Sierra Leone Telegraph: 23 November 2016
Last Friday, 18th November 2016, Sierra Leone’s finance minister Momodu Kargbo delivered the government’s budget statement for 2017 to parliament. It is a budget the government is hoping will address the growing abject poverty, that over 70% of the country’s population is now suffering.
Whilst his statement was warmly received by a House dominated by the ruling APC, it seems there is now a sense of trepidation and uneasiness from several parliamentarians, across the political divide.
They are concerned about the credibility and fairness of many of the measures and spending cuts the government is proposing for next year, including the removal of the subsidy on fuel, which is proving to be unpopular and threatening the stability of the nation.
Parliamentary members of the opposition SLPP are now leading the debate against a budget critics say is about the government robbing Peter to pay Paul, following a scathing attack last week, on the ruling party’s inability to manage the country’s economy by Mr. Alie Kabba – one of the leading contenders for the presidency in 2018.
In a press statement issued on the government’s handling of the economy and its proposed budget for 2017, the opposition SLPP is clear as to where blames lies for the current financial disaster facing the country. This is what it said:
Credibility of the Budget
The SLPP wishes to note that the budget is not credible in terms of process, content and implementation.
First, many Ministries, Departments and Agencies (MDAs) including Parliament refused to participate in the budget hearing sessions organised by the Ministry of Finance and Economic Development (MOFED).
Most MDAs that refused to participate in the process blamed it on the fact that actual disbursements received is at best 60% of allocated amounts and therefore do not deem it fit to attend. Instead, substantial amounts disbursed are extra-budgetary expenditures approved by State House.
Whilst few MDAs such as Ministries of Health and Sanitation, Agriculture, Forestry and Food Security and Education Science and Technology cope through reliance on donor funded project units with implications for the effectiveness of these projects.
Second, while the Fiscal Strategy Statement 2017 notes that the new retail price for petroleum products will be increased from Le 3,750 to Le 5,500 per litre and will remain unchanged until June 2017, the insensitive APC government has increased the price to Le 6,000 per litre.
Third, the total allocation to social safety net programmes reported in the budget is Le341.4 billion which is Le10.2 billion more than the aggregate amount of Le331.2 billion (Paragraphs 5 and 6). The SLPP does not consider this as error in adding but a deliberate attempt to deceive the public about allocation to social safety programmes.
Revenue and Expenditure
The SLPP notes with apprehension that despite the propaganda by the National Revenue Authority (NRA) that it exceeds yearly targets, domestic revenue mobilisation remain a key economic challenge and grossly inadequate to finance the burgeoning expenditure.
Domestic revenue was only 10.1% of Gross Domestic Product (GDP) in 2015 and estimated at 10.5% in 2016 far less than the 20% revenue threshold required for state to finance its expenditure.
Neighbouring Liberia and Guinea that were equally affected by Ebola and fall in iron ore prices performed better in revenue mobilisation. Domestic revenue GDP ratio was 18% in Liberia and 17% in Guinea.
The domestic revenue remain grossly inadequate to finance the growing expenditure estimated at 17.9% of GDP in 2016 and projected at the same level in 2017.
In absolute terms, domestic revenue in 2015 was Le2.330 trillion and estimated to increase to Le2.798 trillion in 2016 and Le3.596 trillion in 2017 while total expenditure was Le4.419 trillion in 2015 and expected to increase to Le4.761 trillion in 2016 and Le5.444 trillion in 2017 despite the austerity measures recently announced by this government.
This means that only about 50% of total expenditure in 2015 was financed by domestic revenue and is estimated at 59% in 2016 and 66% in 2017.
In absolute terms, deficit in 2015 was Le2.089 trillion and estimated at Le1.963 trillion in 2016 and Le1.848 in 2017. To finance this deficit, government has resorted to domestic borrowing from banks and non-banks as well as external borrowing with negative repercussions for debt stock and associated interest payments at the expense of financing expenditure on essential social services.
External and Domestic Debt
The public will recall that in 2006, the SLPP government successfully negotiated debt relief after meeting all economic and structural benchmarks with the IMF and World Bank. Consequently, the then SLPP government reduced the debt stock from US$1.6 billion to US$250 million.
In 2007, the SLPP left at the central bank the sum of Le 524 billion as debt relief and US$400 million as project resources, mostly roads project. In addition, the APC informed the public that it secured US$900 million from the Investment Conference held in London in 2009.
Despite all these, total external debt was US$1.244 billion in 2016 representing nearly 400% increase in 10 years and is expected to grow to US$1.450 billion in 2017 and US$1.529 billion in 2018.
Domestic debt was Le3.364 billion in June 2016 and expected to increase to Le4.009 billion in 2017 and Le4.568 billion in 2018.
Total interest payments was Le174.57 billion and expected to increase to Le 233.12 billion in 2016 and projected to nearly double to Le 548.18 billion in 2017.
The concerns of the SLPP are that the amount spent on interest repayments exceed that allocated to critical sectors and departments such as the Sierra Leone Police (Le 87.87 billion), Ministry of Agriculture, Forestry and Food Security (Le63.27 billion), Ministry of Health and Sanitation (Le 94.94 billion) and Ministry of Social Welfare, Gender and Children’s Affairs (Le 9.16 billion).Undeniably, this is a clear indication of bad management of our economy.
The Party therefore calls on government to reduce borrowing, particularly on non-essential goods and services and avoid accumulation of arrears.
The SLPP recognises the imperative to mobilise domestic revenue and the rationale to protect local industries. But, the Party also believes that taxes should not hurt the poor and therefore detests any tax policy that causes untold hardship on the population.
The budget has proposed increases in tariff rates on many goods and services which will be translated in increases in prices.
For example, the proposed increase in tariff rate on imported wheat flour from 10% to 35% will eventually increase the cost of bread or reduce its size since there is no guarantee that the local flour will be adequate to meet the growing demand.
Also, revising income tax rates upward for commercial vehicles and motorbikes will affect transport prices.
Accordingly therefore, the SLPP calls on government to review the proposed 2017 Finance Bill with a view to reducing the impacts on the people.
The Party also urges the government to consider more innovative ways of mobilising resources thereby broadening tax base and improve on tax administration.
The SLPP is concern that the sectoral allocations are inconsistent with the theme and violates international treaties.
First, although the theme of the budget is “Recovery through Economic Diversification and Fostering Entrepreneurship”, only Le 63.27 billion representing 4.1% of the budget is allocated to the agricultural sector.
This allocation does not only demonstrate how inconsistent the budget is with its own theme but far short of the 10% threshold under the Maputo Declaration.
Second, a total of Le94.94 billion representing 6.1% was allocated to the health sector. The SLPP frowns at this amount not only because it violates the Abuja Treaty that obliges countries to spend 15% of national budget on the health sector but because it is indicative of the less priority given to the health sector in post-Ebola period.
The SLPP believes that strengthening the health system during post-Ebola period should involve upgrading the diagnostic facilities through developing the laboratory services among other things. Such allocation to the health sector is unacceptably inadequate to address the many health challenges.
Third, a total of Le 257.31 billion representing 16.1% was allocated to the education sector. This violates the Education for All (EFA) target which requires developing countries to spend 20% of their national budget on education.
Fourth, more disturbing is that while this government is implementing the National Post-Ebola Recovery programme, nothing is specifically allocated in the budget as livelihood support to Ebola survivors.
The SLPP views this as cruelty and corroborates the fact that this APC government is not sensitive to the welfare of the Ebola survivors.
The Party therefore calls on the government to realign the budget to sectors that directly affect the lives of the poor and respect international treaties. In particular, the SLPP request for special allocation to support livelihood of Ebola survivors.
The SLPP had long observed that duty waiver to international organisations, NGOs, mining/exploration companies and unexplained “others” on imported goods is a major source of leakage of public resources. Total duty waiver is estimated at Le 123.13 billion in 2016 and projected to marginally decline to Le 120.67 billion in 2017. This amount is about 60% required for fuel subsidy estimated at Le 200 billion.
Very alarming is duty waiver to unexplained category ”others”. In 2016, duty waiver to this category was Le 76.84 billion representing 62.5% of total duty and is projected to be the same in 2017.
This high duty waiver to this “others” category are mostly those granted to cronies of the APC on orders from above mainly from State House and constitutes main source of abuse of state resources. This amount lost to duty waiver to “others” exceeds total allocation of Le 63.27 billion to the agricultural sector and projected wages and salaries of Le 61.59 billion to be paid to nearly 25,000 teachers in 2017.
The SLPP has further suggested to this government that progressive reforms and cutbacks in duty waiver can expand the much needed fiscal space for financing essential expenditures.
The SLPP would like to reiterate that there should be no exemption to the policies governing duty waiver. Also, to avoid rent seeking practices by contractors in obvious collusion with NRA officials, it is proposed that all duty on imported goods be included in the costs of all contracts.
Wages and Salaries
The SLPP also carefully examined the statements and estimates on wages and salaries and has the following concerns:
First, wages and salaries for 2017 is estimated at Le 1.806 trillion accounting for about 64.5% of domestic revenue. At low levels of wages for the bulk of the public servant, this percentage is considerably high.
The fact that nearly two-thirds of domestic revenue is used to pay wages and salaries is indicative of poor revenue position. More upsetting is that Le 19.51 billion is budgeted for wages and salaries on other subvented institutions not specified. This unexplained category can only represent payments made to the many officials comprising Advisers and other contract workers bloating the public service.
Unexpectedly, even with the increasing cost of living caused by hike in prices occasioned by the reckless management of the economy, there is no increase in wages and salaries, particularly for poorly paid civil service.
The SLPP calls for salary increase to civil service in order to cushion the effects of skyrocketing prices and reduce the size of government by mainstreaming many of the functions of subvented agencies into the service.
Removal of Fuel Subsidy
On October 28, 2016, the SLPP clearly stated its position on the removal of subsidies on petroleum products in a press statement. In summary, the party considered the timing as wrong and a subsidy removal will only worsen the already growing hardship.
The press statement stated that: “The removal will lead to increased transport costs causing ripple effects on other sectors of the economy, notably agriculture which revolve around transportation. Also, there will be increase in cost of small scale business services. These businesses depend on subsidized fuel to render services as public electricity is not reliable and recently made expensive. Additionally, the removal of subsidy will increase cost of production. Factories and industries that depend on petroleum products and goods transportation will experience some difficulty and have to increase production costs in order to meet market demands and finally will open the floodgates of inflation, thereby drowning all prospects to sustainable development”.
The SLPP also partly damned the argument of smuggling as mere propaganda taunt and blamed the problem on the depreciating exchange rate. This was validated in Paragraph 100 of the budget speech by the Minister of Finance in the following words: “The price of imported refined products is quoted in US dollars. Hence, any depreciation in the exchange rate affects the domestic price of these products”.
Finally, the SLPP therefore urged this government to maintain the subsidy on petroleum products by identifying other sources of savings of government spending to finance the subsidy
Notwithstanding, this government went against the advice of the SLPP and the cry of the people of Sierra Leone and upped the price of fuel from Le 3,750 to Le 6,000 representing 62.5% increase. The SLPP views this action as irresponsible and insensitive for a government that praises itself as a listening government.
The expected positive impacts of safety net programmes targeting segments of the population is far less than the negative consequences of removal of subsidy on petroleum products that directly or indirectly affect every Sierra Leoneans.
The backlash of this unpopular policy is the ongoing threats of demonstrations which may undermine the fragile peace and national security.
The SLPP would like to re-echo its call for a reversal of this policy and urges government to seek resources from elsewhere or reduce wastage and leakages through procurement and duty waiver and continue to finance the subsidy at least in the short run.
Changes in Cost of Living
The outcome of this careless economic management is increases in prices of goods and services culminating to increased hardship on the population. Table 1 presents how food prices have increased for typical family of 6 members. In 2007, the cost of a food basket for a family of 6 was about Le 25,000.
This means that a household of 6 members needed Le 25,000 a day to provide main meal for its members. By 2012, the same family required Le 40,000 for a meal a day representing 62% increase between 2007 and 2012.
As at today 2016, the same family requires Le 60,000 to provide a daily meal representing 52% increase between 2012 to 2016. So between 2007 and 2016, there has been an increase of 146% in the cost of food basket for a family of 6.
Assuming total household income of Le 750,000 a month: This means in 2007, the household income is barely enough to provide a meal a day for 30 days. In 2012, the same household could only meet about 63% of daily food requirement meaning with Le750, 000, the household could afford to provide food only for 19 days for its members.
As at 2016, the same household with income level of Le 750,000 can only meets 40% of household food requirement meaning can provide food for barely 13 days.
Even with a 50% increase in income between 2007 and 2016 which is even higher than salary increases between 2007 and 2016, the same household can afford only 63% of household daily food need. This means that the same household can only provide food for 19 days in a month.
CHANGES IN PRICES OF FOOD ITEMS (2007-2016) FOR A FAMILY OF 6 MEMBERS:
Rice (6 cups)… Le2,400 (2007) Le5,400 (2012) Le9,000(2016)
Cassava Leaves (4 ties)…Le1,200(2007) Le2,000(2012) Le4,000(2016)
Palm oil (1 pint)…Le 1,500(2007) Le2,500(2012) Le3,500(2016)
Fish (dried)….Le5,000(2007) Le8,000(2012) Le10,000(2016)
Meat (1 kg)…Le 8,000(2007) Le 11,000(2012) Le14,000(2016)
Groundnut (2 cups)…Le 1,000 (2007) Le1,500(2012) Le 2,500(2016)
Maggi…..Le500 (2007) Le1,000(2012) Le2,000(2016)
Salt…. Le200(2007) Le500(2012) Le1,000(2016)
Pepper…Le 1,000(2007) Le 2,000(2012) Le 5,000(2016)
Garden eggs (mokabi)….. Le500 (2007) Le1,000(2012) Le 2,000(2016)
Charcoal….Le 1000(2007) Le 2,500(2012) Le 5,000(2016)
Total Spending…Le 24,307 (2007) Le39,412(2012) 60,016(2016)
Appeal to the Development Partners and Embassies
Whilst the SLPP appreciates the role of development partners, particularly the IMF and neighbouring Guinea, the Party wishes to appeal to these partners to respect the sovereignty of Sierra Leone and allow the people to freely discuss economic and political issues as required in a democracy.
The SLPP abhors press conferences organised by the partners to discuss our economic plight as a strategy of siding the government. Unofficial public statements in favour of the Government will be perceived as interference into our local politics.
The SLPP therefore calls on development partners to observe and support our democracy but not to interfere in our local politics.