Monrovia – International stakeholders including the International Monetary Fund are said to be scratching their heads amid reports that the George Weah-led government is in talks with a financing organization in Singapore in a bid to borrow half-billion United States dollars to undertake “Pro Poor roads to the Southeast and Western Liberia to include Cape Mount and Bopolu counties.
“I would like to state categorically, that the decision by GOL to borrow is not the prerogative of the PPCC and that PPCC has no say, knowledge or acquaintance of any such decision nor does any such decision or process "has the backing of the PPCC" – Mr. Dorbor Jallah, Executive Director, CEO, Public Procurement Concessions Commission
Economic observers say the move is in clear breach of the IMF’s Article IV program, FrontPageAfrica has learned.
Finance ministry officials are tight-lipped on the name of the company but the terms of the loan are said to be commercial and not concessional. Additionally, the half a billion will be subject to rigid Public Financial Management (PFM) procedure.
The PPCC has been convinced and most likely to give the greenlight without due process to the financing firm or the contracting company that will build the road.
FrontPageAfrica has gathered that the government will not pay any money on the loan for twelve to fifteen years, a plan the ruling party hopes will ensure that the Southeast is pave and voters give them another six years in power. But if the party is rejected in 2023, whoever replaces the current government will bear the burden of a loan mired in controversy and debt.
Under the PFM, the government has in the past few years been working around public sector financial management reform.
The PFM, like many others, suffered severe decline during the civil crisis as transparency and accountability in the use of public resources became almost nonexistent.
Most of the PFM institutions collapsed, systems failed, and human capacity deteriorated culminating in a situation in which there was near complete absence of procedures in the application of public resources.
With assistance from development partners, the government enacted the PFM Act in 2009 to strengthen greater transparency and accountability around public resources.
Now, many international stakeholders are fearing that all the work done to fix the messy economic system in the aftermath of the civil war are about to be undone.
Costs vs. Risks
As part of the PFM program, an oversight committee compromising the Minister of Finance and Development Planning, the Minister of Justice, Minister of Internal Affairs, Minister of State for Presidential Affairs, Director General of the Civil Service Agency, the Auditor General, General Auditing Commission (GAC), and Executive Director General, Public Procurement are required to meet quarterly to ensure that the PFM was being adequately implement.
The goal is to provide policy coordination and serves as the forum for resolving strategic issues impeding or attending program implementation.
Under the Article IV program once a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community.
That country also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability, to avoid manipulating exchange rates for unfair competitive advantage, and to provide the IMF with data about its economy.
The IMF's regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability.
In the 2016 Report, IMF provide this policy advice to the government of Liberia, “In a medium-term outlook, it is critical to slow down the pace of debt accumulation, prioritize grants and concessional financing, and carefully choose new borrowing through sound project appraisal and selection procedures.
Debt management capacity should also be strengthened, in particular on the costs and risks analysis of the debt portfolio, and borrowing should be anchored by a new Medium-term Debt Management Strategy (Annex VI).”
The IMF report said that the Liberian authorities shared IMF’s’ concerns on Liberia’s debt vulnerabilities”.
“They remained committed to the borrowing targets agreed in the context of the ECF for FY2016 and FY2017, which they saw as useful to help the government maintain borrowing discipline and avoid locking in the new administration on new loans.
Nevertheless, they highlighted the tension arising from debt sustainability and the need to close infrastructure gaps, and noted that the growth dividends would help debt sustainability.
The authorities also called for more donor coordination as some of the externally-financed projects were not high priority but would further increase the debt burden.”
The IMF called for strengthening the medium-term debt strategy to prevent a further increase in the risk of debt distress.
The Weah-led government’s decision to borrow an amount nearly the size of the country’s budget is said to be greeted with strong reservations.
The funds will be borrowed at commercial terms, and therefore cannot be a candidate for debt forgiveness if Liberia ever needed another round of debt waiver in the future.
With this new borrowing, Liberia total debt will be at $2 billion. Is such debt stock sustainable in country with a national budget of about $500 million and GDP of $2.2 billion, according to the World Bank.
IMF reports Liberia’s debt as percentage of GDP, which is already at very high and unsustainable levels. Borrowing another %500 million will another 22% to the already high debt level, taking it around 68.1% of GDP:
Recently IMF bemoaned Ghana’s high debt to GDP ratio of 66% but noted that Ghana is oil producing country and an emerging market economy and so could reasonable sustains such high-level debt in the medium to long term.
Sierra Leone has a debt to GDP ratio of about 53%, another high debt ratio.
Back Breaking Interest Payment
A high debt-to-GDP ratio indicates an economy that is not producing and selling goods and services in a sufficient manner to pay back debts without incurring further debt.
While there is no optimal debt to GDP ratio, some benchmarks have been developed through IFM Technical work.
For instance, “a debt-to-GDP ratio of 60% is quite often noted as a prudential limit for developed countries.
This suggests that crossing this limit will threaten fiscal sustainability. For developing and emerging economies, 40% is the suggested debt-to-GDP ratio that should not be breached on a long-term basis.” A 15-year loan is pretty long term.
According to sources familiar with the plan the “Pro Poor” government is hoping that with a 15-year grace period, they should service the loan at $36 million a year.
During the Grace period, the source explained the interest will be between US$7 to US$8 million.
The roads will open up the country and then they can tap into and exploit sectorial growth potentials.
In the 2016-17 fiscal report, Liberia spent $14 million just in interest payment on existing loan. By adding the $8 million new interest, total interest payment will be $22 million per year.
Benefits without Quantification
The plan to borrow $500 million is said to back by the entire southeast leadership caucus in both the lower and upper house of the national legislature.
Members are reportedly threatening not to support any budget if they do not get the money to support the road project in the southeast.
FrontPage Africa has gathered that the Public Procurement Concessions Commission is on board with the plan which aims to begin completion of the Barclayville to Sasstown and the Plebo; Madina to Robersport and Tubmanburg to Bopolu.
Sell off Liberia’s Assets, Dip into Social Security Fund
With roads, the agriculture belt can be easily reached and other economic activities developed. However, the plan comes with enormous risks and gambles.
The government is reportedly aiming to sell its 30% stake in Arcelor Mittal and its 10% stake in Aureus Mining. They also have Putu which has about four billion tons of ore reserve that could be factor into the loan arrangement.
The plan to source funding from financing organization in Singapore, means the government will be scrapping the IMF Article IV program in a bid to construct 500 km of roads for US$503 million dollars.
The plan comes on the heels of full drawdown of the United Nations Mission in Liberia scheduled for later this month.
FrontPageAfrica has gathered that the Public Procurement Concessions Commission is on board with the plan which aims to begin completion of the Barclayville to Sasstown and the Pleebo; Madina to Robersport and Tubmanburg to Bopolu.
However, Mr. J. Dorbor Jallah, Executive Director of the PPCC told FrontPageAfrica when contacted that this is not the case.
‘Not PPCC Process’
Mr. Jallah explained: “The process of acquiring loan by the GOL is not a PPCC process and does not require "the backing of the PPCC".
Mr. Jallah explained: “The PPCC After the Cabinet makes a decision to borrow for a project, the process is led by the Debt Management Committee (DMC) which is chaired by the Minister of Finance. PPCC is not a member of the DMC.
My understanding of the process is that when the DMC finalizes a borrowing arrangement that decision is then tabled before the Cabinet for final approval upon which the loan is then passed onto the National Legislature for ratification. Any borrowing decision has to be within our debt ceilings for that fiscal year.” The PPCC boss explained that before the commission can approve a procurement process (through the approval of a procurement plan), the procuring entity must show evidence of the availability of funding for that procurement activity.
Said Mr. Jallah: “For items included in the National Budget, the budget itself is evidence of funding availability.
For items that are not included in the National Budget the PPCC requires a letter from the Minister of Finance confirming funding availability before the procurement proceedings can be authorized by PPCC. In the case of procurement for projects to be funded through borrowing, PPCC requires a letter from the DMC clearly outlining the decision of the GOL to borrow and the amount to be borrowed.
On the basis of this confirmation, PPCC approves the procurement plan with an advice to the procuring entity to clearly inform all bidders that the activity will be funded through borrowing which has to be ratified by the National Legislature.”
Responding to the particular FPA inquiry regarding the US$500.00 million loan, the PPCC boss dismissed suggestions that it is in the know.
“PPCC is not aware that the Cabinet has made any decision to borrow.
At the only Cabinet meeting held so far since the new government took office, various potential projects were discussed including the road linking Buchanan to Harper, the Bopolu road, among many others.
To the best of my recollection, the meeting centered on exploring possible funding sources including GOL internally generated revenues, grants, public-private partnerships, and the possibility of borrowing.
I don't recall there being a decision to borrow at that meeting. PPCC is also not aware that the DMC has met or has embarked on a process to borrow; the Ministry of Finance is better placed to clarify this.”
Calls placed to Finance and Economic Planning Minister Mr. Samuel Tweah were not returned as this report went to press According to sources familiar with the plan the “Pro Poor” government is hoping that with a 15-year grace period, they should service the loan at $36 million a year.
During the Grace period, the source explained the interest will be between US$7 to US$8 million. The roads will open up the country and then they can tap into and exploit sectorial growth potentials.
Subject to IMF Surveillance
With roads, the agriculture belt can be easily reached and other economic activities developed. However, the plan comes with enormous risks and gambles.
The government is reportedly aiming to sell its 30% stake in Arcelor Mittal and its 10% stake in Aureus Mining. They also have Putu which has about Four billion tons of ore reserve that could be factor into the loan arrangement.
The plan is reportedly subject to IMF surveillance, an ongoing process that culminates in regular comprehensive consultations with individual member countries, with discussions in between as needed.
The consultations are known as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials. IMF staff missions also often meet with parliamentarians and representatives of business, labor unions, and civil society.
As part of the program, the team regularly reports its findings to IMF management and then presents them for discussion to the Executive Board, which represents all of the IMF member countries.
A summary of the Board's views is subsequently transmitted to the country's government. In this way, the views of the global community and the lessons of international experience are brought to bear on national policies.
The regional surveillance involves examination by the IMF of policies pursued under currency unions—including the euro area, the West African Economic and Monetary Union, the Central African Economic and Monetary Community, and the Eastern Caribbean Currency Union.
Borrow Plan Comes with Risks
The plan is said to be supported by the entire southeast leadership caucus in both the lower and upper house of the national legislature. Members are reportedly threatening not to support any budget if they do not get the money to support the road project in the southeast.
Economists say the plan comes with risks of isolation of Liberia by international bodies and stakeholders who have been working the past decade trying to get Liberia out of a pariah state and puts much of the effort the international community has done to put Liberia back in the comity of nations down the drain.
“It doesn’t make sense to borrow the entire amount of your country’s budget,” one source told FrontPageAfrica last week.
“There is a debt sustainability program that Liberia has been pushing since days of former Finance Minister Dr. Antoinette Sayeh to make sure that Liberia does not borrow carelessly. If a government borrows the size of its budget will put Liberia back into the state it was more than a decade ago.
Even more troubling, sources say are fears that the Pro Poor government is aiming to use money from social security for southeast road project.
Critics of the plan say the Weah-led government must take into consideration that whatever borrowing it carries out must be in line with the IMF and the World Bank and must be within the limits of fiscal discipline.
Liberia also risks alienating ties to African Development Bank (ADB), the World Bank, the European Union, one of its key donors as well as the United States, its traditional step partner who are major contributors to health and education sectors. Liberia is still a fragile state and isolation could put the country years back.
For the foreseeable future, diplomatic watchers are keen to see how the plan unfolds. Quietly, some fear that ditching the IMF, the World Bank and key stakeholders for a US$500 million loan comes with a lot of implications for Liberia.
An IMF official speaking to FrontPageAfrica on strict condition of anonymity said Monday that while the prospects of the loan and the road project sounds exciting, the plan appears to be dangerous move because there is no domestic capacity to ensure that the assumptions are correct and implementation goes well particularly in a predatory environment.
Aside from the debt burden a $US500 million loan will put on Liberians, many are wondering whether the Weah-led administration has the governance system in place to manage such amount of money, when many of the political appointees confessed during confirmation that they are still learning on the job.
Previous governments have borrowed a lot putting Liberia in a $4.9 billion debt by the end of the war and through international goodwill, nearly all of that was forgiven.
Unfortunately, in spite of such huge being borrowed and expended along with the normal recurring revenue, Liberia remained at the bottom of the human development index.
Does the Weah-led administration have accountable systems in place to manage US$500 million is the million dollar question that international partners are pondering.