The International Monetary Fund's (IMF) assessment of Liberia's economy under the 2019 Article IV Mission has presented gross decline in growth with the expectation that the country may encounter further decline that would pose much hardship on the people.
In its finding, the IMF says Liberia's macroeconomic stability has proved elusive despite improved revenue collection in the first half of Fiscal Year 2019, and the fiscal stance has loosened significantly.
The assessment report indicates that growth for 2018 is estimated at 1.2 percent, while the forecast for 2019 on current policies has been revised down to 0.4 percent from 4.7 percent. In this regard, the IMF noted with emphasis that revenue reforms have considerable potential to directly expand the resource envelope and facilitate a needed increase in social spending.
The IMF team lead by Mika Saito, conducted the assessment from February 25 to March 8, 2019 in Monrovia.
In a statement following the assessment, Ms. Saito said "Liberia's economic situation is challenging, and strong policy actions will be required to maintain as favorable an outlook as anticipated at this time last year."
Noting further, Ms. Saito said with accommodative monetary policy meeting fiscal needs, the exchange rate depreciated by 26 percent over the year, and inflation accelerated to 28 percent at the end of December, 2018.
"This is detrimental to the living standards of the most vulnerable Liberians, who earn and spend primarily in Liberian dollars and threatens the success of the pro-poor agenda," Ms Saito said.
According to her, discussion with the Liberian authorities centered on the policies required to address the current situation and promote strong noninflationary growth over the medium term.
Ms Saito and her team also noted that the commencement of sales of central banks bills, supplemented by the introduction of the standing deposit, and credit facilities in the inter-bank market represent major milestones in modernizing the monetary policy framework.
To set up appropriate preconditions, according to the IMF team, will bring about a timely reduction of the rate of inflation to single digits. One of those appropriate preconditions suggested by the IMF team is that the government refrains from borrowing from the Central Bank.
The mission recommended that the budget for fiscal year 2020 be based on realistic estimates of the resource envelope. Giving ministries and agencies a reliable estimate of the actual resources that will be available to them is critical to improving the quality of public services, even if this represents less than the amount budgeted in the past.
"Without central bank borrowing, financing a sufficient level of public service provision will require policies to prioritize and improve the composition of expenditure, enhance its efficiency, and expand the resource envelope," the IMF team noted.
In furtherance, the mission notes that productive spending is being crowded out by a wage bill, including discretionary allowances that total about two-thirds of government-funded expenditure.
Accordingly, this is not a new issue - it has been a characteristic of the Liberian economy for a number of years; however, as grants and other external assistance decline, this is no longer a reasonable situation.
The cautioned that freeing up resources in an equitable manner for pro-poor development will likely require effective actions to reduce the share of government resources devoted to this budget item.
The IMF visiting team went on to say that "Improving the efficiency of government spending will be key, emphasizing policies aimed at improving the monitoring, accountability, and transparency of spending, intensifying actions to improve governance and fight corruption, including adherence to existing procurement rules as effective ways to arrest the situation facing the macroeconomic climate of Liberia.
It (team) said revenue reforms have considerable potential to directly expand the resource envelope and facilitate a needed increase in social spending, noting the recent finalization of the Domestic Revenue Mobilization Strategy and recommending that the authorities pursue the envisaged reforms, including excise tax, tax exemptions, and compliance.
According to IMF mission, increased uncertainty and volatility in the external environment argues for further measures to safeguarding the foreign exchange reserves of the central bank.
The mission noted that creation of a well-functioning monetary policy framework would reduce the need for foreign exchange intervention. Acceptance of greater exchange rate flexibility would help preserve reserve stocks and help absorb external shocks. In addition, reducing the central bank's operational deficit would be vital.
"The investigative reports by the Presidential Investigative Team and by Kroll Associates point to a need for substantial improvements in operational policies, guidelines, and compliance. We encourage the Liberian authorities to take advantage of available support from the international community to make much-needed remedial actions in these areas," the IMF visiting team noted.
The mission notes the need for significant action to improve the business climate and provide the enabling environment required for private sector-led growth. Removing administrative constraints on imports and prices to boost the level of competition, while ensuring quality and safety standards, should be prioritized. Liberia should step up efforts to strengthen governance and anti-corruption efforts as envisaged in the government's pro-poor agenda, as it would create an environment conducive to private sector-led inclusive growth."
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.
The IMF team met with President George Weah, Speaker of the House of Representatives Bhofal Chambers, Minister of Finance and Development Planning Samuel Tweah, Minister of Commerce and Industry Wilson Tarpeh, Governor of the Central Bank of Liberia Nathaniel Patray, other senior government officials, private sector representatives and development partners.