It is clear by the day that Government appears determined to leave no stone unturned in ensuring the revival of the country’s economy which it inherited already slipping into crisis. In a recent nationwide statement, President George Weah announced his government was entering into a special program of the International Monetary Fund (IMF) credited for salvaging crisis-ridden economies. Now, it is said that a Mission of the IMF is in town to seemingly explore ground works for its special program for Liberia sunk in chronic inflation. The Analyst reports.
Following the just ended Spring Meetings in Washington DC this year, the IMF has dispatched a mission to Liberia to work on several critical macroeconomic indicators that are essential to spurring economic growth in the country. During the Spring Meetings, the Government of Liberia through the Ministry of Finance and Development Planning, agreed to negotiate an IMF-supported economic program for the country.
In the engagement letter, Finance and Development Planning Minister Samuel Tweah noted that aggregate demand was partly weak because the government, which plays the dominant role in the economy via channels of largely funding private consumption, public sector investment and government consumption, holds a large stock of domestic arrears from previous years it cannot service. This has undermined the circular flow of funds, weakening credit to the private sector, thereby exacerbating the current macroeconomic squeeze. He then called on the IMF for a one-off stimulus shock to re-calibrate the economy in the short-term, while the government works towards long-term domestic economic competitiveness.
In response, the IMF noted that any financial relief would be predicated upon continued pursuit of a broad set of governance and macroeconomic reforms. The Government would first have to develop and pass a budget that is closest to its true revenue potential, present a clear picture of its domestic arrears and prevent all future borrowing from the Central Bank (CBL), while assuring the independence and integrity of the CBL through aggressive reforms, improved economic governance and strengthened internal controls. The Mission advised that accountability, transparency and compliance with existing procurement rules and laws will be essential features of an IMF-supported economic program.
In its 2019 Article IV Consultation with Liberia, the IMF welcomed efforts by the government to bolster macroeconomics stability, resolve social imbalances, improve the business climate, particularly through the implementation of the Pro-Poor Agenda for Prosperity and Development. In spite of these initiatives, the Mission called for steadfast and well-sequenced policies and structural reforms, which are essential to enhance macroeconomic stability. More emphasis should also be placed on domestic revenue mobilization, the reform of the wage bill.
On the Monetary front, the Mission requested the CBL to tighten monetary policy with the objective of reducing inflation to single digits by 2021. With the current structure, the Mission wants the CBL to enhance its supervisory efforts in light of the high increase of non-performing loans. The Fund also noted the need for the government to improve the external position by tightening monetary and fiscal policies, allowing for greater exchange rate flexibility, and raising competitiveness through improvement in the business environment.
According to the Mission Chief, Mika Saito, the Fund will be engaged in a rigid exercise to ensuring that the government meets most or all of the benchmarks in line with the Fund’s programs. The IMF meetings with both the fiscal and monetary institutions will include a review of trends in domestic revenue mobilization, the rebalancing of factors of production, the CBL credit to government, rightsizing and the wage bill and civil service reform, optimal expenditure reporting, monetary framework and costs of monetary operations, safe guarding CBL independence, revenue collection and challenges to improve revenue performance among other macroeconomic policies issues.
With an economy that is going through series of monetary and fiscal challenges, some of these measures will be proved difficult to attain in the short run. For example, reducing inflation to single digits by 2021 may not be a reachable goal given the country’s over-reliance on the exportation of natural resources. The depreciation in the exchange rate, rising prices in both domestic and international goods as well as the increased level of unemployment together with an undefined monetary policy are just some of the tough policy measures to be overcome. However, as it stands, as long as the government of Liberia can demonstrate the political will, and adopt austerity measures across the three branches of government using equity for economic decision making, hope may abound, paving way for economic growth and transformation.