By Kemo Cham
Sierra Leone should continue to focus on revenue mobilization and prudent management of public finances to reduce its public debt and create the fiscal space to invest in its people and infrastructure, the International Monetary Fund (IMF) has said.
While praising the Bio Administration for impressively weathering a difficult economic condition in the last 12 months, the IMF also urged the authorities to step up structural reform efforts to manage fiscal risks, ensure greater accountability, and diversify the economy.
These calls come at the end of a visit by an IMF mission as part of the first review of the Extended Credit Facility (ECF) approved last year.
The ECF, a financial assistance to countries with protracted balance of payments problems, was created under the Poverty Reduction and Growth Trust of the Fund as part of a broader reform to make its financial support more flexible and better tailored to the diverse needs of low-income countries.
The IMF says the facility is designed to support countries’ economic programs aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. But critics, particularly civil society organizations, say the so-called conditionalities attached to these loans are counterproductive as they only help to further impoverish the countries they are meant to help.
And implementation of the agreement has often proved politically problematic for governments, due to the unpopular decisions associated with it, like the vexing issue of removal of subsidy on fuel and other imported commodities.
Shortly before the March 2018 general elections, talks between the Ernest Bai Koroma administration and the IMF were halted on a US$224.2 million ECF agreement reached earlier in June 2017, after disagreement over implementation of the conditions.
President Julius Maada Bio, on assuming office following his landmark election, appealed for resumption of negotiations. And on 30 November, 2018, the Executive Board of the IMF approved a new 43-month (December 2018 – June 2022) arrangement for US$172.1 million.
This review process was meant to pave the way for consideration of the current program by the IMF Board this June. The completion of the process is expected to make available an additional US$ 21.5 million, bringing total disbursements under the new program to about US$ 43 million.
The IMF Mission, headed by Karen Ongley, between 23 April and 7 May, met with senior government officials, including Vice President Dr Mohamed Juldeh Jalloh, Minister of Finance Jacob Jusu Saffa, Governor of the Bank of Sierra Leone Kelfala Kallon, and Financial Secretary Sahr Jusu. They also met with representatives of the financial sector, civil society, and development partners.
“The economic landscape in Sierra Leone remains challenging. Yet, the authorities navigated these difficulties well in the year since taking office, helping to stabilize the economy,” Ms Ongley said in a statement released at the Missions.
She said despite serious constraints on budget financing, the authorities kept the budget in check through “stronger-than-programmed” revenue performance and spending well below the budget.
And as a result, the statement went on, the overall deficit narrowed from 8.8 percent in 2017 to 5.8 percent in 2018.
But delays in donor receipts and uneven liquidity in the banking system posed challenges for deficit financing and monetary policy, and impacted program performance, the statement adds.
In spite of all this, in the prediction of the Mission, Real GDP is expected to grow in the year to 5.1 percent, thanks in part to the resumption of iron ore mining. And it added that after peaking above 19 percent last September, inflation moderated to 17.5 percent in March and is projected to continue tracking down over the year.
According to the IMF, while Sierra Leone’s program performance was broadly on track, a slower than expected progress on structural reforms reflected the magnitude of policy challenges. Nine of the ten quantitative targets were met for end-December 2018 and end-March 2019, it noted.
The Mission also found that the Net Domestic Assets of the BSL at end-December 2018 exceeded the program target (performance criterion), partly due to BSL’s credit to government and continued foreign exchange market sales to stem depreciation of the Leone.
Three of five structural benchmarks—the forensic audit of the BSL, developing a strategic plan for the two state-owned banks, and a strategy for clearing domestic arrears—have also been delayed, as the underlying issues are proving to be more complex than anticipated.
According to the statement, the mission and the government agreed that the latter will calibrated it policies to address longstanding vulnerabilities, noting that this also requires maintaining policy discipline and stamina.
Among other things, the government will safeguard poverty-reducing spending and other priority spending under its National Development Plan. It said limiting the recourse to domestic financing will also reinforce the BSL’s objective of bringing inflation down to single digits by the end of the program, adding that maintaining a flexible exchange rate system and increasing foreign exchange reserves will boost resilience to economic shocks.
“Stepping up efforts on the structural reforms underpinning the program is crucial to the goals of managing fiscal risks and ensuring greater accountability for the benefit of all Sierra Leoneans,” it says.
© 2019 Politico Online
