## _cr1608 ## Source details **Canonical URL:** [_cr1608](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1608.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1608.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1608.pdf.json) --- ### Executive summary - Context / Post-Ebola challenges: - WHO declared Liberia Ebola-free for the second time on September 3, 2015; a few new cases occurred in Monrovia suburbs. - Since March 2014, Liberia experienced 10,675 cases and 4,809 deaths. - Total cost of the ESRP: about $1.3 billion over three years. - Recovering output and growth (estimated cost: US$305 million) — 21 percent of total ESRP costs allocated toward enhancing access to finance for farmers and restarting key infrastructure projects. - Strengthening resilience and reducing vulnerability (estimated cost: US$664 million) — Health sector investments account for about 35 percent of ESRP costs; US$94 million in priority investment in the security sector ahead of UNMIL’s departure in June 2016. - Strengthening public finances and ensuring service delivery (estimated cost: US$289 million). - Survey evidence (World Bank, March 2015): 40 percent of heads of households who were working at onset of Ebola crisis are still out of work (48 percent at the height of the crisis). - UNMIL drawdown to be completed in September 2016, leaving only a small peacekeeping force. - Program support and IMF actions: - IMF provided ad-hoc ECF augmentation (September 26, 2014, 25 percent of quota), an RCF disbursement (25 percent of quota) and debt relief (20 percent of quota) under the Catastrophe Containment and Relief Trust (February 23, 2015). - Technical extension of the ECF arrangement approved October 14, 2015 to allow completion of the delayed fourth review. ### Economic developments and outlook - Growth and inflation: - Real GDP growth (constant prices): 8.7 (2013), 0.7 (2014), 0.3 (2015 est.), 3.9 (2016 proj.), 5.3 (2017 proj.), 5.6 (2018 proj.). - Medium-term growth expectation: 6–7 percent on average if mining and oil exploration delays are overcome. - Inflation: eased to 6.5 percent (y/y) in September 2015 from 13.5 percent in September 2014; projected at around 8 percent in 2015–16. - External sector and reserves: - Current account balance: -28.2 (2013), -31.4 (2014), -39.2 (2015 est.), -36.9 (2016 proj.), -34.4 (2017 proj.), -32.7 (2018 proj.) (percent of GDP). - Gross international reserves: 393.1 (2013), 411.5 (2014), 438.4 (2015 est.), 460.9 (2016 proj.), 508.6 (2017 proj.), 583.1 (2018 proj.) (mill. of US$). - Gross international reserves declined from $411 million at end-2014 to US$394 million in September 2015 (about 2.4 months of essential imports or 2.1 months of total imports). - Exchange rate: Liberian dollar depreciated by 6.8 percent in the first ten months of 2015; exchange rate at November 10, 2015: L$87.5=US$1 (mid-point). - Financial sector: - Credit to the private sector rose by 7.6 percent in real terms in September 2015 (y/y). - Nonperforming loans rose from 14.5 percent of total loans in March 2014 to 19.3 percent in July 2015. ### Selected macro and commodity indicators (as presented) - Consumer prices (average): 7.6 (2013), 9.9 (2014), 7.8 (2015 est.), 8.0 (2016 proj.), 7.9 (2017 proj.), 7.5 (2018 proj.). - Consumer prices (end of period): 8.5 (2013), 7.7 (2014), 8.0 (2015 est.), 8.1 (2016 proj.), 7.8 (2017 proj.), 7.1 (2018 proj.). - Overall fiscal balance (including grants): -1.6 (2013), -1.9 (2014), -8.1 (2015 est.), -8.5 (2016 proj.), -5.1 (2017 proj.), -6.0 (2018 proj.). - Public external debt: 10.5 (2013), 13.2 (2014), 22.9 (2015 est.), 29.3 (2016 proj.), 32.8 (2017 proj.), 36.3 (2018 proj.). - Iron ore price (US$ per metric ton): 135.4 (2013), 96.8 (2014), 55.8 (2015 est.), 44.8 (2016 proj.), 42.9 (2017 proj.), 42.8 (2018 proj.). - Rubber (US cents per pound): 126.8 (2013), 88.8 (2014), 79.8 (2015 est.), 86.8 (2016 proj.), 76.1 (2017 proj.), 69.4 (2018 proj.). ### Key risks - Weaker commodity prices depressing production and investment. - Security risks with UNMIL withdrawal ahead of the 2016 constitutional referendum and 2017 elections. - Re-emergence of Ebola on a large scale (three isolated cases recently recorded). - Slow growth in emerging markets and China further depressing commodity prices. - Weakening of policy implementation due to security and health concerns. ### Staff appraisal and recommendations (high level) - Support completion of delayed fourth review, waivers of nonobservance, and re-phasing and extension of ECF arrangement to end-December 2016. - Strengthen budget credibility and address bottlenecks in public investment implementation. - Build international reserve buffers while allowing greater exchange rate flexibility and enhance liquidity management to contain inflation. - Continue to prioritize grant and highly concessional external financing to preserve debt sustainability; risk of debt distress moved from low to moderate. --- ### Fiscal policy, revenue, and financing ### FY2015 outcomes and FY2016 projections - FY2015: - Total government spending increased from 29 percent of GDP in FY2014 to 40 percent of GDP in FY2015. - Total domestic revenue collection for FY2015 amounted to US$437 million, about 4.8 percent above the revised FY2015 budget target. - Development partner budget support totaled US$206 million, of which US$183 million was additional financing for the Ebola crisis. - Overall fiscal deficit for FY2015: US$163 million (8.1 percent of GDP). - FY2016 budget: - Total resource envelope: US$623 million. - Domestic revenue expected to increase by US$37 million (1.7 percent of FY2016 GDP). - Capital spending planned to increase by US$12 million (0.6 percent of FY2016 GDP), mainly off-budget (Mt. Coffee hydropower project). - Overall fiscal deficit expected to rise slightly to 8.5 percent of FY2016 GDP. ### Revenue administration and LRA - LRA launched on July 1, 2014; collected tax 13 percent more than budgeted in FY2015; FY2015 tax-GDP ratio improved. - LRA challenges and actions: - Urgent completion of taxpayer registration to widen tax base. - Tax code reform required. - Full migration to SIGTAS and strengthening tax payment controls and refund systems. - IMF support: Fiscal Affairs Department provided intensive TA and remote support before and during Ebola; in-country TA resumed post-declaration, focusing on VAT, HR, and audit capacity. ### ESRP financing gap and budget support - ESRP remains severely underfunded: Unidentified funding gap estimated at about US$812 million (41 percent of FY2015 GDP). - External budget support grants expected to increase from US$60 million (3 percent of FY2015 GDP) in FY2015 to US$66 million (3.1 percent of FY2016 GDP) in FY2016. - Liberia will benefit from disbursements under the U.S. Millennium Challenge Compact (signed October 2015) financing the Mt. Coffee project. - FY2016 budget includes US$36 million (1.7 percent of FY2016 GDP) ESRP-related interventions. ### Public financial management weaknesses and remedial actions - Audit of road projects revealed significant PFM weaknesses: - Irregularities in procurement and payment totaling US$92 million (4.6 percent of FY2015 GDP). - Government made payments totaling US$32 million (1.6 percent of FY2015 GDP) before completion of the audit to maintain banking sector liquidity. - Government plans to repay remaining US$46 million (2.2 percent of FY2016 GDP) in FY2016 and FY2017. - MFDP action plan (prior action) includes: - Review of the PFM Act; apply sole sourcing criteria per section 55(1) of the Public Procurement and Concessions Act. - Establish and staff a project evaluation function in the Public Investment Unit (PIU). - Submit economic and financing analyses of all new projects in the FY2017 budget to the Minister (structural benchmark). - Develop a multi-year implementation schedule for existing multi-year projects. - Establish domestically-financed public investment project database (structural benchmark). - Expand externally-financed public project database to cover cost overrun, implementation delay, and payment arrears (structural benchmark). - Launch regular donor meeting to update the database (structural benchmark). - Extend IFMIS coverage (structural benchmark). - Publish quarterly budget execution reports and quarterly SOE financial performance reports (structural benchmark). --- ### Monetary, financial sector, and external policies ### Central Bank of Liberia (CBL) reserves and liquidity management - CBL net foreign exchange position (net of liabilities): US$280 million in March 2012; US$179 million at end-2014; US$161 million at end-September 2015. - Drivers of decline: Ebola, commodity price shocks, CBL operational deficits under the dual currency regime. - CBL commitments and prior actions: - Develop a three-year action plan to strengthen operational efficiency through prudent budgeting (prior action). - Update investment guidelines to align with best international practices (prior action). - Limit FX interventions to volatility smoothing while allowing exchange rate adjustment (MEFP ¶24). - Resume weekly liquidity monitoring committee meetings (resumed May 2015). - Modify reserve requirement implementation to allow banks to meet requirements on average over a maintenance period (structural benchmark). - Consider regular issuance of short-term CBL notes and expansion of longer-maturity securities to develop a yield curve; securitize government debt owned by the CBL in line with MCM recommendations. ### Banking sector and crisis preparedness - NPLs and provisioning: - NPLs declined to below 15 percent by end-2013; increased to 19.3 percent by end July 2015 due mainly to Ebola. - CBL temporarily relaxed provisioning norms in first six months of 2015 and encouraged banks to restructure facilities. - CBL enacted mandatory loan write-offs of fully provisioned loans (amendment December 2014). - Crisis preparedness: - CBL to assess crisis-related measures and develop procedures for crisis preparedness and management with MCM assistance. - Complete review of forbearance measures and impact on banking sector by end-December 2015 (structural benchmark). - Intensify oversight of credit risk management and restructuring practices. ### Payments infrastructure, financial inclusion, and collateral - Payments system modernization work: ACP, ACH, RTGS, Core Banking Application, SWIFT migration, National Switch; Ebola delayed full implementation. - Collateral Registry established June 2014: 61 financing statements registered in 9 months to March 2015; value US$248.8 million and L$34.7 million. - Insurance sector: Insurance Act passed December 22, 2014; Board approved regulations. ### External sector management and exchange rate policy - Staff recommends building international reserve buffers, allowing greater exchange rate flexibility, and enhancing liquidity management to contain inflation. - Reserve accumulation targets: - Target to bring gross reserves on track to reach about 3 months of essential imports by end-2016, predicated on: - monthly CBL interventions averaging US$3 million; and - sales of U.S. dollars by the MFDP to the CBL totaling US$3.25 million monthly plus extra US$862,500 weekly allocation. --- ### External borrowing, debt sustainability, and borrowing strategy ### Recent borrowing and pipeline - Total loans ratified since start of ECF arrangement in November 2012: US$844 million (end-July 2015 table cites US$843.5 million). - This implies an 8.3 percent average annual PV of debt to GDP over the program period to end-June 2015, higher than the 5.3 percent target envisaged at third ECF review. - Total loans in the pipeline for FY2016 amount to US$180 million (authorities’ target about US$180 million nominal for priority projects). ### Debt sustainability findings - Risk of debt distress increased from low to moderate due to Ebola, commodity price decline, and planned infrastructure loans. - Updated DSA indicates PV of debt-to-exports and debt-to-GDP ratios would breach policy-dependent thresholds under extreme shock scenarios. - Baseline projections and key assumptions: - Real GDP growth: projected decline by 2.7 percent in FY2015; increase to 4–5 percent in FY2016 and FY2017; average 5.4 percent in FY2016–20; long run average around 6.1 percent in FY2021–35. - PV of debt-to-GDP projected to rise from 14 percent in FY2015 to 23 percent by FY2020 in baseline. - PV of debt-to-exports projected to increase from 40 percent in FY2015 to a peak of 98 percent in FY2020 (close to 100 percent threshold). - External debt projected to rise from about 14 percent of GDP in FY2014 to projected 40 percent of GDP in FY2020 under ESRP disbursements. - Sensitivity/stress tests: - One-time large nominal depreciation would breach the 30 percent PV of external debt-to-GDP threshold throughout FY2018–23. - Less favorable borrowing terms can push PV of external debt-to-exports above 100 percent from FY2018 onwards, peaking at 129 percent in FY2020 in extreme scenarios. - Policy implication: - Prioritize grants and highly concessional financing. - Authorities committed to a prudent borrowing plan: target about US$180 million nominal in FY2016, implying average annual PV for FY2016 of 4.6 percent and average annual PV of debt-to-GDP of 7.1 percent over the program period (down from 8.3 percent to end-June 2015). - New program monitoring sets PCs on PV of newly contracted external borrowings replacing PC on zero non-concessional borrowings. --- ### Program performance, monitoring, and governance ### Performance under ECF program - End-June 2014 PCs and ITs: met except revenue floor (missed by US$22 million), floor on CBL net foreign exchange position (not met due to incorrect inclusion of €47 million placement), and ceiling on net domestic assets narrowly missed. - End-December 2014 targets: all missed except targets on non-concessional borrowing and accumulation of external arrears. - Structural benchmarks: of seven SBs for end-March and end-June 2014, only three met (payroll cleanup; publication of FY2016 budget calendar; pilot integration of credit-financed projects into IFMIS). All end-December 2014 SBs missed. - Based on authorities’ corrective actions, IMF staff supports completion of delayed fourth ECF review and authorities’ request for extension and re-phasing to end-December 2016. ### Prior actions and structural benchmarks (selected) - Prior actions (Fourth ECF Review, December 2015): - Submit public action plan addressing GAC audit recommendations on road projects. - Develop a three-year financial plan for the CBL to return to financial viability. - Update CBL investment guidelines aligning with best international practices. - Proposed SBs (End-December 2015 to End-May 2016) include: - Extend IFMIS coverage to 15 externally-financed projects (End-December 2015). - Launch quarterly donor meeting to monitor externally-financed projects (End-January 2016). - PIU to compile domestic investment project database (End-March 2016). - Publish quarterly SOE financial reports for FY2016 Q1 and Q2 (End-March 2016). - Finalize study of CBL December 2014 measures (End-December 2015). - Develop framework for Emergency Liquidity Assistance and crisis management (End-March 2016). ### Safeguards and CBL governance - Safeguards assessment update (finalized November 2015) noted slow progress implementing 2013 recommendations, contributing to heightened safeguards risks. - Recommendations: strengthen Board and Audit Committee oversight; align investment guidelines with best international practice; develop strategy to address operating revenue/expenditure imbalances to improve CBL financial position. - Total outstanding Fund credit: 83.8 percent of quota. - Grants under the CCR Trust have allowed prepayment of Liberia’s debt service obligations to the Fund until late 2018. ### Monitoring, reporting, and TMU provisions - Program monitored by PCs and SBs for end-December 2015 and end-June 2016. - TMU definitions and reporting rules specified for government, public sector, exchange rates, social spending, new domestic borrowing, contingent liabilities, and CBL aggregates. - Detailed monthly and quarterly reporting requirements listed for MFDP and CBL with specified timelines (mostly within three weeks after end of month/quarter). --- ### Technical assistance, statistical issues, and capacity building ### Technical assistance and trust fund support - IMF TA across departments (FAD, STA, MCM, LEG) covering revenue administration, PFM, monetary statistics, banking supervision, liquidity forecasting, crisis preparedness, and tax legislation drafting. - Fragile States Facility and other trust funds supported LEITI Phase II (US$409,000), Governance Commission capacity (UA 438,338), county participatory governance (UA 180,000), National Housing Authority capacity (UA 240,000). ### Data and statistics adequacy - Data have serious shortcomings hampering surveillance; most severe in national accounts, government finance, and balance of payments. - National Accounts: comprehensive data not available; NAAS 2012 processing completed June 2014 but inconsistencies remain. HIES interrupted in 2014; processed six months of data to be used; CPI weights to be updated by end-March 2016. - Government Finance Statistics: phasing-in GFSM 2001; gaps include omission of some externally funded flows and balance sheet items. - External sector statistics: BOP compilation on BPM5; effort underway to adopt BPM6; IIP statistics not yet compiled. - Authorities and partners (AFRITAC West 2, World Bank) to assist LISGIS and CBL in improving data coverage and methodologies. --- *Source: IMF staff report — EXECUTIVE SUMMARY and related excerpts (December 7, 2015).* ### EXECUTIVE SUMMARY ### _cr1608 - EXECUTIVE SUMMARY ### Context / Post-Ebola challenges - Liberia is moving on from the Ebola epidemic; the WHO declared Liberia Ebola-free for the second time on September 3, 2015, even though there have been a few new cases in the Monrovia suburbs. - Since the outbreak began in March 2014 in neighboring Guinea, Liberia experienced 10,675 cases and 4,809 deaths. - To fully and permanently eliminate Ebola, prevention and response strategies at the country level and close cross-border coordination with Guinea and Sierra Leone will be needed. - Significant resources will need to be channeled toward strengthening the health and social protection systems, consistent with the authorities’ Economic Stabilization and Recovery Plan (ESRP). Box (ESRP high-level cost and pillars) - Total cost of the ESRP: about $1.3 billion over three years. - Recovering output and growth (estimated cost: US$305 million) - 21 percent of total ESRP costs allocated toward enhancing access to finance for farmers and restarting key infrastructure projects. - Strengthening resilience and reducing vulnerability (estimated cost: US$664 million) - Health sector investments account for about 35 percent of the ESRP costs. - US$94 million in priority investment in the security sector ahead of UNMIL’s departure in June 2016. - Strengthening public finances and ensuring service delivery (estimated cost: US$289 million) Additional context points - Survey evidence (World Bank, March 2015): 40 percent of heads of households who were working at onset of Ebola crisis are still out of work (48 percent at the height of the crisis). - Food insecurity has dropped in rural areas thanks to a strong harvest. - The political system is preparing for the 2016 constitutional referendum and the 2017 general elections; President Johnson Sirleaf cannot be elected for a third term. - UNMIL drawdown will be completed in September 2016, leaving only a small peacekeeping force. - The ECF program was delayed by the Ebola epidemic. The IMF provided an ad-hoc ECF augmentation (September 26, 2014, 25 percent of quota), an RCF disbursement (25 percent of quota) and debt relief (20 percent of quota) under the Catastrophe Containment and Relief Trust (February 23, 2015). A technical extension of the ECF arrangement was approved on October 14 to allow completion of the fourth review delayed by Ebola. ### A timid recovery (economic developments and outlook) - Real GDP growth: estimated at 0.7 percent in 2014; projected at 0.3 percent in 2015; projected to accelerate to 3.9 percent in 2016. - Medium-term growth expectation: 6–7 percent on average as confidence improves post-elections and security transition, assuming delays in mining and oil exploration projects are overcome. - Inflation: eased to 6.5 percent (y/y) in September 2015 from a peak of 13.5 percent in September 2014; inflation projected at around 8 percent in 2015–16. - Exchange rate: Liberian dollar depreciated by 6.8 percent in the first ten months of 2015. - Current account balance: worsened from about -28 percent of GDP in 2013 to about -31 percent in 2014; projected to rise to -39 percent of GDP in 2015. - Gross international reserves: declined from $411 million at end-2014 to US$394 million in September 2015 (about 2.4 months of essential imports or 2.1 months of total imports). - Financial sector: credit to the private sector rose by 7.6 percent in real terms in September 2015 (y/y); nonperforming loans rose from 14.5 percent of total loans in March 2014 to 19.3 percent in July 2015. Selected IMF staff projections and indicators (as presented) - GDP at constant prices: 8.7 (2013), 0.7 (2014), 0.3 (2015 est.), 3.9 (2016 proj.), 5.3 (2017 proj.), 5.6 (2018 proj.) - Consumer prices (average): 7.6 (2013), 9.9 (2014), 7.8 (2015 est.), 8.0 (2016 proj.), 7.9 (2017 proj.), 7.5 (2018 proj.) - Consumer prices (end of period): 8.5 (2013), 7.7 (2014), 8.0 (2015 est.), 8.1 (2016 proj.), 7.8 (2017 proj.), 7.1 (2018 proj.) - Current account balance: -28.2 (2013), -31.4 (2014), -39.2 (2015 est.), -36.9 (2016 proj.), -34.4 (2017 proj.), -32.7 (2018 proj.) - Gross official reserves (mil. of US$): 393.1 (2013), 411.5 (2014), 438.4 (2015 est.), 460.9 (2016 proj.), 508.6 (2017 proj.), 583.1 (2018 proj.) - Overall fiscal balance (including grants): -1.6 (2013), -1.9 (2014), -8.1 (2015 est.), -8.5 (2016 proj.), -5.1 (2017 proj.), -6.0 (2018 proj.) - Public external debt: 10.5 (2013), 13.2 (2014), 22.9 (2015 est.), 29.3 (2016 proj.), 32.8 (2017 proj.), 36.3 (2018 proj.) - Iron ore price (US$ per metric ton): 135.4 (2013), 96.8 (2014), 55.8 (2015 est.), 44.8 (2016 proj.), 42.9 (2017 proj.), 42.8 (2018 proj.) - Gold (US$ per troy ounce): 1,411.1 (2013), 1,266.2 (2014), 1,175.4 (2015 est.), 1,157.5 (2016 proj.), 1,171.2 (2017 proj.), 1,187.7 (2018 proj.) - Rubber (US cents per pound): 126.8 (2013), 88.8 (2014), 79.8 (2015 est.), 86.8 (2016 proj.), 76.1 (2017 proj.), 69.4 (2018 proj.) ### Program performance and status - End-June 2014 quantitative performance criteria (PCs) and indicative targets (ITs) relevant for the fourth review were met except: - revenue floor (PC) missed by US$22 million (shortfalls in tax and non-tax collection); - floor on net foreign exchange position of the CBL (PC) not met due to incorrect inclusion of the March 2014 placement of €47 million with a domestic commercial bank as part of gross reserves; - ceiling on net domestic assets (NDA) (IT) narrowly missed. - Of seven structural benchmarks for end-March and end-June 2014 (relevant for the fourth review), only three were met (cleaning up of the payroll; publication of the FY2016 budget calendar; pilot on integration of credit-financed projects into IFMIS). - End-December 2014 targets (originally PCs for the fifth review) were all missed except for targets on non-concessional borrowing and accumulation of external arrears. - Of four end-December 2014 benchmarks (originally set for the fifth review), none was met. - Authorities pressed ahead with structural reforms including improving cash management and rolling out IFMIS to 17 additional spending entities. - Based on authorities’ corrective actions, IMF staff supports completion of the delayed fourth ECF review, and the authorities’ request for an extension and re-phasing of the program to end-December 2016. - Program chronology highlights: - Third ECF review completed on July 3, 2014. - Ad-hoc ECF augmentation approved September 26, 2014 (25 percent of quota). - RCF disbursement (25 percent of quota) and CCRT debt relief (20 percent of quota) on February 23, 2015. - Technical extension of ECF arrangement approved October 14, 2015 to allow completion of the fourth review. ### Key risks - Weaker commodity prices would depress production and investment prospects. - Security risks could increase as UNMIL withdraws in the run up to the 2016 constitutional referendum and the 2017 presidential and legislative elections. - The Ebola virus disease could re-emerge on a large scale; three isolated cases had been recorded recently. - Slow growth in emerging markets and China could further depress commodity prices and investment prospects. - Policy implementation under the program could weaken due to security and health concerns. ### Policy recommendations and priorities - Strengthen budget credibility and address bottlenecks in public investment implementation to maximize quality and efficiency of public spending. - Build international reserve buffers while allowing greater exchange rate flexibility, and enhance liquidity management to contain inflation. - Continue to prioritize grant and highly concessional external financing to preserve debt sustainability, as the risk of debt distress has moved from low to moderate. ### Fiscal policy (recent outcomes and FY2016) - Government spending increased in FY2015 to fight Ebola; overall fiscal position became more accommodative relative to FY2014. - Large spending envelope pushed the overall deficit (including off-budget spending) to 8.1 percent of FY2015 GDP. - Domestic revenues exceeded the approved budget by about US$20 million (1 percent of FY2015 GDP), driven by strong tax collection by the newly-established LRA offsetting royalty and dividend shortfalls. - FY2016 outlook: - Domestic revenue expected to increase by US$37 million (1.7 percent of FY2016 GDP) due to tax reforms and recovery from Ebola. - Revenues may be eroded by requests for relief from companies in the commodity sector. - Current spending budgeted in line with FY2015 outturn, with more resources for health and education. - Capital spending planned to increase by US$12 million (0.6 percent of FY2016 GDP), reflecting mainly off-budget spending, particularly the Mt. Coffee hydropower project. - Overall fiscal deficit expected to rise slightly to 8.5 percent of FY2016 GDP. Box (Liberia Revenue Authority) - LRA launched on July 1, 2014; creation approved September 2013. - LRA operations began on time despite Ebola. - LRA collected tax 13 percent more than budgeted in FY2015; the FY2015 tax-GDP ratio improved. ### Monetary, financial, and external sector notes (policy context) - Inflation moderated to 6.5 percent (y/y) in September 2015 from 13.5 percent in September 2014; both food and non-food inflation moderating due to lower international rice and oil prices. - The CBL’s interventions in the foreign exchange market helped limit depreciation to 6.8 percent in first ten months of 2015. - Current account and reserve pressures: current account deficits and a decline in gross international reserves to US$394 million in September 2015. - Staff recommends building international reserve buffers, allowing greater exchange rate flexibility, and enhancing liquidity management to contain inflation. *Source: IMF staff report — EXECUTIVE SUMMARY (December 7, 2015).* ### 18.5 percent, which was actually higher than ### _cr1608 - 18.5 percent, which was actually higher than ### Revenue performance and Liberia Revenue Authority (LRA) - Overall domestic revenue (tax and non-tax revenue) outturn exceeded the projection under the FY2015 budget. - Tax revenue increased, but weak non-tax revenue—due to the compounded effects of the Ebola crisis and the global commodity price—partially offset higher tax revenues. - The LRA faces several challenges and required actions: - Tax payer registration needs to be completed urgently to widen the tax base. - A tax code reform is required to support tax collection. - Full migration from old tools and methods to Standard Integrated Government Tax Administration System (SIGTAS) should be completed. - Tax payment control, including advanced payments and tax refund system, needs strengthening. - IMF support: - Fiscal Affairs Department (FAD) launched an intensive technical assistance (TA) program under the Tax Policy and Administration Topical Trust Fund (TPA TTF) prior to Ebola. - FAD provided remote TA on organizational development, LRA Project Implementation Plan, and data integrity improvement project to facilitate LRA launch during Ebola. - After Ebola-free declaration, in-country TA resumed, especially on VAT, human resource administration, and audit capacity building. ### Financing, ESRP, and budget support - FY2016 financing will rely on identified external grants and concessional loans, and domestic financing. - External budget support grants expected to increase from US$60 million (3 percent of FY2015 GDP) in FY2015 to US$66 million (3.1 percent of FY2016 GDP) in FY2016. - Liberia will benefit from disbursements under the U.S. Millennium Challenge Compact (signed October 2015) financing the Mt. Coffee project. - The ESRP remains severely underfunded: - Unidentified funding gap estimated at about US$812 million (41 percent of FY2015 GDP). - FY2016 budget includes US$36 million (1.7 percent of FY2016 GDP) ESRP-related interventions. ### Public Financial Management (PFM) weaknesses and remedial action - Audit of road projects revealed serious PFM weaknesses: - Significant irregularities in procurement and payment of road projects totaling US$92 million (4.6 percent of FY2015 GDP). - General Audit Commission (GAC) report (July 2015) highlighted weaknesses in expenditure control, procurement process, and project implementation and monitoring. - Government made payments to construction companies in FY2015 totaling US$32 million (1.6 percent of FY2015 GDP) before completion of the audit to maintain banking sector liquidity. - Government plans to repay remaining US$46 million (2.2 percent of FY2016 GDP) in FY2016 and FY2017. - MFDP action plan (prior action) to address PFM issues includes: - Review of the PFM Act to improve compliance of ministries and agencies. - Application of sole sourcing criteria according to section 55(1) of the Public Procurement and Concessions Act. - Establishment and staffing of a project evaluation function in the Public Investment Unit (PIU) of MFDP. - Submission of economic and financing analyses of all new projects in the FY2017 budget to the Minister (structural benchmark). - Development of a multi-year implementation schedule for existing multi-year projects. - Establishment of a domestically-financed public investment project database (structural benchmark). - Expansion of externally-financed public project database to cover cost overrun, project implementation delay, and payment arrears (structural benchmark). - Launch of a regular donor meeting to collect necessary information to update the database (structural benchmark). - Extension of the coverage of IFMIS (structural benchmark). - Assessment and reform plan for public investment management in collaboration with IMF FAD (MEFP ¶16). - Additional PFM commitments: - All ministries and agencies to submit spending and procurement plans for FY2017 to PPCC (structural benchmark). - MFDP to continue publishing quarterly budget execution reports. - Steps toward full implementation of the Treasury Single Account (TSA). - MFDP to publish quarterly report on financial performance of State Owned Enterprises (SOEs) (structural benchmark) (MEFP ¶18). ### Monetary policy, CBL reserves, and liquidity management - CBL net foreign exchange position net of liabilities declined under the ECF: - US$280 million in March 2012 - US$179 million at end-2014 - US$161 million at end-September 2015 - Decline drivers: Ebola, commodity price shocks, and CBL operational deficits under the dual currency regime. - CBL operational spending increased in 2012–15 due to construction of new CBL building, credit stimulus schemes, foreign exchange sales to agricultural operators, and Ebola-related financial support. - CBL measures and commitments: - Developing a three-year action plan to strengthen operational efficiency through prudent budgeting (prior action) to reduce operational deficits (MEFP ¶25). - Limit interventions in the foreign exchange market to volatility smoothing while allowing exchange rate adjustment to fundamentals (MEFP ¶24). - Strengthen international reserve management by updating investment guidelines and aligning them with best international practices (prior action) (MEFP ¶25). - Liquidity management improvements: - CBL and MFDP resumed weekly liquidity monitoring committee meetings starting May 2015. - CBL enhancing liquidity forecasts with resumed Fund technical assistance. - CBL plans to modify reserve requirement implementation (structural benchmark) to allow banks to meet them on average over a maintenance period (MEFP ¶26). - Staff recommended regular issuance of short-term CBL notes for domestic money market operations and expansion of longer-maturity securities to develop a yield curve. - MFDP and CBL could securitize government debt owned by the CBL in line with MCM recommendations. ### Banking sector and crisis preparedness - Banking sector pressures: - NPLs declined to below 15 percent of total loans by end-2013; increased to 19.3 percent by end July 2015 due mainly to Ebola. - CBL temporarily relaxed provisioning norms in first six months of 2015 for Ebola-related NPLs and encouraged banks to restructure facilities. - CBL actions: - Assess crisis-related measures and develop procedures for crisis preparedness and management. - Enforce mandatory loan write-offs of fully provisioned loans (amendment of supervisory guidelines in December 2014) (MEFP ¶23). - Complete review of implementation of forbearance measures and impact on banking sector by end-December 2015 (structural benchmark, MEFP ¶24). - Intensify oversight of credit risk management and restructuring practices. - Develop framework for crisis preparedness and management with MCM assistance (MEFP ¶24). ### External borrowing, debt sustainability, and borrowing strategy - Newly contracted external borrowing accelerated since 2012: - Total loans of US$844 million ratified since start of ECF arrangement in November 2012 (mostly concessional). - This implies an 8.3 percent average annual PV of debt to GDP over the program period to end-June 2015, higher than the 5.3 percent target envisaged at third ECF review. - Debt distress risk: - Risk of debt distress increased from low to moderate due to Ebola, commodity price decline, and planned infrastructure loans. - Updated DSA indicates PV of debt-to-exports and debt-to-GDP ratios would breach policy-dependent thresholds under extreme shock scenario, changing rating from low to moderate. - Debt sustainability vulnerable to further export downturn potentially taking Liberia to high risk of distress. - Policy implications and commitments: - New program monitoring: set new PCs for end-December 2015 (fifth review) and end-June 2016 (sixth review) on PV of newly contracted external borrowings; these replace PC on zero non-concessional borrowings and IT on public external borrowing. - Authorities committed to a prudent borrowing plan for FY2016: - Target about US$180 million in nominal terms for priority projects (Text Table 5). - This target implies an average annual PV for FY2016 of 4.6 percent. - Would bring down average annual PV of debt to GDP to 7.1 percent over the program period (down from 8.3 percent to end-June 2015). - All loans signed in FY2016 expected to be on concessional terms, bulk from multilateral creditors for infrastructure and Ebola-related spending. - Authorities will prioritize grants and focus on priority projects financed by highly concessional loans; reviewing medium-term debt strategy with World Bank and IMF assistance. ### Trade agreements and regional integration - Progress on regional and multilateral trade agreements: - Liberia will be implementing the ECOWAS Common External Tariff (CET). - Protocol of the ECOWAS Trade Liberalization Scheme (ETLS) awaiting ratification. - Liberia on track to reach WTO membership by end-2015 (MEFP ¶30). ### Program monitoring, waivers, and risks - Staff supports waivers of nonobservance and program re-phasing and extension. - Missed performance criterion on revenue floor: - Corrective measures include establishment of the LRA (July 2014) which improved revenue collection. - LRA implementing measures: completion of tax registry and opening accounts for all large taxpayers. - Missed PC on CBL net foreign exchange position: - CBL steps to increase reserves, including strengthening operational budget performance. - New PCs for December 2015 and June 2016 account for Ebola and export price declines. - Prior actions and structural benchmarks aim to support PFM improvements and reserve build-up: - Action plan addressing GAC audit recommendations on road projects. - CBL three-year budgetary plan. - Revision of investment guidelines. - Authorities propose extending program to December 31, 2016 and rephasing target dates for fifth and sixth reviews to end-December 2015 and end-June 2016, respectively. *Source: Liberian authorities and IMF staff estimates (excerpts from IMF document).* ### 32. The safeguards assessment update, finalized in November 2015, noted that slow ### _cr1608 - 32. The safeguards assessment update, finalized in November 2015, noted that slow ### Safeguards assessment and central bank (CBL) governance - The safeguards assessment update, finalized in November 2015, noted that slow progress in implementing recommendations from the 2013 assessment contributed to heightened safeguards risks at the CBL. - Assessment recommendations: - Strengthen independent oversight by the Board of Governors and the Audit Committee. - Align the investment guidelines with best international practice to shield the CBL from counterparty risk. - Develop a strategy to address the imbalances between operating revenues and expenditures to improve the CBL's financial position. ### Liberia’s capacity to repay the Fund and debt status - Total outstanding Fund credit currently amount to 83.8 percent of quota. - Although the risk of debt distress has increased from low to moderate, the debt level remains low. - Grants under the CCR Trust have allowed prepayment of Liberia’s debt service obligations to the Fund until late 2018. ### Program risks - Program risks have increased. Specific risks identified: - Early start of the presidential election cycle could complicate the budget approval process and hinder further reform. - Worsening security could limit the authorities’ policy space. - External debt may increase more rapidly than expected if the government fails to streamline and prioritize the contracting of new loans. - Failure to follow up on commitments to address weak governance and lack of accountability in use of public resources could reduce the flow of donor funding for recovery and development. ### Staff appraisal — Ebola response and health priorities - Staff congratulates the authorities for their leadership in curbing the Ebola outbreak. - Continued vigilance and cross-border cooperation with Guinea and Sierra Leone are needed to permanently eradicate the disease, as underlined by the recent cases. - Over the coming years, building a more resilient health system and developing social safety nets remains a priority. ### Staff appraisal — macroeconomic outlook and commodity shock - The decline in commodity prices is compounding the impact of Ebola, dampening the recovery and raising risks for medium-term prospects. - Economic activity is projected to remain weak in 2015 and the pick-up in 2016 will likely be lower than previously expected. - Sound macroeconomic policies, steady implementation of the government’s recovery plan supported by adequate external financing, and renewed efforts to diversify the economy could help improve medium term growth prospects. ### Program performance and implementation capacity - Program performance is mixed. - Program implementation capacity deteriorated significantly due to the outbreak and policy and operational weaknesses, leading to delays in key reforms. - With the end of the epidemic, renewed momentum towards ECF program objectives is key to maintain macroeconomic stability, improve policy credibility, and unlock additional donor support. ### Fiscal policy stance and revenue measures - The fiscal policy stance is appropriate given strong expected domestic revenues and additional external financing. - Staff welcomes the reallocation of resources in favor of social sectors, including health and education in the FY2016 budget. - The commitment to further strengthening revenue collection is encouraging. - Guidance on tax relief for foreign companies in the commodity sector: - Be very cautious; approvals should be temporary, transparent, evenhanded, and publicly announced. - Relief should be approved only after a careful assessment. - Compensating measures should be identified for the revenue shortfall. - In the coming years, preserving debt sustainability and the likely decline in external support will require a prudent expenditure policy that aims at capping real spending and keeps shifting resources to priority sectors. ### Public financial management (PFM) - Authorities should resolutely address remaining weaknesses in PFM. - Staff urges pressing ahead with implementation of measures to strengthen the credibility of the budget and the management of public investment. - Staff welcomes the publication of the audit of the off-budget road contracts. ### External buffers and exchange rate policy - Rebuilding external buffers must be a priority given increased vulnerabilities. - Higher reserves are needed to preserve the CBL’s ability to intervene in the foreign exchange market and act as a lender of last resort in the context of the dual currency regime. - Policy guidance: - The CBL should continue to intervene only to smooth out excessive exchange rate volatility while allowing the exchange rate to adjust to changing fundamentals. - The reserve position will also be supported by the CBL’s plan to contain operational expenses and its commitment to avoid direct interventions in the economy. ### Liquidity management and monetary policy instruments - Enhanced liquidity management will be essential to contain inflation. - Staff welcomes the coordination between the CBL and MFDP and the commitment to enhance liquidity forecasts. - Authorities are encouraged to further develop domestic monetary policy instruments. ### Financial sector vulnerabilities and regulatory forbearance - The crisis has put the financial system under stress. - The relaxation of provisioning requirements and restructuring of loans during the crisis has masked rising vulnerabilities. - Banking system weaknesses have been amplified by weak profitability. - Staff recommendations: - Prioritize completing the review of implementation of the regulatory forbearance and strengthen bank supervision. - CBL should intensify oversight of credit risk management and restructuring practices while encouraging commercial banks to write off irrecoverable loans. - Enhance foreclosure and insolvency frameworks to improve recovery values and facilitate the development of a market for distressed assets. - Develop a framework for crisis preparedness and management, in particular a framework for emergency liquidity assistance, with technical assistance from the Fund. ### Debt sustainability and financing strategy - The combined impacts of the Ebola crisis and the sharp decline in iron ore prices have worsened the debt sustainability outlook. - With the risk of debt distress having moved from low to moderate, the authorities need to continue to prioritize grants and highly concessional financing. - Staff welcomes the authorities’ plan to streamline the borrowing pipeline in the short term—reflected in the prudent debt limit in FY2016, now a PC under the new debt limits policy—and update their medium term debt strategy. *International Monetary Fund* ### 44. On the basis of the strength of the authorities’ policy commitments and corrective ### _cr1608 - 44. On the basis of the strength of the authorities’ policy commitments and corrective ### Staff recommendation - Staff supports completion of the delayed fourth review and the authorities’ requests for waivers of nonobservance of performance criteria and modification of performance criteria, and the re-phasing and extension of the ECF arrangement. ### Recent economic developments and outlook - Economic activity: "Economic activity is expected to remain weak in 2015, but should strengthen in 2016." - All sectors impacted by Ebola and lower commodity prices. - Selected growth figures from Table 7 (Real GDP and components, annual percent change): - Real GDP: 8.7, 0.7, 0.3, 3.9, 5.3, 5.6 - Real GDP excluding mining sector: 4.2, 0.3, 3.0, 4.6, 4.9, 6.1 - Agriculture & fisheries: -0.3, -3.7, -1.1, 1.4, 3.3, 6.1 - Mining & panning: 49.6, 3.3, -17.0, -0.9, 9.1, 1.4 - Commodity and sectoral notes: - Fuel sales and cement production dropped sharply (time series charts shown). - Terms of trade falling, driven by sharp price decline in iron ore and rubber. - Decline in exports driven by iron ore exports, followed by rubber. - Aid-related imports expected to decline with the end of Ebola. ### Inflation and prices - Consumer prices (average) row in Table 1: 7.6, 9.9, 7.8, 8.0, 7.9, 7.5 - Consumer prices (end of period) row in Table 1: 8.5, 7.7, 8.0, 8.1, 7.8, 7.1 - GDP deflator (US dollars) row in Table 7: 3.4, 1.9, 1.7, 1.1, 1.8, 2.7 ### Fiscal developments - FY2015 overall government balance sharply deteriorated, driven by a sharp increase in expenditure and decrease in revenue, partially offset by higher external grants. - Selected fiscal aggregates (Table 3b, percent of GDP, fiscal year): - Total revenue and grants: 29.9, 27.4, 24.9, 29.4, 32.3, 25.6 - Revenue: 27.5, 23.5, 22.4, 22.5, 23.1, 24.1 - Total expenditure and net lending: 31.5, 29.3, 40.4, 39.7, 35.7, 33.1 - Current expenditure: 26.6, 24.3, 19.7, 26.6, 31.8, 25.4 - Capital expenditure: 4.9, 5.0, 12.3, 9.9, 8.6, 7.8 - Overall fiscal balance (including grants): -1.6, -1.9, -8.1, -8.5, -5.1, -6.0 - Overall fiscal balance (excluding grants): -4.0, -5.8, -18.1, -17.2, -12.6, -9.0 - Table 3a (millions of U.S. dollars) highlights: - Total revenue and grants (selected): 555, 549, 559, 600, 646, 638 - Total expenditure and net lending (selected): 584, 588, 718, 746, 809, 771 - Identified financing and financing gaps displayed; financing gap entries include "000000-1040" in the table. ### External sector and reserves - Real effective exchange rate appreciated rapidly since August 2014. - Current account balance (Table 1, percent of GDP): -28.2, -31.4, -39.2, -36.9, -34.4, -32.7 - Exports, f.o.b. (Table 1, percent of GDP): 16.6, -21.8, -40.7, 1.7, 6.4, 7.1 (note: exhibits both index and percent rows) - Gross official reserves (months of imports, Table 1): 2.4, 2.5, 2.7, 2.8, 3.0, 3.4 - Gross official reserves (millions of U.S. dollars, Table 1): 393, 411, 438, 461, 509, 583 - Balance of payments aggregates (Table 2, millions of U.S. dollars): - Trade balance (selected columns show multiple entries including negative values): -461, -741, -723, -814, -841, -560, -790, -718, -704 - Exports, f.o.b. (selected): 559, 437, 598, 302, 259, 737, 263, 280, 300 - Imports, f.o.b. (selected): -1,020, -1,178, -1,321, -1,116, -1,100, -1,297, -1,053, -998, -1,004 - Current account balance (selected): -554, -632, -837, -781, -804, -564, -795, -796, -821 ### Foreign exchange market and central bank operations - Gross foreign exchange reserves have slightly declined from end-2014 level in series charts. - CBL’s net foreign exchange position declined owing to new building, interventions and operational expenses. - CBL increased sales at the auction in mid-2015 to meet high demand for foreign exchange. - Sterilization efforts remain limited as mopping operations are irregular and small in size. - Charts indicate shifts in broad money from US$ to L$ driven by increased government spending in Liberian dollars. ### Monetary and financial sector - Broad money growth picked up, shored up by Ebola-related external assistance. - Weak economic activity reduced lending to the private sector in Liberian dollars. - Asset quality deteriorated and banks' profitability weakened, though system-wide solvency and liquidity indicators were generally above regulatory minima. - Selected monetary aggregates (Table 4, central bank and depository surveys, millions of U.S. dollars): - CBL's gross foreign reserves: 506, 514, 529, 566, 543, 570 - CBL's gross official foreign reserves: 393, 411, 423, 430, 438, 461 - Broad money (M2): 682, 697, 700, 781, 713, 749 - Broad money (annual change, memorandum): 7.6, 2.1, 17.5, 8.6, 2.2, 5.1 - Financial soundness indicators (Table 5, percent): - Regulatory capital to risk-weighted assets: 22.7, 25.0, 24.9, 20.5, 21.4, 23.6, 20.3, 23.8, 18.0 (periods vary) - Non-performing loans to total loans: 24.9, 18.8, 14.8, 14.5, 15.5, 16.3, 18.7, 18.5, 19.2 (periods vary) - Return on assets: -0.1, -0.7, -0.5, -0.4, -0.3, -0.5, 0.1, -0.6, -1.0 (periods vary) ### Medium-term outlook (Table 6 highlights) - Real GDP (percent): 8.7, 0.7, 0.3, 3.9, 5.3, 5.6, 6.1, 7.7 (2013–20 sequence) - Nominal non-mining per capita GDP (U.S. dollar): 404, 438, 456, 477, 499, 529, 568, 608 - Overall fiscal balance, including grants (percent of GDP): -1.6, -1.9, -8.1, -8.5, -5.1, -6.0, -5.1, -4.5 - Public external debt (percent of GDP): 10.5, 13.2, 22.9, 29.3, 32.8, 36.3, 38.3, 38.6 - Current account balance including grants (percent of GDP): -28.2, -31.4, -39.2, -36.9, -34.4, -32.7, -31.8, -32.5 - Gross official reserves (millions of U.S. dollars) projection: 393.1, 411, 431, 438, 461, 509, 583, 364, 169, 1 (series shown across years) ### Risk assessment (Table 7) - Key risks and staff likelihood/impact and mitigating policies: - Structurally weak growth in key advanced and emerging markets and sharp slowdown in China — Likelihood: Medium; Potential impact: Slow growth could hit Liberia via low prices and demand for iron and rubber. Policies to minimize impact: Accumulate international reserve buffers; diversify economy and export markets. - Worsening of security conditions following UNMIL withdrawal — Likelihood: Medium; Potential impact: Could undermine investor and consumer confidence and slow activity. Policy: Ensure smooth transition from UNMIL to national security system. - Wider re-emergence of Ebola disease — Likelihood: Medium; Potential impact: Delays socio-economic recovery, depresses growth, worsens living standards of vulnerable groups. Policies: Continue efforts to fight disease, ensure community engagement, strengthen health and social protection systems. - Weak policy implementation — Likelihood: Medium; Potential impact: Implementation of PFM measures, fiscal discipline, and exchange rate policy may be undermined. Policy: Front-load policy implementation. ### Capacity to repay the Fund and disbursements - Indicators of capacity to repay (Table 8, millions of SDRs and percent of GDP): - Prospective drawings based on existing and prospective credit: 39.7, 14.8 (entries shown) - Outstanding Fund credit (millions of SDRs): 115.7, 130.5, 130.5, 128.4, 117.9, 97.9, 74.2, 50.5, 28.7, 9.9, 2.2 (2015–25 sequence) - Outstanding Fund credit (percent of GDP): 7.9, 8.6, 8.0, 7.3, 6.2, 4.6, 3.2, 2.0, 1.1, 0.3, 0.1 - Schedule of disbursements under the ECF and RCF arrangements (Table 9, total SDR 83.98 million): - Repeated SDR 7.382 million disbursements on dates tied to Executive Board approvals and review completions; an SDR 32.300 million augmentation on September 26, 2014; an SDR 32.300 million RCF approval on February 23, 2015; further SDR 7.382 and SDR 7.388 million tranches tied to subsequent Executive Board completions. *Source: IMF staff report content in the provided PDF excerpt.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Background and context - In March 2014 Liberia was hit by an outbreak of the Ebola Virus Disease (EVD) that significantly undermined economic activity and delayed the medium-term development program—the Agenda for Transformation (AfT). - Liberia was declared Ebola free on September 3, 2015 by the World Health Organization (WHO), after an earlier WHO Ebola-free declaration on May 9, 2015 and a subsequent recurrence in June 2015. - The IMF provided financial support to Liberia during the crisis for a total of US$130 million through an ad-hoc augmentation under the ECF, disbursement under the Rapid Credit Facility (RCF), and debt relief under the Catastrophe Containment and Relief (CCR) Trust. - Policy measures during the crisis included infection control, community engagement, safe burials, active surveillance, sub-regional coordination, and psychosocial services for survivors and families. ### Economic impact and recent developments - Real GDP growth declined from 8.7 percent in 2013 to 0.7 percent in 2014 due to sharp declines in agriculture (particularly domestic food production), mining, and services. - Production trends in the first half of 2015: diamond and cocoa production were higher than in H1 2014; rubber, iron ore, and cement production remained below 2014 levels. - Inflation: increased to 13.5 percent in September 2014, then declined to 6.5 percent (year-on-year) in September 2015 owing to low food and energy prices. - Exchange rate and reserves: CBL intervention helped contain depreciation of the Liberian dollar at 6.8 percent between December 2014 and August 2015; international reserves have been hovering around 2.7 percent of essential imports since Q1 2015. - Public finances FY2015: - Tax revenue collection exceeded the budget target by about 12⅔ percent, aided by establishment of the Liberia Revenue Authority (LRA) on July 1, 2014. - Overall fiscal balance for FY2015 was a deficit of US$163 million (8.1 percent of GDP) compared to $39 million (1.9 percent of GDP) in FY2014. - Expenditure was significantly scaled up; public investment program execution delayed by late FY2015 budget approval and crisis impacts. - Balance of payments: current account worsened from 28.2 percent of GDP in 2013 to 31.4 percent of GDP in 2014; preliminary data through July 2015 show further deterioration driven by around 50 percent drop in the value of iron ore and rubber exports (y/y). - Financial sector: non-performing loans (NPLs) reached 19.3 percent of total loans in July 2015 compared to 15 percent in July 2014; credit to the private sector recovering in 2015 but high NPLs pose risks. ### Performance under the ECF-supported program - End-June 2014 performance: - All end-June 2014 performance criteria (PCs) met except the revenue floor and the net foreign exchange position of the CBL. - Revenue floor missed by US$22 million due to shortfalls in tax and non-tax collection. - Net foreign exchange position floor missed because a placement of €47 million with a domestic commercial bank was incorrectly reported as reserves; operation reversed in August 2015. - All indicative targets for end-June 2014 met except the ceiling on net domestic assets (NDA) due to a decline in commercial banks’ U.S. dollar required reserves following reduction of statutory requirement from 22 to 15 percent in April 2015. - End-December 2014 performance: only two out of seven PCs met, largely due to the Ebola outbreak. Domestic borrowing of the central government exceeded the end-December 2014 ceiling because of the disbursement under the ECF augmentation via the Central Bank of Liberia. - Structural benchmarks: - Met three out of seven SBs for end-March 2014 and end-June 2014: payroll cleanup; publication of FY2016 budget calendar; pilot on integration of credit-financed projects into IFMIS. - SBs on enhancing cash and liquidity management, strengthening national accounts quality, and submitting the insurance law completed with delay. - All end-December 2014 structural benchmarks were missed because of the Ebola outbreak. ### Reforms and capacity improvements - Public financial management (PFM): - Improvements in cash management: institutional framework established; drafting of new cash management guidelines; consolidated cash planning and reporting templates developed; Treasury Single Account (TSA) arrangement operational at the CBL. - Roll out of IFMIS to 17 additional Ministries and Agencies, increasing connected M&As to 36. - Transition to a risk-based internal audit methodology; progress on revising the PFM Law with an issues and options paper developed and proposed changes submitted for government review; commitment to finalize review and submit bill in FY2016. - Governance and audits: - GAC audit report on Special Procurement of the Ministry of Public Works for Construction of Roads and Bridges published June 2015; government developing a time bound action plan to implement recommendations. - Central Bank of Liberia (CBL): - Commitment to implement safeguards assessment recommendations; CBL to develop a 3-year action plan to strengthen operational efficiency and update investment guidelines to ensure safety and liquidity of international reserves. - CBL to continue issuing CBL notes to manage Liberian dollar liquidity and enhance liquidity management via joint monthly liquidity forecasts with the Ministry of Finance and Development Planning. - CBL to conduct a detailed assessment by end-2015 of measures taken to minimize crisis impact on banks and to carry out high frequency monitoring of bank liquidity; framework for crisis preparedness and management being developed with IMF technical assistance. ### Policy priorities and requests to the IMF - Policy priorities over the next two years shaped by the Economic Stabilization and Recovery Plan (ESRP) and reprioritized AfT actions; focus on resumption of major public investment projects in infrastructure, agriculture, education, health, private sector development, and security. - FY2016 budget focus: supporting post-Ebola recovery and substantially increasing health and education spending; incorporate key ESRP projects in the FY2016 budget. - Macroeconomic projections and outlook: - Growth projected at 0.3 percent in 2015; gradual recovery in 2016 largely driven by the gold sector and a rebound in services. - Medium-term baseline projects annual average growth in 2016–18 to decline from 8¾ percent pre-crisis to about 4.9 percent. - Inflation has increased to 7.3 percent and is expected to remain at around 8 percent in 2015–16. - Risks to the outlook: - Downside risks include possible recrudescence of Ebola due to porous borders, slower-than-projected growth in emerging markets and China depressing commodity prices, delays or cancellations of mining and rubber investments, and security risks associated with withdrawal of UNMIL. - Requests to IMF in completing the fourth review under the ECF: - Completion of the fourth review and approval of a disbursement in the amount of SDR 7.382 million. - (i) Extension to December 31, 2016 and re-phasing of the program with new fifth and sixth review targets to be set for end-December 2015 and end-June 2016. - (ii) Waivers for the missed PCs on the floor on total revenue collection of the central government and the net foreign exchange position of the CBL. - (iii) Replacement of the PC on zero non-concessional borrowings and the IT on public external borrowing with a new performance criterion on the present value of newly contracted external borrowings, in line with the new debt limit policy. - Commitment to consult with the Fund on additional measures if required, provide timely data as outlined in the TMU, and consent to publication of the letter, MEFP, TMU, and related staff report on the IMF website. *Letter of Intent (Monrovia, December 3, 2015) and Attachment I. Memorandum of Economic and Financial Policies (excerpts).* ### 9. In FY2015, the government focused fiscal policy on the fight against Ebola. The ### _cr1608 - 9. In FY2015, the government focused fiscal policy on the fight against Ebola. The ### Fiscal response to the Ebola crisis - Government measures included spending on social welfare services, such as feeding of patients in health facilities, including Ebola Treatment Units (ETUs), providing security, safe drinking water and sanitary supplies to quarantined communities. - To balance increased expenditure demand and ensure fiscal management, the government: - placed a moratorium on all non-essential purchases, such as vehicles and office supplies; - reduced fuel and lubricant expenditure by 25 percent; - limited non-essential foreign and domestic travels. - Maintaining government spending was critical to supporting demand, preventing further collapse in confidence and general business activity. ### FY2015 outturns and FY2016 budget projections (cash basis, incl. off-budget items) - Total government spending increased from 29 percent of GDP in FY2014 to 40 percent of GDP in FY2015, largely financed by external grants and concessional loans. - Total domestic revenue collection for FY2015 amounted to US$437 million, about 4.8 percent above the revised FY2015 budget target, as higher tax collection was partly offset by a decline in non-tax revenue. - Development partner budget support totaled US$206 million, of which US$183 million was additional financing for the Ebola crisis. - Overall fiscal deficit for FY2015 amounted to US$163 million or 8.1 percent of FY2015 GDP. - FY2016 budget approved in September 2015: - Total spending projected to increase by 3.2 percent from FY2015 due mainly to an increase in capital expenditure. - Total resource envelope for FY2016 budget is US$623 million. - Increased health spending by about US$2.6 million (0.1 percent of FY2016 GDP) and education spending by about US$15.8 million (0.8 percent of FY2016 GDP). - Government is considering temporary, transparent, and publicly announced support measures for the commodity-exporting sector, including postponing collection of taxes, royalties, and social contributions due in FY2016 to the next fiscal year, while committing to determine the budget cost and find compensating revenues or undertake expenditure cuts. ### Economic Stabilization and Recovery Plan (ESRP) - ESRP is a three-year plan to enable faster recovery and address resilience gaps highlighted by the crisis and to realign with the Agenda for Transformation. - Recovery Plan remains vastly under-funded. - Authorities are seeking donor and private sector financing totaling US$812 million by FY2017, which includes US$438.8 million for a comprehensive plan to rebuild the health sector. ### Unfunded road commitments and related budget treatment - Based on updated Ministry of Public Works information, amount outstanding under audited contracts as of October 1, 2015 is US$46 million. - Payments of US$26.8 million were made directly to banks exposed to contractors for fully executed contracts with Certificates of Completion. - Draft FY2016 budget includes only amounts assessed by the GAC audit as legitimate liabilities: US$23 million for works already completed. - Text Table 2 (Unfunded Road Commitment, Millions of U.S. dollars): - Size of unfunded commitment: 92 - Amount paid: 47 - FY2014: 15 - FY2015: 32 - Outstanding: 46 - FY2016 budget allocation: 23 - FY2017 payment: 23 ### Structural fiscal policies and PFM reform actions - Follow-up on GAC audit recommendations for procurement and spending controls; commitment to resolve severe deficiencies identified in the audit. - Public action plan to address PFM weaknesses (to be shared with stakeholders prior to finalization) will include: - Review of the PFM Act (with FAD support) to improve compliance of ministries and agencies to the Act and the Public Procurement and Concessions Act, including review and amendment of existing sanction provisions in PFM and public procurement and concessions Act; - Application of the criteria for sole sourcing according to section 55(1) of the PPC Act 2010 and establishment of internal audit units in respective ministries; - Establishment and staffing of a project evaluation function in the Public Investment Unit of MFDP; - Submission of economic and financing analyses of all new PSIP projects in the FY2017 budget to the Minister of Finance and Development Planning (structural benchmark); - Development of a multi-year implementation schedule for existing multi-year projects; - Establishment of domestically-financed public investment project database (structural benchmark); - Expansion of the existing externally-financed public investment project databases to cover cost overrun, project implantation delay, and payment arrears (structural benchmark); - Launch of a regular donor meeting to collect necessary information to update the database (structural benchmarks); - Extension of the coverage of IFMIS to part of the externally-financed projects (15 by end-December 2015 and additional 10 projects by end-June 2016—structural benchmarks); - Assess current public investment management practices and develop an action plan to reform the current system. - MFDP established an aid flow database covering all externally-financed public projects to monitor progress of externally financed projects. ### PFM improvements and institutional developments - Credible and comprehensive budgeting: - Department of Budget and Development Planning finalized the MTEF manual and set up a Budget Working Group. - Intensified MTEF training planned between last quarter of 2015 and second quarter of 2016. - IFMIS expansion and IT: - Plan to roll out IFMIS to 60 M&As by 2017, from 36 at present. - Accounting and reporting on donor-financed projects commenced (initial amount of 15 projects) within the Ministry's Projects Financial Management Unit (PFMU) using Free Balance-based IFMIS. - Legacy Sun Systems to be shut down and PFMU subsumed under the Office of the Comptroller and Accountant General with effect from July 2015. - Transparency and accountability: - Legislative Budget Office and Public Accounts Committee (PAC) are fully functional and supported through allocations in the national budget. - PAC has released reports on Auditor General’s audits; five reports submitted to the president. - SOE oversight: - SOE Financial Reporting Unit reporting fiscal performance; capacity building within SOEs. - Government subventions to the eight 8 largest SOEs reduced by approximately 53 percent; dividend contributions increasing. - Internal audit and controls: - Internal Audit functions implemented in 40 M&As; Internal Audit Agency moving toward risk-based audit methodology. - Treasury management: - New Cash Management and Financial Approvals Unit established; draft cash management framework in place to be instituted in July 2015. - Pilot phase of the TSA to be completed with zero-balance accounts at the CBL for all Ministries and Agencies. ### PFM commitments and structural benchmarks - Undertakings include: - Implement measures to improve public investment planning and execution, ensure prioritization, value-for-money and quality of service delivery; include donor financed projects in FY2016 budget annex; submission of spending and procurement plans of all M&As for FY2017 (structural benchmark) to the PPCC by end-June, 2016. - Ensure new domestic projects are fully reflected in the budget with related new debt, subject to economic and financial analysis, and procurement procedures. - Publish online quarterly budget execution reports, identifying additional Ebola related expenditure, within 8 weeks of the end of each quarter. - Start monthly reporting and consolidation of balances of M&As accounts at the BDL and commercial banks (structural benchmark) and complete pilot phase of TSA with zero-balance accounts at the CBL for all Ministries and Agencies. - Publish quarterly report on financial performance of SOEs (structural benchmark). ### Revenue administration and LRA reforms - LRA operational since July 2015. - MFDP under IPFMRP to support LRA in developing robust revenue management systems, including roll-out of core modules of SIGTAS and conducting forensic systems review of ASYCUDA. - Needs identified: - Capacity development in natural resource sector revenue management; - Innovation and expansion of tax administration automation to include single windows; - Comprehensive staff integrity management program. - LRA developing a 5-year strategic plan to create a modern LRA through people, processes, and technology; reforms will require external partner contributions, especially in IT and capacity development. ### Monetary and financial sector policies - CBL monetary policy aims to ensure a stable macroeconomic environment with broad exchange rate stability and low inflation. - Liberian dollar broadly stabilized during 2015 apart from volatility in June and July due to CBL interventions. - CBL interventions: - Intervene in foreign exchange market to smooth volatility while building foreign reserves. - Continue to issue CBL notes as an additional tool in management of Liberian-dollar liquidity. - Exceptional CBL measures introduced in late December 2014 to mitigate Ebola impact on banks: - Allowing dispensation on specific regulations to reduce provisioning burdens on NPLs associated with the Ebola crisis to help commercial banks restructure loans and refinance to private sector; - Mechanism to provide liquidity support to the banking system if needed; - Extending repayment periods on loans related to ongoing CBL stimulus initiatives; - Paying off outstanding loan obligations of all private schools to banks (exclusively in Liberian dollars, for an amount equivalent to about US$1.3 million); - Waiving interest and default charges on loans associated with CBL’s stimulus placement for the specified period of the Ebola crisis stated as July 1, 2014 to June 30, 2015. - CBL will phase out the measures by end-December 2015 and is assessing their impact; a study of the measures' impact will be finalized (structural benchmark). - Nonperforming loans (NPLs): - NPLs reduced from a peak of above 20 percent to below 15 percent over the last three years but re-emerged after the Ebola-induced slowdown and commodity price declines. - Central bank will intensify oversight of credit risk management by analyzing asset quality on a bank-by-bank basis and encourage commercial banks to write off irrecoverable legacy NPLs. - Enforcement of the December 2014 amendment to the asset quality regulation obliges commercial banks to write-off fully provisioned loans. *Source: Liberian authorities (excerpted IMF report text).* ### 24. The CBL will develop a crisis preparedness and management framework with IMF ### 24. The CBL will develop a crisis preparedness and management framework with IMF technical assistance ### Crisis preparedness and Emergency Liquidity Assistance (ELA) - Ongoing review of existing gaps in the safety net system with emphasis on powers and tools for emergency liquidity and bank resolution is laying the ground for the formulation of the framework. - The framework is designed to ensure that any emerging problems in the banking sector are resolved early and efficiently with minimal impact on financial stability. - After the review, the CBL will prepare with the assistance of the IMF (MCM) operational procedures specifying terms and conditions for the provision of Emergency Liquidity Assistance (proposed structural benchmark). - Consistent with the commitment under the ECF: continue to avoid undertaking direct interventions in the economy to preserve the CBL’s financial position and ability to act as a lender of last resort. ### CBL safeguards, governance, investment guidelines, and capitalization - The CBL will develop a 3-year action plan to strengthen the operational efficiency of the CBL through prudent budgeting (prior action). - Quarterly financial statements with comments on the implementation of the CBL financial strategy will be provided (structural benchmark). - Update the CBL’s investment guidelines to ensure safety and liquidity of the CBL’s international reserves by aligning them with best international practices, especially with respect to requirements for placement of international exchange reserves (prior action). - The CBL will work to ascertain the level of capitalization needed to strengthen its balance sheet to meaningfully intervene in pursuit of monetary policy objectives. - The CBL will work with the central government to explore securitizing part of the government’s debt with the CBL as a means of strengthening the ability to conduct efficient liquidity management operations. ### Liquidity management coordination and reserve accumulation targets - Continue to hold regular (monthly) meetings of the joint MFDP-CBL-LRA Liquidity Management Committee, with high-level participation by the MFDP and CBL (proposed SB). - In close coordination with the MFDP, target an amount of reserves accumulation consistent with bringing gross reserves on track to reach about 3 months of essential imports by end-2016. - Reaching this target is predicated on the assumption of: - (i) monthly CBL interventions in the foreign exchange market for an average volume of US$3 million; and - (ii) sales of U.S. dollars by the MFDP to the CBL for a total of US$3.25 million on a monthly basis plus the extra US$862,500 weekly allocation. - Modify the implementation of reserve requirements by allowing banks to meet these, on average, over a maintenance period (structural benchmark) to provide flexibility for banks to manage liquidity and reduce excess reserves. - Consider unifying the Liberian and U.S. dollar reserve requirement to support de-dollarization efforts, taking into account the prevailing situation with excess Liberian dollar liquidity in the banking sector. ### Financial sector regulation, payments infrastructure, and financial inclusion - Payments system modernization: - The CBL initiated reforms to modernize the payments system and facilitate financial inclusion. - System infrastructure was completed; work on applications software (ACP, ACH, RTGS, Core Banking Application, SWIFT migration) and National Switch commenced, but Ebola delayed full implementation originally expected by end-2014. - In 2015, the CBL intends to remobilize contractors to complete outstanding activities. - Collateral Registry and access to finance: - The CBL established the Collateral Registry in June 2014 to perfect security interest in movable assets and establish priority of secured parties. - Registry allows household furniture, farm products, accounts receivables/other rights of payments, equipment, inventory, minerals, motor vehicle, among others as collateral. - In the 9-month period to March 2015: 61 financing statements were registered for loans extended to 34 individuals, 6 small firms, 12 medium firms and 9 large firms. - The value of the financing statements is put at US$248.8 million and L$34.7 million. - Insurance sector oversight: - The Insurance Act was passed on December 22, 2014. - The CBL’s Board approved various regulations in line with the Act to strengthen oversight of the 20 insurance companies. ### External borrowing, debt profile, and pipeline - As of end-July 2015, total amount of US$843.5 million in loans signed since the beginning of the ECF arrangement in November 2012—mostly concessional borrowing—implies an 8.3 percent average annual PV of debt to GDP over the program period to end-June 2015. - The increase, compared to the 5.3 percent target envisaged at the time of the third ECF review, is partly due to additional Ebola-related loans and lower GDP, which together contributed one percentage point. - Total843.5 (as presented in the loans ratified table). - Going forward: - Continue to prioritize grants and highly-concessional borrowing to finance the development program. - New borrowing for the remainder of the fiscal year will be aligned with the current debt strategy and agreed limits under the ECF. - Total loans in the pipeline for FY2016 amount to US$180 million. - Firm up the medium-term pipeline after the review of the current debt management strategy expected at the end of FY2016. - Pipeline table entries (as presented): - Total17895 (Text Table 4. Pipeline Loans for FY 2016 as of October 29, 2015). ### Regional trade agreements and WTO accession - Liberia is a member of ECOWAS and will be implementing the ECOWAS Common External Tariff (CET); implementation by ECOWAS members started on January 1, 2014, but Liberia delayed implementation due to the Ebola crisis. - Liberia is obligated to the ECOWAS Trade Liberalization Scheme (ETLS) but remains the only West African country not implementing the scheme because the ETLS protocol is still at the Legislature awaiting enactment. - Liberia is in the process of acceding to the World Trade Organization (WTO) by end December 2015 at the upcoming Ministerial Conference in Nairobi, Kenya. - Liberia has finalized bilateral arrangements with most Working Party members including the United States, the European Union, Japan, Canada, Chinese Taipei and Thailand. ### National accounts, CPI, and statistics improvements - The Ebola crisis interrupted the Household Income and Expenditure Survey (HIES) within 6 months of its roll-out at end-January 2014; only six months of data collection was completed in 2014. - LISGIS is cleaning the six months of HIES data and searching for experts to complete work on National Accounts, CPI and Poverty analysis. - With partner support, LISGIS will complete and publish the NAAS in the coming months, using agriculture data attached to the completed six months of HIES. - LISGIS is considering estimating the impact of Ebola on Liberia’s GDP. - LISGIS will use the six months of HIES data to update the CPI basket and weights, with support from the World Bank and IMF’s statistics department, and envisages publishing the revised CPI weights and basket composition by end-March 2016. ### Program monitoring, ECF re-phasing, and reviews - Request to extend and re-phase the ECF arrangement to December 31, 2016 to complete the economic program supported by the ECF and access remaining Fund resources. - Program implementation will be monitored by quantitative performance criteria (PCs) and structural benchmarks, and semi-annual reviews. - Based on the re-phasing: - The fifth review is expected to be completed in or after June 2016 based on end-December 2015 and other relevant PCs. - The sixth review is expected to be completed in or after December 2016 based on end-June 2016 and other relevant PCs. - Selected quantitative outcomes and targets (as presented in Table 1): - Floor on total revenue collection of the central government: 492.1; 492.1; 470.5; Not met; 245.0; 245.0; 207.7 Not met; 428.4; 435.2; 216.7; 473.7. - Ceiling on new external arrears of the central government (continuous basis): 0.0; 0.0; 0.0; Met; 0.0; 0.0; 0.0; Met; 0.0; 0.0; 0.0; 0.0. - Ceiling on new non-concessional external debt of the public sector (continuous basis): 14.2; 14.2; 14.2; Met; 14.2; 14.2; 14.2; Met; 14.2; 14.2; ... - Ceiling on new domestic borrowing of the central government: 35.0; 35.0; 15.4; Met; 45.0; 45.0; 61.5 Not met; 144.5; 96.3; 144.5; 144.5. - Floor on CBL’s net foreign exchange position: 245.0; 219.8; 192.5; Not met; 253.0; 201.8; 178.6 Not met; 162.5; 160.3; 184.3; 192.3. - Ceiling on CBL's gross direct credit to central government: 260.9; 276.1; 266.4; Met; 260.4; 308.3; 312.8 Not met; 355.8; 353.3; 352.9; 352.9. - Ceiling on the present value of gross external borrowing by the public sector: 97.0; 97.0. - Ceiling on gross external borrowing by the public sector: 265.0; 265.0; 181.0; Met; 153.2; 153.2. *International Monetary Fund — _cr1608 - 24. The CBL will develop a crisis preparedness and management framework with IMF* ### 295.5 Not met ### _cr1608 - 295.5 Not met ### Quantitative performance criteria and monitoring outcomes - Reported numeric items (selected lines from program monitoring table): - 295.5 — Not met - 446.6 - 389.3 - Ceilings and outcomes related to Central Bank of Liberia (CBL) and central government: - Ceiling on net domestic assets of the CBL: data points include -25.0, 0.2, 4.5 — Not met (for the -25.0 entry); subsequent values: -25.0, 26.2, -2.1 — Met - CBL outcomes and program comparisons: 20.1, -14.1, 25.2, 25.2 - Ceiling on new domestic arrears/payables of the central government (continuous basis): - Targets and reported values: 0.0, 0.0, 0.0 — Met (repeated entries) - Floor on social and other priority spending (percent of total actual expenditure, excluding contingencies): - Floor target: 30.0 - Reported outcomes: 35.8 — Met; 34.4 — Met; later period: 32.0, 32.5, 32.5 - Memorandum items: - Total spending on education, health, social development services (percent of total actual expenditure, excluding contingencies): - Target: 25.0 - Reported outcomes: 22.9; 21.2; 21.4 - Programmed receipt of external budget support grants and committed external loans: - Values shown: 61.6, 61.6, 36.4, 18.0, 83.6, 94.4, 205.4, 206.3, 45.0, 140.0 - Dates/status markers included in table: Jun. 16; Jun. 14; Dec. 14; Jun. 15; Dec. 15 - Sources cited in the monitoring table: Liberian authorities and IMF staff estimates and projections. ### Structural benchmarks and progress (Fourth and Fifth ECF Reviews) - Table 2a — Fourth ECF Review (End-March to June 2014): Enhancing budget programming, control and monitoring - Complete clean-up of payrolls of 5 Ministries and Agencies and upload cleaned payrolls to IFMIS. - Target date: End-March 2014 - Justification: Reduce payments to ghost workers and increase fiscal space for capital investment. - Status: Met. Validation and biometric issuance completed in March 2014 with removal of about 4,000 ghost workers. - Launch pilot phase of the TSA with zero-balance accounts for seven largest ministries. - Target date: End-June 2014 - Status: Not met. Implementation stalled due to lack of technical infrastructure and limited capacity. - Ministries and Agencies to submit cash and procurement plans for both recurrent and PSIP expenditure starting in FY2015. - Target date: End-June 2014 - Status: Not met. Rescheduled to June 2016 due to limited capacity and delays in budget formulation. - Publish the FY2016 budget calendar (ensure discussions before end-December 2014). - Target date: End-June 2014 - Status: Met (June 30, 2014). - Complete pilot migration of credit-financed projects to IFMIS. - Target date: End-June 2014 - Status: Met. - Table 2a — Fourth ECF Review: Enhancing national accounts statistics and financial system - Compile national accounts for 2008–13 using National Accounts Annual Surveys. - Target date: End-June 2014 - Status: Not met. Survey started January 2014; two quarters collected; remaining data collection interrupted due to the Ebola outbreak. First 6 months data entered and under validation. - Submit to Legislature a revised Insurance Act. - Target date: End-March 2014 - Status: Not met within target date but achieved with delay. Revised Insurance Act passed on December 22, 2014. - Table 2b — Fifth ECF Review (End-December 2014) — Enhancing budget programming, control, and monitoring - Complete pilot phase of the TSA with zero-balance accounts at the CBL for all ministries and agencies. - Target date: End-December 2014 - Status: Not met. - Hold regular (monthly) meetings of the Liquidity Management Committee with high-level participation by the CBL. - Target date: End-December 2014 - Status: Not met. (Liquidity Working Group started meeting weekly in May 2015.) - PMO to compile a database of all ongoing domestically and externally credit-financed investment projects. - Target date: End-December 2014 - Status: Not met. Rescheduled to March 2016 (domestic) and May 2016 (external) due to Ebola-related disruptions. - Technical working group (MFDP and CBL) to prepare proposal for timing/terms of conversion of part of Central Government debt held by the CBL. - Target date: End-December 2014 - Status: Not met. ### Prior actions (Fourth ECF Review, December 2015) - Enhancing budget programming, control and monitoring: - Submit public action plan for GAC recommendations on issues identified in GAC road project audit reports published in June 2015. - Purpose: Address extra-budgetary spending and PFM issues. - Designation: Prior action (status indicated in table). - Strengthening the CBL’s financial position and external buffers (prior actions): - Develop a three-year financial plan for the CBL aimed at a gradual return to financial viability. - Purpose: Strengthen CBL financial position by cutting expenditures to boost resilience to shocks. - Designation: Prior action. - Update investment guidelines by aligning with best international practices, especially regarding placement of international reserves. - Purpose: Strengthen safeguards against counterparty risk. - Designation: Prior action. ### Proposed structural benchmarks (Fifth and Sixth ECF Reviews) - Table 4 — Proposed benchmarks (End-December 2015 to End-May 2016) - Extend IFMIS coverage to 15 externally-financed projects. - Target: End-December 2015. Justification: Strengthen project execution and monitoring. (Newly proposed.) - Launch a quarterly regular donor meeting to collect information to monitor externally-financed projects. - Target: End-January 2016. (Newly proposed.) - PIU to compile database for all domestically-financed investment projects including total project cost, actual expenditure, future commitments, cost overruns, implementation delay, and arrears. - Target: End-March 2016. (Delayed from December 2014.) - Submit economic and financial analyses of all PSIP projects to MF before Department of Budget approval for FY2017 budget. - Target: End-March 2016. (Newly proposed.) - Publish quarterly reports on financial performance of SOEs for FY2016 Q1 and Q2. - Target: End-March 2016. (Newly proposed.) - Expand externally-financed project database to cover cost overrun, project implementation delay, and payment arrears. - Target: End-May 2016. (Newly proposed.) - Finalize study of the impact of December 2014 CBL measures to soften Ebola impact. - Target: End-December 2015. (Newly proposed.) - Develop framework for Emergency Liquidity Assistance and crisis management. - Target: End-March 2016. (Newly proposed.) - Starting Q1 2016, provide quarterly financial statements with comments on implementation of CBL financial strategy. - Target: End-May 2016. (Newly proposed.) - Table 5 — Proposed benchmarks for Sixth ECF Review (End-June to September 2016) - All M&As to submit to the PPCC spending and procurement plans for recurrent and PSIP expenditure based on draft FY2017 budget; PSIP procurement coverage minimum 90 percent. - Target: End-June 2016. (Rescheduled from June 2014.) - Extend IFMIS coverage to additional 10 large externally-financed projects. - Target: End-June 2016. (Newly proposed.) - Publish quarterly SOE financial reports for FY2016 Q3 and Q4. - Target: End-September 2016. (Newly proposed.) - For Q2 2016, provide quarterly financial statements with comments on CBL financial strategy implementation. - Target: End-October 2016. (Newly proposed.) - Starting September 2016, modify reserve requirement implementation allowing banks to meet requirements on average over a maintenance period. - Target: End-September 2016. (Newly proposed.) ### Technical Memorandum of Understanding — key definitions and computation rules - Test dates: - Quantitative performance criteria set for end-December 2015 and end-June 2016. - 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 central government, Central Bank of Liberia (CBL), and public enterprises (enterprises and agencies in which the government holds a controlling stake—typically owns more than 50 percent of the shares, but which are not consolidated in the budget). - Presentation currency and conversion: - Central government operations presented in U.S. dollars; all revenues and expenditures denominated in Liberian dollars converted at end of period exchange rate. - Total Central Government revenue collection: - Includes all tax and nontax receipts (excluding contingent revenues) transferred into GoL Revenue accounts at the CBL, including income and transfers from state-owned enterprises and public institutions (excluding external loans and grants). - GoL revenue measurement: cash deposits in Revenue Account in U.S. dollars, Revenue Account in Liberian dollars, and the GoL Special Rice Fund converted to U.S. dollars using the end of period exchange rate. - Social spending (for end-December 2015 and end-June 2016): - Defined as education, health, social development services, and energy sector spending. - Education, health, and social spending consist of payments from FY2016 budget (payment vouchers approved by MFDP), excluding contingent expenditure. - Energy spending consists of payments from FY2016 budget and off-budget spending financed by external loans and grants. - Evaluated as a share of total expenditure (payment vouchers approved by MFDP). Total expenditure consists of spending under FY2016 budget excluding contingent expenditure tied to contingent revenues, and off-budget energy spending financed by external loans and grants. - Components of Total Education, Health, Social Development Services, and Energy Spending: - Education: Ministry of Education; University of Liberia; Monrovia Consolidated School System (MCSS); Booker Washington Institution (BWI); Gbarnga Central High; 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); Liberia Institute for Public Administration; Agricultural and Industrial Training Bureau; Zorzor Rural Teacher Training Institute; Webbo Rural Teacher Training Institute; Kakata Rural Teacher Training Institute; Bassa County Community College; Bomi County Community College; Nimba Community College; Lofa Community College; Gboveh Community College. - Health: Ministry of Health; JFK Medical Center (JFKMC); Phebe Hospital; LIBR; Jackson F. Doe Medical Hospital; Liberia Medicines and Health Regulatory Authority; National Aids Commission. - Social Development Services: Ministry of Youth & Sports; Ministry of Gender Children & Social Protection; Liberian Refugee Repatriation and Resettlement; National Commission on Disabilities; National Veterans Bureau; Liberia Agency for Community Empowerment. - Energy Sector: Thermal diesel (HFO) power station; Transmission and distribution; Mount Coffee rehabilitation, transmission, and distribution to Bushrod Island. - Adjustment rules: - The Social and other priority spending targets will be adjusted downward by the undisbursed amounts from budgeted external financing (grants and borrowing) allocated to projects in the energy sector within the public sector investment program. - New domestic borrowing of the Central Government: - Defined as new domestic claims by residents on the central government since the start of the program. - Measured by change in stock of all outstanding claims on the central government (domestic loans; advances; government guarantees; contingent financial liabilities as stipulated; any government debt instruments such as treasury bills and long-term securities issued in the domestic market) by the banking system. - Definition includes issuance of debt instruments by the GoL to the nonbank sector. Claims in Liberian dollars converted at end of period exchange rate for measurement. *Sources: Liberian authorities and IMF staff estimates and projections; Attachment II: Technical Memorandum of Understanding (excerpts).* ### 7. Contingent financial liabilities of the central government (external and internal) ### 7. Contingent financial liabilities of the central government (external and internal) ### Scope and definitions of contingent liabilities - Contingent financial liabilities include but are not limited to: - any guarantee, direct or implicit, of the performance or payment obligations of any private or public entity; - any agreement, including any indemnification agreement, to hold another private or public entity harmless or to provide insurance or similar protection against risk of loss; - any guarantee of economic return to another public or private entity including any guarantee of profit, income or rates of return; - any agreement to provide financial support to another private or public entity in connection with specified activities of such other entity; - any other agreement as provided by regulations under Liberia’s Public Financial Management Act. ### External borrowing and external debt (program definitions) - Gross external borrowing by the public sector: - defined as cumulated new public sector external debt as from July 1, 2012, excluding borrowing for reserve management purposes by the CBL. - External debt (concessional and nonconcessional) by the public sector: - refers to debt owed to non-residents, applies to the meaning in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. 15688-(14/107) (Annex I), and includes commitments contracted or guaranteed for which value has not been received. - External debt is considered contracted or guaranteed for program monitoring purposes once all conditions for its entrance into effect have been met, including ratification, if required. - Concessional debt definition: - A debt is concessional if, on the date of signature, the ratio between the present value of debt and the face value of the debt is less than 65 percent (equivalent to a grant element of at least 35 percent). - Discount rates: 5 percent for all loans signed after July 3, 2014; for loans signed before July 3, 2014, the discount rate is determined on the basis of the commercial interest reference rates published by the OECD on the date of signature. - Present value (PV) of new external debt: - Defined as debt contracted or guaranteed by the public sector with original maturities of one year or more, including debt for which value has not yet been received and private debt for which official guarantees have been extended. - For program monitoring, the FY2016 external borrowing target excludes US$57.3 million loans that were signed in FY2015 but ratified in FY2016. ### Adjustors, ceilings, and arrears - PV on new external debt adjustor: - The program ceiling for PV of new external debt will be adjusted upward up to a maximum of 5 percent of the external debt ceiling set in PV terms, if deviations from the PC on the PV of new external debt are prompted by a change in the financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees). - The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed. - Government arrears on external debt: - The government undertakes not to incur payments arrears on external debt that it owes or guarantees, except for external payments arrears arising from government debt that is being renegotiated with creditors, including Paris Club creditors. - Arrears on external debt are defined as any unpaid obligation on the contractual due date; where a creditor has granted a grace period after the contractual due date, arrears are incurred following the expiration of the grace period. - New domestic arrears/payables: - Calculated as the difference between government payment commitments and the actual payments made on such commitments, providing for a processing period of no more than 90 days from the date of commitment. - Actual payments are defined as having taken place on the date of issuance of the checks by the Ministry of Finance and Development Planning. - Government payment commitments include all expenditure for which commitment vouchers have been approved by the Expenditure Department, and expenditures automatically approved: wages and salaries, pensions, debt payments to the CBL and commercial banks, CBL bank charges, and transfers of ECOWAS levies into the ECOWAS account. ### CBL definitions and monetary aggregates - CBL gross direct credit to the central government: - Defined as the sum of claims on the central government, including loans, advances, guarantees and contingent financial liabilities as defined in paragraph 7, accounts receivable, bridge financing, overdrafts, and any government debt instrument as defined in the monetary survey template excluding CBL purchases of treasury bills in the secondary market. - An overdraft is defined as a negative outstanding balance of the consolidated government account at the CBL (sum of specified GoL Revenue and General Operations Accounts in U.S. dollars and Liberian dollars). - The gross credit to the government is expressed in U.S. dollars. Claims denominated in Liberian dollars are valued at the end-of-period exchange rate. - Net foreign exchange position of the CBL: - Defined as the difference between gross reserve assets and gross reserve liabilities, presented in U.S. dollars. - Assets and liabilities denominated in SDRs are valued at a fixed rate of the U.S. dollar against SDR 1.5844. Other currencies are valued at cross rates against the U.S. dollar as of end-June 2012. - Gross reserve assets of the CBL include: - (i) monetary gold holdings of the CBL; (ii) holdings of SDRs; (iii) the reserve position in the IMF; (iv) foreign convertible currency holdings; (v) foreign denominated deposits held in central banks and other banks; (vi) loans to foreign banks redeemable upon demand; (vii) foreign securities; and (viii) other unpledged convertible liquid claims on non-residents. - Exclusions: (i) any foreign currency claims on residents; (ii) capital subscriptions in international institutions; (iii) foreign assets in nonconvertible currencies; (iv) gross reserves encumbered or pledged, including assets blocked as collateral, assets lent by CBL to third parties not available before maturity and not marketable, and foreign reserves blocked for letters of credit. - Gross reserve liabilities of the CBL: - Defined as the sum of (i) outstanding short-medium term liabilities of the CBL to the IMF; (ii) all short-term foreign currency liabilities of the CBL to non-residents with an original maturity of up to, and including, one year; and (iii) all foreign currency deposits of domestic banks and government with the CBL. - SDR allocations are excluded from gross reserve liabilities. - Net domestic assets of the CBL: - Defined as base money minus the net foreign assets of the CBL converted into United States dollars at program exchange rates as defined in paragraph 14. - Base money = stock of Liberian dollars in circulation + reserve deposits of commercial banks in Liberian dollars at the CBL + sight deposits of commercial banks in Liberian dollars at the CBL + vault cash of commercial banks in Liberian dollars. - Net foreign assets = foreign assets minus foreign liabilities of the CBL balance sheet. ### External financing adjustors and Fund augmentations - External financing adjustor (bridge financing from the CBL): - Available under the program for shortfalls in programmed receipt of external budget support and committed external financing up to a maximum of US$20 million. - In this event, the floor on net foreign exchange position will adjust downwards and ceilings on CBL gross credit to government and CBL net domestic assets adjust upwards by the extent this financing is utilized, up to a maximum of US$20 million. - The adjustor will be calculated on a cumulative basis from the start of the financial year (July 1). - Adjustor for the September 2014 ECF augmentation and the February 2015 RCF: - The 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 and RCF to allow for on-lending of the equivalent of the additional Fund support. - Cumulative Program External Budget Support and Budgeted External Loan Disbursements (Millions of U.S. dollars): - September 2015: 33.6 - December 2015: 45.0 - March 2016: 79.98 - June 2016: 140.3 ### Program monitoring and reporting requirements - General: - The Ministry of Finance and Development Planning (MFDP) will coordinate and regularly report information to IMF staff for monitoring. - Data and reports are to 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 transfer to the African Department of the IMF in Washington, D.C. - Key fiscal reporting requirements (reporting agency, report, frequency, timing): - MFDP — Monthly fiscal reconciliation reports, where cash revenue and expenditure with spending commitments are reconciled — Monthly — Within three weeks after the end of the month. - MFDP — Detailed reports on monthly core and contingent 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. - MFDP — Outstanding appropriations, allotments and commitments, and disbursements for line ministries and agencies — Monthly — Within three weeks after the end of the month. - MFDP — A detailed report on disbursements of budget support, grants and budgeted and off-budget loans, by donor and by project — Monthly — Within three weeks after the end of the month. - CBL — Monthly sweeping reports showing the end of the month balances of the GoL accounts at the CBL and of all operations and other accounts at the CBL of the M&As — Monthly — Within three weeks after the end of the month. - CBL — End-of-month balances of all operating and other accounts at the CBL of the line ministries and agencies receiving budgetary appropriations — Monthly — Within three weeks after the end of the month. - CBL — End-of-month balances of all operating and other accounts at the CBL of all other public Institutions — Monthly — Within three weeks after the end of the month. - MFDP — 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.), including payment and stock of existing arrears from the previous ECF Arrangement — Monthly — Within three weeks after the end of the month. - Balance of payments and debt reporting: - MFDP — Quarterly reports of state owned enterprise financial operations submitted to the Ministry of Finance and Development Planning — Quarterly — Within 45 days after the end of the quarter. - MFDP — The report on the status of implementation of the performance criteria and structural benchmarks specified in Tables 1, 3, and 4 of the MEFP — Monthly — Within three weeks after the end of the month. - CBL — Export volumes and values by major commodity, import values by SITC, import volumes of rice (by commercial and noncommercial use) and petroleum products — Monthly — Within three weeks after the end of the month. - MFDP — The amount of new external debt contracted or guaranteed by the public sector — Monthly — Within three weeks after the end of the month. - MFDP — The amount of new domestic debt contracted or guaranteed by the public sector — Monthly — Within three weeks after the end of the month. - MFDP — A detailed report on monthly payments on external debt by category and creditors and the stock of external debt — Monthly — Within three weeks after the end of the month. - MFDP — A detailed report on monthly payments on domestic debt by category and the domestic debt stock — Monthly — Within three weeks after the end of the month. - Monetary and exchange rate reporting: - CBL — The balance sheet of the CBL in the monthly monetary survey — Monthly — Within three weeks after the end of the month. - CBL — The full monthly monetary survey of the monetary sector — Monthly — Within three weeks after the end of the month. - CBL — The detailed table of commercial banks’ loans and advances by sector — Monthly — Within three weeks after the end of the month. - CBL — The core set of financial soundness indicators for the banking system, including the overall profitability of the banking sector — Quarterly — Within three weeks after the end of the quarter. - CBL — The report on the results of foreign exchange sales/purchases by the CBL through foreign exchange auctions held by the CBL and other currency exchange facilities — Weekly — Within a week. - CBL — A report on the results of T-bills and CBL bills issuances — Monthly — Within one week after the end of month. - CBL — Regular sale of U.S. dollars by the MFDP to the CBL, including amount date, and rate of exchange — Monthly — Within one week after the end of month. - CBL — Daily foreign exchange rates — Daily — Every working day. - CBL — Interest rates — Monthly — Within three week after the end of month. - CBL — A detailed report on liquidity forecasting up to 6 months ahead, including projected government cash flows by currency; projected flows to the CBL’s net exchange position; and projected flows of Liberian dollar liquidity — Monthly — Within six weeks after the end of month. - CBL — Production data in value and volume — Monthly — Within six weeks after the end of the month. *Source: _cr1608 - 7. Contingent financial liabilities of the central government (external and internal)* ### 24. Moreover, we will provide the Fund with such information as the Fund requests in ### _cr1608 - 24. Moreover, we will provide the Fund with such information as the Fund requests in ### Information Provision and Program Monitoring - "We will provide the Fund with such information as the Fund requests in connection with the progress in implementing the policies and reaching the objectives of the program." (Paragraph 24) ### Guidelines on Performance Criteria with Respect to External Debt (Excerpt from Executive Board Decision No. 15688-(14/107), adopted December 5, 2014) — Paragraph 8 - Definition of "debt": - Debt is a current (i.e., not contingent) liability created under a contractual arrangement through the provision of value in assets (including currency) or services, which requires the obligor to make one or more payments in assets (including currency) or services at some future point(s) in time to discharge principal and/or interest. - Primary forms of debt: - (i) Loans: advances of money to the obligor by the lender (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets equivalent to fully collateralized loans (such as repurchase agreements and official swap arrangements). - (ii) Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until sometime after delivery of goods or services. - (iii) Leases: arrangements where property is provided for use for specified period(s) shorter than expected service life; for the guideline, debt equals the present value (at inception) of all lease payments expected during the agreement excluding payments that cover operation, repair or maintenance. - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not debt under this definition (e.g., payment on delivery) will not give rise to debt. ### Relations with the Fund — Key Institutional and Financial Data (As of October 31, 2015) - Membership Status: Joined: March 28, 1962. Article XIV - General Resources Account: - Quota: 129.20 (SDR Million) 100.00 (%Quota) - Fund holdings of currency: 129.18 (SDR Million) 99.99 (%Quota) - Reserve Tranche Position: 0.03 (SDR Million) 0.02 (%Quota) - SDR Department: - Net cumulative allocation: 123.98 (SDR Million) 100.00 (%Allocation) - Holdings: 178.55 (SDR Million) 144.02 (%Allocation) - Outstanding Purchases and Loans: - RCF Loans: 32.30 (SDR Million) 25.00 (%Quota) - ECF Arrangements: 76.03 (SDR Million) 58.84 (%Quota) - Latest Financial Arrangements: - ECF Nov. 19, 2012 – Nov. 18, 2015: Amount Approved (SDR Million) 83.98; Amount Drawn (SDR Million) 61.83 - ECF Mar. 14, 2008 – May 17, 2012: Amount Approved (SDR Million) 247.90; Amount Drawn (SDR Million) 247.90 - EFF Mar. 14, 2008 – Sep. 25, 2008: Amount Approved (SDR Million) 342.77; Amount Drawn (SDR Million) 342.77 - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Principal: 2015 — 2.10; 2016 — 10.46 - Charges/Interest: 2018 — 0.17 - Total: 2017 — 2.10; 2018 — 10.63 ### Implementation of HIPC Initiative and Debt Relief - Implementation: Enhanced Framework - Decision point date: March 2008 - Assistance committed by all creditors (US$ Million): 2,739.20 - Of which: IMF assistance (US$ Million) 721.10 - (SDR equivalent in millions) 440.90 - Completion point date: June 2010 - Disbursement of IMF assistance (SDR Million): - Assistance disbursed to the member: 440.90 - Interim assistance: 30.14 - Completion point balance: 410.76 - Additional disbursement of interest income: 10.99 - Total disbursements: 451.89 - Delivery of Debt Relief at the Completion Point: - 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 342.77; PRGT 205.76; Total 548.53 ### Catastrophe Containment and Relief (CCR) and Safeguards - CCR Implementation: - Board Decision Date: Feb 23, 2015 - Amount Committed (SDR million): 25.84 - Amount Disbursed (SDR million): 25.84 - Safeguards Assessment (Central Bank of Liberia, CBL): - Conducted in connection with augmentation of the Extended Credit Facility (approved September 26, 2014) and Rapid Credit Facility disbursement (approved February 23, 2015). - Assessment noted the need to regain momentum in building adequate safeguards. - Recommended actions: - Medium-term plan to strengthen the CBL's financial position to support improvement in foreign exchange reserves. - Update investment guidelines to adequately shield the CBL from counterparty risk. - Strengthen governance and control framework to mitigate the CBL’s financial risks. ### Exchange Rate Arrangement and Recent Rate - Exchange rate system: free of restrictions on payments for current and capital transfers. - Currencies: Liberian dollar (official) and U.S. dollar (also legal tender). - De facto exchange rate regime: classified as "other managed" effective November 7, 2011 (exchange rate departed from the stabilized 2 percent six-month band). - De jure regime: "managed floating". - Central Bank of Liberia (CBL) intervenes to smooth volatility. - Exchange rate at November 10, 2015: L$87.5=US$1 (mid-point between buying and selling rates). ### Surveillance, Reviews, and Board Actions - 2012 Article IV consultation discussions: Monrovia, September 4–21, 2012; staff report Country Report No. 12/340; Board discussed November 19, 2012. - Third review of ECF arrangement: Board discussion July 3, 2014 (Country Report No. 14/197). - Ad-hoc review for augmentation of access and modification of performance criteria: Board discussion September 26, 2014 (Country Report No. 14/299). - Request for RCF disbursement and debt relief under CCR Trust: Board discussion February 23, 2015 (Country Report No. 15/49). - Fourth Review and Article IV Consultation: October 2015 — December 2015 (on-going as of document). ### Technical Assistance and Capacity Building (2013–15) — Selected Items by Department - Fiscal Affairs Department: - Revenue Administration: February, April–May, and November 2013; February–March and April–May 2014; November 2014–April 2015 (Remote); July–August, September–October, and November–December 2015. - Fiscal Reporting: February 2013. - Public Financial Management Reform: February and September–October 2013. - Petroleum Fiscal Advisory: March, July 2013. - SOE Financial Reporting Framework: March–April, September 2013. - Medium Term Expenditure Framework: October–November 2013. - ITAS Implementation and Taxpayer Survey: May–June 2013. - Budget Formulation and Public Sector Investment Plan: June 2015. - Statistics Department: - Monetary and Financial Statistics: April 2013. - Government Finance Statistics: September 2013. - Balance of Payments: March 2013 and July 2014. - National Accounts and Consumer Price Index: April 2013; May 2014; April–September (Remote); June–July; November 2015. - Monetary and Capital Markets Department: - Banking Supervision: October 2013; January, April, and July 2014. - Stress Testing: February and April 2013; July 2013. - Liquidity Forecasting: May 2014; August 2015. - Crisis Preparedness and Management Framework: October–November 2015. - Legal Department: - Drafting Tax Legislation (income tax, VAT and natural resource taxation): March 2013. ### Resident Representation - Resident representative posted in Monrovia since April 2, 2006. - Mr. Sobolev assumed the position in July 2009; term expired September 2013. - Mr. Amo-Yartey assumed the post as new resident representative on May 1, 2014. ### Joint World Bank–IMF Work Program, 2012–16 (As of November 23, 2015) — Selected Entries - IMF work program entries: - Negotiation successor ECF: July–Sept. 2012; Expected delivery date November 2012; Outcome: ECF Program approved on Nov. 19, 2013. - Article IV Consultation: July–Sept. 2012; Expected delivery date Nov. 2012; Status: Completed. - First review of ECF Program: March 2013; Expected delivery date July 3, 2013; Status: Completed. - Second review of ECF Program: Sept. 2013; Expected delivery date Nov. 2013; Status: Completed. - Third review of ECF Program: March 2014; Expected delivery date July 3, 2014; Status: Completed. - Ad-hoc review for augmentation of access: September 26, 2014; Status: Completed. - Request for RCF and debt relief under the CCR Trust: February 23, 2015; Status: Completed. - Fourth Review and Article IV Consultation: October 2015; Expected delivery date December 2015; Status: On-going. - Fifth review of ECF program: April 2016; Expected delivery date June 2016; Status: On-going. - Sixth review of ECF program: October 2016; Expected delivery date December 2016; Status: On-going. - Joint WB/IMF items: - Updated Debt Sustainability Analysis: Timing of mission October 2015; Expected delivery date December 2015; Status: On-going. - Assist authorities in developing national accounts and Consumer Price Index: Timing of mission June 2015; Expected delivery date June 2016; Status: On-going. ### Relations with the World Bank Group — Strategy and Active Projects (As of November 16/23, 2015) - Country Partnership Strategy (CPS) discussed July 30, 2013: objective to support Government’s Agenda for Transformation (AfT) with pillars aligned to Economic Transformation, Human Development, and Governance and Public Sector Institutions; themes include capacity development and gender equity. - IDA allocation for CPS period: approximately US$308 million (including IDA 16 and full IDA 17). - IFC expected investment: average US$25–35 million per year; current portfolio includes US$24.4 million in equity; US$37.3 million credit and trade lines; US$13 million seed investment in West Africa Venture Fund; US$33.5 million debt financing to rubber and cocoa sectors. - Ebola response: World Bank Group committed some US$177 million from the Crisis Response Window (CRW). - Active IDA projects: sixteen active IDA projects (including four regional projects) with total commitment approximately US$562.8 million; undisbursed approximately US$208.3 million. - New operation FY16: Youth Opportunities Project (YOP) approved November 6, 2015 for US$10 million. - Objectives: improve access to income generation opportunities for targeted youth and strengthen government capacity to implement cash transfer program. - Direct beneficiaries: about 15,000 targeted youth aged 15–35 years; 50 percent participation of vulnerable female youth. - Project components: - (i) Pre-employment Social Support and Household Enterprises for Urban Youth. - (ii) Productive Public Works and Life Skills Support for vulnerable rural youth. - (iii) Capacity Building for Cash Transfer Program to improve efficiency in delivery of cash transfers and support building blocks for a basic safety net system. *Source: Excerpted content from the provided IMF document.* ### introduction of a proxy means test; (b) improving operational efficiency by strengthening ICT ### _cr1608 - introduction of a proxy means test; (b) improving operational efficiency by strengthening ICT ### Social protection program improvements - Key planned measures: - introduction of a proxy means test; - improving operational efficiency by strengthening ICT systems, particularly MIS and electronic payments systems; - refurnishing office buildings to house the information management systems; - ensuring the design and implementation of a functional M&E system; - strengthening of social accountability and grievance redress systems. ### World Bank Public Expenditure Reviews and policy work - Comprehensive Public Expenditure Review (PER) objectives: - examine options for fiscal space enlargement to support the government’s second Poverty Reduction Strategy - the Agenda for Transformation; - focus areas: (a) improving the efficiency of public expenditure; (b) increasing the amount of external grants; (c) mobilizing greater revenue from taxes, non-tax revenue and natural resources; and (d) public sector borrowing. - Human development PER (education, health, social protection) findings: - public spending on the human development sector in Liberia is low by Sub-Saharan Africa (SSA) standards; - PER examines sources and levels of funding, budgetary allocations across and within sectors, and the quality, equity and efficiency of public expenditure on human development. - Jobs policy note: "Creating More and Better Jobs in Liberia: Issues and Options" - Motivation: government concern about relatively high rates of joblessness and lack of critical knowledge. - Data sources used: 2007 and 2010 Core Welfare Indicator Questionnaires Survey (CWIQS); the 2010 Labor Force Survey; the 2012 Poverty Note; and additional quantitative and qualitative analyses. - Focus: systematic analysis of the labor market covering demand and supply-side issues and the effects of employment protection legislation; acknowledges traditional labor metrics poorly cover dominant informal sectors and underemployment. ### Active and disbursing World Bank projects (as at November 16, 2015) - Portfolio totals (U.S. dollars): - Total Approved Amount: 562,816,950.00 - Total Disbursed: 208,278,493.87 - Total Undisbursed Balance: 293,168,807.35 - Selected projects and amounts (Approved Amount | Approval Date | Closing Date | Undisbursed Balance | Disbursed Outstanding Balance): - Poverty Reduction Support Credit II — 20,000,000.00 | 12-Nov-14 | 31-Dec-15 | 0.00 | 18,647,010.00 - Ebola Emergency Response Project — 115,000,000.00 | 18-Nov-14 | 31-Mar-16 | 4,966,943.89 | 102,495,084.11 - Ebola Emergency Response Project — 52,000,000.00 | 16-Sep-14 | 31-Mar-16 | 0.00 | 47,377,218.00 - Liberia Land Administration Project — 416,950.00 | 2-Jul-14 | 31-Dec-15 | 0.00 | 416,950.00 - Liberia Health Systems Strengthening — 10,000,000.00 | 30-May-13 | 30-May-18 | 3,938,822.62 | 5,315,619.38 - Liberia: Public Sector Modernization Project — 2,000,000.00 | 10-Feb-14 | 30-Sep-19 | 626,041.01 | 1,307,722.99 - Liberia Accelerated Electricity Expansion Project (LACEEP) — 35,000,000.00 | 30-May-13 | 30-Jun-18 | 28,872,485.36 | 3,448,998.64 - LR Smallholder Tree Crop Revitalization Support Project — 15,000,000.00 | 5-Jun-12 | 31-Dec-16 | 7,515,306.90 | 5,882,915.10 - WAPP APL4 (Phase 1) - Ivoire, Sierra Leone, Liberia, and Guinea Power System Re-development — 144,500,000.00 | 31-May-12 | 31-Oct-19 | 112,114,773.90 | 16,756,784.10 - Liberia Integrated Public Financial Management Reform Project — 5,000,000.00 | 15-Dec-11 | 30-Jun-16 | 21,492.79 | 4,398,539.21 - Liberia Road Asset Management Project - LIBRAMP — 67,700,000.00 | 7-Jun-11 | 30-Jun-22 | 32,657,372.84 | 26,874,933.16 - Emergency Monrovia Urban Sanitation Project (EMUS) — 4,000,000.00 | 7-Apr-11 | 30-Dec-16 | 0.00 | 3,591,276.00 - West Africa Agricultural Productivity Program APL (WAAPP-1C) — 6,000,000.00 | 24-Mar-11 | 30-Jun-16 | 0.00 | 5,386,914.00 - LIBERIA Electricity System Enhancement Project (LESEP) — 22,000,000.00 | 26-Jan-12 | 31-May-16 | 6,049,005.23 | 13,564,886.77 - LIBERIA Electricity System Enhancement Project (LESEP) — 10,000,000.00 | 30-Nov-10 | 31-May-16 | 443,688.70 | 8,534,501.30 - West Africa Regional Communications Infrastructure Program — 25,600,000.00 | 20-Jan-11 | 30-Sep-16 | 1,416,221.86 | 21,098,316.14 - West Africa Regional Fisheries Program — 9,000,000.00 | 20-Oct-09 | 15-Dec-15 | 47,349.22 | 0.00 - LR-Urban and Rural Infrastructure Rehabilitation Project — 19,600,000.00 | 24-Jan-14 | 31-Dec-15 | 9,608,989.55 | 8,071,138.45 - Note: "Amounts may not add up to original principal due to changes in the SDR/US exchange rate since signing." ### IDA disbursements and debt service (Since HIPC Completion Point) - US$ Million disbursements and related items by period: - Jul 2010–Jun 2011: Total disbursements 61.83; Repayments 0.33; Net disbursements 61.49; Interest and fees 0.05 - Jul 2011–Jun 2012: Total disbursements 55.27; Repayments 0.00; Net disbursements 55.27; Interest and fees 0.12 - Jul 2012–Jun 2013: Total disbursements 40.18; Repayments 0.00; Net disbursements 40.18; Interest and fees 0.25 - Jul 2014–Jun 2015: Total disbursements 183.6; Repayments 0.00; Net disbursements 183.6; Interest and fees 0.79 - Jul–Sept 2015: Total disbursements 17.5; Repayments 0.00; Net disbursements 17.5; Interest and fees 0.17 - Oct–Dec 2015*: Total disbursements 58.9; Repayments 0.00; Net disbursements 58.9; Interest and fees 0.16 - Note: Projected* designation appears for Oct–Dec 2015. ### Relations with the African Development Bank (AfDB) and AfDB-funded projects (As of November 11, 2015) - Portfolio summary: - 18 active AfDB projects in Liberia plus trust fund projects; - total commitment approximately UA 292.5 million, equivalent to US$413 million; - 25 percent disbursed. - Selected AfDB projects and key numeric details: 1. Ebola Response Projects: - Ebola Fight Back Budget Support Program: UA 100.2 million multinational program; Liberia’s portion is a UA 40.2 million loan. - Strengthening West Africa Public Health Systems (SWAPHS): UA 40 million multinational project; USD 11.4 million grant directly allocated to Liberia. - Technical Assistance Crisis Response Project: USD 2.1 million grant. - Exceptional Assistance to respond to Ebola: USD 1.0 million grant. - Post Ebola Recovery Social Investment Fund (PERSIF): UA 2 million grant. 2. Integrated Public Financial Management Reform Project (IPFMRP): - AfDB grant UA 3.0 million approved on September 10, 2012; - project's total value: US$28.55 million supported by AfDB, World Bank, USAID, and SIDA; - five components: (i) enhancing budget planning and credibility; (ii) strengthening budget execution, accounting and reporting; (iii) strengthening revenue administration; (iv) enhancing transparency and accountability; (v) project management and capacity building. 3. Regional Payment Systems Development Project: - UA 5 million supplementary grant to enable Liberia to join WAMZ Payments System Development Project; - components include RTGS, Retail Payments Automation (RPA), Automated Checks Processing (ACP), Automated Clearing House (ACH), Central Banking Applications (CBA), and telecommunication infrastructure. 4. Liberia–Urban Water Supply and Sanitation Project (UWSSP): - UA 25.2 million grant; - objectives: provide access to adequate, safe and reliable water supply and public sanitation services in Monrovia, Buchanan, Kakata, and Zwedru; enhance institutional, operational, management capability, and long-term financial viability of LWSC. 5. Agriculture Sector Rehabilitation Project (ASRP): - UA 18.4 million project cost financed by UA 12.5 million grant from the Bank, UA 3.4 million grant from IFAD, and the balance in kind by the Government of Liberia; - covers eight of fifteen counties; agriculture infrastructure constitutes 60 percent of the cost. 6. Smallholder Agricultural Productivity Enhancement and Commercialization (SAPEC) Project: - UA 34.08 million total project; - funding: UA 29.08 million grant from GAFSP, UA 4.0 million ADF loan, UA 1.0 million in-kind from the Government of Liberia; - implementation: 12 of 15 counties over 2014 to 2017. 7. Maryland Oil Palm Plantation (MOPP) – Private Sector: - project entails clearing and operating a 9,000 hectare plantation, establishing a 6,000 hectare out grower scheme for 750 families, and constructing an oil mill with 90 tons per hour processing capacity; - project cost USD 203.3 million (USD 164.9 million for industrial component; USD 38.4 million for out grower scheme). 8. Equity investment in Access Bank (ABL): - US$1.2 million equity investment. 9. Fostering Innovative Sanitation and Hygiene in Monrovia: - grant Euro 1.2 million from the African Water Facility. 10. Paving Fish Town – Harper Road Project (Phase I): - upgrade Harper–Karloken section (50km) at estimated cost UA 43.04 million including GoL counterpart funding of UA 1.0 million. 11. Mano River Union (MRU) Road Development and Transport Facilitation Program: - upgrade 276.35 km of roads regionally; - program executed June 2015 to June 2019 for estimated net total cost UA 221.97 million; - Liberia’s portion: UA 76.88 million loan covering Karloken-Fish Town (80 km) and Harper-Cavalla junction (16 km). 12. Regional Electricity Interconnection Project: Cote d’Ivoire, Liberia, Sierra Leone and Guinea (CLSG): - construct a 1,357-km-long double circuit high voltage (225 kV) line; - overall cost UA 331.51 million; Bank Group contribution UA 128.15 million (38.7 percent of total cost); - expected to raise average electricity access rate in the four countries from 28 percent in 2012 to 33 percent by 2017; - project implementation period 2014–17; estimated beneficiaries: some 24 million residents in the impact area. *Prepared from the IMF country document content provided.* ### 13. Technical Assistance from Fragile States Facility and other Trust Funds: ### 13. Technical Assistance from Fragile States Facility and other Trust Funds ### Technical assistance grants and objectives - LEITI - Phase II: US$409,000 grant assistance for Multi-Stakeholders Group costs; communication and outreach, staff training and capacity building of actors involved in extractive industries transparency related activities. - Institutional Development and Capacity Building Support to the Governance Commission: UA 438,338 grant assistance to strengthen the capacity of the Governance Commission and to accelerate the implementation of governance reforms. - Promoting local, participatory governance for County Development Funds: UA 180,000 grant to minimize corruption and ensure effective delivery of development initiatives in the 15 counties of Liberia by: - (i) increasing the public’s awareness of the two major funds—County Development and Social Development Funds—allocated for development in the counties; - (ii) building the capacity of 750 youths to engage decision makers and managers of the funds; and - (iii) actively participating in the planning, monitoring, and reporting on the funds. - Capacity Building and Technical Support to the National Housing Authority: UA 240,000 grant to develop capacity for architects, engineers, draftsmen and surveyors to oversee effectively the design and implementation of housing projects; and to improve internal functions such as budgeting, monitoring, procurement and financial reporting and IT system. *Statistical issues (As of November 30, 2015)* ### Assessment of data adequacy for surveillance - General: Data have serious shortcomings that significantly hamper surveillance; shortcomings most serious in national accounts, government finance, and balance of payments statistics. - National Accounts: - Comprehensive national accounts data are not available. - Fund staff estimate GDP by activity using the production approach and primary source data provided by the Liberia Institute of Statistics and Geo-Information Services (LISGIS). - Estimates for GDP by expenditure are not available. - During May–September 2012, LISGIS, assisted by an STA mission, conducted National Accounts Annual Survey (NAAS 2012) collecting information for 2010 and 2011. - Processing of NAAS 2012 was completed in June 2014 but several issues were identified; GDP estimates for 2008-2013 present serious inconsistencies. - AFRITAC West 2 in coordination with the World Bank will assist LISGIS to develop a more robust and reliable set of GDP estimates based on the 2012 NAAS and additional source data. - With World Bank support, a Household Income and Expenditure Survey (HIES) was conducted from January to July 2014 but ceased in August due to the Ebola outbreak; it is expected that from August 2015 the HIES will be undertaken again for a full 12 month period. The data collected to date has been processed and will be used in developing preliminary estimates of household final consumption expenditure (HFCE). - Price Statistics: - In January 2007, authorities adopted the Harmonized Consumer Price Index (HCPI) based on an expanded basket consistent with ECOWAS harmonized market basket. - HCPI covers only Greater Monrovia; need to extend to all counties. - Index reference base changed from May 1998 to December 2005. - Weights are based on market basket data from neighboring countries. - AFRITAC West 2 and the EDDI project will assist LISGIS to compute preliminary weights based on the 6-month HIES, and compile a new CPI by end-March 2016. Weights will be further updated with planned full 12 month HIES results. - Government Finance Statistics (GFS): - Liberia has reported to STA annual GFS up to 2012 for budgetary central government (also includes local governments). - Ministry of Finance is phasing-in the GFSM 2001 framework. - A 2013 GFS TA mission identified areas for improvement: lack of legal framework to collect GFS; limited data sharing and coordination among data-producing agencies; inconsistent institutional coverage of general government across datasets; omission of some externally funded flows and nonmonetary transactions; missing government financial balance sheet (Table 6 in GFSY); and incorrect reference exchange rate for conversions from Liberian dollars to U.S. dollars. - Monetary and Financial Statistics: - A MFS mission in April 2013 assisted with standardized report forms (SRFs); progress documented but SRF project has not moved forward and no plans to finalize it. - Financial sector surveillance: - Authorities provide some basic market-based financial soundness indicators (FSIs); data insufficient for stress tests or Balance Sheet Approach analysis; cross border exposure data for financial corporations not available. - External sector statistics: - Reporting not comprehensive; balance of payments compiled on BPM5 basis while CBL is making efforts to adopt BPM6. - International Investment Position (IIP) statistics not yet compiled. - Most 2011, 2013, and 2014 TA recommendations not implemented; several areas require improvement in primary source data, methodology, compilation practices, frequency and timeliness of dissemination. - In August 2015, CBL developed a three year work plan to address these issues and to conduct new surveys to improve data coverage and accuracy. ### Data standards, reporting, and dissemination - Participant in the General Data Dissemination System (GDDS) since October 2005; metadata for most categories updated in January 2013. - No Data ROSC mission has been conducted. - Reporting to STA: - Authorities report annual balance of payments data and government finance statistics for related publications (IFS, GFSY, and BOPSY). - Authorities have begun to submit data to STA for publication in the IFS after an extended break. - Some FSIs are provided to the IMF database, but not all core FSIs are reported and reported indicators are not timely. - Reserves data have not been reported for many years. ### Table of Common Indicators Required for Surveillance (selected entries and dates) - Exchange Rates: Date of Latest Observation 9/30/2015; Date Received 11/11/2015; Frequency of Data D; Frequency of Reporting M; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Reserve/Base Money: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Broad Money: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Central Bank Balance Sheet: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Consolidated Balance Sheet of the Banking System: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Interest Rates: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Consumer Price Index: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of Latest Observation 9/2015; Date Received 11/17/2015; Frequency of Data M; Frequency of Reporting Q; Frequency of Publication I. - Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 9/2015; Date Received 11/17/2015; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication I. - External Current Account Balance: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - Exports and Imports of Goods and Services: Date of Latest Observation 9/2015; Date Received 11/11/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - GDP/GNP: Date of Latest Observation 2008; Date Received 3/1/2011; Frequency of Data A; Frequency of Reporting I; Frequency of Publication I. - Gross External Debt: Date of Latest Observation 8/2015; Date Received 9/30/2015; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - International Investment Position: NA for latest observation and reporting. ### Data quality assessments (memo items) - Data Quality – Methodological Soundness and Data Quality – Accuracy and Reliability entries are recorded across indicators in the table; several items show NA or irregular reporting frequencies. *Debt Sustainability Analysis (LIC-DSA) — key findings and assumptions* ### Summary findings - Liberia’s risk of external debt distress has increased from low to moderate. - Combined impacts of the Ebola crisis and the sharp decline in commodity prices significantly affected growth and exports outlook, contributing to deteriorated debt sustainability. - Under the baseline scenario, all debt indicators are below their policy-dependent thresholds. - Due to lower nominal GDP and exports and higher new borrowings compared with the previous DSA update, stress tests indicate that the present value of public external debt-to-GDP and debt-to-exports indicators would breach the threshold over the medium term under the most extreme shock scenario. - Debt outlook under alternative scenarios highlights continued vulnerabilities to negative shocks to borrowing terms, the exchange rate, exports and growth. - Policy implication: authorities should continue to prioritize grants and highly-concessional financing while developing new medium term borrowing plans consistent with preserving debt sustainability. ### Background and recent developments - The DSA is a full joint Bank-Fund LIC-DSA; last LIC-DSA update considered in July 2014 as part of Liberia’s third review under the Extended Credit Facility Arrangement (ECF). - Liberia was hit by two large negative shocks in 2014: the Ebola outbreak since mid-2014 and a 60 percent drop of iron ore prices since early 2014. - Growth in 2014–15 was revised down from 8–9 percent at the time of the 3rd ECF review to the current 0–1 percent. - For 2016–18, average annual growth was revised downward from 8 ¾percent pre-crisis to about 5 percent. - Pace of external borrowing accelerated: total newly contracted external borrowings amounted to US$843.5 million (42 percent of GDP) as of end-July 2015. - About 65 percent of the total funding provided by traditional multilateral creditors on highly concessional terms. - Annual average PV of total new borrowings amounted to 8.3 percent of GDP over the program period to end-June 2015, higher than the 5.3 percent target agreed at the time of the 3rd ECF review; Ebola-related borrowings and lower GDP contribute about one percentage point. - Public external debt remained relatively low at about 23 percent of GDP at June-2015 but expected to increase steadily over the medium term with disbursement of recently-ratified new borrowings. ### Structure of external public debt (as of June-2015) - Total: 458 (USD millions); Percent of Total 100; Percent of GDP 23. - Components listed (USD millions / Percent of Total / Percent of GDP): - Multilateral: 425 / 93 / 21 - IMF: 15 / 4 / 0 - World Bank: 159 / 35 / 8 - AfDB: 33 / 7 / 2 - EIB: 33 / 7 / 2 - Other Multilateral: 46 / 10 / 2 - Bilateral Non-Paris Club: 33 / 7 / 2 - China: 6 / 1 / 0 - Kuwait: 9 / 2 / 0 - Saudi Arabia: 19 / 4 / 1 - Note: Debt stock on disbursement base, excluding debt to French C2D and Taiwan Province of China (85.4 mil) that is not servicing due to the lack of diplomatic relationship. ### Major changes in DSA assumptions (average over the 20-year projection period) - Table comparing 3rd Review to 4th Review: - Real GDP growth (percent): 3rd Review 6.2; 4th Review 5.6 - GDP deflator in USD (in percent): 3rd Review 3.3; 4th Review 2.4 - Current account deficit (percent of GDP): 3rd Review -22.4; 4th Review -31.8 - Primary deficit (percent of GDP): 3rd Review -2.4; 4th Review -2.7 - Key assumption changes and implications: - Real GDP growth projected much lower during 2014–15 and over the medium term due to twin shocks. - GDP deflator revised downward significantly reflecting iron ore price developments. - Overall fiscal deficit in FY 2015–16 projected higher than previous DSA due to higher current expenditure and capital spending related to Mount Coffee hydroelectric project and ESRP implementation. - External new debt disbursements during FY2015–18 are higher reflecting disbursement of higher-than-anticipated new external government borrowings ratified or in process in FY2015; over the longer run, external borrowing as percent of GDP assumed in line with last DSA update. - DSA incorporates ECF augmentation of SDR 32.3 million, debt relief under the CCR Trust of SDR 25.84 million and the RCF disbursement of SDR 32.3 million. - Current DSA takes into account authorities’ latest debt stock data as of June-2015 while excluding Taiwan Province of China and French CD2 loans expected to be fully restructured. - Current account deficit significantly higher in 2015 compared with previous DSA update, reflecting commodity price decline; exports and imports of goods significantly lower in the near to medium term compared with prior projections. - Services imports and current transfers are much larger in FY2014/15 reflecting Ebola-related international support and projected to return to pre-crisis level over the medium term. - Iron ore deflator decreased more than 55 percent from 2014 to 2015, contributing roughly -4 percent to changes in GDP deflator, while changes in non-iron GDP deflator is about 3.7 percent. *Prepared by the International Monetary Fund and International Development Association; December 3, 2015 (prepared), December 7, 2015 (approved).* ### Box 1. Key Baseline Macroeconomic Assumptions, 2015–35 ### Box 1. Key Baseline Macroeconomic Assumptions, 2015–35 ### Real GDP growth - Output is projected to decline by 2.7 percent in FY2015, reflecting the heavy toll of the Ebola outbreak and the sharp decline in the prices of iron ore and rubber exports. - Real GDP growth is projected to increase to 4–5 percent in FY2016 and FY2017 as activity returns to normal, buoyed by recovery in agriculture and services and the coming on stream of a new gold mine. - Growth is expected to average 5.4 percent in FY2016–20, lower than the projection at the time of the third ECF review (pre-Ebola and pre-commodity price shock). - Long term growth over FY2021–35 is projected to average around 6.1 percent as mining production reaches full capacity and non-mining activity stabilizes. - Downside risks highlighted: a prolonged period of low commodity prices, a flare-up of the Ebola disease, social unrest as UNMIL fully withdraws by end-2016 before the 2017 Presidential election. ### Inflation - Inflation is projected to remain relatively high at around 8-8 ½ percent in FY2015–16 as the rebound in activity and imports offsets low international oil prices. - In the long run, inflation is projected to gradually decline and stabilize at around 5 percent. ### External account - Exports: - Exports are projected to fall by 16 percent in FY2015 and further decline by 12 percent in FY2016 due to the significant fall in iron ore and rubber prices. - Annual export growth is projected to gradually recover over the medium term and stabilize at around 5 percent toward 2035, partly offset by a new gold mine coming on stream by end-2015. - Imports: - Imports are projected to increase by 5 percent in FY2015 as increased demand combined with aid-related inflows is expected to outweigh the fall in fuel imports. - Imports are projected to contract in FY2016–18 owing mainly to the expected drawdown of UNMIL. - Imports are expected to recover to an average 8 percent growth during FY2019–24, largely driven by imports of capital goods related to the expansion in the iron ore sector. - Beyond 2024, annual growth in goods and services imports is expected to average 5 percent. - Donor transfers: - Donor transfers are expected to fall sharply after 2015 from 60 percent of GDP to about 30 percent of GDP in FY2020 and to gradually decline to 13 percent of GDP by the end of the projection period. - Current account: - The current account deficit is projected to widen to 40 percent of GDP in FY2015 but will gradually decline to reach 25 percent of GDP by FY2035, in line with the historical average prior to the Ebola and commodity shocks. ### Tax revenues - The tax revenue to GDP ratio is projected to improve from 18.6 percent in FY2015 to around 21 percent in FY2021 and remain broadly stable at about 21 percent thereafter. ### External borrowing - Loans ratified since 2012 totaled US$843.5 million as of end-July 2015, most on highly concessional terms for priority infrastructure projects, with another US$180 million projects in the pipeline for FY2016. - The annual average NPV of signed external borrowing and pipeline loans is projected to be 7.1 percent of GDP over the program period up to June-2016, higher than the 5.3 percent target agreed in the IMF 3rd ECF review in July 2014. - External debt trajectory: - External debt projected to rise from about 14 percent of GDP in FY2014 to a projected 40 percent of GDP in FY2020 due to expected disbursements and ambitious investment plans under the Economic Stabilization and Recovery Plan (ESRP). - Disbursement of external borrowing is expected to gradually decline from 4 percent of GDP in FY2021 to 2.5 percent of GDP toward the end of the projection period, in line with historical average. - Borrowing terms: - Most new external borrowings are assumed to be on highly concessional terms before 2020, except the US$14.2 million loans already signed on non-concessional terms. - Starting from 2021, a small portion of borrowings are assumed on non-concessional terms from Chinese banks. ### External Debt Sustainability Analysis (DSA) — baseline and risks - Baseline projections: - PV of debt-to-GDP ratio projected to rise from 14 percent in FY2015 to 23 percent by FY2020 in the baseline scenario, then gradually decline thereafter. - PV of debt-to-exports ratio projected to increase from 40 percent in FY2015 to a peak of 98 percent in FY2020, close to the 100 percent threshold. - Debt-to-revenues and debt service indicators remain well below thresholds due to highly concessional new debt. - Comparison with previous DSA: - Baseline debt indicators have worsened over the medium term versus the previous DSA due to lower nominal GDP, lower exports, and higher external borrowing. - This deterioration limits the government’s scope to take on more external debt in the next five years and underlines the need for concessional external resources. - Authorities’ response: - During the 4th review mission in October 2015, authorities indicated they are streamlining the medium-term borrowing plan and reviewing the current debt strategy. - They intend to develop a new medium-term debt strategy with technical support from the IMF and the World Bank before the end of FY2016. ### Sensitivity analysis — external debt - PV of external debt-to-GDP ratio: - Under an extreme shock scenario of one-time large nominal depreciation, the PV of external debt-to-GDP breaches the 30 percent threshold throughout FY2018–23. - Under the historical scenario (macroeconomic variables returning to FY2008–FY2014 averages), PV of debt increases from around 14 percent of GDP to 24 percent of GDP towards the end of the projection period. - PV of external debt-to-exports ratio: - Under extreme shock scenarios of less favorable borrowing terms, the PV of external debt-to-exports ratio breaches the 100 percent threshold from FY2018 onwards and reaches a peak of 129 percent in FY2020. - The debt service ratio remains well below the 15 percent threshold in all scenarios. - PV of external debt and debt service-to-revenue ratio: - These ratios show sensitivity to less favorable borrowing terms and one-time large depreciation but remain well below policy thresholds in all scenarios throughout the projection period. - Probability approach: - The evolution of the debt-exports ratio suggests a “moderate-to-high borderline case” triggering the probability approach under the LIC Debt Sustainability Framework guideline. - Projected probability of debt distress: the debt-to-exports ratio remains within the threshold in stress scenarios, while the probability for the debt-to-GDP ratio breaches the threshold by more than 10 percent and lasts for about 6 years during 2018–23. - Combined evidence confirms a moderate risk rating of external debt distress. ### Public debt sustainability (including domestic debt) - Inclusion of domestic debt worsens public debt burden indicators compared to the previous DSA. - Baseline public debt projections: - PV of public debt-to-GDP rises from 15 percent in FY2015 to around 24 percent in FY2020 and is expected to fall afterwards. - PV of debt-to-revenue ratio rises to a peak of 84 percent in FY2018 and then follows a gradual downward path. - PV of debt service-to-revenue ratio remains below the threshold thereafter. - Stress tests: - Public debt indicators are particularly sensitive to lower growth, a large real depreciation, and a significant increase in other debt-creating flows. - Under an alternative scenario of a 10 percent increase in other debt-creating flows in FY2016: - PV of debt-to-GDP ratio increases from 15 percent in FY2015 to a peak of about 29 percent by FY2018. - PV of the public debt-to-revenue ratio deteriorates to over 100 percent around FY2018/19. - Debt service-to-revenue ratio remains below 15 percent under this scenario. ### Policy implications and recommendations - Limited scope to increase external borrowing over the next five years; continued need to seek concessional external resources. - Authorities to streamline medium-term borrowing plans and review the debt strategy; intention to develop a new medium-term debt strategy with IMF and World Bank technical support before end-FY2016. *Source: Box 1. Key Baseline Macroeconomic Assumptions, 2015–35 (excerpt).* ### 13. The projected increase in Liberia’s debt over the medium term indicates a moderate risk of ### _cr1608 - 13. The projected increase in Liberia’s debt over the medium term indicates a moderate risk of ### Risk assessment and recent revision - The projected increase in Liberia’s debt over the medium term indicates a moderate risk of debt distress. - This rating was revised up from the low risk rating under the previous DSA update in July 2014 mainly owing to the unexpected two large shocks experienced since 2014. - The underlying macroeconomic assumptions and DSA results were discussed and agreed with the authorities during the mission. ### Baseline DSA results - In the baseline scenario, all debt indicators remain below their respective thresholds. - Baseline-stated dynamics show debt accumulation and debt-service indicators rising over the projection period but not breaching thresholds in the baseline. - Inclusion of domestic debt leads to a deterioration in debt indicators relative to the external-only DSA. ### Stress tests and vulnerabilities - Stress tests indicate that Liberia’s external debt outlook has deteriorated over the medium term and continues to be vulnerable to macroeconomic shocks, in particular to: - changes in borrowing terms; - growth shocks; - exports shocks; - exchange rate depreciation (including one-time depreciation shocks). - The most extreme stress test is the test that yields the highest ratio on or before 2025 (figures identify which shocks are most extreme for each indicator: One-time depreciation shock; Terms shock; Growth shock, etc.). - Sensitivity analysis (Table 4 and Table 6) shows a range of outcomes under alternative scenarios and bound tests, including one-time 30 percent nominal depreciation and less favorable financing terms. ### Policy recommendations - The increased risk of debt distress highlights the need for: - sound macroeconomic policies; and - prudent debt management, including relying primarily on concessional financing. - The authorities’ plan to review the current debt management strategy would be important to develop new medium to long term borrowing plans consistent with preserving debt sustainability. ### Key statistics and projection highlights (as shown in source tables) - External debt (nominal) series (percent of GDP): 9.4, 10.9, 13.6, 23.2, 30.1, 33.8, 37.2, 39.2, 39.5, 34.3, 26.9 - Change in external debt (percent of GDP): -2.2, 1.5, 2.7, 9.6, 6.9, 3.7, 3.5, 2.0, 0.3, -1.4, -0.6 - PV of external debt (percent of GDP, selected entries): 7.9, 14.2, 17.9, 20.0, 21.9, 22.8, 22.7, 20.1, 16.2 - PV of PPG external debt (percent of exports, selected entries): 18.5, 39.3, 58.8, 74.4, 89.1, 96.8, 98.4, 73.8, 64.8 - PPG debt service-to-revenue ratio (percent, selected entries): 0.2, 1.4, 0.8, 1.1, 1.3, 1.6, 2.3, 3.3, 4.3 - Total gross financing need (Millions of U.S. dollars, selected entries): 24.3, 73.5, 177.0, 258.1, 218.7, 156.3, 132.3, 131.1, 138.1, 119.7, 233.2 - Grant-equivalent financing (in percent of GDP, selected entries): 15.4, 12.6, 10.4, 6.2, 6.0, 5.4, 3.1, 3.0, 3.3 - Key macro assumption — Real GDP growth (in percent, series shown): 7.9, 8.5, 5.7, 7.1, 1.9, -2.7, 4.9, 4.6, 4.9, 5.9, 7.0, 4.1, 6.8, 4.3, 6.1 - Nominal GDP (Millions of U.S. dollars, memorandum): 1643.1, 1853.9, 2005.5, 2000.8, 2103.8, 2249.6, 2409.9, 2627.9, 2898.2, 4474.3, 10141.8 - PV of PPG external debt (Millions of U.S. dollars, memorandum): 154.3, 281.1, 366.5, 437.1, 513.4, 584.2, 644.4, 884.8, 614.8 *Sources: Country authorities; and IMF staff estimates and projections (as presented in the DSA tables and figures).* ### Introduction ### Introduction ### Overview - Authorities thank the Executive Board, Management and Staff for continued support during the Ebola outbreak; WHO declared Liberia Ebola-free on September 3, 2015. - Authorities are implementing the Economic Stabilization and Recovery Plan (ESRP) to return to the medium term development program Agenda for Transformation (AfT). - Authorities request the Executive Board to support completion of the Fourth review under the ECF arrangement, request waiver of nonobservance of performance criteria, modification of performance criteria, rephrasing and extension of the arrangement to end-December 2016. ### Recent economic developments and outlook - Real GDP growth: - 0.7 percent in 2014. - 2015 real GDP growth projected to average 0.3 percent. - Growth expected to accelerate to around 3.9 percent in 2016. - Growth projected to average around 4.9 percent in 2016 - 2018. - Key drivers and risks: - 2015 growth driven mainly by services amidst declines in iron ore and rubber. - Material downside risks from protracted weakness in global commodity prices affecting exports, tax revenue and mining production. - Inflation: - Declined from 13.5 percent in September 2014 to 6.5 percent in September 2015. - Expected to remain in single digits at about 8 percent in 2015 – 2016. - Projected to decline to about 7.1 percent in 2018. - External sector: - Current account deficit widened from about 28 percent of GDP in 2013 to 31 percent in 2014. - Projected to widen to 39 percent of GDP in 2015 due to decline in iron ore and rubber exports. - Gross international reserves dropped from US$411 million at end 2014 to US$394 million in September 2015, which covers 2.1 months of total imports. - Current account deficit projected to improve slightly from 36.9 percent of GDP in 2016 to 32.7 percent of GDP in 2018. ### Program performance - End-June 2014 performance criteria (PCs) and indicative targets (ITs) for fourth review: most met except: - Revenue floor (PC) missed owing to shortfalls in tax and non–tax collection. - Floor on net foreign exchange position of the CBL (PC) missed. - Ceiling on net domestic assets (NDA) (IT) missed with a small margin. - Structural benchmarks: - Constrained public services limited implementation; three out of seven structural benchmarks for end-March and end-June 2014 were met (payroll cleanup, publication of FY2016 budget calendar, pilot on integration of credit financed projects into IFMIS). - Some indicative targets including non–concessional borrowing and accumulation of external arrears for end-December 2014 were met. - Authorities commit to implement additional structural reforms including improving cash management and rolling out IFMIS to 17 additional spending entities. ### Fiscal policy - Authorities intend to maintain an accommodative fiscal stance to alleviate Ebola and commodities price shocks while safeguarding macroeconomic stability. - Public spending priorities under the post-Ebola recovery plan: health and education, infrastructure, agriculture and private sector. - Measures to streamline spending and strengthen controls: - Strengthen the procurement system. - Address deficiencies in spending controls highlighted in GAC audit report published in June 2015. - Revenue mobilization: - Continue engagement with commodity sector investors to safeguard investments. - Authorities committed to compensate revenue shortfalls or undertake expenditure cuts as required. - Strengthen capacity of Liberian Revenue Authority (LRA) and enhance tax administration. - Public Financial Management (PFM) reforms to improve budget credibility, accountability, transparency and reporting, including: - Preparation of the Medium–Term Expenditure Framework (MTEF) budgeting. - Strengthening IT systems to support PFM operations. - Improving management of the Treasury Single Account. - Enhancing public investment planning and execution. ### Monetary and financial sector policies - Central Bank of Liberia (CBL) policy objectives: - Continue monetary and exchange rate policies to anchor inflation expectations. - Strengthen liquidity management of the Liberian-dollar. - Continue intervening in the foreign exchange market to smooth exchange rate volatility while maintaining flexibility. - Increase international reserves by strengthening operational efficiency through prudent budget and updating investment guidelines to improve safety and liquidity of international reserves. - Financial stability measures: - CBL developing a broad framework to strengthen financial stability. - Exceptional measures adopted to alleviate Ebola impact: - Specific regulations to reduce provisioning burdens on NPLs associated with the Ebola crisis. - Extending repayment periods on loans related to CBL’s stimulus initiative. - Paying off outstanding loan obligations in Liberian dollars of all private schools to banks. - CBL plans to phase out the exceptional measures by end-December 2015. - Continued efforts to improve oversight, credit risk management, crisis preparedness and management framework, and financial sector regulation. ### Debt management - Risk of external debt distress increased from low to moderate due to Ebola and decline in commodity prices. - Shift to moderate risk rating introduces changes in external borrowing targets under the new debt limits policy. - Authorities will: - Review the current medium–term debt strategy. - Strike a balance between debt vulnerabilities and development needs. - Continue to prioritize grants and focus on priority projects financed by highly concessional loans. ### Structural reforms - ESRP objectives: increase output and growth; strengthen resilience and reduce vulnerability; strengthen public finance. - Priority sectors to boost growth and job creation while reducing vulnerabilities: agriculture, infrastructure, health and education. - Authorities will continue to improve business climate to develop private sector and spur economic diversification. ### Conclusion and requests - Challenges remain from Ebola recurrence risks, slow growth in emerging markets, less financial resources to support ESRP, and potential withdrawal of UNMIL. - Authorities, supported by development partners, are committed to maintaining macroeconomic stability and implementing ESRP. - Authorities appreciate Fund support and seek further collaboration on policy advice, technical assistance and mobilizing support from other development partners. - Authorities request Board approval of the proposed decision to support efforts to mitigate post–Ebola shocks and revitalize economic growth. *Source: _cr1608 - Introduction* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1608.pdf_