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Language: English
Original: English
ECONOMIC GOVERNANCE AND COMPETITIVENESS
SUPPORT PROGRAM (EGCSP)
COUNTRY: LIBERIA
APPRAISAL REPORT
AFRICAN DEVELOPMENT FUND
Appraisal Team
Team Leader: Kalayu Gebre-selassie, Principal Governance Expert, OSGE.1
Team Members: Cam Do, Senior Economist, OSGE.1
Tilahun Temesgen, Principal Private Sector Specialist, OSGE.2
Owusu Menah Agyei, Principal Financial Management
Specialist, GHFO
Brenda Aluoch, Principal Legal Counsel (GECL.1),
Stephen Olanrewaju, Consultant
Sector Manager: Serge N’Guessan, OIC, OSGE.1
Sector Director: Isaac Lobe Ndoumbe, OSGE
Regional Director: Frank Perrault, ORWB
Peer Reviewers
Eshetu Legesse, Chief Financial Management Specialist (ORPF.2), Basil Jones,
Principal Institutional Development Specialist (OSFU), Melanie Xuereb-de-
Prunele, Senior Macroeconomist (OSGE.2), Chris Lane, Deputy Division Chief
(IMF), Errol Graham, Senior Economist (World Bank), and Paula Horyaans, Head
of Section (European Commission)
ii
TABLE OF CONTENTS
CURRENCY EQUIVALENTS
FISCAL YEAR
WEIGHTS & MEASUREMENTS
ACRONYMS & ABBREVIATIONS
LOAN/GRANT INFORMATION
PROGRAM TIMEFRAME
PROGRAM EXECUTIVE SUMMARY
RESULT-BASED LOGICAL FRAMEWORK
I –THE PROPOSAL
II – COUNTRY AND PROGRAM CONTEXT
2.1 Government overall development strategy and medium-term reforms priorities
2.2 Recent economic and social development, perspectives, constraints and challenges
2.3 Bank Group portfolio status
III – RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILTY
3.1 Link with the CSP, analytical works underpinnings and country readiness assessment
3.2 Collaboration and coordination with other donors and stakeholders
3.3 Outcomes and lessons from past similar operations
3.4 Relationship to other Bank operations
3.5 Bank comparative advantages
3.6 Application of good practices principles on conditionality
3.7 Application of Bank Group non concessional borrowing policy
IV – THE PROPOSED PROGRAM AND EXPECTED RESULTS
4.1 Program’s goal and purpose
4.2 Program’s pillars, operational objectives and expected results
4.3 Financing needs and arrangements
4.4 Beneficiaries of the programme
4.5 Impacts on gender
4.6 Environmental impacts
V – IMPLEMENTATION, MONITORING AND EVALUATION
5.1 Implementation arrangements
5.2 Monitoring and evaluation arrangements
VI – LEGAL DOCUMENTATION AND AUTHORITY
6.1 Legal Documentation
6.2 Conditions associated with Bank’s intervention
6.3 Compliance with Bank Policies
VII – RISKS MANAGEMENT
VIII – RECOMMENDATION
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Appendixes
Appendix 1 : Letter of development policy
Appendix 2 : Operations policy matrix
Appendix 3 : IMF/Country relations Note
Appendix 4 : Recent macroeconomic indicators
Appendix 5 : Map of Liberia
Technical annexes
Annex 1 : Liberia business enabling environment indicators
Annex 2 : Financial management and disbursement arrangements
Annex 3 : Liberia governance indicators
Annex 4 : Application of good practice principles on conditionality
Annex 5 : Liberia: Comparative socio-economic indicators
Annex 6 : Re-assessment of eligibility for second cycle FSF Supplemental support
Tables
Table 1 : Selected macroeconomic indicators, 2008-2013
Table 2 : Social indicators –Liberia compared with Africa’s average
Table 3 : Comparison of portfolio performance
Table 4 : Summary assessment of prerequisite conditions for the program
Table 5 : Financing requirements and sources, 2008-2013 (US$ million)
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36
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40
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43
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4
6
8
15
iv
Currency Equivalents As of March 2011
Currency Unit = Liberian Dollar
1 UA = 112.824
1 US$ = 72.233
1 UA = US $1.56194
1 UA = 0.920175 Pound Sterling
1 UA = 1.14077 Euro
1 UA = 9.04282 Krona
Fiscal Year
1 July to 30 June
WEIGHTS & MEASUREMENTS
1metric tonne = 2204 pounds (lbs)
1 kilogramme (kg) = 2.200 lbs
1 metre (m) = 3.28 feet (ft)
1 millimetre (mm) = 0.03937 inch (―)
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
v
Acronyms and Abbreviations
AfDB African Development Bank
ADF African Development Fund
ASYCUDA Automated System for Customs Data
BRC Business Reform Committee
BSWG Budget Support Working Group
CAM Common Audit Manual
CBL Central Bank of Liberia
CET Common External Tariff
CFDCs Community Forestry Development Committees
CPIA Country Policy and Institutional Assessment
CSP Country Strategy Paper
DB Doing Business
DBSL Development Budget Support Loan
EC European Commission
ECF Enhanced Credit Facility
ECOWAS Economic Community of West African States
EGCSP Economic Governance and Competitiveness Support Program
EITI Extractive Industries Transparency Initiative
FMCs Forestry Management Contracts
FSF Fragile States Facility
GAC General Audit Commission
GDP Gross Domestic Product
GMF Growth and Macroeconomic Framework
GoL Government of Liberia
HIPC Highly Indebted Poor Countries
IAS Internal Audit Secretariat
IFC International Finance Corporation
IFMIS Integrated Financial Management System
IMF International Monetary Organisation
IPSAS International Public Sector Accounting Standards
ISP Institution Support Project
ITAS Integrated Tax Administration System
JAS Joint Assistance Strategy
LEITI Liberia Extractive Industries Transparency Initiative
LRDC Liberia Reconstruction and Development Committee
MDG Millennium Development Goals
M&E Monitoring and Evaluation
MRU Mano River Union
MTEF Medium Term Expenditure Framework
MTFF Medium Term Fiscal framework
PEFA Public Expenditure and Financial Accountability
PEMFAR Public Expenditure Management and Financial Accountability
PFM Public Financial Management
vi
PRC Project Completion Report
PRS Poverty Reduction Strategy
SIDA Swedish International Development Cooperation Agency
SMEs Small and Medium Enterprises
SSA Sub-Saharan Africa
TA Technical Assistance
TIN Tax payer identification Number
TSCs Timber Sales Contracts
UA Unit of Account
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNMIL United Nations Mission in Liberia
USAID United States Agency for International development
WAMZI West African Monetary Zone
WDI World development index
WGI World Governance Index
vii
GRANT INFORMATION
Client’s information
GRANT RECIPIENT: Republic of Liberia
EXECUTING AGENCY: Ministry of Finance
Financing Plan for 2011-2013
Source Amount (UA) Instrument
ADF (FSF)
30.0 million
Grant
EC 4.4 million* Grant
TOTAL COST 34.4 million Grant
* equivalent to EUR 5 million
ADB/ADF key financing information
Grant currency
USD
Program Timeframe - Main stepping stones (expected)
Concept Note approval February 2011
Appraisal March 2011
Board approval June 2011
Effectiveness July 2011
First Tranche Disbursement
Governments/Donors Review
Second Tranche Disbursement
Government/Donors Review
Third Tranche Disbursement
September 2011
March 2012
November 2012
March 2013
November 2013
Completion June 2014
Last repayment N/A
viii
Program Executive Summary
Paragraph Topics to cover
Program Overview
Program Name: Liberia – Economic Governance and Competitiveness Support
Program (EGCSP)
Geographic Scope: Entire Nation
Overall Timeframe: 2011-2013
Expected Outputs: The key outputs of the program include: (i) improved Budget
preparation and execution process, (ii) strengthened internal audit function, (iii)
improved revenue collection capacity, (iv) improved transparency and accountability
of extractive industries revenues, and (v) enhanced doing business processes,
especially for small and micro enterprises (SMEs).
Program Outcomes
The expected outcomes of the program are improved public financial management
systems; and improved business enabling environment for private sector development.
Thus, the EGCSP will contribute to robust fiduciary arrangements that ensure
transparency and accountability in the use of public resources and private sector
development. The direct beneficiaries are Liberia’s key PFM public sector institutions;
while the indirect beneficiaries are the population of Liberia in general and private
entrepreneurs, who will benefit from better public financial management and improved
business environment.
Needs Assessment
This budget support operation from the Fragile State Facility (FSF) grant resources is
premised on the fragility of Liberia’s economy and socio-political systems as a post-
conflict country. Like other fragile states, Liberia is struggling to pay for basic state
functions due to macroeconomic vulnerability and inability to raise significant revenue
from regular taxes. Budget support plays a key role in supporting macro-budgetary
stability and the peace process. It also minimizes otherwise constant cash pressures,
which often lead to poor budget planning and execution, and enables government to
deliver on basic social services, including payment of staff salaries. As Liberia enters
into a new phase of gradual improvement, the JAS mid-term review justified the need
for the Bank to support governance reform programs, especially PFM reforms.
Business climate and governance indicators point to significant challenges that could
hinder the creation of a competitive and diversified economy, necessary for longer term
sustainable economic growth and poverty reduction.
Bank’s Added Value
The proposed support will build on the previous operations and complement other
donors’ budget support programs. The focus of the EGCSP, especially PFM, is an area
in which the Bank is exercising leadership role in its Regional Member Countries in
terms of regional mandate and its capacity to deliver. Knowledge of Liberia’s
challenges in the domain of governance in general and PFM in particular will be an
important asset. Building on the experience gained from the ongoing operations, the
Bank intends to design a second capacity building project under ADF-12 to
complement and enhance the added value of the budget support operation.
Institutional
development and
Knowledge building
The program will contribute to institutional development and knowledge building in
the area of public financial management, particularly improved budget planning and
execution, internal audit, and customs modernization program. The Bank will capture
the knowledge from this program through careful monitoring and evaluation of
program expected outputs and outcomes, joint donors’ PEFA assessment in 2012, and
the Project Completion Report (PCR).
ix
VII. Results Based Logical Framework
Country and project name: Liberia - Economic Governance and Competitiveness Support Program (EGCSP)
Purpose of the program : Improved public financial management transparency and accountability, and business enabling
environment for private sector development
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATI
ON
RISKS/MITIGATIO
N MEASURES Indicator (including CSI)
Baseline Target
IMP
AC
T
Impact
Inclusive and
sustainable economic
growth and poverty
reduction
Real GDP annual growth
rate
6% in 2010 >9% in 2015 (average) IMF report
MDG report
PRS progress
Report
Human
Development
Report
AfDB socio-
economic indicators
Risk #1:
Macroeconomic risk
Mitigation: Continued
implementation of
fiscal and monetary
policy supported by
IMF program, and
also PFM, revenue
modernization, and
business enabling
reforms supported by
the budget support
donors including the
Bank will help to
mitigate the macro-
economic risks.
Government has good
track record of
maintaining economic
stability and fiscal
discipline.
Risk # 2: Security
risks related to the
forthcoming national
elections in October
2011 and the unstable
regional context
especially the crisis in
Cote d’Ivoire.
Mitigation: Election
planning and activity
is also on track. Donor
support for security
sector reform, training
of local police force,
judiciary, and national
election. Continued
commitment of the
UN security forces
through to 2012 will
help to maintain peace
and stability in
Liberia. Donors are
working to contain the
negative impact of the
cross-border
developments with
Côte d’Ivoire
including Bank’s
emergency program.
Population below poverty
line
63.81% in 2007
35% in 2015
Infant mortality per 1000
live-births
Under-5 child mortality per
1000 live-births
Maternal mortality per
100,000 women
Ratio of boys/girls primary
school enrolment
Ratio of literate women to
men (15-24 years old)
91.3 in 2010
132.1 in 2010
990 in 2008
0.88 in 2008
0.96 in 2007
40 in 2015
66 in 2015
550 in 2015
1.0 in 2015
1.0 in 2015
OU
TC
OM
ES
Outcome 1
Improved public
financial management
transparency and
accountability:
PI-1 Aggregate expenditure
outturn compared with
original approved budget
10% of deviation of
expenditure relative
to Budget in 2008
5% in 2013/14 FY PEFA report MoF report
PI-3 Aggregate revenue
outturn compared with
original approved budget.
PI-12 Multi-year
perspective in fiscal
planning, expenditure
policy, and budgeting
10% of difference
between actual
revenue collection
and original revenue
estimates in 2008
P-12 score D in
2008
5% in 2013/14 FY
P-12 score C in 2013/14
FY
PI-21 Effectiveness of
internal audit
PI-22 Timeliness and
regularity of accounts
reconciliation (D)
PI-25 Quality and
timeliness of annual
financial statements (D)
P-21 score D in
2008
P-22 score D in
2008
P-25 score D in
2008
P-21 score C
P-21 score C
P-21 score C
Target by 2013/14 FY
Outcome 2
Improved business
enabling environment
for private sector
development and
competitiveness for
economic growth
Time to start a business
(no. of days and
procedures)
Baseline: 2011
Time: 20 days
No of procedures: 5
Time: 12 days
No of procedures: 45 in
2013/14 FY
Doing business
Dealing with construction
permit
Time: 77 days
No of procedures:
24
Time: 60 days
No of procedures: 18 in
2013/14 FY
Registering property (no of
days and procedures)
Time: 50 days
No of procedure: 10
Reduced to 34 days
and 5 procedure
in 2013/14 FY
Trading across border:
days to export and import
Time to export and
import: 17and 15
days respectively
Time to export: 10 days
Time to import: 10 days
in 2013/14 FY
x
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATI
ON
RISKS/MITIGATIO
N MEASURES Indicator (including CSI)
Baseline Target
Government’s efforts
to improve access of
SME to finance and
business environment
will help to create
more jobs and reduce
security risks.
Risk #3 Fiduciary
Risks including
corruption due to
weak prosecution
capacity and sanctions
regime. Mitigation
measures:
Government has put in
place a PFM Act, and
reform strategy that
present a broadly
credible program for
improvement,
supported by the Bank
and other donors.
Government’s
commitment to, and
ownership of, reforms
is high. Bank’s
operation provides
specific safeguards
including audit.
Risk # 4 Capacity
constraints: Mitigation
measures: The
ongoing technical
assistance and
capacity building
projects funded by
AfDB and donors.
Implementation of a
national capacity
building strategy.
OU
TP
UT
S
Component 1: Public Financial Management reform
Budget preparation
and execution
strengthened
Timely submission of
budget to the Legislature
Timely submission of the
financial statement
Budget submitted in
June (2010)
No financial
statement submitted
(2010)
Budget submitted end
April
Consolidated financial
statement prepared
MTEF approved by
cabinet by June 2012
PFM progress
report
Internal audit
functions
strengthened
No of audit units
No of audit operational
manual
One internal audit
Unit
No audit manual
produced
Internal audit governance
board established
8 Internal Audit Units
established by 2013
Common Audit Manual
Revenue
administration and
extractive industries
revenue transparency
strengthened
Establishment of a national
revenue authority
No. of EITI reports
(i) Study to establish
independent revenue
authority
(ii) EITI
reconciliation report
Revenue authority bill
National Revenue
Administration
established in 2012
EITI ++ strategy
developed in 2012
Post contract audit report
Component 2 : Business enabling environment reform
Doing business
reform action plan
implemented
No of streamlined
procedures and
requirements for doing
business
Doing business
indicators, and BRC
report in 2011
One stop shop for
business registration
Streamlined procedures
and requirements for
construction permit,
property registration
Automation of
customs operations
No of customs unit with
ASYCUDA
ASYCUDA
implemented in
Freeport and
Ministry of Finance
Draft strategic plan
(i) ASYCUDA roll out to
10 customs points
(ii) Customs strategic
plan approved by
Cabinet by 2012
(iii) Migration plan to
ECOWAS CET
approved by 2012
(iv) Streamlined
procedures and
documentation required
for import and export
BRC progress
report
KE
Y A
CT
IVIT
IES
ACTIVITIES
Effective implementation of the PFM act and regulations,
revenue modernization strategy, and the Business Reform Action
Plans
Recruitment of internal auditors, and budget officers
PFM capacity building need assessment and strategy
Establish internal audit units, and timely publication of audit
report (from 2008/09 to 2011/2012)
Training for internal and external auditors, tax and customs
officers, procurement and budget officers
Technical assistance to roll out ASYCUDA, ITAS etc
Technical assistance to implement IPSAS
INPUTS
ADF Grant = UA 30 million
Other donors = UA 4.4 million (EUR 5.0 million)
Missions: supervision, policy dialogue, and donor coordination
Complementary capacity building and technical assistance projects
financed by AfDB and other development partners such as the UN
agencies, IMF, World Bank, EC, SIDA and USAID.
1
I THE PROPOSAL
1.1 Management submits the following Report and Recommendations on a proposed
grant to the Republic of Liberia for UA 30 million from the Fragile States Facility (FSF) to
finance the Economic Governance and Competitiveness Support Program (EGCSP). It is a
general budget support program. It results from a request of the Government of Liberia (GoL) in
April 25, 2011. The program is aligned with Liberia’s first Poverty Reduction Strategy (PRS), and
the AfDB/World Bank Joint Assistance Strategy (JAS)1.
1.2 The objective of the program is to improve government capacity to implement its
national development plan, through improved financial and economic governance. It consists
of two reform components: (i) public financial management (PFM), and (ii) business enabling
environment. Both components are mutually reinforcing and support broad-based economic
growth and poverty reduction. The expected outcomes are: (i) improved transparency and
accountability in public financial management and (ii) improved business enabling environment
and competitiveness for private sector development.
II – COUNTRY AND PROGRAM CONTEXT
2.1 Government Overall Development Strategy and Medium-term Reforms Priorities
2.1.1 Liberia’s political and economic stability as well as commitment to reforms are gradually
improving. The civil war during 1989-2002 devastated Liberia’s economy, institutions, and human
capacity and reduced the country from a middle income status to a fragile state category. The 2003
Accra Comprehensive Peace Accords paved the way for the deployment of a 16,000 strong UN
peacekeeping force, which laid the foundation for peace and security. This has allowed post-
conflict recovery and gradual movement from the state of fragility. Confidence began to build as
the security situation improved, which allowed holding transparent, free and fair elections
monitored by the international community. In January 2006, the government of President Johnson
Sirleaf came into power and focused on deepening security, political and economic stability.
2.1.2 Liberia’s national development strategy is three-pronged namely: rebuilding
infrastructure; reviving the traditional engines of growth in mining, forestry and
agriculture; and establishing a competitive business environment to help diversify the
economy over the medium term. This overall national development strategy and medium-term
reform priorities are articulated in the poverty reduction strategy ―Lift Liberia‖, which provides the
basis for donor support to Liberia. The PRS, developed through a national consultative process,
has four pillars: (i) enhancing peace and security, (ii) economic revitalization, (iii) governance and
rule of law, and (iv) infrastructure and basic services. By focussing on public financial
management and business enabling environment, the EGCSP will address critical reform priorities
and objectives of pillars 2 and 3 of the PRS. The preparation of successor development strategies,
―growth strategy (PRS II)‖ and Vision 2030 ―Liberia Rising 2030’ are currently ongoing in
parallel. The second PRS will retain the focus of PRS I and add additional pillar focusing on health
and education sector development. Interim measures, prior to the introduction of the second PRS
1 The Joint Assistance Strategy was endorsed by the Bank’s Board of Directors in December 2008, and the JAS mid-
term review recommends extension until December 2012.
2
outlined in the 2011/12 Budget Framework Paper, focus on health, education and infrastructure as
top priority sectors for poverty reduction. The budget is underpinned by a Medium Term Fiscal
Framework (MTFF) preparatory to the introduction of a full MTEF in the 2012/13 budget.
2.1.3 Liberia also continues to implement demanding reform programs with satisfaction.
The IMF Board approved in December 2010 the fifth review of the Enhanced Credit Facility
(ECF) and confirmed that program implementation was broadly on track. The sixth review has also
been undertaken in April 2011 and confirmed that IMF supported economic program has been
good and the economic prospect for 2011 and over the medium terms remain favourable provided
that external risks related to rising international food and fuel prices are contained. The main
objectives of the IMF and other donors’ support programs, including that of the Bank, are creation
of a stable macroeconomic environment and strengthening of economic governance. To
consolidate financial governance reform, the Parliament has enacted a PFM Act. A medium-term
PFM Reform Strategy and Action Plan (2011-2013) has also been approved by Cabinet, thus
providing the framework for the Bank’s continued support to PFM reforms in Liberia. A national
steering committee has also endorsed a Business Enabling Reform Action Plan, which aims to
enhance private sector development in Liberia. Overall, Liberia is putting in place PFM systems
and reform measures to improve the fiduciary environment. However, implementation of the
reform agenda needs to be stepped up. A coordinated donor support is also critical for sustained
achievement of the objectives of the reform agenda.
2.2 Recent Economic and Social Developments, Perspectives, Constraints and Challenges
Recent macroeconomic performance and medium term outlook
2.2.1 Liberia has made progress in overcoming the devastating effects of years of civil
conflict and its post-conflict economic stabilization is gradually improving, while medium
term outlook is broadly positive. Strong macroeconomic policies, strengthened institutions and
debt relief have stabilized the economy, but vulnerabilities remain. The global economic recession,
which emerged in the second half of 2008, slowed down growth from the original pre-crisis
projection of 8.6% to 7.1% in 2008, and further declined to 4.6% in 2009 (Table 1). The recession
led to a drop in rubber prices by 63% between October 2008 and January 2009 and a fall in
remittances from $303.3 million at the end of 2007 to $181 million at the end of November 2008
(IMF, 2010). Inflation (average consumer price index) reached a decade-long high (17.5%) in
2008 as a result of rising oil and food prices, but improved to 7.4% in 2009. Fiscal balance
(including grants) also worsened from 1.2% of GDP in 2008 to -1.6% in 2009; while external
current account balance (including grants) recorded large deficits (-57.3% and -36.8% of GDP) in
2008 and 2009 respectively.
2.2.2 Following a period of slow growth, Liberia has seen a recovery in its exports of rubber due
to global recovery. The iron ore concessions expected to commence large-scale production in 2011
are also expected to further spur growth. Preliminary estimate of growth rate for 2010 is 6.3% and
projected at 8.8% in 2011, 11.7% in 2012 and 8.4% in 2013 (Table 1)2. Consumer price inflation
remains moderate at 6.6% by end-2010 (IMF, Feb. 2011) and projected to stabilize around 4%-5%
2 Discussions with the IMF during the appraisal mission indicate the possibility of revising these growth projections
downward to a single digit during the next review of the ECF. The new figures will be available in May 2011.
3
from 2011-2013. As Liberia begins to access the finance for needed development, fiscal and
current account balance would record large deficits in the medium term. Fiscal balance (including
grants) is projected to worsen from a surplus of 0.6% of GDP in 2010 to a deficit 4.5% in 2013,
and external current account balance (including grants) from a deficit of 40.4% of GDP in 2010 to
a deficit of 74.9% in 2013. Over the period 211-2013, an expansion of foreign investment-financed
imports associated with the construction of mines would raise the external current account deficit
substantially; but thereafter, a reduction of imports and rising iron ore exports will moderate the
deficit significantly. Gross official reserves are projected at about 2 months of import cover over
the period 2011-2013, excluding UN Mission in Liberia (UNMIL) service imports3. Trade, led by
rubber and commodity exports, will continue to expand in the medium term.
Table 1: Selected Macroeconomic Indicators, 2008-2013
2008
Act.
2009
Pre.
2010
Proj.
2011
Proj.
2012
Proj.
2013
Proj.
Real GDP (%) 7.1 4.6 6.3 8.8 11.7 8.4
Consumer Price Index - end period (%) 17.5 7.4 6.6 4.2 4.8 5.0
Fiscal Balance. incl. grants (% of GDP) 1.2 -1.6 0.6 -0.5 -3.4 -4.5
Current Account Balance - incl. grants (% of GDP) -57.3 -36.8 -40.4 -59.2 -64.9 -74.9
Gross official reserves (months of import cover)* 0.8 3.2 2.6 2.0 2.0 1.9
Public external debt (% of GDP) 376.6 190.9 8.9 9.6 11.2 14.3
*Excluding UNMIL service imports
Source: IMF – Staff Report for the 2010 Article IV Consultation and Fifth Review under the Extended Credit Facility, November 2010.
2.2.3 Liberia reached the HIPC completion point in June 2010 and benefitted from debt
relief from multilateral and bilateral creditors4. Consequently, external debt decreased from
376.6% of GDP in 2008 to 8.9% in 2010 and projected at below 15% of GDP in the medium term
(Table 1), indicating that Liberia has a low risk of debt distress. The GoL has pledged to use the
resources from debt relief for economic growth and poverty reduction programs. Post-HIPC,
Liberia can borrow from international market, though no more than 2% of GDP per year,
according to the debt management strategy and agreement with the IMF. The debt management
strategy also provides for additional domestic borrowing of 1% of GDP (limiting total borrowing
to 3% of GDP), to ensure a sustainable debt profile5. The total stock of domestic debt reduced from
US$296.2 million at end-September 2009 to US$ 281.93 million at end-September 2010 (a
reduction of 4.82%). This is due to the settlement of domestic debt and arrears to Commercial
Banks, suppliers, and civil servants claims which was accumulated by the previous administration.
Liberia has operated a cash-based balanced budget since the end of the conflict in line with a
policy of implementing strict fiscal discipline, and prevents significant increase in the public debt.
Recent Developments in Poverty and Social Indicators
2.2.4 Liberia is one of the poorest countries in Africa, with an average per capita income of
US$ 160 (WDI Database, 2010). According to the comparative social indicators prepared by the
AfDB (Annex 5), Liberia social indicators lag behind Africa’s averages in many cases, with the
3 Liberia runs a structural current-account imbalance as a result of the large UNMIL presence in the country, which
according t the IMF, accounted for more than 50% of import in 2009. 4 Contributions by the Bank Group include UA 240.2 million in end-June 2007 PV terms and UA 13.23 million
(US$ 19.56 million), in nominal terms, under MDRI. 5 Debts that can be acquired are short-term line of credit of the Central bank and the issuing of short-term T-bills.
4
exception of access to safe water and incidence of HIV/AIDS (Table 2). While Liberia is unlikely
to meet all the MDGs by 2015, recent MDGs report (2010) rated three goals as likely to be
achieved: Goal 3: promote gender equality and empower women; Goal 6: combat HIV/AIDS,
malaria and other diseases; and Goal 8: develop a global partnership for development; but the other
goals are unlikely to be achieved by 2015.
Table 2: Social indicators - Liberia compared with Africa’s average Indicator Year Liberia Africa
1.. Population below poverty line (US$1 per day) 2007 83.7 42.3
2. Life expectancy at birth
Total (Years)
Female (Years)
2010
2010
59.3
56.0
56.0
57.1
3. Gross primary school enrolment
Total (%)
Female (%)
2008
2008
90.6
85.6
102.8
99.0
4. Infant mortality rate (per 1000 live births) 2010 91.3 78.6
5. Child mortality rate (per 1000) 2010 132.1 127.2
6. Maternal mortality rate (per 1000,000) 2008 990.0 530.2
7. Access to sanitation (% of population) 2008 17.0 41.0
8. Access to safe water (% of population) 2008 68.0 64.9
9. HIV/AIDS incidence (% of pop. 15-49 years) 2007 1.7 4.6
Source: AfDB – Comparative social indicators, 2010
Business Enabling and Regulatory Environment
2.2.5 Liberia’s business enabling environment is improving but major challenges still exist
to be addressed. Liberian enterprises are mostly small and micro in size. These informal sector
Small and Micro Enterprises (SMEs) provide livelihood for the majority of the working poor. Yet
these enterprises have a unique set of challenges. Their entrepreneurial skills and the education
levels of their managers and workers are generally low. They lack basic entrepreneurial skills such
as knowledge of basic business plan, project preparation, accounting and record keeping. These
enterprises also have limited access to markets, information and business development services.
They also lack access to finance in view of their weak capacity to prepare simple bankable project
proposals, lack of collateral and high cost of borrowing. The high cost of borrowing (18%-25%)
and the short duration of loan terms frustrate medium to long term investment decisions. Other
challenges confronting the private sector as a whole, according to the Liberia enterprise survey
data (2009), are weak infrastructure, and corruption in business transactions (Annex 1). To address
these challenges, government is intensifying efforts to promote private sector development,
especially SMEs and to improve the doing business environment. In this regard, the GoL has
finalized its SMEs development strategy. Access of SMEs to finance is being improved through
the National Fund for long-term financing and an IFC venture capital. Liberia has also made
progress in the ease of doing business indicators, surpassing the fragile states average and the
ranking of some of the non-fragile states in ECOWAS (for example Togo, and Guinea). With
support from IFC, Liberia has recently approved a comprehensive commercial code that aims to
strengthen the business environment, help attract foreign investment, and boost the local economy.
The Government has also constituted a Business Reform Committee (BRC) to design and
implement reforms to enhance the ease of doing business in Liberia. To this end, the BRC has
developed a reform action plan that is monitored on a weekly basis.
5
Recent Development in Governance
2.2.6 Government has made progress in key aspects of governance. Transparency has
improved through external audits of key government ministries and the full reconciliation of
revenue collected from firms in the extractive industries, forestry, and commercial agriculture in
line with the requirements of the Extractive Industries Transparency Initiative (EITI). Liberia is the
first African country and second globally to reach EITI-compliant status (October 2009), and the
first to include the forestry sector in its reporting. Liberia has made progress on the Mo Ibrahim
Index6 on African Governance released in 2010 (Annex 3a), with overall performance improving
more than any other country in the Sub-Saharan Africa (SSA); Bank Group CPIA ratings between
2006 and 2009 (Annex 3b); and World Governance Index, 2006-2009 (Annex 3c). Liberia also
moved up the Transparency International Corruption Perception Index, ranking 87th
position with a
score of 3.3 in 2010 compared with 97th
(score 3.1), 138th
(score 2.4), and 150th
(score 2.1) in
2009, 2008 and 2007 respectively.
Fiduciary Environment
2.2.7 Liberia’s PFM system meets the Bank’s minimum requirements for the proposed
budget support operation. A fiduciary risk assessment was carried out by the appraisal team to
review the adequacy or otherwise of the fiduciary environment and the existing country systems
for managing the EGCSP (Annex 2). The overall risk rating was assessed as ―high‖ with a positive
trajectory of change since 2006. The new PFM Act7 and donor support for its implementation are
providing the thrust of improved PFM platform in Liberia. Equally, capacity building aimed at
strengthening the competence of the human resources within the PFM institutions have started to
deliver positive outcomes. The Office of the General Auditing Commission is implementing
rigorous assurance standards across line ministries with the objective of safeguarding public funds.
The Public Procurement and Concessions Commission is also leading the path towards improved
regulatory framework for public procurement. Nevertheless, fiduciary risk will remain high, until
much of the reforms, which also underpin the focus of this operation, are fully implemented. The
operation will assist faster implementation of the PFM legislation. Additional fiduciary risk
mitigation measures will be put in place, including independent audit of program funds using an
external audit firm8 and capacity strengthening, to improve the fiduciary environment. The Bank
will also monitor fiduciary risks and performance through joint government and donor reviews of
the PFM reform implementation; publication of financial statements and outturns, audit reports,
and PEFA assessment in 2012.
6 The Mo Ibrahim Index measures governance in Africa and ranks the 53 African countries’ performances with respect
to certain parameters. It uses indicators across four main pillars: Safety and Rule of Law; Participation and Rights;
Sustainable Economic Opportunity; and Human Development as proxies for the quality of the processes and outcomes
of governance. 7 It covers the full public financial management cycle, including budget preparation, approval and execution,
borrowing, public debt and guarantees, cash management, accounting and reporting, internal control and audit, and
autonomous agencies and special funds. 8 This is consistent with the guidelines of the utilization of resources from the Fragile State Facility which constitute
an additional fiduciary safeguard.
6
Key Medium-Term Constraints and Challenges
2.2.8 Liberia is in a state of transition from post-conflict reconstruction to medium-term
growth and poverty reduction. The PEMFAR (2008) identified weaknesses in some aspects of
PFM in the areas of credibility of the budget, effectiveness in collection of tax payments, and
external scrutiny and audit. Liberia’s economy also remains less competitive because of the high
cost of operation in the country. While progress has been made to attract investment and promote
private sector development, significant challenges remain notably poor infrastructure. For
example, energy costs are three times Africa’s average, which deter both production and trade.
Road conditions are very poor and entire region of the country is inaccessible by land during the
rainy season. Further improvement in governance and business environment would help to attract
investment necessary for economic growth, job creation and poverty reduction. Going forward, the
operation would strengthen PFM systems and domestic revenue mobilisation including potential
revenue from extractive industries. Improvement in business environment will contribute towards
achieving a sustainable economic growth and poverty reduction.
2.3 Bank Group Portfolio Status
2.3.1 The performance of the Bank Group portfolio in Liberia is broadly satisfactory. As at
January 2011, there were eleven (11) on-going projects in the Bank Group portfolio in Liberia
(including WAMZ project), amounting to UA68.33 million. Infrastructure (mainly Water and
Sanitation) accounted for UA32.94 million (48%), Social Sector UA15.24 million (23%),
Agriculture (and Emergency) UA13.20 million (19%), Private Sector UA4.00 million (6%), and
Multi-sector UA 3.0 million (4%). The January 2011 country portfolio performance review report
showed an overall rating of 2.37%, Implementation Progress (IP) rating of 2.21 and Development
Objective (DO) rating of 2.53. Table 3 presents other indicators of country portfolio performance
compared with Bank-wide average performance and the average performance in fragile states. The
establishment of Liberia Field Office in 2011 will enhance policy dialogue, portfolio follow-up
and donor coordination.
Table 3: Comparison of Portfolio Performance
Liberia (2010) Bank-wide (2010) Fragile States
Disbursement ratio9 N/A 28%* (ADF only 18%) 15%
Disbursement – cumulative 15.19% N/A
Average size of portfolio UA 6.8m UA 24.8m (ADF only
18.9m)
Avr. Supervision mission per yr. 1.0 1.5
Portfolio at Risk (PAR) 9% 37% (ADF only 47%) 45%
Commitment at Risk (CAR)
Rate
3% 39%
Problematic Projects 9% 6% (2008) 14%
Time between approval and 1st
Disbursement
N/A 14.4 months
Ageing Projects Nil 12% 17%
Operations supervised twice /
year
N/A 33%
Average age of portfolio 1.9yrs. 4.2 yrs.
Source: Liberia – Country Portfolio Performance Review Report, January2011.
9 Ratio of the disbursement during the year to the portfolio undisbursed balance at end of previous year.
7
III RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY
3.1 Link with the Country Strategy Paper (CSP), Analytical Works Underpinnings and
Country Readiness Assessment
Link with the CSP
3.1.1 The budget support operation is closely aligned with the country strategic framework
and Bank Group Strategy for Liberia. The operation is aligned with: (i) Liberia Poverty
Reduction Strategy (PRS, 2008-2011), (ii) PFM Reform Strategy and Action Plan (2010-2013),
(iii) Customs and Tax modernization program, and (iv) Business Enabling Reform Action Plan.
Two of the pillars of the PRS namely, economic revitalization and governance reform, provide the
framework to develop and implement the proposed budget support operation. The operation is also
consistent with the World Bank/AfDB JAS (2008-2011)10
, and the ADF-12 operational priorities,
namely governance and private sector development. The Bank’s country assistance strategy under
the JAS is framed in terms of two pillars namely, rebuilding core state functions and jump-starting
and facilitating pro-poor economic growth. The EGCSP is aligned with the JAS outcome 1
(improved efficiency of core state functions and institutions), and outcome 3 (improved business
investment climate). The JAS Mid-Term Review underscored the importance of Bank’s support to
governance and private sector development as Liberia enters into a new phase of development.
Analytical Works Underpinnings
3.1.2 The design of the budget support operation has been guided by various analytical
diagnostic works and IMF reports, as well as consultations during the appraisal mission. The
analytical underpinning for the design of the operation is provided by the PEMFAR (2008), the
annual PFM reforms progress reports, the Report on the Observance of Standards and Codes
(ROSC), and Business Reform Committee (BRC) Action Plan. Some of the recommendations
from the PEMFAR and the PFM progress reports, as well as follow-up actions on the FSF Pillar III
Technical Assistance to IPSAS are reflected in the components of the program. The design of the
operation has also benefited from the Project Completion Reports of the Bank’s governance
portfolio in Liberia, especially the Public Financial Management Reform Support Program
(PFMRSP I), the fiduciary risk assessment during the appraisal mission, and a recent World
Bank/AfDB common approach paper on ―Providing Budget Aid in Situation of Fragility‖,
prepared in close consultation with the IMF and the EC.
3.1.3 The analytical reports and consultations have helped to shape the objective and focus
of the operation, and advanced alignment with national priorities. Important conclusions from
this diagnostic work include:
(i) Budget support, in combination with other aid instruments, plays a key role in
underpinning fragile social and political processes and supporting macro-budgetary
stability. Due to their macro-economic vulnerability and inability to raise significant
revenues from regular taxes, fragile states struggle to pay for basic state functions, clear
external and domestic arrears and resume debt service.
10
JAS mid-term review recommends extension until December 2012.
8
(ii) A significant progress has been made in improving Liberia’s PFM by putting in place legal
and institutional framework, but challenges still remain in the area of implementation.
(iii) The revenue potential of investment concessions in the iron ore and palm oil sectors is
substantial, but is subject to considerable uncertainty. Addressing governance concerns is a
prerequisite to ensuring that government captures its fair share of revenue from extractive
industries and forestry, and avoids the ―resource curse‖. The government has already made
a good start on this, including through passage of the PFM Law and achieving EITI
compliant status.
(iv) Although much improved, business climate and governance indicators point to significant
challenges for the creation of a competitive and diversified economy. More efforts are
needed in a number of key areas: starting business, registering property, paying taxes,
protecting investors and trading across borders.
Country Readiness Assessment
3.1.4 Liberia fulfilled the eligibility criteria for second cycle assistance under fragile state
facility supplemental support (annex 6), and the general and technical prerequisites for
Development Budget Support Loan (DBSL) as presented in Table 4. Continued support from
Pillar I in the ADF 12 cycle will build on the significant gains achieved under ADF 11 to
strengthen Liberia’s growth and poverty reduction effort. The proposed budget support is a second
operation and will be financed from the FSF Pillar I resources allocated to Liberia.
Table 4: A Summary Assessment of the Prerequisite Conditions of the Program
Focus Comments on current situation
Political stability
Economic stability
and Government’s
commitment
The political situation has remained stable since the 2005 elections. The positive stride taken by
the Government to improve the political climate and donor support enhances the feasibility of
continued political stability. Liberia has made advances in governance indicators and the
security situation is generally stable albeit fragile and vulnerable to political instability in the
region. The presence of United Nations peace-keeping force will help maintain peace and
stability.
Liberia’s economic stability is gradually improving and medium term outlook is positive. The
feasibility of continued economic stability is high in view of government demonstrated
commitment to implementation of demanding programs, notably the PRS and the IMF’s staff
monitored program, which has been recognized by the international community for the HIPC
Completion Point and debt relief.
Existence of well
designed PRSP or
NDP and effective
implementation
mechanisms
Viable macro-
economic and
financial medium
term framework
Strong partnership
between RMC and
donors
Strong partnership
among donors
Satisfactory fiduciary
review of the public
financial management
system (use of
country system)
The PRS is the overarching national development framework covering the period 2008 to 2011.
The Liberia Reconstruction and Development Coordination (LRDC) Secretariat monitors and
evaluates implementation progress of Liberia’s PRS. The feasibility of sustained and viable
economic framework and poverty reduction effort will be enhanced by successor development
strategies (growth strategy and vision 2030), currently under preparation through a wide-
ranging consultative process.
Liberia’s budget continues to be pro-poor and aligned to the priorities set out in the PRS. The
IMF Board approved in December 2010. The fifth ECF review approved by the IMF Board in
December 2010 confirmed that program implementation was broadly on track. The main
objectives of the IMF and other donors’ support, including that of the Bank, are to create a
stable macroeconomic environment and strengthen economic governance. The government plan
to introduce MTEF in the 2012/13 budget, will improve the feasibility of a sound budgeting
system. The JAS (2008-2011), which is extended to end 2012, was aligned to the PRS.
The feasibility of improved fiduciary environment will be enhanced by the implementation of
government medium-term PFM Reform Strategy, which was informed by the 2008 PEMFAR
and the IMF TA report which identified PFM challenges and reform priorities. Areas of
weaknesses in the PFM reform implementation being addressed include budget preparation and
execution, internal control, audit and follow-up on audit recommendations. Corruption
(especially weak prosecution capacity and sanctions regime) is also a major concern.
9
3.2 Collaboration and coordination with other donors
3.2.1 The AfDB has maintained a good track record of collaboration with the main donors
in Liberia. This collaboration has been through support to PFM reforms, arrears clearance and
monitoring of HIPC triggers to completion point, strengthening of statistical capacity, and
improving extractive industries revenue transparency. The World Bank and AfDB prepared a joint
assistance strategy (JAS) covering the period 2008-11, latter extended to 2012 during the mid-term
review. The IMF is implementing a three-year ECF (SDR 31.76 million) approved on 14 March
2008, regular review of which provides opportunities for the Bank and other donors to monitor
macroeconomic performance. The Bank harmonizes its budget support operations with those of the
EC and the World Bank. The EC Budget Support for Macroeconomic Stabilization (EUR 20.2
million) for the 2009/10 and 2010/11 fiscal years, has two fixed tranches (EUR 7.0 million each)
and one variable tranche (EUR 5.0 million)11
. The World Bank’s budget support operation for the
2010/11 fiscal year (US$11 million) was approved in September 2010 and an operation for 2012 is
being prepared.
3.2.2 In preparing the Bank’s operation, the appraisal team held close consultations with
the IMF, EC and World Bank and USAID on their programs in Liberia. The IMF is taking
the lead in the areas of fiscal and monetary policy, tax policy and financial sector reform. The
focus of EC budget support operation is health and education. The EC also supports the Bureau of
Customs and Excise (direct support) and the Liberian Institute of Statistics and Geo-Information
Services (LISGIS) through the UNDP. The World Bank’s operation focuses on PFM reform
(procurement and concessions, ITAS, and IFMIS), extractive industries revenue transparency, land
reform, judicial reform, port reform, telecommunications reform, and education and training
reform (education sector policy and TVET policy). The USAID has no budget support operation,
but is assisting the Ministry of health with the payment of salaries of some 1000 workers, and
supports democratic governance program (election commission, judiciary, and anti-corruption
commission). The AfDB’s operation focuses on PFM reform and business enabling environment
reform. In the area of PFM reforms, the new operation builds on the achievements of the first
Bank’s budget support program by focusing on deepening customs and revenue administration
reform, extractive industries revenue transparency, budget reform (IPSAS and transition to
MTEF), and internal audit function. For business enabling environment, the operation focuses on
quick-win measures and implementation of the business reform action plan.
3.2.3 The Bank is the largest budget support donor in Liberia and the plan for opening a
Field Office in the country would enhance the Bank’s lead role in promoting aid effectiveness
and policy dialogue through the BSWG. A Common Assessment Framework (CAF), to which
the Bank contributed, harmonizes policy actions/disbursement triggers for budget support
operations across donors12
. The Bank will also collaborate with the other donors (World Bank, EC,
SIDA and IMF) to support an independent PEFA assessment in 2012 to facilitate monitoring of
PFM reform outcomes.
11
The two fixed tranches have been disbursed but government has not submitted a disbursement application for the variable
tranche, which is expected to be disbursed before end-June 2011, but this may slip to 2011/12 fiscal year. 12
The CAF (Appendix 2), was prepared as a joint monitoring tool for budget support group and amended by the
appraisal team for the EGCSP to reflect the implementation status of policy actions contained in the matrix and the
BRC action plan for ease of doing business reforms, which were not included in the original policy matrix.
10
3.3 Outcomes of Past and On-going Similar Operations and Lessons
3.3.1 The design of this second Bank’s budget support operation in Liberia has benefitted
from the JAS mid-term review, lessons from the PCR of the Bank’s first budget support
operation and ongoing capacity building/technical assistance activities, as well as the budget
support operations of the other donors. The lessons learnt from these operations are:
Strong country ownership guaranteed successful implementation of the first budget support
operation. This second operation adopts a similar approach of embedding the reforms in the
government’s own program articulated in the PRS, PFM reform strategy and the BRC
action plan, to ensure implementation of the reforms supported by this operation.
Given the serious capacity constraints, it is important to be selective in the choice of policy
and institutional reforms. The design of this operation reflects this lesson by focusing on
PFM and business enabling environment. Benchmarks are carefully chosen to keep the
overall reform program on track.
The effectiveness of Bank’s policy based operation is enhanced if combined with technical
assistance and capacity building interventions. In view of this lesson, a new Institutional
Support Project (ISP), aligned to Liberia’s National Capacity Development Strategy, will
be designed in 2012 to address capacity constraints and enhance the development outcome
of the budget support operation.
Lack of predictability of resources undermines the effectiveness of budget support
operations. The design of the operation has taken this lesson on board through adopting a
multi-year approach with tranche disbursements during the first quarter of Liberia fiscal
year, thus enhancing predictability of resource flow to the budget.
Liberia is a good candidate for further budget support, and continues to make progress on
ambitious PFM reform agenda. There are several reform champions in various Government
entities who continue to play a strategic role in driving the pace of reforms and sustaining
Liberia’s position as an outstanding reformer among fragile states.
An important lesson for this operation drawn from the collaborative work with other donors
and the ADF-12 replenishment exercise is the need to improve fiduciary risks assessment
and application of mitigating measures. This is particularly important in post conflict
countries where capacity, security and political economy risks are significant. The appraisal
mission team carefully evaluated fiduciary risks and mitigating measures.
3.4 Relationship to On-going Bank’s Operations
3.4.1 The proposed budget support operation will have synergic impact on other ongoing
and future Bank Group operations in Liberia. These include institutional support projects;
targeted technical assistance under the FSF Pillar III; economic sector work (e.g. PEFA in 2012);
payment system development project under the multinational/regional operation; and ongoing
support to LEITI. The budget support operation together with the institutional support projects will
enhance the fiduciary environment for Bank’s funded investment projects while the proceeds of
the operation will provide resources to government to meet operating costs, including its expected
contributions to Bank’s funded investment projects. The PEFA report and annual PFM progress
reports will serve as monitoring tools for assessing results from the program and to support
fiduciary risk monitoring.
11
3.5 Bank’s Comparative Advantages and Added Value
3.5.1 The cumulative experience and achievements from previous operations has provided
the Bank with invaluable experience in supporting governance reforms. The Bank’s
comparative advantage in supporting this program derives from a number of factors, namely: (i)
Bank’s knowledge of Liberia’s challenges in the domain of governance in general and PFM in
particular; (ii) scaling up of the Bank’s resources and the reorientation of its policy and
institutional actions to respond to challenges in the key PFM areas and interventions in fragile
states in particular; and (iii) the Bank’s success in previous operations in both Liberia and other
fragile states. The Bank also has the capacity to strengthen its governance interventions in Liberia
through a blend of aid instruments: direct budget support, technical assistance and capacity
building project, economic and sector work, and leveraging resources from regional operation and
initiatives (e.g. WAMZI payment system, Investment Climate Facility, and EITI). The EGCSP will
consolidate reforms initiated in the previous operation and FSF technical assistance to enhance
value added. The Bank planned field presence in Liberia in 2011 will further enhance its value
added as one of the largest budget support donors in Liberia. The absolute advantage of
multilateral institutions and experience in providing predictable budget support to fragile states
also enhances the Bank’s comparative advantage.
3.6 Application of Good Practice Principles on Conditionality
3.6.1The program including the design of conditionality applies the good practice principles
on conditionality (Annex 4). The Bank has consulted closely with the IMF, World Bank and EC
who have also been providing budget support to ensure better coordination and synergy.
3.7 Application of Bank Group non-concessional Borrowing Policy
3.7.1 The EGCSP fully complies with the principles of the Bank Group policy on non-
concessional borrowing. Countries that benefit from debt relief under the HIPC initiative and
MDRI are often restricted from borrowing from non-concessional sources to prevent debt
accumulation.
IV – THE PROPOSED PROGRAMME
4.1 Program’s Goal and Purpose
4.1.1 The GoL is committed to implementing the 2009 PFM Act, which calls for significant
and far reaching PFM reforms, so as to enhance the fiduciary environment necessary to
support effective implementation of the PRS. The development objective of the program is to
accelerate economic growth and reduce poverty through support to financial and economic
governance reform. A sound PFM reform will contribute to improve transparency and efficiency in
the use of public resources as well as creating the fiscal space for enhanced pro-poor expenditure
and service delivery in line with the PRS priorities13
.
13
Rehabilitate Liberia broken infrastructure (roads, electricity supply, ports, and water and sanitation) and social
services (health and education)
12
4.2 Program’s Pillars, Operational Objectives, and Expected Results
4.2.1 Operational Objectives: The key objective of the program is to support implementation of
the PFM and business enabling environment reforms, so as to maintain macroeconomic stability,
enhance fiscal discipline, and improve efficiency and effectiveness of public expenditure.
4.2.2 Pillars of the Program: The program has two components namely: (i) strengthening
public financial management, and (ii) improving business enabling environment for private sector
development. The two components which are mutually reinforcing are elaborated below.
4.2.3 Component 1: Strengthening public financial management: The GoL has embarked
on significant and far reaching PFM reforms. It is implementing a new PFM Act; initiated
Integrated Financial Management Information System (IFMIS) to enhance budget process and
financial control; adopted IPSAS to strengthen government accounting operations; strengthened
the legal framework of procurement and concessions; developed a post-HIPC debt management
strategy; and established an independent external audit function. Important strides have also been
made in improving customs administration; developing tax framework; and improving the
extractive industries revenue transparency. However, significant challenges still exist, especially in
the areas of credibility of the budget, effectiveness in tax collection, availability of information on
resources received by service delivery units, and external scrutiny and audit (PEFA indicators
scored D). While the government has developed credible PFM frameworks, implementation has
been hampered by capacity constraint. The Bank’s budget support operation, complemented with a
new institutional support project in 2012 and FSF technical assistance will support the government
effort and plan to step up the implementation of its PFM reforms. The focus of the Bank’s
operation in the area of PFM reforms are elaborated below.
Sub component 1.1: Strengthening budget preparation and execution process.
Government is committed to a more programmatic approach to budgeting as it moves
towards the MTEF. To improve budget formulation and execution a multi-year budgeting
strategy was approved by Cabinet in June 2010. With the support of Bank-funded technical
assistance, the MoF has adopted a cash-basis IPSAS to support implementation of the new
PFM Act. Training and capacity building activities have been conducted for financial officers
in an effort to improve the quality and timeliness of annual financial statements. However,
there are still challenges. Budget execution, especially execution of the capital budget, is slow
due to capacity constraint; the credibility of the budget is still impaired by wide variation in the
composition of expenditure out-turn compared to the approved budget (PEFA score ―D‖); and
there are delays in finalizing financial statements for timely auditing. In addressing these
challenges the EGCSP will support the government effort and plan to (i) prepare timely
IPSAS-compliant consolidated annual financial statements for submission to the General Audit
Commission within 4 months of the end of the fiscal year; and (ii) transition to a multi-year
policy-based budgeting and submission to Cabinet a guideline for MTEF implementation in the
2012/13 fiscal year. The Bank will also closely monitor budget execution through the review of
quarterly fiscal out-turns and mid-year reviews prepared by the MoF. The expected outcomes
are improved quality and timeliness of financial statements and enhanced credibility of the
budget as indicated by reduction in the variance between the approved budgets and out-turn.
13
Sub component 1.2: Strengthening the internal audit function. To strengthen internal
audit function in government, Cabinet adopted an internal audit strategy (IAS) in June
2008 and updated it to reflect the provisions of the new PFM Act of 2009. However, there
are still challenges. The role and function of the internal audit (IA) in relation to management
control responsibilities are not yet well developed, and there are very few internal audit units in
the ministries and agencies (M&As). The Bank’s operation will support the effort and plan of
the government to implement the IAS in the following areas: (i) establish internal audit
governance structures (Internal Audit Governance Board and Secretariat) to act as overall
oversight body over internal audit policy, functions and procedures; (ii) develop a Common
Audit Manual (CAM) to guide internal audit functions; and (iii) establish IA Units in M&As.
The expected outcome is strengthened internal control and audit functions across government.
Sub component 1.3: Strengthening revenue administration and extractive industries
revenue transparency. To improve revenue administration, government is taking a
number of measures. With the support of the World Bank, government is implementing
Standard Integrated Government Tax Administration System (SIGTAS) and an Integrated
Financial Management Information System (IFMIS) for revenue and expenditure management
respectively. Also, with the support of AfDB, the Ministry of Finance has undertaken a study
to look into option of transforming the Internal Revenue Bureau, and Excise and Customs
Commission. The Legislature has also introduced a bill for the establishment of the National
Revenue Authority. Liberia has also achieved EITI-compliant status. However, revenue
administration is still hampered by weak human capacity; SIGTAS and IFMIS are yet to be
operational; and Liberia needs to move to EITI++ framework to enhance revenue governance
from the extractive industries. The Government has requested the Bank to continue to support
LEITI in this process. The Bank’s operation will therefore support the effort and plan of the
government to (i) prepare a strategy to move to the EITI++ framework; (ii) establish an
independent National Revenue Authority in 2012, and (iii) facilitate LEITI to prepare reports
on audits of post contract award process and the tracking of the use of extractive industries
revenue. The expected outcomes of the Bank’s support are improved revenue administration
and increased government revenue, and enhanced transparency and accountability in the use of
revenue from extractive industries. Improved tax administration will contribute to create
enabling business environment by simplifying the procedure and time it takes to pay taxes.
4.2.4 Component 2: Improving business enabling environment for private sector
development. Liberia has implemented a number of measures to improve the ease of doing
business but more efforts are needed. Between 2008 and 2009, it has reduced business start up
time from 99 days to 22 days, and time to obtain construction permits from 398 days to 77 days.
The Legislature has approved several laws aimed at supporting private sector. These include the
commercial code, the commercial courts act, and a revised public procurement and concessions
act. Government has finalized its small and micro enterprises (SME) strategy, and the automation
of the business registration process. Access of SMEs to finance is being improved through a
National Bank Fund for long-term financing. However, significant challenges still exist. From
being among the top 10 reformers in 2010, Liberia slipped down 3 positions in the ease of doing
business from 152 in 2010 to 155 in 2011 due to regression in a number of indicators14
.
14
The indicators are Starting a Business (down from 57th
to 64th
); Registering Property (from 173rd
to 176th
); Getting
Credit (from 135th
to 138th
); Protecting Investors (from 146th to 147th
); and trading across border (from 115th
to 116th)
14
Sub component 2.1: Implementation of business enabling reform action plan. To address
outstanding doing business challenges, government has mandated the BRC to design
administrative and legislative reforms to improve business enabling environment. The
BRC has developed an action plan on four indicators which showed decline in ranking in the
2011 Doing Business Report namely, starting business, dealing with construction permit
(licensing), registering property, and trading across borders. The action plan requires that all
reform measures should be communicated to private sector actors so that new processes are
followed. The Bank’s operation will support the implementation of the BRC action plan with
the expected outcome of improved business environment, especially for SMEs, and improved
ease of doing business scores in the selected indicators. Details of the required actions are:
(i) Starting business: (i) Eliminate annual business re-registration requirement at the Ministry
of Commerce, and (ii) revise associations and general business laws to accommodate one-
stop shop business registration.
(ii) Dealing with construction permit): Streamline the requirements and procedures to obtain
design approval, construction permit, and risk-based inspection systems to supervision
construction process.
(iii)Registering property: (i) Remove requirements or streamline procedures to register
property, title transfer upon registration, and (ii) prepare a medium-term plan to create a
unified and digitized registry.
(iv) Trading across borders: (i) Reduce the procedures required for import and export
(including number of signatures for each trade transaction), (ii) Streamline documents
required for import and export, and (ii) introduce a Single Administrative Document and
inter-agency information sharing.
Sub component 2.2: Strengthening customs administration. With the AfDB support,
progress has been made with customs administration reform. In particular, the automated
system for customs data (ASYCUDA) pilot phase has been implemented at the Freeport of
Monrovia (which accounts for 85% of all importation into the country) and the Ministry of
Finance. The implementation of ASYCUDA has contributed to the reduction in the time
required to clear goods at the port from 12 days to 2-3 days. However, there are still challenges
with regard to human resource capacity and infrastructure (electricity, telecommunications
network, and IT security), which have not allowed ASYCUDA to operate at the required
efficient level. ASYCUDA also needs to be rolled out to the remaining 15 custom points.
Liberia is in the process of preparing new customs legislation, and a migration plan to
ECOWAS Common External Tariff (CET). To further improve customs administration, the
Bank’s operation will support the government to (i) consolidate ASYCUDA implementation
and roll out to the additional 10 customs points through the extension of the agreement with
UNCTAD for technical services and a new agreement with the United Nations Operations
Services for strengthening the infrastructure component of the project; (ii) prepare new
customs legislation; and (iii) develop a migration plan to ECOWAS CET. The expected
outcomes of the Bank’s support are improved customs administration and enhanced trade
facilitation across border and for regional integration.
15
4.3 Financing Needs and Arrangements
4.3.1 Liberia’s projected external financing gap (which government hopes to finance
through borrowing) range from about $34.6 million in 2011/12 to 57.6 million in 2015/16 (Table 5). The financing projection is based on the current fiscal rule limiting post-HIPC
borrowing to not more than 3% of GDP15
on a Net Present Value basis.
Table 5: Financing requirements and sources, 2011/12-2015/16 (US$ million)
2011/12 2012/13 2013/14 2014/15 2015/16 FR Forecasted Revenue without Grants or
Borrowing
341.49 389.24 441.23 471.76 510.50
FE Forecasted Expenditure
Current
Capital
418.628 489.757 561.851 613.758 662.639
305.015 322.74 348.741 377.397 403.786
113.613 167.017 213.11 236.361 258.853
FG Financing Gap (FE – FR) 77.14 100.52 120.62 142.00 152.14
Can only go towards Capital Expenditure on identified Projects
FP Financing Projections
42.5797 62.2329 79.3238 90.6781 94.5257
Can go towards all Expenditure
BSR Budget Support Requirement (FG-FP)
34.56 38.29 41.29 51.32 57.61
Source: MFAU/IMF Estimates
4.4 Beneficiaries of the Program
4.4.1 The EGCSP is designed to assist the GoL to implement its Poverty Reduction
Strategy. The direct beneficiaries are Liberia key public institutions of PFM responsible for
fiduciary control and the private sector development actors. The indirect beneficiaries are the
population of Liberia, who will benefit from better public financial management, improved pro-
poor budgetary allocation for social services delivery and improved business environment.
4.5 Impact on Gender
4.5.1 The operation will have a positive impact on gender through providing resources into
the national budget for the implementation of the PRS, and government plan towards gender
equality. Improved cross-border trade would also impact positively on gender since women
constitute the bulk of intra-regional traders. Thus, the log frame has indicated some gender related
impact indictors. The PRS Progress Report (covering April 2008 to March 2009) indicated some
significant achievements in the area of gender. These include the finalization of the Gender Policy,
the enactment of the Rape and Inheritance Laws, and initiation of women economic improvement
program. The establishment of rural women structures have improved women participation in
agriculture and their access to micro credits (6,000 women benefited during the year). There has
also been progress in women representation in government (legislature: 14%, executive: 20% and
15
This is comprises 2% of GDP (external borrowing) and 1% of GDP (domestic borrowing).
16
judiciary: 40%); effort to combat gender-based violence; and increased women recruitment drive
by the Ministry of Gender and Development. There is a new National Policy on girls’ education.
Significant challenges however still exist including: weak political and socio-economic status of
women, insufficient disaggregated data by sex and age in all sectors; and insufficiently developed
poverty and development indicators linked to gender.
4.6 Environmental Impacts
4.6.1 The proposed reforms supported by the Bank’s operation would not have negative
impact on the environment. Since the operation will provide direct support to the budget for the
implementation of the PRS, it will indirectly support the effort and plan of the government towards
environmental sustainability. The PRS progress report revealed that government has ended,
through administrative action, illegal border trade involving round logs to Sierra Leone, formed
Community Forestry Development Committees (CFDCs), introduced signing of social agreements
between forest resource license holders and affected rural communities. A national action plan has
been developed for the Mano River Union (MRU) States for the collaborative management of
trans-boundary forest areas. Other actions taken include the establishment of environmental units
in 15 key line ministries, preparation of a draft National Conservation and Wildlife Management
Law, and creation of a database on forest inventory, socio-economic survey, and forest carbon
biomass. However, the PRS progress report also shows that Liberians have a limited awareness of
environmental issues and that local communities are unwilling to adapt new concepts such as
protected areas and buffer zone demarcation.
V. – IMPLEMENTATION, MONITORING AND EVALUATION
5.1 Implementation Arrangements
5.1.1 Implementation institutional framework: The Ministry of Finance will be the recipient of
the budget support and be responsible for the overall implementation of the reform program
supported under the EGCSP. Through the capacity building projects supported by the Bank and
other donors, the ministry is being strengthened to monitor PRS and reform implementation.
5.1.2 Disbursement: The proposed grant (UA 30 million) will be made available to GoL in
three tranches over a period of three years upon satisfactory achievement of disbursement
conditions (Para. 6.2.2 and 6.2.3). The first tranche of UA 14 million is expected in the first
quarter of 2011/12; and the remaining two tranches of UA 8 million each in the second quarter of
2012/13 and 2013/14 Liberian fiscal year respectively. The frontload within the three year
operation is appropriate to GoL’s expressed needs. The proceeds of the Grant will be deposited
into an account designated by the GoL at the Central Bank of Liberia that forms part of the
country’s foreign exchange reserves.
5.1.3 Procurement: The procurement arrangements for the budget support program will be
undertaken using Government’s systems. The 2005 Public Procurement and Concession Act has
been revised and approved by Parliament in September 2010. The Bank will work with the
Ministry of Finance to ensure that independent procurement compliance review is carried out
during implementation as an additional fiduciary safeguard.
17
5.1.4 Audit: The audit arrangements for the budget support will be undertaken using an
independent external audit firm. This is in conformity with the guidelines of the utilization of
resources from the Fragile State Facility and this also constitutes an additional fiduciary safeguard.
5.2 Monitoring and evaluation arrangements
5.2.1 The national monitoring and evaluation system is the main framework to monitor
progress against PRS targets as outlined in the PRS Priority Action Matrix. The Liberia
Reconstruction and Development Committee (LRDC) Secretariat is the key institution responsible
for reporting on M&E. A complementary Rapid Result Approach has been introduced to accelerate
PRS implementation and monitor Liberia’s progress towards achieving PRS objectives. In addition
to the BSWG, the GoL has also established a PFM Reform Steering Committee chaired by the
Minister of Finance, and a PFM Reform Coordination Unit responsible for day-to-day oversight
and monitoring of PFM reforms. In the area of the business enabling environment and regulatory
environment, the action plan of the BRC provides a monitoring tool. The Bank will use these
government structures in the course of program implementation for monitoring and evaluation.
Program delivery and progress in addressing fiduciary concerns will be monitored through the bi-
annual budget reviews and the quarterly financial statements published on the MoF web-site,
progress against the PFM action plan as reported in the PFM annual progress reports, and progress
against the BRC action plan. A full external PEFA assessment will be carried out in early 2012.
The Bank will also carry out project completion review to assess progress towards output and
outcomes and draw lessons for future interventions. The Bank’s Field Office in Sierra Leone and
planned new Field Office in Liberia will play an active role in program monitoring and evaluation.
VI – LEGAL DOCUMENTATION AND AUTHORITY
6.1 Legal documentation
Grant Protocol of Agreement between the African Development Fund and the Republic of Liberia
6.2 Conditions associated with Bank Group intervention
6.2.1 Conditions precedent to Entry into force of the Grant Agreement: The grant protocol of
agreement shall enter into force on the date of signature by the Recipient and the Bank.
6.2.2 Conditions precedent to disbursement of the first tranche (UA 14 million): The
obligations of the Bank to make the first tranche disbursement shall be conditional upon the entry
into force of the grant protocol of agreement and the fulfilment of the following conditions, in a
form and substance satisfactory to the Bank:
(i) A letter from the Ministry of Finance providing evidence of having opened a foreign currency
account with the Central Bank of Liberia dedicated to receiving the proceeds of the Grant;
(ii) The Ministry of Finance providing certified copies of the financial statements for the year
2009/2010 and written confirmation that the consolidated financial statements for the year
2009/2010 have been submitted to the General Audit Commission (GAC) for auditing by June
2011; and
18
(iii)Confirmation in writing by the Ministry of Finance that the Standard Integrated Government Tax
Administration System (SIGTAS) has become operational in the Bureau of Internal Revenue.
6.2.3 Conditions Precedent to Second (UA 8 million) and Third Tranche (UA 8 million)
Disbursements: The obligations of the Bank to disburse the second and third tranches shall be
conditional upon the provision of evidence, in the form and substance satisfactory to the Bank, of
the fulfilment of the following specific conditions for each tranche.
Second Tranche Disbursement
Benchmarks (UA 8 million)
(i) The Ministry of Finance providing certified copies of the
consolidated financial statements for the year 2010/2011 and
2011/2012, and written confirmation that the said
consolidated financial statements will be submitted to the
GAC within the timeframe;
specified by the Public Financial Management Act of 2009;
(ii) Submission of a progress report on the implementation of
the automated system for customs data (ASYCUDA) in 4
further custom points;
(iii) Certified copy of the Liberia Extractive Industries
Transparency Initiative (LEITI) audit and tracking report that
details the audit of post contract award process and the
tracking of the use of extractive industries revenue; and
(iv) Written confirmation from the Ministry of Finance that
annual re-registration of business licenses by the Ministry of
Commerce has been eliminated.
Third Tranche disbursement
Benchmarks (UA 8 million)
(i) The Ministry of Finance providing a certified copy of the
consolidated financial statements for the year 2012/2013 and
written confirmation that the consolidated financial statement
has been submitted to the GAC within the timeframe
specified by the Public Financial Management Act of 2009;
(ii) Submission of a progress report on the implementation of
ASYCUDA in 6 further custom points; and
(iii) The Ministry of Finance written confirmation that 8
internal audit units have been established in government
ministries and agencies, as well as the appointment of 2
auditors in each of the new audit units; and provision of 2
certified copies of internal audit reports prepared by any 2 of
the new internal audit units established in government
ministries and agencies.
6.3 Compliance with Bank Group policies
6.3.1 This programme complies with all applicable Bank Group policies and guidelines.
These include: (i) Operations Guidelines of the Fragile States facility (ii) the 2004 Guidelines for
Development Budget Support Loan, (iii) the AfDB/World Bank JAS for Liberia and its Mid-term
Review, and (iv) the Bank’s Governance Strategic Directions and Action Plan for 2008–12.
19
VII. RISK MANAGEMENT
7.1 The following risks and mitigation measures have been identified:
7.1.1 Risk # 1: Macroeconomic risk: Recent global financial crisis has highlighted Liberia’s
vulnerability to macroeconomic shocks due to its dependence on imported food and fuel as well as
on primary exports and foreign direct investment [Probability Medium, and Impact High].
Mitigation measures: Continued implementation of fiscal and monetary policy supported by IMF
program. Government has good track record of maintaining economic stability and fiscal
discipline. Continued implementation of budget support operations as well as domestic revenue
modernization program and business enabling reform to diversify the export base will help to
mitigate the macro-economic risks.
7.1.2 Risk # 2: Security risks: Political tension may rise in the run up to the national Elections
in October 2011 and the security situation also remains fragile owing to the large number of
(mostly) unemployed ex-combatants, and the unstable regional context especially the crisis in Cote
d’Ivoire [Probability: Medium and Impact: High]. Mitigation measures: The Parliament, with
majority from the opposition parties, has passed several legislations to improve governance which
is indicative of a cross-political party consensus and commitment to poverty reduction and
governance reforms. Election planning and activity is also on track. Main political parties are
committed to further governance reforms, and Government demonstrated a firm commitment to
maintain peace and stability. Donor support for security sector reform, training of the local police
force, judiciary, and transparent election process will help to reduce security and election related
risks. Furthermore, the continued commitment of the UN security forces through to 2012 will help
to maintain peace and stability in Liberia. Current efforts of the government to improve access of
SMES to finance and business environment for private sector development will help to support
productive ventures by ex-combatants and other unemployed persons. Donors are working to
contain the negative impact of the cross-border developments with Côte d’Ivoire including Bank’s
emergency program.
7.1.3 Risk #3 Fiduciary Risks: Government has made notable progress in improving PFM, but
there are still weaknesses in the fiduciary control environment. The weaknesses are especially in
the area of corruption due to weak prosecution capacity and sanctions regime [Probability:
Medium and Impact: High]. Mitigation measures: Government has put in place a PFM Act, and
reform strategy that present a broadly credible program for improvement, supported by technical
assistance from the Bank and other donors. The Government’s commitment to, and ownership of,
reforms is high. Implementation of the Bank’s operation will address key fiduciary risks in terms
of reform initiatives and provide specific safeguards including independent audit of program fund,
capacity building interventions through the ISP, and FSF technical assistance. Donors are working
together to coordinate support to PFM reform in Liberia, which include support to: (i) Rolling-out
IFMIS, (ii) PFM training to staff of the Ministry of Finance and sector ministries; (iii)
strengthening budget formulation and execution; internal controls and audit; and the public
procurement capacity; (iv) strengthening oversight and fight against corruption through a new law
that gives the commission the authority to prosecute and to set up special courts to try corruption
cases.
20
7.1.4 Risk # 4 Implementation capacity constraints: Weak institutional and human resources
capacity could hamper the implementation of PFM reforms [Probability: Medium, and Impact
Medium]. Mitigation measures: The ongoing technical assistance and capacity building projects
funded by AfDB and other donors will address capacity constraints in government ministries and
agencies. A comprehensive national capacity building strategy is being developed to strengthen
implementation capacity in a coordinated and sustainable manner.
VIII – RECOMMENDATION
8.1 Management recommends that the Board of Directors approve the proposed FSF Pillar I
grant of UA30.0 million to the Republic of Liberia for the purposes and subject to the conditions
stipulated in this report.
21
APPENDIX 1
LETTER OF DEVELOPMENT POLICY
22
23
24
25
26
27
APPENDIX 2
Government of Liberia Policy Matrix
GOVERNMENT REFORM PROGRAM PRIORITY ACTIONS AND OUTCOMES
(Supported actions by EGCSP are highlighted in bold while prior actions are in interlics)
Liberia: Proposed Program of Policy and Institutional reforms (2010/11 – 2012/13) Governance Reform Issue Action already implemented
WB RRSP prior actions
Policy Actions 2010/11
Policy Actions 2011/12
Policy Actions 2012/13
Related HIPC Completion
Point Triggers
Procurement and
concessions
The implementation of
procurement transactions and
the oversight role of the PPCC
are not currently resourced to
sufficient degree for economic
and transparent transactions. In
addition, as the procurement
capacity within government is
weak and inefficient this poses
a major constr1aint to budget
execution and particularly the
pace of implementation of key
development projects.
Prepare a needs assessment and
strategy for training of
procurement staff in the five key
ministries [Ministry of Finance,
Ministry of Education, Ministry
of Health, Ministry of Public
Works and the Ministry of
Lands, Mines and Energy]
followed by the establishment of
procurement committees and
procurement units in these
ministries and the preparation
and publication of procurement
plans by these ministries in
accordance with the PPCC Act
and Regulations.
Deliver the 1st year of the
strategic training plan for the five
key ministries.
Deliver the 2nd
year of the
strategic training plan for the five
key ministries.
Prepare a strategy for
strengthening the technical skills
at the PPCC, targets for
procurement monitoring to
2012/13 and a strategy for a
career stream for procurement
specialist in the public sector and
related agencies.
Deliver the 1st year of the
strategic training plan for the
PPCC.
Deliver the 2nd
year of the
strategic training plan for the
PPCC.
Quarterly Publication in the
Procurement bulletin and
monthly publication in the
Website of all signed
procurement contracts over
US$25,000 for goods,
US$10,000 for consulting
services, and US$50,000 for
works. In addition, all signed
sole-source procurement
contracts and concessions
Continue quarterly Publication in
the Procurement bulletin and
monthly publication in the
Website of all signed
procurement contracts over
US$25,000 for goods,
US$10,000 for consulting
services, and US$50,000 for
works. In addition, all signed
sole-source procurement
contracts and concessions
Continue quarterly Publication in
the Procurement bulletin and
monthly publication in the
Website of all signed procurement
contracts over US$25,000 for
goods, US$10,000 for consulting
services, and US$50,000 for
works. In addition, all signed
sole-source procurement contracts
and concessions agreement
reported to the PPCC in the
Quarterly Publication in the
Procurement bulletin and
monthly publication in the
Website of all signed
procurement contracts over
US$25,000 for goods,
US$10,000 for consulting
services, and US$50,000 for
works and all signed sole-
sourced procurement and
concessions contracts which
28
agreement reported to the PPCC
in the context of their role of
compliance monitoring of
procurement activities
agreement reported to the PPCC
in the context of their role of
compliance monitoring of
procurement activities
context of their role of
compliance monitoring of
procurement activities
have been identified by the
PPCC as a result of the PPCC’s
compliance monitoring
activities for at least 6 months
leading up to completion point:
Governance Reform Issue Actions already
implemented
Policy Actions 2010/11 Policy Actions 2011/12 Policy Actions 2012/13 Related HIPC Completion Point
Triggers
Public Financial
Management
Budget formulation and
timeliness of passage has
improved but budget execution
remains weak and system
lapses create opportunities for
corruption.
A multi-year budgeting
strategy has been prepared
by the Ministry of
Finance (MoF) and
approved by the Cabinet.
Guideline on participatory
budgeting and public reporting on
budget and expenditure developed
and approved by Cabinet/MoF to
promote greater inclusiveness and
transparency of planning and
prioritization processes.
Submit to Cabinet a guideline
for MTEF implementation
Implement MTEF and public
sector investment program
(PSIP) in the 2012/13 budget
Implement the new PFM Law and
supporting financial regulations
for at least 12 months leading up
to completion point.
Tax and Customs strategic plan
prepared by the MoF and approved
by Cabinet and training need
assessment and staff training plan
for tax and customs prepared and
approved by the MoF.
ASYCUDA implemented at the
Freeport of Monrovia and MoF;
and rolled out to the international
airport and tow more border points.
New Customs legislation
submitted to Cabinet.
The migration plan to ECOWAS
common tariff approved by
Cabinet
ITAS is operational in the Bureau
of Internal Revenue and annual
re-registration of business licenses
eliminated at the Ministry of
Commerce16
.
Implement the value added tax.
ASYCUDA rolled out to
additional 5 border points.
Independent Revenue
Authority established
ASYCUDA rolled out to the
remaining border points
Implement a revised investment
incentive code to ban granting tax
exemptions outside the Liberia
Revenue Code
.
Prepare an action plan for the
implementation of the Internal
Audit strategy.
Establish Internal Audit
Governing Board (IAGB),
Secretariat and Common
Internal Audit Manual
approved by the IAGB.
Internal Audit Units
established in 8 pilot MDAs.
16
TIN is most effective if linked with other government registration systems that involve elements of taxable turnover and assets (e.g. issue of business licenses
and opening of bank accounts)
29
Adopt International Public
Sector Accounting
Standards (IPSAS-cash
basis) and adopt Public
Financial Management
enabling regulations and
manuals on the basis of the
new PFM law.
Submit previous year’s IPSAS-
compliant consolidated financial
statements to GAC for auditing
Maintain annual external audits of
five key government ministries (Health, Education, Public Works,
Finance and land, Mines and
Energy)
Submit previous year’s IPSAS-
compliant financial statements
to GAC for auditing.
Maintain annual external audits
of five key government
ministries (Health, Education,
Public Works, Finance and land,
Mines and Energy)
Submit previous year’s
IPSAS-compliant financial
statements to GAC for
auditing.
Maintain annual external audits
of five key government
ministries (Health, Education,
Public Works, Finance and land,
Mines and Energy)
Complete successive annual
external audits of five key
government ministries (Health,
Education, Public Works, Finance
and Lands, Mines and Energy)
prepared under the authority of
the General Auditing
Commission, submitted to the
Parliament and disclosed
publicly
Institute and maintain asset registry
all ministries and agencies.
Institute and maintain asset
registry all ministries and
agencies.
Submit Audit Bill to modernize
GAC and provide for its
operational, reporting and
financial independence.
Develop a debt management
strategy in consultation with
partners and establish a debt
management unit recording all
information on external and
domestic public and publicly
guaranteed debt, including for
state owned enterprises, and
ensure it is operational for at least
12 months leading up to the
completion point.
Publish on a quarterly basis and
on a government website, data on
external and domestic public and
publicly guaranteed debt,
including debt stocks and terms
and conditions of new loan
agreements for at least 6 months
leading up to the completion
point
Produce first full report on external
debt from the debt reporting
system.
Improve transparency of debt
management strategy through its
publication as a Memorandum to
the annual Budget.
Update and publish debt
management strategy. Continue
quarterly debt reporting on the
Ministry of Finance Website.
Governance Reform Issue Policy Actions 2010/11 Policy Actions 2011/12 Policy Actions 2012/13 Related HIPC Completion Point
Triggers
Extractive industry
governance (including
EITI and EITI++)
Mismanagement, misuse, and
illegal exploitation of natural
resources have been at the heart
of conflict in Liberia. EITI
compliance is a positive step in
improving overall governance
of the sector. However, there is
now a need to broaden and
deepen the governance of the
sector along the links of the
value chain.
EITI reconciliation report for fiscal
year (09/10) published before end
of the calendar year (2010)
EITI reconciliation report for
fiscal year (10/11) published
before end of the calendar year
(2011)
EITI reconciliation report for
fiscal year (11/12) published
before end of the calendar year
(2012)
Regular public reporting of
payments to, and revenues
received by, the government for
the extractive industries (mining
and minerals) in a participatory
manner in line with EITI criteria
during at least the year leading up
to the completion point
Completion and approval by
Cabinet of a strategy to move to
the EITI ++ framework.
LEITI to complete the annual
reports of comprehensive
audits of post contract award
LEITI to complete the annual
reports of comprehensive
audits of post contract award
30
process and tracking of the use
of extractive industries
revenue.
process and tracking of the
use of extractive industries
revenue.
Judicial reform The formal justice system in
Liberia lacks infrastructure and
materials and qualified
personnel. The judiciary is
weak the courts are overworked
with dispute resolution entail
delays and lack of
predictability. Despite this,
arbitration proceedings outside
the court system are not well-
developed. Consequently it is
difficult and costly to convey
property or enforce contractual
obligations or hold both public
and private actors accountable.
Establishment and adequate
resourcing of one commercial
court, including training for a cadre
of specialized court personnel.
Establish and adequately
resource 1 real estate/Property
court, including training for
specialized personnel.
Establish and adequately
resource a second real
estate/property court, including
training for specialized
personnel.
Civil Service Reform
(Including pay reform)
Lack of capacity in the civil
service limits the ability of the
Government to implement
policies which will benefit
development and the delivery
of basic services. Civil servants
are poorly prepared and
inadequately compensated.
Generally weak Human
Resource Management systems
have been affected by years of
civil wars and neglect.
Approve new pay and grading
structure to strengthen
management systems and
mainstream generic job
descriptions developed in the
context of the grading exercise.
Complete ―one employee/one
file/one salary/one job for all of the
civil service and the pension’s
authority (including biometric
information). Populate HRM
module of IFMIS with new ―clean
data‖. Define data capture
requirements for new entrants and
applicants.
Complete restructuring of Civil
Service Agency. Finalize
functional reviews of four key
core agencies (Ministry of
Finance, Ministry in charge of
decentralization, Education and
Health).
Revised version of civil service
legislation which will bring
Liberian civil service in line with
modern civil service
administration standards
submitted to Parliament.
Strengthen management of civil
service pensions by
implementing key
recommendations of the pension
study.
Continue with implementation of
pay strategy by meeting the wage
targets.
Finalize functional reviews for
remaining central government
agencies.
Prepare Civil Service enabling
regulations and have approved
by Cabinet.
Define examination and hiring
modalities for new entrants in
the civil service and submit
them to cabinet for approval.
Define evaluation and
promotion criteria and submit
them for approval to cabinet.
Continue with implementation
of pay strategy by meeting the
wage targets.
Governance Reform Issue Policy Actions 2010/11 Policy Actions 2011/12 Policy Actions 2012/13 Related HIPC Completion
Point Triggers
Anti –corruption There is need for a clear
definition of the separate but
connected role and
Submit to cabinet a revised
framework for LACC in light
of recommendations made in
Establish an Anti-corruption
Court to review cases
specifically presented by the
Establish an independent Anti-
Corruption Commission
consistent with the Anti-
31
responsibilities of the LACC,
the GAC, the PPCC and the
Ministry of Justice and the
Judiciary, to avoid duplication
and waste of resource as well as
to prevent unnecessary delays
in prosecuting corruption cases.
recent review. Ministry of Justice or directly by
the LACC.
Enforcement of public service
financial disclosure requirement
for 100% of eligible public
servants.
Corruption Act, and ensure it is
operational for at least 12
months leading up to the
completion point.
Business enabling
environment
Reform Issue Policy Actions 2010/11 Policy Actions 2011/12 Policy Actions 2012/13 Related HIPC Completion Point
Triggers
Business enabling
environment
Liberia has made progress in
ease of doing business
indicators, surpassing the
fragile states average and
marching pear performance in
ECOWAS. However, from
being among the top 10
reformers This drop is due to
regression in a number of
indicators such as Starting a
Business (down from 57th
to
64th
); Registering Property
(from 173rd
to 176th
); Getting
Credit (from 135th
to 138th
);
Protecting Investors (from
146th
to 147th
); and trading a
cross border (from 115th
to
116th
).
Eliminate annual re-
registration at the Ministry of
Commerce.
Remove requirements for
each survey to have a
separate permit in addition
to licensing of surveyors to
survey a set period of time.
Reduce the number of
signatures for each trade
transaction
.
Identify necessary inspections
(for example at foundation,
wiring and completion) to take
place during construction for
the introduction of a risk-
based inspections system.
Prepare a medium-term plan
to create a unified and
digitized registry.
Streamline documents and
improve inter-agency
information sharing.
Revise associations and general
business laws to accommodate
one-stop shop registration.
Implement risk-based
inspections system.
Implement a unified and
digitized registry.
Move towards a Single
Administrative document.
:
32
APPENDIX 3: IMF COUNTRY RELATIONS NOTE
Statement at the Conclusion of an IMF Staff Mission to Liberia
Press Release No. 11/130. April 11, 2011
An International Monetary Fund (IMF) mission led by Mr. Christopher Lane, visited Liberia
March 28–April 8, 2011 to conduct discussions for the sixth review under the Extended Credit
Facility (ECF) and a request from the Liberian authorities to extend support for their economic
program until the end of 201117
.1 The mission met with: Minister of Finance, Augustine Ngafuan;
Central Bank of Liberia Executive Governor, Joseph Mills Jones; other senior officials;
representatives of the private sector and development partners; and briefed President Johnson
Sirleaf.
The mission issued the following statement in Monrovia:
―Economic growth is picking up although less rapidly than initially projected due to a slight
decline in rubber production, continued delays in the restart of timber exports, while rising food
and fuel prices may be adversely affecting consumption. Inflation remains in single digits and the
exchange rate is broadly stable. Economic prospects for 2011 and over the medium term remain
favourable provided that external risks related to rising international food and fuel prices and
cross-border developments in Côte d’Ivoire are contained.‖
―Performance under the Fund-supported economic program has been good. All monetary and
fiscal targets (performance criteria) through end-December 2010 were met. As regards budget
execution, current spending is on track but capital spending has, so far, been slowed by capacity
constraints. Implementation of the remaining structural benchmarks—publication of national
accounts data, rollout of an information system for Customs, and regular financial reporting by
state owned enterprises to the Ministry of Finance—was slower than expected.‖
―The draft FY2012 budget is prudent and realistic. It supplements revenues and grants with
domestic and foreign borrowing for investment needs in a manner fully consistent with the
authorities’ debt management strategy. The capital spending program would focus on a few
strategic projects supported by intensive capacity building in key ministries and agencies to
accelerate implementation.‖
―Discussions were held on policies to complete and consolidate the ECF-supported economic and
structural reform program through end-December 2011. The intention is to maintain
macroeconomic stability, support growth and investment, and to complete and consolidate
reforms already started. Fiscal policy measures will focus on deepening reforms of public
financial management, revenue administration and governance. Financial sector reforms will
focus on the payments system, capital market development and bank supervision.‖
―Discussions, including on the level of Fund credit for the extension, are expected to be
concluded shortly. The sixth review of the ECF and the request for an extension would then be
submitted for consideration by the IMF’s Executive Board. Liberia will receive a disbursement of
SDR 4.44 million (approximately US$7 million) on completion of the review.‖
17
The ECF has replaced the Poverty Reduction and Growth Facility as the Fund’s main tool for medium-term financial support to
low-income countries. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.
33
IMF Executive Board Completes Fifth Review Under Extended Credit Facility for Liberia
and Approves US$6.82 Million Disbursement
Press Release No. 10/479
December 8, 2010
The Executive Board of the International Monetary Fund (IMF) today completed the fifth review
of Liberia’s economic performance under a program supported by an Extended Credit Facility
(ECF) arrangement. The completion of the review enables the immediate disbursement of an
amount equivalent to SDR 4.44 million (about US$6.82 million), bringing total disbursements
under the arrangement to SDR 234.58 million (about US$360.37 million).
The three year ECF arrangement for Liberia was approved in March 2008, for an amount of SDR
239.02 million (about US$367.19 million; see Press Release No. 08/52). The Executive Board
also completed the 2010 Article IV Consultation. A Public Information Notice will be published
in due course.
Following the Executive Board’s discussion of Liberia, Mr. John Lipsky, First Deputy Managing
Director and Acting Chair, made the following statement:
―The Liberian authorities have continued to implement prudent macroeconomic policies and to
advance structural reforms under their IMF-supported economic program. The balanced budget
principle was maintained during the 2009–10 financial year, with revenue shortfalls linked to the
global economic crisis being matched by spending cuts. Inflation has returned to single digits, the
exchange rate has been broadly stable, and economic growth is picking up, helped by a recovery
of foreign direct investment flows.
―Significant progress has been made in implementing public financial management reforms and
adopting laws and regulations that facilitate trade and investment. Reaching the completion point
under the HIPC Initiative has laid the basis for comprehensive debt relief and Liberia now has a
modest debt burden while having space to take on new concessional debt to finance investment
projects.
―The macroeconomic policy framework for the current fiscal year (2010–11) is well-conceived.
The budget envisages solid revenue growth, the allocation of an increased share of budgetary
resources to poverty reduction programs, and a significant boost to public investment. Although
the balanced budget policy remains in place, this will be re-evaluated if concessional financing
and appropriate projects are identified. Monetary policy should support low inflation and permit a
modest increase in reserves.
―Over the medium term, the authorities will need to follow through with reforms aimed at
alleviating structural constraints on growth. The envisaged emphasis on infrastructure
development is appropriate, but effective execution will require that capacity in project selection
and preparation be improved, along with more efficient procurement and cash management
procedures. Continued efforts to strengthen public financial management would complement other
efforts to scale up investment effectively, while successful implementation of planned revenue
administration reforms would augment budgetary resources. Accelerated financial sector
development and broad-based governance reform—including land tenure and property rights—
would also support rapid private sector growth over the medium term,‖ Mr. Lipsky added.
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APPENDIX 4
Liberia : Selected Macroeconomic Indicators
2008
Act.
2009
Pre.
2010
Proj.
2011
Proj.
2012
Proj.
2013
Proj.
Real GDP (%) 7.1 4.6 6.3 8.8 11.7 8.4
Nominal GDP (millions of US dollars) 850.7 879.0 976.6 1,054.1 1,231.2 1,354.8
Nominal GDP per capita (US Dollars) 243.2 239.6 255.3 265.8 300.8 321.4
Consumer Prices – end of period (%) 9.4 9.7 4.7 4.6 5.0 5.0
Consumer Prices - average (%) 17.5 7.4 7.2 4.2 4.8 5.0
Consumer Prices - US dollar
denominated, year-on-year (%)
5.1 2.4 0.7 0.8 1.1 1.3
Fiscal Balance. incl. grants (% of GDP) 1.2 -1.6 0.6 -0.5 -3.4 -4.5
Fiscal Balance. excl. grants (% of GDP) 0.5 -4.4 -0.8 -6.4 -7.2 -8.7
Current Account Balance - incl. grants (%
of GDP)
-57.3 -36.8 -40.4 -59.2 -64.9 -74.9
Current Account Balance - excl. Grants
(% of GDP)
17.5 7.4 7.2 4.2 4.8 5.0
Broad Money (M2) 45.7 37.7 1.9 10.7 17.4 11.5
Reserve Money (annual percentage
change)
13.1 12.4 -3.2 21.0 18.0 15.8
Public External Debt (% of GDP) 376.6 190.9 8.9 20.4 22.5 24.9
Central Government Domestic Debt (%
of GDP)
39.4 34.3 31.5 29.7 27.4 25.1
Gross official reserves (millions of US
dollars)
107.8 312.2 317.1 333.8 343.8 353.6
Gross official reserves (months of import
cover)*
0.8 3.2 2.6 2.0 2.0 1.9
*Excluding UNMIL service imports
Source: IMF – Staff Report for the 2010 Article IV Consultation and Fifth Review under the Three-year Arrangement
under the Extended Credit Facility, November 2010.
35
APPENDIX 5
MAP OF LIBERIA
