Press Release No. 05/46

The following statement was issued today in Accra, Ghana by an International Monetary Fund (IMF) staff mission:

"An IMF mission team visited Accra, Ghana during February 16-26, 2005, for discussions with the Liberian authorities on the 2005 Article IV consultation. The mission discussed economic conditions and prospects in Liberia's post-conflict environment, and considered the National Transitional Government of Liberia's (NTGL) policy agenda for the remainder of its term (end-2005). In particular, it reviewed the NTGL's plans to rebuild some economic management capacity in key areas, ahead of the October 2005 elections.

"Based on data provided by the authorities, real GDP growth rebounded in 2004 by around 2 percent, following a decline of around 31 percent in 2003 related to the hostilities and the imposition of a UN ban on timber exports. The rebound in growth is driven by continued strong recovery in rubber production, domestic manufacturing and local services including post-conflict reconstruction. Owing largely to higher donor inflows aimed at economic reconstruction, the external current account deficit including grants narrowed to 13.3 percent of GDP in 2004 from 18.2 percent in 2003. Economic recovery boosted government revenues to around 14 percent of GDP from 10 percent in 2003.

"There was agreement between the authorities and the IMF team that sustained and deep reform efforts were needed to achieve high-quality growth which could address Liberia's current state of degraded infrastructure, depleted human capital, lack of job opportunities, and pervasive poverty. Strengthening in key institutions such as the budget, revenue-generating agencies, and the Central Bank of Liberia (CBL), were deemed crucial to sustain Liberia's post-conflict economic growth recovery.

"The mission found that there was considerable scope for improvement in economic management and specifically with the implementation of the budget for FY 2004/05 (which runs from July 2004). Notwithstanding increased revenues, many exemptions on import duties were still granted. The mission encouraged the authorities to ensure that such exemptions are strictly limited. In addition, the mission stressed that such exemptions should only be granted by the Ministry of Finance and should be closely monitored. The mission urged the authorities to take urgent actions to ensure that pre-shipment inspection covers all imports including rice and petroleum products.

"The staff team also found that financial management needed to be strengthened considerably in order to achieve effective management and orderly execution of the budget. The authorities have implemented a cash management committee (CMC) to limit spending to available resources, but the mission found that spending decisions were still being taken outside of that committee. In addition, the emergence of arrears further highlights the need for discipline when approving government spending. The authorities agreed on the need to redouble efforts in this area.

"The team sought to clarify a number of recent events where transparency of government operations needed to be fully established, including the circumstances surrounding the sale of iron ore stockpiles and the alleged disappearance of a large number of import and export permits. The authorities have started to investigate these events, and reports are expected in March. The team encouraged the authorities to make the reports available to the public. Overall, the mission stressed that governance issues, especially those related to financial management, needed to receive the highest attention so as to rebuild confidence in Liberian institutions by the general public and external partners.

"The IMF team stands ready to assist the authorities in strengthening the areas mentioned above. The team agreed with the authorities that the period until elections and the inauguration of a new government will pose exceptional challenges to fiscal management, and expresses its willingness to provide, in close coordination with other external partners, continued support to the authorities to address the mentioned significant weaknesses. This said, the authorities will need to take the lead in building a track record of strong policies, also required to build a basis for addressing the country's large external debt overhang.

"Upon returning to Washington, the mission will submit its report to the IMF's Management. Executive Board discussion of the 2005 Article IV consultations with Liberia could take place in the next few months."