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Sierra Leone economy facing bankruptcy as Koroma restricts use of foreign currency

21,Jun 2016
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When the president of a nation sends a text message to every citizen, demanding that they must refrain from using foreign currencies, then one gets a sense of the deep economic crisis that has befallen the country.

This is the text message that president Koroma sent to the people of Sierra Leone this week, curtailing their right to free trade: “I call on fellow Sierra Leoneans to buy, sell, lease, rent, hire and transact all businesses in LEONE. Let us do all we can to save our currency. H.E. Dr Ernest Bai Koroma.”

 

Such dictatorial edict from State House, in a bid to control a collapsing economy, when those in power are the biggest traders in foreign currency is nothing short of hypocrisy and double standards.

But the fact is that the APC government has run out of cash and ideas as to how best to generate foreign revenue, and is now squeezing every dollar out of the poor people of Sierra Leone, says critics.

According to some economic analysts, not only is the country’s currency – the Leone struggling to survive, the economy is collapsing fast, after eight years of mismanagement and poor stewardship by the APC government.

Each report issued in the last few years by the International Monetary Fund (IMF) following their review of the performance of Sierra Leone’s economy, has concluded that the Koroma government’s spending is unsustainable and must be curtailed – especially unscheduled spending that is outside of the agreed ceiling.

As far back as in 2012, the IMF Mission to Sierra Leone had warned that: “It was important to constrain non-priority expenditure….and to enhance expenditure and treasury cash flow management.” And this has been the recurring concern of the IMF in the past eight years.

What is clear is that with falling export revenue, the government has persistently failed to restructure the economy away from exclusive reliance on mining, so that more income – paid in foreign currencies can be generated.

The government’s obsession with infrastructure development at the expense of building a strong healthcare system, as well as spending more on education, social and anti-poverty programmes have not impacted positively on the economy.

Fewer than 2,000 people are working on infrastructure projects, despite borrowing and spending over $400 million on such projects. Most of that money leaves the country, rather than spent locally on wages and goods and services.

Tax receipts have remained unacceptably low as the economy struggles to pick up from the Ebola crisis.

The global market demand and prices paid for iron ore have slumped. And with a continued slower economic growth forecasted for China – the main customer of Sierra Leone’s iron ore, prospects for Sierra Leone’s economy is gloomy. The IMF is not expecting economic growth to be more than 4% in 2016.

With such poor economic performance, analysts have been expecting the Koroma government to scale back its Le 4 Trillion budget spending for this year.

Public sector salary payments are facing huge delays, while private sector contractors are not being paid.

Yet, ministers and top government officials are earning far beyond the country’s means, and are embarking on meaningless and profligate trips overseas.

Last month, the ruling APC party sent a delegation of over ten of its cronies including senior party grandees to Europe and America, paid for by the state at a cost of over $10,000 each.

The speaker of Parliament and other top fat cats are earning an annual salary of more than one hundred and fifty thousand dollars – $150,000.

The head of the Anti-Corruption Commission earns about $15,000 a month, excluding allowances. Most doctors earn less than $200 a month, nurses – $100 and teachers receive a monthly salary of $30.

Most senior officials in the Koroma government are earning not less than $8,000 a month, and the president himself is netting almost $20,000 a month, excluding perks. He is receiving a monthly housing allowance of over $10,000, equivalent to well over Le60 million every month.

Most of the hotels, luxurious homes and big businesses that are charging for their services in foreign currency – especially the dollar, are either owned by government officials or their cronies, families and friends.

The government’s over bloated appetite for cash is paid for in dollars by borrowing, and through the sale of treasury bills and government bonds each week.

Speaking last week to the media, the governor of the Bank of Sierra Leone – former finance minister Marah said:  “It is certainly perplexing that the government whose business should be to formulate and enforce policies and make prudential regulations for the good of all is “pleading” with its citizens to use the country’s legal tender in order to save it”.

In 2007, inflation was running at 8%, which many analysts believe to have now doubled to  almost 15%.

The people of Sierra Leone rely on imported goods and foods for their survival, which places a massive strain on scarce foreign exchange. This creates further inflationary pressures.

In 2007, the Leone was trading at 3,000 to the Pound. Today, it sells at over 8,000 to the Pound.

The value of the Leone against the dollar is depreciating fast. The Leone is now trading at over Le5,886 in Banks, while in the black market it is sold at over  Le6,550 to the dollar, as export revenue falls.

Whiles the demand for the dollar may be high and putting pressure on inflation and foreign exchange, the main problem which the government has been unable to manage is the country’s poor export revenue performance.

The government’s large-scale infrastructure development programme that has pushed its international debt to over $1.5 Billion and rising, is not helping either. Monthly serving of interest payment on these loans is also adding pressure on the country’s foreign exchange.

Sierra Leone relies massively on international donor aid – up to about 40% of its budget.

The government receives over £300 million in aid every year to help pay for the cost of delivering basic social services, including the provision of education, health and clean safe drinking water.

The Koroma government has done very little in eight years to close the massive hole in its finance, created by high level corruption and misappropriation of public funds.

It is estimated that over $200 million is lost every year through corruption.

There are serious concerns of Sierra Leone returning to the ‘heavily indebted status’, should the government continue to borrow and spend at the current rate to achieve its infrastructure development ambition; and, especially if the president goes ahead with his planned $400 million loan from China to build a new airport in his political heartland.

Recognising the unsustainability of the government’s borrowing and profligate spending, critics have warned of an economy facing a melt-down.

 

And should the government continue to fail to meet its agreed spending and revenue targets, as well as preside over misplaced economic priorities, then poverty in Sierra Leone can only get worse.

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