The Executive Board of the International Monetary Fund (IMF) has announced the approval of a three-year Extended Credit Facility (ECF) Arrangement for Liberia in an amount of S$78.9 million.
The overall amount of the program represents 40 percent of Liberia's quota in the IMF and the approval enables the immediate disbursement of about US$11.3 million towards Liberia's development agenda. The IMF Executive Board also concluded the 2012 Article IV consultations with Liberia, which will be detailed in a Public Information Notice in due course.
Mr. Min Zhu, Deputy Managing Director and Acting Chair, in approving the milestone achievement for Liberia said there has strong macroeconomic gains in the country under the recent Extended Credit Facility (ECF) arrangement supported by the Fund.
According to Mr. Zhu, economic growth in Liberia has been robust and that inflation has been largely contained while international reserves have been built up and external debt reduced through substantial debt relief.
The IMF Executive however stated that reforms are needed to promote broad-based growth, reduce poverty, and create jobs, particularly for the youth. He said the new ECF arrangement aims to support Liberia's second poverty reduction strategy.
According to him the policy priorities focus on safeguarding macroeconomic stability and laying the basis for faster and diversified growth through a substantial scaling up of infrastructure and social investments.
"Growth will be underpinned by sound macroeconomic policies, higher investment, and vigorous implementation of structural reforms. Fiscal reforms focus on containing current spending, particularly the wage bill, and strengthening budget execution and controls, through improvements in public financial management.
An increase in external debt limits will allow a scaling up of critical growth-enhancing investments while maintaining debt sustainability. Measures are also planned to further improve governance and transparency, including financial oversight of state-owned enterprises, streamlining procurement procedures, improving project execution, and establishing a natural resource revenue unit at the Ministry of Finance. Financial sector reforms focus on reducing vulnerabilities and improving access to credit."
Recent Economic Developments
Liberia made strong macroeconomic gains under a successful ECF program initially approved in 2008 for three years and later extended to May 2012. The short- to medium-term outlook remains favorable, although subject to considerable risks. Following an initial post-conflict boost, economic growth has averaged 7 percent a year since 2009 (mostly from non-mining activities before the resumption of iron ore exports in late 2011), while inflation has been largely contained at or near single digits.
With the resumption of iron ore exports in 2011, real gross domestic product (GDP) growth is estimated at close to 9 percent in 2012, supported by strong growth in the mining sector and expansionary fiscal policy to accommodate a scaling up of infrastructure investment.
Foreign direct investment is increasing. Following spikes in food and fuel prices in 2011 and early 2012, U.S. dollar-denominated inflation declined to under 4 percent by end-June and is expected to remain in single digits through end-2012.
The trade deficit has widened since 2010 reflecting concession-financed capital imports and rising food and fuel import prices which more than offset the increase in iron ore exports. Reserve coverage has remained relatively stable at about 2Â½ months of imports.
Nevertheless, Liberia's macroeconomic stability has been hard won and its development challenges are daunting. It remains a poor country, with massive infrastructure gaps and large development needs.
Poverty remains pervasive (at 84 percent of the population), and Liberia ranks near the bottom of the UN's Human Development Index (HDI) and is unlikely to meet many of its Millennium Development Goals.