Our attention has been drawn to the Tuesday, June 18, 2019, edition of the print and online versions of your outlet (FrontPageAfrica) under the banner headline "Grant or Loan? Liberia, IMF in Deadlock Over US$100M From EJS Era." The story asks "Was it a loan from the IMF to the Sirleaf administration or a grant? Either way, where did the money go?" Our response was delayed out of respect for President George Weah's wishes for an IMF program to help resuscitate the struggling Liberian economy, in response to which an IMF Mission was in the country when your outlet ran the story it attributed to Ministry of Finance and Development Planning (MFDP) sources.
The question as to whether resources received from the International Monetary Fund (IMF) were loan or grant is one that no one working in the Ministry of Finance and Development Planning would dare to ask publicly, given the direct access they have to the answer. That this question has surfaced from within MFDP shows that the leaker of this story is new to the Ministry, has not attempted to read available information about those facilities, and is therefore an embarrassment to the MFDP's predominantly critical-thinking staff that served me and my predecessors so well.
I say this because the facilities upon which those resources are drawn have in their names, the word "credit." The long and short answer to the question is: it was a Grant and a Loan - IMF Support to Liberia's Ebola Response and Recovery amounted to $82.2 Million
There are three windows under which Liberia has withdrawn funds from the IMF since the country reached the Heavily Indebted Poor Countries (HIPC) Completion Point in 2010: The Extended Credit Facility (ECF); the Rapid Credit Facility (RCF) and Catastrophe Containment and Relief (CCR) Trust. It goes without saying that the first two are "credit facilities." It is, therefore, unimaginable that such questions as "grant or loan" would be asked. If the intent is to malign the reputation of those who managed the economy in the past, the risk is that those asking the questions are unknowingly impugning the reputation of the very IMF whose support they seek. Why constantly shoot yourself in the legs simply because you intend to destroy your fellow countrymen?
First, let me just put on the record that the very same reserve from which the Government took the US$25 million to carry out its very unconventional mop-up exercise in 2018 is part of the Extended Credit Facility (ECF) for which they might be asking this question. Under the IMF's ECF program, whenever we achieved our agreed benchmarks, the IMF Board of Governors would approve the disbursement of certain amounts to be put in our Reserves Account at the Federal Reserve of New York to be managed exclusively by the Central Bank for balance of payment support. Liberia's Balance of Payments refers to all the economic transactions that occur between our country and the rest of the world in a particular period of time. Liberia's BOP is negative because we are a net importer of key commodities.
I would like to share the following timeline chronicling the IMF's Extended Credit Facility (ECF) support to Liberia during President Ellen Johnson Sirleaf's second term (2012 to 2017), which highlights the Fund's Ebola epidemic support (2014 and 2015). I served as Minister of Finance from February 2012 to April 2016:
November 2012 - The IMF's Executive Board approves $79.9 million for Liberia as a three-year (2012-2015) ECF loan: https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr14328;
Late 2013 - The Ebola Virus Disease breaks out in Guinea, Liberia and Sierra Leone. The largest Ebola outbreak in history affected Liberia more severely than the other countries, with an unprecedented public health crisis that affected more than 8,577 Liberians and killed3,694 until its containment in early 2016;
2014 to 2015 -Liberia's economy is crippled by the outbreak. The significant decline in economic activity renders fiscal and external financing needs more pronounced. With the high cost of the containment effort and lower investment in agriculture, mining, forestry and infrastructure, the economy stagnates in 2014 and contracts in 2015;
September 2014 -The IMF Board approves $49 million of additional emergency financial assistance to Liberia under the initial three-year $79.9 million ECF loan facility approved in November 2012. These funds are disbursed on an ad hoc basis (when necessary or as needed) and based on prevailing Special Drawing Rights (SDR) calculations, taking total funds available under the ECF to about $130 million. The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. The value of the SDR is based on a basket of five currencies - the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling;
November 27, 2014 - President Sirleaf signs the FY14/15 budget into law, following long and very difficult negotiations between MFDP and the Legislature over the revenue and expenditure envelopes.
Compared with the draft budget the Executive Branch had presented to the Legislature in June 2014 before the Ebola epidemic was declared by WHO a public health crisis, the projected domestic revenue envelope had decreased by US$87 million (4 percent of GDP), reflecting the decline in economic activity.
Meanwhile, recurrent expenditures had increased by US$65 million (3 percent of GDP) due to direct and indirect Ebola-related spending, mostly support for health, education, agriculture and small and medium enterprises (SMEs). This was in addition to the total US$97 million in capital spending envisaged in the draft budget for reconstruction activities, of which US$34 million represented exposures on commercial bank balance sheets due to lending to construction companies for public road projects.
As a result, the budgeted fiscal deficit (shortfall), excluding grants, increased sharply to 9 percent of GDP by November 2014. Before Ebola, we had maintained the fiscal deficit (shortfall) steady at about 1½ percent of GDP.
January 2015 - The GoL requests a disbursement under the IMF's Rapid Credit Facility (RCF), as well as debt relief under the Catastrophe Containment and Relief (CCR) Trust to free up space to address the aforementioned Ebola-related challenges.
February 27, 2015 - The IMF Board responds, approving a total of $82.2 million (not $100 million) comprising the following:
A US$45.6 million loan (equivalent to SDR 32.3 million) under RCF, to support the fight against Ebola by covering urgent budgetary and balance of payments needs and strengthening international reserves. https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr1569; and
A $36.5 million grant in debt relief from the Catastrophe Containment and Relief (CCR) Trust, a newly established trust set up to help low-income countries recover from natural disasters. This money does not come into the bank but rather removes some of the Government's debt obligations to the Fund. https://www.imf.org/en/News/Articles/2015/09/28/04/53/socar022415a
The ECF, Governance Reforms and the Bottom Line
In December 2005, Liberia's net reserve position was recorded at $6.5 million. By December 2017 that figure had catapulted to $156 million. It took 12 years of heavy lifting by the entire GoL to deliver on agreed policy reforms to achieve that.
Those policy reforms achieved over the period 2006 and 2016 included: improving governance and rebuilding institutions; resuming exports of our primary commodities; rehabilitating key infrastructure; and starting the provision of basic services to pre-war levels. Although starting from a low base, the World Bank reported in 2016 that Liberia had shown the largest improvement in its Country Policy and Institutional Assessment (CPIA) rating out of all the fragile sub-Saharan African countries, during this period.
These reforms - and the Sirleaf Administration's firm commitment to achieving them - also triggered major support from all our partners, including the IMF. In turn, that support enabled us to make progress on those reforms, while maintaining macroeconomic stability in the best and worst of times. Some of those in the current regime that are denigrating these achievements today were also members of the Sirleaf regime and gladly took some of the credit.
Signing onto an IMF ECF program provides the government a pathway to qualifying for SDR under the ECF. That money is placed to assist with the gross reserves position to help contain the balance of payments challenges associated with Liberia being an import intensive country. It also helps us address our exchange rate challenges in a dual currency regime. The government does not draw down on that amount. According to the CBL Annual Report for 2017: "Liberia's gross international reserves position (including SDRs and Reserve Tranche) at end-December 2017 was recorded at US$517.0 million, [which includes] a net reserve of 154.8 million."
It is through the ECF that we were able to accumulate net reserves by working very hard to meet agreed conditions. There is no precedent for seeking Legislative ratification from IMF's member states because under the ECF's Articles of Agreement, the IMF may allocate SDRs to members countries only when certain conditions to build up reserves are met or during a major crisis as was the case of the Ebola epidemic. To build up reserves, the GoL does not write a check to the Federal Reserve Bank of New York, the CBL's correspondent bank. Liberia is only entitled to that net reserves for balance of payment support in times of crisis.
However, due to the nature of the Ebola Virus Disease and the devastating impacts it was having on the economy, the IMF provided flexible support, which could be used to stabilize the economy by closing the fiscal deficit. The government of Liberia effectively achieved this through increased allocations to health, education and other sectors, as well as disbursing to road contractors to ease the fiscal risks that commercial banks were exposed to due to their huge lending to road contractors through a supplemental budget. It is important to note that the Executive Branch, through the MFDP, sought legislative approval for all disbursements and, payments in compliance with our established public financial management rules and regulations.
Moving forward, pushing ahead with ongoing reforms is imperative to securing and maintaining IMF support - along with that of our all other traditional partners - to consolidate past gains and improve resilience. Therefore, we encourage our officials to get a better understanding of the matters they discuss in the public domain, if only to preserve what is left of our national image and economic stability. Those who are leaking false stories to the media without understanding the proper context are not helping President Weah and his regime. I also urge all Liberians to embrace and actively support President Weah's endorsement of an IMF program, when he addressed the nation on May 30, 2019. Though an IMF program is not a panacea to Liberia's deep-seated structural challenges that require both adaptive and technical solutions, it would certainly help the GoL address the technical economic challenges our nations is currently facing.
I would like to conclude by suggesting that our current officials please take some time to unbiasedly review the files before they make public statements or leak false stories to the press. Everything I have written here is in the files at MFDP and CBL. If they are unable to research the files, a simple phone call, text message or an email to their predecessors for briefs and context would save the government and country diplomatic embarrassments. They may not know it but speaking loosely and leaking false information driven by emotions to settle political scores make some of our officials look incompetent, which reflects negatively on our President, government and country. Political campaigns ended eighteen months ago; it is now time to help the President govern. The President and Liberian people deserve better!
Amara M. Konneh
Former Minister of Finance and Development Planning