In Liberia’s post-conflict reconstruction process and for Ellen Johnson-Sirleaf’s government, reaching the “completion point” under the Heavily Indebted Poor Countries (HIPC) Initiative – the stage at which full and irrevocable debt relief is won – is a milestone. The news, announced yesterday by the World Bank, is a testament to the success of years of targeted reforms by the Liberian government. Under the leadership of Ellen Johnson-Sirleaf and her cabinet ministers, and with the assistance of international partners, the Liberian government worked hard to ensure that the country’s heavy debt burden could be waived. Until yesterday, Liberia had the world’s highest debt-to-GDP ratio (90%). After reaching the HIPC completion point, this ratio is drastically reduced to 15%.
This accomplishment is the result of the implementation of a series of reforms in the country. Debt relief under HIPC depends on whether a country has put in place an effective poverty reduction strategy, with clear objectives and processes to improve development indicators and human security. Ellen Johnson-Sirleaf explained how her country reached the completion point: “We concentrated on building the institutions, getting the laws, getting our public financial management law passed, making sure we got a general auditing commission that’s functioning, making anti-corruption effective.” Acknowledging that much still needs to be done, Augustine Ngafuan, Liberia’s Minister of Finance, noted “we will continue to be geared toward consolidating macroeconomic stability and fostering conditions conducive to rapid and sustainable growth and employment creation as well as poverty reduction.”
Liberia’s total outstanding debt was around $4.9 billion, $4.6 billion of which have now been pardoned under the HIPC initiative. While the country still has to negotiate additional deals with other creditors, analysts explain that debt relief will generate new fiscal space for Liberia. The government’s biggest priorities are to rebuild infrastructure, improve social services and attract foreign investment. All of these aspects of post-conflict reconstruction will be positively impacted by the provision of debt relief, which signals to creditors, donors and investors alike that Liberia is moving away from the emergency phase of its recovery. The country will now be able to borrow internationally, and will have access to facilities from which it had been precluded.
Liberia has been struggling with debt for decades, and, in fact, most of the debt pardoned yesterday was contracted during years of poor governance and dictatorship, and never repaid or serviced. As recently as November 2009, Liberia was sued by so-called “vulture funds” over a $20 million debt contracted three decades prior, under the presidency of William Tolbert. Poor fiscal management decisions on the part of Ellen Johnson-Sirleaf’s predeccesors, which have been hampering Liberia’s post-conflict reconstruction, are now a thing of the past. Liberia’s ability to continue in this current trajectory of greater responsibility and accountability will be a significant determinant of the successful reconstruction of the country. As Ellen Johnson-Sirleaf gears up for what promises to be a competitive 2011 presidential election, the President will be able to leverage this important milestone in her bid to win a second term.