The Ebola epidemic has already dealt a huge blow to Liberia’s economic recovery program. But the worry at the moment for many Liberians is that their economy is once again sinking into new debt burden. The country’s total public debt stock has grown to over half a billion US dollars from US643 million in the first quarter of 2014 to US$658 at the end of the second quarter. This is on the back of rapid increases in both domestic and external debt stocks.
Many economists are getting worried about the increase in the country’s debt trend especially, when the government is facing fresh challenges posed by the Ebola outbreak.
“The worry is how much more money are we [country] going to borrow to address the fresh impact of the Ebola virus,” said George Kollie, a student of Economics at AME Zion University. “Remember we [Liberia] got 100 percent debt relief from its bilateral and multilateral creditors in 2010.” External debt stock at the end of the second quarter has risen to over US$345 million which constitutes to about 16 percent of the country’s gross domestic product (GDP).
This was made public by the Central Bank of Liberia (CBL), which has reported in its 2nd Quarter Financial &Economic Bulletin for 2014 that total extended annualized debt stock grew by 22 percent, from US$284 million reported in the corresponding period in 2013.
Multilateral and bilateral debt stocks stood at US$224.5 million or 10.7 percent of GDP and US$122.1 million or 5.8 percent of GDP. These debt stocks constitute 64.8 percent and 35.2 percent of the country’s external debt stock, respectively.
The CBL attributes the ‘marginal growth’ in the country’s external debt stock to the increased in credit disbursements on the European Investment Bank (EIB) loan as well as the World Bank Group’s crisis window International Development Association (IDA) and the International Monetary Fund (IMF) credits from multilateral organizations or sources.
Domestic debt stock is also growing. According to the CBL, domestic debt stood at US$311.4 million, representing about 14.9 percent of GDP. It is growing by 3.4 percent or US$10.4 million and 5 percent or US$14.9 million compared with the amounts accumulated at the end of the first and second quarters of 2014, respectively.
Domestic debt is been growing because the government has been crediting from domestic financial institutions, the CBL says.
According to the Bank, domestic debt stock to financial institutions rose by US$10.4 million, up from US$294.1 million at the end of March, 2014, to US$304.5 million—about 14.5 percent of GDP recorded during the review quarter.
When matched against the corresponding period in 2013, however, domestic debt to financial institutions grew by 5 percent or US$14.9 million at the end of the second quarter, 2014. This meanwhile constituted over 97 percent and over 46 percent of domestic and public debts stocks, respectively.
The CBL has noted that domestic debt to suppliers’ credit, salary &allowances as well as pre-arrears for National Transitional Government of Liberia (NTGL) in the reporting quarter stood at US$1.9 million, US$3.7 million, and US$1.3 million, respectively.
In the face of the rising public debt stock, the current account deficit of the economy narrowed by 33.9 percent during the second quarter. According to the CBL, the improvement was on account of the rise in current transfers and 15 percent decline in investment income deficit, which offset the 27.6 percent widening in the trade balance.
The CBL noted that current account deficit narrowed by 62.2 percent in the reporting quarter, compared to the corresponding period in 2013. According to the CBL, both public and private transfers rose in the wake of the Ebola crisis which began in the first quarter, 2014. “Public transfers, mainly grants, rose by 15 percent,” the CBL said.
Compared with the corresponding quarter in 2013, public transfers reportedly rose by 34.1 percent. The CBL also noted net inward private transfers or personal remittances recorded growth during the reporting quarter, but dwindled by 0.5 percent on an annualized basis the end of the reporting quarter.
Investment income deficit also fell by 15 percent at the end of the reporting quarter, reflecting, largely declining reinvested earnings in the domestic economy. Reinvested income deficit narrowed by 42.6 percent at the end of the first quarter, when compared with the corresponding quarter in 2013.
The CBL blames the deterioration in the trade deficit in the reporting quarter on account of the 5 percent rise in merchandise import payments against the 6.4 percent decline in export receipts. Trade deficit widened by 8.8 percent on at the end of June, 2014 on a year on basis, reflecting the need for production in the economy.