Monrovia – The International Monetary Fund (IMF) delegation to Liberia has admonished the Government of Liberia to reduce its wage bill as the government embarks on a process of adopting a credible and executable budget for Fiscal Year 2019/2020 and beyond.
Report by Gerald C. Koinyeneh, [email protected]
A forthright ago, a mission from the IMF led by Mika Saito arrived in Liberia to hold discussion with the Liberian Government to discuss possible financial support under the IMF Extended Credit Facility.
Ms. Saito serves as the IMF’s Deputy Division Chief, Western II Division, African Department noted.
The delegation has been holding talks with senior government officials including President George M. Weah, House Speaker Bhofal Chambers, Senate Pro Tempore, Albert Chie and Finance and Development Planning Minister Samuel Tweah and the Executive Governor of the Central Bank of Liberia (CBL), Nathaniel Patray.
At a joint press conference on Monday, June 24 with Minister Tweah and CBL Governor, Patray, the IMF’s head of delegation, Mika Saito noted that the IMF mission supports the government’s objectives of restoring macroeconomic balance in the near-term, addressing weakness in governance and institutions of the public sector, improving the business climate and putting Liberia on a fiscally sustainable and inclusive growth path.
Towards these arms, the mission noted that good progress was made in a number of important areas, including the contours of the FY2020 budget, the stance and modalities of monetary policy, and structural reform program that is consistent with the Government’s pro-Poor Agenda for Prosperity and Development (PAPD).
However, the IMF mission indicated while it welcomes the reforms being instituted by the government towards economic recovery and growth, success of the reform agenda is predicated on the adoption of a credible and executable budget for FY2020 and beyond.
Key to achieving this, Ms. Saito called for expenditure to be held to a level consistent with realistic estimates of the resource envelope so that budget execution in the coming year can proceed with predictability and efficiency. In addition, the measure is needed to support the provision of essential public services and avoid the accumulation of domestic arrears.
“Securing enough resources to fund an efficient government budget will require both additional revenue measures and reforms to allocate expenditure. The latter will require a reduction in the size of public sector wage bill, as it currently accounts for 65 percent of total budget expenditure and is effectively crowding out needed spending in other areas. Full implementation of a credible and equitable wage structuring program is essential to the success of the overall reform agenda,” Ms. Saito emphasized.
External Shocks Grappling Economy
The IMF mission noted that following a series of external shocks – including a fall in key commodity prices, the lingering effects of Ebola, and the rapid depreciation of the exchange rate that followed, the economic situation facing Liberia has proved challenging.
Excerpt of the IMF Mission’s observation: “Growth has slowed, reserve stocks have come under significant pressure, and macroeconomic imbalances have increased. Inflation accelerated, and now stands at 23 percent. The difficult economic conditions and loss of purchasing power are being felt particularly by the most vulnerable members of the society, many of whom are experiencing significant hardship. Macroeconomic stabilization, particularly a lowering of inflation is the immediate priority.”
The mission further highlighted the importance of rebuilding foreign exchange reserves to improve resilience to external shocks, which is one of the key objectives of Fund-supported programs and importance of allowing the exchange rate to remain flexible and improving the transparency of CBL’s foreign exchange operations.
On the CBL new monetary policy framework which is aiming to better manage monetary conditions to achieve price stability, the mission welcomes the policy and support CBL’s intention to achieve greater alignment of interest rates on its newly introduced monetary policy instruments.
However, the mission notes that the success of the new monetary policy framework will also hinge on a successful fiscal program and the elimination of additional government borrowing from the CBL.
Speaking further, Saito noted that the reform agenda will also place requirements on managing the CBL’s operational budget, improving internal controls and oversight, and strengthening governance.
She asserted that the appointment of the non-executive Governors of the CBL and two acting deputy governors are essential for improvement in the bank’s operational efficiency and governance.
She furthered that discussion also included a package of growth-enhancing structural reforms to strengthen public financial management, reduce corruption, and improve the business climate.
In this regard, the mission noted the need to improve private sector confidence in the reform agenda, the attainment of better economic overturns in the years ahead, and on administrative barriers and reduce corruption.
Finance & Development Planning Minister Tweah’s Response
In response, an upbeat Minister Samuel Tweah, welcomes the IMF findings and recommendations and noted that the government, in an effort of reducing its wage bill, has embarked on a ‘revolutionary’ measure through its wage harmonization exercise.
He revealed that the current FY 2019/2020 draft budget is expected to be submitted to the President today, Tuesday, June 25 for onward submission to the Legislature.
In line with the IMF recommendation of reducing the wage bill, expenditure was slashed from US$330 million to US$297 million.
In the past, he noted that ministers and head of government’s agencies had discretionary privileges to set the salary of staff at their respective institutions. This, he said, lead to huge and unfair disparities among government officials and civil servants; adding that the current administration is set to address that.
According to him, the immediate past administration received huge money in aid, but most of the money was used for salaries, something that the current government intends to curtail.
“The challenge we face now is at the time we were receiving a lot of foreign aid, we didn’t put that money into the private sector. We used aid money to finance higher salary in government. This is not going to happen anymore. So, what happens is that when we get aid we turn it to agriculture, health and education and then keep the wage bill because the President inherited an already large bill which is growing at nine percent GDP and the goal is to take it down to seven percent GDP in the medium term,” he averred.