Despite the prevailing global economic challenges Liberia still enjoys Macroeconomic Stability

Despite the prevailing global economic challenges characterized by the lingering effects of COVID-19 and the ongoing conflict between Russia and Ukraine, Liberia continues to enjoy macroeconomic stability, largely due to the continuous policy advice and technical support from the International Monetary Fund(IMF).
This is contained in the BTO Report on Liberia- Fifth Review of a Four-Year Arrangement under the Extended Credit Facility for Liberia, held in the capital, Monrovia from October 31 to November 11, 2022.
The mission team, led by the mission chief, Mr. Christoph Klingen, held discussions on the macroeconomic and financial situation of the country and evaluated the program performance thus far, as against the end-September 2022 performance criteria and indicative targets as well as structural benchmarks. The mission also set priorities for the future (in terms of polices and the economic growth outlook) after evaluating how government policies may affect growth, economic stability, and desirable stabilization adjustments in the short to medium term.

Consultations were held with the Hon. Samuel D. Tweah, Minister of the Ministry of Finance and Development Planning(MFDP) and the Hon.  J. Aloysius Tarlue, Executive Governor of the Central Bank of Liberia(CBL), as well as with development partners, private sector representatives and senior government officials. II. Macroeconomic overview and recent economic developments 2.

Accordingly, the Central Bank of Liberia’s (CBL’s) Research, Policy and Planning Department has downwardly revised its economic growth projection for 2022 from its previous projection of 4.5 percent to an estimated 3.7 percent (in real terms) on the back of a slowdown in key primary and secondary economic sectors, mainly the mining sector.

Conversely, real GDP in 2023 is expected to increase by 4.7 percent, as economic activity in agriculture & fisheries, forestry, mining & panning subsectors as well as manufacturing and services related activities are expected to experience stronger growth. 3.

The authorities remain committed to fighting inflation and achieving single-digit rate of inflation (at most 5 percent – which is in line with the ECOWAS threshold) in the medium term. In this regard, and as will be testament in the upcoming 3rd Quarter Monetary Policy Meeting, the intention is to maintain the current contractionary monetary policy stance, while being mindful to strike a balance between price stability and the promotion of economic growth.

Average inflation outlook for 2022 is projected at 7.2.

‘‘Whereas the end-of-year inflation is projected at 8.5 percent. It is the view of the authorities that the path of inflation will depend largely on the stability of the domestic currency, economic diversification, increased domestic production of rice, public tax policies on key commodities (i.e., petroleum products and other consumables), increasing energy supply and accelerating infrastructural developments (i.e., farm to market roads). III. Program performance 4. The authorities have met all quantitative performance criteria (PC) except three,’’ an official communication addressed to Mr. Willie Nakunyada stated.

These include (i) the floor on the primary fiscal balance, (ii) the floor on international reserves of the CBL and (iii) the ceiling on CBL gross direct credit to government. The authorities also missed two out of four structural benchmarks for end of September. These include (i) submitting amendments of the Financial Institutions Act (FIA) of 1999 to the Legislature, and (ii) submitting the audit report for the FY2020/21 budget to the Legislature. Some progress has been made to implement the TSA and prepare the needed legislation to reduce the large tax expenditures.

The authorities are committed to following through on the missed structural benchmarks in November 2022, before Liberia goes to the Board. IV. Policy discussions Fiscal policy and PFM reforms. Deliberations between staff and authorities on fiscal policy matters concentrated on two areas, the outturn for 2022 as at the end of September and (ii) updates on the 2023 budget preparation.

The primary fiscal balance through September 2022 reflects a budget deficit that breaches the quantitative target set in the program for that month. The breach reflects an overall expenditure overrun in the order of around US$60 million. Conversely, the authorities have met the end-September indicative targets for revenues and on-budget investment of US$473 million and US$48 million, respectively.

They also met the PV target for new external loans. Thus, the higher deficit does not come from a revenue shortfall but rather from higher spending. Preliminary evidence suggests that both investment spending and spending on goods and services are the major drivers of the expenditure overrun, with the latter taking the lion’s share.

To strengthen public financial management, the authorities are committed to enhancing the capacity of the Internal Audit Agency (IAA) and ensuring greater coordination between the IAA and the budget office. 6. For the 2023 budget, the authorities are budgeting for a resource envelope of US$776 million, supported by domestic revenue mobilization efforts and donor financing. DRM efforts include reducing the scope of several tax exceptions, including those stemming from Presidential decrees.

In this regard, the plan is to undertake an exercise to critically assess the implications of tax exemptions by government decree, on overall tax collection and provide a detailed report to the President to motivate the reduction in scope.

The authorities plan to push ahead with reducing the budget deficit. In this respect, they have engaged with spending entities and provided indicative ceilings. A series of budget cuts is planned across major expenditure lines, largely on spending on goods and services across the entire public administration, while preserving a few sectors, e.g., education and health. Total recurrent expenditure is budgeted at US$626 million, including domestic liabilities and the 3 redemption payments of domestic and foreign public debt. Feedback from the spending entities is being collated and consolidated to inform the budget that will be presented to Parliament for approval. Financial sector developments.

Evidence suggests that all banks’ capital ratios are above their regulatory minimum. However, the banking sector continues to face some challenges. The level of nonperforming loans (NPLs) remains high. There is need to strengthen standards of underwriting as well as credit and evaluation approval processes, together with credit monitoring. The authorities are committed to the strict enforcement of NPL regulations and an adoption of high frequency reporting to the CBL’s Board of Governors to allow for timeous remedial action, where necessary.

Efforts to restructure the Liberia Bank of Development and Investment (LBDI) are still on-going. The authorities are committed to maintaining close supervision of LBDI and encouraging better recordkeeping coupled with more efficient NPL recoveries, improved underwriting standards and low operating costs to preserve liquidity.

The authorities’ currency changeover project is on course. The estimated completion year is 2024. The CBL has established three temporary storage facilities. In the first facility, newly minted coins are stored in shipping containers. A second facility accepts all old bank notes and processes them for defacing. The third facility houses equipment for defacing processed bank notes meant for destruction. The CBL has expanded its main vaults to house new coins and provide temporary storage of old bank notes. The bank has received three air shipments of banknotes to be printed by Giesecke+Devrient (G+D) and one sea shipment of the coins minted by the Royal Mint: comprising all the coins for 2022 delivery.

The first sea shipment of banknotes printed by G+D is expected November 7, 2022, and several shipments are expected between November 27 and December 9 or 16, 2022. The final shipment is expected by air, either on December 9 or 15, pending conclusion with G+D.

The official commencement of the full-scale currency exchange exercise was announced on October 6 by the CBL through a press conference, but no official timeframe was given regarding the deadline for the exchange exercise to avoid public rush.

The authorities’ expectation is that within six months, they will have withdrawn a significant portion of the old banknotes at which time they will be able to make a public pronouncement on the deadline for the official exchange exercise. Structural reforms and governance. Authorities expressed their commitment to pushing ahead with the structural reforms to promote economic growth.

To improve the business environment, the authorities, in consultation with the consultation with IMF staff have established an implementation plan with concrete actions, milestones, and responsibilities to improve Liberia’s business climate in the following three areas(i) trading across borders; (ii) registering a business, and (iii) enforcing contracts. In this regard, letters mandating lead institutions to conduct weekly meetings on proposed reforms implementation have been sent. An assessment report on the reduction of checkpoints has been shared with policymakers for action. Authorities are also establishing the Special Economic Zone Authority (SEZA) to enhance private sector growth.

The recruitment of the SEZA Board members and Executive 4 Chairperson is expected by end-October/November 2022. To address the challenge of erratic and insufficient electricity supply by the Liberian Electric Company (LEC), a comprehensive reform action plan is to be presented for validation by relevant development partners and cabinet adoption in October 2022. Similarly, the authorities plan to appoint a new management team to drive critical reform of airport operations.

Meanwhile, due to unforeseen circumstances, the fifth ECF review for Liberia was not concluded in the allotted 2-week period. Staff and authorities were not able to deliberate on the macro framework, MEFP and TMU. Both parties agreed to have follow up meetings in subsequent weeks, in hybrid format, to conclude the mission and hopefully arrive at a staff level agreement. Contingent on a staff level agreement, the intention is to bring the findings of the fifth review to the Executive Board before Christmas 2022.