On December 11, 2019, the Executive Board of the International Monetary Fund (IMF) approved a four-year arrangement under the Extended Credit Facility (ECF) for Liberia in an amount equivalent to SDR 155 million (60 percent of quota or about US$ 213.6 million) to help the country restore macroeconomic stability, provide a foundation for sustainable growth, and addressing weaknesses in governance.
After grappling with challenges for over a year, a consensus on the need for broad-based reform has emerged. The program aims to support the authorities’ strong adjustment efforts, catalyze significant donor financing, and provide a framework within which to implement the authorities’ ambitious reform agenda. The Executive Board’s decision will enable an immediate disbursement of SDR 17 million (about US$ 23.4 million).
At the conclusion of the Executive Board’s discussion, First Deputy Managing Director and Acting Chair, Mr. Mitsuhiro Furusawa, stated:
“Liberia’s economic situation is challenging and fragile. Inflation and year-on-year exchange rate depreciation are high at 30 percent, and growth is subdued. The authorities are committed to carrying out the prudent macroeconomic policies and ambitious structural reforms necessary to restore macroeconomic stability and to put Liberia on a fiscally sustainable and inclusive growth path under the Fund’s four-year Extended Credit Facility arrangement.
“The recent upfront fiscal tightening is welcome. To preserve the gains and to maintain budget credibility, it is important that the recently instituted set of fiscal controls is fully implemented. Moreover, strengthening tax policy and administration over the program period is critical to ensure that the public sector can operate effectively.
“The monetary tightening by the Central Bank of Liberia (CBL) enacted in November 2019 was necessary to reduce inflation. A key prerequisite for success would be full adherence to the program prohibition on government borrowing from the CBL.
“Liberia’s external vulnerabilities are significant, and foreign reserve stocks have fallen to low levels. In addition to eliminating the financing of the budget, building resilience will require containing the CBL’s operational expenses, and limiting foreign exchange intervention.
“Given that a small worsening of the terms of debt, or failure to sufficiently adjust the fiscal stance could edge Liberia closer to high risk of external debt distress, the authorities are committed to adhere to the ceiling on non-concessional borrowing and to refrain from non-transparent collateralized agreements under the Fund-supported program.
“Ensuring financial sector stability is an important element of the program. Improving data reporting, obtaining an overview of the health of the banking system, and taking decisive measures as needed will help identify and address financial sector vulnerabilities. At the same time, enhancing the legal framework is important to ensure that the CBL has the required instruments should remediation be necessary.
“Structural reforms aimed at improving governance will help reduce vulnerabilities to corruption and promote private-sector-led growth.’’
Recent Economic Developments
Over the past period, a decline in external assistance combined with weak domestic revenue generation, limited expenditure adjustments—especially on wages—and an accommodative monetary policy stance led to numerous macroeconomic challenges. These including an unsustainable fiscal stance, the emergence of arrears, excessive central bank financing, depletion of fiscal and external buffers, and pressure on inflation and the exchange rate.
President George Weah launched the Pro-Poor Agenda for Prosperity and Development (PAPD) in October 2018, but its objectives of building roads and improving social services have largely been delayed due to lack of funding. The IMF-supported program would help stabilize the economy – which is a necessary condition for a sustainable transition out of fragility – and catalyze financing for their development plan (the PAPD), ultimately putting Liberia on a sustainable medium-term growth trajectory.
The program will focus on:
• Restoring macroeconomic stability, which is a key precondition for a sustainable transition out of fragility, while protecting the poorest segment of the population from the burden of adjustment;
• Putting Liberia on a fiscally sustainable growth path, which is the main objective of the PAPD; and
• Addressing weaknesses in governance and institutions of the public sector, which will help safeguard scarce resources and facilitate the achievement of the first two objectives.
The program also aims to catalyze substantial external support, which is critical to ensure that the programmed adjustment can be contained at levels that are politically and economically feasible while, at the same time, ensuring public and external debt sustainability.