By Tanu Jalloh
“When the facts change, I change my opinion. What do you do Sir?” asks John Maynard Keynes. The twentieth century British economist had many revolutionary ideas with almost all controversial. Yet they profoundly affected the theory and practice of modern macroeconomics. Thus in the above quote he was concerned that markets are dynamic and uncertain, which is to say we all have the ability to be wrong.
In this piece I am trying to probe some of Sierra Leone’s economic indicators based on the regularly released government statistics that indicate the growth and health of the country, especially its economy. For the purpose of clarity, economic indicators are largely said to have influenced the value of any country's currency. They include key statistics that show the direction of the economy; the trade deficit, the gross national product (GNP), industrial production, the unemployment rate, inflation rate, factory utilisation rate and the business inventories.
Let us attempt to use the available information to analyse the seemingly defiant economic behaviour of the country and perhaps predict the manner in which its economy might act in the not-too-distant future. In the meantime whatever estimates we make, in terms of economic indicators, should seek to establish either of the two: (1) leading economic indicators, which signal future events and might not always be right or (2) lagging indicators, which follow an event. As we explore statistics from government and other independent evaluators in recent years, our focus is on how much we trust that information to rate Sierra Leone’s economic performance.
Sierra Leone’s economic freedom score is 49.1, making its economy the 152nd freest in the 2012 Index, according to heritage.org. Ideally, this is supposed to be a compliment to a country whose economy is grappling with a plethora of structural and policy mishaps caused by recent years gone by. Ghana with 60.7 and Burkina Faso with 60.6 are the last two in the first top ten of the continent’s freest economies. The fact that Sierra Leone could even be rated means it has prospects to surmount the challenges and emerge from a low to a middle-income level country in the West African sub region.
While the country tries to get there, its score of 0.5 point has been lower than the previous year, indicating some serious declines in scores largely due to the lack of control in government spending, which was at record high 84.3, according to Economy Watch. Here is an official explanation for that: In a letter of intent dated November 18, 2011 and addressed to the IMF in Washington DC, USA, Sierra Leone’s Bank Governor, Sheku Sambadeen Sesay and Finance Minister, Dr. Samura Kamara, admitted that “program implementation was uneven in the second half of 2010. While domestic revenue overshot projections by 0.3 percent of GDP, spending on infrastructure projects, fuel subsidies, wages, and goods and services led to higher–than-envisaged domestic financing. As a result, the ceiling for net domestic bank credit to government was exceeded…”
In one of my first articles published this year I suggested that a possible way out of this could include, but not limited to, a legal requirement that would limit central bank’s credit to government. I realised that the latest amendment to the Bank of Sierra Leone (BSL) Act 2011 has been able to guarantee that executive restraint. This could go a long way to enhance the independence of BSL and could facilitate achievement of the monetary policy target the bank has set itself.
Meanwhile, business freedom and monetary freedom that more than offset small gains in labor freedom and freedom from corruption have therefore been adversely affected. Consequently, the country was ranked 34 out of 46 countries in the Sub-Saharan Africa region, with an overall score that fell far below the global average. These are mere interpretations of what the statistics represent in figures and insinuations.
When contextualised, you would realise that the foundations of economic freedom in Sierra Leone remain severely hampered by structural and institutional problems; with the rule of law weak across the country, nearly nonexistent property rights and corruption continue to weigh heavily on private-sector development. As mentioned above, whatever estimates we make, in terms of economic indicators, should seek to establish either of the two: leading economic indicators or lagging indicators. So, where are we?
All is not that desperate. Back to the economic indicators, Sierra Leone has invested a lot in improving its legal and physical infrastructure as evident in the BSL Act 2011. The central bank could issue revised prudential guidelines in line with the amended Banking Act to enhance compliance with the Basel Core Principles (structural benchmark for end-September 2012). The said amendment to the BSL Act, which was submitted to parliament in November 2011, sets a limit on the annual flow of direct credit to government (loans and advances). It requires that such direct credit be repaid within 93 days from the end of the financial year.
The country has taken steps to improve tax administration and public debt management. That was apparently inspired by the fact that real GDP growth reached 5 % in 2010, compared to 3.2 % in 2009, reflecting growth in mining, manufacturing and construction. A downside to this effort was the fact that around this same period consumer price inflation rose 7 percentage points in early 2010 on account of what the government described as several one-off factors: the introduction of a goods and services tax (GST), spillover from the Leone depreciation in late 2009, and higher fuel prices. For the year as a whole, 12-month inflation reached 18.4 % compared to 16 % envisaged under the program (Extended Credit Facility, ECF), which was partially driven by expansionary monetary policy in the second half of the year.
You might want to know that by their own admission, the government faced several policy challenges coming into 2011, according to a Memorandum of Economic and Financial Policies it submitted to the IFM in late 2011. First, interest cost exceeded budget allocations. Second, other unbudgeted expenditure demands emerged, including from an increase in fuel subsidies to cushion the impact of rising international oil prices, higher cost to complete the Bumbuna power station, plus additional compensation to teachers. Third, the monetary expansion in late 2010, combined with increasing food and fuel prices, made it increasingly difficult to bring inflation down to single digits in 2011, as envisaged under the ECF program. Annual inflation was 17 % in September 2011 but by November it reached 18.4 percent, according to IMF.
However, the tangibles, in terms of developments that are used to explain growth, are there for all to see. Domestically-financed capital expenditures exceeded the budget by 1.7 % of GDP due to the acceleration of infrastructure as evident in the single largest road project around the country. Therefore, as you would expect, the wage bill also increased by 0.3 % of GDP due to additional hiring in the health sector as in the free healthcare for lactating mothers, children under the age of 5 years and pregnant women. In addition, there was supplementary compensation for teachers, in time, to mitigate a situation that was already turning into a frost on the social service delivery feat.
As I round up, let me welcome you back to the goal of this peroration of a piece: trying to probe some of Sierra Leone’s economic indicators based on the regularly released government statistics that indicate the growth and health of the country, especially its economy. From the above discoveries, you would realise that in-between predicting leading economic indicators, which signal future events but might not always be right, or lagging indicators, which merely follow the events, are difficulties of information flow and available data or statistics. So how much do we trust that information to rate Sierra Leone’s economic performance? You make the own judgment!
