Sierra Leone Telegraph: 28 September 2016
The International Monetary Fund (IMF) has published its latest report on the state of Sierra Leone’s economy, following a review by senior staff. It makes for mixed reading.
But the Sierra Leone Telegraph can confirm that the IMF report contradicts a statement made last week by the country’s energy minister, who blames the IMF for the government’s decision to increase electricity tariff paid by households by 15%.
Speaking to journalists in the capital Freetown, the energy minister – Henry Macauley said that: “The 15 percent GST is included in the tariff adjustment because that is IMF conditionality.”
But it is now clear from the published IMF report that this is a lie. The IMF has not imposed electricity tariff conditionality on the government of Sierra Leone, in respect of drawing down on the agreed extended credit finance facility.
Those old enough to remember the political, social and economic effects of IMF conditionalities imposed on the Momoh government in the 1980s, will know too well that it marked the beginning of the end of the APC government, whose poor governance and weak economic stewardship are being repeated today.
The energy minister’s battle with the truth continues when he got himself tongue-twisted and tied in a knot. He said: “We should have about 160 megawatts installed right now. When our planning unit did the planning for Sierra Leone, our planning unit ascertained Freetown can easily accommodate 200 megawatts…….Works are starting now to add more generation and because of the demand we added Aggreko and that is why we are seeking to add more plants.”
The truth is that Sierra Leone does not produce 160 megawatts of electricity; and given the government’s poor record of investment and lack of good governance, prospect of producing 160 megawatts anytime soon is unreal.
At the best of times, total electricity production including Bumbuna, is no more than 80 megawatts, with Freetown alone needing more than 200 megawatts.
With the country’s parliament recent passing of the 2016 government finances bill, the Sierra Leone Telegraph believes that what is certain, is that most workers in Sierra Leone, especially the middle income earners will be worse off as taxes go up.
Those earning Le2 Million and above have seen their income tax risen from 30 percent to 35 percent, with no commensurate salary increase, in line with inflation bursting prices.
The price of petrol will soon rise from the average Le3,750 per litre to well over Le4,000, as the government reduces the subsidy it contributes to keep petrol prices down. But the ending of the fuel subsidy should not come as a surprise.
Successive governments have been reluctant to end or drastically reduce its subsidy, for fear of political repercussions and public protests.
But with the subsidy costing the government a massive Le100 Billion every year, it was expected that the IMF was going to advice the Koroma government to end this policy, sooner rather than later.
In its report published yesterday, the IMF said that; “the practice of keeping the price of retail fuel constant by reducing the excise on retail fuel whenever oil prices rise or the exchange rate depreciates is no longer sustainable since the excise on retail fuel has now reached zero. The mission therefore recommended that the government should now take steps to adjust retail fuel prices as needed to ensure that this does not become an increasing burden on the budget.”
Sierra Leone largely depends on its mining industry for its export income, although the majority of those employed in the country are believed to be working in the agriculture sector.
With the recent collapse of the country’s economy due to the Ebola virus and the government’s inability to put its house in order, GDP growth fell from an annual average of about 8% to less than 2%.
Less than 20% of the entire economically active population (those able to work), especially the youth, are in gainful employment. Sierra Leone needs high value jobs that can increase wealth and reduce poverty.
The country’s public sector consumes more than 80% of GDP, making the economy one of the least productive in the region, as private sector investments continue to lag behind other countries such as Rwanda and Botswana.
Although official figures for inflation and government’s foreign currency reserve may look pretty good on paper, the reality is that household prices of essential goods such as rice, cooking oil, meat, bread, sugar, etc., tell a rather grim story of hardship for the majority of people in Sierra Leone.
With fuel prices set to rise, income taxes going up, cost of electricity increased by 15%, fewer people in work, and prices in the shops generally on the rise, political instability is ever an increasing risk for the Koroma government, who will face voters at the polls in February 2018.
But the IMF is upbeat about Sierra Leone’s economic prospects and government’s performance in managing the country’s finances. This is what it says in its latest report:
“An International Monetary Fund (IMF) mission led by John Wakeman-Linn visited Freetown during September 14-27, 2016 to conduct the sixth and final review under the Extended Credit Facility (ECF). At the conclusion of the visit, Mr. Wakeman-Linn issued the following statement:
“Sierra Leone’s economic reforms over the last three years have been largely successful. The economy proved resilient in the face of two major exogenous shocks: the Ebola epidemic and collapse of iron ore prices and associated loss of production in 2014-2015.
“Sound macroeconomic policies, together with generous support from development partners helped ensure fiscal and external sustainability, while providing sufficient resources to begin implementing the post-Ebola Recovery Strategy.
“Since the last quarter of 2015, economic growth has resumed, and it remains on an upward trend, supported by new investments in mining, agriculture and fisheries. The recovery underway is projected to remain sustainable over the medium term.
“Prudent fiscal policy throughout the program contributed to the achievement of a relatively low fiscal deficit. Credible monetary policy contributed to price stability, bringing inflation down from over 20 percent at the beginning of the program to single digits, although in recent months it has begun to increase somewhat. The current account balance has strengthened. International reserves have risen to more than $500 million.
“Implementation of the structural reform agenda contributed to improvement in the transmission of economic policies. Reforms of revenue mobilization and administration, expenditure control and public finance management have contributed to fiscal sustainability, while providing a framework for transparency and accountability in the use of public resources. Reforms of the monetary policy operating framework were instrumental to proactive monetary policy.
“While these reforms have enabled the economy to grow and weather unanticipated shocks, challenges persist. Looking ahead, policy should focus on continuing to anchor economic stability through sound fiscal, monetary, and debt policies while making faster progress on structural reforms. Diversifying growth, making it more inclusive and distributing its benefits more widely should be the overriding focus of economic policy.
“Fiscal policy should focus on increasing revenues, while raising the efficiency and quality of public spending. This would increase the fiscal space for pro-poor social expenditure. In particular, the practice of keeping the price of retail fuel constant by reducing the excise on retail fuel whenever oil prices rise or the exchange rate depreciates is no longer sustainable since the excise on retail fuel has now reached zero.
“The mission therefore recommended that the government should now take steps to adjust retail fuel prices as needed to ensure that this does not become an increasing burden on the budget.
“On the monetary policy front, continued emphasis should be put on price stability, while remaining attentive to second round pressures on prices. Exchange rate and market policies should be transparently implemented.
“In addition, the country’s borrowing plans should be anchored on debt sustainability. Priority should be given to grants and concessional loans for financing investment projects.
“Faster progress on the unfinished structural reform agenda would also help to enhance revenue, make public spending more efficient and transparent, the banking system more resilient, and the business environment more supportive of inclusive growth and private sector development. In particular, implementing the Treasury Single Account, establishing the Natural Resource Revenue Fund and adopting the Wage and Pay Reform strategy would improve fiscal outcomes.
“The mission confirms that all quantitative performance criteria for end-June 2016 were met. Therefore, the sixth and final program review under the ECF arrangement is tentatively scheduled for consideration by the IMF Executive Board in November 2016.
“The mission met with President Koroma, Minister of Finance, Momodu Kargbo, and Minister of State for Finance Patrick Conteh; the Governor of BSL, Dr. Kaifalah Marah, senior government and BSL officials, representatives of the financial sector, private sector, civil society, and development partners. The mission team will remain in touch with the authorities in the period ahead with a view to discussing options for future engagement.”