President George Weah in office for 60 days since his January 22, 2018 inauguration has made many promises including ending inequality, ending poverty and building state-of – the –art infrastructure across the country.
But former President Ellen Johnson Sirleaf’s stewardship of the economy in the closing years of her 12 years rule could hinder the new administration’s development plans.
Public debt stock that ballooned under the sirleaf era is the crux of the problem facing the Weah’s presidency and could be the faltering bridge to acquiring new loans to finance Government’s operations.
At the close of its 13-day assessment of the nation’s economy, a team from the International Monetary Fund (IMF) said Liberia’s debt level is on the increase and that resource mobilization from external borrowing, domestic revenue generation and aid are declining simultaneously.
“Borrowing space has clearly been reduced over time,”Mika Saita, who headed the Fund mission to Liberia said.
“Looking forward, future obligations will need to be undertaken with caution, specifically with respect to securing terms and conditions.”
The Fund has advised the Weah’s administration to pay all domestic arrears, which government owes, various businesses, institutions and vendors.
Utilizing realistic revenue estimates for budget formulation and improving the monitoring of all expenditure including grant and loan financed projects were also proffered
“In addition, government could also usefully consider adopting a comprehensive program to clear domestic arrear and prevent the emergence of new ones,” the statement said.
In recent years, government has done little in relation to settling financial obligation to local businesses and instructions thus contributing to decline in economic activities.
For instance the Sirleaf administration departed without paying an estimated US$20million dollars owed a local company – Prestige and Alliance Motors, despite reaching settlement agreement in June 2017. The company represents American and German car dwellers in Liberia.
In March, 2016, then President Ellen Johnson Sirleaf 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.
Johnson Sirleaf was 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, Sirleaf revealed to legislators that more than US$400 million was not waived.
Here is the ex-President’s 2016 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.
Writes Festus Poquie