The character and the form of the support granted would indicate that indeed Liberia had made good marks on meeting conditions set by the IMF in order to promote steady economic growth during the country’s postwar recovery process. Debt forgiveness and more extended credit facilities indicated that Liberia had passed key multilateral tests.
IMF’s Strict Conditionality
The IMF is very strict with its imposition of conditionality for developing nations that require its help. Surely, Liberia needed all the help it could muster from development finance institutions (DFIs), in the early days of its postwar economic recovery process. The country had a debt overhang of over 4.5 billion dollars from DFIs including unpaid bilateral loans with years of interest payments from the US, Japan, France, Germany and other countries. In order for the country to be even remotely considered for acceptance into the club of heavily indebted poor countries (HIPC), it had to meet certain conditionality. The IMF led and oversaw the process.
IMF conditionality often includes cash balanced budgeting, zero or concessional borrowing by affected countries, determination of size of official reserves and sometimes substantive structural adjustments to be implemented in short order. It has not been uncommon to see countries teeter on the brink of anarchy as shocks to economies brought about political changes. Fortunately, Liberia has not been negatively impacted by the list of conditionality imposed, which were mostly benign and not so intrusive of people’s daily lives, but required the dexterity of the fiscal managers, who stepped up to the proverbial plate and guided Liberia’s recovery process.
Liberia followed programmed objectives of the IMF and other development finance institutions, such as the World Bank through the IDA, and the African Development Bank over the years of democratic governance achieving overall improvements in fiscal and monetary affairs. Although the IMF privately expressed some dissatisfaction with reduction in the number of months of coverage of official reserves at lower than 3 months of imports to 2.6 months, yet Liberia’s overall external position remains strong.
Averting the Fiscal Cliff
From averting the fiscal cliff in achieving debt forgiveness through enhanced heavily indebted poor country initiatives (HIPC) in record time, to implementing fiscal discipline by cash balanced budgeting and zero borrowing in the early years, Liberia has come a long way. The adoption of prudent fiscal management, including implementation of the Integrated Financial Management Information System (IFMIS), derisking of projected revenues to avoid shocks from shortfalls and a more efficient payroll management system to reduce ghost workers, all played a role in improving fiscal indicators. The country’s fiscal indicators, with one exception, public wages to GDP at more than 11 percent have been in line with countries within the West African Monetary Union (WAMU), indicating that the goal of convergence is being met.
Along with fiscal prudence has come the credibility that saw improvements in Liberia’s economic recovery process. Over the 2006 to 2012 period, Liberia’s economy grew on average by 7 percent and the country’s budget increased from just 80 million dollars in 2005 to over 600 million dollars in the last fiscal year, 2015-2016. That growth has been fraught with challenges and some critics say it has been uneven and not transformative. Liberia’s economic growth rate, the critics lament further, has been mostly supported by the extractive industries and nonfood agriculture. But government officials counter that structural deficiencies such as narrow economic output based upon two commodities, rubber and iron ore are systemic, brought about by the lack of absorptive capacity to attract other investments and would require more time to make the adjustments. The other perennial argument of critics is that the country’s economy is highly vulnerable to exogenous shocks, due to the volatility in the prices of primary commodities.
Despite the arguments, it is clear that Liberia’s fiscal managers, though nursing two successive fiscal periods of budget shortfall, also steered the country through the difficult transition of adopting a multiyear Medium Term Expenditure Framework (MTEF), which they believe would add some predictability to public financial management. The charge to implement MTEF was led by Liberia’s youthful, some critics would say inexperienced, finance minister, Amara Konneh, but his performance during the Ebola crisis, when he made enemies of his colleagues by demanding fiscal conservativism and expenditure control also brought him respect from within the multilateral community. Privately, the Minister has been feuding with many officials in the administration who demand increased expenditure without providing a shred of evidence on whether programs budgeted for in past fiscal periods had been achieved and to what extent these have had impact on Liberians.
Christine Lagarde’s visit to Liberia may herald support for the Minister’s style of fiscal prudence, dealing with the insatiable appetite of his colleagues and especially the national legislature which typically demands more spending priorities in their budget, during political seasons. Although there are still 24 months to the country’s next general elections in 2017, yet the 2015-2016 budget demonstrated that no matter the best intention of a fiscally prudent finance Minister, legislators can demand and receive more at will due to the nature of our delicate democracy.
Sirleaf’s Savvy Style of Engagement
In addition to the level of conformity by Liberian fiscal and monetary managers to the conditionality imposed by the IMF and other multilateral institutions, President Ellen Johnson Sirleaf’s personal style of engagement, through savvy diplomacy is also a worthy example that leaders of other developing nations can emulate. Critics say when the multilaterals come demanding the country to “jump”, the president typically responds diplomatically by asking “how high”. She never shows any disagreement with IMF policy even if it goes against her personal economic development philosophy, because she understands that the country will get a pass in some areas due to her personal understanding of the multilateral culture. It is best to accept a conditionality and make serious efforts to meet them, and if you come up short, you can demonstrate that you made every effort to achieve the goals, but limited capacity, political considerations and exogenous factors made it difficult.
Liberia has not been hundred percent perfect in meeting the conditionality set by multilaterals, but the country’s willingness to cooperate has more than evened out any shortcomings and thus the main lesson one can learn from the recent visit by Christine Lagarde is that a country with serious shortcomings such as Liberia must do all it can to meet the IMF midway in the arrangement of multilateral consultations. Despite cries and protests from critics, mostly political adversaries of the administration who claim that Liberia’s engagement with the IMF and other DFIs has not produced substantive socioeconomic development to the country, the visit by Lagarde and her commendation of Liberia’s economic recovery strategy shows that the country is a model of success to the DFIs and that is what matters for now.
Culled from The Capitol Insider Magazine