VZCZCXRO9356
RR RUEHMA RUEHPA
DE RUEHMV #1322/01 3101650
ZNR UUUUU ZZH
R 061650Z NOV 07
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 9470
INFO RUCNDT/USMISSION USUN NEW YORK 1532
RUEATRA/DEPT OF TREASURY WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 MONROVIA 001322 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT PASS USTR FOR CONNIE HAMILTON 
DEPARTMENT FOR AF/EPS POTASH AND AF/W DAVIS 
TREASURY FOR JOHN RALYEA, RICHARD HALL AND OREN WHYCHE-SHAW 
 
E.O. 12958: N/A 
TAGS: EFIN LI
SUBJECT: LIBERIA: FIRST ANNUAL FINANCIAL ACCOUNTS SHOW POSITIVE 
TREND 
 
¶1. (U) GOL efforts to stem leakage of government revenue are showing 
results.  In the first full-year fiscal accounting for President 
Sirleaf's administration, revenues increased 75 percent over the 
previous year to USD 148.34 million.  In a significant step toward 
transparency, the government published its Annual Fiscal Outturn, 
which was published in newspapers and made available on the 
internet.  Revenue growth exceeded projections by 9.9 percent. 
Expenditures increased 64 percent, to USD 135.65 million, just under 
projections.  The GOL ended FY 2006-07 with closing balances of USD 
15.79 million.  In the coming year, the Ministry of Finance plans to 
tighten customs exemptions (which totaled USD 26 million), and 
expand collection of the goods and services tax, property taxes and 
individual income taxes.  The Minister has requested donor support 
of USD 1.7 million to fund further automation of tax administration. 
 Press comment has focused on the "overspending" by some GOL 
agencies, ignoring the fact that overall spending was on budget. 
The full text of the Annual Fiscal Outturn is available at 
http://www.mofliberia.org/0607fiscalreport.pd f. 
 
Revenue Surging 
--------------- 
 
¶2. (U) The GOL published the FY2006-07 final fiscal outcomes in 
two-page newspaper spreads over three days.  Revenues of USD 148.3 
million (excluding grants) exceeded original projections by USD 18.4 
million, or 15 percent. (Note: The Liberian fiscal year starts on 
July 1.  End note.)  The initial budget appropriation of USD 129.92 
was increased during the year by a supplemental appropriation of USD 
5.06 million and by a USD 1.5 million budgetary support grant from 
China.  The GOL ended the fiscal year with a surplus of USD 15.79 
million, up from USD 2.1 million in July 2006.  An anticipated USD 
1.7 million in budgetary support from France has just been announced 
and will appear in the FY2007-08 accounting. 
 
¶3. (U) Revenues increased more than 75 percent over the previous 
year, and are 22.7 percent greater than the IMF Staff Monitored 
Program target of USD 120.9 million.  Tax revenue accounted for 95 
percent of the total, of which almost half came from taxes on 
international trade.  The growth reflects improvements in collecting 
fees related to pre-shipment inspection, and the growth in imports 
as the economy expands.  The second-largest category, at 31 percent 
of tax revenue, was taxes on income and profits.  Despite some 
widening of the tax base, over 50 percent of corporate taxes came 
from the three largest taxpayers.  Property taxes showed the fastest 
absolute growth (more than doubling) but from a very low base.  This 
year's revenue did not include GSM license fees, due to delay in 
passage of the revised Telecommunications Act.  (Note:  these 
one-time fees should appear in FY 2007-08 revenue as contract 
negotiations with the firms are completed.  End note.) 
 
¶4. (U) The Ministry of Finance identified further improvement for 
the current fiscal year, including tightening customs exemptions 
(which totaled USD 26 million), and expanding collection of the 
goods and services tax, property taxes and individual income taxes. 
In addition, the economy continues to expand and timber exports 
under the just-negotiated chain-of-custody regime should boost 
revenue in FY2007-08. 
 
Expenditure Controls Slow Spending 
---------------------------------- 
 
¶5. (U) Expenditures increased 64 percent over the previous year, and 
fell short of appropriations by 0.2 percent, compared to exceeding 
appropriations by 2.3 percent in FY2005-06.  Despite a surge in 
spending in the last quarter, spending over most of the year was 
sluggish which limited fiscal stimulus.  Spending in June 2007, the 
last month of the fiscal year, was three times that of any other 
month.  Legislative approval of the Budget Bill in 2006 was delayed, 
so there was no spending the first two months of the fiscal year. 
New controls by the Cash Management Committee and the Public 
Procurement Committee, instituted to improve accountability and 
control expenditures, also slowed government-wide spending. 
 
¶6. (U) The MOF notes that ministry and agency staff need further 
training in preparing cash plans, procurement plans and budgets to 
improve spending efficiency.  Accounting and recording is still, on 
the whole, manual but an interim automated system is being 
implemented this fiscal year.  There are also plans to install and 
integrated financial management information system (IFMIS). 
 
Clearing Domestic Arrears 
------------------------- 
 
¶7. (U) The GOL has focused on addressing the tangle of financial 
obligations left by previous governments.  Payments of USD 5.24 
 
MONROVIA 00001322  002 OF 002 
 
 
million in salary arrears benefited over 40,000 civil servants and 
almost 19,000 former military.  By the end of the fiscal year, 
domestic obligations to vendors and landlords had been aggregated 
and USD 3.24 million in uncontested claims was paid to 437 
claimants.  The GOL is reviewing contested claims totaling over USD 
19 million as of September 2007.  The government also initiated 
restructuring of debt to domestic financial institutions, including 
the Central Bank and two commercial banks.  Resolving those payments 
will help but Liberia's financial sector on a sounder footing. 
Liberia made token payments of USD 1.2 million to service external 
debt. 
 
A First Step, But More Funding is Needed 
---------------------------------------- 
 
¶8. (U) The GOL attributes the strong performance on the revenue side 
to more consistent implementation of the revenue code, improvements 
in the tax payment process and improvements in auditing by using 
related taxpayer information, such as import records.  In addition 
to tightening up the pre-shipment inspection process, there has been 
expanded use of automation in tax administration. 
 
¶9. (SBU) The Minister of Finance convened a meeting of the major 
donors September 27 to request USD 1.7 million to support plans to 
further enhance tax administration.  Of that, a USD 1 million 
allocation for software is the key to whether they proceed with 
further improvements in tax administration or continue with current 
procedures.  Donors were supportive, but non-committal.  After the 
presentation, the Ambassador noted the improved revenue collection 
is a good news story, with lower (broader) rates and greater 
transparency.  However, businesses in the formal sector have told us 
taxes are onerous and encouraged the MOF to continue expanding the 
revenue base so the few largest firms were not bearing the brunt of 
tax collection. 
 
¶10. (SBU) Comment:  It was not certain the GOL would be able to 
overcome inaccurate data collection and poor record-keeping to 
compile end-of-year financial accounts, and this publication, 
however imperfect, is a victory.  It follows the first-ever 
publication of the national budget earlier this year.   The press 
responded slowly, focusing on "overspending" by some government 
agencies.  The Ministry of Finance responded strongly, noting the 
criticisms reflect a "sensational" lack of understanding of the 
distinction between Expenditures and Adjusted Accounts.  A budget 
expert who is very familiar with the process confirmed to us that 
there were no over expenditures, allotments did not exceed 
appropriations, and the GOL ended the budget year with an increased 
cash balance.  In the 2006-07 budget, the "General Claims" category 
contained a USD 9 million contingency fund for salary adjustments, 
which were then distributed to the ministries and agencies through 
payroll.  The FY2007-08 budget made the salary adjustments at the 
same time as the Budget Law, so "other claims" will be greatly 
reduced and spending will be clearer. 
 
¶11.  (SBU)  Comment continued:  The increase in revenue and in 
government transparency shows the Governance and Economic Management 
Assistance Program (GEMAP) is having an impact.  Experience with the 
budgeting process, continued improvement in tax administration, 
combined with expected increases in revenue as timber exports resume 
and the economy continues to expand, bode well for the FY2007-08 
budget. 
 
BOOTH