By Yanqui Zaza, CPA
Is the debt of the Liberian government (i.e., Parent) to the Central Bank of Liberia (i.e., Subsidiary) authentic, legitimate and transparent debt? If yes, should it be excluded from the Current Assets of the Bank in determining the Bank’s liquidity since the Accounts Receivable is not redeemable within one year? I gave an answer to the latter question at the Governance Commission Seminar held on December 15, 2017, and also stated that the Central Bank owes US$42 million.
Aside from the debt owed to the commercial banks, the Accounts Receivables between the Government and the Bank contributed to two separate problems not just for the Central Bank of Liberia but also for the nation. In the first case, instead of using its profits that would have been earned from excess cash invested in portfolios held outside of the country, the Bank was compelled to use the revenue of a government that is bankrupt to pay its operating expenses thereby reducing the country’s cash flow usually reserved to fight liquidity crises.
For instance, the Bank used government taxes to pay US$37 million and US$34 million as administrative expenses in 2016 and 2015 respectively. Also, the Bank paid US$750,000 and US$300,000 to the Bank’s five Board Members in 2016 and 2015 respectively, according to page # 48 of the Bank 2016 Financial Statements.
The second problem of the Accounts Receivable is that by increasing the value of its Current Assets (i.e., Cash and Cash Equivalents), it deceived many stakeholders into believing that Liberia’s financial position was good for the country to borrow more money. Certainly, stakeholders, not only creditors, would have asked questions about the Bank’s financial position if they saw that its total Current Liabilities exceeded its total Current Assets.
On page # 36 of the Bank’s 2016 Financial Statement, the Bank included government debts as one of the items that is considered in calculating its “assets held for managing liquidity risk.” The Bank’s action is in violation of page # 98 of the International Monetary Fund’s Guidelines to calculate a country’s Net International Reserves Position, the Generally Accepted Accounting Principles and International Financial Reporting System.
Generally Accepted Accounting Principles and International Financial Reporting System advise preparers and users of financial statements to exclude long-term accounts receivable or questionable accounts receivable in calculating current assets or cash equivalents. The Guidelines of the International Monetary Fund state “Loans” (not readily available to meet a Balance of payment financing need) should not be included in the “Reserves Data Template.”
Nonetheless, Bank Chief Executives, the International Monetary Fund, External Auditors, I guess, believe that the practice by the Bank to collect government revenue, which it used to finance the Bank’s operations, does indicate or support the idea that the value of the accounts receivable is Cash Equivalents or Current Assets.
However, the collection of interest income does not change the character of a long-term account receivable to the character of accounts receivables that could be redeem within one year. Also, the Bank might not have received any penny from the government if the Bank was not the custodian of all monies received by the Government and, or if the government had treated the Bank as any unsecured creditor. Many unsecured creditors do have cash flow problems because government is not liquidating its debts.
In any case, what did the government received in exchange of the account receivable? Or, what constitutes this questionable account receivable? Did an expert verify the accounts receivable since the business transaction is between two related parties? Did the Bank obtain collateral for the loan and advances? How does one address the presumption that “…arms-length transactions cannot be achieved in those situations where the parties are related or where one party can exercise substantial control over the other”?
In 2016, I tried to get answers about authenticity of the debt owed by the government as well as the make up of Liberia’s Net International Exchange Reserves Position reported to be on the average of US$200 million from 2010 through 2015. I sent one letter to the International Monetary Fund through its head office in Liberia and another to the Bank’s External Audit Firm, PricewaterhouseCoopers. I also sent copies of the two letters to the Chief Executive and Chairman of the Central Bank of Liberia.
I had hoped that the schedule detailing the computation of Liberia’s Net International Exchange Reserves Position could disclose the increases and decreases of the Special Drawing Rights and Drawdowns. Special Drawing Right (SDR) is a privilege to borrow money, while Drawdown represents the amount borrowed from the IMF. For example, the IMF November 13, 2017 Report indicated that Liberia’s SDR was declining, but the Bank’s balance sheet of 2016 did not depict the decline in SDR.
Similarly, the Bank’s balance sheet indicated increases in the debt owed by government to the Bank, even though the Bank’s expenses exceeded revenue in 2016 and 2015 respectively.
If the Bank did not get cash from its operations, how did it finance the increase in Accounts Receivable?
Page # 48 of the Bank’s 2016 Financial Statements gives us a little picture about the makeup of the debt the government owed to the Bank of Liberia. The US$32 million was a loan lent to the government of Liberia through its fiscal and depository agent, the Bank. In short, the amount is a loan from the IMF to the government of Liberia, but deposited with the Central Bank of Liberia, which is the custodian of government’s monies, gold, securities, etc.
Further, where did the National Bank of Liberia, the former Bank of Liberia, get US$245,400,046 from to lend to the government of Liberia before 1999, when the country and the National Bank of Liberia had cash flow problems from December 25, 1989 through 2003? Page # 23 of the Bank’s 2007 Financial Statement stated that the government and the Bank re-entered into an agreement to re-structure its long-term obligation to the Bank. However, page # 15 of the Bank’s 2016 Financial Statement stated that after the netting of assets and liabilities of the former Bank – the National Bank – the net worth was L$7.3 billion (i.e., US$66.9 million).
So, let us assume that the former National Bank used its profits and lent the US$245 million to the government; therefore, the accounts receivable is valid. But the profit, some of the money the Bank used to lend money to its parent, is primarily sourced to government’s revenue, a percentage of government revenue withheld. Therefore, since the accumulation of the Accounts Receivables is sourced to government revenue and, or government loan deposited with the Bank, the accounts receivables is not debt owed by the government.