9 April 2014

Liberia: IMF Confirms Massive Liberia Budget Shortfall, Probe in $100 Million Road Works

Photo: The New Dawn
Minister of Finance, Amara Konneh

Monrovia — The International Monetary Fund says budget implementation through December 2013 for Liberia was constrained by revenue shortfalls. "The overall fiscal deficit is still projected to reach 3.8 percent of GDP in 2014 (fiscal year), as envisaged at the time of the last review, as the authorities were able to reduce current spending. The authorities are strongly committed to preserving current expenditure savings and to implementing decisive measures to raise revenue collection in the reminder of the fiscal year, including by addressing the backlog of taxes in the concessions sector and collecting fees owed by state entities," according to a mission statement from the world monetary body.

Addressing significant shortcomings that have emerged in the budget process and expenditure controls, the IMF statement said, will be critical in the coming months. "In recent weeks, it has become clear that that a significant number of road contracts were being implemented without corresponding budgetary allocations. The authorities are initiating external audits of the financial and technical aspects of these projects, and are working with relevant stakeholders to ensure commitments outside the budget do not occur again."

FrontPageAfrica, quoting sources reported last week the IMF could be reluctant to provide additional loan facilities and the World Bank could stall funding for ongoing road projects until Liberia can provide a credible explanation as to how almost 100 million United States dollars of unplanned road work was contracted, raising a lot of unanswered questions with the banks holding the empty bag

The FPA report noted the visit to Liberia last week by a team of representatives from the International Monetary Fund (IMF) who raised eyebrows and drew attention to a large number of road construction projects that have been contracted outside of the Public Financial Management (PFM) law, Public Procurement and Concession Commission (PPCC) and violated the country's budget laws. Some estimates place the value of the road projects between 80 to 100 million US dollars. At issue is how such a large amount of public monies could be contracted to companies by the use of what is now perceived as illegal procedures and how the banks could use the documentation from such illegal transaction to loan out potentially 100 million dollars. According to sources within the Ministry of Public Works, the IMF asked pointed questions about how the procurement process for public roads could have broken down completely with junior ministers using a document called "Authority to Proceed". The total value of the letters is unknown, but it is believed that the government has acknowledged at least US$80 million dollars of the projected US$100 million worth of projects underwritten by these letters. Among the primary concerns is how the government of Liberia is managing the resources, particularly several road constructions valued at more than US$80 million dollars. Were the projects duly budgeted for? What role did the Finance Ministry play? Before any contract is signed, the Ministry of finance must make sure that the payment schedule aligns with the cash plan and the Minister of Justice must attest to all contracts valued over 250,000 US dollars.

"Addressing significant shortcomings that have emerged in the budget process and expenditure controls will be critical in the coming months. In recent weeks, it has become clear that a significant number of road contracts were being implemented without corresponding budgetary allocations. The authorities are initiating external audits of the financial and technical aspects of these projects, and are working with relevant stakeholders to ensure commitments outside the budget do not occur again."

The International Monetary Fund

As a result of the quagmire, a lot of contractors are indebted to banks because they took loans guaranteed by the documentation from the Ministry of Public Works to undertake projects in hopes that they would be reimbursed when the government pays them but that has not been the case. This has now become a classic case of Catch 22: How the government decides to pay almost 100 million dollars without proper documentation in most cases and did the government get value for money? Many in the construction industry say an investigation into the procedures could unearth irregularities as many people without any background in road works formed companies and were granted these letters routinely. What concerns the IMF is how the Ministry of Public Works could have made road works priorities that were not in the Medium Term Financing Framework (MTEF). According to sources, most of the letters and contracts in question were signed by Deputy Ministers Victor Smith and Stephen Yekerson. What is unclear is the role played by the former Minister of Public Works, Attorney Samuel Kofi Woods.

What is also unclear is the role of the government of Liberia through the Ministries Economic Planning and Finance which rolled out the MTEF or a multiyear budgeting framework, which took effect in 2012. The MTEF is a 3 year rolling expenditure plan that showed a detailed budget for the current year with projected figures for the following two years and provided opportunity for Ministries and Agencies like the Ministry of Public Works and other agencies to plan for costing of the project over a medium term period.

The Ministry of Public Works has the statutory mandate to supervise construction projects in the country. The Ministry was created by an Act of the National Legislature in 1928 and is mandated inter alia, to plan, draft, design supervise construction and maintenance of all public infrastructures.

In its 2013-2014 objectives as indicated in the National Budget, the Ministry of Public Works stated that it will complete 600km of ongoing primary roads, 400km ongoing secondary roads, 30km ongoing urban roads and 300km ongoing feeder roads. Maintain 229km of primary paved roads, 1,030km of primary laterite roads and343km feeder roads. Rehabilitate 232km of paved primary roads, 149km paved urban roads, 89km secondary laterite road and 520km feeder roads. Design and construct 12km of new secondary, urban roads. Monitor and evaluate projects nationwide.

In the current 2013-2014 national budget, the Ministry was the second highest recipient of budgetary allotment, with US$107,018,018 allotted the Ministry next to the ministry of Health and social welfare. Donor project accounts for US$100,524,231 about 93.3% out of the total budget of the Ministry an indication of the huge support by donors including the IMF, World Bank and others to the Ministry. Grants also account for US$1,094,771 of the Ministry's budget.

The entity's US$ 107,018,018 budget is a breakdown, into- road and building construction (74,467,814); rural infrastructure and community services (19,992,381); highway maintenance services (3,291,711); planning and programming services (248,099); administration and management (1,768,354) and general claims (1,094,771). With an amount of US$74,467,814 for road and building construction, the question lingering is why are there so many unfinished road projects across the country which could lead to doubts on whether the Ministry of Public Works has been receiving its funding for these projects or the Ministry of Finance is unable to provide the funding.

The IMF's statement follows a mission from the International Monetary Fund (IMF), led by Ms. Corinne Deléchat, after a visit to Monrovia from March 17 to April 1, 2014 to conduct the third review of the government's economic program supported by the IMF under an Extended Credit Facility (ECF) arrangement. The mission met with the Minister of Finance, Amara Konneh, Central Bank Governor Joseph Mills-Jones, and other high-level government officials. The mission also held constructive discussions with members of the donor community and the private sector.

At the end of the visit, Ms. Deléchat issued the following statement:

"Liberia's economic performance in 2013 was strong and the outlook for 2014 is positive. Real GDP growth is estimated at 8.7 percent in 2013 reflecting increased iron ore production and an acceleration in private and public investment. For 2014, GDP growth is projected to moderate to about 6 percent, as mining output stabilizes.

"The authorities have taken a number of measures to enhance Liberian dollar liquidity management to help contain exchange rate and inflationary pressures. This includes stepped up coordination between the Ministry of Finance and the Central Bank of Liberia to better manage the issuances of T-bills and CBL bills.

"Program performance has improved relative to the last review. Most end-December 2013 quantitative targets were met, and the authorities continue to make good strides in the implementation of their structural reform agenda. In addition, good progress is being made towards the benchmarks for the first half of 2014.

"The next phase of the program focuses on actions to strengthen the budget process and improve public financial management, boost revenue collection, and enhance the monetary and exchange rate policy framework.

The authorities and IMF staff will continue discussions on these issues during the IMF-World Bank Spring Meetings in Washington next week with the objective of reaching an agreement, and referendum, on a package of policies that would pave the way for completing the review. Once agreement is reached, and pending the regular internal review process, the IMF Executive Board consideration of the conclusion of the third review of the ECF-supported program is envisaged for the end of June 2014.

"The mission wishes to thank the authorities for their hospitality and the quality of the policy dialogue."

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