Debt statistics 2017

Overall international debt burden (% of GDP)20
Government payments on foreign debt (% of revenue)2.2
Government foreign debt (% of GDP)47
Private foreign debt (% of GDP)No data
IMF and World Bank debt cancellation ($ billions)5
Country case studiesYes

Country case study

Liberia’s debt came from reckless lending in the 1970s, and loans to prop-up dictator Samuel Doe during the Cold War. In the 1990s and 2000s, the country was ravaged by civil war, whilst the government defaulted on its debts. With the end of the war, between 2008 and 2010 Liberia went through the Heavily Indebted Poor Countries process, and had a large amount of its debt cancelled. This did not include private creditors. Two vulture funds tried to sue Liberia for $20 million in British courts. However, an Act of Parliament introduced thanks to campaigning by Jubilee Debt Campaign led this payment to be reduced to $1 million.  

Liberia’s debt large debt was first created in the 1970s as part of the boom in lending due to deregulation of finance in Europe and the US, and the high levels of ‘petro-dollars’ in western banks due to oil price spikes. Liberia’s debt to private banks increased from $30 million in 1970 to over $150 million in 1979.

At the end of the 1970s the US hiked up interest rates and the price of commodities collapsed causing a bust across Latin America and Africa. From growing quickly in the 1970s, Liberia’s economy stagnated with these shocks and the debt increased from 50 per cent of national income in 1979 to over 100 per cent by 1986. The new lending was effectively bailout loans from foreign governments and international institutions to pay-off private lenders. The percentage of debt owed to foreign banks fell from 35 per cent in 1979 to 20 per cent by 1985, replaced by debt owed to the IMF and World Bank.

In the early to mid 1980s Liberia’s debt repayments were the equivalent of 30 per cent of the country’s earnings from exports; a huge burden of money flooding out of the country.

In 1980 Samuel Doe headed a military coup. An ally of the US during the Cold War, the US gave significant financial and military backing to Doe, whilst corruption and political repression increased. In 1989 Charles Taylor launched an insurrection to try to overthrow Doe’s government, which created Liberia’s first civil war. A peace deal in 1995 led to Taylor becoming president in 1997. Under Taylor Liberia became seen as a parish state internationally. In 1999 a second civil war began, ending in 2003 when Taylor fled into exile. In 2005, Ellen Johnson-Sirleaf was elected president and later received the nobel peace prize.

Liberia defaulted on its debt payments for much of the civil war; the notional debt stood at 300 per cent of national income in 2003. There were sporadic repayments, especially of tens of millions of dollars in the mid-1990s.

Liberia was admitted to the Heavily Indebted Poor Countries initiative in 2008, leading to it having much of its debt cancelled in 2010. To qualifying for debt cancellation, Liberia had to start making payments on debts it had been in default on, leading to a huge increase in payments. Normally under HIPC’s rules, Liberia would have had to take out new loans to pay defaulted old debts, and the new loans would not have been cancelled. International campaigning led to this largely not happening in Liberia’s case, and the debt was cut to 10 per cent of national income in 2010.

In 1978 the US Chemical Bank had lent Liberia $6.5 million. The ‘ownership’ of this debt was sold many times, especially once repayments on it stopped during the civil wars. Traders effectively saw it as unlikely the debt would ever be paid. It ended up in the hands of two vulture funds – Hamseh Investments and Wall Capital. In 2009, the two funds sued Liberia in the UK for $20 million and won the case. In 2010, an Act of Parliament was passed thanks to Jubilee Debt Campaign which limited payments to vulture funds in cases such as Liberia. In late 2010 an out-of-court settlement was reached for just $1 million.

Reacting to the passing of the Act of Parliament, President Johnson Sirleaf said: “Bravo! We’ve been waiting for a parliament or an assembly to take this kind of hard decision to be able to bring these funds into reason. Maybe the US Congress … will pick up this gauntlet and will follow the example of Britain and move that — because it’s just so unfair to poor countries.”

The IMF estimates Liberia’s debt in 2012 is 13 per cent of national income, but predicts it will increase rapidly to 25 per cent of national income by 2016 and 30 per cent by 2020. Debt payments are predicted to use up 2 per cent of government revenue a year over this period. This assumes the economy will grow by more than 7 per cent over the next few years.

The IMF says even if Liberia is hit by an extreme economic ‘shock’ (such as drought, flood, world wide recession or change in important commodity prices) debt payments would only use up 5 per cent of government revenue. However, over recent years, 12 per cent of countries analysed by the IMF have had more extreme economic shocks than the IMF’s predicted extreme. Most of the lending to Liberia in recent years is from the IMF and World Bank.

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