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Government of Sierra Leone needs to close infrastructure gap, expand social services and reduce unemployment - says IMF


Abdul R Thomas


9 September 2011


  The International Monetary Fund (IMF) mission to Sierra Leone - yesterday 8 September 2011, completed its review of the government’s performance in delivering the economic program supported under the Extended Credit Facility (ECF) approved by the IMF Executive Board in June 2010.


So how well has the country faired nine months since the last IMF review?


Reviewing Sierra Leone’s economy at the end of 2010, this is what the IMF said:


"Fiscal policy aims at improving infrastructure and social services in 2011. Capital spending is envisaged to further expand to 10.2 percent of GDP, most of which will be externally financed."


"Nonpriority expenditures are expected to remain constrained. Domestic revenues are projected to continue to increase to 13.3 percent of GDP in 2011, reflecting efficiency gains from tax reforms and the implementation of higher royalties on diamonds."


"Monetary policy aims at bringing inflation down to single digits in 2011. With the establishment of a benchmark policy rate, the transmission mechanism is likely to improve. A flexible exchange rate will be maintained to facilitate adjustment to external shocks."


As has been predicted since the beginning of 2011, millions of dollars being invested by the mining companies are helping to shore up the country’s fragile economy.


IMF Mission Chief for Sierra Leone - Jan Mikkelsen, issued a statement yesterday, saying that; "Following a 5 percent growth in real GDP in 2010, economic activity has remained robust in 2011, supported by continued expansion in agriculture and mining."


Although it is not certain by what percentage points, if at all, the economy has so far grown this year, compared to 2010, what is most worrying is the significant hike in year-on-year inflation, reported by the Sierra Leone Telegraph last week, after the Bank of Sierra Leone decided to peg its interest rate at 23%.


"Consumer price inflation increased, however, to 20.9 percent (year-on-year) in July 2011 on account of food and fuel price increases, as well as the effect of expansionary monetary policy in the second half of 2010", says the IMF chief – Mikkelsen in Freetown.


The return to single digit inflation rate forecast for 2011 is yet to be seen, and few in Sierra Leone believe it will be achieved.


According to the IMF, the government Treasury bill rate has fallen, indicating a slowing down of the government’s domestic borrowing, which was driving up commercial banks' interest rates.


But with the government’s on-going programme of large-scale infrastructure development, it would seem that there has been a slight shift in borrowing from domestic financial market - the sale of Treasury bills to the expansion of nonconcessional external debt.


As the IMF warns; "With regard to performance relative to the ECF-supported program, the tightening of fiscal and monetary policies contributed to meeting all quantitative criteria for end-June, with the exception of the ceiling on contracting of nonconcessional external debt."


Nevertheless, the IMF is comfortable with the government’s overall monetary policy trajectory, especially with regards the value of the Leone and the level of foreign exchange reserve.


The IMF says that; "Gross international reserves remain at a comfortable level. The Leone has been relatively stable, depreciating by about 4 percent in the first half of 2011, and Treasury bill interest rates have declined."



But President Koroma has still got a lot of work to do in stabilising the economy, which many believe to be stalling under the weight of the huge borrowing needed to finance its capital programme.


This critics say, is being done at the expense of real private sector led economic growth, and investment in social programmes.


"The main policy challenges facing the authorities remain to close the infrastructure gap, expand social services, and reduce unemployment while maintaining macroeconomic stability", says the IMF.



The IMF is urging the government to step up its efforts in improving the performance of the NRA in collecting much needed tax revenues. The NRA achieved its end of year target in 2010, and expectations are very high for 2011.


Speaking to the Sierra Leone Telegraph early this year, the Acting Commissioner General of the NRA said that; "the NRA has a huge task ahead in collecting government revenue that could plug the public expenditure deficit of about Le1.2 Trillion by the end of 2011."


The IMF chief is in no doubt; "In this respect, the mission supports the authorities’ efforts to mobilize domestic revenue and underscores the need for constraining nonpriority expenditures in the second half of 2011."


Total tax collected in 2010 was Le 257.13 Billion more than that collected in 2009; and tax revenue in relation to GDP, increased from 10.7% in 2009 to 13.2% in 2010.


Following the threats of industrial strike action and social unrest at the end of 2010 and early this year, in response to rising cost of fuel caused by the introduction of the metric system of measurement, the government was forced to lower excise duty on fuel.


But the IMF believes that government has to review its policy on excise duty, if it is to meet its fiscal target.


The IMF therefore "recommends that the Government gives due consideration to gradually restoring fuel excises, which were significantly lowered earlier this year. This would enhance fiscal space for necessary capital and social spending".


Speaking about the Bank of Sierra Leone’s control of the money supply, "the mission concurs with the Bank of Sierra Leone on the need to tighten monetary policy and maintain exchange rate stability".


The IMF will hold further discussions with the government later this year.


The mission’s week long visit to Freetown lasted from 23 August to 6 September 2011. They met with President Ernest Bai Koroma; Minister of Finance and Economic Development, Dr. Samura Kamara; the Governor of the Bank of Sierra Leone, Mr. Sheku Sesay; other senior officials of the government and the central bank, representatives of the business community and CSOs, and development partners.


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