Former Auditor General John Morlu wrote an erroneous piece that was published in the FrontPageAfrica newspaper. Concerned that these errors can mislead or misinform public discourse, the Government presents this release to prove factual information and clarity to the general public on some objectives and workings of the planned IMF-Supported program. Judging from what the Former AG wrote, he clearly appears to not understand these issues. Our purpose is not to be as emotional and insulting as he was, because these can get in the way of our message.
Our purpose is just to show point by point where he was wrong and to properly inform and educate the public.
The first general point to be made before responding to his points is that he has never read what is called the Memorandum of Economic and Financial Policies (MEFP), which is the program document to be agreed between Liberia and the IMF. Now this is the first requirement to discuss the program. Without this, nobody can credibly criticize the program. Dealing in generalities, sensationalizing and presenting misleading information undermine informed discussion of the IMF-Supported Program.
Let’s present the facts!
Morlu: IMF “Prior Actions” number one: Fire 400 people at CBL.
Response: This is a blatant propaganda! The truth is hiring at the CBL is too high relative to hiring at central banks in other countries. Countries are compared on everything in the developing world. If hiring at the central bank in Sierra Leone or in Guinea is not this high, the central bank in Liberia should be expected to do the same. In Liberia, the Central Bank of Liberia has run deficits for a long time, which means they use reserve money to pay salaries or operational costs. Central banks are supposed to run surpluses and give back to Government. But the difficult economic situation in Liberia has made this difficult over the years. So, the Bank has been financed through reserve. If the budgets or salaries are too high, this comes at a cost to reserve.
Because the IMF is going to give Liberia money to support its reserve and balance of payment positions, the first to do is to make sure this new money is not used the way it was used in the past 12 to 14 years. THIS IS WHAT CHANGE IS. So, the CBL and the IMF will work out ways of reducing CBL budget as a prior action. Wage reform, as we also see on the fiscal side, will have to take place, but this does not mean the immediate firing of 400 people. Will people go? Yes. How many? These details are being worked out between the CBL and the IMF and the real number will be known soon, but they will be far less than 400. There are other strategies that the bank is reviewing with the Fund to resolve these issues.
Morlu: Will the Weah’s government agree to layoff that many Liberians plus more in the midst of massive poverty and unbearable high unemployment?
Response: President Weah inherited a very large wage bill. Government wage grew from about US$100 million in 2009 to about $289 million in 2017. This was explosive growth. During this period, the previous Government should have worked very hard to grow the private sector to move Liberians there. Very little of this happened. Large aid money received was used to pay very large salaries. Development partners complained but nothing was done about it.
Enter the new Government. After his election, President Weah immediately began to face problems. Development partners said he will now have to pay health workers, since the Global Health Pool Fund that was paying more than 2000 workers dried up. This added $12 million to the wage bill. The new Government employed some 4000 Liberians who were unemployed under the previous Government. We hear people say this should not have happened. The response is a new government will hire new people based on operational needs. The problem is had the new Government met a wage of US$170 million and added $20 million, the wage bill today would have been US$190 million, and the wage to GDP ratio would have been about 6 percent, and not the 10 percent it is today. Most countries in the West African region now stand around 6 to 7 percent of GDP on their wage bill.
The truth is to continue to receive help from our development partners, we have to show them we are spending their taxpayers’ money wisely to grow agriculture, build infrastructure and expand the economy. We will have to do this with our own tax dollars but if the wage is too large, we will not be able to do that. These reforms will help the country attract more assistance and investment because they show that the Government is serious about spending public money wisely. There are about 74,000 people on the Government wage bill.
On average if each of these people help 10 Liberians, it means Government wage impacts 740,000 people. But the Liberian population is almost 4.7 million, so there are almost 4 million other Liberians that are NOT IMPACTED by Government salary. Who is thinking about these 4 million? What electricity they get, what schools they go to and education they receive and what roads they drive on. This is why Government will have to save money to invest in things that benefit ALL Liberians and NOT only those Liberians who work for the Government.
Most of the workers in the Government now understand this reality and are willing to make the sacrifice to help the other 4 million Liberians who are not on the Government payroll. They support the Government’s plan to improve the economy and provide more private sector jobs since everybody cannot be hired by the Government. These are the moments for change we have craved. We all have to make the sacrifice now for a better Liberia tomorrow.
So, there is no need to politicize the wage bill issue because it is critical for our success going forward!
Morlu: Liberia’s is marching toward “Receivership,” a form of Chapter 11 Bankruptcy.
Response: This statement demonstrates a lack of understanding about IMF’s role in Liberia and in developing countries. The Fund provides cushion for countries in economic distress, while promoting macroeconomic stability. As a member country, Liberia is in a solution-based partnership with the IMF, NOT a receivership. The IMF has helped Liberia immensely since 2006. About US 1.2 billion has been spent between 2006 and 2017 to help stabilize Liberian economy. Here is the breakdown:
The IMF also provided about USD 500 million to clear arrears in 2008.
So, the IMF has bailed out Liberia in the past and you don’t call this a receivership. The question is what has Liberia in the past done with the space and assistance provided by the IMF? After debt relief some 9 years ago, the country’s domestic and foreign debt today stands at 1.2 billion, with multilateral lending accounting for about $600 to $700 million, $100 of which has been disbursed under this new administration. The payment on most of these multilateral loans are now due when the economic situation in the country is tough. To pay, the economy has to generate revenue amid with weak private sector. This situation is going to place some strain under the Government. Amid these challenges, the country will need an IMF-supported program to whether the storm ahead. Characterizing this as a receivership is sadly mistaken.
Also, countries do not go through what Morlu calls ‘chapter 11 bankruptcy,’ a term applicable to chapter 11 of the United States Bankruptcy Code, which governance the reorganization of businesses in the US facing bankruptcy. Countries are not businesses; they are sovereign states, so the comparison fails.
Morlu: Only ill-informed IDIOTS will celebrate their own country’s re-entering the IMF receivership program after we Labored to end it after HIPC. Sadly it’s some in government that are rejoicing.
Response: Yes, we are idiots who want the best for our country and will use the opportunity wisely. If President Weah receives half of the support listed above, I can bet you Liberia will never be the same again under this CDC administration.
Morlu: But let them lie to the Liberian people that money is on the way. If the IMF money doesn’t come Liberians will accuse them of “stealing” the money that never came.
Response: The Liberian people know truth from lie. They may be misled by politicians, but they are also quick to realize the truth.
Will the Government receive the same levels of support the IMF has provided in the past? The Government will with the IMF to deliver support, but we have to realistically manage our expectations as a country. The IMF support is mainly for balance of payment support and is not used to build roads. It is used to support our reserve position. For example, we did not have the reserve position to pay our debt. The IMF used its support to clear that debt
But whatever support comes, will be used wisely to improve our macroeconomic situation. We will base request for support on our performance and see what happens. Let’s do what we have to do to reform our fiscal and monetary policies, improve our governance and improve the business climate. Only great things can follow from these reforms and choices.
The mindset we now have is NOT to depend on aid to pay our salaries as in the past. The new mindset is to use aid to remove constraints in agriculture and support the private sector to grow jobs. This is a game changing mindset.
Morlu: If I were advising weah, I would have refused any more IMF programs. It has never worked in Liberia.
Response: Let’s say thank God you are NOT advising President Weah. From this, the public will clearly see that you will mislead him.
Morlu: Instead Liberia should focus on maximizing economic output using all available means to get more out of our natural resources.
Response: This is what the book people call a FALSE CHOICE. You can Go into an IMF supported program and still maximize output and improve outcomes in natural resource management. It is NOT one or the other. The IMF supported program will save resources from the national budget to invest in these other outcomes. Where do you expect the money to come from to improve agriculture if you argue you do not want free money? You have to cut wasteful spending and reduce the wage bill to free up money for agriculture. The current wage bill reform has moved the government wages from $327 million to $297 million, a saving of $30 million that will now be used to support development!!
Morlu: The current problem in Liberia is REVENUES and INFLATION. Instead of trying to get more revenue, the government has given up so it’s allowing the country to enter into receivership for a few million dollars.
Response: First the IMF-Supported program is not about a FEW million dollars. Get this one straight.
The IMF supported program is about domestic revenue mobilization and about inflation management. A big push on domestic revenue is happening. We are increasing effort in real estate. We are going to change our incentive and tax exemption policies. The LRA is using technology to improve tax administration. We will grow the tax base to bring more taxpayers in and are now better fighting fraud.
The reality is that the economic recession is now hitting our taxes which is natural in any recession. It has taken some time for us to see this impact, but the impact of the slowdown is now here. But our goal is to turn this around fast and we are doing so.
Bringing down inflation is probably the most significant goal of the Program. One reason why inflation goes high is because Government borrows to finance its deficit. Under the program, the Government will have a deficit target it cannot exceed, and this will help inflation. The Program will use interest-rate based framework to bring down inflation. This means people who save all invest in CBL notes are going to earn higher interest. This means rates are going to be higher in the economy for some time since the immediate goal is to bring down inflation. This framework should have been developed under the last IMF-Program but it wasn’t. We have learned from that mistake and are doing so now.
There is a tension between bringing inflation down and growing the economy. With inflation this high in Liberia, you want to fast track bringing it down, while you prepare for growth in the medium term. This is the balance the Program is going to strike. You do not want growth to take the inflation up or keep it at its very high level. So, inflation management and revenue mobilization are key objectives of the program.
Morlu: IMF is unlikely to spend even $200 million in Liberia, so it will not make a dent in the fundamental problems facing that nation.
Response: A stimulus of even $50 million on the fiscal side will be game changing and will make a big dent. The Government has been pushing to get this stimulus and we are on track. This will establish a buffer that the Government can use to support gaps in budget execution and invest in agriculture and other quick turnaround programs.
But the IMF resources are NOT used on the fiscal side. It is a big surprise that a former Auditor General does not know this! IMF resources are used to support balance of payment activities to support our reserve position, as explained earlier. Only under extreme events as in Ebola would a country qualify for these resources under the Catastrophic Containment and Relief Facility, as shown in the table above. In the international payment system, a country has to have a minimum reserve to finance external trade. Because of recent economic developments- fall in the price of iron ore and rubber which were earning big foreign exchange in the past and other factors such as UNMIL withdrawal and decline in development assistance, which came in to finance a lot of infrastructure projects—the country’s reserve position is much weaker. It is the job of the IMF to work with countries to improve this.
But the immediate advantage of the IMF’s presence means bilateral and multilateral development can increase the size of budget support to countries facing fiscal challenges. This budget support has been larger in recent years and was significantly reduced in the last fiscal year. Some experts or analysts think that this was because we did not have an IMF-supported program. The reduction in this budget support is part of the reason for the fiscal shock we are experiencing. We don’t want to rely on budget support; we want to use budget support to stabilize and strengthen our fundamentals as we transition to private sector revenues to grow our economy.
Morlu: Liberia is back to Pre-HIPC with IMF coming, as it has done since 1945.
Response: This statement shows no understanding of the issues and is not intelligible. Pre-HIPC means the time Liberia had a large debt burden that needed to be waived. The IMF came in and helped waive Liberia’s debt. The numbers above say so. So how can we go back to pre-HIPC just because the IMF is coming? And the IMF has always been here, so it is NOT just coming. The table above shows Liberia’s engagement with the IMF since 2006. This line or reasoning should just be disregarded since its shows a total lack of understanding of the IMF and what it does and how it has impacted Liberia.
Morlu: Weah must lead on fiscal discipline and good governance matters. As I said once to the New York Times, “only the Liberian president can solve Liberia’s fundamental poor governance problems and get that country moving in the right direction.”
Response: The President has shown massive commitment to undertaking difficult reforms. The right direction is reforming the wage bill to find more resources for development. The right direction is equal pay for equal work. The right direction is more roads and agriculture investment. The right direction is improved governance, like setting up a special court for fighting corruption, which is part of the IMF-Supported program. The right direction is NOT borrowing from the Central Bank, which the President announced in this economic speech and which is the policy supporting the relations between the fiscal and monetary authorities under the program.
This President began by voluntarily slashing his own salary by 25 percent and by setting a minister’s pay as the highest level of pay in the public service. This was a landmark decision that influenced and preceded the entire Harmonization. The National Legislature has now joined these reforms by passing a National Standardization and Remuneration Act, which imposed cuts on the legislative and judicial branches of Government.
No Liberian president has undertaken massive reforms in so short a time as President George Manneh Weah. The President is committed to sustaining these reforms for the betterment of all Liberians.
Morlu: The Nation has fallen, yet again. I feel so bad for Liberia.
Response: Quite to the contrary, the nation has risen and is on the right path. The nation will fall without an IMF program since all Liberia’s traditional partners will withdraw and the country’s international reputation will be at stake. It is easy to damage Liberia’s reputation without the IMF. It is not easy to do so in the presence of the IMF.
As we embark on a path of reform, we advise politicians, pundits ‘expert’s and ‘analysts’ to aim to provide factual information and serious analysis on the range of issues affecting our people. Our country is at a critical stage of its development and economic transformation and these observed patterns of over-politicization and distractions are unhealthy for public discourse.
Overcoming our challenges as a country will require an honest collaborative effort from all Liberians, avoiding the politics self-destruction!
The IMF-Supported program will provide an impetus for our economic resilience and long-term growth. It is a Government-led program that is agreed with the IMF. But it is NOT a magic wand. We are committed to the reforms under the Program and these will see us through in the months and years ahead.