"Kamara failed to understand or investigate the reasons for the abnormal growth in the stock, an outcome that leaves his article seriously wanting," Min. Tweah said.
-- Min. Tweah defends the government, saying that they only borrowed "US$30.6 million of the increase in external debt stock since 2018."
Finance Minister, Samuel Tweah has denied accusations made by his predecessor, Boima Kamara, that the Government of Liberia had borrowed an average US$170.2 million in the last two years.
Min. Tweah, in response to Kamara, said his predecessor's assertion is correct in only one aspect: that the stock of debt has grown over time and over the two periods under consideration in Kamara's article, being 2018 to 2020.
"But Kamara failed to understand or investigate the reasons for the abnormal growth in the stock, an outcome that leaves his article seriously wanting," Min. Tweah said.
Arguing further, Tweah said with gross international reserves around $160 million at the end of 2017, the Central Bank of Liberia could have never lent $170.2 million to the government yearly.
"Neither could the Government consume $170.2 million in goods and services in one fiscal year for which it would owe domestic vendors that amount. These facts and issues should have come out clearly to anyone investigating the debt numbers, compelling due caution and care in reaching conclusions," the minister said.
According to the Finance Minister, Liberia's rising debt stock from 2018 to 2020 is due to issues that have to do with accounting reconciliation of government debt to the Central Bank of Liberia and that disbursements on external loans signed by the previous administration are happening now.
"The first reason is that disbursements on external loans from the World Bank, the African Development Bank, and other multilateral and bilateral creditors, signed by the previous administration, are happening now. When a loan is taken, the loan amount is recorded as borrowing, but is not included in the official debt stock until the amount is disbursed or spent on the projects for which the loan was taken," Min. Tweah argued.
For example, Tweah said that if the Legislature ratifies a US$50 million loan and US$10 million of this is spent six months after ratification, "the debt stock, recorded and managed by the Debt Management Unit at MFDP, goes up by $10 million.
"The remaining $40 million is recorded as undisbursed and, if canceled, will be considered as borrowing," he added. The second reason why the total debt stock went up has to do with accounting reconciliation of Government debt to the Central Bank of Liberia. This increase was paper or accounting money added to the domestic debt stock. "
Min. Tweah further said the monies were that which the previous administration did not recognize in the total debt owed to CBL and, as such, they had a problem in taking it without a full audit, but "after a lengthy negotiation between the ministry, CBL and IMF an understanding was reached."
"Prior to entry into the IMF program, the IMF insisted that the Government cannot continue carrying these unreconciled amounts in perpetuity but needed to validate and accept the debt as official Government borrowing from the CBL over the last decade or so," he added. "The MFDP had issues with bringing all these amounts as debt to CBL without a full audit. Some audits had been done by KPMG, but MFDP folks still had issues with accepting the numbers. As such, a lengthy negotiation between MFDP, CBL and IMF ensued and an understanding was reached."
However, for Kamara, this is not the case about Liberia's public debt performance because the ministry's recent data shows a remarkably high rate of growth in public debt within 2 years and 3 months of the current administration, compared with post-HIPC 7 years of the Sirleaf administration that ended in 2017.
"The public debt stock data for 2 years and 3 months spanning 2018 and end-March 2020 paints this picture of the current government's debt performance. Total public debt rose by 71.15 percent (or US$624.88 million) to US$1,503.08 million at end-March 2020, from US$878.2 million at end-2017. Of the total stock of public debt at end-March 2020, external debt accounted for US$898.68 million and domestic debt, US$604.40 million," Kamara argued.
Adding, Kamara said in terms of movements, external and domestic debts grew by 46.8 percent (or US$286.48 million) and by 127.13 percent (or US$338.3 million), respectively.
"GoL's borrowing from the CBL increased by 88.92 percent (or US$228.62 million) to US$485.70 million, from US$257.08 million at end-2017, followed by commercial banks with a growth of 552.2 percent (or US$55.22 million) to US$65.22 million, from US$10 million for the same period. Of the US$65.22 million, LBDI, Ecobank, and IB account for over US$50 million," Kamara wrote in an article, titled: "Liberia, Life After Debt"
Kamara, who also served as one of the Deputy Governors of the CBL, noted that the country's debt-to-GDP ratio has risen from around 30 percent during the Sirleaf Administration to 51.33 percent as of March 2020.
"It is important to point out that for the fiscal year ending FY18/19, US$88.82 million was GoL's borrowing from the CBL largely in the form of a bridge loan of US$28 million; FY18/19 Escrow Account in US dollars, US$16.25 million; FY18/19 Escrow Account in Liberian dollars converted to US dollars, US$14.70 million; and Other Claims (there is a need to know what constitutes "Other Claims") in Liberian dollars converted to US dollars was US$29.87 million.
"The Liberian-dollar equivalents of US$14.70 million and US$29.87 million (totaling US$43.87 million), using as a proxy for fiscal dominance (a situation where the national debt rises too quickly with a risk of debt distress and inability to repay), means a high level of deficit financing by the CBL through an expansion of Liberian dollars in circulation by over L$8.0 billion. This seems to be one of the key factors that led to the rise in inflation to 30 percent during 2019 on the heels of rapid exchange rate depreciation averaging about 30 percent to L$186.64/US$1 at end-December 2019," he said.
Kamara added it is becoming worrisome that fiscal dominance is slowly creeping given the borrowing pressure on the CBL, which runs contrary to the spirit of fiscal-monetary complementarily.
"At end-June 2020, the IMF and World Bank jointly classified Liberia's risk of debt distress as MODERATE, something to claim the attention of policymakers. In this regard, we advocate for greater support for the independence of the CBL as the monetary authority," he said.
But for Tweah, Kamara failed to understand or investigate the reasons for the abnormal growth in the stock, an outcome that leaves his article seriously wanting as the current government is only responsible for "US$30.6 million of the increase in external debt stock since 2018."
"As of December 31, 2017, the total external debt stock was US$612.03 million. As of March 2020, total external debt stock stands at US$898.6 million," Min. Tweah explained. "This means, US$286.65 million has added to the external debt stock since President George Weah took office. Of this US$286.65 million, US$256.05 million was added to the stock from borrowing/loans taken by the previous administration.
Min. Tweah added that the total amount borrowed from the CBL over the last two and a half years by the current administration is US$30.9 million, which represents about 6.3 percent of the $487 million the government owes the CBL.
"And this is most likely the only amount that would be borrowed by this administration under the no borrowing policy. The other reason why the domestic debt went up is that the present administration recognized domestic debts to vendors and commercial banks in the tune of US$105.78 million that the previous administration did not recognize. This recognition deserves praise from former officials of the previous administration, rather than blame for 'increasing the debt'," he said.
Finance Minister Tweah added that his predecessor concern about debt to GDP ratio is also misguided and if they were merely looking at debt GDP, the ratio cannot be put on the current administration; and that Liberia's debt to GDP is among the lowest in the region.