The Liberian authorities and IMF staff reached a staff-level agreement on a new program subject to fulfillment of significant prior actions in the fiscal and monetary areas; The key objectives of the program are to restore macroeconomic stability, provide a foundation for fiscally sustainable, inclusive growth, and address weaknesses in governance; One of the key elements of the program is implementation of a 2020 budget that constrains expenditure to available resources and avoids inflationary and reserve-depleting borrowing from the Central Bank of Liberia.
Discussions took place during IMF negotiation missions in June and September 2019 and, most recently, during 2019 IMF Annual Meetings. The IMF team, led by Mika Saito, engaged with a high-level delegation from Liberia led by Minister of Finance and Development Planning Samuel D. Tweah and Central Bank of Liberia (CBL) Governor Nathaniel Patray III. The economic context and framework for these discussions were informed by the 2019 Article IV Consultation with Liberia that was concluded by the IMF Executive Board on May 31, 2019.
In concluding the Article IV Consultation, Executive Directors had noted that Liberia was facing major economic challenges and emphasized the need for steadfast and well-sequenced policies and structural reforms, as these were essential to regaining macroeconomic stability and promoting high, sustainable, and inclusive growth. They emphasized that significant fiscal adjustment was needed going forward, including by mobilizing additional domestic revenue and rationalizing spending, especially in the wage bill, while securing needed fiscal space for social and capital spending. They also called for further progress in public financial management reforms to improve the quality of spending in a resource-constrained environment, and for improvements in the business environment to attract high-quality, growth expanding investment. The Central Bank of Liberia (CBL) was also urged to significantly tighten monetary policy to reduce the inflation that was eroding the living standards of the poorest Liberians, while taking strong measures to safeguard financial sector stability.
Since the Article IV consultation, in a context of intensifying economic challenges, the Liberian authorities and IMF staff have now agreed on an economic and financial program that could be supported by Fund resources. A key element of the program is the FY2020 budget recently approved by the Legislature that constrains expenditure to available resources, and avoids inflationary and reserve-depleting borrowing from the CBL. This budget is underpinned by important reporting and institutional safeguards aimed at preventing slippage and avoiding the re-occurrence of domestic payment arrears. The budget faces tight financing constraints at a time of significantly reduced fiscal buffers and will therefore need to be strictly implemented. Importantly, this budget retains its intended pro-poor orientation. It protects essential social spending, while providing enough resources to allow the CBL to use monetary policy aggressively in the fight against the inflation that has been so damaging to the living standards of the most vulnerable members of society.
Staff welcomes the Liberian authorities’ determination to restructure the wage bill. This is a key policy reform needed to free up fiscal space and make a credible and viable budget possible, while also increasing transparency, accountability, and equity. It is noteworthy that all three branches of Government participated, and that the process yielded a progressive outcome, in that the burden was borne by the higher paid employees with the poorest benefiting from salary increases, including among teachers, health workers and line security forces.
The staff-level agreement is subject to fulfillment of significant prior actions in the fiscal and monetary areas that will need to be undertaken by the Liberian authorities. Assuming these are satisfied in a timely manner, it is anticipated that the IMF Executive Board could consider approval of Liberia’s formal request for financial support under the Extended Credit Facility as early as the first half of December 2019.
The IMF staff team would like to thank the Liberian authorities for the excellent cooperation it received and for the candid and constructive discussions that facilitated a productive exchange of views.