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DE RUEHMV #0375/01 1491151
ZNR UUUUU ZZH
R 291151Z MAY 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 1044
RUEATRA/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 03 MONROVIA 000375 
 
SIPDIS 
SENSITIVE 
 
E.O.12958: N/A 
TAGS: EFIN EINV ECON EAID PGOV LI
SUBJECT:  LIBERIA:  DRAFT BUDGET IS BIGGER AND MORE DETAILED 
 
REF A) MONROVIA 271 (outlook) B) MONROVIA 262 (CU/BR) C) MONROVIA 
119 (Tax cuts); D) 08 MONROVIA 629 
 
Introduction and Summary 
------------------------ 
 
¶1. (U) The GOL submitted its 2009-10 draft budget for legislative 
consideration on May 19.  Despite the global financial crunch, the 
budget, at $347 million, shows a 16% increase over last year's and 
over 400% growth from the $80 million budget when the Sirleaf 
administration took office.  It includes a proposal to raise the 
minimum civil service salary from $70 to $80 per month, and provides 
for teachers, health workers and security officers to earn $100 per 
month, instead of the minimum wage they had previously earned.  An 
aid annex is included for the first time, making it clear that 
foreign assistance still dwarfs GOL revenues.  Of the expected $450 
million in FY2009-10 foreign assistance, about $230 million will 
come from the United States. 
 
¶2.  (U) President Sirleaf noted in her transmission memo to the 
Legislature that the 2009-2010 budget continues the focus on 
reconstruction and development and protects spending in social 
services, the justice sector and security.  She called for rapid 
passage of essential legislation such as the Public Financial 
Management Act, the Civil Service Reform Act, and revisions to the 
Revenue Code and the Public Procurement Act.  Liberians consistently 
identify roads as their top priority, and the budget reflects this, 
with the largest single line item ($39.9 million) for public works. 
(Note:  Liberia's fiscal year starts July 1.  All amounts are in 
U.S. dollars.  End note) End Introduction and Summary 
 
¶3.  (U) This marks the first year of Poverty Reduction Strategy 
implementation, the mid-point of President Ellen Johnson Sirleaf's 
six-year term, and the first time data on foreign assistance have 
been provided with the budget.  At $347 million dollars ($100 per 
Liberian, according to the recent census) and 520 pages, the draft 
budget dwarfs previous submissions.  The budget makes the GOL's 
priorities very clear: 
 
Government sector % growth % of Budget 
----------------------------------------- 
Administration  13.7   24.4 
Rule of Law  25.7   13.3 
Social Services 15.9   21.1 
Economic Growth 36.6   19.9 
 
We note that the relatively low growth in social services is due to 
the fact that it already commanded a healthy share of the budget and 
is a focus of substantial donor assistance.  The increase in funding 
in Rule of Law activity is encouraging and matches increasing donor 
concern about shortcomings in that sector. 
 
¶4.  (U) The following entities received budget allocations over 30% 
larger than last year (some from a very low base): 
 
Administration:  Ministry of Finance, Ministry of Planning and 
Economic Affairs, the National Archives (which has some of the land 
records), and the Anti-Corruption Commission. 
 
Rule of Law:  Ministry of National Defense, National Security 
Agency, SSS (the President's security force), and Ministry of 
National Security.  (Comment: The NSA is a surprise, as we 
understood (and hoped) it was slated for elimination.  End 
comment.) 
 
Social Services:  University of Liberia, W.V.S. Tubman Technical 
College, Phebe Hospital and School of Nursing, National Food 
Assistance Agency, Agricultural and Industrial Training Bureau, 
 
Economic Growth:  Public works and intellectual property rights 
offices. 
 
¶5.  (U) Agencies expecting a reduction in funding include some of 
the public corporations, the Truth and Reconciliation Commission, 
the Ministry of Youth and Sports and the National Commission on 
Disarmament, Demobilization, Rehabilitation and Reintegration 
efforts. 
 
Growth Despite Challenges 
-------------------------- 
 
¶6. (U) Despite sharp drops in revenue forecasts, the GOL budget 
draft assumes GDP growth of 5% in 2009 (much reduced from Poverty 
Reduction Strategy projections) and inflation of 3.3%.  According to 
the President's statement, rubber prices have dropped 55% since the 
end of 2008.  (Note:  Rubber accounts for over 85% of Liberia's 
exports.  End note.)  A drop in rubber production as aged trees are 
replanted coincided with the plummeting prices.  ArcelorMittal Steel 
has slowed operations of its $1.5 billion mining investment, cutting 
over 1,000 employees (including contractors), and now projects 
 
MONROVIA 00000375  002 OF 003 
 
 
beginning iron ore exports in late 2010 or early 2011, rather than 
the July 2009 date on whch planning had been based.  Other 
revenue-generating sectors, such as forestry, agriculture and 
petroleum, were not yet producing, so the decline in world prices 
affects investment more than exports. 
 
¶7.  (U) Although the economy is growing, so are the GOL's 
responsibilities.  The GOL had been scheduled to take on greater 
ownership of donor-funded projects next year, as it transitioned 
from emergency relief to development assistance.  The budget 
addresses the need to provide $680,000 to cover 17 health facilities 
that had been donor-funded, and provides $630,000 to provide meals 
to police academy trainees that had been covered by UNMIL.  The USG 
is turning over responsibility for more of the maintenance and 
operations of the Armed Forces of Liberia to the GOL starting August 
1,2009.  At that point the GOL assumes the $480,000 a year cost for 
the BTC base (primarily generator fuel and salaries), with an 
additional $1.43 million starting July 2010 to cover costs at Camp 
Ware and the EBK barracks. 
 
Maintaining Fiscal Goals 
------------------------ 
 
¶8.  (U) Despite those challenges, the GOL plans to maintain promised 
tax cuts and provide fiscal incentives such as a new $2 million 
allocation to support small and medium Liberian businesses.  The 
loss of jobs by ArcelorMittal and others will be partially mitigated 
by recent concession agreements with China Union ($2.5 billion for 
iron ore) and Buchanan Renewables ($150 million for power 
generation) that promise an eventual 4,000 jobs (Ref B).  Sime 
Darby's proposed $800 million investment in rubber and oil palm 
could produce 20,000 jobs in the longer term.  However, the 
immediate outlook, as reported Ref A, remains stark. 
 
¶9.  (U) The Budget anticipates continuing poverty reduction/fiscal 
stimulus measures.  The reduction in tax rates in the proposed 
Revenue Code revisions would cut $14 million (Ref C).  The GOL plans 
to continue migration to the ECOWAS Common External Tariff, which 
should be completed next year, and will continue suspension of the 
tariff on rice imports and suspend duty on 24-seat busses. 
 
¶10.  (U) There are bright points.  The 2009-10 draft budget 
anticipates that mining revenue will increase 180%, to $63 million. 
Forestry revenue is expected to grow 24%, to $7.6 million.  Maritime 
revenue (from Liberia's ship registry) is expected to account for 8% 
of total revenue.  There should be one-time payments by China Union 
($40 million), the Western Cluster concession ($18 million) and BHP 
Billiton ($5 million).  There have been savings from migrating to 
direct deposit:  civil servants at 23 ministries and agencies and 
all GOL vendors are now paid more efficiently.  (Note:  We are told 
the civil service now numbers 32,000-34,000 people, down 50% from 
when the Sirleaf government took office.  More cuts are coming.  We 
caution that although the projections for mining and forestry 
revenue could be realistic under normal circumstances, the GOL has 
been disappointed for two years in the speed of resumption of 
revenue from the extractive industries.  End note.) 
 
¶11. (U) In her transmittal letter to the legislature, President 
Sirleaf announced that Cabinet members are freezing their allowances 
(gas coupons, travel and other perks that far exceed official 
salaries) and invited the legislative and judicial branches to do 
the same.  The budget proposes increasing the minimum civil service 
salary to $80/month (up from $70) but more significantly increases 
differentiation within the civil service pay grades.  For the first 
time, teachers, health care workers, and security sector officials 
will earn $100/month, rather than the minimum wage.  The civil 
service is working to institute performance pay, and plans to 
provide vacation jobs in government service for students. 
 
Who is giving what? 
------------------- 
 
¶12.  (U) The foreign assistance annex shows $450 million from 
donors, of which $230 million is from the United States.  Other 
major donors are the World Bank ($62 million); UN agencies ($51 
million); and the African Development Bank ($32 million).  The text 
notes this first effort is a work in progress, and encourages donors 
that did not provide information (naming China and UNHCR) to do so 
in future.  The summary also excludes debt relief and donations from 
foundations.  Only the ADB and the WB provide direct budget support, 
and only 10% of aid comes from direct budget support or pooled 
funds.  In the bar graph accompanying the text, U.S. foreign 
assistance is omitted, with a note that including it would overwhelm 
figures for all other donors and make the graph unreadable. 
 
Comment 
------- 
 
¶13.  (SBU) The budget, submitted to the Legislature May 19, was due 
April 30.  Although it should be the top priority, legislators have 
 
MONROVIA 00000375  003 OF 003 
 
 
been distracted by a wide range of extraneous topics, so are 
unlikely to pass the budget (or other essential legislation) before 
the June 30 end of the fiscal year.  Without provisions for a 
continuing resolution or the ability to borrow GOL operations 
--salaries, procurement, travel -- essentially cease in the absence 
of a budget.  The Minister of Finance has committed to resuming 
payment of $1 million in GOL domestic debt once the budget is 
passed, and the need to provide civil service salaries before the 
July 26 Independence Day holiday provides additional incentive, but 
we can anticipate disruptions of government services and possible 
labor unrest in July as budget approval drags on. 
 
¶14.  (SBU) The budget coincides with media reporting on audits of 
GOL entities by government corruption and lack of transparency, and 
excessive perks.  We are noting a new focus by the media and 
non-governmental groups on aspects of the budget, questioning the 
level of legislative travel allowances or the lack of promised 
funding for county hospitals.  Liberians are becoming savvier about 
tracking public funds, but a tremendous amount of reform and 
education is still necessary before the financial underpinnings of a 
democratic society are robust. 
 
THOMAS-GREENFIELD