-Dishes out US38M for meeting conditions
“Tight monetary policy, much improved public financial management, domestic revenue mobilization, and zero central bank financing have supported the administration’s efforts to achieve price and exchange rate stability” says the International Monetary Fund in its first and second review of the country’s Extended Credit Facility (ECF).
The IMF has given the Liberian Government an instant US$38 Million for meeting the conditions set out under the program.
The First and second reviews part of conditions set under the extended credit Facility arrangement, request for waivers of Nonobservance of performance criteria and Modification of performance criteria
The Liberian Government requested for a waiver for nonobservance of the end December 2019 and end-June 2020.
The IMF said the policy decision by the government helped to preserve the purchasing power of the poor who were the most affected by the high inflation environment at the program’s inception.
According to the IMF, the Liberian Government has considered bringing the ECF-supported program back on track of utmost importance and are committed to their development plan, the Pro-Poor Agenda for Prosperity and Development (PAPD).
To this the IMF notes that restoring macroeconomic stability, providing a foundation for sustainable inclusive growth, and addressing weaknesses in governance remain the main objectives of this program.
Program status. The IMF’s Executive Board approved a four-year arrangement under the ECF (60 percent of quota) in December 2019.
The Board also approved, in the context of the COVID-19 pandemic, debt relief under the Catastrophe Containment and Relief Trust (4.5 percent of quota) in April 2020 and a disbursement under the Rapid Credit Facility (RCF) (14 percent of quota) in June 2020.
Program performance. According to the IMF, Three out of six end-2019 performance criteria (PCs) were not met.
In particular, it says, the PC on net international reserves (NIR) was missed by a large margin due to higher foreign exchange intervention than programmed and U.S. dollar liquidity assistance to the banking sector.
The report further notes that three of the six end-June 2020 PCs were not met as the impact of the pandemic made the PC targets no longer feasible nor appropriate.
However, it reveals that two structural benchmarks (SBs) were met; four were not met, as the pandemic further strained implementation capacity.
Even so, the report argues that one of the four was implemented with a delay and notable progress was made on several others.
Meanwhile, the IMF notes that to further strengthen program performance, Liberian authorities have implemented key measures as prior actions, including adopting a FY2021 budget in line with program parameters and clearing all debt service arrears, among other measures.
Risks to the program
According to the IMF report, risks are high despite significant control measures built into prior actions and PCs.
It opines that the main risks are a worse- and longer-than-anticipated impact of COVID-19; slippage from fiscal spending pressures; re-emergence of U.S. dollar liquidity needs in the banking sector; and re-emergence of Liberian dollar banknote shortages.
But it notes that fiscal authorities’ efforts are focused on improving fiscal cash management and control and mobilizing domestic revenue, with the objective of financing vast development needs and better protecting the poor.
It further points out that the central bank is rebuilding confidence in the banking sector by addressing the root cause of the U.S. dollar liquidity needs that emerged last year and ensuring adequate supply of Liberian dollar banknotes.
While noting the central bank’s commitment to rebuilding NIR to reduce vulnerability to external shocks, the report points out the comprehensive resolution adopted by the Liberian Government to fight corruption, which is an important milestone whose effective implementation is vital.