April 16, 2009 — Two years ago, Liberia’s debt amounted to 700 percent of the national income. Today, that crushing debt burden just got a lot lighter.
President Ellen Johnson Sirleaf announced that Liberia has slashed $3 billion in government debt in the last two years with the help of the World Bank and other partners.
About half of that amount is the result of recently completed negotiations with commercial creditors that achieved the steepest discount – 97 percent – ever negotiated on a developing country’s debt.
The deal means it cost only $38 million to retire $1.2 billion in debt. And Liberians won’t bear any of the burden.
The World Bank contributed half of the amount, through the International Development Association (IDA). Germany, Norway, the United Kingdom and the United States contributed the other half.
Speaking at the World Bank, President Johnson Sirleaf hailed the resolution of the debt as an important step in her country’s “road to recovery.”
“Today is a big day for the people of Liberia,” she said. “This puts us on a firmer footing to attract investment and accelerate economic growth.”
World Bank Group President Robert B. Zoellick said the effort to buy back Liberia’s debt is part of the Bank’s commitment to help heavily indebted countries.
“We need to see this as a milestone because we still have to complete the remaining debt reduction, but we have a program to do so,” Zoellick said.
Liberia still has $1.17 billion in foreign debt. Most of it will be cancelled when Liberia qualifies for debt relief under a World Bank initiative (HIPC) in 2010.
“But even that is just going to get the stone off the back of the people of Liberia,” Zoellick added. “Then we have to help them be able to walk and run forward…and in an economic climate like this, that’s not going to be easy.”
Liberia, one of the poorest countries in Africa, is rebuilding after years of civil war that devastated infrastructure and the country’s once-thriving economy.
The country’s formerly staggering debt load ballooned through interest and penalty charges during the country’s civil war, said Johnson Sirleaf, Africa’s first democratically elected female head of state.
“We have been at peace for nearly six years,” she noted. “People are rebuilding their homes and their communities. Children are returning to school. We are beginning to provide running water, basic sanitation, good roads, taking strong steps to improve governance and strengthen accountability, and beginning to see results.”
The World Bank helped Liberia reduce about $400 million in debt in December 2007. African Development Bank assisted in another $250 million in debt reduction. Negotiations with bilateral creditors have led to cancellation of approximately $800 million.
The now-retired $1.2 billion in foreign commercial debt was held by hedge funds and other distressed-debt investors rather than by the original creditors. A full 97.5 percent of these kinds of investors in Liberia’s debt participated in the buy-back.