Despite unrestrained effort by the government of Liberia to ensure full recovery from the shackles of the global economic meltdown and the debilitating effect of the Ebola Virus Disease outbreak, the International Monetary Fund (IMF) says Liberia’s recovery is timidly taking hold, but only gradually.
The international financial institution’s statement was contained in a fourth review paper released under the extended credit facility arrangement and requests for waivers of nonobservance of performance criteria, modification of performance criteria, and rephrasing and extension of the arrangement published on January, 2016.
“The current account deficit widened. The current account deficit worsened from about 28 percent of GDP in 2013 to about 31 percent in 2014 mainly because of the sharp decline in exports caused by the Ebola and commodity price shocks, which were only partially offset by higher Ebola-related current transfers. The deficit is projected to rise to 39 percent of GDP in 2015 as commodity exports continue to decline,” the IMF said.
The IMF pointed out that gross international reserves have declined from $411 million at end-2014 to US$394 million in September 2015 (about 2.4 months of essential imports or 2.1 months of total imports).
According to the international financial institution, the financial sector of Liberia has yet to recover from the crisis.
However, the IMF said after a period of contraction, credit to the private sector rose by 7.6 percent in real terms in September 2015 but nonperforming loans (NPLs) rose from the pre-Ebola 14.5 percent of total loans in March 2014 to 19.3 percent in July 2015.
“The foreign exchange position net of liabilities (including ECF purchases and government deposits) has been declining under the ECF arrangement, from US$280 million in March 2012 to US$179 million at end-2014, and US$161 million at end-September 2015. The decline in net reserves was driven in part by Ebola and the commodity price shocks, which have worsened the external position. In part, however, the negative trend was due to the operational deficits of the CBL, which directly subtract from foreign reserves under Liberia’s dual currency regime,” the International Monetary Fund visiting mission said.
The IMF mission recommended that the CBL’s operational spending requires strengthening domestic money market operations based on the regular issuance of short-term CBL notes as opposed to the current ad-hoc issuances at maturities similar to those of Treasury Bills. At the same time, the mission said “government should expand longer-maturity securities for financing purposes, while short-term CBL notes would support liquidity management, with a view to gradually developing a yield curve. As an additional liquidity instrument, the MFDP and the CBL could also agree to securitize the government debt owned by the CBL in line with MCM recommendations.”
Commenting on prevailing political tensions in the country, the IMF mission said “security risks could increase as UNMIL withdraws in the context of the 2016 constitutional referendum and the 2017 presidential election cycle, which, combined with economic weakness, could exacerbate social tensions.
“A wider re-emergence of the Ebola virus epidemic is possible, as confirmed by the recent three isolated cases, including through cross-border transmission. Possibly as a result of security and health issues, policy implementation under the program could weaken,” the IMF mission said in a statement.