LIBERIA: DRAFT BUDGET IS BIGGER AND MORE DETAILED

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

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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

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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