World Bank’s Concerns on GoL’s High Recurrent Expenditure -- A Wake-Up Call!

The World Bank, Liberia’s principal financial and economic advisor, has expressed concerns that recurrent expenditure of the government of Liberia is too high. 

It does appear more likely than not that the Government of Liberia’s indebtedness to the Central Bank of Liberia (CBL) could be the major culprit.  The government of Liberia has been dipping into reserves of local banks as well as donor accounts to finance its operations. Such developments prompted an unusual response from the international community -- an open letter to the Government of Liberia.

Former Information Minister Eugene Nagbe, responding to the widely circulated letter from the international donor community demanding restitution of funds illegally withdrawn from its accounts, termed the government’s action as “dig hole, cover hole”.  

Whatever the case, reasons for high current expenditure can easily be seen in the ostentatious lifestyles of government officials.  Off budgetary expenditures including frequent foreign Presidential travels often with large delegations and a bloated bureaucracy are significant contributors to the high recurrent expenditures.

But the question is why now or since when has the World Bank become aware of this problem? We ask this question because the United States Department of State has consistently flagged similar concerns in its reports.

The US State Department has in several of its reports declared that government officials were violating the Public Finance Management (PFM) law. The PFM law requires strict adherence to transparency and accountability. This law has been violated repeatedly with impunity by government officials in charge of managing public resources. The corrupt handling of the US$25 million liquidity mop-up exercise, and the pillaging of donor accounts held at the Central Bank of Liberia (CBL), are cases in point.

But this is what the US State Department had to say:

“Information on debt obligations, with the exception of state-owned enterprise debt, was widely and easily accessible to the general public, including online. Foreign assistance receipts, largely project-based, were neither adequately captured in the budget nor subject to the same audit and domestic oversight as other budget items.”

“Significant deviations between projected and actual revenues during the review period undercut the reliability of budget information. The supreme audit institution did not meet international standards of independence and did not make its audit reports publicly available within a reasonable period of time.”

“The criteria and procedures for awarding natural resource extraction licenses and contracts were outlined in law, although there have been reports of corruption and inconsistent application of regulations in practice. Basic information on some, but not all, natural resource extraction awards was publicly available.” 

Despite such expressed concerns by the US State Department that public officials in charge of managing public resources were repeatedly violating the PFM Law, it appears the World Bank remained unfazed. In June 2021, the World Bank awarded this government a loan of US$157 million. This is troubling because violations of the PFM Law could include a wide range of actions including the illegal siphoning of public money into private pockets.

It is indeed difficult to understand how the World Bank could have ignored those red flags highlighted by the US State Department. Also, how can it reconcile its concrete action to noble and high-sounding statements of support for transparency and accountability? But there is a catch to this, explained a former CBL official. According to him, it appears that the World Bank, without saying so, is alarmed by recent statements by Deputy Finance Minister Samora Wolokolie.

At a recent forum, Deputy Minister Wolokolie declared   that given the current outlook, Liberia could default on her debt servicing requirements. 

According to a former CBL official, the awarding of loans to a government known to be in violation of its own laws is intended to keep that nation in a perpetual state of indebtedness. And he added that World Bank debt servicing requirements are not only high but stiff as well. Estimates put it that for every dollar Liberia receives as a loan from the World Bank, it has to pay fifty US cents ($0.50) as interest on the loan.

Be it as it may, the Daily Observer welcomes the World Bank’s statement of concern, although belated. This should constitute a wake-up call to this government, especially to those in charge of managing public resources. 

This means that this government has to address itself to the cancer of corruption that is eating away the fabric of this nation.  The millions of dollars lost to corruption each year could, as the World Bank recommends, be invested in creating an educated, skilled and healthy labor force. Ultimately it calls for increased social spending in areas of education and health.

But the dilemma is, IMF Structural Adjustment Programs (SAPs) require and emphasize cuts in social spending. And so it remains to be seen how and what this government’s responses will be in the short and long term.