VZCZCXRO5761
RR RUEHMA RUEHPA
DE RUEHMV #0087/01 0310804
ZNR UUUUU ZZH
R 310804Z JAN 08
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 9701
RUEATRA/DEPT OF TREASURY WASHDC
INFO RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 03 MONROVIA 000087 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR AF/W AND EEB/OMA 
TREASURY FOR RICHARD HALL, OREN WHYCHE-SHAW, WILLIAM REMINGTON 
 
E.O. 12598: N/A 
TAGS: EFIN EAID ECON PGOV LI
SUBJECT: LIBERIA: PROGRESS ON DEBT, BUT SPENDING REMAINS A 
CHALLENGE 
 
Ref A)         Monrovia 63         (MinFin meeting) 
Ref B)         07 Monrovia 1377    (IRS request) 
Ref C)         07 Monrovia 1348    (MCC) 
Ref D)         07 Monrovia 1322    (Fiscal update) 
Ref E)         07 State 108948     (Arrears) 
 
¶1.  (U) SUMMARY:  Liberia's fiscal picture is rosier in 2008 but 
there are still challenges.  The July-September first quarter of FY 
2007-08 saw revenue increase more than 50% from the same period the 
previous year, thanks to the Governance and Economic Management 
Assistance Program (GEMAP).  The GOL continues to struggle with 
timely expenditures, although those, too, have improved over FY 
2006-07.  Scrubbing the civil service payroll has saved almost US$4 
million dollars. 
 
¶2.  (SBU) SUMMARY CONT:  The GOL is settling valid domestic debts 
incurred by past governments and is proceeding with evaluation of 
"contestable" domestic debt.  A legal opinion from the Ministry of 
Justice on the overall debt strategy is a prerequisite for further 
action on debt management.  Agreement is near on settling GOL debt 
to domestic banks (including the Central Bank), which should help 
stabilize the financial sector.  The GOL plans to resume discussions 
with foreign commercial creditors in mid-February.  The IMF, World 
Bank and African Development Bank have each committed to moving 
forward on debt relief, opening the route to the next stage of the 
Highly Indebted Poor Country (HIPC) process.  Although those 
announcements garnered broad press coverage, and are an important 
step toward debt relief, they are only one aspect of a multi-pronged 
strategy to return Liberia to a sustainable fiscal footing.  Despite 
the progress, the GOL's difficulty in expediting expenditures 
contributes to the sense among Liberians that there has been no 
improvement in their daily lives, despite the increase in revenues 
and flow of foreign aid.  END SUMMARY. 
 
Revenues Improve 
----------------- 
 
¶3.  (U) The Quarter I Fiscal Outturn for Liberian FY 2007-08 reports 
continued strengthening of the government's fiscal position.  (Note: 
The fiscal year starts July 1.  End note.)  Revenues of US$43.75 
million exceeded projections and were 50% greater year-on-year.  The 
increased revenues were supported by the ongoing post-war economic 
rebound and foreign development assistance, but also by improved tax 
administration and revenue collection.  Donor supported GEMAP was 
key to the improving fiscal picture.  In response to a request from 
Finance Minister Sayeh (refs A & B) Treasury is sending advisors in 
February to assess the GOL's future tax administration training 
needs.  The complete Fiscal Report is available at 
(http://www.mofliberia.org/0708q1fiscalreport .pdf). 
 
Speeding GOL Expenditure 
------------------------ 
 
¶4. (SBU) Expenditures of US$32 million, at 16% of the annual 
appropriation, were 22% below projections but the pace of spending 
was better than the same period the previous year.  Delays in 
passing the budget meant QI spending did not start until August 16, 
six weeks into the fiscal year.  Expenditure for the quarter was 
also slowed by continued unfamiliarity with the new Public 
Procurement Act and lack of advance planning on procurement by GOL 
ministries.  More than half of QI spending was for personnel 
expenses. 
 
¶5. (SBU) Assistant Minister of Finance for Expenditure Aletha Browne 
told Econoff in December that the focus is on debt clearance and 
expediting expenditures.  Browne noted procurement bids should have 
been tendered at the start of the fiscal year contingent on 
availability of funds.  The quality of vouchers from ministries and 
agencies is improving, indicating better understanding of the new 
procurement system. 
 
¶6. (SBU) Browne said capacity is a continuing problem.  For example, 
MOF has analysts to cover each GOL ministry and agency but most of 
them are completely unfamiliar with the workings of their assigned 
ministries.  She plans to build stronger relations with other major 
government agencies in the coming year. 
 
¶7.  (U) In a newspaper interview published December 31, Finance 
Minister Antoinette Sayeh cited the following examples of progress 
since the Sirleaf administration took office two years ago: 
 
-- The minimum civil service salary has increased from US$15 to 
US$55 per month. 
 
-- Civil service salaries and pensions are current for the first 
time in decades.  (The Sirleaf administration inherited has also 
taken responsibility for civil service salary arrears incurred by 
 
MONROVIA 00000087  002 OF 003 
 
 
past governments.  Of the $13.12 million in public servant salary 
arrears inherited in January 2006, about $9.21 million remains.) 
 
-- GOL revenues have more than doubled since 2006, from a starting 
budget of US$82 million to an FY2007-08 budget of almost US$200 
million. 
 
-- The Ministry of Finance (MOF) has streamlined the process for 
paying taxes and fees and for voucher reimbursement. 
 
-- The GOL is harmonizing tax and tariff policies with the region 
(ECOWAS). 
 
In the interview, Minister Sayeh confirmed debt cancellation is in 
sight, perhaps within the next two years.  (i.e. it is possible the 
HIPC completion point could be reached by late 2010.) 
 
GEMAP Shows Results 
-------------------- 
 
¶8. (SBU) The positive revenue story owes much to the continued 
success of GEMAP, whereby donor-funded controllers at the major 
revenue agencies (including the Central Bank, port, airport, 
Ministry of Lands, Mines and Energy, the Cash Management Committee, 
Ministry of Finance (MOF), Budget Bureau and the Public Procurement 
and Concession Commission) have co-signing authority on financial 
transactions and are working to institutionalize sound financial 
management procedures.  The increase in revenue, at rates far 
exceeding GDP growth, reflects the capture of funds that formerly 
"leaked" from public coffers.  However, constant vigilance is needed 
to counter ploys to divert government funds as efforts to introduce 
sound fiscal management are squeezing employees' ability to use 
their positions to pursue "rent seeking." 
 
Vanquishing Payroll Ghosts 
--------------------------- 
 
¶9. (SBU) MOF has taken steps to address pervasive problems in 
delivery of government checks.  In the absence of banks up-country 
or a functioning national postal system paychecks were traditionally 
given to supervisors to distribute to employees, an unreliable 
method that contributed to corruption.  As of September 2007, most 
civil servants now collect and sign for their individual checks. 
The Central Bank has branches in six counties and, with UNMIL 
assistance, sends paymasters to the other nine counties for three 
weeks every month to cash government checks.  However, far-flung 
civil servants must still carry checks, often long distances on bad 
roads, to the county seat to be cashed.  The inability to move money 
around the country safely and efficiently is a major constraint on 
economic growth and provision of effective government services. 
 
¶10. (SBU) In her January 28 State of the Union message, President 
Sirleaf reported they had purged 12,300 names from the government 
payroll, saving nearly $4 million.  In December 2007, the GOL 
reported 22,734 government checks, totaling US$763,000, were 
unclaimed in FY2006.  (Note:  GOL checks are valid for six months. 
End note.)  Assistant Minister Browne said they believe the 
unclaimed checks belong to "ghost" employees.  After consulting with 
the Director General of the Civil Service Agency and the President, 
the GOL has decided not to try to investigate further or press 
charges.  They will remove invalid names from the payroll, and 
employees who subsequently claim expired checks will have to 
re-qualify for their job through the Civil Service Agency. 
 
More Clarity on Domestic Debt 
----------------------------- 
 
¶11.  (SBU) During a January 17 meeting (ref A), Minister Sayeh 
expressed appreciation for Treasury's assistance on domestic debt 
management and stressed that MOF still has work to do, most 
importantly obtaining a legal judgment on the debt management 
strategy and proposed Trust Fund structure from the Ministry of 
Justice.  MOF officials state it would be difficult to defend 
rejected claims without clear legal grounding.  The Deputy Minister 
for Expenditure will provide us with a draft scope of work for next 
steps for USG assistance once the legal opinion is granted. 
 
¶12. (SBU) Domestic claims against the GOL totaled approximately 
US$900 million.  Last year the GOL started paying the US$300 million 
in clearly valid claims incurred by past governments.  It completed 
payment on claims of up to US$50,000 and has approximately US$1.1 
million in the current budget to start paying claims of between 
US$50,001 to US$1 million.  (Claims larger than US$1 million will be 
handled separately.) 
 
¶13. (SBU) Most (US$263 million) of the valid claims are owed to 
domestic financial institutions, of which US$260 million is owed to 
 
MONROVIA 00000087  003 OF 003 
 
 
the Central Bank of Liberia (CBL).  The MOU with the CBL has been 
signed and negotiations with both commercial bank creditors on 
repayment terms are nearing completion.  The Central Bank is 
considered a preferred creditor, and GOL debt is being restructured 
so as to safeguard the CBL's capital strength and the GOL's fiscal 
space.  Debt to the two domestic commercial banks will be discounted 
at an average rate of 46.6% and calibrated so it does not become a 
trigger for bank failure but minimizes moral hazard.  The GOL is 
requesting a budget appropriation in FY 2007-08 to begin servicing 
the debt to the domestic commercial banks. 
 
¶14. (SBU) The GOL will review the roughly US$300 million 
"contestable" debt in early 2008, with the help of KPMG-Ghana. 
After establishing what each claim is missing, the GOL will be able 
to announce that creditors can provide the missing information to 
support reconsideration of their claim. 
 
Closer to International Debt Relief 
----------------------------------- 
 
¶15.  (SBU) On November 18, the IMF Board announced it had approved 
procedures to clear Liberia's arrears, which should be completed in 
March. On December 5 the World Bank announced that "Liberia cleared 
all overdue debt service payments."  On December 18, the Board of 
the African Development Bank also agreed to a proposal clearing 
Liberia's arrears.  Clearance of arrears to the international 
financial institutions moves Liberia along the process of obtaining 
debt relief under HIPC, to which GEMAP is linked.  Conclusion of the 
GEMAP process is a key indicator of donor confidence in the GOL's 
ability to manage an effective and transparent fiscal regime. 
 
The "Litigating Creditors" 
--------------------------- 
 
¶16.  (SBU) Even after clearance of multilateral and bilateral 
foreign debt, Liberia owes an estimated US$1 billion to foreign 
commercial creditors.  The GOL has been working with the IMF to try 
to determine from foreign commercial creditors what the GOL owes to 
whom.  Minister Sayeh told the Ambassador January 17 that she had 
met with one of Liberia's major commercial creditors, and reported 
to President Sirleaf at a January 23 LRDC meeting that she plans to 
resume discussions with commercial creditors in mid-February. 
 
Comment 
------- 
 
¶17.  (SBU) On December 31, a major Liberian newspaper named Finance 
Minister Sayeh "Person of the Year" for "helping Liberia become 
unshackled."  Despite Liberian journalists' proclivity to criticize 
the Sirleaf administration, there is appreciation for the vigorous 
efforts the President and the Finance Minister have made to move 
Liberia towards debt relief.  Sayeh has been a forceful leader on 
debt relief; a supporter of accountability and transparency; she 
strongly advocates tax administration reform and is deeply engaged 
in upgrading Customs and rehabilitating the port. 
 
¶18.  (SBU) Comment continued:  Continued USG support for debt 
management and tax administration reform will have broad impact on 
further improving Liberia's fiscal situation, enhancing the 
investment climate and increasing the GOL's ability to tackle 
poverty.  President Sirleaf recognizes that her administration needs 
to do more to involve the legislature in meeting HIPC benchmarks. 
The GOL's difficulty in expediting expenditures contributes to the 
sense among Liberians that there has been no improvement in their 
daily lives, despite the increase in revenues and flow of foreign 
aid. 
 
Booth