The Perspective
Atlanta, Georgia
September 25, 2019

Former President Ellen Johnson Sirleaf

It is healthy for Liberians to debate the idea to print L$34B new banknotes for the country. Equally too, it would be a good idea if we discuss Liberia’s cash position and how the authorities calculated it. So, was the country bankrupt at December 31, 2017 or did former President Ellen Johnson Sirleaf administration save US $165M? If yes, did the government improve its cash deficit of US $260M in 2016 to a cash surplus of US $165M in 2017, if the June 19, 2019 International Monetary Fund (IMF) report is correct? IMF reported in June 2019 that Liberia used cash of the Central Bank of Liberia (CBL) to pay its bills.

President George Weah, at his 2018 Inaugural Program, prior to the IMF June 2019 Report, stated that the government was broke and promised to audit financial records of his predecessor. On the other hand, reacting to President Weah’s assertion, former President Ellen Johnson Sirleaf stated that Liberia was not broke and it had US $165M deposited at banks outside of Liberia.

The two Presidents put the issue of understanding Liberia’s cash position under the rug. For instance, the Weah administration suspended the audit process that would have helped Liberians to review Liberia’s cash position. Mr. Samuel Tweah, Head of the Ministry of Finance, Planning and Economic Affairs, stated that auditing the previous administration might undermine President Weah peace initiative. He made the statement as the Orator of the July 28, 2018, National Independence Day Celebration.

President Weah went beyond the statement of his adviser and stated that Liberia was not broke. Delivering the State of the Nation Speech in 2019, President Weah summersaulted, and stated that the Liberian economy was not only strong but that Liberia’s Gross International Foreign Exchange Reserves has increased to US $406M in 2018 from US $403M in 2017. (See Page # X of the 2018 CBL Annual Report.)
Why should a government keep “Foreign Reserves” or “Rainy-Day-Savings”? The (IMF) has defined seven purposes, including, but not limited to (1) that countries keep excess cash to maintain their currencies at fixed rate; (2) they use excess cash to stabilize liquidity crisis; (3) they use excess cash to meet external obligations and absorb any capital movements; (4) they use excess cash to assure foreign investors that countries have sufficient cash to protect their investments; etc.
The IMF states that a country can accumulate its “Rainy-Day-Savings” or “Foreign Reserves?” (1) by using a portion of its revenue and invest in foreign investment portfolios; (2) by attracting tourists and foreign businesses; (3) by obtaining loans and/or selling its treasury bills to foreign investors, etc.
Well, the announcement that Liberia had foreign reserves of US $403M in 2017 and US $406M in 2018 has become old news since the (IMF) reported that the Liberian government has been bankrupt, as far back in 2016. In its June 19, 2019 Report, IMF reported that “…The number of checks the government has issued in the absence of adequate funds increased as of the end-2018 to US$355 million, from US$260 million at end-2016, according page # 11 of the IMF Report.

So, is it possible for a country to be cash trapped (bankrupt) and at the same time have excess Foreign Reserves? If yes, did Liberia’s Foreign Reserves represent the value of Liberia’s Special Drawing Rights?  In any case, what are special drawing rights (SDRs)? IMF Template # 97 states that “…SDRs are international reserve assets the IMF created to allow poor countries (i. e., of course, IMF member countries) to borrow money to increase their excess cash.

“Special Drawing Rights” allow a country to borrow money in the same way a credit card” or a “bank overdraft” provides a privilege to a borrower or a client of a commercial bank to borrow money. While an individual and/or a client of a bank does not use the value of the credit card or bank overdraft to increase the values of his/her assets, the IMF requires poor countries to increase their Foreign Reserves with the values of special drawing rights.

In the case of Liberia, the country’s “Rainy-Day-Savings were US $22M in 2006, US $35M in 2007 and US $42M in 2008. However, in 2009, the Central Bank of Liberia (CBL) added about US $200M Special Drawing Rights to Liberia’s “Rainy-Day-Savings, according to page # XV of 2009 CBL Annual Report. From 2009 through 2018, Liberian authorities have reported positive Net International Foreign Exchange Reserves, implying that Liberia had excess cash. Also, the IMF, I guess, relying on the numbers provided by the Liberian authorities, has and continues to report positive Liberia’s Net International Foreign Exchange Reserves, according page # 11 of the IMF Country Report number 19/169.

On the other hand, the financial records that Liberia’s External Auditors review and express opinion on, called CBL Audited Financial Statements, have, since 2013, reported negative cash positions. For instance, as per page # 50 of the 2018 CBL Financial Statements, CBL had negative cash positions of L$34B and L$17B in 2018 and 2017 respectively. In 2016, CBL reported negative cash positions as L$16B and L$7B in 2016 and 2015 respectively, according to page # 35 of CBL 2016 Audited Financial Statements.

So, if the negative cash positions of CBL are correct, should Liberia absorb or own CBL’s losses? Certainly. As the parent of CBL, the Liberian government is responsible for CBL’s losses, even if the administrative expenses significantly contributed to the negative cash positions. In fact, with the exception of CBL operating expenses, CBL uses cash of third parties and finances Liberian government programs. For instance, CBL used deposits of third parties and inflow of remittances to stabilize Liberian currency, print new banknotes, lend money to the government, control interest rates, assist commercial banks, etc.

Liberian authorities are or should be aware of the negative positions of the country. However, it is a normal practice in government for authorities to good mouth the economy, meaning, it is in the interest of the country, they argue, to hide any negative news from the public in order to encourage citizens and investors to spend and invest. So, yes, former President Sirleaf and President Weah gave the information they had hoped would encourage us to spend.

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References

(http://www.cbl.org.lr/doc/cblannrep09.pdf)
CBL 2009 Annual Report

(https://www.imf.org/external/np/sta/ir/IRProcessWeb/pdf/guide.pdf)
IMF Template for International Foreign Exchange Reserves
(file:///Users/mac/Documents/IMF%20MAY%2016%202019%20%20copy.pdf)
IMF June 2019 Country Report number 19/169 (http://www.cbl.org.lr/doc/FinancialStatement_2018.pdf)
2018 CBL Audited Financial Statements
(http://www.cbl.org.lr/doc/Annual_Report_2018_Feb_12_2019.pdf)
CBL 2018 ANNUAL REPORT 

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