R 241735Z MAR 09
FM AMEMBASSY MONROVIA
TO SECSTATE WASHDC 0899
INFO ECOWAS COLLECTIVE
DEPT OF TREASURY WASHDC
DEPT OF COMMERCE WASHDC
NSC WASHDC

UNCLAS MONROVIA 000219 
 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EFIN LI
SUBJECT:  LIBERIA:  IMPACT OF GLOBAL FINANCIAL CRISIS WORSENS 
 
REF: A) MONROVIA 52; B) 08 MONROVIA 999 
 
¶1.  SUMMARY: Both the GOL and International Monetary Fund (IMF) 
report that the impact of the global financial crisis on Liberia may 
be more serious than previously expected (reftels).  The IMF has 
revised Liberia's growth projections downward from 10.3% to 6% for 
2009, and from 14.8% to 8% in 2010.  Minister of Finance Augustine 
Ngafuan said March 18 that the global crisis had knocked 
implementation of the Poverty Reduction Strategy (PRS) off track and 
could further delay the Heavily Indebted Poor Countries (HIPC) 
Completion Point.  The negative impact of the crisis is showing up 
in lower export prices, lower than expected government revenues, and 
a drop in foreign direct investment.  Liberia's policy options are 
limited, but the government continues to pursue measures that would 
stimulate trade, attract foreign investment and lower retail prices. 
END SUMMARY. 
 
¶2.   During a March 18 presentation at the Central Bank of Liberia, 
IMF Resident Representative Michael Tharkur presented revised 
estimates for Liberian economic growth, down from 10.3% (as 
projected in the 2008 PRS) to 6%.  Finance Minister Ngafuan was less 
optimistic and suggested revenue growth might be even slower due to 
the severe slump in exports.  Minister Ngafuan said the Ministry of 
Finance (MOF) would soon issue a press release to prepare the public 
for inevitable and increasing hardship as the economic crisis 
intensifies in Liberia.  Job creation is the GOL's top economic 
priority, and Minister Ngafuan noted that Liberia's largest 
employers (including ArcelorMittal and Firestone) were beginning to 
reduce their workforces in response to financial constraints. 
 
A Few Bright Spots 
------------------ 
 
¶3.  The IMF acknowledged a few positive developments from the 
crisis:  lower import prices (particularly food and fuel) have 
lowered the cost of living and reduced inflation; aid flows remain 
stable; the banking system has been relatively insulated from the 
financial meltdown; and the high level of dollarization has helped 
contain pressures on the exchange rate.  But Mr. Tharkur noted that 
these positives, noted in reftels, are now outweighed by the weak 
outlook for foreign direct investment and remittances; a dramatic 
drop in export revenues; a reduction in job creation; and a tighter 
budget thanks to slower revenue growth. 
 
What Next? 
---------- 
 
¶4.  Liberia has limited policy options.  Fiscal stimulus is limited 
by Liberia's inability to borrow until the HIPC Completion Point, 
which is likely to be delayed by the financial crisis.  A balanced 
budget is the anchor of Liberia's macroeconomic stability in the 
short run.  Donor support remains essential, but incomplete public 
financial management reforms and limited capacity continue to 
restrict direct budget support and the government's ability to 
absorb aid. 
 
¶5.  The IMF recommended the GOL consider some short-term policy 
options, including lowering the government controlled price for rice 
to allow lower import prices to pass through to consumers; limited 
use of foreign reserves to defend the exchange rate; finalization 
and passage of fiscal and investment regimes to encourage foreign 
investment; and stronger coordination by government and donors to 
target strategic priorities.  Minister Ngafuan concurred with 
Tharkur and noted the GOL was focusing on increasing food production 
to get through the crisis.  Minister Ngafuan said President Sirleaf 
has appealed to the World Bank to redouble its efforts to meet 
disbursement targets for 2009, particularly for construction of 
roads vital to agriculture production. 
 
¶6.  COMMENT:  Downward revisions to growth estimates are not 
unexpected, but the impact of the global crisis in Liberia is 
quickly moving from the abstract to reality, and policy-makers and 
partners are scrambling to respond.  The GOL is focused on the 
potential impact on poverty reduction efforts and debt relief, and 
is concerned that further economic pressure on vulnerable 
populations could affect stability.  The slump in rubber prices has 
already led to labor unrest and violence in some cases.  Donors can 
mitigate those destabilizing risks, particularly through targeted 
budget support, continued capacity building, emergency social 
programs, and private sector development initiatives.  However, 
continued GOL efforts to control the price of essential commodities 
will lead to ongoing disruptions in supply and subsequent price 
spikes.  Controls on rice and cement should be replaced by targeted 
assistance to those most threatened by price spikes.  We should 
continue to advocate for timely passage of essential legislation 
reforming public financial management, procurement, the revenue code 
and the investment climate, and for rapid ratification of pending 
investments in power production and iron ore mining. 
 
THOMAS-GREENFIELD