By Tanu Jalloh
If we were to discuss the economy of Sierra Leone today without attempting to create an impression around its credibility, whether for the good or the bad reasons, we would be remisingin our vow to analysingthe facts.While hopes abound, they certainly are often accompanied by fear of macroeconomic risks. In a July 2011 appraisal report on the Economic Governance Reform Programme IIfor Sierra Leone, the African Development Bank Group established at the outset that, "the fiduciary risk assessment (FRA) conducted by the Bank in May 2011 rated the risk as "substantial" with a positive trajectory of change since 2007."The FRA provides guidance on mitigating any significant risks to the proper use of funds and outlining a suitable process for monitoring performance. In short,fudiciary risk talks about transparency or the lack of it as a risk factor. Similarly, in a 2012 statement on the investment climate in Sierra Leone, US Embassy observed that after the war the country was "being forced to move beyond the moniker of a post-war nation to one of nascent self-sufficiency;" and therefore warned that business market entry strategies should carefully assess the specific risks presented by such fiduciary risks - poor governance and corruption - including immature infrastructure, the lack of training, extreme poverty, and illiteracy in the labor force. However, the same communication agreed that there have been no "discrimination, limits or denial of treatment for foreign investors. There are no known economic or industrial policies or practices that have discriminatory effects on foreign investors." The country's Investment Code of 2005 has effectively addressed the treatment of foreign investors,thereby creating the basis for an economic culture that would eventually launch Sierra Leone as one of the most favourable on the World Bank's Doing Business 2012. The reasons were the macroeconomic policies. Meanwhile, in a development policy note extended to assure the African Development Bank, the country's Finance Minister DrSamuraKamarastated inter alia that there were good signs the policies were tenable. For example monetary policies have been set to achievethe goal of single-digit inflation in the medium-term while the Bank of Sierra Leone (BSL) continues to pursue its open market operations through a repurchase agreement or repos and reverse repos to contain the growth in excess liquidity and hence inflationary pressures. According to the minister one such way to attain this feat would be to strengthen monetary policy operations and allow the BSL to strategically review such policy framework in a bid to introduce a benchmark interest rate- the monetary policy rate - which is used to signal the stance of monetary policy to the market. The ordinary man on the streets might find these details very difficult to understand, but to achieve the objective of single digit inflation in a country still trying to balance imports with exports power (dis)parity, reserve money is justifiably programmed to slow down. During this period a restraint is likely to engender what people consider as hardship or constrain the flow of disposable cash.What I just did in the precedent established above is to debunk a complex technical macroeconomic policy in a way that ordinary people would appreciate the extent of government's effort at mitigating force majeure, in this case a major risk factor. That is certainly not my own way of downplaying the seriousness of macroeconomic risks the country faces at the moment. As a matter of fact Sierra Leone is vulnerable to external shocks due to its dependence on imported food and fuel as well as on primary exports. Interestingly, the country is on record to have admitted severally to the fact that increasing fuel and food prices were impacting negatively on its economy and effort at alleviating or eradicating poverty. In essence, they speak to the compounding problems of "Sierra Leone's fragility situation". As a corollary, many implementation strategies have been employed to flesh out an extant macroeconomic policy framework that would be supported by IMF -the global financial evaluator and traditional lending partner -to eventually mitigate possible macroeconomic risks. Those of you who are relatively comfortable with basic economics would agree with me that such multilateral development budget support to the country could help create the fiscal space for government to implement pro-poor projects and mitigate the pains of rising fuel and food prices. Added to this, the government has committed itself to increasing financial resources for safety net programs and enlarging the size of the public bus fleet to halt the grimace related to poor transportation or the lack of it. Another risk has come in the form of government approaches to the 2012 elections. By the look of things, elections related tension could undermine revenue performance. Thus, there is the risk that substantial "spending" in the multi-tier elections in November this year could lead to a large fiscal deficit; apart from that, spending pressure to improve social indictors and fund civil service wage could increase. Against this backdrop,a mitigating measure,on the one hand, should see increased role of civil society organisations in budget monitoring and oversight. On the other hand, the government feels thatdonors' budget support disbursement triggers should strengthen fiscal discipline and mitigate the potential risks of fiscal slippages during the elections period. In what seems like a self-restraint, it has promised to uphold pledges in the public finance management reformand address potential weaknesses in the fiduciary control environment with transparency tools like the Anti-Corruption Commission, the Sierra Leone ExtractivesIndustry Transparency Initiative and the Audit Service Sierra Leone. According to the Finance Minister, government was committed to maintaining a flexible exchange rate to facilitate the adjustment of the economy to external shocks and promote a tax administration that minimises the granting of discretionary tax exemptions. To conclude, the US Embassy thinks despite all "the considerable challenges" there are encouraging signs in Sierra Leone's investment climate. "Foremost among them is what seems to be a sincere and determined priority among national leadership to boost the market economy. The Government of Sierra Leone (GoSL) continues to work to improve the integration of the private sector to advance modern technologies into the mining and agricultural development strategies as well as to continue to build the industrial base to create more jobs."
