The Sierra Leone Telegraph: 13 December, 2013
The confidence of the IMF in President Sirleaf’s ability and capacity to continue the economic and social reforms that are so vital to sustaining Liberia’s fragile peace and future prosperity, is no longer in question. The government is doing well.
Her coalition government, which many thought would not work, is functioning – though in leaps and bounds. Since the last IMF mission visit in 2012, ministers have been hard at work, as they and the IMF are fully aware of the task ahead and the risks of failure.
But the key question many are asking: Is the Sirleaf government truly living up to expectations?
Three months ago, and judging from the report of the IMF released then, it was evident that president Sirleaf and her government were succeeding in sustaining the trajectory of economic reforms they started in 2012, as they continued to lay down the building blocks upon which sustained economic growth and prosperity depend.
Hence, concluding its mission visit in September 2013, the head of mission – Corinne Deléchat, said that;”The fiscal out-turn for 2013 was broadly in line with the program. Total revenue including grants exceeded the projections, though core revenues fell short of the program targets.”
“Total spending was above the program, owing in part to higher current spending. Externally financed capital spending was below the government targets, reflecting implementation bottlenecks and delays in approving and distributing last year’s budget. As a result, the overall fiscal deficit for 2013 amounted to 1.6 percent of GDP, some of which was financed by the use of deposits.”
“Liberia’s economic outlook remains favourable, with output expected to expand by 8.1 percent in 2013 and around 7 percent in 2014. This strong performance reflects higher-than-anticipated iron ore production and an acceleration in non-mining real GDP growth boosted by robust private and public investment in line with the government’s development strategy, the Agenda for Transformation” -says Corrine.
The overall economic assessment of the IMF then, was quite favourable and gave the government and people of Liberia hope of a better future, though serious work had to continue in stabilising the government’s fiscal performance.
And it was also clear that success would require tougher discipline and a greater commitment to the implementation of the government’s Agenda for Transformation. And the IMF was not in any doubt about progress:
“Program implementation has been challenging in some areas. Solid progress was made in the implementation of the structural agenda, though a number of benchmarks were met with delay. In this context, the authorities and IMF staff reached agreement, ad referendum, on a package of policies that would allow the government to strengthen its buffers to address external shocks and to improve public financial management.”
So, that was back then in September – three months ago, when at the conclusion of the IMF assessment, the following performance objectives were set by the government and in agreement with the mission – going forward:
• Rebuilding reserves and strengthening U.S. dollar and Liberian dollar liquidity management, including through improving the functioning of the foreign exchange auction and continuing to issue Central Bank bills
• Identifying budgetary space to compensate for the expenditure overruns while enhancing budget execution monitoring.
But how well has the government performed in achieving those objectives, as well as in keeping the economic growth trajectory on course?
The IMF mission was back in Liberia two weeks ago. At the end of its assessment on 11 December 2013, Mr. Naoyuki Shinohara – Deputy Managing Director and Acting Chair of the mission, issued this statement:
“Liberia’s economic growth remains strong and the medium-term outlook is positive, provided new projects in the mining and plantation sectors come on stream.
“Non-resource real GDP growth is expected to continue to pick up in 2014–15, as the authorities continue to press ahead with the implementation of large energy and road infrastructure projects, in line with their Agenda for Transformation.
(Liberia’s dusty road to economic prosperity)
“While the authorities remain fully committed to reforms underpinned by the ECF arrangement, institutional and capacity constraints have affected recent program performance.
“Deviations on government revenue and domestic financing were minor, but foreign reserves fell below the program floor reflecting in part higher intervention in the foreign exchange market to mitigate depreciation pressures.
“The authorities are taking appropriate action to rebuild an adequate reserves buffer, including by strengthening the foreign exchange auction and enhancing liquidity management.
“Action is being taken to strengthen budget execution while scaling up public investment. The authorities have identified savings in the Financial Year 2014 budget to be able to meet their deficit target while protecting capital spending.
“They are also enhancing cash management, including through establishing a Treasury Single Account.
“Timely approval of annual budgets, together with careful prioritization and preparation of investment projects, would help remove implementation bottlenecks.
“Financial sector reforms will continue to focus on addressing high credit risks and strengthening the legal and institutional environment to promote intermediation.
“Enhancing the credit reference system and establishing the collateral registry would directly help reduce credit risk. Other credit initiatives should be market-based, efficient, and recognized as fiscal initiatives financed by the government or donors.
“In light of the recent rapid debt accumulation and large remaining external financing needs, maintaining debt sustainability will require adhering to sound debt management principles, enshrined in the new medium-term debt strategy.”
Although the overall performance of the government in the last three months – since September 2013, has been fairly steady, slippage on key indicators is a very bad sign that all is not well. The government has to up its game and show greater mettle.
Whilst everyone understands that turning Liberia’s economic and social fortunes around is not going to be easy for any government in Liberia, it is patently clear also that the alternative and the risk of failure remains all too costly to contemplate.
Youth unemployment may have fallen, but remains worryingly high.
The pace of development of the private sector – the engine of job and wealth creation, is neither fast enough nor generating sufficient critical mass to mop up the vast army of unemployed youths.
But the Executive Board of the IMF is confident in the government’s ability and capacity to turn Liberia’s economic fortunes around.
In completing their second review of the three-year arrangement, under the Extended Credit Facility (ECF) for Liberia, it announced that:
“The completion of the review enables the disbursement of an amount equivalent to SDR 7.382 million (about US$11.4 million), bringing the total disbursements under the arrangement to SDR 22.146 million (about US$34.2 million).”
It says that; “The Board has approved the waiver for the non-observance of the performance criteria on the floor on revenue collection of the central government, the ceiling on Central Bank of Liberia’s gross direct credit to the government, and the floor on foreign reserves of the CBL.
“The Board also approved the authorities’ requests for modification of end-December 2013 and end-June 2014 performance criterion on the ceiling on new domestic borrowing of the central government.
The ECF arrangement for Liberia for the equivalent of SDR 51.68 million (about US$79.7 million) was approved by the IMF’s Executive Board on November 19, 2012.”
