ANALYSIS: Liberia – George Weah’s Government Finally Ready to Wear the IMF’s Strait Jacket


Monrovia – Falling in line with the International Monetary Fund’s rigid supervision and monitoring program can be a blessing and a curse. Running out of options and racing against time in the run-up to a protest dubbed ‘Save-the-State’ planned for Friday, June 7, President George Manneh Weah’s government gave his first major policy address Wednesday to declare his administration’s embrace of an IMF program tailor-made for Liberia. 

Analysis by Rodney D. Sieh, [email protected]

Weah said, “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 Wednesday.

The IMF supervision is coming just a few years after Liberia graduated from the HIPC program, debt forgiveness and restructuring program that was supposed to have improved governance, achieved macroeconomic stability and  reduced poverty. 

The IMF supervision also coming after Liberia announced the end of Governance Economic and Management Assistance Program (GEMAP), an international governance program headed the International Contact Group on Liberia. The GEMAP was also supposed to improve governance and fight corruption by ring fencing Liberia’s revenue. 

The GEMAP declared its purpose, “To ensure that all Liberian revenues will be available for the benefit of all Liberian people, to ensure that the Liberian Government will have the appropriate fiscal instruments to capture the revenue required for the development of the country, and to strengthen Liberian institutions so that they can take responsibility for reversing decades of deficiencies in economic and financial management, the NTGL and its partners have concluded that immediate remedial action is needed.”  

Liberia history is replete with IMF, World and other international interventions but the nation was ranked third poorest by Forbes Magazine and ranked near the bottom of the UNDP Human Development Index. 

HIPC wiped nearly $4.8 billion in debt and arrest arrears in 2010 when HIPC was declared a success. But the former administration left a debt stock $1 billion or more, combined with massive printing of Liberian dollars and declining foreign reserve Liberia has witnessed an ever-escalating interest rates and deteriorating exchange rate between US dollars and Liberia, which stands at $1 to 190 LD$. 

IMF Embrace, a Departure from Earlier Stance

President Weah acknowledged that an IMF program requires greater discipline across government budgets.  “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.”

In the early days after taking office, when the administration found itself chasing questionable loans from little-known and questionable firms like Eton Financial Private Limited and the conflict-of-interest-ridden EBOMAF, the president and his aides took critics to task for raising red flags that such loan ventures were not in line with the IMF and the World Bank.

A few weeks ago, Ambassador Christine Elder, the United States Ambassador accredited to Liberia brought the debate to the spotlight once more, urging the Weah administration to remain open to recommendations of the IMF in order to pave the way for economic productivity and prosperity for Liberia.

Ambassador Elder made the remarks at the 243rd Independence Day Celebration, “The time is now to reverse corruption and its corrosive and contagious effects.  The time is now to strengthen an economy that provides opportunities in more sectors and where open and transparent competition rules the day… I applaud you, Mr. President, for opening discussions with the International Monetary Fund regarding measures that could restore confidence in the economy and set the stage for growth ahead.  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.”

On Wednesday, the President finally obliged, declaring that his administration will shortly be laying out a series of policy measures he says are intended to stabilize the economy in the short term, and position it for growth in the medium to long term. “We are working with stakeholders on measures that are intended to bring down prices. We are working to attract new investments in agriculture. 

“And we are working to improve our business climate to reduce the costs and hurdles of doing business in Liberia. We are privileged to have the support of the United Nations, the African Union and ECOWAS, as well as our other international partners who have invested in our future, and who continue to offer the assistance and advice we need to improve our country.  We wish to assure our international development partners that we are committed to upholding the norms of good governance.”

Eyeing Ghana, Rwanda, Senegal Trail

Pointing to other African countries, including Ghana, Rwanda, and Senegal, that have benefited from IMF programs, President Weah appeared hopeful that Liberia is capable of following suit. 

Former Auditor General John Morlu said Wednesday that the process can be grueling and painful. “Once a country is put under the program, it could take decades to graduate. Ghana finally graduated in March 2019 after nearly twenty years. While people in international circles do not want to admit because of the suffering and near instabilities of many African countries in the 1980s, the IMF program looks and walks like a “Structure Adjustment Program that can help countries but a greater short term pains.” 

The IMF giving the tone of its last report is likely to push deep cuts in government spending, tighter controls over governance of public corporations, reduce corruption, ensure strong financial sector, which are all aimed are improve governance and macroeconomic stability. Unlike Ghana and other countries who have survived IMF rigid monitoring, Liberia is heavily dependent on the public sector with a strong and enduring patronage system, analysts wondered how the government will reduce the wage bill without much suffering will be the greatest challenge to the government.  

President Nana Akufo-Addo, who ran on a campaign pledge to take “Ghana Beyond Aid,” when he ran two years ago, has reduced budget deficits under his watch,  narrowed, inflation lowered, debt levels stabilized and economic growth is accelerating, estimated at 5.6 percent for last year and 7.6 percent for 2019. 

Bloomberg News quoted the Ghanaian President in March as saying: “It’s about a fundamental and basic matter all of us as Ghanaians have to bear in mind, and that is discipline in the management of our public finances. You don’t spend money that you don’t have, that is always the road to chaos.”

Today, Paul Kagame’s Rwanda is winning praise for structural economic reforms but it too went through the program. In the 1960s and 1970s, Rwanda’s prudent financial policies, coupled with generous external aid and relatively favorable terms of trade, resulted in sustained growth in per capita income and low inflation rates. However, when world coffee prices fell sharply in the 1980s, growth became erratic.

Compared to an annual GDP growth rate of 6.5% from 1973 to 1980, growth slowed to an average of 2.9% a year from 1980 through 1985 and was stagnant from 1986 to 1990. 

The crisis peaked in 1990 when the first measures of an IMF structural adjustment program were carried out. While the program was not fully implemented before the war, key measures such as two large devaluations and the removal of official prices were enacted. The consequences on salaries and purchasing power were rapid and dramatic. This crisis particularly affected the educated elite, most of whom were employed in civil service or state-owned enterprises.

During the 5 years of civil war that culminated in the 1994 genocide, GDP declined in 3 out of 5 years, posting a rapid decline at more than 40% in 1994, the year of the genocide. The 9% increase in real GDP for 1995, the first postwar year, signaled the resurgence of economic activity.

This year, according to the IMF, Rwanda’s prudent management of its debt is registering notable progress in sustaining high and inclusive growth. The IMF says careful management of Rwanda’s debt is mainly attributed to the fact that the government has made to choose to keep a low risk of debt distress status as an anchor to its fiscal policy. This has been achieved through a process of careful prioritization and selection of projects.

Preliminary results of the debt sustainability analysis show that the risk of Rwanda’s debt remains low with a present value of debt to GDP reaching 32.9% against a threshold of 50%. The share of concessional loans in the total debt stock stood at 63% as of end 2018 compared to a level of 57.4% as of end 2017. Thanks to the country’s debt strategy to maximize concessional borrowing in favor of commercial borrowing.

Rwanda’s economy has grown by 8.6% in 2018 driven by robust activities in all sectors of the economy. At the same time inflation remained well below Central Bank’s targeted inflation range of 2-8% reflecting ample food supplies and low inflationary pressures.

Until the IMF came in, Senegal was in the midst of a major economic crisis with the devaluation of the CFA franc. The IMF, the World Bank  and other multilateral and creditors stepped in with support through structural and sectoral adjustment programs aimed at facilitating growth and development by reducing the role of government in the economy, improving public sector management, enhancing incentives for the private sector, and reducing poverty.

In January 1994, Senegal undertook a radical economic reform program at the behest of the international donor community, beginning with a 50% devaluation of Senegal’s currency, the CFA franc, which was linked at a fixed rate to the French franc. Government price controls and subsidies have been steadily dismantled as another economic reform.

The currency devaluation had severe social consequences, because most essential goods were imported. Overnight, the price of goods such as milk, rice, fertilizer and machinery doubled. As a result, Senegal suffered a large exodus, with many of the most educated people and those who could afford it choosing to leave the country.

After an economic contraction of 2.1% in 1993, Senegal made an important turnaround, thanks to the reform program, with a growth in GDP averaging over 5% annually during 1995-2004. Annual inflation had been pushed down to the low single digits.

In January, the IMF delegation to Dakar reported that Senegal’s macroeconomic situation was stable. “Real GDP growth in 2017 was 7.2 percent and is projected to remain robust at 6.2 percent in 2018, while inflation remains low. The fiscal deficit is projected to reach 3.5 percent of GDP in 2018 and the 2019 budget is in line with the WAEMU fiscal deficit convergence criterion of 3 percent of GDP.”

In Liberia, the contrast to the three countries President Weah pointed to Wednesday remains glaring. In the President’s own words. “The economic challenge we face today has to do with the structure of our economy. We have lost significant revenue from the fall in the prices of iron ore and rubber, and several of our rubber farmers have lost their income and ability to spend in the economy. Liberia is no longer receiving the emergency aid that came in the years after war, and large grants from our multilateral partners have also dried up. The amount of remittances we receive from abroad in US dollars has also declined.” 

The President noted that the prevailing realities are complicating the nation’s macroeconomic situation. “The sudden drop in US dollar inflows puts pressure on the economy, and devalues the Liberian dollar, moving prices upward. The macroeconomic policies we have today are policies tailored to the time that we had free inflows of United States dollars. We are now changing these policies to reflect the economic realities of our time.”

Factors Determine IMF Program’s Success

Morlu added, “honestly there is nothing IMF is going to ask Liberia to do that Liberia should be doing on its own. Manage your debt.  Don’t spend more than you have and if you borrow ensure that you have the short, medium and long term capacity to repay, do not print money just to pay bills when your productive capacity is low to support the printing,  don’t use your foreign reserve to give loans to business or pay salaries, do not take donor money when it is for you, and the obvious, do not steal from the government by taking small bribes to give away $18 billion worth of natural resources to foreign interests. Pretty common sense things we do in our own lives or we should do in our own lives.” 

As this report went to press the US dollar exchange rate were hitting nearly 192.5 on average in most areas across the country. 

While President Weah acknowledged that he is aware of the difficulties and hardships that the rising exchange rate is causing Liberians and the effect it is having on prices of all goods and commodities in the market, many Liberians are growing weary as the clock toward June 7th.

As Ghana, Rwanda and Senegal has seen, the rigidness of the IMF straight-jacket program remains a challenge. 

Stephen R. Weissman, a former US  Congressman who once served on the House of Representatives, Subcommittee on Africa said some years back that while structural adjustment in Ghana and Senegal have helped create an improved framework for economic growth, the program is a fragile trend, one that could be disrupted by bad weather, adverse terms of trade, and the vagaries of international assistance.

Weissman argued, “The current version of adjustment, however, has produced little enduring poverty alleviation. A weak performance on equity issues, together with rising political expectations, has generated threats to the sustainability of structural adjustment and overall political stability. Alternatively, adjustment policies can be modified to fully incorporate equity and sustainability objectives. In this respect, it is critical for the poor to obtain more effective representation in decision-making on adjustment through indigenous nongovernment organizations.”

On paper and in his address Wednesday, President Weah appeared ready to play by the rules of the international stakeholders. “Our actions will involve reform of our large wage bill; rationalizing Government spending to put more resources to critical sectors like health, education and agriculture; improving the way Government makes payments to Government entities and vendors who supply the Government with goods and services; and some actions on domestic arrears that the Government owes local vendors as a stimulus to the economy.”

On the monetary front, the President said his administration is taking actions to instill greater confidence in the Central Bank of Liberia and the banking sector at large. “The integrity and independence of the Central Bank will be assured and protected under my administration, and this resolve will be critical in the years ahead.”

Engulfed in Sea of International Concerns

More importantly, the President pledge that his administration will no longer borrow money from the Central Bank. “In this regard, I wish to announce that the Government of Liberia, under my leadership, will no longer borrow from the Central Bank of Liberia for its short-term liquidity needs.” But the President provided no further guidance as to how it intends to manage its short-term liquidity issues. 

For monetary policy to work, the President averred, Liberians must develop confidence in the banking sector and announced plans that his government would introduce measures to restore confidence in the local currency.  “Today, most of the Liberian dollars in our economy is outside the banking sector. We are shortly going to announce new policy initiatives that should increase the confidence of Liberians in the Liberian dollar. These polices will provide strong incentives for Liberians to keep their money in the bank and for commercial banks to invest more in the Liberian dollar economy.”

New policies aside, the Weah-led government remains engulfed under a sea of international concerns regarding the misdirection of millions of dollars in donor funding,  with key stakeholders demanding that those funds be put back into their coffers.

The aftermath and lingering effect of the missing billions saga and the US$25 million mop-up money remain a daunting challenge for an administration finally looking to make amends for earlier missteps. 

But how soon it recovers and how speedily those in the president’s circle move to ease the burden brought on by a doze of bad governance and administrative lapses could prove decisive as President Weah embraces a structural adjustment program that could take years to bear fruits, a program that comes with severe short-term pains.