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The International Monetary Fund (IMF)
mission to Sierra Leone - yesterday 8
September 2011, completed its review of
the government’s performance in
delivering the economic program
supported under the Extended Credit
Facility (ECF) approved by the IMF
Executive Board in June 2010. |
So how well has the country faired nine months
since the last IMF review?
Reviewing Sierra Leone’s economy at the end of
2010, this is what the IMF said:
"Fiscal
policy aims at improving infrastructure and
social services in 2011. Capital spending is
envisaged to further expand to 10.2 percent of
GDP, most of which will be externally financed."
"Nonpriority expenditures are expected to remain
constrained. Domestic revenues are projected to
continue to increase to 13.3 percent of GDP in
2011, reflecting efficiency gains from tax
reforms and the implementation of higher
royalties on diamonds."
"Monetary policy aims at bringing inflation down
to single digits in 2011. With the establishment
of a benchmark policy rate, the transmission
mechanism is likely to improve. A flexible
exchange rate will be maintained to facilitate
adjustment to external shocks."
As has been predicted since the beginning of
2011, millions of dollars being invested by the
mining companies are helping to shore up the
country’s fragile economy.
IMF Mission Chief for Sierra Leone - Jan
Mikkelsen, issued a statement yesterday, saying
that; "Following a 5 percent growth in real GDP
in 2010, economic activity has remained robust
in 2011, supported by continued expansion in
agriculture and mining."
Although it is not certain by what percentage
points, if at all, the economy has so far grown
this year, compared to 2010, what is most
worrying is the significant hike in year-on-year
inflation, reported by the Sierra Leone
Telegraph last week, after the Bank of Sierra
Leone decided to peg its interest rate at 23%.
"Consumer price inflation increased, however, to
20.9 percent (year-on-year) in July 2011 on
account of food and fuel price increases, as
well as the effect of expansionary monetary
policy in the second half of 2010", says the IMF
chief – Mikkelsen in Freetown.
The return to single digit inflation rate
forecast for 2011 is yet to be seen, and few in
Sierra Leone believe it will be achieved.
According to the IMF, the government Treasury
bill rate has fallen, indicating a slowing down
of the government’s domestic borrowing, which
was driving up commercial banks' interest rates.
But with the government’s on-going programme of
large-scale infrastructure development, it would
seem that there has been a slight shift in
borrowing from domestic financial market - the
sale of Treasury bills to the expansion of
nonconcessional external debt.
As the IMF warns; "With regard to performance
relative to the ECF-supported program, the
tightening of fiscal and monetary policies
contributed to meeting all quantitative criteria
for end-June, with the exception of the ceiling
on contracting of nonconcessional external
debt."
Nevertheless, the IMF is comfortable with the
government’s overall monetary policy trajectory,
especially with regards the value of the Leone
and the level of foreign exchange reserve.
The IMF says that; "Gross international reserves
remain at a comfortable level. The Leone has
been relatively stable, depreciating by about 4
percent in the first half of 2011, and Treasury
bill interest rates have declined."
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But President Koroma has still got a lot
of work to do in stabilising the
economy, which many believe to be
stalling under the weight of the huge
borrowing needed to finance its capital
programme.
This critics say, is being done at
the expense of real private sector led
economic growth, and investment in
social programmes.
"The main policy challenges facing the
authorities remain to close the
infrastructure gap, expand social
services, and reduce unemployment while
maintaining macroeconomic stability",
says the IMF.
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The IMF is urging the government to step up its
efforts in improving the performance of the NRA
in collecting much needed tax revenues. The NRA
achieved its end of year target in 2010, and
expectations are very high for 2011.
Speaking to the Sierra Leone Telegraph early
this year, the Acting Commissioner General of
the NRA said that; "the NRA has a huge task
ahead in collecting government revenue that
could plug the public expenditure deficit of
about Le1.2 Trillion by the end of 2011."
The IMF chief is in no doubt; "In this respect,
the mission supports the authorities’ efforts to
mobilize domestic revenue and underscores the
need for constraining nonpriority expenditures
in the second half of 2011."
Total tax collected in 2010 was Le 257.13
Billion more than that collected in 2009; and
tax revenue in relation to GDP, increased from
10.7% in 2009 to 13.2% in 2010.
Following the threats of industrial strike
action and social unrest at the end of 2010 and
early this year, in response to rising cost of
fuel caused by the introduction of the metric
system of measurement, the government was forced
to lower excise duty on fuel.
But the IMF believes that government has to
review its policy on excise duty, if it is to
meet its fiscal target.
The IMF therefore "recommends that the
Government gives due consideration to gradually
restoring fuel excises, which were significantly
lowered earlier this year. This would enhance
fiscal space for necessary capital and social
spending".
Speaking about the Bank of Sierra Leone’s
control of the money supply, "the mission
concurs with the Bank of Sierra Leone on the
need to tighten monetary policy and maintain
exchange rate stability".
The IMF will hold further discussions with the
government later this year.
The mission’s week long visit to Freetown lasted
from 23 August to 6 September 2011. They met
with President Ernest Bai Koroma; Minister of
Finance and Economic Development, Dr. Samura
Kamara; the Governor of the Bank of Sierra
Leone, Mr. Sheku Sesay; other senior officials
of the government and the central bank,
representatives of the business community and
CSOs, and development partners.
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