By Osman Kargbo
The Bank of Sierra Leone is in a life-and-death battle to rescue the ailing economy of the country under the current administration. The economy of Sierra Leone has gone so bad, particularly in the last five years or so, that both the government and the people are operating on a wing and a prayer to survive the hyperinflation and skyrocketing cost of living slapped on them by the so many shocks affecting the economy day in day out.
In its latest quarterly Monetary Policy Committee (MPC) report published on 14 December 2023, the Bank decided to raise interest rate – that is, its Monetary Policy Rate (MPR) by 1 percentage point to 22.25 per cent, and also by 1 percentage point for both its Standing Lending Facility Rate (SLFR) to 25.25 percent and its Standing Deposit Facility Rate (SDFR) to 15.75 percent, allowing a difference or interest rate margin of 9.5 percent.
According to the Bank Governor, Dr Ibrahim L. Stevens, “the MPC will continue to monitor developments in the global and domestic economy and stands ready to take appropriate action” as may be required to maintain price and financial system stability.
However the Governor and the Bank have a lot to grapple with, as the country’s economy continues to deteriorate under the yoke of severe inflationary pressures hiked by domestic fuel prices, challenging domestic economic activities, widened trade deficit, and inimical expansionary fiscal policy that has increased fiscal deficit due to increasing government expenditure outweighing increase in revenue.
Save for the banking sector and financial system stability – which is also not really helping the productive sector and highly relying on investing in Treasury Bills, all other indicators to determine a growing and sound economy are somehow in volatility, which is why the Central Bank has marginally raised the interest rates by 1 per cent and remained poised for eventualities.
Further dilating on the MPC report, the Bank Governor states: “Inflationary pressures have been persistently high since the 2023Q3 MPC meeting. Inflation increased significantly from 44.98 per cent in July to 50.94 per cent in August 2023 and edged further to 54.48 per cent in September 2023, reflecting the upward adjustment of domestic fuel prices.”
He continued: “However, inflation rose marginally to 54.59 per cent in October 2023 and thereafter declined to 54.20 per cent in November 2023.”
The Bank Governor said “the easing of inflationary pressures could be attributed to the tight monetary policy stance adopted by the Bank of Sierra Leone to bring down inflation” to 54.20 per cent in November 2023, when in fact there has been an adverse inflationary seesaw – which sharply rose from 44.98 per cent in July to 54.59 per cent in October 2023, making life very difficult for the people!
Talking about domestic economic activities, the Governor came clean to say the domestic economy continues to face challenges due to both global and domestic factors.
The domestic factors include shocks (or shortage) in domestic supply or produce, lower-than-expected output from the key productive sectors, such as agriculture and mining. And the global factors include the lingering uncertainty in the global environment.
“Consequently, domestic activity is expected to grow by 2.7 per cent in 2023 compared to 3.5 per cent in 2022,” he intimated the dwindling growth of the domestic economy.
As regards external sector developments, Sierra Leone has a trade deficit that has widened by 40.43 per cent to US$240.44 million in the third quarter of 2023, from US$171.21 million in the second quarter of 2023, “reflecting a reduction in export receipts, which more than outweighed the decrease in import bill” (in other words, income/revenue from export decreasing much more than expenditure on import decreasing).
The Governor said: “The gross foreign exchange reserves of the Bank of Sierra Leone decreased to an equivalent of 2.3 months of import cover in 2023Q3, from 2.8 months of import cover in 2023Q2, mainly on account of excess outflows over inflows.”
What this statement means is that the foreign currency reserves of the government of Sierra Leone have reduced from its ability to import goods and services for almost three months (2.8 months) in the second quarter (April -June) of 2023, to import goods and services for less than two months and two weeks (2.3 months) in the third quarter (July -September) of 2023. The reason for this declining importing or purchasing power, the Governor noted, was mainly due to excessive spending over and above income-generation by the government.
The Governor, however, said the depreciation of the Leone moderated, reflecting “the positive impact of policy actions” taken by the BSL to remove bottlenecks in the foreign exchange markets, including the removal of administration barriers, the amendment of the BSL Act 2019, to permit the use of currencies other than the Leone in selected transactions in Sierra Leone, and the announcement effect of the decision to permit lending in foreign currency by commercial banks, on a case-by-case basis.
On the aspect of fiscal developments, a rather vile expansionary fiscal policy led to an increase in fiscal deficit in the third quarter of 2023.
“There was an increase in the overall fiscal deficit relative to 2023Q2, reflecting the increase in Government expenditure, which outweighed the increase in revenue,” the Governor said, adding: “The primary balance also deteriorated, owing to the overruns in non-salary-non-interest spending and the wage bill, among others.
“These factors notwithstanding, the MPC noted the Government’s commitment to implement a mix of revenue enhancement and expenditure containment measures to achieve a budget deficit of 5.8 per cent of GDP in 2023, as agreed with the IMF.”
The Governor also highlighted the fact that global economic developments have also not been helping situation. “According to the October 2023 IMF World Economic Outlook,” he referenced, “global growth is projected at 3.0 per cent in 2023, down from 3.5 per cent in 2022, and to moderate to 2.9 per cent in 2024.”
He pointed out that advanced economies, such as Euro Area and China, have also been experiencing decline in growth, saying: “The situation is exacerbated by heightened geo-political tensions, economic fragmentation, and climate change risk, thereby slowing the pace of recovery in global growth.”
