UP to CDC: How Liberia’s Debt Surge to US$2.03 Billion 

By S.Karweaye

Liberia’s public debt has been on the rise. The country’s public debt stock – what the government owes in total – was about US$2.03 billion at the end of December 2022. Of the US$2.03 billion, domestic debt constituted about US$896.68 million (44.15%) while the external component of the total debt stock constituted about US$1.13 billion (55.85%) according to the Liberian government’s 2022 annual public debt management report. 

External debts present a bigger burden for Liberia because they are denominated and serviced in foreign currencies. Changes in exchange rates, such as currency depreciation in a debtor country, can raise interest payments and negatively affect a country’s budget. Interest rates may rise as well and as Liberians, we should be concerned about Liberia’s debt profile especially if we want to revitalize our economy and reduce unemployment and poverty rates in Liberia. It should concern all Liberians that barely two weeks ago, the national legislature approved another US$65 million World Bank loan under the Resilient Recovery Stand-Alone Development Policy Financing program. 

HOW MUCH DID THE UP-LED- ADMINISTRATION BORROW?

At the beginning of the UP led-administration in 2006, the Liberian government had an accumulated debt of US$4.1 billion. Analysis of the debt figure showed that domestic debt amounted to US$440 million on March 31, 2006, while foreign debt stood at nearly US$ 3.7 billion representing 790% of Liberia’s GDP at end-2005. 

The UP led- administration negotiated and secured a final agreement for debt relief worth US$4.6 billion which led to an overall reduction of Liberia’s foreign debt stock by 90%, which was completed in 2010. The Paris Club comprising 19 countries also pardoned US$1.2 billion of Liberia’s foreign debt. By the end of 2017, the Liberian foreign debt component hit US$736 million, while domestic debt increased by US$206.6 million. Overall, Liberian total annual debt was US$ 942.6 million by the time the  UP led-administration left office in 2017 according to the 2018/2019 annual public debt management report.

HOW MUCH  DID THE CDC LED- ADMINISTRATION BORROW?

The Annual Public Debt Management Report from 2018/2019 showed that the Coalition For Democratic Change’s administration incurred an annual public debt of US$ 942.6 million from the UP led-administration. By the end of December 2022, Liberia’s total debt grew to US$2.03 billion. The external component of the total debt stock constituted about US$1.13 billion(55.85 %) while domestic debt constituted about US$896.68 million (44.15%) according to the 2022 annual public debt and management report. 

INCREASING PUBLIC DEBT WORRYING

Liberia has constantly borrowed, but the projects on the ground and the GDP growth are not commensurate with the debts taken. There have been allegations of corruption and Liberia is in dire straits. Don’t get me wrong. We need infrastructural development, but it must be done with financial wisdom and that is what is lacking. Sadly, we have gone back to where we were in 2010. Before debt relief, Liberia had a debt burden of over US$ 4 billion.

According to the  IMF 2022 Article IV Consultation and Fourth Review of the Extended Credit Facility Arrangement, total debt service in 2022 amounted to US$151 million which was more than the health sector (US 78.4 million), agriculture sector (US$ 7.3 million ), infrastructure and basic sector ($70.5 million), social development service sector (US 24.3 million), security and rule of law (US$ 102 million), energy, and environmental sector (US$ 35.6 million), transparency and accountability sector (US$ 42.1 million), industry and commerce sector (US$ 9.2 million) and municipal government sector (US$27.2 million).  

Analysis of the budget from 2018 to 2023 showed Liberia has spent more than US$327 million on servicing debts. This is to show the harmful effect of debt service. The money that ought to be spent on the development of crucial sectors is spent on servicing debt. 

Is the current debt level in Liberia sustainable?  Economists use various indicators to determine a country’s debt sustainability, and two of those measures are widely used. One of the indicators is gross debt as a percentage of gross domestic product (also known as the debt-GDP ratio). In Liberia, it was 57.1 in 2023,  according to the International Monetary Fund (IMF). 

A World Bank (WB) study shows that debt begins to hurt an economy, especially economic growth when the debt-GDP ratio exceeds 77%. In pairwise, Liberia’s Debt-GDP Ratio is moderate at its current rate and far less than the stipulated 77% benchmark. South Africa’s debt to GDP currently stands at  73.2%  while Algeria’s 52.2% and Angola’s 63.3%  respectively. Egypt, another regional economic power, has also seen its debt-to-GDP ratio move to  92.9 in 2023. Ghana’s debt to GDP has crossed the dreaded 77% to   98.7%  in 2022. The country is at high risk of debt distress and has agreed on a debt management strategy with the International Monetary Fund (IMF).

Another indicator of debt sustainability is the Debt-Service Ratio debt. This is the proportion of export earnings that is used to service a debt – that is, to pay back the principal and the interest. A healthy ratio is below 18%. Liberia had a Debt-Service Ratio of 6.4 in 2021. Liberia’s debt-to-GDP ratio is considered low, but the revenue that went into debt servicing is still on the high side.  If you look at the budget, you will see that a huge sum of money is used to service debts. Instead of focusing on the debt to GDP ratio, the focus should be on the debt service to revenue ratio since the country has a revenue problem as evidenced in the recent admittance of President Weah that the 2023 budget would experience a budget shortfall of US$23 million. The 2021 number shows that Liberia is getting closer to the point where servicing its debt would become a long-term problem. 

As a country, our challenge is not the fact that we borrow, but the economic benefits that we derive from the debts we raise. Figures show excessive borrowing occurred both under the UP and CDC led governments.   It is not the fact that we borrowed, but what we did with the money. The government of Liberia can’t only exist to pay creditors.  If we can be consistent about ensuring that the money is invested in key sectors like agriculture, mining, health, education, and tourism that would ensure there are derivable and tangible benefits in terms of economic growth, job creation, and others, that in itself is not a bad thing, but a litany of constraints has prevented Liberia from achieving the necessary level of investment and growth, despite its significant borrowing. Examples of these constraints include excessive government spending, corruption, mismanaged funds, unproductive borrowing, exchange rate volatility, inefficient loan utilization, and poor debt management practices to name a few. 

It is vital to employ proactive measures to reduce the current debt level. To tackle the issue of rising debt, a drastic cut in the running cost of governance, deepening and diversifying sources of revenue, re-calibrate expenditure to spend smartly, and investing efficiently are ways of reducing the debt burden.   Liberia can leverage its capability to generate revenue internally through its abundant natural and human resources. Investment in critical sectors like agriculture, mining, health, education, and tourism, as well as empowering its large youth population should be prioritized, and providing incentives to increase participation in agriculture followed by improvement in infrastructure such as roads and electricity. I rest my case.