An International Monetary Fund (IMF) team led by Mika Saito visited Monrovia from March 7–20 to conduct discussions for the 2018 Article IV Consultation with Liberia.
At the conclusion of the visit, Ms. Saito issued the following statement:
“Liberia’s economy appears poised for recovery following a very difficult period. Over the last five years, the Ebola crisis—with all its devastating humanitarian impact—combined with a large decrease in export prices, the ongoing withdrawal of the UN peacekeeping force, and some disruption associated with the end-December 2017 election period, to keep economic activity at low levels. Growth bottomed out in 2016 at -1.6 per cent, before increasing somewhat to 2.5 per cent in 2017.
“The same factors also contributed to a reduction of net foreign exchange inflows over the past year, which put pressure on the exchange rate and exacerbated inflation. Since January 2017, the exchange rate has depreciated by 28 per cent. The depreciation in turn drove inflation, which at 14 per cent, remains at a relatively elevated level. Reduced levels of foreign exchange also put pressure on reserves of the Central bank of Liberia (CBL), which fell slightly to 2.8 months of import cover.
“With the economic shocks and the Ebola crisis now in the past, assuming the implementation of good policies—including measures to improve the business climate and support private sector development—the medium-term outlook appears favourable. The peaceful political transition will offer support to the recovery of the domestic economy (agriculture and service sectors) through improved consumer and investor confidence. Moreover, key commodity sectors are expected to be more active as global commodity price recovery. Better power supply is another positive development factor for both existing and new businesses, though the full effect of the Mount Coffee hydro plant will need to await resolution of the transmission bottlenecks. Over the next few years, the development plan of the new government, with large-scale road construction in its centre, will act to expand and connect markets and spur economic development.
“The team supports the Administration’s adoption of a strongly pro-poor agenda. The needs of the poorest segments of the population are clearly large, and it is commendable that the Authorities have made this their policy priority. Within this ambition, it would be particularly important to ensure that the increase in expenditure goes hand in hand with measures to ensure macroeconomic and debt stability, as the impact of instability would fall disproportionately on the most vulnerable groups and undercut the goal of poverty reduction.
“The team also notes that the need to increase investment spending is coming at a time when resource mobilisation—from external borrowing, domestic revenue generation, and aid—is facing challenges.
Debt levels have been rising steadily in recent years. While the risk of debt distress remains moderate, borrowing space has clearly been reduced over time. Looking forward, future obligations will need to be undertaken with caution, specifically with respect to securing favourable terms and conditions.
Domestic revenue generation is relatively low by regional standards, and exploiting the scope for improvement will be essential to expanding investment spending over the medium term.
Aid remains substantial, but is on a declining trend from past levels, which were inflated by exceptional support given for the post conflict period and the Ebola emergency.
“Given these potential constraints on resource mobilisation, it will be important to not only mobilise significant quantities of additional domestic revenue and secure attractive terms for future contracted debt, but also to improve the efficiency of existing spending to create additional fiscal space. Governance improvements, particularly with respect to inculcating greater fiscal transparency and accountability would be key in this, as would instilling greater order and priority in Government’s fiscal relations. Replacing development spending with current expenditure to the extent possible would need to be part of this, including by controlling growth of the wage bill. In addition, Government could also usefully consider adopting a comprehensive programme to clear domestic arrears and prevent the emergence of new ones; utilising realistic revenue estimates for budget formulation; and improving the monitoring of all expenditure, including grant- and loan-financed projects.
“Maintaining macroeconomic stability will also hinge on effective implementation of monetary policy, a precondition for which would be strengthening of the CBL’s balance sheet. To this end, Government should explore ways and means of ensuring the CBL has the financial wherewithal to effectively carry out its policy mandate.
“The IMF team met with HE President George M. Weah, Speaker of the House of Representatives Dr. Bhofal Chambers, President Pro Tempore of the Senate Albert Chie, Minister of Finance and Development Planning Samuel Tweah, Governor of the Central Bank Milton Weeks, Minister of Commerce and Industry Wilson K. Tarpeh, Minister of Public Works Mobutu Nyenpan Sr., Minister of Mines and Energy Gesler E. Murray, and other senior government officials, private sector representatives, and development partners. The team thanks the various interlocutors for their collaboration and for the fruitful discussions.”