Sierra Leone rankanomics and the much-debated debt burden

Anthony Kamara: Sierra Leone Telegraph: 17 April 2018:

Listening to the donor briefing hosted last week by President Julius Maada Bio about the broke country he has inherited, I could not help but remember Dr. Yumkella’s many lectures as I sat with him on the campaign vehicle, his public lectures, and campaign rallies around the country on the topic ‘Rankanomics’.

Throughout his presidential campaign, he spoke a lot about Sierra Leone’s economy, the debt burden and the issues affecting Sierra Leone, and why there was need for a fundamental change in governance and the way we do things, to ensure every citizen benefits from the enormous wealth our nation has.

Well, the election is now a thing of the past and Dr. Yumkella is preparing to go to parliament as Samu Chiefdom’s newest elected Member of Parliament. As he campaigned for the presidency, he was often seen typing his thoughts as we discuss the issues.

It was impressive to see that regardless of the conditions of the road, he continued typing even though a few times he would say “paddy help me ba.” Yumkella never stopped working hard. But that is for another time.

One February 10, 2018 he wrote ‘RANKANOMICS and the Debt Burden’, an article I circulated on social media. Today, I reproduce the same article below, with a slightly different title: ‘Down memory lane: RANKANOMICS and the debt burden’ by Dr. Kandeh Kolleh Yumkella.

This is what Dr Yumkella wrote:

The latest pop culture music released in Sierra Leone a few weeks ago is about “Ranka Politicians” (reckless politicians). I would dare say the lyrics also manifest the youths disgust with the effects of ranka economics/rankanomics.

The young artists are warning us that governance should not and cannot just be about propaganda. So, if you are a ‘progressive’ within the All People’s Congress (APC ) Party or any other political party, there has to be a limit to your tolerance for an oligarchy whose sole aim is to transform our motherland into a gravy train with less than 1% of the members of your political party ostentatiously enriching themselves at the peril and expense of the majority of the suffering masses.

The time has come to sift through the propaganda and hold our leadership accountable for their stewardship and the debt burden they will bequeath to future generations. So, in Part One of these series, we want to focus on the country’s Debt Burden as one of the cruel and painful legacies of the current Government.

Today, we see the impact of decades of populism, corruption, poor economic management and excessive debt in countries like Venezuela. The painful reality is that the successor government and future generations always end up facing the resultant crises and/or picking up the broken pieces caused by the incompetence, mismanagement and rampant corruption of the preceding government.

Excessive borrowing combined with institutionalized leakages and hubris is a recipe for economic disaster and inordinate suffering of the vast majority of our citizens.

Sierra Leone’s Debt Burden

From 2007 when it came to power to 2016, the APC Government has so far borrowed over $1 billion. This could possibly constitute the largest nine (9) year increase in debt Sierra Leone has ever accumulated in the past four decades. In his 2011 Budget Speech, the then Minister of Finance & Economic Development, stated that “… the total stock of External Debt stood at $722 million as at end June 2010 relative to $692 million in 2009″. According to the current Minister of Finance & Economic Planning, by November 2016, the “… total External Debt amounted to $1.2 billion … whilst Domestic Debt amounted to Le3.3 trillion”.

It is therefore obvious that Sierra Leone’s total stock of debt is about $1.74 billion with External Debt and Domestic Debts estimated, respectively, at $1.2 billion and $550 million by December 2016. Between January and September 2016 alone, the APC Government signed an additional eight (8) new loan agreements totalling over $200 million.

Our debt repayment burden has also doubled since 2011 and it is still growing. What the Government has eminently succeeded in doing before their exit in 2018, is to compromise and tie the hands of the next successor Government.

The Debt Service burden will make it extremely difficult for the next government to pay salaries, improve education and health care or expand and meet agricultural production towards national food security. Indications are that the borrowing will continue unabated as the APC Government is bent on borrowing more and more to fund additional infrastructure projects some of which are white elephant projects, all in the name of “De Pa dae wok“.

It does not matter whether successive governments are able to provide food and clean water for our people; it does not matter either whether parents are able to pay school fees for their children. What is important for the current Government is that these white elephant projects glorify the memory of the Supreme Authority.

Raiding the Central Bank

Under the current Government, being a Central Bank Governor has been both problematic and risky. It is no surprise, therefore, that President Ernest Koroma has appointed no less than five (5) Central Bank Governors in nine years even though, constitutionally, a Governor cannot be removed by Supreme Authority.

The job of the Central Bank Governor is to independently manage the economy and protect it from politics and, more importantly, from continuous raid on the vault. Mainly as a result of these infelicities on the part of the Government, by December 2016, Domestic Debt amounted to about Le3.3 trillion and is estimated to reach over Le4 trillion by the end of 2017.

Most if not all the white elephant projects, particularly the so-called road infrastructure, are funded through loans from the Central Bank because State house controls it; and when the Auditor General raises the alarm, her findings and recommendations, year in year out, are simply ignored.

Here is what the IMF actually has had to comment a few weeks ago on the current situation regarding the Central Bank in its June 2017 Report,” The significantly increased deficit in 2016 was financed by arrears and increased borrowing from the Bank of Sierra Leone … Meanwhile, the Government over borrowed from Commercial Banks by 0.4% of Gross Domestic Product (GDP) or 37% t nominally…”

When the Government over borrows from the Commercial Banks, it means small businesses and the private sector in general cannot get financing; where they do, it is at higher interest rates that make businesses unviable in the long term. Thus, the private sector cannot grow the economy, create wealth or jobs for the youth.

Rankanomics and Propaganda

A few weeks ago, the Government’s propaganda machine ‘impersonated (oops, misrepresented!) the new IMF-World Bank $224.2 million Extended Credit Facility as a vote of confidence in the Government.

On the contrary, the programme serves as a “Solidarity Pact” to the people of Sierra Leone and is meant to cushion the effect of the gross mismanagement of the country’s economy on the poor and vulnerable segments of the population.

Here are some direct quotes from the master document of IMF Country Report No.17/154, June 2017. that prove the point: 

• “Fiscal performance was significantly worse than expected. The deficit in 2016 was 3.1 percent of GDP higher than anticipated or 59.5 percent higher in nominal terms, mainly due to overspending on two fronts (page 6)”:
• 52.7 percent higher goods and services spending relative to the last review. Most of this overspending was one-off items, which occurred after spending restraints that had been imposed during the last ECF were lifted. Election preparations, education grants and expenditures on defense and security were some of the major elements underlying the excess spending (page 6); and
- 53.4 percent higher spending on domestically financed capital. The authorities had severely underestimated the rate at which large capital projects were being executed; certificates for road construction were coming due at a much faster pace than anticipated… the overspending is likely to continue in 2017″ (page6). 

“Unfortunately, the spending pressures that emerged in late 2016 have rendered the 2017 budget unrealistic (page 12). Remember, this is the same time austerity measures and higher fuel prices and other indirect taxes where imposed on ordinary people. But our government never cut back. The report goes on to say that “Staff regrets the lack of fiscal discipline and increased central bank intervention in the second half of 2016 (page 23)”.

The Infrastructure Mirage

It is in the above context that it matters what street lights cost; what road construction costs; and what the infrastructure mirage in general costs. It matters because our children and grandchildren will have to pay the debt just because a few people enriched themselves at the country’s expense.

Obviously, there are a lot of questions to be answered by the Government about the actual cost of the infrastructure drive. How many schools, hospitals, doctors and nurses and other services our children had to forgo for the roads.

A world bank report titled “Road Works Cost per Kilometer” (by Rodrigo Archondo-Callao) which is based on a survey covering 40 countries gives you a guide on the average cost of construction or rehabilitation of a road. Based on the World Bank data base, the average cost of constructing a NEW road should be about $866,000 per kilometer (eight hundred and sixty-six thousand dollars per kilometer).

For rehabilitation of an existing road including seals, structural and functional overlay, the average cost is $436,000 (four hundred and thirty-six thousand dollars).  

Of course, we must factor in topographical diversity, meteorological factors, environmental resilience, exchange rates, inflation and labour costs. In some countries with bad terrain, the cost could be $1.2 million per kilometer for a brand-new road.  

In a country like Sierra Leone, with cheap labor and mostly flat terrain, the cost will even be much lower. The cost should be lower for the expansion an existing road.

All our infrastructure projects during the past 9 years have been 2 to 3 times more expensive than international bench marks. Who gets the extra money?

Perhaps, Mr. Minister of Works can tell us why should our road cost $60-100 million more?  Could you tell us as citizens who gets the extra cash? Will the road last for a thousand years? Why should we, our children, and grandchildren and our great grandchildren pay for a project for 25 years when we do not know its actual cost? 

We estimate that for one road project the over pricing could be up to $60-$100 million (using the World Bank rule of thumb of $866 thousand or kilometres). We hope the auditor general will review that project. The extra cash of $60-100 million could help move our nation forward if spent wisely. It could build us two ultramodern hospitals bigger and better than what we currently have.

It could help us pay salaries on time for years and certify the over 30,000 teachers who do not have a payroll identification number (PIN). We could upgrade our vocational institutions with the right curriculum to teach our young people the right skills to ensure they find jobs and make a decent living. We can even provide clean water and the list goes on. The list goes on.

The struggle against ‘RANKAISM’ starts now. So, let us change the political narrative and hold people to account for putting our grandchildren in perpetual debt bondage. Join the debate on Rankanomics.