LIBERIA: Will Lawmakers Buy Into the IMF-Supported Wage Bill Reform Program?
OVER THE PAST WEEK, a team of Experts from the International Monetary Fund(IMF) has been working the clock to help the George Weah-led government resuscitate the struggling Liberian economy.
THE TEAM last Friday met with the both Houses standing committees on Budget, Ways, Means and Finance. Multiple sources confirmed to FrontPageAfrica that the meeting was intended to generate support and encourage members of the legislative branch of government to buy into the reform process currently being formulated to help restore sanity to the Liberian economy.
THE CRUX OF THE of the meeting, sources tell FrontPageAfrica is to focus on wage bill reform which will see a harmonization of salaries across ministries and agencies of government.
THE MISSION, FPA HAS LEARNED, has told Liberian authorities that in order to have an effective wage bill reform, the legislature must support the process by also taking a hit as well. “For the reform to be effective, all branches of government must commit to taking a cut in their salaries and other wages” the Mission noted.
DURING THE RECENT SPRING Meetings in Washington DC, the Government of Liberia committed to IMF-supported program which among other things calls for austerity measures in addressing rising inflation, unemployment level and depreciation of the Liberian dollar and fall in global commodity prices. The IMF team noted that these economic down turn was no fault of the Weah administration.
THE IMF BELIEVES that a credible budget will enable monetary policy to operate and help bring down inflation and rising prices. Addressing the revenue and expenditure gaps will also require a new approach in SOEs contribution to the resource pot. State-Owned Enterprises are operating in a way that does not provide a definitive contribution towards budgetary support. SOEs are also noted for determining their own expenditure including salaries and other benefits which is way above other ministries and agencies of government.
EXTENDED ASSISTANCE to Liberia’s GDP in the past years was one of the highest, but it has slimmed down. The aid was paying for both capital revenue and wage including goods and services. The net flow of foreign exchange has also reduced; something that started around 2016 due to UNMIL departure, the slumped in natural resources. The IMF informed the House’s committee that a recent household income expenditure survey shows that the poorest earn and buy in Liberian Dollar and that they have lost about 30% of their purchasing power.
IT IS IMPORTANT for members of both houses of the legislature to being exploring avenues and working toward finding loopholes in their budget to enable the wage reform process to proceed smoothly.
THE LATEST Article IV Consultation report from the IMF is clear – 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,” the released this week noted. “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.”
THE IMF DIRECTORS HAVE emphasized that significant fiscal adjustment is needed going forward. In its latest Article IV report, the IMF Directors underscore 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.
THIS IS WHY WE FEEL strongly that Liberia must make a strong case for economic support by demonstrating a strong commitment to macroeconomic stability, poverty reduction and growth as swell as reduction in the depreciation of the Liberian Dollar. Through the Extended Credit Facility which supports a country’s balance of payment deficit will help reduce the level of vulnerability and economic stress the country is undergoing. “With a strong commitment and a demonstrated capacity, we can go for an IMF support for Liberia” the IMF mission noted.
THESE MEASURES which are accordingly a medium-term framework will require a short-term intervention to address some of the prevailing economic realities. While these reform measures sound good for the economic health of the country, lawmakers believe that there is a need for a one-off injection into the economy which will lead to some level of stability. The Country’s is currently paying interest on more than US$1.2 billion loan from the previous government. Domestic arrears are also inhibiting the private sector from providing goods and services. Workers are being layoff because of the government inability to service her domestic liabilities.
THE MISSION COULD not commit to providing a passage way for a stimulus package that would jumpstart the economy. Borrowing as an alternative option to jumpstart the economy will plunge the government into further debt. During his address to the nation in May, the President noted that his government will no longer borrow money from the Central Bank. This pronouncement makes any attempt to borrow complicated.
WHILE MANY HAVE argued that the IMF has no record of providing the right panacea for developing countries, critics still believe that the government of Liberia can salvage something good out of this reform process. Succeeding at restoring sound macroeconomic stability in the coming years will require a collective support from all aisle of government to include the Legislative and Judicial branches of government.