IMF Board Approves US$48.8M Extended Credit Facility Support to Liberia
MONROVIA – The Board of the International Monetary Fund provided additional financial assistance of US$48.8 million to Liberia under the Extended Credit Facility Arrangement, a program launched at the end of last year.
This decision follows debt relief and emergency assistance approved by the IMF earlier this year and is fully embedded in a reform agenda that the Liberian authorities are implementing to further stabilize the economy.
After mixed program performance initially, the authorities have taken corrective actions to address weaknesses in the program and they continue to make progress in structural reforms. Reflecting the impact from the COVID-19 pandemic, the growth forecast for 2020 has been revised down from 1.4 percent at the program’s inception to -3.0 percent. Assuming global conditions gradually normalize, growth is projected to reach 3.2 percent in 2021, but downside risks to the outlook are high. Liberia remains fragile and vulnerable to shocks as both fiscal and external buffers remain low. Liberia continues to be assessed as having a sustainable debt burden, but borrowing space is limited.
Following the Executive Board discussion, Mr. Tao Zhang, Acting Chair and Deputy Managing Director, made the following statement:
“The COVID-19 pandemic continues to exert significant strain on Liberia’s fragile economy. The authorities have taken the necessary steps to stabilize the economy amid multiple challenges. A modest fiscal loosening is appropriate to meet humanitarian needs during the COVID19 pandemic.
“The authorities are committed to fiscal discipline and further improvements in cash management, transparency and accountability in spending, and domestic revenue mobilization to finance their development agenda. The monetary policy stance is appropriately aligned with the inflation objective, and significant progress has been made in strengthening central bank independence. In the context of the gradual de-dollarization of fiscal spending, it is important to further refine instruments for open market operations and enhance policy coordination between the central bank and the government.
“Further efforts are needed to contain the central bank’s operational expenses and build up reserves. Rebuilding confidence in the financial sector is critical for financial stability. Priority should be given to addressing risks from weak financial institutions and ensuring the supply and quality of Liberian dollar banknotes. Further improvements in governance are necessary for efficient delivery of public services. Steps are being taken to clear the fiscal audits backlog, further enhance procurement transparency, and upgrade the anti-corruption legal framework. Efforts to increase borrowing space would support sustainable growth. The authorities should continue to work with donors and development partners to secure grants and concessional borrowing, and carefully prioritize the use of public resources.”
According to a recent report by the IMF, the government has worked hard to meet humanitarian needs during the COVID-19 pandemic. By taking lessons from the Ebola crisis, policy response was prompt. On March 21, the government mandated a general lockdown and enforced severe social distancing. But this policy response was costly in terms of economic slowdown, trade disruptions, and food insecurity. The Fund, along with other partners, provided emergency support during the height of the crisis. This most recent IMF assistance complements those actions as Liberia accompanies the difficult reform agenda the authorities have been pushing through amid the COVID-19 crisis.
The Report also noted that the government’s decisive actions and reform efforts have begun to bear fruit. At its peak in FY2018/19, the civil service wage bill accounted for 10 percent of GDP (or 70 percent of domestic revenue), which was crowding out the government’s fiscal space for much needed development, infrastructure, health, and education spending. The authorities took the difficult but necessary decision to cut the wage bill in all three branches of the government by 10 percent in the FY2019/20 budget, while still allowing the lowest-paid government employees to receive the minimum wage. The government also eliminated allowances that were not only costly but also adversely affected the morale of civil servants due to perceptions of unfairness. The action eliminated central bank financing of fiscal deficits.