LIBERIA'S FINAL BUDGET A STUDY IN WISHFUL THINKING

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