Liberia: IMF Oks Agreement On Economic, Financial Program That Could Be Supported Under Extended Credit Facility

Waterside Market in Monrovia

Washington — In what could be a small break for Liberia's struggling economy, the International Monetary Fund staff and the government have reached a staff-level agreement on a new program subject to fulfillment of significant prior actions in the fiscal and monetary areas.\

The IMF in a statement Tuesday said the key objectives of the program are to restore macroeconomic stability, provide a foundation for fiscally sustainable, inclusive growth, and address weaknesses in governance.

Deal Comes Amid Protests, Noise

One of the key elements of the program, according to the IMF is the implementation of a 2020 budget that constrains expenditure to available resources and avoids inflationary and reserve-depleting borrowing from the Central Bank of Liberia.

The decision comes in the aftermath of lengthy discussion between the IMF mission and the Liberian government in June and September 2019 and, most recently, during 2019 IMF Annual Meetings.

The IMF statement Tuesday said the team was led by Mika Saito, who engaged with a high-level delegation from Liberia led by Minister of Finance and Development Planning Samuel D. Tweah and Central Bank of Liberia (CBL) former Governor Nathaniel Patray III. The economic context and framework for these discussions were informed by the 2019 Article IV Consultation with Liberia that was concluded by the IMF Executive Board on May 31, 2019.

The agreement comes in the backdrop of a wave of protests against the government's failure to meet salary arrears of civil servants and rising cost of living for those languishing at the bottom of the economic ladder.

MoF Says Salaries Being Paid

The latest protests took place at the National Housing Authority where civil servants say they have not been paid for months.

This week the Ministry Finance, looking to ease some of those fears, announced that it has begun disbursing salaries for over sixty (60) institutions for September as at October 21, 2019.

These institutions include: Liberia Revenue Authority, Monrovia Consolidated School System, Ministry of Defense, Ministry of Transport, National Transit Authority,University of Liberia, Liberia National Police, the Judiciary, JFD Memorial Hospital, JFK Memorial Hospital, Bomi County Community College, Harbel College, AFL Pension, National Commission for Disability, National Council of Chiefs, among others.

According to the MoF, salaries payments have been disbursed for the month of October as at October 23, 2019 for the University of Liberia, Tubman University and Zorzor Rural Teachers Training Institute

"Ministry of Health's payroll voucher for September arrived late but is already being processed.

Additionally, the Legislature's salaries checks for the months of August and September have been done and are on their way to the banks," the ministry said in a statement this week.

The MoF says it is also processing salaries checks for several other institutions that have presented payroll vouchers at varying time and is encouraging Ministries and Agencies to ensure the timely submission to the Comptroller and Accountant General's Office of monthly payroll vouchers of their respective institutions to accelerate the payment processes.

Liberia Facing Major Hurdles, IMF Says

In concluding the Article IV Consultation, the IMF Executive Directors had noted that Liberia was facing major economic challenges and emphasized the need for steadfast and well-sequenced policies and structural reforms, as these were essential to regaining macroeconomic stability and promoting high, sustainable, and inclusive growth. They emphasized that significant fiscal adjustment was needed going forward, including by mobilizing additional domestic revenue and rationalizing spending, especially in the wage bill, while securing needed fiscal space for social and capital spending.

The directors also called for further progress in public financial management reforms to improve the quality of spending in a resource-constrained environment, and for improvements in the business environment to attract high-quality, growth expanding investment. The Central Bank of Liberia (CBL) was also urged to significantly tighten monetary policy to reduce the inflation that was eroding the living standards of the poorest Liberians, while taking strong measures to safeguard financial sector stability.

Since the Article IV consultation, in a context of intensifying economic challenges, the Liberian authorities and IMF staff have now agreed on an economic and financial program that could be supported by Fund resources. A key element of the program is the FY2020 budget recently approved by the Legislature that constrains expenditure to available resources, and avoids inflationary and reserve-depleting borrowing from the CBL.

The budget, according to the IMF is underpinned by important reporting and institutional safeguards aimed at preventing slippage and avoiding the re-occurrence of domestic payment arrears. The budget faces tight financing constraints at a time of significantly reduced fiscal buffers and will therefore need to be strictly implemented. Importantly, this budget retains its intended pro-poor orientation. It protects essential social spending, while providing enough resources to allow the CBL to use monetary policy aggressively in the fight against the inflation that has been so damaging to the living standards of the most vulnerable members of society.

The IMF staff says it welcomes the Liberian authorities' determination to restructure the wage bill. "This is a key policy reform needed to free up fiscal space and make a credible and viable budget possible, while also increasing transparency, accountability, and equity. It is noteworthy that all three branches of Government participated, and that the process yielded a progressive outcome, in that the burden was borne by the higher paid employees with the poorest benefiting from salary increases, including among teachers, health workers and line security forces."

The staff-level agreement is subject to fulfillment of significant prior actions in the fiscal and monetary areas that will need to be undertaken by the Liberian authorities. Assuming these are satisfied in a timely manner, it is anticipated that the IMF Executive Board could consider approval of Liberia's formal request for financial support under the Extended Credit Facility as early as the first half of December 2019.

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