The Executive Board of the International Monetary Fund (IMF) on Friday, June 5, approved the disbursement of SDR36.17 million (US$50 million; 1.7 percent of GDP) to be drawn under the Rapid Credit Facility (RCF). This, together with debt relief approved in April 13, will help meet Liberia’s urgent balance of payment needs, mostly stemming from fiscal needs necessary to respond to the Coronavirus pandemic.
A release from the IMF says the pandemic is hitting Liberia at a time when economic activity was already declining.
“Real GDP growth for 2019 is estimated at -2.5 percent as private sector confidence remained weak, while inflation remains high,” the IMF says. “In addition, vulnerability to exogenous shocks remained high as both fiscal and external buffers were low. The full extent of the impact of COVID-19 is not known, but growth is now projected at -2.5 percent for 2020, largely due to lockdown at home and abroad which are negatively impacting domestic demand, net remittances, capital inflows, and the banking sector. In the absence of support, the poorest will feel the impact the most as there is little social safety net, and the food security of those relying on uncertain daily income is a pressing concern. The pandemic opens a balance of payment need of US$150 million (5.1 percent of GDP) in 2020, which largely arises from a domestic revenue shortfall projected at US$119 million.”
According to the IMF, preliminary data suggest that performance under the Extended Credit Facility (ECF)-supported program has been weak, though the authorities are fully committed to address the weaknesses. Most of the end-December fiscal targets and structural benchmarks were met but the monetary program went off track by a large margin mainly for two reasons: an acute shortage of Liberian dollar banknotes at a period of high cash demand resulting in higher foreign exchange intervention than programmed; and acute shortages of U.S. dollar liquidity in the banking sector. The authorities are addressing these weaknesses—aiming to bring the program back on track in time to complete the first review—but are faced with the challenging task of managing the COVID-19 crisis at the same time.
Following the Executive Board’s discussion of Liberia, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“The COVID-19 pandemic came at a time when a consensus on the need for broad-based reform in Liberia had finally emerged, but when macroeconomic conditions remained challenging. The pandemic is expected to hit Liberia hard, and will likely disproportionately affect the most vulnerable as social safety nets are rudimentary, food insecurity is rising, and the healthcare system is underdeveloped.
“The authorities remain committed to protecting the most vulnerable amidst a significant revenue shortfall. The initial response to the pandemic, including the emergency food aid program, is welcome, but more remains to be done. Specifically. the passage of the agreed FY2021 budget with high-quality revenue measures is key to addressing the COVID-19 crisis. It is also important to expeditiously finalize the comprehensive off-budget COVID-19 response plan with development partners. The authorities have taken measures to raise domestic revenue, including legislative approval of an excise tax on fuel and adoption of a resolution to channel all revenues acquired by two large state-owned entities to the government’s consolidated account. They have also made significant improvements in the monitoring, control, and transparency of expenditure, including by tabulating and publishing detailed weekly reconciled spending reports, by requiring all budgetary entities to utilize the centralized financial management system, and by committing to the timely publication of an audit of crisis spending.
“To address the shortage of Liberian dollars and the growing need for more U.S. dollar liquidity, the authorities have contracted the printing of additional Liberian dollar bank notes and are formulating measures for inclusion in the FY2021 budget to augment US dollar liquidity.
“The authorities have also made steady progress in reaching benchmarks set under the Extended Credit Facility arrangement and remain committed to reforms under the arrangement to stabilize macroeconomic conditions and lay the foundation for inclusive and durable growth once the crisis subsides.’’