Liberia: US$536M MOU Signed – But Loan From Singaporean Firm in Breach IMF Article IV

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Monrovia – When a delegation from the International Monetary Fund’s (IMF) Article IV mission departed Liberia at the end of March, the team walked away with a stern warning for the new government headed by President George Manneh Weah: Proceed to borrow with extreme caution.


Report by Rodney D. Sieh, [email protected]


Loan from the Singaporean financing firm Eton finance private limited, comes as a boost to President’s quest to bring paved roads to the southeast but may leave a debt burden on Liberia, in breach of the International Monetary Fund (IMF) article iv and if not properly used for the intended purpose could sink Weah’s presidency and leave Liberians holding once again an empty bag.

The delegation wrote: “Debt levels have been rising steadily in recent years. While the risk of debt distress remains moderate, borrowing space has clearly been reduced over time.”

“Looking forward, future obligations will need to be undertaken with caution, specifically with respect to securing favorable terms and conditions.”

A recent FrontPageAfrica investigative report revealed the international stakeholders were growing jittery amid reports that the Weah-led government was 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.

MOU in Hong Kong

A little over a week ago, a delegation headed by Finance and Economic Planning Minister Samuel Tweah, Justice Minister Musa Dean, Minister of State Nathaniel McGill and Legal Advisor to the President Mr. Archibald F. Bernard departed Liberia for Asia amid murmurs that a deal for the southeast road project was in the works.

On Monday, the group returned to Monrovia from Japan and Hong Kong with what insiders in the government are trumpeting as a great reward for the President’s plans to construct a coastal highway and link Monrovia with the Southeast by paved roads.

The delegation reportedly signed a Memorandum of Understanding for a US$536 million dollar agreement to access funding for the implementation of the coastal road project.

FrontPageAfrica has now been able to confirm that the deal reportedly signed in Hong Kong is linked to the Singapore deal reported earlier.

A source on the delegation confirmed to FrontPageAfrica that the deal which is subject to legislative approval will cover a little over 500 kilometers of roads.

However, the US$536 million still falls short of the estimated US$3 billion the President projected it would cost to link the capital Monrovia to the remote southeast in his annual message in January.

In that speech, the President acknowledged the challenge of making the pledge a reality.

“This is going to be very challenging but I am convinced that with the assistance of friendly governments and institutions this can be achieved before the end of my tenure.”

President Weah who said he inherited a broke country has already pledged to slash his salary by 25 percent in a bid to save development funds.

Singapore-Based Financing Firm

FrontPageAfrica has also been able to confirm that the financing company at the center of the deal is Eton Finance Private Limited based in Singapore.

According to Bloomberg, Eton Finance Private Limited operates as an investment company in the asset management industry.

Since the company is an unlisted private company, there is no public information on the total capitalization or its net asset value (NAV).

Financial analysts say, typically, investment companies raise monies either through equity or debt for its clients. 

In the case of Liberia, it appears Eton will raise debt through a bond offering to its investors in what is known as a private placement. 

In most of these transactions, financial analysts caution, the investment company does not commit to fully fund the project and is accomplished if possible in what the industry calls a “best efforts basis”. 

This means the company will do all it can to ensure its investor clients fully subscribe to the purported 536 million dollar loan request or bond placement. 

Furthermore, since Liberia does not have a sovereign credit rating, the risks associated with the transaction will be ultra-high because the debt from Liberia would be considered as junk and not investment grade.

The transaction will then require some form of valuable collateral to mitigate those risks. 

Additionally, the interest rate on such financing can be quite high to compensate for the higher risks, way above the favorable conditions that the IFM is recommending. Since this would be a private sector finance, it would not be likely that such loans can be forgiven, as it was done during HIPC where a significant portion of the 4.9 billion debt was forgiven, leaving the private debts on the books of the Government.

In several loan agreements in the past, Liberia hypothecated customs revenues as with the Clause K provision in the Firestone Agreement in 1926.  

Firestone placed its agents at customs entry points to ensure collection of the loan. In the modern era and under current conditions in Liberia, it is unclear what form of risk mitigation mechanisms will be required by the investment company and its investor clients. 

A FrontPageAfrica investigation uncovered that in 2012, the Singaporean investors, Eton, entered a deal with a Nigerian indigenous company, Niger Delta Refinery and Petrochemicals Ltd, for the provision of $1.7 billion to finance construction of a 100,000 b/d oil refinery in the Niger Delta.

While the details of the MOU signed by the Liberian delegation and the company is yet to be made public or announced, the financing in Nigeria was in the form of joint venture funding with both companies working together to realize the goals of the project, Niger Delta Refinery and Petrochemicals Ltd. Said at the time.

The joint venture funding agreement between the Nigerian company and Eton Group of Companies entailed the provision of $1.4 billion for the re-engineering and construction of the export-oriented refinery in southern Akwa Ibom state, and another $300 million for start-up operations and to provide crude feedstock, the company a statement said in 2012. That project was slow in implementation. 

Article IV Breach a Concern for Stakeholders

It is unclear how the Weah-led government will deal with the concerns raised by the IMF and other international stakeholders regarding the potential breach of Article IV.

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.

Liberia has made 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 wake of Liberia taking the route of a private financing company, the risks are high not just for the country’s debt ceiling but its relationship with existing international financial institutions.

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. 

The IMF has 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 delegation noted that while it supports the Weah-led government’s adoption of a strongly pro-poor agenda, the needs of the poorest segments of the population are clearly large, and it is commendable that the Authorities have made this their policy priority. 

However, within this ambition, the IMF delegation adds, “it would be particularly important to ensure that the increase in expenditure goes hand in hand with measures to ensure macroeconomic and debt stability, as the impact of instability would fall disproportionately on the most vulnerable groups and undercut the goal of poverty reduction.”

Transparency Key, Experts Say

Thus, industry experts warn that the euphoria and celebration that could come from the news of Liberia’s signing of any MOU with Eton should be tempered with the reality that this type of transaction takes time to finalize, implement and disburse the requested funding.   

As it may, Liberia has a long history of mismanaging of funds acquired through debt financing. Since 1847, history is replete with instances of mismanagement of funds raised through debt financing. Liberians are concern whether the debt if finally obtained with be used for its intended purposes. 

While the $536 million is believed to be intended for coastal road in the southeast, will the Weah administration have any more fiscal space to build the mini city in the swamped land and also a military hospital, much less to secure additional funding to building the education and healthcare infrastructure as well invest in agriculture and vocational education, which all part of the commitment the CDC led Government has made.

Financial analysts say for the immediate future, more documentation and analysis will be required without any guarantee that the funding request will be realized. This is why the IMF and other international stakeholders are cautioning the new government to consider other options in case the funding request falls through. 

Investigation continues…

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