IMF Executive Board approves $210 million, 40-month extended interest rate arrangement

Liberia: IMF Executive Board approves $210 million, 40-month extended interest rate arrangement

September 25, 2024

• The IMF Board approved an ECF arrangement of SDR 155 million (approximately US$210 million) for Liberia. This decision will allow for the immediate disbursement of SDR 4.3 million (approximately US$5.8 million).
• The 40-month financial package will support the government’s economic reform programme (ARREST) ​​in addressing macroeconomic imbalances, strengthening debt sustainability and laying the foundation for stronger, more inclusive and private sector-led growth beyond the enclave sector.
• The ECF arrangement is expected to leverage additional external financing from international financial institutions (IFIs) and development partners.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) has approved a 40-month Extended Credit Facility (ECF) arrangement for Liberia of SDR 155 million (60 percent of the amount, or about US$210 million). This support is intended to assist the authorities in their reform efforts to address macroeconomic imbalances and establish the foundations for private sector-led growth beyond the natural resources sector. Once the arrangement is approved by the Executive Board, an immediate disbursement of SDR 4.3 million (about US$5.8 million) will be made, helping Liberia meet its current balance of payments needs, mainly due to its large and widening development gaps.

The authorities’ economic programme, supported by the 40-month ECF arrangement, envisages a comprehensive policy package aimed at strengthening fiscal sustainability and creating fiscal space for investment. This will start with rationalising unproductive expenditure, followed by efforts to mobilise domestic revenues. This policy package is intended to help mitigate debt vulnerabilities and support more robust and sustainable growth. Key policies outlined in the programme include: (i) reducing unproductive expenditure, (ii) implementing new tax measures, including the Value Added Tax (VAT), and streamlining broad tax expenditures, (iii) increasing priority public spending, in particular on basic infrastructure, and (iv) enhancing financial stability by addressing non-performing loans. A critical objective of the authorities’ reform programme is to preserve and increase social spending, especially in the education and health sectors.

Following the Board discussion, Mr. Bo Li, Deputy Managing Director and PO Chairman, made the following statement:

“Liberia’s economic vulnerability has worsened in recent years. Fiscal weaknesses have threatened the sustainability of the public debt, contributing to a sharp decline in international reserves. Governance weaknesses have also persisted. To address these challenges, the new authorities, which took office in early 2024, requested a 40-month Extended Credit Facility arrangement to support a broad reform program.

“The Liberian authorities are rightly prioritizing restoring fiscal credibility. They are focusing on reducing unproductive spending and shifting resources toward public investment, while protecting social spending. Over the program period, the authorities should continue to strengthen fiscal discipline and improve domestic revenue mobilization, including through the introduction of a value-added tax and the reduction of generous tax incentives.

“It will also be important to significantly increase the authorities’ capacity to manage debt. It is crucial to continue to seek concessional loans and grants to create fiscal space for the development of critical infrastructure.

“Given the serious challenges in the financial sector, it is imperative that a new law on banking and financial institutions be adopted quickly to provide a modern framework for banking supervision and problem-solving. Other important reforms should also be introduced to strengthen the banking sector.

“Building on recent progress, the Central Bank of Liberia (CBL) must continue to improve its governance to strengthen its independence and credibility. It is also important to strengthen the monetary policy framework.

“The authorities are committed to revitalizing the reform agenda to support macroeconomic stability, promote broad-based economic development, and reduce widespread poverty. Comprehensive structural reforms, including improved governance and transparency, are key to achieving these goals. Maintaining strong ownership of the program, supported by capacity building, will be key to ensuring the program’s success and continued donor support.”