IMF Staff Completes 2019 Article IV Mission to Liberia

IMF News, March 8, 2019

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Growth for 2018 is now estimated at 1.2 percent.
The forecast for 2019 on current policies has been revised down to 0.4 percent from 4.7 percent.
The exchange rate depreciated by 26 percent over the year.
Inflation accelerated to 28 percent at end-December.
Macroeconomic stability has proved elusive despite improved revenue collection in the first half of FY2019, and the fiscal stance has loosened significantly.
The mission notes that commencement of sales of central bank bills, supplemented by the introduction of the standing deposit and credit facilities in the interbank market, represent major milestones in modernizing the monetary policy framework.

With accommodative monetary policy meeting fiscal needs, the exchange rate depreciation and inflation surge have been detrimental to living standards, particularly for the most vulnerable Liberians who earn and spend primarily in Liberian dollars.
Of the necessary preconditions for reducing inflation to single digits, the most critical is that the Government refrain from borrowing from the central bank.
Reducing the central bank’s operational deficit would be vital.
Acceptance of greater exchange rate flexibility would help preserve reserve stocks and help absorb external shocks.
Creation of a well-functioning monetary policy framework would reduce the need for foreign exchange intervention.

The mission notes that productive spending is being crowded out by a wage bill, including discretionary allowances, that totals about two-thirds of government-funded expenditure.
As grants and other external assistance decline, the current composition of spending is no longer tenable.
Revenue reforms have considerable potential to directly expand the resource envelope and facilitate a needed increase in social spending.
The mission notes the recent finalization of the Domestic Revenue Mobilization Strategy and recommends pursuing envisaged reforms, including excise tax, tax exemptions, and compliance.

The budget for fiscal year 2020 should be based on realistic estimates of the resource envelope; giving Ministries and Agencies a reliable estimate of actual resources is critical, even if it represents less than amounts budgeted in the past.
Without central bank borrowing, financing sufficient public service provision will require:
- prioritizing and improving the composition of expenditure,
- enhancing expenditure efficiency,
- expanding the resource envelope.
Improve the efficiency of government spending by strengthening monitoring, accountability, and transparency.
Intensify actions to improve governance and fight corruption, including rigorous adherence to existing procurement rules.
Take advantage of available international support to implement remedial actions identified by investigative reports (Presidential Investigative Team and Kroll Associates).

Significant action is needed to improve the business climate and create an enabling environment for private sector-led growth.
Prioritize removing administrative constraints on imports and prices to boost competition, while ensuring quality and safety standards.
Step up efforts to strengthen governance and anti-corruption measures as envisaged in the government’s pro-poor agenda to foster private sector-led inclusive growth.

An IMF team led by Mika Saito visited Monrovia from February 25-March 8 to conduct discussions for the 2019 Article IV Consultation with Liberia.
The IMF team met with President George Weah, Speaker of the House of Representatives Bhofal Chambers, Minister of Finance and Development Planning Samuel Tweah, Governor of the Central Bank of Liberia Nathaniel Patray, Minister of Commerce and Industry Professor Wilson Tarpeh, other senior government officials, private sector representatives, and development partners.

Press Release No. 19/71 — March 8, 2019. IMF Communications Department.