Sierra Leone economy facing tough challenges – Bio restricts use of foreign currency

Sierra Leone Telegraph: 21 July 2019

In June 2016, president Koroma of Sierra Leone sent out a text message to every citizen, demanding that they refrain from using foreign currencies, as the economy slipped into deep crisis which later prompted the IMF and World Bank to pull out of Sierra Leone in 2017.

President Koroma’s prophetic text message which many saw as curtailing the right of citizens to free trade, reads: “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,” was the reaction of the Sierra Leone Telegraph to that text message from president Koroma.

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

Each report issued in the dying years of the Koroma government by the International Monetary Fund (IMF) into the performance of Sierra Leone’s economy, concluded that the Koroma government’s spending was unsustainable and must be curtailed.

As far back as 2012, the IMF Mission to Sierra Leone had warned the Koroma government, that: “It was important to constrain non-priority expenditure….and to enhance expenditure and treasury cash flow management.”

And that was the recurring concern of the IMF throughout the last final eight years of the Koroma government.

Export revenue was falling, due largely to the Koroma government’s persistent failure to restructure the economy away from its exclusive reliance on mining.

Has the SLPP government learnt anything from the mistakes of the APC government?

The Koroma government’s obsession with infrastructure development at the expense of building a strong healthcare and education system, as well as failure to restructure the economy, impacted negatively on the economy, leaving behind a massive $3 Billion public debt.

Fewer than 2,000 people worked on those infrastructure projects. Most of the spending left the shores of Sierra Leone by way of capital flight and corruption, rather than spent locally on wages, goods and services.

Tax receipts remained very low as the economy struggled to pick up from the Ebola crisis, as well as slump in the global market demand and prices for iron ore. Economic growth stayed stubbornly at below 4%.

The Koroma government was forced to scale back its average annual budget spending of about Le 4 Trillion. Public sector salary payments were massively delayed, whilst several private sector contractors were not paid.

Yet, ministers and top government officials in the Koroma government were earning far beyond the country’s means, and embarking on meaningless and profligate trips overseas, using up whatever little foreign currencies there were in the country.

Ironically, a month prior to president Koroma sending his text message to citizens calling on them to desist from using foreign currencies, 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 per person.

The speaker of Parliament and other top fat cats were earning an annual salary of more than one hundred and fifty thousand dollars respectively, despite widespread poverty in the country.

Most doctors earned less than $200 a month; nurses – $100 and teachers received a monthly salary of $30.

Most senior officials in the Koroma government were earning not less than $8,000 a month, and president Koroma himself netted almost $20,000 a month, excluding perks, with a monthly housing allowance of over $10,000.

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

The Koroma government’s over bloated appetite for cash was satisfied in dollars through borrowing, including the sale of treasury bills and government bonds each week.

Speaking in response to president Koroma’s text message warning about the use of the Leone, the then 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”.

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 pressure.

In 2007, the Leone was trading at 3,000 to the Pound. By June 2016 it was trading at over 8,000 to the Pound. So too was the value of the Leone dropping fast against the dollar by 2016, at Le6,550 to the dollar.

Serious concerns were raised of Sierra Leone returning to the ‘heavily indebted status’, should the Koroma government continue to borrow and spend at the rate it was. Is the World Bank not expressing similar concerns today?

Recognising the unsustainability of the Koroma government’s borrowing and profligate spending, critics including the opposition SLPP, warned of an economy facing a melt-down. But how much have things changed today under the Bio-led SLPP government?

In November 2017, about four months before general and presidential elections were held, both the IMF and World Bank left the shores of Sierra Leone, terminating their financing agreements with the Koroma government.

Three years on since former president Koroma issued his prophetic text message to the people of Sierra Leone telling them to desist from using foreign currency in their daily dealings, and Fast forward to July 2019, how much have things changed in Sierra Leone, as the Bio led government seeks to pass a new law, making it unlawful for Sierra Leoneans to demand or use foreign currency in their everyday dealings?

Since the SLPP government came to power over a year ago, the value of the Leone has continued to fall against the dollar and sterling.

There has been an almost 20% fall in the value of the Leone against all major foreign currencies in the last twelve months, as the Bio led government struggles to get export back on course, despite recent resumption in iron ore and rutile mining.

Inflation has risen from 16% a year ago to over 17% today. Unemployment continues to rise, with about 30% of the adult population in formal, regular paid work.

The government is yet to diversify the economy and there are still no green shoots in sight, signalling an economic recovery.

Last week, a World Bank report said that the economy is facing huge challenges, as government borrowing continues to rise, despite president Bio’s pre-election promise not to increase borrowing but to curtail government spending and limit itself to cash-budgeting until export revenue picks up again.

Those who were once calling former government officials and ministers “fat cats”, are now seriously at risk of wearing the label themselves.

There has been no sign of salary reduction for top earners in the Bio-led government. If anything, there has been a rise in salaries of ministers and senior officials.

Has the Bio government curtailed spending on expensive foreign trips? The evidence suggests a continuation of previous government policy – more of the same, putting massive pressure on demand for foreign currency.

This is what Section 26 of the new legislative restriction on the use of foreign currencies – the Bank of Sierra Leone Act 2019, says:

(1) The currency of Sierra Leone shall continue to be the Leone.

(2) The Leone shall be the currency for all accounting, financial reporting and official purposes in Sierra Leone.

(3) The Leone shall be issued in banknotes and coins and prefixed by the sign “LE”.

(4) Prices of all transactions in Sierra Leone shall be indicated in Leones.

(5) Except as otherwise provided in this Act any person or institution who contravenes any provision of this Act or Statutory Instruments made under this Act commits an offence and shall be liable on conviction to a fine of 100 million Leones or to imprisonment for a term not less than 3 years or to both the fine and imprisonment.

3 Comments

  1. This article is seemingly misleading in content and proportionality. The title says: “Sierra Leone economy facing tough challenges – Bio restricts use of foreign currency.” In this respect, one would expect to learn such challenges as in the macroeconomic structure – including: interest rates, inflation, current depreciation of local currency, export earnings, trade balance, rate of unemployment, government deficits and borrowing requirements, local and international debt, poverty and standard of living, present growth level, and a host of other important variables – of the economy in the Bio led government.

    In effect, one is more inclined to read about the diagnostic results of the present economy than the history of health indicators of the economy of the previous administration. The article dwelled most of its narrative, about three quarters, on how sickly the economy was about two years ago, rather than how badly and traumatic it is now; contrary to its thematic message. Yes, the background of the conditions of an unhealthy economy is fundamental, though people are more critical on the present state of affairs.

    Was it a lack of fresh data that led to the SKEWED nature of this article? What are the prospects of Sierra Leone’s debt-ridden economy amid the recent downgrading from moderate to high risk of debt distress? Is the present government going to think rationally and phase down the vanity projects that it is fantasizing on at this critical moment in time?

  2. Always playing the blame game. Is been over a year and you are still blaming the previous ruling party for what is happening now. What has the Bio led government done to work out these issues? Its been over a year and we see things getting worse.

  3. It’s a big shame that the country’s currency, the Leone are being sold publicly on the streets of the country by every “Tom, Dick and Harry”. The black market trading of the currency is apparently a very big concern. The consequences are huge. Please establish official exchange booths to monitor especially the flow of foreign currencies thereby helping to curtail money laundry and help stabilize the rapid tumbling of the Leone.

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