Sierra Leone Telegraph: 28 March 2017:
The economy of Sierra Leone is now going through its toughest phase, since the end of the Ebola epidemic. (Photo above: President Koroma). The government has run out of cash – donor funds have declined massively, inflation is rising out of control, unemployment remains chronically high, taxation base has declined, public sector workers are going without pay, public services are facing huge financial constraints, and government contractors are not getting paid.
The government has now realised that without private sector investments, it cannot diversify the economy and expand growth. Yet, public sector borrowing is rising fast – now standing at over $2 Billion.
Foreign direct investments have dried up, as corruption, lawlessness, the arbitrary use of state powers, poor governance and impunity, drive away good investors from Sierra Leone.
And with the economy stuck in deep recession, since the fall in global market prices of iron ore – the country’s major export, government’s revenue has dwindled.
But this decline in government’s ability to raise cash, has had little effect on government’s unscheduled spending.
Ministers are now concerned more about bleeding every cent out of the treasury in preparation for next year’s elections, triggering an upward spiral in bribery and corruption in high places.
International donor funds for next financial year – starting April 2017, are likely to face massive cuts – if not frozen.
China’s promise of millions of dollars in cash aid has not materialised. The Chinese government has recently announced a rolling back of public expenditure in 2017/2018.
The International Monetary Fund (IMF) is once again looking to rescue the government, from what many analysts believe is an economic mess of the government’s own making.
Despite warnings about reckless spending, poor budgetary allocation, and high level of corruption, the Koroma government has continued to spend its way out of an economic austerity it has created – by ramping up its infrastructure development budget.
Today, 28th of March 2017, an IMF team – led by John Wakeman-Linn concluded its two-week long visit to Freetown, which began on the 14th of March, 2017. The aim of the visit was ‘to initiate discussions with government officials on a possible Extended Credit Facility arrangement, that could be supported by the IMF.’
At the conclusion of the visit, Mr. Wakeman-Linn issued this 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.
“While the economy is projected to expand by 6 percent in real terms in 2017, the macroeconomic situation remains challenging. End-period inflation increased significantly in 2016, to 17.4 percent from 10.1 percent in 2015. The fiscal deficit is estimated to have increased from 4.6 percent in 2015 to 8.2 percent in 2016.
“The budget was under severe pressure, leading to expenditure overruns in goods and services and domestic capital expenditures late in the year and arrears to domestic contractors and suppliers.
“On the external front, renewed iron-ore exports contributed to a strengthening of the trade balance, but it was not enough to compensate for the decline in donor support.
“As a result, the current account deficit is estimated to have widened from 17.5 percent in 2015 to 19.9 percent in 2016.
“Against this backdrop, the authorities aim to safeguard macroeconomic policy, and institute a package of structural reforms that place the country on a sustained path toward economic diversification and growth, employment creation, and improved social conditions, consistent with the objectives of the Agenda for Prosperity and the Sustainable Development Goals (SDGs).
“The team made significant progress in discussing the authorities’ policies for 2017, and the proposed program period, and their implications for macroeconomic stability, fiscal and external sustainability and inclusive growth.
“The IMF team welcomes the authorities’ plan to enhance domestic revenue, while increasing public investment aimed at reducing social and infrastructure gaps. Staff support the plan to take decisive steps to increase the efficiency, effectiveness, transparency and accountability in the use of public resources, while strengthening social protection for the most vulnerable.
“Bank of Sierra Leone’s (BSL) objective of tightening monetary policy so as to bring inflation back to single digits by end-2017, increase reserve accumulation and enhance prudential oversight by strengthening the supervisory process are also steps in the right direction.
“Discussions will continue in the coming weeks with a view to reaching understandings on these and other measures that could be supported by the IMF in the context of a new arrangement.
“The team met with President Koroma, Minister of Finance, Momodu Kargbo, and Minister of State for Finance Patrick Conteh; the Deputy Governor of Bank of Sierra Leone, Dr. Ibrahim Stevens, senior government and BSL officials, representatives of the financial sector, private sector, civil society, and development partners.
“The IMF team wishes to express its gratitude to the Sierra Leonean authorities for the constructive discussions during its visit to Freetown.”
The Extended Credit Facility (ECF) is an IMF lending arrangement that provides sustained program engagement over the medium to long term, with countries that are suffering protracted balance of payment problems. (Photo: Alarming rise in poverty in Sierra Leone).
On the 21st of October, 2013, the IMF approved a SDR 62.22 million (about US$95.9 million) ECF for Sierra Leone – paid over three years. The overall amount of the program represented 60 percent of Sierra Leone’s IMF quota.
According to the IMF, the aim of the 2013 arrangement was “to underpin the government’s economic program and facilitate high-quality public investment and growth enhancing reforms in the context of macroeconomic stability.”
But by December 2016, total disbursements under the arrangement had reached SDR186.66million (about US$253.81 million).
And when the Executive Board of the IMF concluded its sixth review of Sierra Leone’s economic performance on the 7th of December, 2016, it was ‘forced’ to approve a request from the Koroma government for waiver of its “non-observance of the continuous performance criterion on the net present value of its external debt…”
In addition, the IMF said in December 2016, that “the government’s economic reform program supported by the ECF has achieved its key objectives despite the exogenous shocks of the Ebola epidemic and the collapse of iron ore prices and associated loss of production in 2014-2015.”
But today – three months on, Sierra Leone’s economy and the performance of the Koroma government, speak a rather different and ominous story, which now requires further pre-elections IMF financial bailout – money which the ruling APC party could easily siphon into party political campaign funds for the 2018 elections.
As the people of Sierra Leone look to change their inept and corrupt government next year, the question that many are asking is, for how long will the IMF continue to pour hundreds of millions of dollars into the Koroma government’s coffers, simply to bail out its fiscal profligacy?