Monrovia – The Boakai-Koung administration is facing a challenging period as it works to revitalize Liberia’s fragile economy. The World Bank has suspended Liberia’s access to crucial funding after the government failed to meet payment obligations for 60 days.
By Gerald C. Koinyeneh, [email protected]
The World Bank Country Office confirmed to FrontPage Africa that as of August 15, 2024, Liberia’s payment obligations to the World Bank had been overdue for 60 days. As a result, the World Bank has suspended Liberia’s right to make withdrawals under various financing agreements, including credits, grants, and trust funds.
However, the World Bank expressed its commitment to supporting Liberia once the overdue amounts are paid, ensuring the effective implementation of all projects in its portfolio for the benefit of the Liberian people.
Government Denies Defaulting on Payments
Despite confirmation from the World Bank, the Liberian government has denied defaulting on its payments. In a statement, the Ministry of Finance and Development Planning (MFDP) asserted that the government has not defaulted on its obligations to the International Development Association (IDA), the World Bank Group’s primary financing institution for low-income countries.
According to the MFDP, the administration under President Joseph Nyuma Boakai has paid $44.26 million since January 2024. This amount includes $23 million outstanding from 2023, which was not paid by the previous administration, and $21 million of the scheduled external debt repayments due in 2024.
The MFDP cited challenges related to external transfer dates at the Central Bank of Liberia (CBL), which have been reduced by the Federal Reserve Bank of New York from five days to two days per week. This reduction, it said, was due to irregular transactions through the CBL before the January 2024 transition of power. The Ministry explained that some IDA loan repayments did not align with the new CBL transfer dates, leading to what has been misinterpreted as defaults.
Additionally, the Ministry highlighted the challenge of managing a debt portfolio of $2.6 billion, including $1.5 billion accumulated under the CDC government over six years, compared to $881.8 million during the entire twelve years of the first Unity Party administration.
IMF ECF Deadline Approaches
The World Bank-GOL loan payment issue is not the only challenge facing the administration. The government is nearing the deadline to submit the Extended Credit Facility (ECF) proposal to the International Monetary Fund (IMF) by September 25, 2024. The ECF allows Liberia’s international partners to provide assistance to its public financial management system, support the budget, strengthen foreign reserves, and improve credit ratings.
However, the Ministry of Finance disclosed that this process is at risk due to unresolved issues related to monetary policy decisions by the CBL. One such issue involves the CBL’s involvement in a $3.5 million case between Bloom Bank (formerly Global Bank) and Kailando Inc., where the CBL issued an indemnity or guarantee against the possibility of Bloom Bank losing the case. The IMF has raised concerns about this action, viewing it as a violation of its agreement with the CBL regarding the use of the Central Bank’s reserve funds.
To resolve this impasse, all parties—MFDP, IMF, and CBL—agreed to seek a legal opinion from the Minister of Justice & Attorney General of Liberia. The Finance Ministry, in a letter to Cllr. Oswald Tweh, requested the Justice Minister’s intervention, but the government has not yet announced its position with the IMF.
The Ministry of Finance did not respond to FrontPage Africa’s inquiries on its progress in meeting the IMF deadline.
Economic Implications
These developments come as the Unity Party-led government struggles to manage a budget reallocation amid harsh economic realities. The recast budget, submitted by the Ministry of Finance, has been adjusted from $738.9 million to $721.5 million.
The revised budget shifts priorities toward public administration and security, resulting in cuts to critical sectors like health, education, and public investment. For example, the health budget has been reduced from $80.1 million to $78.97 million, and education funding has dropped from $111.3 million to $108.4 million. The Public Sector Investment Plan (PSIP) saw a significant cut of $33 million, focusing on immediate fiscal relief at the expense of long-term growth.
The World Bank’s suspension of funding compounds Liberia’s financial challenges and could stall vital infrastructure, agriculture, and energy projects that have already been weakened by budget cuts.
According to the World Bank, Liberia’s economy grew by 4.7% in 2023, primarily driven by increased gold production. However, growth in the primary sector remained sluggish at just 1.4%, due to declining output in key agricultural products like rubber and crude palm oil. The secondary sector expanded by 13.9%, led by mining, while services grew modestly from 2.8% in 2022 to 3.8% in 2023.
Inflation surged in 2023, with annual average inflation rising to 10.1% from 7.6% in 2022. Food inflation, in particular, spiked to 12.3%, a significant increase from 1.6% disinflation in 2022. Nonfood inflation remained steady at around 10%.
The fiscal deficit stood at 5.5% of GDP in 2023, slightly lower than in 2022, reflecting declines in revenue and grants amid increased consumption spending. With a debt-to-GDP ratio of 54.5%, Liberia faces a moderate risk of external debt distress and a high risk of overall debt distress.