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IMF Executive Board Concludes 2019 Article IV Consultation with Liberia

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Via IMF (Den Internationale Valutafond)

On May 31, 2019, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation


with Liberia.

Liberia remains a fragile, post-conflict country with weak capacity and
limited physical and human capital accumulation. External assistance to
Liberia is winding down from its peak in 2016. To address pressing
needs, the government launched its Pro-Poor Agenda for Prosperity and
Development (PAPD), focusing on physical and human capital
accumulation. Policy uncertainty and slippages, however, imposed a
significant toll on the economy over the past two years. Particularly,
higher fiscal deficits and accommodative monetary policy have led to
rapid depreciation of the Liberia dollar and increased inflation,
eroding the purchasing power of the poor.

The near- and medium-term outlook under the baseline scenario is
challenging. Growth is projected to slow further to about 0.4 percent
in 2019 and remain below 2 percent into the medium-term. In the
baseline scenario, the authorities face the possibility of a forced,
abrupt adjustment when domestic and external financing options are
exhausted. An alternative reform scenario is therefore presented as a
more viable alternative, in which growth weakens somewhat in the near
term, due to proactive fiscal and monetary tightening, but picks up
significantly over the medium term to exceed 5 percent by 2024.

Executive Board Assessment


Executive Directors noted that Liberia is facing major economic
challenges and welcomed the authorities’ efforts to bolster
macroeconomic stability. Directors emphasized that steadfast and
well-sequenced policies and structural reforms are essential to enhance
macroeconomic stability and promote higher, sustainable, and inclusive
growth. They welcomed the authorities’ Pro-Poor Agenda for Prosperity
and Development (PAPD) and agreed that garnering support from the
international community will be important.

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Directors emphasized that significant fiscal adjustment is needed going
forward. They underscored that efforts should focus on mobilizing
domestic revenue and rationalizing spending, especially the wage bill,
while securing needed space for social and capital spending. Directors
encouraged the authorities to formulate realistic budgets and to
implement a sound borrowing plan that ensures debt sustainability,
while advocating caution in engaging in non-concessional borrowing.
They also called for further progress in public financial management
reforms to improve the quality of spending in a resource-constrained

Directors agreed that the Central Bank of Liberia (CBL) should tighten
monetary policy with the objective of reducing inflation to single
digits by 2021. Directors emphasized that further issuance of CBL bills
should be suspended until the cost of the operation is included in the
government budget, and the fiscal financing gap is closed without CBL

Directors noted that while the financial soundness indicators show that
the banking sector appears adequately capitalized, the CBL should
enhance its supervisory efforts. They highlighted the need to
prioritize strengthening the CBL’s supervisory, regulatory, and
resolution frameworks in light of the elevated level of nonperforming
loans, focusing on measures that improve loan underwriting standards.

Directors highlighted the need to improve the external position by
tightening monetary and fiscal policies, allowing for greater exchange
rate flexibility, and raising competitiveness through improvements in
the business environment. They welcomed that the authorities’ pro-poor
agenda focuses on physical and human capital, particularly improving
service delivery in health and education.

Directors noted that in the context of the development agenda,
aggressive efforts should be made to strengthen governance and reduce
corruption. They advised the authorities to upgrade their
anticorruption and AML/CFT frameworks in line with international

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Directors emphasized that continued efforts to improve the quality and
availability of data are essential for Fund surveillance and economic
policy making.

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