President Koroma slashes government spending amid fears of an economic meltdown

Sierra Leone Telegraph: 4 October 2016

President Koroma and his ruling APC party ministers, yesterday decided to ditch their 2016 Budget and Spending Plans, after realising that the government’s coffers is now virtually empty.

For a government that two weeks ago, spent hundreds of thousands of dollars on sending the president and his rather bloated entourage to attend the UN Summit in America, when few in Sierra Leone can afford malaria medicines, questions must be asked about the sincerity of these swingeing spending cuts.

“Due to a significant decline in revenue, it has become difficult to fulfill government’s commitment to poverty-related programmes and the implementation of post-Ebola recovery priorities. In consequence thereof, government wishes to inform the general public that at an emergency meeting of cabinet today, 3rd October 2016, the following expenditure rationalization measures were approved to address these challenges,” the statement from State House reads.

These massive austerity cuts will no doubt hurt the weakest in society most, while those in privileged positions – in and out of government, will continue to live a life of luxury, through corruption and graft.

Many in Sierra Leone would also say that last night’s announcement has come too late to rescue an economy that has been teetering on the edge of collapse, since the global economic crash of 2008. The government has been too slow and seemingly incompetent to act.

Huge damage has been done to the fabric of the economy, because of the lack of investments – if not to the psyche of the majority of Sierra Leoneans, who now see bribery as the only means of getting things done in the country; and embezzlement of public funds, as another legitimate personal income stream.

Two weeks ago, the government announced a 15% rise in electricity charges. Income tax has seen an increase also, with the price of petrol set to go up in the near distant future, as the government removes its subsidy.

Real inflation has been in double digits for as long as most people can remember, if not throughout the life of the Koroma government, at more than 10%. The price of a bag of rice is selling at no less than Le300,000, with similar increasing cost of other subsistence foods and household goods.

Interest rates have been kept artificially high as a direct result of government’s reckless borrowing and spending decisions. The private sector, which is regarded as the engine of wealth and job creation, is reluctant to borrow at high interest rates to invest on growth. Unemployment has therefore remained stubbornly high.

The fact is that the Sierra Leone Telegraph has been warning that, very high and unscheduled, non-programme government spending is hemorrhaging the economy, pushing up an already unacceptably high government borrowing and unemployment.

Government revenue is weak and will continue to be so for a long time to come, as the global prices of mineral exports such as iron ore and rutile remain low. It was reported yesterday by Awoko News that profits of one of the country’s most successful mining companies – Sierra Rutile have fallen very sharply.

The IMF has been consistent in its warning to the government, to cut unscheduled spending and reduce domestic borrowing. Last week’s statement by the IMF was very clear.

But after praising the government for implementing some of the necessary reforms last week, the IMF said: “While these reforms have enabled the economy to grow and weather unanticipated shocks, challenges persist. Looking ahead, policy should focus on continuing to anchor economic stability through sound fiscal, monetary, and debt policies while making faster progress on structural reforms. Diversifying growth, making it more inclusive and distributing its benefits more widely should be the overriding focus of economic policy.

“Fiscal policy should focus on increasing revenues, while raising the efficiency and quality of public spending.

“On the monetary policy front, continued emphasis should be put on price stability, while remaining attentive to second round pressures on prices. Exchange rate and market policies should be transparently implemented.

“In addition, the country’s borrowing plans should be anchored on debt sustainability. Priority should be given to grants and concessional loans for financing investment projects.

“Faster progress on the unfinished structural reform agenda would also help to enhance revenue, make public spending more efficient and transparent, the banking system more resilient, and the business environment more supportive of inclusive growth and private sector development. In particular, implementing the Treasury Single Account, establishing the Natural Resource Revenue Fund and adopting the Wage and Pay Reform strategy would improve fiscal outcomes.”

Has the government now listened to the voices of reasoning to cut its spending in line with a gloomy forecast in revenue?

This is what president Koroma told the people of Sierra Leone yesterday:

“The attention of the general public is invited to the fact that the Ebola epidemic and the collapse of commodity prices including iron ore, have had a negative impact on the economy resulting in serious challenges which presently hinder effective implementation of the approved 2016 budget.

“Due to a significant decline in revenue, it has become difficult to fulfill government’s commitment to poverty-related programmes and the implementation of post-ebola recovery priorities.

“In consequence thereof, government wishes to inform the general public that at an emergency meeting of cabinet today, 3rd October 2016, the following expenditure rationalization measures were approved to address these challenges. These measures are geared towards improving revenue mobilisation and fiscal sustainability:

• A 30% cut in recurrent expenditures across the board

• Put on hold all new domestically financed capital projects and suppliers contracts until further notice

• No new procurement of government vehicles until further notice

• A 50% cut in fuel allocations to all MDAs

• A 50% cut in monthly office imprests

• No purchase of new office furniture and fittings

• A 50% cut in the purchase of mobile phone top-up cards

• 70% of all payments to suppliers/contractors that have foreign component to be effected in Leones

• 50% cut in DSA for local travels

• Elimination of payment for overtime

• No purchase of office equipment (computers, printers, photocopiers etc.)

• Strengthening payment vouchers verification for on-going activities at the MDA level

• Suspend all overseas travel for public officials except for essential and statutory travels.

• No DSA top-up for sponsored international travels

• Across the board 50% cut in vehicle maintenance

• All seminars, retreats and workshops should be held in office facilities

• Eliminate double payment of pensions and salaries across the board

• A moratorium on new recruitment in the public and civil service, except for essential and critical vacancies

• All business outfits to pay outstanding arrears of taxes in the next 30 days

• Minimize discretionary duty waivers and rationalize statutory duty waivers.

• All commercial banks must transfer monies in transit account within 24 hours.
• Start the effective implementation of the treasury single account

“The above will serve as a reference for the preparation of the 2017 budget and their continued implementation will support domestic revenue generation and help reverse the negative impact on the economy.” End of statement.

The Sierra Leone Telegraph will publish a full analysis of the implications, effects and impact of this announcement in our next edition.

In the meantime, the protests continue – take a listen: