Sierra Leone Telegraph: 11 April 2012:
President Koroma’s government has run out of cash. Bills and salaries remain unpaid, as it tries to honour its higher than expected spending budget. The International Monetary Fund (IMF) told reporters today, that; “The authorities agreed with the mission on the need to enhance fiscal consolidation efforts, while also addressing Sierra Leone’s large infrastructure and social service needs.”
In a statement issued today in Freetown by the Head of the IMF Mission to Sierra Leone – Malangu Kabedi-Mbuyi, the report went on to say that; “In this respect, the mission stressed that it was important to constrain non-priority expenditure in the remainder of 2012, and to enhance expenditure and treasury cash flow management.”
Report of poor fiscal management will not come as a surprise to independent analysts and critics of the government, who have constantly warned against government profligacy, in order to avoid haemorrhaging of the economy – already weakened by the global economic downturn.
It is clear that the government’s urgent drive towards completion of its road infrastructure programme – at the expense of health, education, social and anti-poverty programmes, have been most especially motivated by political imperatives, rather than economic rationale.
Presidential and general elections are just seven months away, and President Koroma is looking to build his electoral capital ahead of those elections.
But in the meantime, the economy is suffering: public sector workers are facing huge delays in payment of their salaries, while private sector contractors working on government procurement and infrastructure projects are not being paid.
In a bid to curb the government’s over bloated appetite for cash, the Bank of Sierra Leone early this year reduced its interest rates paid on Treasury Bills.
But this move did not deter government ministers from unnecessary spending, which as the IMF explains today, that; “slippages in budget execution translated into a higher-than-anticipated overall deficit financed through accumulation of unpaid bills.”
What is of grave concern is that necessary structural reforms, aimed at instilling disciplined and effective budgetary planning, taxation and public sector spending have not been implemented.
As the IMF observes; “Regarding structural reforms, implementation of some of the measures planned for end-December were delayed. Discussions with the authorities will continue in the coming weeks.”
In failing to meet its own targets for disciplined fiscal management, the government is further jeopardising any chance of tangible economic growth in 2012/2013.
According to the IMF, “Sierra Leone’s economy continued to expand in 2011 on the back of agriculture, construction, and services, supported by increased energy supply and infrastructure investments. Real gross domestic product (GDP) growth in 2011 is estimated at 6 percent.”
When President Koroma took office in 2007, GDP was 5% – a 1% rise after 5 years in government.
The prices of goods in the shops and local markets, add to the all too familiar narrative of an economy in decline. In 2007, inflation was running at 8%. The price of a standard bag of rice – the country’s staple food, has more than doubled since 2007, in most parts of the country.
According to the IMF; “Price pressures have receded somewhat since mid-2011 and consumer price inflation eased to 16.9 percent (year-on-year) at end-2011, as food price increases subsided and tight monetary policy helped contain non-food inflation.”
Sierra Leone relies on imported goods and foods for its survival, which does put a massive strain on scarce foreign exchange and creates further inflationary pressures.
In 2007, the Leone was trading at 3,000 Leones to the Pound. Today, it sells at over 6,000 to the Pound.
But the IMF feels reassured that; “Gross international reserves remain at a comfortable level; and the Leone has been relatively stable, depreciating by 4 percent (against the dollar) over the course of the year.”
Recent media reports of Banks in Freetown running out of cash, made for chilling reading, as local businesses and cash-strapped households struggled to get their hands on their money.
This crisis, prompted the Bank of Sierra Leone to introduce its version of ‘quantitative easing’ – pumping money into the Commercial Banks in order to prevent the Banking system from collapse.
Commenting on the problem, the IMF said in Freetown today, that it “concurs with the Bank of Sierra Leone’s monetary policy stance and encourages it to use its policy instruments proactively to strengthen liquidity management and support price stability.”
With the government’s desire to complete its large-scale infrastructure development programme, international debt has risen to almost $1 Billion, including the latest $34 Million agreed by president Koroma – with the African Development Bank, for road construction.
By the end of the 1990s Sierra Leone was already being crippled by external debt, as well as its brutal civil war, earning the unflattering title of “a failed state” – along with countries like Somalia.
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, in order to achieve its large-scale infrastructure development programme.
Commenting on the government’s overall performance in achieving its agreed targets under the ECF program, the IMF chief said; “Performance under the program at end-December 2011 was mixed. With the exception of the continuous zero-ceiling on contracting of nonconcessional external debt, all quantitative criteria for end-December 2011 were met.”
Recognising the unsustainability of the government’s borrowing and profligate spending, critics have warned of an economy that is facing a melt-down, should the government continue on its current fiscal management trajectory.
But is there light at the end of this dark and gloomy tunnel?
The IMF is optimistic, as it seems to be pinning its hope on the commitment made by the government to curb non-priority spending.
It says that the government “agreed with the mission on the need to enhance fiscal consolidation efforts, while also addressing Sierra Leone’s large infrastructure and social service needs.”
“In this respect, the mission stressed that it was important to constrain non-priority expenditure in the remainder of 2012, and to enhance expenditure and treasury cash flow management.”
Looking ahead, especially with the projected one-off 50% rise in GDP by the end of 2012 as a result of a surge in iron-ore production, the IMF says that; “It encouraged the authorities to take appropriate measures in anticipation of challenges that would arise from the expected surge in resource revenue in the coming years, notably for fiscal and monetary policies.”
Whether the government will take heed of the IMF’s advice remains to be seen.
But what is obviously clear is that Sierra Leone is still classed as one of the poorest nations in the world, with average daily income of less than $1 Dollar and one in every eight children dying before they get to their fifth birthday.
Sierra Leone has more natural resources than the whole of Europe combined, yet struggles to feed its population of 5 million.
And if the government continues to fail to meet its agreed spending and revenue generating targets, and preside over misplaced economic priorities, then poverty will only continue to get worse.