MONROVIA – Despite the global economic challenges attributed mainly to the effects of the COVID 19 pandemic and the ongoing Russia-Ukrainian war, the Liberian economy seems to be performing creditably well compared to other countries in sub-saharan Africa according to multiple international sources which commissioned surveys and reports on many countries on a periodic basis in 2022.
According to one of the sources, a Back to Office (BTO) Report covering the period October 31 to November 11, 2022, researched from the website of the International Monetary Fund, and covered the fifth review of the Four –Year Arrangement under the Extended Credit Facility (ECF) for Liberia, discussed the macroeconomic and financial situation of the country and evaluated the program performance against the end of September, 2022 performance criteria and indicative targets as well as structural benchmarks.
The extensive research by The Analyst on the IMF links revealed that the report touched on the country’s macroeconomic and recent economic developments, the fight against inflation, program performance, public policy and public finance management (PFM) reforms, financial sector development, structural reforms and governance, among others.
It was also revealed that report emanated from the mission team of IMF headed by Mr. Christoph Klingen to Liberia which had consultations with Messrs. Samuel D. Tweah, Minister of Finance and Development Planning and Aloysius J. Tarlue, the Executive Governor of the Central Bank of Liberia as well as with development partners, private sector representatives and senior government officials.
Giving the macroeconomic overview and recent economic developments, the report said despite the prevailing global economic challenges characterized by the lingering effects of the COVID 19 and the ongoing conflict between Russia and Ukraine, “the country continues to enjoy macroeconomic stability, largely due to the continuous policy advice and technical support from the IMF”.
The report also referenced the report of the Central Bank of Liberia (CBL) where it was stated that the apex bank downwardly revised its economic growth projection for 2022 from its previous projection of 4.5 percent to an estimated 3.7 percent (in real terms) on the back of a slowdown in key primary and secondary economic sectors, mainly the mining sector.
“Conversely, real GDP in 2023 is expected to increase by 4.7 percent, as economic activity in agriculture & fisheries, forestry, mining & panning subsectors as well as manufacturing and services related activities are expected to experience stronger growth”, the report said.
Dwelling on the fight against inflation, a situation that has adversely affected price stability in the ECOWAS subregion, the report said the Liberian Government has a strong commitment to combating inflation and achieving single-digit rate of inflation, at most 5 percent which is in line with the ECOWAS threshold in the medium term.
“In this regard, and as will be testament in the upcoming 3rd Quarter Monetary Policy Meeting, the intention is to maintain the current contractionary monetary policy stance, while being mindful to strike a balance between price stability and the promotion of economic growth. Average inflation outlook for 2022 is projected at 7.2 percent, whereas the end-of-year inflation is projected at 8.5 percent”, the report said.
It further stated that it is the view of the government of Liberia that the path of inflation will depend largely on the stability of the domestic currency, economic diversification, increased domestic production of rice, public tax policies on key commodities (i.e., petroleum products and other consumables), increasing energy supply and accelerating infrastructural developments (i.e., farm to market roads).
Continuing further, the report stated the government met all quantitative performance criteria (PC) except in three challenging areas which included the floor on the primary fiscal balance, the floor on international reserves of the CBL and the ceiling on CBL gross direct credit to government as well as missing out on two of the four structural benchmarks for the end of September, 2022 which included inability to submit the amendments of the Financial Institutions Act (FIA) of 1999 to the national legislature and submission of the audit report for the FY 2020/21 budget to the national legislature.
“Some progress has been made to implement the TSA and prepare the needed legislation to reduce the large tax expenditures. The authorities are committed to following through on the missed structural benchmarks in November 2022, before Liberia goes to the Board”.
While discussing some policies of the government, the report said the government met the end-September indicative targets for revenues and on-budget investment of US$473 million and US$48 million, respectively as well as the Present Value target for new external loans.
It observed that the higher deficit did not come from a revenue shortfall but rather from higher spending. “Preliminary evidence suggests that both investment spending and spending on goods and services are the major drivers of the expenditure overrun, with the latter taking the lion’s share. To strengthen public financial management, the authorities are committed to enhancing the capacity of the Internal Audit Agency (IAA) and ensuring greater coordination between the IAA and the budget office”, the report said
It said for the 2023 budget, the government budgeted for a resource envelope of US$776 million, supported by domestic revenue mobilization efforts and donor financing with policy efforts which include reducing the scope of several tax exceptions, including those stemming from Presidential decrees. In this regard, the plan is to undertake an exercise to critically assess the implications of tax exemptions by government decree, on overall tax collection and provide a detailed report to the President to motivate the reduction in scope.
“The authorities plan to push ahead with reducing the budget deficit. In this respect, they have engaged with spending entities and provided indicative ceilings. A series of budget cuts is planned across major expenditure lines, largely on spending on goods and services across the entire public administration, while preserving a few sectors, e.g., education and health. Total recurrent expenditure is budgeted at US$626 million, including domestic liabilities and the redemption payments of domestic and foreign public debt. Feedback from the spending entities is being collated and consolidated to inform the budget that will be presented to Parliament for approval”, the report further stated.
Considering the financial sector developments, the report said evidence suggests that all banks’ capital ratios are above their regulatory minimum set by the Central Bank of Liberia but noted that the banking sector continues to face some challenges.
“The level of nonperforming loans (NPLs) remains high. There is a need to strengthen standards of underwriting as well as credit and evaluation approval processes, together with credit monitoring. The authorities are committed to the strict enforcement of NPL regulations and an adoption of high frequency reporting to the CBL’s Board of Governors to allow for timeous remedial action, where necessary. Efforts to restructure the Liberia Bank of Development and Investment (LBDI) are still on-going. The authorities are committed to maintaining close supervision of LBDI and encouraging better recordkeeping coupled with more efficient NPL recoveries, improved underwriting standards and low operating costs to preserve liquidity”, the report said.
“The authorities’ currency changeover project is on course. The estimated completion year is 2024. The CBL has established three temporary storage facilities. In the first facility, newly minted coins are stored in shipping containers. A second facility accepts all old bank notes and processes them for defacing. The third facility houses equipment for defacing processed bank notes meant for destruction. The CBL has expanded its main vaults to house new coins and provide temporary storage of old bank notes. The bank has received three air shipments of banknotes to be printed by Giesecke+Devrient (G+D) and one sea shipment of the coins minted by the Royal Mint: comprising all the coins for 2022 delivery.
“The first sea shipment of banknotes printed by G+D is expected November 7, 2022, and several shipments are expected between November 27 and December 9 or 16, 2022. The final shipment is expected by air, either on December 9 or 15, pending conclusion with G+D. The official commencement of the full-scale currency exchange exercise was announced on October 6 by the CBL through a press conference, but no official time frame was given regarding the deadline for the exchange exercise to avoid public rush. The authorities’ expectation is that within six months, they will have withdrawn a significant portion of the old banknotes at which time they will be able to make a public pronouncement on the deadline for the official exchange exercise.
Under the category of structural reforms and governance, the report said the government of Liberia has demonstrated its commitment to pushing ahead with the structural reforms to promote economic growth. It said to improve the business environment, the government, in consultation with IMF staff, has established an implementation plan with concrete actions, milestones, and responsibilities to improve Liberia’s business climate in the following three areas including trading across borders, registering a business, and enforcing contracts.
“In this regard, letters mandating lead institutions to conduct weekly meetings on proposed reforms implementation have been sent. An assessment report on the reduction of checkpoints has been shared with policymakers for action. Authorities are also establishing the Special Economic Zone Authority (SEZA) to enhance private sector growth. The recruitment of the SEZA Board members and Executive Chairperson is expected by end-October/November 2022. To address the challenge of erratic and insufficient electricity supply by the Liberian Electric Company (LEC), a comprehensive reform action plan is to be presented for validation by relevant development partners and cabinet adoption in October 2022. Similarly, the authorities plan to appoint a new management team to drive critical reform of airport operations”, the report concluded.
The report, according to financial experts, is far above many countries still struggling to put in place remedies to cushion the effects from external shocks and fall in commodity prices on the global market.
In a press release issued by the Ministry of Finance of Ghana dated December 19, 2022 which was circulated with media both locally and externally, the government said it was suspending payment of some selected debts due to the unfavorable conditions of the economy.
“Ghana is today faced with a major economic and financial crisis, and its attendant social challenges. In 2020 and 2021, the covid-19 pandemic negatively impacted our fiscal and economic situation. Global risk aversion triggered large capital outflows, a loss of external market access and rising domestic borrowing costs.
“That is why we are announcing today a suspension of all debt service payments under certain
categories of our external debt, pending an orderly restructuring of the affected obligations.
“This suspension will include the payments on: our Eurobonds; our commercial term loans;
and on most of our bilateral debt. This suspension will not include the payments of our multilateral debt, new debts (whether multilateral or otherwise) contracted after 19th December 2022 or debts related to certain short term trade facilities. We are also evaluating certain specific debts related to projects with the highest socio-economic impact for Ghana which may have to be excluded. This suspension is an interim emergency measure pending future agreements with all relevant creditors”, the release said.