Liberia must generate more domestic revenue and reduce spending, especially wage bill – says IMF

Sierra Leone Telegraph: 30 October 2019:

An International Monetary Fund (IMF) team, led by Mika Saito held discussions with a high-level delegation from Liberia led by Minister of Finance and Development Planning – Samuel D. Tweah and Central Bank of Liberia (CBL) Governor – Nathaniel Patray III, during IMF negotiation missions in June and September 2019, and most recently – at the 2019 IMF Annual Meetings.

The Liberian authorities and IMF staff reached a staff-level agreement on a new program, subject to fulfilment of significant prior actions in the fiscal and monetary areas. The key objectives of the program are to restore macroeconomic stability, provide a foundation for fiscally sustainable, inclusive growth, and address weaknesses in governance.

A statement published yesterday by the IMF, reports that one of the key elements of the program is implementation of a 2020 budget that constrains expenditure to available resources, and avoids inflationary and reserve-depleting borrowing from the Central Bank of Liberia.

The economic context and framework for these discussions were informed by the 2019 Article IV Consultation with Liberia, that was concluded by the IMF Executive Board on May 31, 2019, the statement reads.

In concluding the Article IV Consultation, Executive Directors had noted that Liberia was facing major economic challenges and emphasized the need for steadfast and well-sequenced policies and structural reforms, as these were essential to regaining macroeconomic stability and promoting high, sustainable, and inclusive growth.

They emphasized that significant fiscal adjustment was needed going forward, including by mobilizing additional domestic revenue and rationalizing spending, especially in the wage bill, while securing needed fiscal space for social and capital spending.
They also called for further progress in public financial management reforms to improve the quality of spending in a resource-constrained environment, and for improvements in the business environment to attract high-quality, growth expanding investment.

The Central Bank of Liberia (CBL) was also urged to significantly tighten monetary policy to reduce the inflation that was eroding the living standards of the poorest Liberians, while taking strong measures to safeguard financial sector stability.

Since the Article IV consultation, in a context of intensifying economic challenges, the Liberian authorities and IMF staff have now agreed on an economic and financial program that could be supported by Fund resources.

A key element of the program the IMF says, is the FY2020 budget recently approved by the Legislature that constrains expenditure to available resources, and avoids inflationary and reserve-depleting borrowing from the CBL.

This budget it reports, is underpinned by important reporting and institutional safeguards aimed at preventing slippage and avoiding the re-occurrence of domestic payment arrears. The budget faces tight financing constraints at a time of significantly reduced fiscal buffers and will therefore need to be strictly implemented.

The IMF statement further states that: “Importantly, this budget retains its intended pro-poor orientation. It protects essential social spending, while providing enough resources to allow the CBL to use monetary policy aggressively in the fight against the inflation that has been so damaging to the living standards of the most vulnerable members of society.

“IMF Staff welcomes the Liberian authorities’ determination to restructure the wage bill. This is a key policy reform needed to free up fiscal space and make a credible and viable budget possible, while also increasing transparency, accountability, and equity.

“It is noteworthy that all three branches of Government participated, and that the process yielded a progressive outcome, in that the burden was borne by the higher paid employees with the poorest benefiting from salary increases, including among teachers, health workers and line security forces.

“The staff-level agreement is subject to fulfilment of significant prior actions in the fiscal and monetary areas that will need to be undertaken by the Liberian authorities. Assuming these are satisfied in a timely manner, it is anticipated that the IMF Executive Board could consider approval of Liberia’s formal request for financial support under the Extended Credit Facility as early as the first half of December 2019,” the IMF statement concludes..

4 Comments

  1. GREATSAYEDNA,I like your idea of creating a law,that will stop african countries from borrowing completely,for a period of about thirty years. But then again Saidu, how are governments going to make ends meet, and how are people going to survive? Its a sad thing to be dependent on loans, but they help keep our economies afloat. Imagine whats happening in Liberia and Guinea now; without IMF loans things can get worse – chaos and anarchy will become the order of the day.

  2. First and foremost, let’s get something clear, all these loans are nothing but financial chains and shackles designed to keep African countries perennially in bondage. If you still haven’t realised this is true, then surely, you belong in class 2 with the little children and their running noses.(lol)

    And what’s truly alarming is that the strategies and tactics used by the IMF and the World Bank have been very effective in helping them achieve their self centred, devious goals – keeping Africa in Poverty. All this useless and baseless rhetoric about maintaining and servicing loans is just plain and outright silly. What’s to gain in a trap that holds you firmly in its iron grips and clutches? What makes you believe that a perplexing financial maze, designed with only entrances and no exits, can become beneficial and profitable to your poor, starving people? Poor sense of judgement? Damn right it is!

    Its time to resort to “Penny Counting Economics” also known as Prudent spending. Its time to use thriftiness, ingenuity and creativity to move Africa forward. The Master of creation that tailored all things seen and unseen in existence, has given us enough resources as materials, resembling needles and thread, and now demands that we learn to cut our clothes according to our cloths. It must be so!

    Ancient wisdom says,the borrower will always be a slave to the lender.That is an irrefutable fact! Now here’s a radical idea,I am proposing to the African Union,that will create a significant shift in the way African leaders think, govern,and conduct their business: All African leaders must take a pledge,and create a law across board,that prevents the borrowing of any kind of loans for the next 30 years.

    This will the GAME CHANGER for Africa, if only our inept,disingenuous,leaders will have the guts,morale,and foresight to adopt such an invaluable policy as the foundation for a new era – Great Sayedna calls it a Principle of Purpose,that will empower our nations towards rapid ascension,like eagles reaching towards higher heights,and like asteroids dancing,and racing towards the glorious light of the Sun….Rising Sun Will Rise Again.

  3. The Liberian economy is going through a very difficult period but there seems to be a determination by the leadership to leave no stone unturned in the search for genuine solutions. Four recent events show signs of hope:

    1. The Government recently allowed a peaceful demonstration by citizens complaining about the state of the economy. The absence of brutal repression by the state security apparatus was a small building block to reinforce Trust between the Government and the people.

    2. Recently the Government called for and organized a National Dialogue on the economy – the chief organizer was a Minister from the former Government. As a Resource Person and coming from Sierra Leone, I was struck by the absence of self adulation, illusory reports of success, and even more so – the “I know it all” syndrome. Equally worthy of note was the inclusion of others, irrespective of their political affiliation, in the search for answers.

    3. The Government has agreed to tackle the sensitive and politically charged question of reducing the wage bill. Getting that budget through Parliament was a sign that all hands were ready to go on deck, not just the ruling party.

    4. The IMF’s concluding statement, as reported here, highlights the participation of the three branches of Government in their consultation. Inclusiveness is better in action than in words.

    The country has a long way to go still, but if these signs endure, there is every reason for hope. That hope has better chances of realization when these small MRU countries truly begin to plan their futures together.

  4. Response to the IMF Staff Level Agreement with Liberia – A Guillotine to Watch Carefully

    The IMF staff level agreement for Liberia is a step forward in terms of a process. However, getting to the final agreement for me calls for two questions:

    • Is Liberia willing to accept IMF’s key recommendations as quickly as possible?
    • After the negotiations, is there an interest rate to be paid, and if so, how much interest rate – a possible value-added question is if the country has the capacity to pay back such an interest rate?

    Before I try to provide more details to the above questions, please allow me first to address the question of public expectations in Africa – a situation that could be responsible for half of the riots and noise caused by citizens demanding their governments to provide them with needed services. As an advocate, learning and practicing through hard core practices, I have got enough reservations to question the political processes in Africa.

    Growing up in the village, I realized that we were bent on hard work, producing daily what to eat and what to use for luxury. Today, every citizen is demanding both their needs and wants from the government. In the mix of all these demands, politicians have built themselves airborne castles that promises more than the capacity of the system and the country. The citizens relying on these expected castles, sit idly and complain for years with no positive outcomes except a recycle of governments who continue to act in the same way.

    Confused with demands and questions from the public, the very politicians now turned to stealing, because they need enough resources to protect themselves from the public when they leave power. In addition, understanding that money sits somewhere – a potential source of colonization and annexation, they have found it a pleasing comfort of convenience to take the trapped money in the name of helping to fulfil their promises.

    Even with our educated politicians and trained professionals, we cannot see this as a problem. I guess we need a review of what we are demanding for and what we are contributing in return to our national interest. We cannot call for so much change when in fact we continue to do the opposite. Every country in the world has the potential to take care of its citizens. The difference is the wisdom we use to handle the situation. As nations, we are all interdependent which I can understand. But this does not make us vulnerable, in fact, it gives us more advantages to exchange, globalize and prosper more. I am not against loans, but I am against loans taken to only fulfil promises not needs. Because most loans become an instrument of corruption due to the way it is requested and sometimes used.

    The IMF’s created facilities are often requiring an interest rate. In Business, when we take a Loan, we are required to make sure that we are investing it in a worthy business that can generate income. For most defaulters of loans, when asked, their possible mismanagement comes when a loan is used to do a business that is not profitable. In the case of a country, any loan that builds public roads which do not contribute through taxation, or some form of revenue, that country is doomed. Loans taken to pay salaries of public servants, or repay another loan, are all examples of bad loans.

    In the case of the present ongoing negotiations in Liberia, have we asked ourselves what the credit will be used for and is such a venture profitable enough to pay its interest and capital at the end? If there is a ‘’NO or a Not Sure’’ answer to this question, then we need to start thinking other options. This is not just Liberia; Sierra Leone is of no exception and that is why I really admired the Bio Government when the Chinese Loan to build a New Airport was cancelled.

    Potential Loans to Help Africa

    I am not an economist but from what I know, African Countries must establish a policy framework that explain clearly what kind of Loans could be taken from the IMF, the World Bank and the International Finance Cooperation. This policy will help young ministers and inexperienced governments to take a keen note. It could be a simple Guidelines which explain this situation as a guidance. If any nation decides to go in for a Loan, please ensure first that the loan meets the following conditions:

    • That the loan establishes a framework to be paid back through the endeavour that it invests in. For instance, if a loan was taken to build a road, the road must be able to establish tariffs and revenue collection models that contribute to paying the loan back in time.
    • The second option is that if a loan is going to be used for a public interest, it must be an interest that has no other option and must be measured against all odds.
    • All loans taken from these institutions should establish in them the very payment mechanisms like banks normally do – ensuring that the loan is taken for a business, that such a business exist and has the potential to pay the loan back.

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