IMF 1st ECF review: Broader reforms key to success of the program

The Executive Board of the International Monetary Fund (IMF) has completed the First Review of the Extended Credit Facility Arrangement for Liberia, marking a significant milestone in the country's economic revival. The completion of the review has paved the way for the immediate disbursement of approximately $46 million, equivalent to 13.3% of Liberia's quota, to bolster the nation's international reserve position. This financial injection comes at a crucial juncture for Liberia, as it seeks to navigate its economic recovery and set the stage for sustainable growth. The IMF has underscored the importance of broader governance reforms in ensuring the success of the program and Liberia's long-term development prospects. Earlier this year, Liberian authorities reached out to the IMF, seeking support to fund an ambitious economic blueprint named the Arrest Agenda for Inclusive Development (AID). The AID initiative aims to enhance sustainable and inclusive growth within the country. The IMF greenlit a total sum of $210 million in interest-free resources in September last year to support the AID program. The disbursement of these funds will occur over a 14-month period from September 2021 to November 2022. The IMF has commended the progress of the Extended Credit Facility arrangement, noting that it has already begun to attract additional support from international financial institutions and donor partners, including the World Bank and the EU. Following the first review, an additional $46 million was approved, bringing the total amount disbursed to $51 million. This infusion of capital will significantly bolster Liberia's reserves and provide a much-needed financial boost. One of the key focal points moving forward for Liberia is the advancement of governance reforms, which encompass domestic revenue mobilization, expenditure rationalization, addressing financial sector weaknesses, and rectifying governance deficiencies. The IMF is optimistic about Liberia's fiscal trajectory, with the government initiating a 6.6% GDP fiscal consolidation focused on expenditure rationalization, revenue mobilization, and safeguarding critical investments and social spending. This fiscal maneuver aims to create space for infrastructure and capital investment, fostering growth and employment opportunities while upholding macro stability and fiscal health. In terms of economic stability, Liberia has demonstrated resilience, with stabilized inflation and exchange rates. Looking ahead, the IMF foresees a promising growth outlook for the country, with a projected 5.6% growth rate in 2025, rising to 6% over the medium term, surpassing the regional average for sub-Saharan Africa. The success of these growth projections hinges on the effective implementation of reforms outlined in the program, which are expected to yield positive social outcomes. Addressing fiscal concerns, the IMF underscores the importance of prudent debt management and fiscal strategies to sustain Liberia's economic momentum. While current debt levels are considered sustainable, the risk of distress remains high, underscoring the necessity of continued fiscal discipline and debt reduction efforts. By 2027, it is anticipated that Liberia's debt-to-GDP ratio will decrease to 54% alongside a rise in the primary fiscal balance to 2.5%. Moreover, mobilizing revenue, securing external grants, and exploring concessional financing from donors will play a pivotal role in financing development initiatives and minimizing private sector risks. An integral component of Liberia's revenue mobilization strategy is the adoption of a Value-Added Tax (VAT) regime. The introduction of VAT aligns with efforts to enhance revenue generation, with Liberia aiming to mirror the ECOWAS average VAT rate of 15%. The implementation of VAT is projected to contribute approximately 1.5% of GDP, underscoring its significance in broadening the tax base and fostering fiscal sustainability. In concluding remarks, IMF Resident Representative to Liberia, Joel Chiedu Okwuokei, emphasized the importance of ongoing reforms in modernizing Liberia's tax system and fostering fiscal resilience. The successful implementation of these reforms is integral to creating fiscal space for high-impact investments while safeguarding debt sustainability. The IMF's support and guidance, coupled with Liberia's commitment to reform, are poised to steer the country towards a path of sustainable growth and economic prosperity.