- Liberia has significantly reduced its foreign debt by buying back $1.2 billion in outstanding government debt at a discount of nearly 97 percent of face value, the steepest ever negotiated on developing country commercial debt, the country has announced today.
The deal, according to the World Bank report, was concluded with the payment of $38 million to retire 25 outstanding commercial claims. The World Bank contributed half of the money through the International Development Association (IDA) Debt Reduction Facility, and Germany, Norway, the United Kingdom, and the United States are said to have contributed the other half.
“The successful resolution of this inherited debt, which had ballooned through interest and penalty charges during a period when my country was wracked by civil war, is an important step on our road to recovery,” said Liberian President Ellen Johnson Sirleaf. “This puts us on a firmer footing to attract investment and accelerate economic growth.”
In congratulating Liberia, the World Bank Group President Robert B. Zoellick, said: “This buy-back significantly eases Liberia’s heavy external debt burden and normalizes the country’s financial relationships with the investment community”.
Mr Zoellick also explained that the support to the buy-back by the Bank’s Debt Reduction Facility was part of the commitment to help heavily indebted poor countries reduce their debt burden.
This deal cuts Liberia’s foreign debt to $1.7 billion, representing a reduction of more than $3 billion in the last two years, said the Wold Bank, further adding that most of the remaining debt will be cancelled when Liberia reaches its Completion Point under the Heavily Indebted Poor Country (HIPC) initiative, probably in 2010.
The bought back debt is said to have been in default since the mid-1980s when Liberia was beginning to descend into civil war. During the intervening years, most of the debt was sold and often resold on the secondary market.
The Liberia deal, which had been in negotiation for two years, is the first successful debt buyback in which the vast majority of the debt was held by hedge funds and other distressed debt investors rather than by the original creditors. Creditors holding 97.5 percent of Liberia’s foreign commercial debt participated in the deal, one of the largest rates of participation in a sovereign debt buyback in the last several decades.
Because of the support of the World Bank and the other partners, the buyback was completed at no cost to the citizens of Liberia, the report said.
Ms Sirleaf, Africa’s only female head of state, was elected in 2005 after international intervention ended years of bloody fighting that devastated the country and destroyed the capital, Monrovia. As part of its recovery efforts, Liberia has worked with its multilateral, bilateral, and commercial creditors to rationalise its debts. In June, 2007, Liberia’s foreign debt totaled $4.9 billion, equivalent to 700 percent of Liberia’s national income, by far the highest debt-to-GDP ratio among developing countries.
In December 2007, the World Bank financed Liberia’s clearance of its overdue debt service payments to the World Bank, resulting in a reduction in its debt of close to $400 million, and a similar operation with the African Development Bank led to a reduction of an additional $250 million. Negotiations with its bilateral creditors have led to cancellations of approximately $800 million.
Liberians are among some of the poorest people in the world, with an average annual per capita income of $150. More than half of the population of 3.5 million is under 25 years old, meaning that most Liberians had not even been born when the original debt was incurred.
According to the World Bank, Liberia has recovered quickly since the end of the war in 2003. Economic growth has accelerated to nine percent a year, school enrolments have grown rapidly, and health facilities have re-opened across the country.
afrol News - It is called "financial inclusion", and it is a key government policy in Rwanda. The goal is that, by 2020, 90 percent of the population is to have and actively use bank accounts. And in only four years, financial inclusion has doubled in Rwanda.
afrol News - The UN's humanitarian agencies now warn about a devastating famine in Sudan and especially in South Sudan, where the situation is said to be "imploding". Relief officials are appealing to donors to urgently fund life-saving activities in the two countries.
afrol News - Fear is spreading all over West Africa after the health ministry in Guinea confirmed the first Ebola outbreak in this part of Africa. According to official numbers, at least 86 are infected and 59 are dead as a result of this very contagious disease.
afrol News - It is already a crime being homosexual in Ethiopia, but parliament is now making sure the anti-gay laws will be applied in practical life. No pardoning of gays will be allowed in future, but activist fear this only is a signal of further repression being prepared.
afrol News / Africa Renewal - Ethiopia's ambitious plan to build a US$ 4.2 billion dam in the Benishangul-Gumuz region, 40 km from its border with Sudan, is expected to provide 6,000 megawatts of electricity, enough for its population plus some excess it can sell to neighbouring countries.