates (Table 4, selected, millions of U.S. dollars):
  - Broad money (M2): 2012: 634.0; 2013: 682.3; 2014 (Third Review): 718.9; 2014 (Proj.): 588.9; 2015 (Third Review): 780.8; 2015 (Proj.): 633.0.
  - Monetary base (M0): 2012: 175.2; 2013: 157.4; 2014 (Third Review): 139.7; 2014 (Proj.): 146.5; 2015 (Third Review): 139.2; 2015 (Proj.): 146.4.

_Source: Liberian authorities and IMF staff estimates, as presented in the supplied content unit._

### 1. Impact of the Ebola Outbreak ________________________________________________________________ 9

### 1. Impact of the Ebola Outbreak

### Recent developments and epidemiological outlook
- The Ebola epidemic continues to intensify in Liberia and has overwhelmed already weak health systems.
- Since May the epidemic has spread rapidly with the number of cases and death now significantly exceeds those in Guinea and Sierra Leone.
- The government set up an emergency task force headed by the President and declared a state of emergency; all borders were closed except major entry points and internal quarantines were instituted in worst affected areas.
- Epidemiologists have indicated that it may take another nine to twelve months to bring the outbreak fully under control.
- Security concerns: riots erupted in Monrovia on August 20, 2014 after quarantines; the withdrawal of a UNMIL contingent raises concerns about authorities’ ability to maintain order if food shortages become widespread.

### Macroeconomic impact and projections
- Real GDP growth:
  - Pre-outbreak staff projection: 2014 growth slowing from 8¾ percent in 2013 to 6 percent in 2014.
  - Revised projection due to Ebola: Real GDP growth projected to decline from 6 to 2½ percent in 2014.
  - 2015 projection: growth would weaken from 6¾ to 4½ percent due in part to delays in a new mining project and lingering epidemic effects.
  - Staff appraisal: Real GDP growth in 2014 and 2015 would decline by about 2.7 percentage points on average as the three main sectors are affected.
- Inflation:
  - Rose to about 11 percent in June 2014 from 8½ percent at end-2013, reflecting pass-through of 10 percent depreciation since the beginning of the year.
  - Staff and authorities project inflation to reach 13.1 percent at end-year (2014), compared with 7.7 percent at the time of the third review.
  - Projection for 2015: inflation could reach 8 percent at end-year (7½ percent previously).
- Trade and external sector:
  - End-June 2014 trade data indicate capital goods imports were about US$200 million lower than previously projected.
  - Current account: would widen reflecting drop in exports (iron ore and rubber) and increased imports (rice and other foodstuffs); external financing gap of about US$93 million.
  - Reserves coverage could decline to approximately 2.2 months of imports compared to 2.8 months projected at the time of the third ECF review, absent additional financing or adjustment.
- Program performance through end-June 2014:
  - Net international reserves reached US$236 million at end-June, meeting adjusted reserves target.
  - The end-June revenue floor (PC) was missed by US$21.6 million or 1.1 percent of GDP.
  - Budget support fell short by US$15.2 million (0.7 percent of GDP), triggering the program adjustor.
  - Two out of four indicative targets were missed: (i) social and other priority spending below indicative floor; (ii) net domestic assets missed due to decline in commercial banks’ U.S. dollar required reserves following a reserves requirement reduction.

### Fiscal impact, spending needs, and financing
- Fiscal effects (Text Table 1, Central Government, Ebola Impact, Millions of U.S. dollars):
  - Impact on revenue: 45.7 (FY2015) and 49.9 (FY2016).
  - Impact on spending: 67.2 (FY2015) and 0.0 (FY2016).
  - Emergency EVD-related spending: 20.0 (FY2015) and 0.0 (FY2016).
  - Social spending: 47.1 (FY2015) and 0.0 (FY2016).
  - Total impact: 112.8 (FY2015) and 49.9 (FY2016).
  - Spending adjustment: -20.0 (FY2015) and -19.9 (FY2016).
  - Fiscal financing need: 92.8 (FY2015) and 30.0 (FY2016).
  - Domestic: 0.0 (FY2015) and 0.0 (FY2016).
  - External: 68.3 (FY2015) and 30.0 (FY2016).
  - Donor support: 19.0 (FY2015) and 30.0 (FY2016).
  - IMF contribution: 49.3 (FY2015) and 0.0 (FY2016).
  - Uncovered gap: 24.5 (FY2015) and 0.0 (FY2016).
  - Notes: Budget data expressed as fiscal year (July-June). FY2015 includes US$20 million in reallocations from the capital spending budget.
- Overall fiscal effect:
  - Revenue collections estimated to decline by some US$46 million relative to the draft budget due to lower receipts on trade, income, goods and services taxes, and mining royalties.
  - Authorities have identified US$20 million in additional expenditures directly related to fighting the epidemic; additional Ebola-related spending needs estimated at about US$47 million.
  - Reallocations within draft budget, including reducing programmed capital spending by about US$20 million, can only partially cover needs.
  - Based on preliminary estimates, FY2015 fiscal deficit could increase by at least US$93 million to 11.8 percent of GDP, compared to 7.1 percent of GDP projected at the time of the third ECF review.
- Financing assumptions and donor support:
  - Staff and authorities anticipate the residual fiscal financing gap would be covered in full by additional donor resources and, if needed, expenditure re-prioritization.
  - Staff recommends limiting reallocations of capital spending to non-priority projects.
  - Staff’s balance of payments projections assume disbursement of US$18 million in budget support (from the World Bank and USAID) for the remainder of 2014 hitherto committed before the outbreak.
  - Additional budget support by the African Development Bank and the World Bank in 2014 would amount to at least US$19 million and help cover about 20.5 percent of the fiscal gap.
  - Staff estimates the residual financing gap after the ECF augmentation would be covered in full by additional donor support.

### Monetary policy and financial sector implications
- Central Bank of Liberia (CBL) actions:
  - CBL used interventions to meet additional exchange rate pressures in July and August 2014, increasing intervention by about US$9.7 million to help meet surge in foreign exchange demand.
  - Authorities plan to issue additional CBL notes to mop up Liberian dollar liquidity.
  - Commercial banks’ U.S. dollar reserves are excluded from the definition of base money under the program and counted as domestic liabilities.
- Financial sector risks:
  - Deceleration of economic activity could worsen credit quality and increase nonperforming loans.
  - Authorities agree with staff that enforcing very high provisioning standards is warranted, though this would contribute to decline in credit growth.
  - Private credit growth slowed to 14 percent in June (y/y) following lower U.S. dollar deposits mobilization.

### Social impact and vulnerable groups
- The outbreak is expected to disproportionately affect the poor and vulnerable:
  - Higher prices of basic goods and loss of income will hit poor consumers’ purchasing power.
  - Rural and self-employed services workers account for about 80 percent of total employment and are likely to lose income.
  - FAO warned of grave food security concerns due to disruptions to food production and distribution.
  - Existing safety net programs (school feeding and cash for work) cannot be activated under current circumstances, complicating reaching those in need.
- Risk of social unrest is elevated given livelihoods disruption, quarantines, and reduced international peacekeeper presence (UNMIL drawdown removed presence in about half of Liberia’s 15 counties).

### Proposed Fund augmentation and program adjustments
- Authorities request an augmentation of access under the existing ECF arrangement and an immediate disbursement of SDR 32.3 million, equivalent to 25 percent of quota.
- Purpose and scope:
  - Fund financing to be made available in full to the government to address urgent balance of payment needs.
  - Proposed augmentation would cover approximately half of the currently-estimated incremental external financing gap and help limit potential decline in gross reserves.
- Program adjustor measures:
  - Related performance criteria will be modified via a program adjustor: the end-December net foreign reserves floor, and the ceilings on both CBL’s gross direct credit to the central government and CBL’s net domestic assets would be adjusted by the full amount of the ECF augmentation to allow on-lending.
  - Given budget support element, Government of Liberia and CBL are establishing a framework agreement on respective roles and responsibilities for servicing financial obligations to the Fund.
- Assessment of request:
  - The request for an augmentation on an ad-hoc basis is warranted in light of urgent external financing need.
  - Third ECF review completed July 3, 2014; program broadly on track and continuous PCs on non-accumulation of new external arrears and non-contracting of new nonconcessional external debt are being met.
  - Staff would support a waiver of non-observance for the missed end-June revenue floor at the next ECF review given corrective measures by the LRA and subsequent improvements in income tax collections; remaining shortfalls in sales and import taxes of about US$5 million consistent with decline in activity.

### Capacity to repay and safeguards
- Debt service to the Fund projected to peak at about 3½ percent of domestic revenue and 1.7 percent of exports of goods and services, respectively, in 2020, but should remain manageable through 2026.
- Even with the augmentation, total access under the ECF would remain normal, at 88.8 percent of quota.
- A safeguards update to the 2013 assessment will be conducted in the context of the augmentation:
  - Progress: appointment of an internationally reputable external audit firm.
  - Outstanding recommendations: external peer review of CBL cash operations and strengthening internal audit function.

### Staff appraisal and policy recommendations
- Staff appraisal:
  - The epidemic is exacting a particularly heavy toll, spreading fast with no signs of stabilizing and overwhelming the health system.
  - The epidemic is set to severely impact the economy, jeopardizing gains from a decade of peace; brunt of impact expected through at least end-Q1 2015.
  - Medium-term outlook risks include delays in rebuilding energy and transport infrastructure and mining projects.
- Policy recommendations and initial responses:
  - Fiscal policy: fiscal costs of this one-off shock should be accommodated fully subject to availability of financing; staff and authorities anticipate that donor resources will cover residual gap; staff recommends limiting capital spending reallocations to non-priority projects.
  - Monetary policy: CBL should use available instruments to contain inflation and meet import demand; planned issuance of additional CBL notes to mop up liquidity.
  - Financial sector: enforce high provisioning standards to preserve bank soundness, while recognizing this may reduce credit growth.
  - Social protection: urgently step up social protection programs, prioritizing reaching poor and vulnerable groups despite operational challenges.
  - Donor coordination: large-scale, well-coordinated international effort urgently needed; proposed Fund augmentation would catalyze additional donor support.
- Monitoring and next steps:
  - Staff will undertake a comprehensive review of program policies at the time of the next review, reassessing external and fiscal financing needs and rationale for modifying program targets in light of developments.
  - Staff notes that preliminary financing needs and donor contributions remain fluid and subject to change in coming weeks.

*Sources: Liberian authorities and IMF staff estimates.*

### 25.      Staff supports the authorities’ request for an ad hoc augmentation of access and

### _cr14299 - 25.      Staff supports the authorities’ request for an ad hoc augmentation of access and

### Summary assessment and program actions
- Staff supports the authorities’ request for an ad hoc augmentation of access and disbursement under the ECF-supported program.
- The urgent balance of payments need warrants an augmentation of access ahead of the next ECF review, and immediate disbursement of the amount of the augmentation.
- Staff supports modification of performance criteria and of end-December 2014 program targets to allow for the equivalent of the ECF augmentation to be on-lent to the government in light of the urgent balance of payments needs.
- Performance under the ECF-supported program is described as broadly satisfactory; the authorities have indicated that both continuous performance criteria are being met at this time.
- A comprehensive review of policies under the program will be undertaken at the time of the next review.

### Ebola outbreak: macroeconomic impacts (staff and authorities’ estimates)
- Growth: "The Ebola epidemic has negatively affected growth owing in part to disruptions in mining and agricultural production."
  - Real GDP (table entries): 2012: 8.3; 2013: 8.7; 2014 (Third Review): 5.9; 2014 (Proj.): 2.5; 2015 (Third Review): 6.8; 2015 (Proj.): 4.5.
  - Real GDP excluding mining sector (table entries): 2012: 3.3; 2013: 4.3; 2014 (Third Review): 6.1; 2014 (Proj.): 3.1; 2015 (Third Review): 7.1; 2015 (Proj.): 5.6.
- Inflation: "International and internal travel restrictions are causing shortages of basic commodities, which are pushing up domestic prices."
  - Consumer prices (annual average): 2012: 6.8; 2013: 7.6; 2014 (Third Review): 8.3; 2014 (Proj.): 11.4; 2015 (Third Review): 7.7; 2015 (Proj.): 9.7.
  - Consumer prices (end of period): 2012: 7.7; 2013: 8.5; 2014 (Third Review): 7.7; 2014 (Proj.): 13.1; 2015 (Third Review): 7.5; 2015 (Proj.): 8.1.
- Fiscal position: "Slower economic activity is impacting revenue, while additional Ebola-related spending needs are creating a large fiscal financing gap."
  - Fiscal balance, including grants (percent of GDP): 2012: -3.4; 2013: -1.6; 2014 (Third Review): -3.8; 2014 (Proj.): -3.8; 2015 (Third Review): -7.1; 2015 (Proj.): -11.8.
  - Fiscal balance, excluding grants (percent of GDP): 2012: -5.1; 2013: -4.0; 2014 (Third Review): -7.7; 2014 (Proj.): -7.8; 2015 (Third Review): -9.7; 2015 (Proj.): -14.5.
  - FY2015 fiscal impact (millions of U.S. dollars): financing gap components shown in figure and tables; Table 3a shows an identified financing line for FY2015 that includes an IMF-ECF augmentation of 48.4 (millions of U.S. dollars) and additional financing/adjustment measures of 25.4 (millions of U.S. dollars).
- External sector and reserves:
  - "Lower iron ore and rubber exports, together with an increase in food and other essential imports will widen the trade and current account deficits."
  - Trade balance (Table 2, millions of U.S. dollars): 2012: -588; 2013: -587; 2014 (Third Review): -900; 2014 (Proj.): -764; 2015 (Third Review): -723; 2015 (Proj.): -848.
  - Current account balance, including grants (percent of GDP): 2012: -27.9; 2013: -34.7; 2014 (Third Review): -46.5; 2014 (Proj.): -36.4; 2015 (Third Review): -35.4; 2015 (Proj.): -40.5.
  - In the absence of additional external financing, reserve coverage could decline to about two and a half months of imports (figure note).
  - Gross official reserves (millions of U.S. dollars; Table 2): 2012: 381.3; 2013: 393.1; 2014 (Third Review): 414.0; 2014 (Proj.): 402.0; 2015 (Third Review): 429.9; 2015 (Proj.): 466.3.
  - Gross official reserves in months of imports (Table 2 and notes): 2012: 2.8; 2013: 2.7; 2014 (Third Review): 2.8; 2014 (Proj.): 2.6; 2015 (Third Review): 3.0; 2015 (Proj.): 2.9.

### Key program numbers and financing details
- Possible ECF augmentation authorized under ad hoc review: SDR 32.300 million (Table 8: "Executive Board approval of augmentation of access of 25 percent of quota under an ad hoc review", dated September 26, 2014).
- Schedule of ECF disbursements (total: SDR 83.98 million) includes multiple SDR 7.382 million tranches and one SDR 32.300 million augmentation (Table 8).
- External financing requirements and gap (Table 6):
  - I. Total financing requirement (millions of U.S. dollars): 2012: -1,436; 2013: -1,661; 2014 (Third Review): -1,921; 2014 (Proj.): -1,641.
  - II. Total available financing (millions of U.S. dollars): 2012: 1,436; 2013: 1,661; 2014 (Third Review): 1,921; 2014 (Proj.): 1,548.
  - III. Financing gap (= I. + II.) for 2014 (Proj.): 0 and for 2014 (Third Review) shows a residual financing gap manifested in the analysis as -93 (millions of U.S. dollars) in the table reconstruction.
  - Possible ECF augmentation (Table 6 note): 25 percent of quota, evaluated at exchange rate as of September 9, 2014.
- Balance of payments (Table 2, selected lines, millions of U.S. dollars):
  - Exports, f.o.b.: 2012: 479; 2013: 559; 2014 (Third Review): 560; 2014 (Proj.): 467; 2015 (Third Review): 598; 2015 (Proj.): 430.
  - Imports, f.o.b.: 2012: -1,067; 2013: -1,146; 2014 (Third Review): -1,460; 2014 (Proj.): -1,231; 2015 (Third Review): -1,321; 2015 (Proj.): -1,278.
  - Current account balance (millions of U.S. dollars): 2012: -489; 2013: -679; 2014 (Third Review): -987; 2014 (Proj.): -754; 2015 (Third Review): -837; 2015 (Proj.): -892.

### Fiscal and monetary highlights (selected)
- Central government operations (Table 3a, millions of U.S. dollars):
  - Total revenue and grants: FY2012: 458.9; FY2013: 555.1; FY2014 (Third Review): 551.4; FY2014 (Proj.): 551.0; FY2015 (Third Review): 558.9; FY2015 (Proj.): 513.2.
  - Total expenditure and net lending: FY2012: 514.0; FY2013: 584.0; FY2014 (Third Review): 628.5; FY2014 (Proj.): 628.1; FY2015 (Third Review): 717.6; FY2015 (Proj.): 764.7.
  - Overall balance including grants (millions of U.S. dollars): FY2012: -55.1; FY2013: -28.9; FY2014 (Third Review): -77.1; FY2014 (Proj.): -77.1; FY2015 (Third Review): -158.7; FY2015 (Proj.): -251.5.
  - Of the FY2015 identified financing, IMF-ECF augmentation is shown as 48.4 (millions of U.S. dollars) and additional financing/adjustment measures as 25.4 (millions of U.S. dollars).
- Monetary aggregates (Table 4, selected, millions of U.S. dollars):
  - Broad money (M2): 2012: 634.0; 2013: 682.3; 2014 (Third Review): 718.9; 2014 (Proj.): 588.9; 2015 (Third Review): 780.8; 2015 (Proj.): 633.0.
  - Monetary base (M0): 2012: 175.2; 2013: 157.4; 2014 (Third Review): 139.7; 2014 (Proj.): 146.5; 2015 (Third Review): 139.2; 2015 (Proj.): 146.4.

### Policy implications and next steps (as indicated in the text)
- Immediate disbursement of the ECF augmentation is warranted to meet urgent balance of payments needs.
- Modify end-December 2014 program targets and performance criteria to accommodate on-lending of the augmentation to the government.
- Undertake a comprehensive review of program policies at the time of the next ECF review.

*Source: IMF staff and Liberian authorities, as presented in the supplied content unit.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Request for IMF support and program adjustments
- Immediate augmentation of access under the ECF arrangement requested: SDR 32.3 million (25 percent of quota).
- Request for approval of a disbursement of SDR 32.3 million to address the Ebola impact and to be on-lent in full to the government.
- Requested modifications to end-December performance criteria via an adjustor:
  - Floor on CBL’s net foreign exchange position (performance criterion).
  - Ceiling on CBL’s gross direct credit to the central government (performance criterion).
  - Indicative target on net domestic assets of the CBL.
- Memorandum of Understanding to be signed between the Ministry of Finance and Development Planning and the Central Bank of Liberia on respective roles for servicing Fund financial obligations, given the budget support element of the augmentation.

### Epidemic situation and macroeconomic impact
- Second wave of the Ebola epidemic started in June and has spread rapidly in numbers and geographic areas.
- Health system capacity is insufficient and has been weakened by deaths of health workers.
- Preliminary growth projections:
  - Real GDP growth in 2014 could decline from 5.9 to 2.5 percent.
  - Real GDP growth in 2015 could decline from 6.8 to 4.5 percent.
- Main sectors affected: agriculture, services, and mining.
- Transmission channels of economic impact: border closures, internal quarantines, cancellations of international flights, departure of expatriate workers affecting production in foreign concessions.
- Distributional impact: poor disproportionately affected by higher prices and loss of income for informal workers in agriculture and services.

### Fiscal and external financing needs and projections
- Government has established an Ebola Trust Fund and contributed US$5 million out of total US$20 million in additional spending needs directly related to containing the epidemic.
- Containing the epidemic will require additional outlays for security, health, communication strategy, and emergency food distributions; only a portion can be covered by budget reallocations.
- Decline in economic activity and trade projected to generate substantial revenue loss; overall fiscal deficit could increase by close to US$100 million or about 4½ percentage points of GDP.
- External financing gap from lower export receipts and higher imports of food and basic commodities estimated at around US$93 million.
- Pledges of additional international support cover only a portion of external and fiscal gaps; Fund disbursement expected to catalyze further donor support.
- Government will reallocate budget resources from non-priority funding and meet any residual financing gap in consultation with Fund staff.

### Central Bank and financial sector measures
- The CBL intervened in foreign exchange auction by offering an additional amount of US$6.9 million in July to contain depreciation pressures and anchor inflation.
- Plan to issue additional CBL bills to manage Liberian dollar liquidity.
- Anticipated negative impact on banks’ portfolio quality due to reduced domestic activity; authorities will closely monitor the banking system and apply necessary prudential measures.

### Policy orientation and recovery planning
- Government remains committed to measures that maintain macroeconomic stability and financial sustainability in line with the program.
- Working on an economic recovery and revitalization plan recognizing the need to change economic structure and fundamentals post-Ebola.
- Key investment areas under consideration for the post-Ebola program:
  - Infrastructure.
  - The Liberian private sector.
  - Food and small tree crop production.
  - Rebuilding health care delivery system, educational system, and enhancing social safety nets targeted to poor households, women, children, and the elderly.
- Government affirms readiness to take additional measures if necessary and will consult with the Fund in advance of policy revisions to the MEFP of June 17, 2014.
- Agreement to publication of all ECF-related documents circulated to the IMF Executive Board.

### Amendment to the Technical Memorandum of Understanding (TMU)
- Addition of paragraph 17bis to the June 2014 TMU:
  - "Adjustor for ad-hoc augmentation of access under the ECF. 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 Fund disbursement under the ad hoc augmentation of access under the ECF. The adjustor will apply to the end-December 2014 program targets."

### Key quantitative items and program notes (selected exact figures from Table 1 and text)
- SDR 32.3 million (25 percent of quota) — requested augmentation and disbursement.
- US$5 million contributed by government to Ebola Trust Fund out of US$20 million in additional spending needs.
- Fiscal deficit could increase by close to US$100 million or about 4½ percentage points of GDP.
- External financing gap of around US$93 million from lower exports and higher imports.
- CBL offered an additional US$6.9 million in July in the foreign exchange auction.
- Press release summary: IMF Executive Board approved emergency financing totaling US$130 million for Guinea, Liberia, and Sierra Leone; Liberia’s immediate financing: US$49 million (increasing ECF availability to US$130 million).
- IMF staff preliminary growth impact estimate (press release): growth could decline by at least 3–3½ percent in Liberia and Sierra Leone in 2014; about 1½ percent in Guinea in 2014.
- Table 1 (selected entries visible in the source): program and actual figures for revenue, CBL positions, and borrowing include exact numbers such as:
  - Floor on total revenue collection of the central government: examples shown include 230.3, 214.5, 347.8, 335.6, 492.1, 492.1, 470.5, 125.0, 245.0, 245.0 (as appearing in table).
  - Floor on CBL’s net foreign exchange position examples: 217.0, 237.3, 221.0, 230.2, 245.0, 229.8, 236.0, 249.0, 253.0, 201.8.
  - Ceiling on CBL's gross direct credit to central government examples: 284.9, 264.4, 284.9, 266.7, 260.9, 276.1, 267.5, 260.4, 260.4, 308.8.
  - Indicative ceiling on net domestic assets of the CBL examples: 3.0, -23.7, 3.0, -22.8, -25.0, -9.8, 4.5, -25.0, -25.0, 26.2.
  - Programmed receipt of external budget support grants and committed external loans examples: 53.3, 31.1, 55.9, 31.1, 61.6, 61.6, 46.4, 2.5, 18.0, 18.0.
- Notes from Table 1:
  - SDR holdings included in CBL net foreign exchange position are converted at program exchange rate of 1 SDR=1.5844 US dollar.
  - The end-December 2014 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 full amount of the ECF augmentation of 25 percent of quota at the prevailing market SDR rate and the program SDR rate, respectively.

*Source: Appendix I. Letter of Intent (Monrovia, September 17, 2014).*

### 1.1 percent of GDP. Corrective measures to strengthen tax administration have led to some

### _cr14299 - 1.1 percent of GDP. Corrective measures to strengthen tax administration have led to some

### Program performance and fiscal anchors
- Revenue and expenditures:
  - Corrective measures to strengthen tax administration have led to some improvements especially in income tax.
  - Shortfalls in sales and import taxes, consistent with the decline in activity.
  - Budget support fell short by 0.7 percent of GDP, triggering the program adjustor.
  - Two out of four indicative targets were missed.
  - Social and other priority spending was below the indicative floor, partly attributed to lower budget support.
- Monetary and balance sheet targets:
  - The indicative target on net domestic assets was missed following a recent reduction in the U.S dollar reserves requirement for commercial banks.
  - Continuous performance conditions (PCs) on non-accumulation of new external debt arrears and non-contracting of new nonconcessional external debt are being met.
- Structural benchmarks:
  - Most structural benchmarks were met with the exception of:
    - Submission of the procurement plans by all ministries and agencies.
    - Compilation of the national accounts for 2008–13.

### Request for augmented Fund support and program adjustors
- Authorities request:
  - An augmentation of access under the existing ECF arrangement and a disbursement of SDR 32.3 million which is equivalent to 25 percent of quota.
  - Modification of related end-December performance criteria through an adjustor to allow on-lending of the equivalent of the additional Fund support to the central government.
- Performance criteria to be modified:
  - The floor on Central Bank of Liberia (CBL)’s net foreign exchange position.
  - The ceiling on CBL’s gross direct credit to the central government.
  - The indicative target on net domestic assets of the CBL.

### Recent developments and macroeconomic impact of the Ebola outbreak
- Severity and context:
  - Resurgence of Ebola since June escalated into a national emergency, crippling all sectors of the economy.
  - Prior to the outbreak, Liberia had been growing at 8 percent on average since 2011.
- Growth projections:
  - Pre-crisis expectations: growth was expected to decline to 5.9 percent in 2014, rise to 6.8 percent in 2015 and 7.2 percent in 2016.
  - Preliminary estimates after the outbreak: decline in real GDP growth in 2014 to 2.5 percent and to 4.5 percent in 2015.
- Transmission channels and immediate effects:
  - Closure of markets and regional borders, cancellations of international flights, and departure of expatriate workers affecting foreign concessions.
  - Disruptions to trade and food production affecting transport and food prices.
- Inflation and reserves:
  - Inflation is projected to reach 13.1 percent at the end 2014 compared with 7.7 percent estimate before the crisis.
  - Reserves coverage could decline to approximately 2.2 months of import cover compared to 2.8 months of imports that was earlier projected.
- Fiscal and external balances:
  - The decline in economic activity is projected to generate a substantial revenue loss for the rest of the fiscal year while expenditure demand has increased substantially.
  - As a result, the overall fiscal deficit could increase by close to 4 ½ percent of GDP.
  - The current account deficit is expected to widen reflecting the drop in exports, coupled with additional import demand to meet domestic shortages.

### Fiscal policy response and financing
- Government measures:
  - The highest priority in government spending remains the fight against Ebola.
  - New austerity measures introduced to create fiscal space; government institutions asked to reduce expenditure.
  - The Liberian government has set up the Ebola Trust Fund and has already contributed US$5 million out of US$20 million in supplementary spending needs directly related to the epidemic.
  - Containing the epidemic will require additional expenditures related to security, health, communication strategy and emergency food distributions; only a portion can be covered by budget reallocations.
- External financing:
  - Pledges from international development partners received so far should help cover only a portion of the external and fiscal financing gap.
  - The additional access requested under the current ECF arrangement will help address immediate balance of payments needs and provide a strong signal to catalyze support from other donors.

### Monetary policy and financial sector considerations
- Central Bank actions:
  - The CBL will continue to implement monetary policy to maintain price and exchange rate stability.
  - It has stepped up intervention in the foreign exchange auction to help contain depreciation pressures and anchor inflationary expectations.
  - The CBL plans to issue additional CBL bills to manage Liberian dollar liquidity.
- Financial sector risks:
  - Reduced domestic activity may negatively impact on the quality of banks’ portfolios with worsening credit quality and increasing nonperforming loans.
  - The CBL continues to monitor the banking system and stands ready to take necessary prudential measures.

### Social impact and recovery planning
- Distributional effects:
  - The poor are being disproportionately affected due to higher prices and loss of income for informal workers especially in agriculture and the service sectors.
- Recovery and structural reform:
  - Authorities are working on an economic recovery and revitalization plan recognizing that the post-Ebola economy will require changing and strengthening the structure of the economy to deal with shocks.
  - Additional outlays may be needed not only to stabilize the health situation but also to sustain the authorities’ social and economic transformation agenda aimed at building resilient structures, enhancing food security, job creation and income generation.
- Contingency request:
  - Authorities urge the Fund to stand ready to provide additional financial support in the event an adverse scenario requiring additional financing materializes.

*Source: IMF staff report text provided in the content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14299.pdf_