Liberia: Life after Debt

By John Lipsky, First Deputy Managing Director, International Monetary Fund
Center for Global Development, June 30 2010

As Prepared for Delivery

1. It is a great pleasure to be here with you today to mark the end of Liberia’s trek from sovereign default to long-term debt sustainability. I have been personally involved in the Fund’s efforts to support Liberia since I rejoined the Fund in 2006, from initially raising financing commitments, to, last week, chairing the IMF Board that decided that the HIPC Initiative debt relief process had been completed.

2. I know that Antoinette Sayeh, our African Department Director and the former Minister of Finance in Liberia, also wanted to be with us. She was heavily involved in Liberia’s program to stabilize the economy and achieve debt relief, both in Monrovia and in Washington. Unfortunately, she has a longstanding engagement in Uganda that prevents her from joining us here today.

3. What I would like to do today is to look back at what has been achieved in Liberia in the past few years, and then comment briefly on the challenges that need to be met if Liberia is to achieve broad-based growth and rising employment levels.

4. Let me underscore at the outset the main factor contributing to Liberia’s completion of the HIPC process: it was the sustained implementation of a strong macroeconomic program and ambitious reform agenda by the government of President Johnson Sirleaf. The international community has assisted the government in many ways, but the Liberian government has driven the process.

5. What were the key components of Liberia’s program? [In light of Minister Ngafuan’s remarks], I will be brief:

  • On the macroeconomic front, the corner-stone of the government’s program during the HIPC process has been to restore macroeconomic stability through the policy of maintaining a balanced budget on a cash basis, leaving the central bank free to focus on achieving exchange rate stability. This policy framework has delivered good results in terms of solid output growth and modest inflation, while the central bank has built up its foreign reserves from minimal levels. And foreign investors have started to arrive: from China and India in the iron ore sector, and from Malaysia in commercial agriculture.
  • On economic reforms, led by the President herself, Liberia initiated profound changes in its governance and economic management. It put in place strong policies and systems to manage debt; implemented new laws on financial management, procurement and audit; stepped up spending on health centers nationwide; and sought to provide qualified and properly paid teachers in all public schools. Liberia has also begun to tackle pervasive graft, including through the creation of an anti-corruption commission.
  • Given strong implementation of this program, Liberia advanced to the so-called HIPC completion point in a little over two years. Following the decisions of the World Bank and the IMF Boards, Liberia has received an irrevocable write-down of almost all its debt to the Bank and the Fund.

6. As you know, generating the funding need to finance the debt relief from the IMF proved to be a major challenge. Liberia’s arrears to the IMF amounted to some US$888 million, while the funding previously identified for the HIPC process did not include financing of debt relief for Liberia. It required a major collective effort, to which 102 member countries contributed, to obtain the necessary funding – but the necessary pledges of support were mobilized by March 2008, laying the basis for an arrears clearance operation, new IMF financing, and the start of the HIPC process. That voluntary contributions for Liberia were mobilized from 102 countries is an impressive commentary on the truly broad-based international effort to support Liberia.

7. So the pursuit of comprehensive debt relief for Liberia is now successfully completed. What next? [As Ministers Ngafuan and Konneh have noted, the challenges ahead for Liberia are still daunting.] Let me offer a few thoughts here.

  • We should remember that, as is often the case, reaching the completion point will not directly free up resources for debt service. Actual cash payments to external creditors have been kept at minimal levels for several years. Moreover, Liberia will still have some foreign debt on the books (US$150 million) that will need to be serviced starting at end-2011.
  • Debt relief will however, open up new opportunities :
  • Concessional financing from donors should become available—giving hope that critical infrastructure projects can be expeditiously completed, catalyzing additional investment and jobs, supporting faster growth, and helping to reduce poverty.
  • The government can now relax its “balanced budget” policy, by taking advantage of available concessional financing to fund key projects. This new fiscal space is a very scarce resource that will need to be used carefully, with a focus on achieving the maximum growth pay-off.
  • One immediate challenge is to address Liberia’s severe infrastructure deficiencies – a legacy of the long period of civil conflict. As the Ministers have emphasized, there are major deficiencies in the supply of electric power and water; the road system covers only parts of the country, leaving some regions cutoff during the rainy season; and the ports are in varying states of disrepair. It is difficult to conceive of sustained economic growth in Liberia without correcting these deficiencies.

8. Other urgent challenges include the need to ensure that growth is broad-based, benefiting all Liberians; to create a favorable environment for employment growth (where infrastructure projects should help); and to ensure financial deepening and access to credit for domestic firms.

9. The international community will need to continue its substantial assistance to Liberia for the foreseeable future: recovering from a long civil war needs leadership, resources, and time. The government of Liberia is providing the leadership; donors need to be generous in providing resources; and expectations will need to be realistic about how quickly goals can be realized.

10. Let me now comment on the future relations between the Fund and Liberia. We are agreed that the Fund will continue to remain closely engaged:

  • Liberia will continue to have a large IMF technical assistance program covering tax policy and administration, public financial management, and financial sector needs, among others.
  • Provision of financial support to Liberia, under the Extended Credit Facility (ECF), is ongoing. In the fall, we will discuss Liberia’s future needs beyond the current ECF, which expires in March 2011.
  • We will continue in our traditional role of providing policy advice. In particular, we stand ready to help Liberia develop the macroeconomic aspects of its new Poverty Reduction Strategy that will cover the period from 2011 to 2014.

11. Finally, what can we learn from the Liberian experience that can apply beyond its immediate borders and those of its neighbors in West Africa? The story shows that, given strong national leadership, a coordinated combination of military, humanitarian, technical, and financial assistance can help to turn around failed states. Liberia’s post-conflict recovery is not a “first” but it provides a clear illustration of how coordinated and sustained multilateral support can help national leaders deliver impressive results.

Thank you. [End of remarks].



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