The Central Bank Governor, Prof. Kelfala Kallon has rolled out a 500 Billion Leones palliative, mitigating measures to cushion the impact of covid-19 on the economy, particularly procurement and production of basic essential commodities. This facility is channeled through the Commercial Banks at single digit 7 percent interest rate. This strategy has enhanced relative price stability of essential commodities during covid-19 period. In this interview, he spoke extensively to ABUBAKAR HASHIM on this issue and other burning topical matters particularly restoration of international confidence on the Sierra Leone economy
Prior COVID crisis, the Sierra Leone economy grew by 5.1% in 2019, driven robustly by the Agricultural and Services sectors. With COVID, the economy is estimated to contract by between 2.3% and 3.1% in 2020 and growth between 1.4% to 2.0% lower than the forecast for the Medium-Term Development Plan. What measures are in place to mitigate these developments?
The Government and the Bank have put many prudent measures in place to mitigate the predicted negative effects of COVID on the economy, in what is collectively known as the Quick Action Economic Recovery Program (QAERP). The Bank’s role in the economy is to maintain price and financial system stability, as well as support the economic policy of Government. When there is price and the financial system stability, we expect financial intermediation to take place and, in the long run, this should promote economic growth, regardless of what happens in the short run. Also, long-run economic growth creates jobs and increases household incomes. Additionally, price stability has a direct impact on the cost of living, which is also of paramount importance to citizenry. In sum, the QAERP is designed to minimize as much as possible the adverse impact of COVID 19 on the lives of the people of this country—what has been popularized as “bread and butter” issues.
Given its mandates, the Bank created a Special Credit Facility (SCF) to provide single-digit interest loans to businesses that produce, procure, and distribute essential commodities. With shocks to the world supply chain, the Bank is of the opinion that any shortages of essential commodities will lead to inflationary pressures and, thereby, reverse the gains we have made on the inflation front over the past 18 months. We are relying on the SCF to numb inflationary pressures so that we can achieve our pre-COVID goal of single-digit inflation rate by the end of the year.
One of the key challenges of African Governments, is how to raise real income per capita growth above population growth. How do you plan to achieve this, in order to sustain economic development and also reduce poverty and income inequality in Sierra Leone?
There are two embedded questions in that question. The first is: What causes increased poverty in the country? The second is: What public policies can be used to reduce both poverty and income inequality in the country? In my life (as an academic), I published a paper titled “Growth Empirics: Evidence from Sierra Leone”, which found that about two–thirds of economic growth in post-independence Sierra Leone has been propelled by physical capital.
A key implication of this finding is that when a labour-abundant country such as ours uses capital-intensive production methods, economic growth can occur, but with an increase in poverty and income inequality. This is because, unlike labour, which everyone owns, capital is owned by a small proportion of the population (and, in Sierra Leone, mostly by outsiders). Therefore, if two-thirds of the fruits of GDP goes to outsiders and a small percentage of the citizenry, economic growth can coexist with increased poverty and income inequality, which has been the case since independence. Focusing our development strategy on promoting labor-intensive production should reverse this coexistence of economic growth and increased poverty.
Promoting human capital development, which is a key pillar of the Bio administration’s economic policy, is also important because it increases labour productivity. Improvements in labour productivity then raises not only aggregate income, but, more importantly, labour income, which is shared by a larger percentage of the population than interest income. As such, growth policies that are biased in favour of labour are likely to promote economic growth concurrently with reductions in poverty and income inequality.
Sectorally, the massive outflow of labour from the farms adversely impacts agricultural production, thus giving rise to massive food imports. This consequently leads to currency depreciation and inflation, which impact the living standards of the poor disproportionately.
The QAERP is keen on keeping young people being gainfully employed in agriculture and rural-road maintenance. This should raise the incomes of the rural youth population. And when rural people get income, they typically buy goods produced by other rural people and not imported goods, which has a huge multiplier effect on the economy.
Sierra Leone, recently, got approval from the IMF Executive Board for a loan of $143 Million to address COVID and last week, E10 Million, from the EU for the same purpose. Could you expatiate on these supports?
While these supports will go a long way to deal with the expected adverse impact of COVID on the economy, their most significant effect is that Sierra Leone is increasingly being seen as a serious partner in sustaining macroeconomic stability and thereby improving living standards. We are also increasingly being seen as a country that is serious in supporting the private sector to create wealth, and a country that is serious about beefing up its human capital base to, thereby, increaselabour productivity. Finally, we are being seen as a country that is serious about, and has made strides in, reducing corruption in order to increase economic efficiency and service delivery to the citizenry.
It is worth saying here that Sierra Leone and other developing countries seek an IMF programme not so much because of the resources the IMF provides, but because of the signals the IMF’s “seal of approval” assures the world that the country’s macroeconomic policies are in good stead. This encourages foreign investors and other interested parties to look at the country with a cleaner set of lenses.