11 June 2018

Liberia's Debt Cruises Past Us$2 Billion

(From left) Finance Minister Tweah and Public Works Minister Nyenpan signed the The ETON Finance agreement on behalf of the Government of Liberia. Justice Minister Dean added his voice, calling for the agreement to be expedited at the Legislature.

Warnings intensify of return to HIPC status

The swift but much expected ratifications of the intensely debated US$536 million financing agreement from the Singapore based Eton Private Limited and US$420.8 million Financing Agreement from EBOMAF SA Company (Enterprise Bonkoungou Mahamadou and Fils) has put the country's debt over a whopping US$2billion.

These two controversial financing agreements, ratified by the Lower House at a break-neck speed of 72 hours, have since triggered a barrage of debates since reports emerged that President George Weah was sourcing these agreements for the purpose of constructing roads across the country. Debates further intensified after the true nature of the loans emerged bringing into question the credibility and viability of the creditors, who are revealed to be the implementors of the projects.

The US$536.4 loan agreement from Eton, a company whose existence is being questioned, was ratified by the Lower House Tuesday, while the US$420.8 million agreement from EBOMAF, a company headquartered in Ouagadougou, Burkina Faso, received the blessing of the House of Representatives on Thursday.

It is now of much concern that the two loans now raise the country's domestic and external debts to over a whopping US$2 billion--including those former President Sirleaf secured in the latter part of her administration. This huge sum, much fear, now places the country in an uncomfortable zone that would significantly cause some level of embarrassment.

These developments signal that the country is gradually luring itself again into the distasteful Heavily Indebted Poor Countries (HIPC) status just a little over a decade after being relieved of the mammoth US$4 billion debt through the initiatives of the Unity Party government under the leadership of ex-President Ellen Johnson Sirleaf.

On June 29, 2010, the IMF and World Bank decided to support the final stage of debt relief for Liberia that in total amounted to US$4.6 billion in nominal terms. This helped to reduced Liberia's external debt stock of more than 90 per cent to about 15 percent of GDP.

The decision was reached after Liberia met the requirements for achieving the final step under HIPC Initiative. The IMF's share of this debt relief amounts to about $730 million in end-June 2007 present value terms--among the largest IMF country commitments under the enhanced HIPC Initiative, representing over one-fifth of the total financial support for the HIPC process. Liberia's graduation from the HIPC process brings to 29 the number of countries reaching the HIPC completion point--the stage at which full and irrevocable debt relief is won.

That essential gesture on the part of the international community created the enabling space for Liberia to seek financial assistance for development after over a decade and a half civil crisis that destroyed almost everything.

But with these questionable loans, many are now raising concerns that the new administration is gradually leading the country back into huge debts that would subsequently invoke the HIPC status.

The passage of the two loans put the amount that the CDC administration has sought for road construction across the country at US$957.2 million. This is in addition to the early US$210 million secured by Minister of Finance and Development Planning, Samuel Tweah, at his maiden Spring Meeting of the World Bank/IMF in Washington DC last month. This World Bank commitment is to support over the next three years the nation's "pro-poor" development agenda.

The minister also held several successful meetings with donor nations and with the World Bank and the IMF to secure additional funding in the near future. This equals over 1.167 billion in five months under Weah's leadership so far.

But warily, in less than ten years since that massive US$4 billion debt relief, the country seems to be heading in a similar direction, against the warning of financial experts. In as much as the Sirleaf administration instituted major financial management reforms and commitments which led to that massive relief, she, herself, also left the country in what could be seen as substantial debt.

According to the Central Bank of Liberia (CBL), the total external debt at the close of 2017 stood at US$608.3 million while the total domestic debt registered US$266.1 million. The total debt, external and domestic at 2017 ending, stood at US$874.5 million. The new loans ratified by the Lower House plus the one negotiated by the Finance Minister in Washington DC last month put the country's debt at the US$2 billion mark (US$1,167,200,000.00 + US$874,500,000.00 = US$2,041,700,000.00).

The controversial US$536M ETON Finance loan agreement and the US$426M EBOMAF loan agreement sailed through the House of Representatives (pictured)

Political commentators and pundits have since begun expressing their displeasure about the deal, noting that it is not in the interest of the country. "We are not against the construction of roads but our fear is the sources of these loans. These are very ambiguous deals and we are afraid that these funds will again end up in the pockets of the wrong people," Liberty Party Vice President for Political Affairs, Abraham Darius Dillon, said on a local radio station in Monrovia this week. He said that President Weah is putting the country in a difficult situation again.

"This is almost a billion dollar loan just in 5 months. US$536 million from ETON and US$426 million from EBOMAF," this is embarrassing," said Dillon.

Youth advocate, Martin N. N. Kollie, does not just frown on the borrowing of such a huge sum, but whether it will be used for the intended purposes. He fears that the manner in which the funds are

"These huge loans clearly indicate that Liberia is gradually on its way to HIPC status again," Kollie warned this week.

Though the Weah administration seems to be devoting its energies, intellect and time toward securing financial assistance for infrastructural development, especially roads, it must also constantly be wary (suspicious) of loans realizing that the same government (Ellen's) that freed us from the US$4 billion debt also left us with many loans which, if we are not careful, could soon escalate to the extent of crippling us again, a veteran Economist told the Daily Observer yesterday.

The Economist, who asked not to be named, stated that though the major loans are for road construction purposes, he hopes that the US$210 million loan from the World Bank will go beyond budgetary support, which can easily mean salaries and other staff support.

"Instead, we pray that the lion's share of this loan will go toward making good the government's pledge to develop the nation's infrastructure."

The WB, IMF and other multilateral, bilateral and commercial creditors began the HIPC Initiative in 1996. This was designed to enable poor countries not to be overwhelmed by unmanageable or unsustainable debt burdens. As of the most recent annual report, the HIPC and related Multilateral Debt Relief Initiative (MDRI) programs have relieved 36 participating countries of $99 billion in debt. But challenges remain to ensure that debt burdens do not return to unsustainable levels.

Authors

William Q. Harmon

Liberia

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