Liberia Sinks in Debt

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By Festus Poquie

75% OF Liberia's 4.5million population are below the poverty belt living on less than $1 a day
75% OF Liberia’s 4.5million population are below the poverty belt living on less than $1 a day, the growing public debt will worsen situation in the country

The economic and financial situation in Liberia is becoming worrisome as the country appears to have gone out of cash and its growing public debt stock  serving as hindrance to acquiring new loans to finance Government’s operations

President Ellen Johnson Sirleaf on Thursday informed Senators about the alarming local and international debts which have accrued under her administration, pleading for immediate actions that would rescue the country’s economy.

The President is worried that the situation could render the nation ineligible to access international loans to finance development programs and projects.

Devastating effect from the huge public debt stock could hit the country’s apex bank – the Central Bank of Liberia, which the President claimed the administration owes more than US$200 million at the back of required government’s capitalization support scheme.

President Sirleaf is thus pushing for debt sustainability analysis to avoid breaching the International Monetary  Fund’s approved guideline for loan servicing. The nation could be barred from acquiring new loans if it established that the country’s debt has ballooned above limit.

Despite pronouncement that Liberia’s external debts were waived in 2010 under the Heavily Indebted Poor Country (HIPC) initiative, President Sirleaf has for the first time admitted to legislators that more than US$400 million was not waived.

Here is the President’s letter to the Senate:

Mr. President Pro-Tempore,

I am today submitting, by separate letter, the Financing Agreement signed between the Republic of Liberia and the International Development Association for the Liberia Electricity Expansion Project for ratification by the Honorable Legislature. The purpose of this letter is to provide information on the Government’s Debt portfolio.

On September 16, 2010, Liberia reached the Heavily Indebted Poor Country (HIPC) Completion point which facilitated the cancellation of 96% of the US$4.9billion external debt that had been accumulated, serviced, over two decades.

Nevertheless, certain loans on the debt schedule did not qualify for cancellation. This comprised sixteen loans valued at US$415million of which US$156million represented reconciled restructured external debt and US$259.3million accounted for validated restructured domestic debt largely owed to the Central Bank of Liberia as Government’s capitalization of the Bank.

As of December 2015, a total of thirty-two (32) loans amounting to US$802million have been contracted of which twenty-six (26) represent loans sourced from external creditors with a value of US$792million and six (6) sourced from domestic creditors at a value of US$10million.

To date a total of US$315million of external loans have been disbursed leaving an undisbursed balance of US$477million. The US$10million domestic borrowing has been fully disbursed.

There are several issues regarding the debts that need to be taken into account. First, the external debts have an average maturity, including grace period of 30 years with an average rate of 1.5%. The bulk of this debt is sourced from our partnership with bilateral and multilateral institutions.

Second, the proceeds of the debt have been channeled into projects and activities that will contribute to our economic growth and development goals. This ensures that the debt can be repaid on maturity.

Third, the debt has a significant concessional element ensuring sustainability.

As regards the domestic debt stock, this represents unpaid commercial debt and suppliers’ credit inherited by this Government from previous administrations. In 2006, this domestic debt totaled US$1.2billion which was reduced to US$281million as a result of a verification exercise by an international accounting firm. We continue to reduce this debt as budgetary appropriation allows.

Mr. Pro-Tempore, it is important  to bring to your attention that the Government  owes an amount of US$259.3million to the CBL, representing long standing Capitalization requirement that have not yet been honored. This matter is likely to become a major issue in FY16/17 when the Notes start to mature.

Finally, I wish to point out that our debt strategy requires that before any new borrowing is undertaken, a Debt Sustainability Analysis is undertaken to ensure that the debt threshold under approved fiscal rules and agreed limits under IMF programs are not breached.