After freeing itself from a civil war, Liberia is now freeing itself from another major impediment to its development: a mountain of foreign debt. Little more than a year ago, Liberia’s foreign debt totaled $4.9 billion, equivalent to 700% of Liberia’s national income. This basically means all Liberians would have had to work for seven years without eating drinking or consuming anything just to pay off their debt to foreign creditors (and this is excluding the interests due during these seven years).

The country has chosen another path and embarked on a series of steps for which the support of creditors is indispensable.

The first step was taken when the country reached decision point under the “Highly-Indebted-Poor-Countries”-Initiative in March 2008. Liberia was originally named as HIPC-eligible but, due to its 14-year civil war, progress was limited. Under the leadership of President Ellen Johnson-Sirleaf, Liberia worked with major creditors to clear past debts, and at the same time creditors built in flexibility for Liberia in allowing a Staff-Monitored Programme of the IMF to count towards the requirement that countries demonstrate a track record of working with the international financial institutions. Although there were costly delays, the flexibility of the IFIs has offered essential support to Liberia at a turning point in its political and economic history. This first step only affected government-to-government debt.

This debt buyback is a second important step to ensure the economic viability of the country. As around 25% of the debt of Liberia was held by private creditors (hedge funds for a large part), it was essential to tackle this category of debt as well. With the financial support of the Worldbank and bilateral donors, Liberia has bought back the commercial debt that it owed to private creditors.

The third step, which has yet to be taken, is the completion point under the Heavily Indebted Poor Country (HIPC) Initiative. Liberia’s foreign debt is now down to $1.8 billion (still standing at around 250% of its national income). Most of this remainder will be cancelled when Liberia reaches its Completion Point. The creditors and above all the Worldbank, should continue to be flexible. They are setting and interpreting the triggers, which will decide when Liberia reaches decision point. One year has now passed since Liberia reached decision point. This means the minimum time any one HIPC country has to stay at decision point level is now over.

Therefore, the buyback is a good reminder to allow Liberia to take the third step and to rid itself of a debt burden that impedes the development of this increasingly stable post-conflict country.

Andreas Huebers