Financing a 15 trillion Leones stimulus package in five years to boost Sierra Leone’s economy

Jesmed F Suma: Sierra Leone Telegraph: 31 May 2020:

Usually, stimulus spending tends to be temporary to avert any long-term inflationary effects and budget deficits commonly associated with drastic increases in public spending and the supply of money in the economy.  However, as admitted by the World Health Organization in a recent press conference, the corona virus pandemic is likely going to be with us for several years.

This means, any economic recovery plan must take into consideration the challenges that come with the long-term financial effects of the virus and the inherent difficulties in determining the state of the economy in making predictions thereof.

Therefore, the proposed fifteen trillion Leones is meant to be financed over the next five years, which will require sacrifices from all stakeholders to prevent a potential lengthy recession, which could be more damaging to the economy. Given the limitations in the available data at my disposal, I would like to start by humbly admitting that the Bank of Sierra Leone and its analysts are in a better position to understand the Sierra Leone economy than I do.

The difference here is that I am not bound by any institutional policies which could stifle my bold and outside the box thinking. Upon reading this, I will encourage policy makers to open dialogue for a better and stronger economic recovery.

HOW DO YOU FUND A 15 TRILLION LEONES STIMULUS?

I must admit that financing a fifteen trillion Leones stimulus package is not going to be easy. It is however not insurmountable. Sacrifices will have to be made by all stakeholders, the government, creditors, donors, and other bilateral partners. There are three possible sources of funding for this stimulus each of which are explained below. The fifteen trillion Leone stimulus is meant to cover five years of financing, which means we will need to generate a minimum of three trillion Leones annually.

Stimulus packages tend to lead to unprecedented budget deficits in the long-run, therefore the government, would have to review and revise the current budgetary allocations not only to prioritize spending but to reduce waste and abuse amounting to at least a 10% REDUCTION IN OUR CURRENT ANNUAL BUDGET for each of the next 5 years.

In the eyes of donor partners and creditors, this measure will help build confidence in our commitment to both finance the stimulus and to gradually begin the necessary reduction in the relative fiscal spending as an offset to the likely debt burden that may follow the stimulus.

There is no shortage of possible areas to consider for the reduction of wasteful spending in our Sierra Leone government. The spending levels of each ministry, department and agency of government would have to be reviewed and be required to reduce waste and abuse.

A reduction of the number of embassies and embassy staff as well as a reduction in the amount of fuel quotas given to public officials are just a few of the many areas that may have to be considered. The biggest line item in our annual budget is wages and salaries.

Recommending a 10% cut from the salaries and fringe benefits of the top tiered and highest paid officials of government including ministries, departments, agencies as well as commissions, for the next five years should not be considered farfetched.
A ten percent reduction in the current levels of budget spending could save up to nine hundred and fifty billion Leones a year (Le 950 Billion a year) which in five years could yield a total savings of Le 4.7 Trillion

The next source of funding should come from the SUSPENSION OF DEBT SERVICE PAYMENTS for all debts, including official and non-official bilateral debts, private debts, and debts from multinational institutions like the World Bank and IMF.

We should negotiate for the suspension to last for the next five years. With limited access to all the relevant data, I can safely estimate that this could free up resources amounting to at least $200M a year; a total of about one billion dollars ($ 1 B) in five years or ten trillion Leones. Please be mindful that these figures may not be exact, probably less than the actual annual debt service amount particularly for foreign debts.

Traditionally, during economic downturns, the IMF and World Bank tend to offer several concessional funding facilities to support liquidity in the economies of member states, such as temporarily increasing the annual access to the Rapid Credit Facility (RCF) by struggling states and the use of Rapid Financing Instrument (RFI) which broadens IMF’s emergency assistance.

Concessional facilities offered by the IMF or World Bank short of a grant or debt forgiveness, which could result in Sierra Leone incurring additional debts should be resisted irrespective of how lenient the terms are. We should focus on obtaining grants, debt forgiveness or the means to free up resources by suspending debt service payments for us to finance our stimulus. We should boldly say NO to additional loans during this period.

The third possible source of funding comes from harnessing the untapped and informal DIASPORA CAPITAL FLOW into Sierra Leone. It is hard to estimate how much could be generated from diaspora sources for investment because despite being comparatively huge amounting to at least one hundred and ninety million dollars a year, these transfers are mostly directed towards consumption spending and have never been officially cultivated and formalized to direct them towards direct investment.

However, if a formal dialogue is established with the Sierra Leonean diaspora community backed by the right political will, this can be a great source of funding to invest in critical areas in the economy.

WHO SHOULD BE ON THE ECONOMIC RECOVERY MANAGEMENT TASK FORCE?

For the recovery process to succeed, several guidelines must be established, and a comprehensive action plan must be defined.
We must start with putting together a credible ECONOMIC RECOVERY MANAGEMENT TASK FORCE that includes representatives of key Sierra Leonean stakeholders. Such a task force should be chaired by someone with an intimate knowledge of the key features of our economy and an in-depth experience in the banking sector.

There is an excellent talent pool of distinguished Sierra Leoneans within the country and in the diaspora, who could lead this charge. A few names like Mr. Steven Swaray (former Bank Governor and IMF official) Dr. John Karimu (former Finance Minister and pioneer NRA CEO), Dr. Ibrahim K Stevens (deputy Governor and former Bank of England official with extensive experience in international fiscal policy) and Hon Dr. Kandeh K. Yumkella, all of whom have solid international experience could be a good starting point. Without such a confidence building approach the international community will be less likely to accept our request for a five-year suspension of debt service payment.

Representatives of the Ministry of Finance and the Central Bank could be in control to coordinate the work of the task force. Officials from the ministries of Agriculture and Trade and Industry will be critical to this team also. This being a national call, there are some good citizens (including my humble self) in the diaspora who will be more than happy to serve on such a task force to help with policy formulation, supervision and the implementation process.

From a policy standpoint, we must make sure funds spent from the stimulus result in an output of goods and services by the highest possible outcome. This means, we must have a clear objective to adopt a market-based solution with the aim of realizing an unprecedented diversified growth-enhancing structural reform in our economy.

In effect, the stimulus must target areas in the economy that could result in the local production of goods and services to help offset the possible inflationary effects that are mostly associated with an increase in money supply.

The next step in the implementation process, is to define a clear picture of the expected outcome. What is it that we hope to achieve after the five-year period? I am strongly convinced that if we have the right team with the right degree of coordination and comprehensiveness, we should be able to define achievable goals such as:

I. A minimum of 10% increase in our Gross Domestic Product in five years. Two major factors could drive this number:

a. the increase in productivity of goods and services mostly food items financed from the stimulus will help to reduce our aggregate import of those same products such as rice, oil, protein and more.

b. By organizing and registering the informal businesses through proper coordination of beneficiaries, it will make it easier to capture their economic output to be included our GDP numbers.

c. A reduction in our balance of payment deficit due to an increased in export level, reduction in import level and the suspension of debt service payment will have a positive impact on our GDP numbers.

d. Finally, capital inflow from Direct Diaspora Investment could reduce our balance payment deficit

II. A minimum of 10% increase in the employment rate in effect reducing the total unemployment numbers. Activities that will be created through the stimulus funding to increase our agricultural output and add value will lead to more hiring by these new businesses and existing businesses.

III. The new businesses and formalized existing businesses will broaden our revenue base, in effect increase the overall revenue mobilization, and reduce the tax burden on the current few existing businesses.

IV. Finally, we must add as a condition that, the government should not sign ANY new loan agreements within the five-year period. This will help limit any possible increase to our already high debt to GDP ratio.

The expected outcome should help guide the implementation process. Please note that the above listed expected outcome is not exhaustive. There could be several indirect positive impacts not listed above, including the potential appreciation of our local currency and the possible increase in our foreign currency reserve.

In my last article published a few days ago, I discussed several pertinent areas – including HOW AND WHERE SHOULD THE STIMULUS MONEY BE SPENT to invigorate the engine of growth in our economy to achieve the above stated goals.

I do hope these series of articles will contribute to the wider debate about solutions to Sierra Leone’s economic growth dilema.

About the author

Jesmed F Suma is President & CEO of BRIMCO Consulting LLC a US based Investment Management Consulting firm in Princeton, NJ. For questions and comments please feel free to reach him on Tel: +1908-759-4332.

Email: BrimcoConsultingLLC@outlook.com

9 Comments

  1. Alimamy Turay, great response. Once can not talk about developing our country without taking into account, the problems that are a major part of the issue, but before I go any further, in a friendly manner, I do hope you count your change when you exchange your forex. 15 trillion is about 1.5 billion US, not 15 million. Also, maybe we can’t argue that Sierra Leoneans want to get rich quick, but I will argue that you should never lump everyone under one umbrella. Yes, there is the human greed, but in a country that does not provide much in the way of opportunity, you can’t blame people too much, and no, this is not an advocacy for corruption and thievery.

    I am talking about the people who don’t know where their next meal is coming from, or they have a job, but instead of getting their monthly checks, there are always delays and they get paid 3-5 times a year. Also, all the problems you address are very real unfortunately, but wealth will help to alleviate those problems. Poor people are more malleable and more apt to do the bidding of trouble makers in power such as promoting tribalism because they will do anything for anyone that can help them get that next meal. Think about this, rich people are no more honest than poor people, but you’d hardly find rich people robbing a bank, at least not physically holding one up. So lets get our people out of desperation and we will see improvements in “attitudes” just because of that.

    To Bilal Coleman, again, great intelligent response, but Jesmed Suma said cut salaries of those in the top, not the poor people who do not get paid monthly as it is. Unfortunately we have a paopa regime that does what it wants and only follows rules that it likes, but we need to balance out how top level civil servants are paid. There are people making ridiculous money (for SL), say 10,000USD a month and the person next to them, doing the same job, is making a fraction of that. Secondly, maybe you parsed his words too much with your statement about the conflation of fiscal and monetary policy. Yes, they are two and separate things, but since he is talking about stimulus, that is fiscal policy and where in an advanced economy this might not be germane, I do not think it would be prudent to talk about what he is proposing without involving the Bank of SL.

    One thing that hinders our economy is (very) high interest rates. You mentioned consumers, if they cannot borrow at a level that makes sense, they either don’t borrow, borrow and not make it work or borrow with the thought in the back of their minds that they won’t pay the loan back. A business person’s margins need to be VERY high, to borrow at 20+% for that loan to make sense, so monetary policy is also a key component here. Mr. Jesmed, thank you for the article and the ideas, but where I have a problem with it is, I think there needs to be more of a focus on the private sector. Obviously, it is underlying in your article, but I am surprised the two responders so far did not even mention corruption. 1.5 billion being dumped into the economy? WHOOO! We government officials den go comot bush bobs! Nigeria has, or has had money, but look at the country now. How do we grow our private sector? Achieving that is our best hope. But thank you and the responders. I wish I could sit with people like you and not only come up with great plans, but go do our part and implement some of them.

    • Mr William – I have published your comment on this occasion as it seems this is your first comment on this platform. Please ensure that your future comments are in line with the maximum words policy, which is – three paragraphs of five or six lines each. Thank you.

    • Hello Mr. William, welcome to this intellectual forum sir. Sincerely, I will like to confess that, it is refreshing to have someone like your caliber, adding your thoughts in this wonderful platform. I hope you find time to participate more often. Thanks for your contribution sir.

    • Thanks Mr Ade William for spotting the numerical error in my comment. I knew there was something wrong with my calculation, but couldn’t figure it out at the heat of the moment. Of course, I forgot to multiply by 100. And that made my answer unrealistically low; which also affected some of the narrative in the comment.

      Anyway, I am glad that you supported some of the ideas put forward. Building a 2 × 2 road parallels at 90 degrees across country (thereby dividing the country into 9 ‘equal’ districts is the most cheapest means of creating a solid foundation for eternal development. Can you imagine the economic and social advantages of being able to travel from Falaba City to Pujehun City in a couple of hours, interact with people and transact some business, and back to Falaba City for the day. That is great!!! What some of our politicians don’t seem to understand is that everything is tied (or referenced) with/to a TIME constraint.

  2. What a show of patriotism and statesmanship here by Mr. Suma. Thank you so much for taking your precious time in tallying and composing these educative, brilliant, and advisory, economic policies, designed to add weight into our nation’s improvement strategies if implemented. By all indications, you have voluntarily answered the call to national duty and offered your selfless service; the baton has been automatically handed over now to our political leaders, who at this point are the earthly gods to our poor citizens.

    My sincere hope and prayer is that, the powers that be, will prioritize our nation’s economic interest, embrace ideas such as yours, convene an economic non political advisory forum, with the scope of formulating and implementing tailored economic policies, unique to our beloved nation.

    We definitely have the resources, the technical know how across the globe to turn things around, the only people holding us back as a nation are the so called political masters who for the most part are only concerned about their self interest and cronies. We are watching to see if there is any humanity left among these folks.

  3. When governments enact stimulus, or quantitative easing packages they do so with the intention of halting economies sliding to full scale recession with all the negative consequences that goes with it , like massive unemployment, and reduce standards of living for the people. For Sierra Leoneans apart from when Colonel Andrew Juxton Smith, was in power in 1968, it feels like our country had forever been on recession. Growing up, I recall Pa Saika , used to tell our countrymen, to tighten our belts. For majority of Sierra Leoneans , this belt is almost killing us.

    These corrupt so called educated African brothers turn politicians, have ruined our country. And this blame is shared both by past APC governments and SLPP governments. I believe if they can charge us for the polluted oxygen we breathe they will do it to fill their pockets. Mr. Jesmed F Suma’s article touch on all that is required in moments like this, and to spore economic growth in a country of seven million people with all the resources we are blessed with.Yet child mortality rate is one of the highest in the world. Women die at child birth, I am talking from experience here with two of my cousins, than any other country in the ECOWAS region. We have 18th century men and women wedded in tribal mentalities, running a 21st economy country.

    Yes the world bank has predicted African economies will bear the burnt of the after effect of the COVID19 pandemic. It will be great if this government can listen to great minds like you.And there are many more Sierra Leoneans like you out there that can turn our country to something we can all be proud of. So a Sierra Leone passport becomes something of a value you most have. But when you appoint people to run ministries,because of their tribal and political alliances, and this goes back from the times after independence, that cant even organise a wedding party or run a bath, we know we have a long way to go.

  4. This is a very good write-up by Mr Jesmed Suma. Many innovative ideas with the knowledge and confidence to initiate and implement them. It is a very attractive proposal but Sierra Leone may not be able to offer the right socio-politcal atmosphere and temperament to make such a scheme sustainable. Firstly, Sierra Leoneans do not understand the idea of ‘GROWTH’ – that is, the inevitable stages of a phenomenon starting from birth, learning how to crawl, and eventually gaining enough energy and courage to take the first footstep. Sierra Leoneans, in all strata, always want to get rich overnight. This mindset inherently evolved from the heydays of the diamond industry in Kono – when people would just walk up the sandy beaches (or gravel) and find gemstones that will change their lives forever.

    Secondly, the injection of 15 trillion Leones (about US$15 million) is relatively very small to rejuvenate a very sluggish economy coming from the aftermath of a pandemic. On the other hand, are the people going to repay their loans and if not, what would be the consequences to the financial sector? The 2008 man-made recession provided some limits for the Keynesian philosophy of aggregate demand management; especially in a third world economy. That was the period which clearly demonstrated that even Capitalism is vulnerable when clustered at its extremities.

    Moreover, apart from the entrenched political and economic problems, Sierra Leone is faced with many social challenges that confound the development of this tiny country. Until the tribal, regional and self-interest mentality is ‘physically’ removed, Sierra Leone will be oscillating in a see-saw towards development; with a continually stagnating economy. Sierra Leone should start afresh: by building roads and other tangible infrastructure, creating regular employment, whilst integrating society. Link below:

    https://www.thesierraleonetelegraph.com/why-is-sierra-leones-development-formula-not-working/

  5. Interesting article. But I do have problems with the author’s reasoning. Governments usually employ economic stimulus during times of recession. Rooted in Keynesian economics, economic stimulus allows governments to engage in targeted expansionary monetary or fiscal policy. The author recommends a series of spending cuts as a way of financing a stimulus package. This raises a serious question.

    How would using contractionary fiscal policy (spending cuts) as an antecedent to expansionary fiscal policy (stimulus package) to stimulate a bad economy work in the real world? Wouldn’t the spending cuts that the author recommends not make a bad situation worse? Given that consumer spending is the largest component of aggregate demand, would not cutting salaries and reducing government spending as the author recommends, not stifle aggregate demand thereby plunging the economy deeper into a recession?

    Another problem deals with the lack of clarity relative to the specific stabilization policy that the article’s author is recommending. Is the author recommending fiscal policy or monetary policy or a combination of both? You cannot be discussing fiscal policy and the Bank of Sierra Leone in the same breadth. As a central bank, the Bank of Sierra Leone does not deal with fiscal policy. It implements monetary policy. And if the authorities in Sierra Leone decide on implementing both fiscal and monetary policies at the same time, then a serious macroeconomic problem might arise with the effective coordination of both policies. If these policies are not properly coordinated, a problem may arise if the objectives or targets of fiscal policy makers differ from those of monetary policy makers.

  6. Great article. I would like to know if you have a news letter I can subscribe to for more information on this topic.

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