By Kemo Cham
Despite the bold and courageous policy measures taken by the government, Sierra Leone’s macroeconomic situation remains challenging, a new World Bank report has said, calling for actions that promote growth to turn the situation round.
The report, title: ‘Sierra Leone Economic Update (SLEU), published on Thursday, said for the government to build a resilient economy that promotes inclusive growth and reduces poverty, it will have to unlocking the bottlenecks to robust and sustained real economic growth through economic diversification and addressing pre-existing macroeconomic weaknesses. It added that in order to address existing macroeconomic weaknesses and enhance economic growth, the government should also maintain the fiscal consolidation path, improve debt policy and management and intensify efforts to clear the large stock of arrears.
The SLEU is an annual publication that reports on and analyzes recent economic developments, reviews regional and global contexts and analyzes the implications for the country. The report also presents the medium-term outlook and prospects for the economy.
The 2019 Update focuses on ‘Financial Inclusion for Economic Growth and Development’ as featured topic for promoting inclusive growth and poverty reduction.
According to the report, the country’s economic growth of 3.7 percent is still low, amidst high inflation and exchange rate depreciation at 16.8 and 11.8 percent, respectively. The fiscal and current deficits of 6.6 and 13.8 percent, respectively, are also said to be high. And increasing debt has resulted in the country being downgraded from moderate to high risk of debt distress, it goes on.
The report however notes that the medium-term outlook is promising, with economic growth expected to reach 5.2 percent by 2021, anchored primarily by supply side factors, including favorable agricultural output, uptick in mining activities and strong performance of the services sector.
Key risks identified to the growth outlook include a deterioration in the country’s terms of trade; lower than anticipated Foreign Direct Investment (FDI) inflows and the effects on the exchange rate and prices; fiscal slippages including adverse debt dynamics; and financial sector weaknesses.
“There is an urgent need for Sierra Leone to develop a comprehensive strategy for deepening the financial sector and this is required to ensure poverty reduction, job creation, investment and growth in the country,” said World Bank Country Manager, Gayle Martin,
She added in a statement marking the release of the report that whether Sierra Leone can promote sustained inclusive growth and reduce poverty depended on whether it can modify the structure of the economy to generate more and better-paid manufacturing and service jobs.
“That could be accomplished by facilitating creation by the private sector of formal manufacturing and services activities and increasing the productivity of the informal sector,” she said.
According to the report, usage of the financial system is low in Sierra Leone with only about 5 percent of adults using formal savings products and about 54 percent saving money within the past year.
Access to finance for enterprises is also found to be a significant barrier to growth of the private sector with 40 percent of firms indicating lack of credit as their biggest constraint.
Low access to new technology-based financial services is also an obstacle. For instance, only 11 percent of Sierra Leoneans have mobile money accounts, according to the report, compared to 20.8 percent in Liberia, 38.9 in Ghana and 72.9 percent in Kenya.
“The government plays a key role in developing the financial sector through promoting resilience and stability. One of the key functions that needs to be established is an effective supervision and regulatory regime for financial institutions to address market failures like anti-competitive behavior, market misconduct, information asymmetries, and systemic instability, which can negatively impact financial sector development, economic growth, and shared prosperity,” said Youssouf Kiendrebeogo, World Bank Senior Economist and one of the authors of the report.
© 2019 Politico Online
