Trying Times

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    The International Monetary Fund has confirmed hash economic conditions in the country as growth falls by 91.4% from the high of 4.7% to the low of 0.4 percent.

    In its ‘End of Mission’ statement released March 8 following its assessment of the domestic economy, the fund said “Liberia’s economic situation is challenging, and strong policy actions will be required improve the situation.

    “Macroeconomic stability has proved elusive despite improved revenue collection in the first half of FY2019, and the fiscal stance has loosened significantly,” it said

    “With accommodative monetary policy meeting fiscal needs, the exchange rate depreciated by 26 percent over the year, and inflation accelerated to 28 percent at end-December.

    “This is detrimental to the living standards of the most vulnerable Liberians who earn and spend primarily in Liberian dollars and threatens the success of the pro-poor agenda. Growth for 2018 is now estimated at 1.2 percent, while the forecast for 2019 on current policies has been revised down to 0.4 percent from 4.7 percent.

    Factors Behind soaring inflation

    Although the IMF did not outline the issues underpinning rising inflation, the currency scandal involving the Central Bank of Liberia is chief reason as indicated by the United States hired forensic investigators who probed the ‘missing money’ saga.

    “The increase of banknotes in circulation may be a factor in the current rate of inflation in Liberia,” the report said.

    “Kroll understands that the rate of inflation (as at January 31, 2019) is approximately 25%. Further, the increase of banknotes in circulation may be a factor in the rapid depreciation of the LRD exchange rate between January 2018 and July 2018.

    On March 6, New Democrat said the poor state of the local currency has caused a general rise in the price level with essential commodities such as gasoline and food experiencing upward movement in prices.

    Consumers and entrepreneurs are currently feeling the pinch of the unhealthy market situation borne out of the President Sirleaf and the Central Bank’s decision to print mass quantity of banknotes and loosely releasing it into circulation.

    Here is the IMF statement in Full:

    End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

    Macroeconomic stability has proved elusive despite improved revenue collection in the first half of FY2019, and the fiscal stance has loosened significantly.

    Growth for 2018 is now estimated at 1.2 percent, while the forecast for 2019 on current policies has been revised down to 0.4 percent from 4.7 percent.

    Revenue reforms have considerable potential to directly expand the resource envelope and facilitate a needed increase in social spending.

    An International Monetary Fund (IMF) team led by Mika Saito visited Monrovia from February 25-March 8 to conduct discussions for the 2019 Article IV Consultation with Liberia.

    At the conclusion of the mission, Ms. Saito issued the following statement:

    “Liberia’s economic situation is challenging, and strong policy actions will be required to maintain as favorable an outlook as anticipated at this time last year. Macroeconomic stability has proved elusive despite improved revenue collection in the first half of FY2019, and the fiscal stance has loosened significantly. With accommodative monetary policy meeting fiscal needs, the exchange rate depreciated by 26 percent over the year, and inflation accelerated to 28 percent at end-December. This is detrimental to the living standards of the most vulnerable Liberians who earn and spend primarily in Liberian dollars and threatens the success of the pro-poor agenda. Growth for 2018 is now estimated at 1.2 percent, while the forecast for 2019 on current policies has been revised down to 0.4 percent from 4.7 percent.

    “Discussion with the authorities centered on the policies required to address the current situation and promote strong noninflationary growth over the medium term. The mission noted that the commencement of sales of central bank bills, supplemented by the introduction of the standing deposit and credit facilities in the interbank market, represent major milestones in modernizing the monetary policy framework. With the appropriate preconditions firmly in place, a timely reduction of the rate of inflation to single digits appears possible. Of the necessary preconditions, the most critical is that the Government refrain from borrowing from the central bank.

    “The mission recommended that the budget for fiscal year 2020 be based on realistic estimates of the resource envelope. Giving Ministries and Agencies a reliable estimate of the actual resources that will be available to them is critical to improving the quality of public services, even if this represents less than the amount budgeted in the past.

    “Without central bank borrowing, financing a sufficient level of public service provision will require policies to prioritize and improve the composition of expenditure, enhance its efficiency, and expand the resource envelope.

    “The mission notes that productive spending is being crowded out by a wage bill, including discretionary allowances, that totals about two-thirds of government-funded expenditure. This is not a new issue—it has been a characteristic of the Liberian economy for a number of years. However, as grants and other external assistance decline, this is no longer a tenable situation. Freeing up resources in an equitable manner for pro-poor development will likely require effective actions to reduce the share of government resources devoted to this budget item.

    “Improving the efficiency of government spending will be key. Policies should aim at improving the monitoring, accountability, and transparency of spending. Intensifying actions to improve governance and fight corruption, including through rigorous adherence to existing procurement rules, would also be effective.

    “Revenue reforms have considerable potential to directly expand the resource envelope and facilitate a needed increase in social spending. The mission notes the recent finalization of the Domestic Revenue Mobilization Strategy. It recommends that the authorities pursue the envisaged reforms, including excise tax, tax exemptions, and compliance.

    “Increased uncertainty and volatility in the external environment argues for further measures to safeguarding the foreign exchange reserves of the central bank. The mission noted that creation of a well-functioning monetary policy framework would reduce the need for foreign exchange intervention. Acceptance of greater exchange rate flexibility would help preserve reserve stocks and help absorb external shocks. In addition, reducing the central bank’s operational deficit would be vital.