Follow the Money! Where Will Liberia’s Debt Relief Go?

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Thank you again for all the work you all have done to help move Liberia’s debt cancellation forward. There have been some questions about the future use of this debt cancellation money. I want to provide with you some facts and figures.

First, in order to qualify for the HIPC (Heavily Indebted Poor Countries) debt cancellation process that Liberia has now entered, a country must establish a track record of macroeconomic stability and must have a national poverty-reduction plan. That Liberia met these two requirements so quickly after such a prolonged period of conflict (their 14-year civil war) is a testament to their early success and the leadership of President Johnson Sirleaf.

Second, debt cancellation has proven to be an effective means of delivering poverty reduction. Some success stories:

  • In 2005, Nigeria spent $750 million of $1 billion in debt relief through a tracking system (the “virtual” poverty fund) that monitored and tracked the flow of funds to poverty-reducing activity and evaluated its impact. This money was directed to education, health and infrastructure projects.
  • For every dollar freed up from debt services, African governments have increased social spending by twice as much.
  • Overall expenditures on poverty reduction in all HIPC countries increased from $14.8 billion (9.3% of GDP) in 2005 to 16.7 billion (10.2% of GDP) in 2006.

Below is a chart that graphically depicts the impressive increases in poverty-reducing expenditures in countries that have past “completion point” in the HIPC process.

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-Josh Lozman, ONE Vote ’08 Policy Director

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