Plunging Liberia Back Into Debt Burden? -LPP Queries Boakai over Massive Borrowing of UP to $714M

MONROVIA – As Liberia was dusting off its bleak past, having experienced state collapse and re-collapse due to a protracted, ruinous civil war, the most critical challenge besides disarming warring factions and sustaining the nascent peace was to cleanse itself of debt burden—a burden incurred from wanton borrowing from international financial institutions. At the portals of the first post-conflict democratically elected government, the country was hamstrung by the accumulated debt of US$4.1 billion from 1960, constituting 790% of Liberia’s GDP at end of 2005. Alarmed by the amount owed, and how it could impede the economic recovery of the country, the Paris Club and other international creditors met and agreed, and by 2010 slashed the burden by US$1.2billion but by 2017, the outgoing Unity Party Government increased the tally again by $736 million. It appears economists are sensing a potential dramatic spiral of the country’s debt in the second advent of the Unity Party as a governing authority, something for which one of Liberia’s oldest political parties is not happy at all. In a statement released this week, the Liberia People’s Party (LPP) lamented what seems to be the country’s re-emerging debt crisis and wants President Boakai to provide cogent explanations for reported US$714 million to which his government, in just six months, is obligating Liberia. The Analyst reports.

The Liberian People’s Party (LPP) is calling on President Joseph Nyuma Boakai to explain circumstances surrounding some US$714M which, according to the party, his government reportedly needs pay for Liberia food projects between 2024 through 2030.

The party, which has been on the Liberian political landscape for the last 40 years, says the US$714m is another debt to be added to Liberia’s US$2.3B dollar debts.

The opposition party recalled that in less than six months since his inauguration on January 2024, President Boakai has disclosed his intent to spend approximately US$60m for the controversial 285 yellow machines and US$70M for the 300 buses, and is now proposing to borrow US$714M to be spent for agriculture.

“But all such proposed spending means that the country is acquiring more debt and it has consequences which we shall highlight below,” the LPP said in a statement, a copy in the possession of The Analyst.

The party said it was worried about the new development on the country’s debt crisis because due to Liberia’s US$4.7B dollar debt, past administrations didn’t finance priority social programs because creditors did not lend money to the country from 2003 until 2010.

“Additionally, philanthropists had withheld their donations even though, in 2006, Liberians democratically elected former President Ellen Johnson Sirleaf, the first female president of Africa, a stellar personality much touted and feted by the World Bank,” the party noted further.

The LPP said it was taking cue from a statement by a government official made at the recent Agricultural Seminars dubbed ‘Liberian Feed Yourself Agenda’, where the government official announced that Liberia would acquire or credit US $714M to finance Agricultural activities from 2024 through 2030.

“Unfortunately, the speaker did not say if government will play a role, oversight or otherwise in implementation or whether it would transfer the US$714million dollars to private investors,” the statement asserted.

The LPP also recalled the 2006-2017 Sirleaf/Boakai administration’s transfer of US$30M to a private investor to manage the failed Foya Rice Project wherein the  International Non-Governmental Organizations(INGOs) received and spent on Liberia’s behalf US$532M from 2013-2017 on agriculture with little or no evidence to show.

“Rather, the speaker submitted the names of the investors and breakdown of the funding,” said the LPP statement, adding: “The speaker stated that government will contribute US$248M. The investment will be US$40M per each of the six years, an amount far higher than on the average US$9M reported for the three years, according to budget documents of 2024, 2025 and 2026 respectively.

“Therefore, the question is how or from where or whom will government’s contribution of US$248M be sourced.”

Consequences of Excessive Debt

The LPP which boasts of notable economic icons used its statement to underscore the consequences of excessive borrowing by any incumbent administration.

The party pointed to “high interest payments” positing that a review of the records show that interest payments accounted for the larger proportion of Liberia’s US$4.7bn debt portfolio which was cancelled/forgiven in 2010.

“The point being made here is that interest charged by the World Bank on loans given to creditor nations including Liberia is much too high. For example, for a loan of US$233m awarded to Liberia by the World Bank, an amount of US$1bn was charged as interest on the principal sum US$233m owed to the World Bank and other external banks.

“More to that it is important to underscore that the World Bank performs three(3) functions for and on behalf of Liberia as official economic advisor to the Liberian Government; largest creditor and an investor in the country’s economy.”

The LPP also warned that the International Finance Corporation (IFC), a World Bank subsidiary/affiliate, is a major investor in the Bea Mining Corporation currently exploiting rich gold deposits in Kinjor, Grand Cape Mount County.”

Another issue about excessive debt spoken of by the LPP is the possibility of debt distress, distressed debt refers to the securities of a government or company that has either defaulted, is under bankruptcy protection, or is in financial distress and moving toward the aforementioned situations in the near future.

The party indicated constraints that debt may impose on policy space and effectiveness, including debt structure and general repayment terms, including maximum repayment terms, debt service patterns (such as equal payments or equal principal amortization), and the use of variable or fixed-rate interest.

The LPP also spoke of private financial crowding as a challenge—something meaning that private sector investment is hindered by a higher interest rate due to government borrowing from the private sector

LPP said while it appreciates the Boakai administration for stressing the importance of food sufficiency alongside modern and reliable infrastructure but, it should also pay attention to the consequences of excessive debts.

The statement added: “The question is why would farmers/private entrepreneurs now prefer to invest in food production, but were not willing in past years? Prior to April 12, 1980, the Agricultural Development Bank (ACDB) award loans to private entrepreneurs/farmers, but there is little evidence that private entrepreneurs/farmers invested in food production. In fact, on page # 25 of the Government Audit Commission report of 2023, the Agency stated that the Central Bank of Liberia transferred US$181M dollars to the Afriland Bank in order for farmers to borrow affordable loans for agricultural projects in 2013.”

The LPP contends that a sustainable development strategy cannot rely on excessive borrowing of money, and therefore cautioned government that, in its response to popular demands for quick deliverables, to resist the urge to borrow excessively based on rosy economic projections which may prove unfounded and leave government stranded unable to pay back those loans at maturity.

Recommendations

In its recommendations, the LPP called on Government to play a lead role to ensure food sufficiency because private entrepreneurs always tend to redirect capital to quick profit-making ventures.

“The Boakai administration should abide by the December 6, 2019 memorandum of understanding signed between the Liberian government and the Central Bank, which stipulates that government should begin paying the US$487M dollar debt in 2029 and redirect the payment to finance agricultural activities,” the party noted, further calling on the president to allocate 50% of the proceeds from all assets recovered to finance agriculture.

“Reduce by 25% the money appropriated for National Security Administration, Executive Presidential Service, and Legislature,” LPP tells President Boakai. “Demand a 15% cuts of allowances and compensations paid to all officers, including allowances to board members of state-owned entities.”