-- Acknowledges economic challenges
A mission from the International Monetary Fund (IMF), led by Mika Saito, visited Monrovia June 12 thru 24, 2019 to discuss possible financial support under the Extended Credit Facility.
The mission supports the authorities' objectives of restoring macroeconomic balance in the near-term, addressing weaknesses in governance and institutions of the public sector, improving the business climate, and putting Liberia on a fiscally sustainable and inclusive growth path.
Towards these aims, good progress was made in a number of important areas, including the contours of the FY2020 budget, the stance and modalities of monetary policy, and a structural reform program that is consistent with the Government's Pro-Poor Agenda for Prosperity and Development. Discussions will continue over the period ahead.
The mission held discussions with President George Manneh Weah, Speaker of the House of Representatives Dr. Bhofal Chambers, President Pro Tempore of the Senate Albert Chie, Finance Minister Samuel D. Tweah, Central Bank Governor Nathaniel R. Patray, Minister of Commerce Wilson K. Tarpeh, Members of the House and Senate, senior government and central bank officials, and development partners.
At the end of the mission, Ms. Saito issued the following statement:
"Following a series of external shocks--including a fall in key commodity prices, the lingering effects of Ebola, and the rapid depreciation of the exchange rate that followed--the economic situation facing Liberia has proved challenging. Growth has slowed, reserve stocks have come under significant pressure, and macroeconomic imbalances have increased.
Inflation accelerated, and now stands at about 23 percent. The difficult economic conditions and loss of purchasing power are being felt particularly by the most vulnerable members of society, many of whom are experiencing significant hardship. Macroeconomic stabilization, particularly a lowering of inflation, is the immediate priority.
"The success of the reform agenda is predicated on the adoption of a credible and executable budget for FY2020 and beyond. In addition, participation across all groups within the public sector is essential to support the reform agenda.
"Key to this is that expenditure be held to a level consistent with realistic estimates of the resource envelope, so that budget execution in the coming year can proceed with predictability and efficiency. This is needed to support the provision of essential public services and avoid the accumulation of domestic arrears.
"Securing enough resources to fund an efficient government expenditure program will require both additional revenue measures and reforms to reallocate expenditure. The latter requires a reduction in the size of the public sector wage bill, as it currently accounts for almost 65 percent of total budget expenditure and is effectively crowding out needed spending in other areas. Full implementation of a credible and equitable wage restructuring program is essential to the success of the overall reform agenda.
"The mission noted the importance of rebuilding foreign exchange reserves to improve resilience to externals shocks, which is one of the key objectives of Fund-supported programs. The mission also highlighted the importance of allowing the exchange rate to remain flexible and improving the transparency of CBL's foreign exchange operations.
"The mission welcomes the new monetary policy framework developed by the Central Bank of Liberia (CBL), aiming to better manage monetary conditions to achieve price stability.
In this regard, the mission supports the CBL's intention to achieve greater alignment of interest rates on its newly introduced monetary policy instruments. The mission notes, however, that success of the new monetary policy framework will also hinge on a successful fiscal program and the elimination of additional government borrowing from the CBL.
"The reform agenda will also place requirements on managing the CBL's operational budget, improving internal controls and oversight, and strengthening governance. The mission welcomed the recent appointment of non-executive Governors of the CBL and the two acting deputy governors--as essential for improvement in the bank's operational efficiency and governance.
"Discussions also included a package of growth-enhancing structural reforms to strengthen public financial management, reduce corruption, and improve the business climate. In this regard, the mission noted the need to improve private sector confidence in the reform agenda, the attainment of better economic outturns in the years ahead, and on government's commitment to working closely with business to remove unnecessary administrative barriers and reduce corruption.
"The Mission would like to thank the authorities for the excellent cooperation it received, and for the candid and constructive discussions that facilitated a productive exchange of views. It looks forward to further discussions to follow in the period ahead."