MONROVIA, April 21 (LINA) – The Government of Liberia has commenced engagement with the International Monetary Fund (IMF) on the terms of a new program.
The last IMF supported program with Liberia ended November 2017.
Discussions with the IMF were held during the 2019 Spring Meetings, attended by a Government of Liberia Delegation headed by the Minister of Finance and Development Planning, Samuel D. Tweah.
Other members included the Governor of the Central Bank of Liberia, Ministers of Foreign Affairs; Commerce and Industry; Education; Information; Gender, Children and Social Protection and Commissioner General of the Liberia Revenue Authority, along with relevant deputies.
The Government’s key objectives at this year’s Spring Meeting included to begin engagement with the IMF on the terms of a program; hold preliminary conversations with the World Bank on the close of the IDA 18 cycle and additional financing possibilities under the new IDA 19.
The Delegation will further hold discussions with authorities at the Millennium Challenge Corporation on Compact issues, especially the viability of the Liberia Electricity Corporation, whose management is funded by the MCC Compact.
The Delegation held multiple meetings with the Liberia Mission of the IMF, aiming to derive the framework of a program.
The Delegation expressed the Government’s commitment to governance and macroeconomic reforms, particularly reform of the current wage structure, which has been a concern of development partners for several years.
The Delegation stressed that a new program should aim for a critical balance between fiscal tightening and needed economic stimulus, considering the current weakness of aggregate demand and a challenged private sector.
The Delegation noted that aggregate demand is partly weak because the Government, which plays the dominant role in the economy via channels of largely funding private consumption, public sector investment and Government expenditure, holds a large stock of domestic arrears from previous years it cannot service.
This undermines the circular flow of funds, weakening credit to the private sector and exacerbating the current macroeconomic squeeze.
The Delegation noted that while the Government has issued a US$65 million bond to commercial banks, the impact of this issue on credit expansion would be limited, as opposed to an injection of liquidity.
It advised that what is needed is a one-off stimulus shock that re-calibrates the economy in the short-term, as the Government works toward long-term domestic economic competitiveness.
The Mission noted that any fund relief would predicate upon continued pursuit of a broad set of governance and macroeconomic reforms.
The Government would first have to develop and pass a budget that is closest to its true revenue potential, present a clear picture of its domestic arrears and prevent all future borrowing from the Central Bank, while assuring the independence and integrity of the Central Bank through aggressive reforms, improved governance and strengthened internal controls.
The Mission advised that accountability, transparency and compliance with existing procurement rules and laws will be essential features of an IMF supported program.
The Delegation and Mission agreed to work toward an early program visit to Liberia by end June or mid July 2018 to develop a framework that assures a solid close of the FY 2019 as a basis for the FY 2020 budget on which an IMF supported program would base.
Discussions with World Bank Vice President for Africa, Hafez Ghanem and Vice President for Infrastructure, Makhtar Diop, focused on financing for the Government’s road agenda.
Both Vice Presidents noted that Liberia’s current Road Fund modality, which is crowding in private resources to fund the Ganta-Zwedru road corridor, is being closely watched.
They urged the Government to ensure the Road Fund succeeds as a means of scaling up resources for Liberia’s infrastructure development. The Delegation expressed the Government’s commitment to the viability of the Road Fund mechanism and to pursuing additional reforms to ensure the Fund attracts more private investment.
The Bank is working with the Government to clear US$106 million as part of the close of the IDA 18 funding cycle. These involve additional financing for improving education, Integrated Public Financial Management Reform Project, which provides support for the Integration Tax Administration System (ITAS), a critical feature of domestic revenue mobilization, and for rehabilitation of a major pipeline of the Liberia Water and Sewer Corporation.
The Government received US$3 million in additional financing for the ongoing Youth Opportunities Project.
In discussion with authorities at the Millennium Challenge Corporation, the Delegation expressed the Government’s continued commitment to ensuring the present Compact succeeds and to resolving challenges and issues that threaten a successful compact closure. MCC authorities noted and the delegation concurred that LEC needs to drastically reduce commercial losses, caused mainly by power theft, and that the Government would have to create the enabling environment for this to happen. The Delegation related that Government will soon pass a law criminalizing power theft and is working with LEC to rachet up the pressure and campaign against power theft.
Both sides agreed that the current context confronting LEC is challenging and that the negative cash flow situation facing the Corporation can only be reversed with upfront financing to enable it get ahead of prevailing challenges in the sector. They agreed to conclude the discussion on additional financing once LEC submits its one-year turnaround plan within a week.
The Delegation will hold a press briefing on Wednesday, April 24, at the Ministry of Information, Cultural Affairs and Tourism.