A tale of three neighbouring economies – Sierra Leone, Liberia and Guinea

5 October 2012

Sierra Leone, Guinea and Liberia may have a lot in common, most notably, they share a common border. But there is more that distinguishes the three countries than meets the eyes – take the economy, for one.

Political instability and an economy battered by civil war, is a caricature more associated with Sierra Leone and Liberia.

Both countries, just ten years ago were classified as ‘failed states’, thanks to former warlord – Charles Taylor, who is now locked up behind bars at The Hague, waiting to serve his jail term for war crimes against the people of Sierra Leone and Liberia.

As the two countries struggle to repair their battered public institutions, restructure their economies, re-establish law and order, and rebuild democracy, confidence is growing of a better future as the prospect of oil exploration looms.

And so too is Guinea, whose economy has experienced much turmoil after years of mismanagement, corruption, political instability and poor governance.

When the International Monetary Fund (IMF) comes knocking at the door, no one knows what they’ll find, as government officials have a habit of either being economical with the truth, or withholding information that may reveal the truth about the economy.

Economic analysis and forecasting is a daunting exercise in Africa, but the IMF is confident, although in its last review meeting with officials in Sierra Leone, it expressed its disappointment that vital economic data was not made available.

But in a follow up meeting held in Freetown on 20 September to 3 October to carry out its fifth review of Sierra Leone’s economic and financial program supported by the IMF under the Extended Credit Facility (ECF), the IMF remained cautious.       

Led by Ms. Malangu Kabedi-Mbuyi, the mission met with President Ernest Bai Koroma; and held discussions with Minister of Finance and Economic Development – Samura Kamara; Minister of Trade and Industry – Richard Konteh; Central Bank Governor – Sheku Sesay; representatives of the business community; development partners; and other senior officials from the Government and the Central Bank.

At the end of their discussions, Ms. Kabedi-Mbuyi said that; “Sierra Leone’s economic growth has strengthened in recent years, driven by expansion in agriculture, services and construction activities.”

Once again, as with previous meetings, the IMF was unable to confirm government’s exaggerated economic growth figures.

Instead, the IMF’s statement issued on Tuesday in Freetown, said that; “Real gross domestic product (GDP) growth increased from 3.2 percent in 2009 to 6 percent in 2011. The coming on stream of iron ore production in late 2011 is expected to boost growth and exports significantly in 2012 and beyond.”

But the IMF continues to be encouraged by efforts to curb rising prices in the country. “Inflationary pressures have trended downwards since mid-2011, aided by a sharp fall in non-food inflation, a tight monetary policy stance, and stability in the exchange rate” says Ms. Kabedi-Mbuyi.

The IMF believes that there is a “need to continue fiscal consolidation efforts in 2012-13, by maintaining expenditure restraint, enhancing non-mineral revenue mobilization, and advancing public financial management reforms.”

This confirms long held suspicion that the Koroma led government is not in control of its finances.

There is a deep worry that, the government’s economic policy – as the country prepares for elections in November, may not have been consistent with the need to promote economic stability

But the IMF said that; “economic policies should continue to support macroeconomic stability, and long-term debt sustainability”, with future prospects looking much more positive.

“The medium-term prospects are favourable. However, they are subject to downside risks related to the uncertain global economic outlook and potential adverse movements in commodity prices for Sierra Leone”, says the IMF.

Yet, it seems the IMF’s continuous call and that of the opposition and critics, for the government to build a much more diverse economy that is less reliant on iron ore export, has been falling on deaf ears.

The IMF said on Tuesday, that; “To support broad-based growth and reduce the economy’s vulnerability to exogenous shocks, the authorities would need to sustain efforts to improve the business environment and address impediments to growth.”

“Key among these are continued investment in infrastructure to support productivity gains in the private sector, increased economic diversification, and broader access to financial services, particularly for small- and medium-sized enterprises to create employment opportunities”, says the IMF.

The government has been making a lot of noise lately about its new AGENDA – its Agenda for prosperity.

But many believe that, with so much left undone by the government, as it completes its five year term in office, its Agenda for Change has been a disaster for the economy.

The IMF has not endorsed the government’s view that its management of the economy has been a success.

What the IMF is able to say is that; it “welcomed progress in the preparation of the authorities’ new poverty reduction and growth strategy – the Agenda for Prosperity, which outlines policies and reforms to address Sierra Leone’s developmental challenges.”

But contrary to its last review statement, which gave a qualified ‘pass’ on the government’s performance in managing the economy, it seems the IMF has last Tuesday back-pedalled.

Sounding more optimistic and rather caught in the government’s electioneering fever, the IMF said; “Regarding program performance at end-June, the mission found that all quantitative performance criteria and indicative targets were met, and that progress was being made in implementing the government’s privatization agenda.”

Visiting Liberia in September, the IMF seems encouraged by President Helen Sirleaf’s government’s effort in restructuring the economy and tackling deep entrenchment caused by decades of war, poor governance, neglect and lack of investments.   

The mission held discussions with Minister of Finance – Amara Konneh, Deputy Central Bank Governor – Theophilus Bettie, and other senior officials.

At the end of the discussions the head of mission – Ms. McAuliffe, issued the following statement in Monrovia:

“Liberia’s economic growth is on an upward trajectory and economic prospects over the medium term remain favourable. Real GDP growth is expected to reach close to 9 percent in 2012, driven by continued strong growth in the mining sector and rising activity in construction and other services.

“Non-mining activity slowed in the first half of 2012 due to declining rubber export prices and the impact of elevated food and fuel prices on consumption. Risks to growth remain on the downside, especially from sluggish global demand for commodities.

“Inflation has declined to single digits and is expected to remain stable through end-2012, with upside risks from rising international food prices, although rice prices have so far not moved significantly in world markets. The external payments position remains stable.”

“The mission has reached preliminary understandings with the authorities on the key elements of their economic program that can be supported by the IMF.

“Policy discussions focused on creating fiscal space to boost spending on infrastructure and human development, while maintaining macroeconomic stability and debt sustainability, promoting financial sector deepening and access to credit, and creating a favourable business climate to support broad-based growth and job creation.

“The authorities’ medium-term structural reform agenda rightly focuses on strengthening financial oversight and reporting of state owned enterprises; enhancing budget programming, control and monitoring; improving capital spending execution and containing non-priority current expenditures; developing the financial sector and supporting the stability of the banking system; and improving national accounts statistics.

“The mission welcomed the authorities’ commitment to limit annual external borrowing to 4 percent of GDP in net present value terms to support the scaling up of infrastructure investment while maintaining low debt vulnerabilities.

“The planned issuance of government treasury bills will provide additional tool for meeting domestic financing needs and will support financial market development.”

Moving across to Guinea, the message from the IMF mission that visited the country in September, is no different to what is happening in Sierra Leone and Liberia: three economies – one story, same message.

In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries to ensure debt sustainability, and thereby reduce the constraints on economic growth and poverty reduction imposed by the unsustainable debt-service burdens in these countries.

Sierra Leone is one of the major beneficiaries of the HIPC, which saw billions of dollars in international debt wiped off its slate eleven years ago. But today there are worries that Sierra Leone’s debt has once again reached astronomical level – estimated at over $1 billion.

The International Monetary Fund (IMF) and the World Bank’s International Development Association (IDA) have decided to support US$ 2.1 billion in debt relief for Guinea, representing a 66 percent reduction of its future external debt service over a period of 40 years.

According to report from the IMF, the Boards of Directors of both institutions determined that Guinea has made satisfactory progress in meeting the requirements to reach the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative, the stage at which the HIPC debt relief becomes irrevocable and the country will benefit from the Multilateral Debt Relief Initiative (MDRI).

The requirements met by Guinea included, among others, the preparation and satisfactory implementation of a Poverty Reduction Strategy Paper (PRSP), the maintenance of a sound macroeconomic policy framework, the improvement of a poverty database and monitoring capacity, the publication of annual reports on the activities of the Anti-Corruption Agency, an increase in gross enrolment rates in primary schools, and an increase in immunization rates for children.

Guinea was granted a waiver on the trigger related to audits of large government procurement contracts, as the broad objective of this requirement was achieved and implementation has improved.

“Reaching the HIPC completion point represents an important achievement for Guinea. It reflects the significant progress made in economic management following the first democratic elections in December 2010,” said Harry Snoek, IMF mission chief for Guinea. 

“Reaching the completion point will help Guinea allocate more resources for poverty reduction and economic growth. Sound macroeconomic management will remain critical after the completion point to make the most of Guinea’s abundant mining resources and other growth potentials,” Mr. Snoek said.

“Full debt relief is a tremendous development opportunity for Guinea, as this will help the country achieve economic stability and devote more resources to reduce poverty,” said Ousmane Diagana, World Bank Director for Guinea.

“We will continue to support Guinea in strengthening financial management, transparency and accountability to turn debt relief into visible development outcomes such as better health, education, environmental preservation and infrastructure for sustainable and inclusive growth,” Mr. Diagana said.

Of the resulting reduction of about US$2.1 billion, about 70 percent will come from multilateral creditors, and the remaining from bilateral and commercial creditors.

MDRI relief provided by the World Bank’s IDA and the African Development Bank Group would save Guinea US$964 million in debt service over 40 years. There remain no loans eligible for MDRI relief from the IMF.

Full delivery of debt relief (HIPC Initiative, MDRI, and additional bilateral assistance at the completion point) will considerably reduce the debt burden of Guinea.

The annual external debt service will fall by 70 percent, from an average of US$170 million for the period 2012-2021 to US$49 million.

Nevertheless, both the IMF and the World Bank consider that the improved Guinea’s debt indicators will be sensitive to export levels and the terms of new external financing, underlining the need for sound macroeconomic management, further progress with structural reform, and strengthened debt management.

Guinea becomes the 34th country to reach the completion point under the HIPC Initiative.

The completion point marks the end of the HIPC process, which started in 2000 when the Executive Boards of the IMF and the World Bank’s IDA agreed that Guinea had met the requirements for reaching the decision point, the stage at which countries start receiving debt relief on an interim basis.

According to Reuters:

“Guinea’s President Alpha Conde sacked 11 of his government ministers in a surprise cabinet reshuffle announced on state television late on Friday, 5 October, 2012. The statement from the presidency gave no reason for the shake-up, but the move comes amid heightened tensions in the world’s top supplier of aluminium ore bauxite, over long-delayed parliamentary elections.”

 

 

 

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