-As Gov’t Signed US$282.2M Financing Agreements in 2022; Upgrades Rating to: ‘Modern Risk of Total Debt Distress’
IPNEWS – According to the World Bank’s analyses of public debt and debt management in low- and middle-income countries have traditionally less focused on domestic debt. This is in part a consequence of the absence of a comprehensive database on domestic public debt and an outcome of the fact that, historically, external borrowing was dominant.
Prior to the global economic and financial crises of 2008 for the majority of low- and middle-income countries external liabilities were the largest component of public debt, the target of debt restructuring and debt relief initiatives such as the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI), and the core element of the joint IMF-World Bank Debt Sustainability Framework for Low-Income countries (LIC DSF).
Over the past decade, however, low- and middle-income countries have made substantial efforts to develop local public debt markets and increasingly relied on domestic sources of funds to finance budget deficits. This in turn has sparked the attention of the international financial community and led to demands for mechanisms to capture a comprehensive picture of the public debt of low- and middle-income countries, domestic as well as external, in a coherent and timely manner, in accordance with internationally agreed standards and definitions.
Domestic debt is defined by Economists and Financial Experts as debt owed to creditor resident in the same country. In the case of a government, Domestic debt is defined as gross securitized government debt, including treasury bills, bonds, notes, and government stocks.
Domestic debt can at times lead to crisis. And debt crisis, is a situation in which a country is unable to pay back its government debt. A country can enter into a debt crisis when the tax revenues of its government are less than its expenditures for a prolonged period.
What are the benefits of domestic debt? Domestic debt markets can help strengthen money and financial markets, boost private savings and stimulate investment.
Why is debt important to the economy? A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.
How does domestic debt affect the economy? In shallow financial markets where firms have limited access to international finance, domestic debt can lead to both swift and severe crowding out of private lending. Growth theory suggests that higher capital cost would cause the desired capital- output ratio in the economy to fall.
And what are three consequences of debt? When you have debt, it’s hard not to worry about how you’re going to make your payments or how you’ll keep from taking on more debt to make ends meet. The stress from debt in the case of an individual can lead to mild to severe health problems including ulcers, migraines, depression, and even heart attacks.
How does debt relief improve development? Debt relief involves cancelling money owed, allowing more significant investment in development projects such as road building and health care.
And so with domestic debt a cardinal issue over the year in review – 2022, the Coalition for Democratic Change (CDC) government led by President George Weah was able to make significant progress in restructuring of Liberia’s domestic debt portfolio.
According to President Weah, while addressing the 54th Legislature on January 30, 2023 at the Capitol, “at the outset of the IMF-supported program three years ago, all legacy loans owed to the Central Bank of Liberia, including the debt owed to the old National Bank of Liberia, were bundled into a Restructured and Consolidated Loan. My Government continues to live up to its obligation in meeting these payments in support of the recapitalization of the Central Bank of Liberia.
I am pleased to inform you that a recent debt sustainability analysis by the IMF has upgraded Liberia’s debt management rating from “HIGH RISK OF TOTAL DEBT DISTRESS” to “MODERATE RISK OF TOTAL DEBT DISTRESS”.
The president further stated as a Government, they remain committed to pursuing concessional financing to support its public sector investment program. “This is consistent with our long-term strategy on debt sustainability.”
According to the Liberian leader, as of November 30, 2022, the total stock of domestic debt stood at US$835.2 million; and the total stock of external debt stood at US$1.13 billion, for a total public debt stock valued at US$1.96 billion, which is an increase of 12.6% percent when compared to the end-December 2021 debt stock of US$1.74 billion. “The growth in the debt stock was mostly triggered by disbursements from external and domestic creditors.”
President Weah informed the 54th Legislature in order to reduce the country’s debt portfolio, the Government paid US$89.37 million in debt service on both domestic and foreign debt. Of the total debt service, interest payments accounted for US$33 million, or 36.9% percent, while principal repayments accounted for US$56.37 million, or 63.1% percent. Also, from the total debt service, US$57.07 million was paid to the Central Bank of Liberia, to commercial banks for treasury bonds, and to other institutions for domestic debt, while US$32.3 million was paid to multilateral and bilateral partners.
“Of the domestic payment of US$57.07 million, about US$17.8million, or 31% percent was paid to the Central Bank of Liberia. This payment, and the ongoing continuous payments of Government’s obligation to the Central Bank, clearly demonstrate our Government’s commitment and support to the financial and operational independence of the Central Bank of Liberia.”
The President reported that the audit of the Consolidated Account is now current; with all audit backlogs being cleared. Currently, the General Auditing Commission is concluding an audit of the Special Fiscal Year 2021, the Fiscal Year 2021, the Payroll Audit, and the audit of the Domestic Debt. These audit reports are expected to be submitted to you within the next 30 days.
He stated his government continues to implement reforms for the Central Government payroll and pension systems, with the objective of improving the welfare of both active and retired employees of government. “Through centralization and digitization, our payroll is now easily auditable, predictable, and adjustable; in order to ensure fairness and efficiency, while at the same time increasing the welfare of civil servants.”
As domestic revenue improves, President Weah said his government remains committed to enhancing the welfare of Government workers. “I have been informed that some 15,000 Government workers still make below the minimum wage of $150 US dollars, as mandated by the Decent Work Act.
This is completely unacceptable. No Government worker should make below the minimum wage mandated by public law. I have therefore directed that, as part of the 2023 budget, the wages for all such workers be raised at or above the minimum wage. I am informed that the cost to achieving this is estimated at $6 million US dollars annually.
And so Mr. Speaker, Mr. President Pro-Tempore, and Distinguished Members of the 54th National Legislature, as we accelerate the discussion for the 2023 National Budget, I urge you to make the securing of this amount of $6 million US dollars for these 15,000 workers one of your highest priorities. I look forward to engaging you further on this.”
The President also told the lawmakers that the Official Development Assistance (ODA), otherwise referred to as Foreign Aid, is critical to Liberia’s economic growth and development, as it represents an important share of the national budget.
“In 2022, we negotiated and signed approximately nine (9) financing instruments with Development Partners worth a total of about $282.2 million US dollars. These projects and programs supplement our continual commitment to inclusive growth and development in Liberia.”
“We continue to take steps to improve aid coordination. At a Steering Committee Meeting of the PAPD held last year, I emphasized to our Development Partners the importance of coordinating resources in critical sectors such as health, education, and agriculture for more transformative results.”
Concluding President Weah noted the Government and its partners have both reaffirmed their commitment to upholding the tenets of the Paris Agenda on Aid Effectiveness, and are delivering frameworks under the PAPD to achieve this. But much more work needs to be done to deliver more results for the Liberian people.
