Commentary
The 2016 Austerity: the source of Sierra Leone’s current economic and foreign exchange woes and not Minister JJ Saffa.
By Kortor Kamara, USA
The Sierra Leone Minister of Finance, Mr. JJ Saffa and his economic team have recently been under unfair undue political pressures, especially by opposition party hacks and propagandists, for the devaluation of the national currency and state of the economy.
Most non-partisan observers of the Sierra Leone economy are of the view that but for the intervention of the Bio administration and JJ Saffa’s economic team, the economic meltdown that was awaiting Sierra Leone in 2018 would have been catastrophic.
However, to better understand the genesis and cyclical nature of the nation’s current economy and foreign exchange instability, a trajectory of the country’s immediate past economic policies, bubble growth, unsustainable debt and austerity must be examined.
Having posted impressive GDP figures in 2014, based largely on a single sector iron ore mining driven GDP growth, and designated in a Washington Post, global business article as the second-fastest growing economy in the world, Sierra Leone had by December of 2014 plunged in to negative GDP due largely to unsustainable national and international debt, mismanagement, corruption and an austerity regime, the adverse effects of which continue to plague the economy.
By 2016, the erstwhile APC administration of President Ernest Bai Koroma had so badly mismanaged, with reckless abandon and wasteful spending the country’s economy, that it was forced to declare a state of austerity in Sierra Leone on October 3, 2016.
Below is excerpts of the State House Press Release of the austerity:
“ A 30% CUT IN RECURRENT EXPENDITURES ACROSS THE BOARD
PUT ON HOLD ALL NEW DOMESTICALLY FINANCED CAPITAL PROJECTS AND SUPPLIERS CONTRACTS UNTIL FURTHER NOTICE
NO NEW PROCUREMENT OF GOVERNMENT VEHICLES UNTIL FURTHER NOTICE
A 50% CUT IN FUEL ALLOCATIONS TO ALL MDAS
A 50% CUT IN MONTHLY OFFICE IMPRESTS
NO PURCHASE OF NEW OFFICE FURNITURE AND FITTINGS
A 50% CUT IN THE PURCHASE OF MOBILE PHONE TOP-UP CARDS
70% OF ALL PAYMENTS TO SUPPLIERS/CONTRACTORS THAT HAVE FOREIGN COMPONENT TO BE EFFECTED IN LEONES
50% CUT IN DSA FOR LOCAL TRAVELS
ELIMINATION OF PAYMENT FOR OVERTIME
NO PURCHASE OF OFFICE EQUIPMENT (COMPUTERS, PRINTERS, PHOTOCOPIERS ETC.)
STRENGTHENING PAYMENT VOUCHERS VERIFICATION FOR ON-GOING ACTIVITIES AT THE MDA LEVEL
SUSPEND ALL OVERSEAS TRAVEL FOR PUBLIC OFFICIALS EXCEPT FOR ESSENTIAL AND STATUTORY TRAVELS.
NO DSA-TOP-UP FOR SPONSORED INTERNATIONAL TRAVELS
ACROSS THE BOARD 50% CUT IN VEHICLE MAINTENANCE
ALL SEMINARS, RETREATS AND WORKSHOPS SHOULD BE HELD IN OFFICE FACILITIES
ELIMINATE DOUBLE PAYMENT OF PENSIONS AND SALARIES ACROSS THE BOARD
A MORATORIUM ON NEW RECRUITMENT IN THE PUBLIC AND CIVIL SERVICE, EXCEPT FOR ESSENTIAL AND CRITICAL VACANCIES
ALL BUSINESS OUTFITS TO PAY OUTSTANDING ARREARS OF TAXES IN THE NEXT 30 DAYS
MINIMIZE DISCRETIONARY DUTY WAIVERS AND RATIONALIZE STATUTORY DUTY WAIVERS.
ALL COMMERCIAL BANKS MUST TRANSFER MONIES IN TRANSIT ACCOUNT WITHIN 24 HOURS.
START THE EFFECTIVE IMPLEMENTATION OF THE TREASURY SINGLE ACCOUNT
THE ABOVE WILL SERVE AS A REFERENCE FOR THE PREPARATION OF THE 2017 BUDGET AND THEIR CONTINUED IMPLEMENTATION WILL SUPPORT DOMESTIC REVENUE GENERATION AND HELP REVERSE THE NEGATIVE IMPACT ON THE ECONOMY”.
Generally, austerity is a highly extreme fiscal intervention designed to curtail hyper growth in government spending, with a concomitant rise in taxes, at a rate to ensure government’s budget deficit to be reduced over a period of time.
The draconian austerity measures imposed in the 2017 budget, introduced though haphazardly, a very tight rein on government-spending, a restrictive trade regime and tariffs and a resultant depreciation of the nation’s currency. The austerity for example resulted in a 100 percent increase in fuel prices, as a liter of petrol rose to SLL6,000.
Despite signs of an economic slowdown in 2014 to 2015, with an export depreciation of over 50 percent, the APC administration failed to address its reckless and wasteful spending, the depreciation of the currency, increasing commodity prices, exorbitant domestic debts and high GST and tariffs.
According to Dr. Kandeh Yumkella, in his article on the austerity declaration in 2016, “ in 2014-2015 our currency depreciated by an average of 22 percent and over the last 8 months the exchange rate to the US dollar rose from SLL5,500 to SLL7,200”.
Such was the state of affairs of the economy and the foreign exchange rate, which had further depreciated to SLL8,500, at time the Minister JJ Saffa and the Bio administration assumed power in Sierra Leone last year.
Saffa and his economic team by clearing the mess of huge deficit current account balances inherited from his predecessor, coupled with revenue mobilization, exports, implementation of a single treasury account system and a plan to rein in the Dollar appreciation against the Leone and jobs stimulation, deserve more time to mitigate the austerity laden roadblocks in our economy.
The failure of the 2016 austerity measures to stem the economic meltdown had by the time of the elections in 2018, caused rising foreign exchange rates, which have continued to date, albeit at a slower rate than the status quo, under the APC government.
The precarious nature of the nation’s foreign exchange situation was glaringly exposed by president Ernest Bai Koroma ‘s nationwide text message, admonishing Sierra Leoneans to desist from using foreign currencies and to only transact all businesses in Leones.
In his June 2016 text message, president Koroma stated inter Alia:
“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. HE Dr. Ernest Bai Koroma “.
Despite recording a depreciation of approximately 15 percent against the US Dollar, over the past year, recent measures by both the Bank of Sierra Leone and the Ministry of Finance especially in clamping down on the black market in foreign currencies, is projected to show appreciable improvement in taming the rising dollar exchange rate.
The illegal black market in foreign currency has been allowed to be institutionalized, with “dollar boys” plying their trade openly throughout the country.
This unregulated trading in foreign currencies has a debilitating effect, not only due to the obvious capture of foreign exchange by the illegal traders, but more-so the non payment of any taxation or regulatory oversight.
Finally, Sierra Leone needs to combat the illegal black market in foreign exchange currency to more fully capture the diaspora remittances, which World Bank statistics report currently exceed foreign aid in sub-Sahara Africa.
While official flows through commercial banks, Western Union and Moneygram currently largely account for the nation’s foreign exchange remittances, additional funds brought home by diasporas in their pockets, bags, and suitcases or through friends and acquaintances are mostly exchanged by street vendors. These are not captured in the nation’s foreign exchange earnings and hence the persistent shortages and rise in dollar exchange rates. The measures being contemplated for implementation by both the Minister and Bank of Sierra Leone will indeed bring about needed relief and ease pressures of our local currency.
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