VZCZCXRO1507
RR RUEHMA RUEHPA
DE RUEHMV #0524/01 2011103
ZNR UUUUU ZZH
R 201103Z JUL 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 1170
INFO RUEHZK/ECOWAS COLLECTIVE
RUEATRA/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAWJA/DEPT OF JUSTICE WASH DC 0045
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 MONROVIA 000524 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: ECON EFIN LI
SUBJECT: LIBERIA'S FINAL BUDGET A STUDY IN WISHFUL THINKING 
 
REF A) MONROVIA 375; B) MONROVIA 490; C) MONROVIA 479 
 
¶1. (SBU) SUMMARY:  In the midst of anemic commodity prices, flagging 
interest from would-be concessionaires and reduced growth forecasts, 
Liberia's National Legislature has approved an amended budget for 
2009-2010, adding almost $25 million in expenditures to the Ministry 
of Finance's proposed $347 million budget.  Although the legislature 
anticipates additional revenue from state-owned enterprises, 
customs, concessions and overdue taxes, the MOF fears it was 
political pressures rather than hard-nosed economic analysis that 
inflated the final budget.  Given the strictures of Liberia's 
cash-based budget, the MOF now is attempting to persuade the 
Legislature and individual ministries to exercise fiscal restraint, 
or the GOL will be forced to cut programs mid-year.  In future 
years, the MOF's energetic new budget director believes he will 
mitigate this politicization of the budget if the ministry can 
establish a credible economic forecasting unit and is seen to lead a 
participatory budget process that incorporates civil society 
priorities.  END SUMMARY. 
 
¶2. (SBU)  On July 8, the National Legislature approved a 2009-2010 
budget with $371.9 million in planned expenditures. The Ministry of 
Finance had submitted a $347 million budget for legislative 
consideration on May 19 (ref A).  To that draft, the legislature 
added a 12-page addendum outlining $24.9 million in additional 
spending on health care, agriculture, education and community 
development - programs that are likely to be both highly visible and 
popular with average Liberians.  Consistent with the requirement 
that Liberia maintain a cash-based budget under the terms of its IMF 
Poverty Reduction and Growth Facility, the legislature also offered 
a one-page chart outlining the sources of this previously 
unanticipated revenue. 
 
The Budget as Political Document 
-------------------------------- 
 
¶3. (SBU)  President Sirleaf Johnson herself espoused confidence in 
the Legislature's budget during a July 13 meeting with the 
Ambassador.  When the Ambassador questioned the likelihood of 
raising additional funds amidst an economic downturn, Sirleaf noted 
the GOL had conducted a thorough review of parastatals and concluded 
that six regulators, state-owned enterprises or revenue-generating 
agencies could furnish further revenue.  The President may have a 
point: the Liberian Telecom Authority recently renegotiated 
licensing and spectrum fees with the country's four telecom 
operators (ref B), and the Bureau of Maritime Affairs signed a 
potentially lucrative new contract with the Liberian Ship and 
Corporate Registry (ref c); both are likely to generate more revenue 
in the coming year.  But even if the parastatals can deliver, they 
account for only $4.9 million of the legislature's projected revenue 
increases. 
 
¶4. (SBU)  Optimistic assumptions underlie the legislators' other 
revenue projections.  For example, the GOL anticipates it will 
collect nearly $7 million in additional corporate taxes from 
collection on overdue returns and fresh audits.  Yet, the MOF 
recently dismissed all its auditors and collection rates on unpaid 
back taxes remain paltry.  It also expects ArcelorMittal to pay $3 
million owed from last budget year for its iron ore concession, even 
though the company has dismissed local workers, announced its 
intention to postpone iron ore extraction until at least 2010, and 
exhibits little eagerness to placate the government with promised 
annual payments while it waits out the slump in global demand.  More 
generally, the World Bank's ever-diminishing growth forecasts for 
Liberia cast doubt on these sanguine revenue projections. 
 
¶5. (SBU)  The Ministry of Finance worries the GOL may be unable to 
collect the full $371 million it plans to spend.  The President told 
the Ambassador that Finance Minister Augustine Ngafuan persuaded the 
Legislature to trim $8 million in supplementary expenditures, 
explaining that if growth slows further, even the $347 million in 
the draft budget may exceed revenues. In fact, that figure already 
included small capitulations to legislative requests; the MOF's 
original, conservative budget, submitted to the IMF in April for 
approval, contained only $294 million in expenditures. Further, the 
Legislature eliminated a $677,000 Contingency Reserve Fund designed 
to insulate the MOF from a brief or modest scarcity of cash on hand. 
 
 
¶6. (SBU)  Although the new budget authorizes ministries to begin 
spending, the MOF hopes to exercise an obscure right under the 
Revenue Act of 2000 that permits it to prepare a contingent budget 
prioritizing expenditures based on revenue performance.  George 
Gonpu, Deputy Minister of Finance for Budget, characterized 12% to 
16% of projected revenue as "highly uncertain," and hopes to prevail 
upon the House and Senate Ways and Means Committees to acknowledge 
unofficial spending limits commensurate with more conservative 
revenue estimates.  If the MOF can achieve a compromise with the 
 
MONROVIA 00000524  002 OF 002 
 
 
committees, they need not reprise the entire legislative process. 
Gonpu estimates the MOF will present a more modest budget by the end 
of the month, and hopes the committees will approve it in early 
August.  However, given that the President signed the legislature's 
revised budget, any contingent budget they devise will stand merely 
as a guideline and will not carry the force of law. 
 
Managing Up: MOF and the National Legislature 
--------------------------------------------- - 
 
¶7. (SBU)  Although political grandstanding and ad hominem attacks on 
the minister marred this year's budget hearings, Gonpu believes it 
is incumbent upon the MOF to make peace with the legislature so as 
to avoid the annual repetition of an onerous contingent budget.  To 
that end, Gonpu, a long-time budget director recently invested with 
the title of deputy minister, identified two projects he will pursue 
in the coming year.  First, he hopes to make the budget process more 
participatory, through town hall meetings and civil society groups, 
in order to appease legislators' longstanding resentment of the 
budget as an executive fiat.  Second, he wants to develop a credible 
economic forecasting unit with well-trained economists and 
state-of-the-art software, arguing that the legislature overrides 
the MOF's budget because it lacks confidence in the ministry's 
revenue estimates. 
 
¶8. (SBU) COMMENT: While Gonpu's notion of a collaborative budget 
offers little relief for this year's fiscal squeeze, his vision of a 
process that brings together technocrats, politicians and citizens 
in the design of a document both economically sound and socially 
beneficial may be modestly achievable.  This year's budget hearings 
marked some progress in that direction.  Ministers who took the 
stand to defend their earmarks demonstrated an increasingly 
sophisticated understanding of the necessary compromises involved in 
the allocation of scarce resources, and legislators demanded they 
justify gratuitous expenses for travel, vehicles and administrative 
costs, and urged more attention to the priorities of civil society 
and the general public.  And although some had feared that 
acrimonious deliberations over the threshold bill would stall 
passage of the budget, delaying delivery of paychecks and basic 
services, legislators worked overtime July 7 and 8 to reach a 
compromise. 
 
 
 
 
ROBINSON