Four years after both the IMF and the World Bank heralded Liberia's debt relief in the tone of US$4.6 billion in nominal terms, the post-war nation appears to be gradually falling into the books of international creditors. Addressing the nation in her annual message last week, President Ellen Johnson-Sirleaf revealed that her administration is already indebted to creditors in the tone of almost one billion United States dollars "Loans contracted from external sources to date total approximately US$757 million . In support of a wide range of development activities, Acts covering US$456 million have been ratified while Acts for US$300 million are currently before you pending ratification." US$40 Million Domestic Debt Added Sirleaf: "Domestic debt service during the period totaled approximately US$40 million , representing settlement of Central Bank of Liberia's US$7.5 million bridge and US$21.2 million overdraft facilities. An additional US$11.8 million was paid to settle other domestic debts, and US$7.09 million to external debts." The President added that reform of the fiscal system which started in 2006 is still a long way away from the efficiency level required to fully support our economic aspirations. "The budget has increased significantly since FY2006/7, allowing service provision and investment to expand. Core revenue (tax revenue, non-tax revenue and grants) increased by an average of 29 percent each year, and total revenues, including contingent revenue and on-budget borrowing, rose from US$148 million in FY2006/7 to US$559 million in FY2012/13. Continued sluggishness in core revenue, increasing by only 17 percent over the previous year, and an average 27 percent over the seven years, suggests more effort to strengthen the Ministry of Finance which needs to take bolder steps, including proposed legislation to broaden the tax base." Prior to the end of the civil war and the ushering in of the Sirleaf administration, Liberia had a staggering debt load which heightened during the civil war. When international creditors decided to forgive Liberia of billions of dollars, it was aimed at supporting the post-war nation's efforts to implement a commercial debt reduction strategy, in the context of the Heavily Indebted Poor Country (HIPC) Initiative. Previously Large External Debt Erased Liberia inherited one of the world's largest external debt burdens as a share of gross domestic product (GDP) following the fourteen years of conflict. The government's external debt in June 2007 totaled US$4.7 billion , accounting for 657 percent of the GDP and over twenty times larger than its total exports. Additionally, most of the approximately US$1.2 billion of eligible commercial claims had been reduced to judgments or subject to pending litigation. The ability of the country's emerging private sector to trade, obtain trade credit and attract foreign direct investment was adversely affected by the government's arrears and the country's low credit rating. The goal was that the servicing of that high level of debt would substantially reduce the domestic resources available for vital social services so critical in a country where 64 percent of the population lives below the poverty line, with nearly 50 percent in extreme poverty and none of the Millennium Development Goals (MDGs) are likely to be met. Sirleaf's high-profile image and international clout was instrumental in helping Liberia successfully eliminate its commercial debt, estimated at US$1 . 2 billion in 2009. In the process, the country improved its external commercial relations and averted costly litigation and risks to financial assets. Many financial analysts at the time were convinced that with the debt burden now off, Liberia had some room to maneuver in terms of much-needed development project. However, the government has struggled since to find money to refurbish the damaged hydro at Mt. Coffee which laid dormant until the recent ground breaking exercise to jump start the project. Critics of the government say, while the government could be on the verge of recurring massive debt in the millions before it leaves office in 2018, creating some early burdens for whichever government replaces it after the 2017 elections. More importantly, some critics of the administration are still baffled over how a debt reduction exercise designed to support the post-war nation's efforts to develop and implement an effective and low cost commercial debt reduction strategy in the context of the Heavily Indebted Poor Country (HIPC) Initiative, has not yet impacted the citizens. The HIPC was launched in 1996 by the IMF and the World Bank to ensure that no poor country faces a debt burden it cannot manage. It entails coordinated action by the international community, including multilateral organizations, governments, and private creditors. In 1999, the initiative was modified to provide faster and broader debt relief and to strengthen the links between debt relief, poverty reduction, and social policies. Critics, Supporters Divided on Impact The release of debt burden should, critics say given the government a lot of room to do other projects. Supporters of the administration counter that the accumulation of new debt is a good thing because the whole idea of debt relief is to allow Liberia to secure additional financing, in initially modest amounts, to help deliver critically needed services and infrastructure necessary for Liberia's future prosperity. But critics say development has not come in the droves, many Liberians anticipated. Finance Minister Amara Konneh , who was the Minister of Planning at the time of the debt waiver, said then: "The granting of debt relief marks a significant milestone in Liberia's path toward recovery. Macroeconomic conditions are broadly favorable for a recovery of growth in 2010, based on a revival of iron ore mining, forestry, and commercial agriculture. "The immediate challenge is to focus investment on roads, electric power, and ports to unblock bottlenecks that inhibit private sector investment." But those factors have not so far allowed the government to reap the returns of the debt relief's goal. Today, the government is not only in the red and on the verge of spiraling its debt to new heights, but the budget to date is not performing well as the government embarks on a major tax collection exercise in hopes of salvaging funds to support the budget as Sirleaf acknowledged in her annual address last week. "Even though good partnership relations through grant support and one-off payments from sign-on bonuses have covered revenue gaps over the past years, this practice is not sustainable and could become a disincentive to efficiency in tax collection and tax consciousness. A vigorous tax enforcement plan is being finalized by the Ministry of Finance , to be implemented by a Special Task Force as we move to make the Revenue Authority operational at a much faster pace. The activities of this Task Force may cause discomfort and embarrassment for some public officials and prominent individuals and businesses that are yet to pay their fair share of taxes. We encourage each of us to check our records and move quickly into full compliance. It is only by paying our fair share of taxes that we can boast of truly contributing to our national reconstruction and development." All this coming amid government's trumpeting of its economic policies. "Capital expenditure in the Public Sector Investment Plan (PSIP) increased to US$138 million in FY2012/13 from the US$51.9 million allocated in the previous year," Sirleaf noted, adding: "This included off-budget lending of US$14.4 million through concessional loans and credits. Additional off-budget financing through grants and loans to support programs and projects amounted to a disbursed amount of US$499 million , representing about 83 percent of the aid projection of US$567 million ." With the government's borrowing approaching the billion-dollar mark, financial analysts say, the UP government's successors could get off to a rocky start if the debt ceiling continues to climb as the post-war nation fight to restore its economic sanity.
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