Sierra Leone Telegraph: 20 January 2016
Dear Madame Lagarde
In March 2014, Liberia was hit by the unprecedented outbreak of the deadly Ebola Virus Disease (EVD). (photo: IMF Chief Lagarde and president Sirleaf).
The outbreak permeated the social and economic fabric of our country, significantly undermining our economic activities and thwarting our medium-term development program – the Agenda for Transformation (AfT).
However, the measures put into place, including actions aimed at preventing and controlling infection rates, increasing community engagements and ensuring safe burials, as well as the support of our development partners and the international community, have led to successful containment of the epidemic.
On September 3, 2015 our country was declared Ebola free for the second time by the World Health Organization (WHO). Liberia became the first of the three most-affected countries in West Africa to have been declared Ebola free after more than a year of battling the epidemic, even though more recently there have been a few isolated cases.
We are grateful to the IMF for the financial support it provided to Liberia during the crisis for a total of US$130 million through an ad-hoc augmentation under the ECF, disbursement under the Rapid Credit Facility (RCF), and debt relief under the Catastrophe Containment and Relief (CCR) Trust.
The economic impact of Ebola has been compounded by the steep decline in commodity prices.
Prior to the outbreak, our country had been growing at about 8 percent on average since 2011, domestic institutions were being re-built and social and health indicators were improving. However, the epidemic weakened activity in all sectors of the economy, with real GDP growth declining from close to 8½ percent in 2013 to 0.7 percent in 2014.
As the country embarked on the road to recovery in 2015 after the devastating Ebola crisis, it is being further confronted by the sharp decline in prices of our major exports, namely iron ore and rubber.
As a result, planned investments in the mining sector have been put on hold by existing mining operators. A prolonged period of low commodity prices would significantly undermine our tax and export revenues, and could significantly weaken our medium term growth prospects.
We remain fully committed to the objectives set under our ECF-supported program, although the Ebola outbreak weakened our capacity and led to delays in program implementation.
Taking into account the extremely challenging context, looking back to June and December 2014, our performance remained broadly satisfactory. We met most of the end-June 2014 quantitative performance criteria (PCs) and indicative targets (ITs) except the floor on government revenues, net foreign exchange reserves position, and the ceiling on net domestic assets of the central bank.
We missed the floor on government revenues owing to shortfalls in tax and nontax revenues. The floor on net foreign exchange position was missed following a placement of reserves with a domestic LIBERIA 2 bank.
Nonetheless, revenue performance improved markedly in FY2015 in part with the establishment of the Liberia Revenue Authority (LRA) on July 1, 2014. We met only two out of seven end-December 2014 PCs due to the Ebola outbreak.
We met three out of seven structural benchmarks (SB) (payroll cleanup, publication of FY2016 budget calendar, and pilot on integration of credit-financed projects into the Integrated Financial Management Information System (IFMIS)), whereas the SBs on enhancing cash and liquidity management, strengthening the quality of national accounts and submitting the insurance law were completed but with a delay.
Our policy priorities over the next two years will be shaped by the Economic Stabilization and Recovery Plan (ESRP) and the re-prioritized actions from the AfT. The objective of the ESRP is to enable a faster recovery, improve public services delivery, and address resilience gaps brought to the fore by the Ebola crisis, in line with our medium term development agenda.
For the FY2016, we will focus our efforts on supporting the post-Ebola recovery, and we will incorporate same in our budget key ESRP projects.
In particular, we plan to increase health and education spending substantially, as these sectors have been severely impacted by the Ebola crisis. The government remains committed to improving public financial management.
The GAC audit report on Special Procurement of the Ministry of Public Works for Construction of Roads and Bridges throughout Liberia was published June 2015. In addition, the government is developing a time bound action plan to implement the recommendations of the GAC audit.
Monetary policy will continue to aim at containing inflation while maintaining an adequate reserves buffer. The Central Bank of Liberia (CBL) will continue to issue CBL notes to manage Liberian dollar liquidity.
In addition, steps are being taken to strengthen liquidity management by enhancing coordination between the Central Bank and the Ministry of Finance and Development Planning which include the joint preparation of monthly liquidity forecasts.
The Government, operating within the scope of available fiscal space which is susceptible to falling commodity prices and has hardly recovered from the impact of the Ebola crisis, will continue to make sales of US dollars to the CBL to enable it continue intervention in the foreign exchange market to smooth out exchange rate volatility taking into account the need to accumulate adequate reserves.
We remain committed to implementing the recommendations of the safeguards assessment mission. The CBL will develop a 3-year action plan to strengthen the operational efficiency of the CBL.
In addition, we will update the CBL’s investment guidelines in order to ensure the safety and liquidity of the CBL’s international reserves. We will continue to ensure that our financial system remains on a solid footing.
The weak economic activities resulting from the Ebola outbreak affected the performance of the banking system which led the Central Bank to take measures to minimize the impact of the crisis. The CBL will conduct a detailed assessment by the end of 2015 in order to determine the impacts of these policy measures.
In the meantime, we will conduct high frequency monitoring of bank liquidity to preserve confidence in our financial system. The CBL is also developing a framework for crisis preparedness and management with technical assistance from the IMF.
On the basis of the performance registered in implementing the economic program and on the strength of our future policy commitments, we request that the fourth review under the ECF arrangement be completed and a disbursement in the amount of SDR 7.382 million be approved.
In LIBERIA 3 completing the fourth review, we are requesting the following: (i) the extension to December 31, 2016 and re-phasing of the program with new fifth and sixth review targets to be set for end December 2015 and end-June 2016; (ii) waivers for the missed PCs on the floor on total revenue collection of the central government and the net foreign exchange position of the CBL; and (iii) the replacement of the PC on zero non-concessional borrowings and the IT on public external borrowing with a new performance criterion on the present value of newly contracted external borrowings, in line with the new debt limit policy.
We believe that the economic and financial policies described in the MEFP of November 19, 2012, its subsequent supplements, together with the attached supplementary MEFP provide an adequate basis for achieving our macroeconomic objectives.
However, we did not meet agreed targets primarily attributable to the Ebola crisis and falling commodity prices. Consequently, to enhance our ability to meet the targets and achieve these objectives, the government stands ready to take any additional measures that may be required.
The government will consult with the Fund on the adoption of these measures and in advance of revisions to the policies contained in this attached MEFP, in accordance with the Fund’s policies on such consultation.
The government will also provide the Fund staff with all the relevant information required to complete program reviews and monitor performance on a timely manner as outlined in the TMU.
We consent to the publication on the IMF website of this letter, the accompanying MEFP, TMU, and the related staff report for the fourth review under the ECF.
Hon. Amara M. Konneh – Minister of Finance and Development Planning
Dr. Joseph Mills Jones – Executive Governor Central Bank of Liberia