Help for finance ministry officials with better economic growth forecasting

The Sierra Leone Telegraph: 16 June 2013

President-Ernest-Bai-KoromaThe government of Sierra Leone has set itself an ambitious, though necessary goal of attracting significantly more foreign direct investments and to increase economic growth and employment opportunities.

But this cannot be achieved by putting out misleading and exaggerated statistics and economic indicators.

While the temptation for government officials and ministers – including heads of state, in such circumstances to make exaggerated statistical claims and present superfluous economic indicators may appear irresistible, it does more harm to the cause than good.

Acquiescing  to such temptation comes with big risks, creating confusion and misleading those who have to rely on and make use of these statistics and data. At worse, such behaviour can destroy confidence in the government’s ability to manage the economy, and bring its fiduciary governance into disrepute.

Will the DFID funded ‘Enhanced Data Dissemination Initiative’ help change attitude?

Attracting foreign direct investments into Sierra Leone and Africa for that matter is not an easy business for governments. But ministers and their officials must be truthful and honest in their reporting of their governments’ economic performance.

In the last three years, the government of Sierra Leone has found itself caught up in the net of its own propaganda, as it tried to unweave itself from the over-exuberant reporting of the country’s economic growth (GDP) indicators.

President-Ernest-Bai-KoromaWhen president Koroma told parliament and the world in October 2010, that economic growth in 2011 will be 50%, few economists believed his forecast.

In reality, economic growth in 2011 actually struggled to make it to double digits.

As a result, the minister of finance was then forced to backtrack and quickly revised his forecasts for 2012 to 35%, which itself was a one-off statistical blip, caused by the sudden surge in iron ore export, following the resumption of larger-scale mining activities in the country since the end of the war in 2001.

Such miscalculations and erroneous reporting can have serious consequences for government policy-making, third party organisations’ development planning and decision-making, and the investment decisions of key economic actors.

But the country’s international development partners are fully aware of this problem, which it seems is not unique to the government of Sierra Leone.

Several governments in Africa are also guilty of massaging and misrepresenting the economic performance indicators of their countries, or would rather be judged as lacking in human and technical resource capacity. Most observers suspect the former, rather than the later.

And with billions of dollars in international aid at risk, due to poor governance, both DFID and the IMF have stepped in with an initiative aimed at tackling the problem of statistical misrepresentation and false economic performance reporting by several African governments, including Sierra Leone.

Financed by DFID and delivered by the technical staff of the IMF and their consultants, the ‘Enhanced Data Dissemination Initiative’ (EDDI) is a five-year project which started in 2010 and finishing in 2015.

political introspectionEconomic development and finance officials of 25 African countries, including Sierra Leone, Liberia and the Gambia are participating in this initiative, which it is hoped will help improve their macro-economic statistics reporting.

The Sierra Leone Telegraph has been a strong champion of such change.

The project is specifically looking at how the various countries are collating, analysing, reporting and disseminating national accounts, monetary statistics, government financial statistics, balance of payments statistics, and the harmonisation of statistics in several regional organisations.

Three years since the start of the project, the IMF has carried out a mid-term review of how well the initiative is being delivered and progress being made in embedding lessons learnt across participating countries.

The IMF says that; “The mid-point of a five-year project is an appropriate time for all stakeholders of the project to take stock of what has been accomplished in the first half of the project.”

So what has been achieved so far?  

Well, judging by the findings of the Review Report it seems that the majority of participants are satisfied with the relevance of the project objectives and content to the needs and objectives of their respective nations.

A great deal of commitment and ownership of process and results is being shown by those involved, suggesting that the “EDDI modules were consistent with the respective countries’ own national objectives and priorities”.

Ghanaian officials remarked that their newly published Quarterly National Accounts “is now a major input in analyzing short-term performance of the economy by the Ministry of Finance and Economic Planning and the Central Bank of Ghana”.

Official in Sierra Leone reported that the country’s GDP has been rebased. Liberia says that its first post-war National Accounts Survey has been analyzed and new GDP estimates are now linked to updated benchmark figures for 2008.

Rwanda said that better use of survey data has significantly reduced the use of proxy indicators such as population growth.

Kenya, Tanzania, and Uganda remarked that the Work in Progress method has significantly improved agriculture statistics.

The Gambia noted that it had migrated successfully from the 1968 System of National Accounts to the 1993 System of National Accounts, and that its new estimates were now widely accepted by users.

Sierra Leone pointed to the importance of the IMF technical assistance on price statistics, as it has led to a Producer Price Index ready to be published for the first time and an improved Consumer Price Index.

Countries were also asked; what are the most important changes in their agency as a result of the project.

According to the Review Report; “By far the most common response to this question was the increase in skills and numbers of both compilation and management staff” reported by Ghana, Liberia, Namibia, Uganda, Sierra Leone,  Mozambique, Rwanda, The Gambia and Uganda.

Better communication and collaboration with other agencies and institutions was also mentioned by several countries. Kenya for example, noted improved communication and interaction with data providers.

Botswana said that its central bank Research Department is now working more closely with the Bank Supervision Department to increase the coverage and quality of data reported by financial institutions.

Greater awareness and changes of institutional attitude was pointed to in several countries. Nigeria said that it was now more aware of what needs to be done to improve their statistics.

Rwanda said its central bank is now more aware than it was before of the policy value of Government Finance Statistics (GFS), and as a result its demand for GFS data has increased.

This mid-term review also identified and highlighted several weaknesses and fault lines in the strategic and operational management of the governance process involved in the gathering, analysis and reporting of vital economic and financial data, by many of the African countries that are in receipt of IMF’s technical assistance.

To what extent does the project fits in with the various countries’ institutional and national objectives and policies?

According to the Review Report, most of the participants of the initiative emphasized the importance of the EDDI’s objectives to improving policy making and their consistency with national strategies and plans.

Officials from Sierra Leone pointed that three objectives in their National Strategy for the Development of Statistics (NSDS) have already been achieved as a result of participating in the EDDI.

Rwandan officials said that EDDI provides “indicators that are very important not only for monitoring the economy, but also for economic policy and decision making.”

Officials in Sierra Leone echoed the views of a number of other countries in the module. They said that the EDDI “fits perfectly well with the institution’s objective of achieving and maintaining price stability,” which “is a prerequisite for proper monetary policy reporting.”

Nigerian finance ministry officials “emphasized how EDDI was helping in the achievement of the objectives of the country’s Vision 2020” where strategic planning and informed policy decisions are highly significant.

Officials in Mozambique said that the EDDI was consistent with their objective of expanding coverage and improving the accuracy and timeliness of their statistics.

Liberian officials said that ‘real progress has been achieved during this period and Liberia is now expected to produce more complete and reliable GDP estimates.’

african minerals railway 2But going forwards into the delivery of the remainder of the project – through to 2015, officials were asked whether they have any suggestions on ways to improve the project’s effectiveness.

According to the Project Review Report, two of the three West African countries with relatively large need for technical assistance – The Gambia and Liberia, asked for a training course. The IMF says that it is aware of this need and is planning such a training course in the spring of 2013, which will also include Sierra Leone.

Three of the participating countries suggested providing relatively more time to countries in need, rather than the usual two-week IMF country missions or at set intervals.

Two countries made suggestions about the content of the IMF technical assistance, with one suggesting that more demonstrations with actual country data would be helpful, and another country suggesting that they would like more practical tools.

Two countries suggested adjustments that should be made by the countries themselves.

One country said that its statistical office should designate particular people who are responsible for following up on the recommendations of such IMF technical assistance missions.

Another said that mandatory requirements should be put on countries to do regular progress reports themselves, on their implementation of the EDDI technical assistance.

Two countries suggested that the IMF Technical assistance and training be extended beyond the main government agencies – primarily data reporting institutions.

Botswana recommended extending training beyond the central bank to other financial institutions that are intended to report data to the central bank.

The IMF said that this training beyond the central bank is planned for the next mission.

Nigeria recommended “a team approach” where reporting institutions could be included in training. The IMF says that “These are both good recommendations that will be taken on board during the rest of the project.”

So, on the whole this is a well delivered initiative, which hopefully when completed, could have a massive impact on the skills, expertise and behaviours of staff working in the economic development and finance ministries of countries such as Sierra Leone.

But a great concern for DFID and the IMF remains, which is that; “the objective of harmonization of monetary statistics may not be achieved by the end of the project, because a number of countries are lagging behind in implementation.”

Notwithstanding this however, perhaps, just perhaps, we may soon see accurate and honest forecasting and reporting of key economic indicators – such as: Gross Domestic Product, levels of unemployment, rates of inflation, and the value and volume of foreign direct investments flowing into the country.

 

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