The Executive Board of the International Monetary Fund (IMF) upon the completion of the first and second reviews under the Extended Credit Facility approved US$48.86 million disbursement for Liberia.
The Credit Facility, approved on Monday, 21st December 2020, was immediately disbursed with US$38 million expected to be used to fill the fiscal financing gap arising from the impact of COVID-19.
The IMF noted that the main objectives of this program are restoring macroeconomic stability, providing a foundation for sustainable inclusive growth, and addressing weaknesses in the governance system.
The IMF earlier projected that economic activities in Liberia will contract by about 3.0 percent in 2020, reflecting the effects and challenges from the COVID-19 disruptions. The IMF noted that signs of recovery are now emerging and growth is projected to reach 3.2 percent in 2021.
The lender stated that while the fiscal stance has been loosened to meet humanitarian needs, tight monetary policy, much improved public financial management, domestic revenue mobilization, and no central bank financing have helped achieve price and exchange rate stability, preserving the purchasing power of the poor.
The IMF however, warned that Liberia remains fragile and vulnerable to shocks as both fiscal and external buffers remain low. Also, the current review by the IMF shows that Liberia continues to be assessed as having a sustainable debt burden, but borrowing space is limited.
The recent disbursement is part of a four-year ECF arrangement, with a total access of US$214.30 million which was approved by the IMF Executive Board on December 11, 2019.
Following the Executive Board discussion, Mr. Tao Zhang, Acting Chair and Deputy Managing Director said:
“The COVID-19 pandemic continues to exert significant strain on Liberia’s fragile economy. The authorities have taken the necessary steps to stabilize the economy amid multiple challenges. A modest fiscal loosening is appropriate to meet humanitarian needs during the COVID19 pandemic.
“The authorities are committed to fiscal discipline and further improvements in cash management, transparency and accountability in spending, and domestic revenue mobilization to finance their development agenda.
“The monetary policy stance is appropriately aligned with the inflation objective, and significant progress has been made in strengthening central bank independence. In the context of the gradual de-dollarization of fiscal spending, it is important to further refine instruments for open market operations and enhance policy coordination between the central bank and the government.
“Further efforts are needed to contain the central bank’s operational expenses and build up reserves. Rebuilding confidence in the financial sector is critical for financial stability. Priority should be given to addressing risks from weak financial institutions and ensuring the supply and quality of Liberian dollar banknotes.
“Further improvements in governance are necessary for the efficient delivery of public services. Steps are being taken to clear the fiscal audits backlog, further enhance procurement transparency, and upgrade the anti-corruption legal framework.
“Efforts to increase borrowing space would support sustainable growth. The authorities should continue to work with donors and development partners to secure grants and concessional borrowing, and carefully prioritize the use of public resources.”
Also, on the same day, the Executive Board of the IMF approved US$ 177.96 million in emergency assistance to Benin under the Rapid Financing Instrument (RFI) and the Rapid Credit Facility (RCF). The recent disbursement supplements the augmentation of US$103.3 million approved under the ECF in May 2020.
The IMF noted that weaker external demand and the deepening of the economic impact of the COVID-19 pandemic have worsened external and fiscal positions in the West African Nation.
“Benin’s macroeconomic outlook has further deteriorated since the completion in May 2020 of the sixth and final review under the ECF-supported arrangement. Economic growth is projected to decelerate to 2 percent in 2020, from nearly 7 percent in 2019, as a result of containment and mitigation measures, the global economic slowdown, and the prolonged border closure with Nigeria.
“While Benin’s pandemic response has been effective in curbing the spread of the COVID-19, the economic shock has created urgent fiscal pressures and balance of payment needs”, said Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair of the Executive Board during the discussion.
