The Sierra Leone Telegraph: 24 May 2013:
The latest report of the IMF on Sierra Leone’s economic performance, says that the economy rose to 15% last year as widely expected, contrary to the government’s 30% forecast.
But there are serious concerns that despite rising economic growth – fuelled largely by increased iron ore mining production, there is no sign of the obscene levels of poverty coming down. 70% of the population continues to live on less than one dollar a day.
Although the IMF reports that inflation dropped by 5 percentage points in 2012 to 12%, prices of consumer goods and some essential industrial materials, such as cement and fuel soared.
Several Banks have also experienced sharp falls in profit, as the Banking industry struggles to compete with government’s continuing dominant presence in the money market.
The IMF mission was in Freetown, where it conducted its ten days review of the country’s economic performance, with a view to agreeing a new three-year economic and financial assistance program, through its Extended Credit Facility (ECF).
A statement released yesterday by the head of the IMF mission – Ms. Malangu Kabedi-Mbuyi, says that; “Sierra Leone’s economic growth accelerated to 15.2 percent in 2012, reflecting the emergence of large-scale iron ore extraction as well as sustained expansion in agriculture, services, and construction.”
In 2011 GDP was 6.5% compared to 5% the previous year, placing Sierra Leone among a group of African countries that have seen sharp rises in economic growth in the last two years, above the continent’s average of 4.5%.
Looking ahead to the end of this year, it is expected that GDP will fall slightly to more realistic level, after a surge in iron ore production in 2011/2012.
According to the IMF, “real Gross Domestic Product (GDP) is projected to grow at 13 percent in 2013”, from a high of 15.2% in 2012.
This fall in GDP is expected to have significant impact on government revenue, as other sectors of the economy such as tourism, manufacturing, and fishing, continue to lag behind the mining sector.
But it is unlikely that the government will reduce its spending, despite falling revenue. This will continue to push the government’s budget deficit even further.
As the IMF indicated; “the overall budget deficit reached 5.6 percent of non-iron ore GDP, up from 4.6 percent in 2011, partly reflecting infrastructure investment scaling up and higher spending in goods and services.”
Critics of the government are worried that with the government choosing to fund its profligate spending by selling more treasury bills, it risks pushing the economy into further decline, as commercial banks are starved of investment funds to lend to the private sector.
Confirming this view, the IMF said; “The deficit was financed largely with short-term treasury bills.”
It would seem the IMF is hoping that the government will change its spending pattern, as well as put more effective fiscal policies in place that will not only improve its revenue base, but significantly reduce its budget deficit.
The mission says that; “For 2013, the budget deficit would be contained below 4 percent of non-iron ore GDP, thanks to the expected increase in revenue mobilization, and enhanced expenditure management.”
But the IMF is clear as to where the government’s priorities must lie. It has set the agenda for future discussions and reviews with the government.
It says that; “The mission agreed with the authorities that medium-term structural reforms should focus on bolstering revenue mobilization, strengthening public financial management, maintaining prudent borrowing policies, and deepening financial intermediation.”
Whilst the IMF does not take issue with government’s spending on infrastructure development, it is not supportive of the government’s continuing dominance in the financial market.
It wants the government to improve its tax revenue generating capacity. It says that its discussions with the government last week, “focused on creating fiscal space to continue supporting investment in infrastructure and human development, reducing inflation to single-digits, facilitating access to financial services, and creating an environment conducive to private sector development and job creation.”
The mission met with the Minister of Finance and Economic Development – Kaifala Marah (Photo); Central Bank Governor – Sheku Sesay; members of Parliament; representatives of the business community; development partners; and other senior officials.
“The mission reached preliminary understandings with the authorities on key elements of a medium-term economic and financial program that could be supported by the IMF under the ECF.”
Discussions between the mission and the authorities on key elements of a new medium-term economic and financial program, that could be supported by the IMF under the ECF will continue in the coming weeks, says the IMF.
In neighbouring Guinea, the Executive Board of the IMF has announced that it has completed its Second Review under the Extended Credit Facility (ECF) for the country, and approved US$27.4 Million Disbursement.
This brings the IMF’s total disbursements for Guinea – under the current ECF arrangement to SDR 55.08 million (about US$82.1 million). In February 2012 the IMF approved a three-year ECF arrangement with Guinea, valued at about SDR 128.52 (US$198.1 million) in support of the government’s economic program.
The IMF mission to Guinea headed by Mr. Naoyuki Shinohara – Deputy Managing Director and Acting Chair, visited the country two weeks ago and concluded its review of the economy this week.
According to the IMF Board; “Guinea’s macroeconomic performance under the ECF-supported program has been satisfactory. Growth has been strong, inflation is gradually declining, and international reserves are at a comfortable level.”
“Guinea has also benefited from a substantial reduction in its external debt stock after reaching the completion point under the Heavily Indebted Poor Countries’ Initiative (HIPC) in September 2012.”
However, the IMF cautioned the Guinean authorities. It says that; “Continued strong commitment to program policies and structural reforms will be necessary to consolidate macroeconomic stability, maintain debt sustainability, and foster sustainable and inclusive growth.”
As in neighbouring Sierra Leone, the IMF found that; “The authorities’ fiscal and monetary policies for 2013 remain appropriately geared toward reducing inflation.”
“Efforts to strengthen revenue collections and rationalize expenditure, together with additional external assistance, facilitated the maintenance of a high level of domestically-financed investment spending in the 2013 budget despite dwindling resources from the 2011 exceptional mining revenue”, says the IMF Board.
“The government has taken steps to contain subsidies, including in the electricity sector. Going forward, it will be important to introduce a timely automatic adjustment mechanism while providing targeted assistance to the poor. It will also be important to maintain an adequate level of international reserves.
“The December 2012 agreement on increases in civil service wages is within the limits of the 2013 budget but it is important to assess the timing of the implementation of the last round of the increases against trends in inflation.
“The authorities should work with social partners to develop a medium-term approach to wage increases accompanied by a strengthened civil service reform program.
“Further progress in the implementation structural reforms will be necessary to achieve strong and sustainable growth and reduce poverty. Key reforms should continue to focus on improving the business climate and the electricity sector, as well as governance of the mining sector.
“Guinea’s third Poverty Reduction Strategy Paper for 2013–15 (PRSP-III) lays out a good program for tackling Guinea’s development and macroeconomic challenges, emphasizing the strengthening of state institutions, including justice and security, and improving the business climate.
“Successful implementation will require prioritization of the many proposed policies and actions and effective monitoring and evaluation of the outcomes of programs,” said Mr. Naoyuki Shinohara.