IMF gives support to Liberia as questions are raised about Sierra Leone’s financial mess

Sierra Leone Telegraph: 17 November 2017

Sierra Leone’s economic performance is in tatters. Key government officials and ministers – including the president, have in the last six months taken their eyes off the economy to focus on their political survival. The Koroma government has lost control of the economy.

It seems the only job at State House now, is the packaging and selling of the president’s chosen candidates for the presidency and vice presidency at next year’s elections. – Messrs Samura Kamara and Chernoh Bah (Photo), whose unpopularity has become a  huge headache for ruling party rank and file members – who are deeply unhappy about the president’s unilateral imposition of their candidacy.

Sierra Leone’s economy is in dire straits. Inflation is rising much faster than expected. Basic foods prices – such as rice and cooking oil have gone up by almost 30% in the last six months. The government is struggling to pay the salaries of public sector workers.

There is serious political tension in the streets, as the ruling APC, police and the opposition SLPP continue to wage war of attrition. Investor confidence is at an all-time low.

World Bank and IMF funding have been frozen until after the elections in March 2018, following allegations that ruling APC government officials are misappropriating and siphoning public funds to pay for their political campaigns.

The value of the Leone to the dollar and sterling is declining fast, meaning that the country is importing far more than it is exporting. With its continuing reliance on falling international aid and meagre mining export revenue for its survival, the Koroma government is struggling to meet its basic financial commitments as foreign aid is cut by almost 60%.

In neighbouring Liberia, it is quite a different story. The IMF has this week shown confidence in the ability of president Ellen Johnson Sirleaf to govern the country until a new government is formed, by granting the Liberian government a $20.7 million funding as part of its current ECF agreement with the IMF.

On the 13^th of November 2017, a team of IMF officials completed their review of the Liberian economic performance. They reported that:

• Good progress has been made on structural reforms, and it would be important that this momentum is maintained beyond the expiration of the Fund-supported program.
• Resolving the current political uncertainty in a timely manner consistent with the democratic process would be important to minimize the economic and social costs of delay.

The Executive Board also approved Liberian authorities’ request to waive the non-observance of performance criteria. The waivers pertain to the end-December 2016 floors on total revenue collection of the central government and ceiling on the present value of gross external borrowing by public sector, and to end-June 2017 floors on total revenue collection of the central government, net foreign exchange position of the Central Bank of Liberia, and the ceiling on the Central Bank of Liberia’s gross direct credit to the central government.

The ECF arrangement for Liberia was approved by the Board on November 19, 2012 (see Press Release No. 12/449 ) for SDR 51.68 million (about US$69.3 million or 40 percent of quota as of that date). In September 2014, as part of the response in the fight against Ebola, the Board approved an augmentation of access of SDR 32.3 million (about US$ 43.3 million or 25 percent of quota as of that date) under the ECF arrangement for Liberia.

Following the Board’s discussion on Liberia, Mr. Tao Zhang, Deputy Managing Director and Acting Chair issued the following statement:

“Liberia’s economic recovery has suffered some delay due to the lingering effects of the Ebola epidemic, low global commodity prices, and the impact of the withdrawal of the United Nations peacekeeping mission. The resulting sharp decline in net foreign currency inflows has put pressure on the exchange rate and inflation, and led to a mixed program performance.

“The authorities responded to these shocks with an appropriate macroeconomic policy mix. Combined with exchange rate adjustment, a relatively tight fiscal and monetary policy stance prevented exchange rate overshooting and contained second round inflationary dynamics.

“Going forward, maintaining macroeconomic stability is critical. In fiscal policy, adherence to rules governing the release of contingent expenditure will be crucial to avoid unintended financing gaps, while protecting high-priority social spending. The monetary policy stance needs to remain tight in the face of inflationary and exchange rate pressures. Staying within the spending limits set in the central bank’s three-year financial plan will be essential to regaining adequate reserve cover.

“Recourse to external borrowing should remain restrained as the risk of debt distress is already elevated. New borrowing should be on concessional terms and, to the extent possible, replaced with enhanced utilization of already signed and ratified loans.

“The publication of the executive summary of the forensic audit report of the circumstances leading up to the closure of First International Bank Liberia Limited and a significant financial loss by the central bank was an important first step in ensuring transparency. The publication of an action plan to improve central bank governance and supervisory capacity is also welcome. Sustained efforts will be needed for successful implementation.

“Good progress has been made on structural reforms, and it would be important that this momentum is maintained beyond the expiration of the Fund-supported program. Resolving the current political uncertainty in a timely manner consistent with the democratic process would be important to minimize the economic and social costs of delay.”