IMF Executive Board Concludes 2016 Article IV Consultation with Liberia
IMF News, July 12, 2016
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- Published: July 12, 2016
Overview and recent developments
- On July 8, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Liberia.
- The Ebola epidemic and the fall in commodity prices exposed vulnerabilities in Liberia’s economy.
- After barely positive growth in 2014, GDP was flat in 2015 mainly due to the decline in activity in the iron ore and rubber sectors.
- The current account deficit deteriorated reflecting weaker export receipts and an Ebola-related surge in imports.
- While international gross reserves increased in 2015, the Central Bank of Liberia’s (CBL) net foreign exchange position declined because of operational deficits and exceptional support to the banking sector under stress from the Ebola epidemic.
- Lower revenue from the natural resource sectors and higher Ebola-related spending, largely financed by donor support, pushed the FY2015 overall government deficit to 8.4 percent of GDP.
- The FY2016 deficit is estimated to have declined to 7 percent of GDP as continued revenue weakness forced the government to contain spending.
Near-term outlook and projections (2016–2021)
- 2016 growth is expected to rise to 2.5 percent driven by a rebound in services and the start of gold production; inflation should stay in the single digits.
- The overall government deficit in 2016 is projected to remain broadly constant, despite: lower natural resource revenues; declining external budget support; the cost of the 2017 elections; and the take-over of security from UNMIL.
- Over the medium term, economic growth is expected to increase to 5.5 percent on average due to:
- recovery in mining,
- improvement in infrastructure (particularly energy and roads),
- higher agricultural productivity.
- Fiscal position is expected to improve given authorities’ commitment to improve domestic revenue mobilization and contain spending.
- Resolution of the backlog of non-performing loans and improving bank profitability could support growth through higher credit, especially for small- and medium-size enterprises (SMEs).
Main risks to the outlook
- Stronger-than-anticipated effect of the commodity price decline.
- Worsening of security conditions.
- Large scale re-emergence of the Ebola virus.
- Policy slippages that could weigh on medium-term growth.
Executive Board assessment and policy recommendations
- Directors noted the commodity price shock hit Liberia as it was recovering from Ebola; they saw growth recovering but with downside risks (commodity prices, Ebola, security).
- Directors commended authorities’ measures addressing shocks and stressed the importance of continued sound macroeconomic policies and stepped-up structural reforms to boost growth, enhance resilience, and reduce dependence on natural resources.
- Fiscal policy and public financial management:
- Commended ambitious measures in the draft FY2017 budget.
- Supported domestic revenue mobilization measures to mitigate revenue shortfalls from lower natural resource activity and post-Ebola decline in external budget assistance.
- Welcomed containment of expenditure while securing essential social spending (health and education).
- Recommended further deepening and increased fairness of the revenue base.
- Called for continued strengthening of public financial management.
- Advised a longer-term orientation for fiscal policy and consideration of a medium-term fiscal anchor to improve predictability and transparency.
- Called for strengthening the medium-term debt strategy to prevent further increase in debt distress risk.
- Monetary and external buffers:
- Encouraged authorities to boost external buffers.
- To build adequate international reserves, the CBL should rigorously implement its agreed three-year financial plan, phase out exceptional support to the banking sector, and limit foreign exchange interventions to volatility smoothing.
- Stressed enhancing central bank independence and coordination with fiscal authorities to strengthen liquidity management.
- Agreed that, in the long run, a gradual process of de-dollarization would increase the room for monetary policy, given constraints of the dual currency system.
- Financial sector and governance:
- Called on authorities to address financial sector vulnerabilities by strengthening bank supervision and establishing a bank emergency assistance framework.
- Recommended reinforcing frameworks for tax transparency and anti-money laundering and combating the financing of terrorism amid the global issue of correspondent banking relationship loss.
- Structural policies and resilience:
- Strengthening the business environment to diversify the economy and support private sector development.
- Improving financial inclusion as a channel to support growth and diversification.
Selected economic indicators (highlights from table)
- Real GDP (annual percentage change):
- 2014: 0.7
- 2015: 0.0
- 2016 (est./proj.): 2.5
- 2017: 4.7
- 2018: 5.2
- 2019: 5.7
- 2020: 6.0
- 2021: 6.5
- Real GDP excluding mining sector:
- 2014: 0.3
- 2015: 2.6
- 2016: 4.3
- 2017: 4.1
- 2018: 6.1
- 2019: 5.3
- 2020: 5.4
- Nominal non-mining per capita GDP (U.S. dollars):
- 2014: 438
- 2015: 452
- 2016: 471
- 2017: 496
- 2018: 534
- 2019: 574
- 2020: 611
- 2021: 714
- Consumer prices (annual average):
- 2014: 9.9
- 2015: 7.7
- 2016: 8.4
- 2017: 8.3
- 2018: 7.1
- 2019: 7.5
- Central government operations (percent of GDP, fiscal year):
- Total revenue and grants:
- 2014: 27.4
- 2015: 32.5
- 2016: 32.1
- 2017: 30.3
- 2018: 27.1
- 2019: 27.5
- 2020: 27.6
- 2021: 27.6
- Total revenue:
- 2014: 23.5
- 2015: 22.5
- 2016: 20.5
- 2017: 23.6
- 2018: 23.8
- 2019: 24.5
- 2020: 24.7
- 2021: 24.8
- Grants, including Ebola-related support:
- 2014: 3.9
- 2015: 10.0
- 2016: 11.7
- 2017: 6.7
- 2018: 3.2
- 2019: 2.9
- 2020: 2.8
- Total expenditure and net lending:
- 2014: 29.3
- 2015: 40.9
- 2016: 39.2
- 2017: 37.0
- 2018: 33.4
- 2019: 31.9
- 2020: 31.7
- 2021: 31.4
- Current expenditure:
- 2014: 24.3
- 2015: 32.0
- 2016: 28.4
- 2017: 27.3
- 2018: 25.5
- 2019: 23.4
- 2020: 22.8
- 2021: 22.3
- Capital expenditure:
- 2014: 5.0
- 2015: 8.8
- 2016: 10.8
- 2017: 9.7
- 2018: 8.0
- 2019: 8.5
- 2020: 8.9
- 2021: 9.1
- Overall fiscal balance, including grants:
- 2014: -1.9
- 2015: -8.4
- 2016: -7.0
- 2017: -6.8
- 2018: -6.3
- 2019: -4.4
- 2020: -4.1
- 2021: -3.8
- Overall fiscal balance, excluding grants:
- 2014: -5.8
- 2015: -18.4
- 2016: -18.7
- 2017: -13.5
- 2018: -9.6
- 2019: -7.4
- 2020: -6.9
- 2021: -6.6
- Public external debt:
- 2014: 13.2
- 2015: 23.0
- 2016: 28.2
- 2017: 32.3
- 2018: 35.9
- 2019: 37.5
- 2020: 38.2
- 2021: 38.5
- Central government domestic debt:
- 2014: 14.1
- 2015: 14.6
- 2016: 13.0
- 2017: 12.1
- 2018: 10.2
- 2019: 6.9
- Monetary and credit indicators:
- M2/GDP:
- 2014: 34.6
- 2015: 34.8
- 2016: 33.6
- 2017: 33.3
- 2018: 32.7
- 2019: 32.2
- 2020: 31.6
- 2021: 31.2
- Credit to private sector (percent of GDP):
- 2014: 18.8
- 2015: 20.1
- 2016: 21.1
- 2017: 21.5
- 2018: 21.8
- 2019: 22.0
- 2020: 22.4
- Credit to private sector (annual percent change):
- 2014: 5.6
- 2015: 8.1
- 2016: 10.3
- 2017: 9.4
- 2018: 11.2
- 2019: 11.5
- 2020: 12.7
- External sector (percent of GDP unless otherwise indicated):
- Current account balance including grants:
- 2014: -32.5
- 2015: -33.6
- 2016: -31.3
- 2017: -27.7
- 2018: -26.6
- 2019: -26.5
- 2020: -27.0
- 2021: -27.0
- Current account balance excluding grants:
- 2014: -95.1
- 2015: -88.8
- 2016: -76.6
- 2017: -54.1
- 2018: -51.0
- 2019: -49.1
- 2020: -47.4
- 2021: -44.7
- Trade balance:
- 2014: -37.0
- 2015: -46.0
- 2016: -41.1
- 2017: -34.1
- 2018: -30.6
- 2019: -31.6
- 2020: -24.9
- Exports:
- 2014: 24.0
- 2015: 13.1
- 2016: 12.4
- 2017: 12.2
- 2018: 11.8
- 2019: 11.6
- 2020: 13.5
- Imports:
- 2014: -61.0
- 2015: -59.1
- 2016: -53.6
- 2017: -46.3
- 2018: -42.4
- 2019: -43.2
- 2020: -39.2
- 2021: -38.3
- Grants (donor transfers, net):
- 2014: 62.6
- 2015: 55.2
- 2016: 45.3
- 2017: 26.4
- 2018: 24.4
- 2019: 20.9
- 2020: 17.7
- Reserves and liquidity:
- Gross official reserves (millions of U.S. dollars):
- 2014: 411
- 2015: 446
- 2016: 457
- 2017: 509
- 2018: 581
- 2019: 638
- 2020: 688
- 2021: 748
- Months of imports of goods and services (excluding UNMIL-related and certain FDI project imports):
- 2014: 2.4
- 2015: 2.7
- 2016: 3.0
- 2017: 3.3
- 2018: 3.5
- 2019: 3.6
- 2020: 3.7
- CBL's net foreign exchange position:
- 2014: 178.6
- 2015: 164.4
- 2016: 189.1
- 2017: 227.0
- 2018: 302.2
- 2019: 373.1
- 2020: 433.4
- 2021: 493.3
Source: IMF press release, July 12, 2016.