President Julius Maada Bio…putting the country on an even keel

As Sierra Leone had been on a progressive economic growth trajectory few year ago, so with its West African neighbors, series of sudden, unexpected, shocks, mainly external, roared in, reversing all visible gains! But the resilience, determination and strong economic management style by both its public and private sector operators continue to sustain domestic economic activities in the country, in the midst of ongoing burning global challenges

Abubakar Hashim /Sierra Leone

As the world, today, is faced with unprecedented multiple shocks and natural calamities, resulting in dramatic increase in food, energy and allied inflation, public and private  sector players think outside the box, in sustaining economic activities for the people, particularly the vulnerable.

Annual budgets are routinely revised and updated, with supplementary budgets, to factor in unexpected expenditures, particularly for the unemployed and under-employed sectors in the economy.

Since 2014, when Ebola struck in Sierra Leone, from neighboring Guinea, it had a devastating effect on the Sierra Leone economy, worsened by corresponding glut in global commodity price of the country’s major revenue earner, iron-ore. The twin shocks of Ebola and fall in global commodity prices lingered for many years.

In 2018, when current President Julius Maada Bio came to power, he re-calibrated the inherited weak economy, on a tripod of mass domestic revenue mobilization, rapid recovery of stolen wealth, both cash and assets, by the Anti-Corruption Commission ACC and diversification away from monolithic economy of mineral exports, onto value-added agricultural exports, with an improved gateway for tourism development, the country’s prime delight.

This strategy tripod by the Bio-led administration initially yielded positive results, with a rise in economic growth of about 3 percent. This growth was visible in semi processed agricultural industries, like juice, ginger and cocoa, with external supports from the World Bank, European Union, African Development Bank and others. This was confirmed to this medium by the World Bank Director of Strategy and Operations in the office of the Vice President for Western and Central Africa at the World Bank, Elizabeth Huybens, during her recent working visit to Sierra Leone.

Proceeds from the strategy tripod are channeled into education, the flagship  and cardinal policy of President Bio. Proceeds are also allocated to health and infrastructure, particularly maternal and child healthcare, roads and bridges across the country.

Unfortunately, while implementing the strategy tripod since 2018, COVID-19 struck in China in 2019, cascading into other countries, including Africa and slowed down growth. Though COVID has currently reduced in infection and death rates, World Health Organization, WHO,  still tag it today ‘’a global health emergency.” Wuhan city in China, where COVID emanated in 2019, is again curently in complete lockdown. US President Joe Biden tested COVID positive two day ago, despite being fully vaccinated, with double booster jabs. As in other countries, COVID reversed the economic recovery gains of the Bio- led administration,

This appalling situation is worsened by the on-going Russia/Ukraine war, another massive external shock, which started on 24th February 2022, when Russia invaded Ukraine. Again, it completely slowed down world economic activities. Russia is the world’s leading oil and gas exporter, while Ukraine is the World’s largest exporter of wheat and grains. The war, inevitably, worsened global supply chains in all economic activities. The US economy contracted, slipped into recession by 0.9 % in Q2, 2022. Other economies in Europe, Asia and Africa, are also wobbling in contraction, with spikes in prices of foods and other essential commodities.

As an intervention strategy, Sierra Leone’s finance Minister, Dennis Vandi, on 24th June 2022, presented a supplementary budget to parliamentarians. He admitted that “macro-economic and fiscal assumptions, in 2022 budget, delivered last December, no longer hold.” Stating further, he remarked that “things were going well, when, unfortunately, an entirely unpredictable event, the Russian / Ukraine war, reared its ugly head, with devastating consequences on world economy, with already overstrained supply chain disruptions.”

Dennis Vandi, Minister of Finance…Dteering the economy out of difficulties

The Finance Minister further remarked bluntly, that “both Russia and Ukraine are major suppliers of agricultural and energy products, including oil, gas, metals, wheat, corn and fertilizer. The ongoing war has led to severe disruption in supplies of essential commodities, including fuel, fertilizers and wheat, leading to supply shortages and sharp increase in prices.”

The resultant effect, the Minister reveals, are “sharp rise in global food and energy prices, in an already uncertain atmosphere of COVID-19, leading to a further slowdown in domestic economic activities, which, inadvertently, undermine domestic revenue collection, leading ultimately to pressures on the 2022 budget.”

He further explained that “global food and fuel prices have surged during the first quarter of 2022, reaching levels not seen since 2007 and one projected to remain high in the near and immediate future.”

How Sierra Leone economy performed since early 2022 – Finance Minister

According to the Finance Minister, Dennis Vandi, “total exports increased by $112.5 Million, from $153.5 Million to $266 Million in the first 3 months of 2022, coinciding with start of Russian / Ukraine war. This increase in export was as a result of a boost in iron ore exports, which jumped up by nearly $100 million over the same period. However, bauxite exports dropped by $7.5 million, from $10.7 million to $3.2 million over the same period. The difficulty of accessing the seaport around the Black Sea makes it impossible for VIMETCO to regularly ship bauxite to its parent company in Romania.”

“Diamond exports also dropped by 20% to $39.2 million, during the same period”, further revealed by the Minister.

On imports, the Minister explained that “value of imports dropped by $63.6 Million, from $444.1 million to 380.6 Million during the same period. The drop in imports is due mainly to a fall in the imports of chemicals, crude materials, machinery, transport equipment and miscellaneous manufactured goods,” but the Minister, conceded that “value of food and fuel imports increased by 60% and 38% respectively”, reflecting the higher global food and fuel prices. There was a recent reduction in fuel prices to cusion inflation pressures on the disposable incomes of the people.

On the exchange rate, Minister Vandi remarked that “official exchange rate depreciated by 13.9% between January and May 2022, while Gross Foreign Exchange Reserves dropped by 192.34 million, from $931.76 million to $739.42 million at May 2022.”

On revenue collected for same period, Minister Vandi, further remarked a  short fall of Le330 Billion from what was expected, due to under performance of revenue streams which was a result to delay in adjusting fuel prices, reduced tax compliance, public resistance to tax reforms in the use of Electronic Cash Register (ECR) and huge supply chain challenges in the export of bauxite and timber logs.”

On expenditures and net lending, the Minister remarked that it amounted to Le244.4 billion, about 4.61 of GDP during same period of Q1, 2022, compared to Le2.99 trillion, about 63.1 percent of GDP for the same period of 2021.”

Strategies to cushion impacts of the war – Finance Minister

The Finance Minister’s strategy is to use the monetary policy response, through the Central Bank, to set up two separate facilities, domicile at the bank, with funding of $50 million each, to be used for food and fuel, to forestall any shortage. The strategy is ongoing.

The other strategy is to extend the social safety net, to include more 35,000 vulnerable people.

Source of Revenues for Strategies

A sum of Le7.79 Trillion, about 14.7% of GDP, is expected from domestic revenue mobilization, which, certainly, is not enough to meet overall projected short fall or deficit at Le2.2 Trillion. The deficit is expected from net external financing, net domestic financing, Special Drawing Rights SDR and G20 net repayment.

Sierra Leone economic growth now hinges on a prudent fiscal and monetary policy, due to the spillover effects of the on-going war, which has slowed down GDP growth, spiked inflation, resulted in weak revenue performance, fall in foreign reserves and terms of trade. However, the economic fundamentals are relatively strong, due to quick government intervention and sound macroeconomic management style. The economic management team of the Bio- led administration seems up to the task in these trying and difficult times, as the entire world, even the advanced countries of US and UK, are currently faced with multiple shocks on their economies, high inflation and spike in prices.

International Supports

The UN chief, Antonio Gutierrez from reports in international media was in Turkey few days ago, to sign a deal unblocking Russia and Ukraine food, fuel and fertilizer shipments in the Block Sea, to cushion global astronomical prices, particularly for the most unbearable countries in Africa, including Sierra Leone. African countries are the largest importers of oil and grains from Russia and Ukraine.

Though the UN-brokered deal backfired, efforts are still on going to resume export of essential commodities.

This apart, Russia has been taking all measures to deliver food and other essential commodities to Africa. Russian Foreign Minister, Sergei Lavrov, reveals that “Russia is opening up trade relations with the world and is moving into multilaterism.” This move put paid to his recent African nation tour to Egypt, Uganda and Central African Republic CAR. The FAO had forewarned that 47 million people might risk looming into acute hunger due to the war.

The IMF, the World Bank, AfDB, others, are also supportive to African countries in the form of budgetary supports in the execution of government development programs. In Sierra Leone, IMF supports economic programs under the Extended Credit Facility ECF, to safeguard macroeconomic and financial system.