Sierra Leone News: High double-digit inflation rates persist in S/Leone — World Bank
By Alusine Sesay
High double-digit inflation rates persist in Sierra Leone and Liberia, due to the continued monetization of large fiscal deficits and greater pass-through of currency deprecation to domestic prices, according to the 20th edition of Africa’s Pulse, the World Bank’s twice-yearly economic update for the region.
Inflation rate in Sierra Leone was recorded at 17.46 percent in March 2019.
The report shows that Sierra Leone is among 21 countries in the bottom tercile of growth performers. Countries in the bottom tercile include: Angola, Botswana, Burundi, Chad, the Comoros, the Republic of Congo, Equatorial Guinea, Gabon, Lesotho, Liberia, Malawi, Mauritania, Namibia, Nigeria, São Tomé and Príncipe, Sierra Leone, South Africa, Sudan, Eswatini, Zambia, and Zimbabwe.
According to the African’s Pulse, the quality of economic management policies in these countries has deteriorated from 2012–13 to 2017–18; and that the quality of structural policies also decreased.
“The quality of public sector management and institutions has remained invariant or improved slightly over the past five years for all groups of growth performers. Therefore, the deterioration in economic management and structural policies has driven the lower quality of policies and institutions in the region — and the magnitude of their decline varies across the different groups of growth performers,” the report shows.
The economic management cluster of policies comprises the ratings on (a) monetary and exchange rate policy, (b) fiscal policy, and © debt policy.
According to the World Bank Report, the bottom tercile of growth performers experienced a deterioration in the quality of economic management in all three policy categories, and the decline is sharper in monetary and fiscal policies.
The largest drop in the quality of monetary and fiscal policies, which is observed in the bottom tercile of growth performers, can be attributed to this group having the largest amount of commodity exporters, according to the African’s Pulse. “The sharp drop in commodity prices (especially energy commodities) may have (a) weakened the currencies of the commodity exporters and translated into greater inflation (depending on the extent of the pass-through), (b) reduced government revenues and widened fiscal imbalances, and © lowered amount of exports and worsened current account balances,” the report indicates.
The cluster of structural policies comprises the ratings on (a) the financial sector, (b) trade policy, and © the business regulatory environment.
The quality of policies and regulations affecting the financial sector (as well as its structure) declined across all groups of growth performers, and the drop was sharper among bottom and middle performers.
The report shows that the rating for the financial sector for the bottom performers in 2017–18 is, however, very low (2.6). “The quality level of the policy framework that fosters international trade of goods declined slightly in the group of bottom performers. This remained almost invariant among the top performers and it has increased slightly in the middle performers.”
The third category of structural policies, the business regulatory environment, looks at the legal, regulatory, and policy environment that is aimed at promoting private investment and boosting productivity.
According to the World Bank, improving business regulations may foster a conducive environment for engaging in foreign trade of goods and services.
“The quality of the regulatory environment dropped only among the group of top performers. Although it remained unchanged or increased slightly for the bottom and middle growth performers, the levels in these groups are low, at less than 3.2 in 2017–18,” the report states
According to the World Bank , foreign trade could foster growth if trade policies reduce barriers to trade, including non-tariff barriers, and, more generally, provide greater market access to exporters; financial sectors provide timely financing to exporters and importers to conduct their transactions; and the regulatory environment fosters contestability and more flexible labor markets.
Policies to bolster growth in Sub-Saharan Africa and Sierra Leone, the World Bank recommended that policies should include (a) strengthening monetary and fiscal policy frameworks to address current macroeconomic vulnerabilities; (b) implementing policies that accelerate poverty reduction; and © designing innovative solutions that bolster women’s economic empowerment.
Sierra Leone’s minister of finance, Jacob Jusus Saffa acknowledged that inflation, though high has been trending downwards and is projected to fall to 14% by end of December 2019, and is expected to return to single digit by 2021.
“Economic conditions have remained broadly stable due to the prudent macroeconomic policy reforms adopted by our Government since taking office in April 2018,” he said.
Hon. Saffa said, “The key reforms implemented in the last eighteen months have focused largely on achieving fiscal and debt sustainability by pursuing a more conservative medium-term expenditure path and enhancing domestic resource mobilization to create fiscal space for priority spending.”
He said that “as a result of the robust fiscal reforms undertaken by the new administration; total revenues have increased to 13.7% of GDP in 2018 from 12.3% of GDP in 2017 while the fiscal deficit including grants narrowed down significantly from 8.8% of GDP in 2017 to 5.8% of GDP in 2018, and the government is also committed to bringing down its debt to sustainable levels.”
“The medium-term economic outlook is favourable as the Sierra Leone economy is projected to grow by 5.4% in 2019 and 2020, anchored on the resumption of the iron ore mining at the Marampa mines, normal agriculture activity, and improvements in the business environment,” Hon. Saffa said.
He also said that while they remain very optimistic about the future growth and prospects as a Government, they are also mindful of the many challenges ahead. “To this end, this new administration has successfully developed a reform agenda that is expected to transform the economic wellbeing of its citizens over the medium-term,” he said.
“This new agenda is guided by our Medium-term National Development plan (NDP 2019–2023), whose objectives are aimed at increasing the quality of human capital, diversifying the economy away from the extractive sector, improving infrastructure and economic competitiveness, strengthening governance and accountability for results, addressing vulnerabilities and building resilience, among others,” he said.
He said that, as part of their efforts to promote a resilient and inclusive economic growth, various reforms are ongoing to enhance the business environment and promote private sector investments. “The government is cutting red tape and boosting transparency in public administration,” he said.
The finance minister said, “The government is pursuing economic diversification with a focus on improving the productivity of agriculture, fisheries, tourism, manufacturing, and services. The government is seeking to transform the agriculture sector, with the objective of shifting focus to value-addition activities.”
“More recently, the government of Sierra Leone in partnership with the World Bank has commissioned a study on economic diversification to identify opportunities for value-Chain development in various sectors of the economy,” Hon. Saffa said.
He said that the government in collaboration with development partners is in the process of developing a project that will facilitate investments in the tourism sector, implement business regulatory reforms, and support SME growth and entrepreneurship.
