Sierra Leone economy facing bankruptcy as Koroma restricts use of foreign currency

Sierra Leone Telegraph: 18 June 2016

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When the president of a nation sends a text message to every citizen, demanding that they must refrain from using foreign currencies, then one gets a sense of the deep economic crisis that has befallen the country.

This is the text message that president Koroma sent to the people of Sierra Leone this week, curtailing their right to free trade: “I call on fellow Sierra Leoneans to buy, sell, lease, rent, hire and transact all businesses in LEONE. Let us do all we can to save our currency. H.E. Dr Ernest Bai Koroma.”

Such dictatorial edict from State House, in a bid to control a collapsing economy, when those in power are the biggest traders in foreign currency is nothing short of hypocrisy and double standards.

But the fact is that the APC government has run out of cash and ideas as to how best to generate foreign revenue, and is now squeezing every dollar out of the poor people of Sierra Leone, says critics.

According to some economic analysts, not only is the country’s currency – the Leone struggling to survive, the economy is collapsing fast, after eight years of mismanagement and poor stewardship by the APC government.

Each report issued in the last few years by the International Monetary Fund (IMF) following their review of the performance of Sierra Leone’s economy, has concluded that the Koroma government’s spending is unsustainable and must be curtailed – especially unscheduled spending that is outside of the agreed ceiling.

As far back as in 2012, the IMF Mission to Sierra Leone had warned that: “It was important to constrain non-priority expenditure….and to enhance expenditure and treasury cash flow management.” And this has been the recurring concern of the IMF in the past eight years.

What is clear is that with falling export revenue, the government has persistently failed to restructure the economy away from exclusive reliance on mining, so that more income – paid in foreign currencies can be generated.

road construction in Grafton2The government’s obsession with infrastructure development at the expense of building a strong healthcare system, as well as spending more on education, social and anti-poverty programmes have not impacted positively on the economy.

Fewer than 2,000 people are working on infrastructure projects, despite borrowing and spending over $400 million on such projects. Most of that money leaves the country, rather than spent locally on wages and goods and services.

Tax receipts have remained unacceptably low as the economy struggles to pick up from the Ebola crisis.

The global market demand and prices paid for iron ore have slumped. And with a continued slower economic growth forecasted for China – the main customer of Sierra Leone’s iron ore, prospects for Sierra Leone’s economy is gloomy. The IMF is not expecting economic growth to be more than 4% in 2016.

With such poor economic performance, analysts have been expecting the Koroma government to scale back its Le 4 Trillion budget spending for this year.

President koroma and victor foh at APC conference 30 april 2015Public sector salary payments are facing huge delays, while private sector contractors are not being paid.

Yet, ministers and top government officials are earning far beyond the country’s means, and are embarking on meaningless and profligate trips overseas.

Last month, the ruling APC party sent a delegation of over ten of its cronies including senior party grandees to Europe and America, paid for by the state at a cost of over $10,000 each.

The speaker of Parliament and other top fat cats are earning an annual salary of more than one hundred and fifty thousand dollars – $150,000.

The head of the Anti-Corruption Commission earns about $15,000 a month, excluding allowances. Most doctors earn less than $200 a month, nurses – $100 and teachers receive a monthly salary of $30.

Most senior officials in the Koroma government are earning not less than $8,000 a month, and the president himself is netting almost $20,000 a month, excluding perks. He is receiving a monthly housing allowance of over $10,000, equivalent to well over Le60 million every month.

Most of the hotels, luxurious homes and big businesses that are charging for their services in foreign currency – especially the dollar, are either owned by government officials or their cronies, families and friends.

The government’s over bloated appetite for cash is paid for in dollars by borrowing, and through the sale of treasury bills and government bonds each week.

Kaifala Marah1Speaking last week to the media, the governor of the Bank of Sierra Leone – former finance minister Marah said:  “It is certainly perplexing that the government whose business should be to formulate and enforce policies and make prudential regulations for the good of all is “pleading” with its citizens to use the country’s legal tender in order to save it”.

In 2007, inflation was running at 8%, which many analysts believe to have now doubled to  almost 15%.

The people of Sierra Leone rely on imported goods and foods for their survival, which places a massive strain on scarce foreign exchange. This creates further inflationary pressures.

In 2007, the Leone was trading at 3,000 to the Pound. Today, it sells at over 8,000 to the Pound.

The value of the Leone against the dollar is depreciating fast. The Leone is now trading at over Le5,886 in Banks, while in the black market it is sold at over  Le6,550 to the dollar, as export revenue falls.

Whiles the demand for the dollar may be high and putting pressure on inflation and foreign exchange, the main problem which the government has been unable to manage is the country’s poor export revenue performance.

The government’s large-scale infrastructure development programme that has pushed its international debt to over $1.5 Billion and rising, is not helping either. Monthly servicing of interest payment on these loans is also adding pressure on the country’s foreign exchange.

Freetown Street traders4Sierra Leone relies massively on international donor aid – up to about 40% of its budget.

The government receives over £300 million in aid every year to help pay for the cost of delivering basic social services, including the provision of education, health and clean safe drinking water.

The Koroma government has done very little in eight years to close the massive hole in its finance, created by high level corruption and misappropriation of public funds.

It is estimated that over $200 million is lost every year through corruption.

There are serious concerns of Sierra Leone returning to the ‘heavily indebted status’, should the government continue to borrow and spend at the current rate to achieve its infrastructure development ambition; and, especially if the president goes ahead with his planned $400 million loan from China to build a new airport in his political heartland.

Recognising the unsustainability of the government’s borrowing and profligate spending, critics have warned of an economy facing a melt-down.

And should the government continue to fail to meet its agreed spending and revenue targets, as well as preside over misplaced economic priorities, then poverty in Sierra Leone can only get worse.

6 Comments

  1. Our Leone is devalued and is losing its legal tender status. The message from the president will only add salt to injury. The very day this message was circulated, the dollar rose drastically against the Leone. Such massages are not necessary to control state economy.

    The worst is about to unfold, if we endorse austerity measures. Not that the country has no money, but it is in the hands of few, influential, rich and powerful statesmen. The prices of basic commodities have gone up and are going up everyday.

    Our President, when he took office, vowed to transform this country to a business entity with the main motive of maximizing profit. And this is where we are now. Let us not be surprised if we wake up one day and see Sierra Leone sold to willing investors.

    My advise is that, if he cannot reduce our financial burden which he has created, then let him resign and step down.

  2. If you place restrictions on the use of dollar, investors and importers will stop bringing in dollar into the economy. The fall in supply of dollar will make its value appreciate further against the leones, causing the leones to further fall in value.

    To restrict import through tariffs in order to reduce the amount of dollar leaving the economy, will do harm as well, because most essential goods and materials that people consume are imported. The government has to thus come up with a new policy for export promotion.

    We have iron ore, gold, diamonds, bauxite, rutile, chromite, and recently we have discovered oil. But the basic problem we have is that most of the dollar earned from the exploitation of these resources, leave the economy due to low taxation.

    Secondly, most firms that exploited these resources have left because of Ebola and they have refused to return. So we need to attract investors who will return to exploiting these resources. But they must repay the people of Sierra Leone handsomely, in terms of payment of taxes.

  3. When the past government handed over power to the present one, there was enough money in the coffers and most of the debts were written of, through the effort of the past government.

    The ruling Government came with agenda for change and prosperity, which means all the good things that the past government did was to be changed to the worse. Now every thing has change and we are running dry with little or nothing to boast of.

    Salaries for Government officials have been delayed because there is no money to pay them. The Government is still bent on putting the country into more debt, so that even the generation yet unborn will not have the know-how as to how to remove the country from this bondage. All they are interested in, is leaving a legacy that is not sustainable.

    Joseph Saidu Momoh did the same thing, and when he was chased out of the seat, the SLPP had to fix all what they spoil and put the country back to its normal feet. Now the APC is here again, repeating the same old tricks only to leave a wider gap for the next government.

    This is just politics, to tell people that SLPP did not do any good work during their tenure. It is all up to us as citizens to decide which way to go. Because another five years in power for APC will not only end up with poverty, but also other miserable conditions, and if possible death of most citizens through hunger and deprivation, may God forbid.

    They are bent on rigging the next coming elections by encouraging soldiers to come into the electioneering process in the name of Mac-P. This is just a trick to stuff ballot boxes and change the right ones in their favor.

    But this time , all of us will be out there with vigilance to ensure that no rigging takes place and the right boxes are counted, results tallied accordingly.

  4. I strongly agree with the fact that the Leone is our legal tender and should be the main monetary exchange for business transactions and pay settlements in the country, and also consumers’ currency reference. However, this shouldn’t come as law enforcement dictated by our president overnight, an attempt to prohibiting the use of hard currency.

    It is government responsibility to formulate the right monetary polices to keep the Leone strong, making it attractive to businesses. Such measure should be left to the decision of the governor of the central bank and not on the president’s dictate.

    Our president is becoming too vicious about dictating matters of legal nature at ease, without going through the right decision making process, overlooking experts with the technical know-how to do the job. He strongly relies on the ill advice of his political advisors.

    The consequence of this measure can be frustrating to lots of hard currency savers, and devastating to the national currency.

    The president should retract this measure and leave the issue with financial professionals and the governor of the central bank to take charge.

  5. Why operate a foreign account in Sierra Leone?

    The government of Sierra Leone has decided that all financial, business and commercial transactions in the country are to be made in the country’s local currency, the Leone. This is perfectly OK. But such transactions in my opinion shouldn’t deny foreign account owners from accessing their foreign currencies.

    The banks levy charges on foreign accounts for services of this nature; so why deny customers their monies in the appropriate currency.

    It is better to ask the banks to stop operating foreign accounts than prohibiting customers from accessing their currencies. Foreign account owners are forced to receive the equivalent of their foreign currency in Leones; this is naked cheating.

    The banks are the ones that will start selling foreign currency to guys in the black markets. What is even puzzling to me is the economic value for such decision; even logic doesn’t accept this.

    This decision is going to help to reduce the supply of foreign currency in the market and hence increase their value against the Leone.

    Trust me; this is not going to help in any way in regulating the price of the dollar. You will see the skyrocketing price of the dollar by the time we approach July, 2016. Where are our economists to give professional, true and not fanciful recommendation to the president?

    I am not one, but I believe bringing back the huge amounts of money kept overseas will help greatly than such queasy measures. Repatriation of funds from Mama Salone is what should be stopped. Stop keeping huge amounts of money in your homes for cheap politicking.

    According to the central bank governor Kaifala: “It is certainly perplexing that the government whose business should be to formulate and enforce policies and make prudential regulations for the good of all is “pleading” with its citizens to use the country’s legal tender in order to save.”

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