Liberia: Third Review Under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of Performance Criterion and Modification of Performance Criteria-Staff Report; and Press Release

KEY ISSUESContext. Real GDP grew at 8.7 percent in 2013 and is projected to decline to 5.9 percent in 2014 as mining production decelerates. Inflation picked up reflecting the depreciation of the Liberian dollar in the context of a widening current account deficit, but should moderate in 2014 as international food and fuel prices decline. Risks to the outlook stem from delays in priority public investment and declines in rubber and iron ore prices.Key challenges and risks. Significant revenue shortfalls and recently-uncovered spending commitments outside the budget process underscore remaining capacity constraints and institutional weaknesses that ought to be resolutely addressed to preserve the credibility of the budget and the authorities' ability to deliver on their development agenda.Policy discussions• Measures aimed at strengthening the budget process, in line with the public financial management and procurement laws, should help reduce fiscal risks. The new independent Liberia Revenue Authority will prioritize implementation of tax controls to improve compliance and the revenue performance.• Containing inflation in the dual currency regime will require enhanced liquidity management and stronger coordination between fiscal and monetary policy.• The current pace of external borrowing is consistent with the temporary scaling-up of public investment to address infrastructure gaps, but should begin to moderate.Program performance remains mixed. Most end-December 2013 performance criteria (PCs) and indicative targets (ITs) were met, except for the PC on government revenue and the IT on external borrowing. Four out of five structural benchmarks (SBs) were met on time. Based on the authorities' strong corrective actions to address the revenue shortfall and to strengthen expenditure controls, including the initiation of both an external audit of the extra-budgetary commitments and a review of procurement procedures in key ministries (prior actions), staff supports the completion of the third ECF review. Staff also supports the authorities' request for a waiver for the nonobservance of the floor on government revenue (PC) and to modify the end-June net foreign reserves PC and the ITon public sector gross external borrowing.