Monrovia – When an International Monetary Fund (IMF) team visited Monrovia from February 25-March 8 to conduct discussions for the 2019 Article IV Consultation with Liberia, it made several recommendations and raised red flags about the rapidly dire and prevailing economic situation under the George Manneh Weah-led government.
Three months after the team’s report lowered Liberia’s economic growth forecast for 2019 to 0.4% from 4.7% and declared that the government’s wage bill was just too high, it has returned with another report released Tuesday with similar numbers, reporting that the near- and medium-term outlook under the baseline scenario remains challenging. “Growth is projected to slow further to about 0.4 percent in 2019 and remain below 2 percent into the medium-term. In the baseline scenario, the authorities face the possibility of a forced, abrupt adjustment when domestic and external financing options are exhausted. An alternative reform scenario is therefore presented as a more viable alternative, in which growth weakens somewhat in the near term, due to proactive fiscal and monetary tightening, but picks up significantly over the medium term to exceed 5 percent by 2024.”
Garnering Support Key
In its latest report, the IMF Executive Directors noted that Liberia continues to face major economic challenges but welcomed the authorities’ efforts to bolster macroeconomic stability. Directors emphasized that steadfast and well-sequenced policies and structural reforms are essential to enhance macroeconomic stability and promote higher, sustainable, and inclusive growth. They welcomed the authorities’ Pro-Poor Agenda for Prosperity and Development (PAPD) and agreed that garnering support from the international community will be important.
Directors emphasized that significant fiscal adjustment is needed going forward. They underscored that efforts should focus on mobilizing domestic revenue and rationalizing spending, especially the wage bill, while securing needed space for social and capital spending. Directors encouraged the authorities to formulate realistic budgets and to implement a sound borrowing plan that ensures debt sustainability, while advocating caution in engaging in non-concessional borrowing. They also called for further progress in public financial management reforms to improve the quality of spending in a resource-constrained environment.
The IMF agreed that the Central Bank of Liberia (CBL) should tighten monetary policy with the objective of reducing inflation to single digits by 2021. Directors emphasized that further issuance of CBL bills should be suspended until the cost of the operation is included in the government budget, and the fiscal financing gap is closed without CBL financing and noted that while the financial soundness indicators show that the banking sector appears adequately capitalized, the CBL should enhance its supervisory efforts. The IMF highlighted the need to prioritize strengthening the CBL’s supervisory, regulatory, and resolution frameworks in light of the elevated level of nonperforming loans, focusing on measures that improve loan underwriting standards.
Directors highlighted the need to improve the external position by tightening monetary and fiscal policies, allowing for greater exchange rate flexibility, and raising competitiveness through improvements in the business environment. They welcomed that the authorities’ pro-poor agenda focuses on physical and human capital, particularly improving service delivery in health and education.
Over the past couple of days, FrontPageAfrica has learned that the team of IMF staffers have been holding discussions with Finance and Economic Planning Minister Samuel D. Tweah and senior administration officials, including President Weah, in a bid to see what has been done and to prepare the country for enrollment into the IMF strait jacket program.
Welcoming the IMF After Early Snub
Addressing the nation last month, President Weah announced that his administration would soon be embracing the IMF. “Soon, we will welcome a team from the International Monetary Fund, coming to create an IMF program tailored for Liberia. Such a program will help us to take the needed steps to stabilize our economy, restore confidence in our currency, and offer technical assistance to continue social services,” the President said.
His remarks followed an urging from Ambassador Christine Elder, the United States Ambassador accredited to Liberia, told the President and his government to remain open to recommendations of the International Monetary Fund (IMF) in order to pave the way for economic productivity and prosperity for Liberia.
Speaking at a recent ceremony marking the 243rd Anniversary of the Independence of the United States of America recently, the US envoy while applauding President Weah for opening discussions with the international monetary body regarding measures that could restore confidence in the economy and set the stage for growth ahead, said heeding the recommendations to Liberia is key. “I hope that you, the Liberian government, and the Liberian people remain open to what the IMF recommends so that Liberia can lay the groundwork for future economic productivity and prosperity.”
An IMF program requires greater discipline across government budgets and President Weah, in his speech last month suggested that his administration is prepared to begin tightening the screws. “We will be introducing salary caps for government workers, and asking our legislators to share the burden as well. We will review performance and revenues from our State-owned enterprises, ensuring that leakages or inefficiencies do not undercut the ability of government to support its people. We have seen other African countries, including Ghana, Rwanda, and Senegal, benefit from IMF programs, and I believe Liberia can do so as well.”
Rallying Call to Arms
Addressing the nation Tuesday, the President, realizing the challenges at hand for his administration, issued a call to arms, urging all Liberians to come to the table and find answers to resuscitating the economy.
Said the President: “It will take the collective effort of all Liberians to achieve the desired objective of reviving the economy and placing our country on a path of sustainable development and transformation. We will have to come together to devise and support new measures which are necessary to address the structural defects and imbalances in our economy.”
The President reiterated what he has previously stated in speeches that he inherited a broke country. “Last year, when I assumed the Presidency, I informed you that we had inherited a broken economy and pledged to you that I would exert every effort to fix the economy and improve the lives and livelihood of our people. While our efforts to fix the economy are sustained and ongoing, we still face challenging times.”
The President whose administration has been unreceptive to critics and suggestions about improving the economy, now says all Liberians have a vested interest in the peace and economic development of the country. “My Government recognizes that the alternative views of all citizens are equally vital in finding a way forward. It is because of this fact that I now take the opportunity to again invite the leaders of political parties, civil society groups, elders, religious leaders, our traditional leaders, student leaders and the business community to a round-table discussion to afford them the opportunity to present their alternative views or their suggestions on the economy.”
Govt Eyeing External Credit Facility
During the April 2019 Spring Meetings in Washington, Minister Tweah reportedly delivered a special message of President Weah to management authorities of the Fund enumerating the government’s intent for an IMF-supported arrangement. In response to president’s invitation, the IMF Executive Board approved a Mission to hold discussions with the Liberian authorities. In this regard, the IMF team is in country to work along with fiscal and monetary authorities of government to review the current state of the economy and recommend appropriate policy advice which will lead to economic growth and transformation, through implementation of the country’s national development agenda, the PAPD.
Aides to the President told FrontPageAfrica Tuesday the administration has set the basis for a new economic thrust which has been endorsed and cleared by the IMF board. “Executive Directors of the IMF were in full support of the Liberian Government during Board discussions to approve the recent Article IV consultation report on Liberia,” the source, speaking on condition of anonymity said Tuesday.
The source said the administration, within the next two weeks which will be underpinned by rigid engagements, the administration will seek to enter an External Credit Facility (ECF) arrangement which provides financial assistance to countries with protracted balance of payments problems in a more flexible form to low-income countries.
The ECF was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of low-income countries (LICs), including in times of crisis. The ECF is the Fund’s main tool for providing medium-term support to LICs.
The ECF supports countries’ economic programs aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth and the ECF may also help catalyze additional foreign aid.
Budget Reportedly Sliced to US$515M
The program is available to countries that face a protracted balance of payments problem, i.e. when the resolution of the underlying macroeconomic imbalances would be expected to extend over the medium or longer term.
Assistance under an ECF arrangement is provided for an initial duration from three to up to four years, with an overall maximum duration of five years. Following the expiration, cancellation, or termination of an ECF arrangement, additional ECF arrangements may be approved.
This is not Liberia’s first program. The administration of former President Ellen Johnson-Sirleaf also benefited from the program which ended in Nov 2017. It was under Sirleaf’s watch that issues and challenges of printing money and weak internal controls was first unearthed.
Sources closed to the Weah presidency say, the administration is aiming to correct some of the defects as outlined by President Weah in his speech last month.
From all indications, the Liberian government is reportedly set to pass a budget of US$515m less than earlier projection of US$570m, with no room for borrowing; which is something the IMF mission is desirous to see as part of the government’s commitment to macroeconomic reform. However, and in spite of this fiscal rigidity, it is not certain as to whether the legislators will approve of the US$55m adjustment which brings credibility to the budget process. The President’s wage bill reform program, which is also aligned with the Mission’s recommendation, may also face resistance from the other two branches of government; mainly the legislators. Liberia might likely fail the IMF fiscal test if any of the other two branches refuses to allow wage cuts which could lead bigger economic loss for the country in the short-run.
Economists say, focusing on fiscal discipline may not be the only macroeconomic option for reviving an economy which is suffering from the shocks of the fall in the prices of global commodities, vulnerability and exposure to Ebola Virus disease, the departure of UNMIL, inflation and a depreciation of the country’s currency among others. The government needs to balance this measure with improvement in the overall circular flow of the economy through investment and growth as well as the provision of a stimulus package to jump start the economy in the short-run, while other policy measures are being sequenced and implemented.
Major Cuts Underway
In line with the IMF’s suggestions, the Weah administration says it has instituted cuts within the Executive branch and is pledging that the new budget will deliver wage reform which has not been achieved in the last 10 years.
Liberia’s development partners are looking to see cuts on the legislative side as well, raising concerns as to whether lawmakers will go along with the plan, one official described as crucial to Liberia’s economic revival.
On monetary front, the government has agreed to stop borrowing from the Central Bank as recommended by the IMF and announced by the President in his speech last month. To date, FrontPageAfrica has learned, the Weah-led government has formally borrowed US$8 million from the CBL with the government reportedly rolling over a US$20 million borrowing done under former President Sirleaf when it came to office.
The no-borrowing constraint, economists say, will now make it difficult given the pressing fiscal needs of the government. In the end some limited borrowing will be allowed by the program on a strictly restrictive basis. The bottom line, the Government will have to be very disciplined to fall in line with the IMF’s suggestions and directives.
For the Weah-led government, the IMF program is not just about fiscal discipline but about economic and investment growth as the government is pledging to place high priority on economic stimulus as part of the program.
A major part of stimulus surrounds domestic arrears to vendors and commercial banks. Economists say the inability for the government to pay banks and vendors has stifled the economy. Thus, the Government views stimulus as a key.
IMF Program a Necessity
Unclogging the circular flow for increase service delivery through a multiplier effect will require the servicing of domestic arrears to vendors and commercial banks. Government delay or inability to service their indebtedness to vendors and commercial banks is stifling private sector development. As a stop gap measure, the government through the MFDP has reportedly already issued a US$65m bond to commercial banks for infrastructure loans which were borrowed under the former administration. Once discounted, the bonds will inject some liquidity to the banking sector for onward lending to other productive sectors.
FPA has learned that an IMF delegation in town this week is going over the fine-prints of the new initiatives in hopes that both government and the IMF are on the same page. Governance reforms and fighting corruption are going to be a key part of any program and development partners say they will give Liberia more support if they achieve a program.
During the discussions with the IMF in the coming weeks, diplomatic observers say, the government must demonstrate “political will” by committing itself to the many reform measures which would open the doors for more support to the country’s reform process. “No one has ever said that the path to economic prosperity was easy, but with commitment to an IMF-supported program the country could be on the right track for a great leap forward,” one diplomat told FPA Tuesday.
For the immediate future, economists say, the exact structure of the program will depend on a lot of data issues and how the Weah-led government commits to live within the limits imposed by the program. While some of Liberia’s neighbors and countries across Africa have found the programs too restrictive, the current situation in Liberia has left the administration with no option but to make the IMF program a necessity.