By Franklin Sisabu Bendu
In my last piece on this topic (Coronavirus – the present and the future), I drew attention to the need for the Ministry of Finance (MoF) and the Bank of Sierra Leone to outline special policy measures that will ensure our economy is able to respond to the challenges COVID-19 brings. In this follow-up article, I make bold to say that there are going to be tough times and government institutions have to be proactive and innovative in developing policies that will help mitigate the consequences of COVID-19.
Over the last two years, domestic revenue mobilization has been on an upward trajectory and a lot of praise should go to both the National Revenue Authority (NRA) and MoF. The operationalization of the Treasury Single Account was a big statement of intent from the government. This was something the previous government was unable to implement. Despite these gains, however, COVID-19 will impact on domestic revenue mobilization.
Last week, the Minister of Finance outlined some of the challenges the country is likely to face, especially in relation to economic growth and domestic revenue mobilization. The growth and revenue forecasts have been revised downwards. The growth rate for 2020 has now been revised from 5.1 percent to 3.8 percent, domestic revenue is projected to decline by Le 885 billion, from Le 6.5 trillion to Le 5.6 trillion, with revised projections for income tax, goods and services tax, customs and excise duties, mineral revenue and revenue from other departments. These are as a result of exogenous factors that the NRA has no control over. The focus then should be on instruments the government has control over. As a result, government should find new ways of financing critical expenditures like salaries and servicing our debts.
Developed countries are not talking about lost revenue, their Ministries of Finance/Treasury Departments are outlining how government will intervene in the economy to protect jobs which will ensure their citizens have income to spend.
As a nation, we will soon be in an economic emergency, whether there is a case of COVID-19 or not. Hence, this is the time to be innovative and develop policies, not the same as advance countries, but policies that will counteract the disruptions of COVID-19. The Ministry of Finance can lead the process of having key government institutions – like the Bank of Sierra Leone, National Revenue Authority, National Social Security and Insurance Trust (NASSIT), Sierra Leone Commercial Bank and Rokel Commercial Bank – to discuss how they can inject money into the economy, thereby meeting the needs of the private sector and households in dealing with the associated economic disruption.
The government need not look far to get ideas. There were policies in the budget speech that will have significant fiscal implication for government.
Firstly, the promised increase in salaries will increase the wage bill of government. At this point in time, such a policy, even though may be politically unpopular, is one that the government cannot afford. This is a promise and will be implemented as soon as the economy recovers from the impact of COVID-19. In addition, other fiscal policies that will increase government’s expenditure in 2020 should ideally be put on hold.
The government should not only be thinking about public sector workers but also about workers in the private sector. The NRA should engage medium to large tax payers to discuss possible tax relief in order to reduce any potential for staff redundancy. Rice is the country’s staple food and waiving customs duties on rice imports can help maintain price stability.
Secondly, the Bank of Sierra Leone outlined a four-point plan to support the economy during the crisis. As the statement rightly said, the only shareholder of the Bank is the government. At this time, one would expect the bank to be bolder and inject much needed cash in the economy.
The Le 500 billion special credit facility to finance the production, procurement and distribution of essential goods and services can be set aside to assist government meet its commitment to pay wages over a period of two months and also support the government to boost support to the health sector. The two commercial banks should also consider offering business low-interest and government guaranteed loans. This should be targeted and should cover a specific period of time.
Additionally, interest rates in advanced countries are approaching zero percent and will likely go to zero if the pandemic continues. The reduction of the interest rate by 150 basis point (which simply means 1.5 percent) to 15 percent is good but it is not enough to trigger the type of effect the Bank is hoping for. The commercial banks are likely to charge more than that when loaning to the private sector. Many of the contractors supplying and providing goods, services and work to government have existing loans with various commercial banks. In the event the government is unable to pay these contractors, they are likely to default on the loan repayments and this can have dire consequences. The government should engage the Sierra Leone Bankers’ Association to develop plans for example, temporal deferral payments on principal.
It is also important to remind ourselves that the establishment of NASSIT was primarily to ensure citizens are able to get a living pension upon retirement. However, in times like these, the Trust should come up with instruments that can support government at this crucial period. NASSIT can increase their investment in government securities, for example, taking a five-year or ten-year bond, and in the process provide government with much-needed resources.
Furthermore, the World Bank, the African Development Bank and the International Monetary Fund have stated their intent to help countries tackle the challenges that COVID-19 will bring. I presume they are already doing this, but if not, the government should as a matter of urgency initiate discussions with these institutions to access any facility that will ease the fiscal burden. In addition, discussions should be going on with the European Union to explore the possibility of disbursing their budget support regardless of whether the triggers are met or not. The argument here is that the government will not have the resources to implement the activities necessary to meet the conditions associated with the triggers.
Moreover, the budget for Fiscal Year 2020 has been approved by Parliament. However, in the deteriorating economic situation, Parliament should stand ready to annul the existing Appropriation Act and enact fiscal and monetary measures that could help to ensure citizens’ welfare is adequately addressed. As we see in advanced countries, their legislative arms are passing emergency pieces of legislation that will empower the government to tackle the pandemic and its corresponding economic impacts.
Importantly, it is not a matter of MDAs executing their budget, it is rather a matter of how citizens can cope with the social and economic challenges COVID-19 will bring. In all of these, the need to scrupulously supervise how funds are disbursed cannot be overemphasized. Direct intervention by the government is necessary to ensure the end of the pandemic does not leave us having to address other social and economic challenges.
Finally, the effects of COVID-19 will impact on our lives in ways we have never seen before and it will require collective, sensible and pragmatic societal efforts on an unprecedented scale.
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