When he came to power in 2018, President Julius Maada Bio ignited a robust road map to rapid economic recovery from the lingering effects of the twin shocks of Ebola and drastic fall in global prices of iron ore, which occurred in 2014-2015 and continued to adversely affect the economy in 2016-2017. His economic recovery programme yielded positive results, with visible economic growth and stability in the years ahead. Unfortunately, a year later, COVID-19 struck, reversed the gains of recovery, followed by on-going Russia/Ukraine war, resulting in current multiple shocks in household food, fuel and fertilizer prices.
Before these multiple shocks, an x-ray of the economy since 2018 highlights stable economic growth, anchored on robust revenue mobilisation by the National Revenue Authority NRA, blocking of revenue leakages through automation, mass anti-corruption drive with huge recoveries and a prudent economic management style.
Economic Performance prior to the Multiple Shocks of COVID-19 Pandemic and Russia/Ukraine Crises
On assumption of power in April 2018, building on his promise to efficiently manage the economy and natural resources of Sierra Leone, in less than a month, the Bio administration re-engaged the International Monetary Fund (IMF) to restore the derailed economic and financial programme supported by the IMF under the Extended Credit Facility (ECF). As a further manifestation of his commitment to prudent economic management, the administration put together a compendium of economic policies to correct the macroeconomic and fiscal imbalances, aimed at restoring macroeconomic stability and laying the foundation for sustainable and inclusive growth. The Government embarked on fiscal consolidation, including domestic revenue mobilization, as the corner of macroeconomic stability. The implementation of those policies progressed well and yielded positive results.
Domestic revenue increased to 13.7% of GDP in 2018 and further to 14.6 % of GDP in 2019 from an average of 12.3 % in 2016 and 2017. Government expenditures were also prudently managed and reduced to an average of 21.2 % of GDP during 2018 and 2019. As a result, the overall budget deficit including grants, narrowed down to 5.6 % of GDP in 2018 and further down to 3.1% of GDP in 2019 from 25% of GDP in 2017. Annual average inflation fell to 14.8 percent in 2019 from 18.2 % in 2017. Credit to the private sector grew by 30.6 % in 2018 and further by 22.9 % in 2019 from 4.9 % in 2017. Exports recovered by 4.4 % after contracting in 2017 and 2018 while imports growth slowed down to 14.7 percent in 2019 from 23.7% in 2017. Gross foreign reserves increased to 3.9 months of imports in 2019 from 3.8 months in 2017. However, public debt grew gradually to 71.8% in 2019 from 69.7% in 2017 due to the increase in external debt to 44.2 % in 2019 from 41.7% in 2017 while domestic debt declined 27.6% from 28% over the period.
Overall the economy grew by 5.5 % in 2019 from the subdued growth of 3.8 % and 3.5 % in 2017 and 2018, respectively. All indicators pointed towards an economy that was set to take off and grow in a sustained basis with positive implications for poverty reduction.
The outbreak of COVID-19 in early 2020 and the associated disruptions to economic activity threatened to reverse the gains made in stabilizing the economy in 2018 and 2019. The measures adopted in the global and domestic economies to contain the spread of the disease resulted in a contraction of the economy by 2.0 percent in 2020. After rising sharply during the first half of 2020 due to panic buying and supply shocks, inflation moderated during the second half of the year. Average inflation fell to 13.4% in 2020 from 14.8 percent in 2019. Reflecting the higher COVID-related expenditures and the drop in domestic revenues due to the contraction in economic activities, the budget deficit widened to 5.6 % of GDP. Public debt increased to 73.7 % of GDP as external debt rose to 48 % of GDP in 2020.
The Government of Sierra Leone developed and implemented the Quick Action Economic Response Programme (QAERP) to mitigate the impact of the pandemic on the population. The overarching objective of the QAERP is to maintain macroeconomic and financial system stability, as well as mitigate the impact of COVID-19 on businesses and households. Accordingly, the QAERP comprises five program objectives or pillars:
(i) Building and maintaining an adequate stock level of essential commodities at stable prices;
(ii) Providing support to hardest-hit businesses to enable them to continue operations and avert lay-offs of employees;
(iii) Expand safety nets to vulnerable groups;
(iv) Supporting labour-based public works; and
(v) Providing assistance for the local production and processing of staple food item
The successful implementation of the QAERP coupled with the lifting of restrictions later in the year and resumption of iron ore mining and exports supported the recovery of the economy in 2021. The economy grew by 3.2 percent in 2021 from the contraction in 2020. Domestic revenue increased to 15.5% of GDP due to recovery in economic activities, improvements in tax administration and one-off iron ore royalty payments. Despite this, the higher COVID-related expenditure requirements resulted in the widening of the budget deficit to 7.3 % of GDP. Inflation remained high due to higher food and fuel prices caused by supply disruptions and the depreciation of the exchange rate.
The recovery of the economy is now being disrupted by another severe external shock: the war in Ukraine, which broke out on 24 February 2022. The uncertainty and supply disruptions caused by the war is exacerbating pre-existing challenges created by the COVID-19 pandemic including the sharp rise in the price of essential items including food, fuel and fertilizer, with the tendency to weaken economic growth. This situation coupled with the challenges posed by climate change will worsen the food security situation and increase poverty in the country.
What is the Government doing to address these challenges in the midst of fiscal constraints to mitigate the impact of these multiple and severe shocks on the People of Sierra Leone especially the extreme poor and vulnerable?
Here are some of the measures the Government is putting in place:
The Minister of Finance, Dennis K Vandi, told this medium that” in order to address these challenges and boost the resilience of the economy, Government will continue to implement sound economic policies, sectoral and structural reforms, including governance reforms, consistent with the Medium-term National Development Plan (MTNDP 2019–23).
- On Stabilizing the Economy
The Finance Minister maintains that Government remains committed to continue to implement the economic and financial programme with the IMF supported under the Extended Credit Facility (ECF)., According to the Minister of Finance, the key objectives under this programme are to safeguard macroeconomic and financial system stability, strongly pursue the implementation of structural reforms and promote sustainable, resilient, green and inclusive growth, centered on human capital development. In this context, Government will continue to pursue policies aimed at ensuring fiscal and debt sustainability, strengthen financial sector stability, promote transparency and accountability in the use of public funds, improving the business environment and expand social protection systems. At the same time, we are also reacting to the challenges posed by several severe external shocks over the past few years. The Government will therefore deploy a combination of fiscal, monetary and debt management policies to stabilize the economy. A stable economy will improve the welfare of the people including the poor. It will also create an enabling environment for investment, which supports economic growth and creates job opportunities.
The Financial Secretary in the Ministry of Finance, Sahr L. Jusu, disclosed to this medium that the Government of Sierra Leone will continue to put more emphasis on domestic revenue collection while at the same time manage expenditures prudently with the aim of achieving two key objectives:
(i) create the fiscal space to enable government to increase spending on priority areas ,
(ii) to reduce the budget deficit in order to reduce the pace of debt accumulation.
To improve domestic revenue collection in the near and medium-term, the Government is preparing a Medium-Term Revenue Mobilization Strategy (MTRS) with support from the IMF and the World Bank. The MTRS will continue to strengthen tax administration and prescribe various tax policy options. The Government of Sierra Leone has recently adopted a Duty and Tax Waiver Policy, which it intends to pass into a Law. The aim is to ensure a transparent process for the award of duty and tax waivers to eligible beneficiaries while minimizing the misuse and abuse of the facility. Government is also exploring opportunities for leveraging carbon finance from Sierra Leone’s forest reserves.
On expenditure management, the Government will continue to improve budget planning and execution, strengthen cash management, improve public procurement, sustain efforts to improve the integrity and sustainability of the payroll, and improve the management of capital spending.
The debt management policy of the Sierra Leone Government seeks to prioritize concessional loans and grants and Public Private Partnership (PPP) arrangements to implement capital projects in order to reduce external debt to sustainable levels. The Government also hopes that the fiscal consolidation drive will help to reduce domestic debt.
The Bank of Sierra Leone will continue to implement appropriate monetary policy to respond to the challenge of rising food and energy prices occasioned by the war in Ukraine and the lingering COVID-19 pandemic. In April 2022, the BSL raised its Monetary Policy Rate by 75 basis points and further by 100 basis points in June to dampen inflationary pressures.
- On Tackling Food Crisis
The Finance Minister reveals that multiple crises have led to sharp rise in the prices of essential food items with adverse implications for food security in the country. The 2020 Comprehensive Food Security and Vulnerability Analysis (CFSVA) Report indicated that over 3.3 million people are food insecure in the rural areas compared to 1.4 million people in the urban areas. Against this background, the Government of Sierra Leone adopted a major policy shift in the agriculture sector to boost domestic food production, especially rice the staple food. The policy shift involves transitioning from a Government led input distribution system to a private sector driven system. Government has withdrawn from the direct procurement and distribution of agricultural inputs to ensure transparency and efficiency in the process with a view to boosting agricultural productivity. Under the Policy Shift adopted by Government, private agro-dealers are encouraged to import agricultural inputs such as fertilizer, seeds and pesticides for sale to farmers.
To operationalize the e-voucher system, Government established a dedicated e-voucher account at the Rokel Commercial Bank (RCB) and transferred the sum of Le60 billion into the account in 2021. In 2022, Government has also paid a total of Le 40 billion into the e-voucher account.
To support the e-voucher system, the BSL established a Special Agricultural Credit Facility in the sum of US$50 million. The facility provides credit through the commercial banks to private agro-dealers to import agricultural inputs for sale to farmers who can afford and also to vulnerable farmers who continue to need support from the Government. The Government will provide inputs (including seeds, fertilizers, harrowing and ploughing services) to these vulnerable farmers by issuing vouchers to them. The farmers will take these vouchers to the agro-dealers to collect the inputs. The agro-dealers will in turn take these vouchers to the commercial banks to encash the proceeds.
In addition, the BSL has established another Special Food Credit Facility in the sum of $50 million to support the importation of rice, flour and sugar in order to avoid supply shortages and unwarranted price increase of these commodities in the local markets.
Furthermore, Government has also been subsidizing imported rice by waiving all duties and taxes on imported rice in order to keep the price at affordable levels and ensure food security. Total duty waived (revenue forgone by Government) amounted to Le 525.8 billion in 2020 and Le371.1 billion in 2021. Total duty waived from January to June 2022 amounted to Le110.6 billion.
The Government is also seeking financing from the African Development Bank under the African Food Production Support Facility for the procurement and distribution of agricultural inputs mainly fertilizer to farmers. The Government will also transfer the Leone equivalent of US$2.1 million into the e-voucher account following disbursement by the AfDB.
The Government of Sierra Leone is also participating in the West African Food Systems project by allocating some its allocation under IDA 20 to the project in order to leverage additional resources from the regional IDA window. The World Bank is expected to provide US$75 million to the Sierra Leone chapter of the Regional Food Resilience Systems Project.
- On Addressing Energy Crisis
The Minister of Finance remarks that sharp increase in the price of fuel owing to supply disruptions caused by the war in Ukraine has also increased the cost of electricity, which is provided by an independent power provider (KARPOWER). Given that the Electricity Distribution and Supply Agency (EDSA) cannot cover cost due to high technical and commercial losses, the Government of Sierra Leone has been providing subsidies to EDSA to ensure reliable and affordable supply of electricity to households and businesses. Reflecting the higher fuel prices, total energy subsidies are projected to increase to Le538 billion for 2022 compared to the original budgeted amount of Le122 billion.
The Government of Sierra Leone has also embarked on rural electrification. With the support of the Foreign Commonwealth and Development Office (FCDO) of the United Kingdom, solar mini-grids are being established in several big town across the country. As at end May, a total of 81communities have been electrified towns with a 18,693 connections including 16,798 households, 1495 households, 1495 businesses and 187 schools. The World Bank under the Enhancing Sierra Leone Energy Access project is also supporting the installation of 10 solar mini grids in Moyamba, Bonthe and Pujehun. The European Union has also proposed to install 50 solar mini grids in various communities.
Sierra Leone is also participating in the West African Power Pool Project that connects Cote D’Ivoire, Liberia, Sierra Leone and Guinea (CLSG). Sierra Leone is now buying power from Cote D’Ivoire through the pool to provide electricity to the regional headquarter towns of Bo and Kenema. Efforts are underway to upgrade the Bumbuna line to evacuate power
from the CLSG line to Freetown.
The rehabilitation of the transmission and distribution lines is on-going with support from the World Bank as part of efforts to reduce the technical and commercial losses in order to improve the operational and financial sustainability of EDSA.
The Government of Sierra Leone is also encouraging the private sector participation in the generation of electricity and working on plans to construct the second phase of the Bumbuna hydroelectric dam.
- On Protecting the Poor and Vulnerable
The Finance Minister further remark that like in most other countries, the COVID-19 pandemic disrupted economic activities and disproportionately affected the poorest and most vulnerable households in Sierra Leone. In mitigating the economic impact of the pandemic on vulnerable households, Government with support from development partners expanded its existing cash transfer programme implemented by the National Commission for Social Action (NaCSA) from thirty-five thousand (35,000) beneficiaries to seventy-thousand (70,000) well-targeted beneficiaries, including persons with disabilities. Further, the World Bank supported the Government during this period with an Emergency Cash Transfer Scheme targeting twenty-nine thousand (29,000) beneficiaries including households affected by COVID-19 and informal sector workers such as petty traders. Government also disbursed Le4 billion to NaCSA for cash and in-kind support to more than eleven thousand (11,000) persons with disabilities from its own resources and Le 5 billion to workers in the tourism and entertainment industries.
The on-going crisis in Ukraine that began on 24 February 2022 has unarguably created an unprecedented humanitarian crisis with looming increase in food insecurity, especially in poor countries. The situation has affected many food-importing countries due to supply chain disruptions leading to rise in the price of food and fuel imports. Therefore, social safety nets will be needed to cushion the negative impact of the crisis on the poor and vulnerable. To this end, the Government of Sierra Leone prioritized cash transfers in the 2020 Supplementary Budget presented to the House of Parliament in June 2022. Government also sought additional financing from the World Bank for under the Social Safety Nets and Youth Empowerment Programme to scale up the existing cash transfer programme to an additional thirty-five thousand beneficiaries engaged in productive activities in urban and rural communities.
At the same time, Government continues to provide other social safety nets to vulnerable groups including an expanded school feeding programme; payment of tuition fees for all children in Government-owned and Government-assisted schools; free health care for under-fives, pregnant and nursing mothers; subsidized school bus transportation system and provide sanitary kits for school going children.
On Mitigating and Adapting to Climate Change
On this equally critical issue, the Minister further revealed that while the Government is trying to mitigate the impact of the COVID-19 and Ukraine war on the people of Sierra Leone, it recognizes the adverse impact of climate change on the economy. Like most countries in Sub-Saharan Africa, Sierra Leone contributes little to global greenhouse gas emissions, but bears the brunt of climate change. Sierra Leone is considered to be highly vulnerable to the impact of climate change. The country is already experiencing extreme temperatures, uncertain rainfall patterns, floods and mud slides. In August 2017, mudslides and flooding occurred in Freetown, resulting in the destruction of property, displacement of people and hundreds of deaths.
The Government is very much concerned about the potential adverse consequences of climate on the livelihoods of the people. To this end, Government has taken several actions including:
(a) Establishing a dedicated Ministry of the Environment, charged with the responsibility to formulate and facilitate the implementation of appropriate policies and programmes for sustainable management of the Environment;
(b) Updated several laws relating to the environment with a view to improving the governance and coordination of environmental issues and enhance enforcement and compliance;
(c) Undertook a massive reforestation programme involving the planting of five million trees on deforested lands and the coastal areas throughout the country over a four-year period (2020-2023) to protect the environment and mitigate the impact of climate change to ensure sustainable livelihoods. The programme started in 2020 with the planting of approximately 1.2 million of a variety of tree crop seedlings in all the administrative districts of Sierra Leone. The Ministry of Environment will facilitate the planting of 1.6 million in 2022 and the remaining 2.2 million in 2023; and
(d) The Government of Sierra Leone has also adopted its National Climate Change Policy (NCCP) and National Climate Change Strategy and Action Plan (NCCS&AP). Sierra Leone’s policy response to climate change is driven by the need to urgently address the adverse impacts of climate change on the country’s economy and society as well as its physical environment. This entails efforts to reduce vulnerabilities and strengthen adaptation to climate change in all sectors and at all levels, as well as to develop and implement mitigation initiatives for a low-carbon and high growth development path.
(e) The Government of Sierra Leone is working with its development partners to build the capacity of the country to mitigate and adapt to the challenges of Climate Change. The Government is committed to implementing the Nationally Determined Contributions Action Plan and has requested the World Bank to carry out Country Climate Diagnostics for Sierra Leone.