IMF says economic activity in Sierra Leone has picked up

Sierra Leone Telegraph: 18 June 2018:

Sierra Leone’s economic activity has picked up since elections in March 2018, says the IMF. But the newly elected government of president Julius Maada Bio is running the country’s finances on a shoestring budget, mainly cutting back on spending in some areas of expenditure to pay for the delivery of basic public services, such as health and education.

According to the latest Auditor General Report 2016, the APC government led by president Ernest Bai Koroma, raised over Six Trillion Leones in revenue, including borrowing and foreign aid to help pay for the running of the country’s affairs.

But critics say that most of that money was either wasted or misappropriated – most certainly both.

The Koroma government lost the recent elections held in March 2018, leaving massive debt and an almost empty public coffers for the incoming government of Julius Maada Bio.

So how is president Bio managing the country’s affairs and the economy? With great difficult, a senior minister told the Sierra Leone Telegraph.

Short of borrowing more money – thereby raising the country’s already high foreign debt, president Bio and his ministers are at least for now making do with the meagre taxation revenue that is being collected, as well as reducing spending in some budget areas.

But the biggest budgetary problem facing president Bio, is the decision of the IMF to freeze its over $230 million loan facility it had signed with the former Koroma led APC government because of mismanagement and corruption.

With a new government in power, the IMF is hoping to resume business with the SLPP government, as the country’s economy teeters on the edge of collapse and public service delivery stumbles.

But much depends on the level of confidence the IMF and World Bank have in the SLPP government, led by president Julius Maada Bio.

Two weeks ago – 4^th June 2018, an IMF mission led by Mr. Brian Aitken, visited Freetown for an eight days review, aimed at assessing economic conditions in the country and to lay the basis for a follow-up mission, currently planned for late-summer, that could see the signing of a new agreement with the SLPP government, based on a revised program.

The mission met with President Bio, Vice President Jalloh, Minister and Deputy Minister of Finance, Financial Secretary, Governor and Deputy Governor of Bank of Sierra Leone and senior government officials.

At the end of their discussions and review, Ms. Iyabo Masha – IMF Resident Representative for Sierra Leone, issued the following statement:

“Economic growth slowed down to 3.5 percent in 2017, from 6.3 percent in 2016, mainly due to decline in iron ore mining as well as reduced activities in the non-mining sector.

“Inflation, which peaked at 20 percent in March 2017, fell to 15 percent in April 2018, partly reflecting the moderation in exchange rate depreciation.

“The outlook for 2018 is mixed. Following a slow start due to uncertainties about the general elections, economic activity has picked up somewhat in the second quarter.

“However, the economy will continue to face headwinds from the closure of the main iron ore mine early in the year, with annual growth currently projected at 3.7 percent. The current macro-financial environment is challenging.

“Inadequate budget revenue and weak spending discipline have led to a sizeable increase in the stock of budget arrears over the last year, representing the main threat to near-term macroeconomic stability.

“To address this threat, the government has taken a number of steps to shore up public sector finances, including the roll out of the Treasury Single Account, a reduction in duty waivers and exemptions, stronger oversight over ministries, departments and agencies, and expenditure restraint.

“These steps have in recent weeks helped ease somewhat the short-run pressures on the budget’s borrowing need, but additional steps to boost revenue and control expenditure will be needed to ensure that public finances can be put on a sustainable basis going forward.

“The process toward reaching agreement on a revised IMF-supported program continues to move forward.

“During this mission, the IMF team and Sierra Leone authorities reached a common understanding on the key areas where additional progress will be needed. Some of these areas include a plan for financing the 2018-2019 budget; increasing accountability, transparency and oversight of ministries, departments and agencies; and advancing the legislative reform agenda in the areas of banking, public financial management, and revenue administration.

“If progress in these areas continues in the coming weeks as anticipated, a mission would return to Freetown in September, with the goal of finalizing agreement on a new program arrangement.” (End of statement).

So, the ball is now on the court of president Julius Maada Bio and his government to sustain the high level of discipline they have established in managing public finances, since coming to power in April.

And if they succeed, there is little doubt the IMF, the World Bank and the international community will rally behind the new government in support of economic growth, which must be led by private sector investments.

The government must also take a look at all of the state enterprises within its portfolio, with a view to selling off those that are loss-making and not critical to national security.

This decision is crucial, if the government is to raise much needed revenue to invest in education, vocational and technical skills training, as well as to establish a Business Growth and Innovation Fund for small and medium sized businesses to create employment.

Can president Bio deliver?