By Tanu Jalloh
Each year the Governor of the Bank of Sierra Leone has an arduous end-of-year traditional ceremony, which in recent times happens at the Bank of Sierra Leone Staff Recreational Complex – a serene auditorium at Kingtom in the west of Freetown. Each year he must put together and deliver a statement on this occasion, reflecting the country’s economic health, raising hopes and bandying about with policies for public fiscal decorum. This year’s was a close shot at spasmodic chasms!
In this analysis I have set out to use the very frame of the latest Governor’s speech at “The Governor’s Annual Dinner” on Friday 27 January 2012 to give contexts but probably a bit dissenting enough to represent the views of an independent analyst. Usually when such technicalities are left in the form in which they are presented to a public that is not only largely illiterate but also arguably less sophisticated and critical, it haunts the conscience of the few radicals that have failed to translate those jargons for the general benefit. Therefore, I have referred to loopholes in the Governor’s peroration as spasms and chasms, both of which have been explained severally and in different contexts as we read along.
Once an insight was provided, as was the case at the turn of 2011, the accompanying circumstances, be they grim or trim, are understood and considered by the target publics. Reason being that this is not only to affect perceptions but in general it is also to effect favourable judgments in the court of public opinion. If the Bank Governor, Dr Sheku Sambadeen Sesay, reasoned along that line before he set out to achieve public approval against what state critics have dubbed ‘hardship,’ I am sure he must have earned the favour of his boss immediately afterwards. That was obviously politically correct in an election year.
However, there still are gaps inadvertently opened up and left open by too many technicalities, jargons, waffles, blethers and rigmaroles. Some of these have attracted contradictions to some of the Governor’s efforts at presenting a not-too-scary diagnosis of what he himself implicitly suggested was an ailing economy. Let us try to make reference to those instances that will, for many years to come, come after him as he lives to choose between the interests of the government against those of the masses.
While it is impossible to cover every nuance of a topic as broad as inflation in the two or three paragraphs here, I strongly believe that inflation which was projected to drop to a single digit by end of 2011, whether based on the assumption of the absence of international shocks or a tightening of the country’s fiscal policy, thrived on bad judgment. My sense is that the government’s prognosis was based on time-dependent pricing models, which lacked proper microeconomic foundation. According to Arto Kovanen’s report for IMF on Sierra Leone in 2006, such models do not do a good job of explaining empirical regularities of inflation dynamics.
Excerpts from the Governor’s speech read: “…as is the case in most African economies in 2011, inflation remained a challenge despite our best efforts to control it, due to a combination of exogenous shocks including rising prices of food and fuel in the world market, and endogenous factors such as partial removal of subsidies on fuel, and some exchange rate depreciation. The year-on-year inflation rate decreased slightly from 17.84 percent in December 2010 to 16.64 percent in December 2011 after having dropped to 15.70 percent in September 2011.”
As if to say Sierra Leone must not aspire for the best in anything she does, the governor could be said to have suggested that it was no big deal the country failed to meet its goal of beating inflation in 2011. The explanation was complex and opaque, just too technical for the man on the street who lives with and through hardship. For instance we are not clear on whether inflation here was brought about by an increase in demand often referred to as Demand Pull Inflation or just one that was engendered by an increase in the costs of the factors of production called Cost Push Inflation.
I guess I might be right to say the country faces both instances of inflation at one point or another because income generated by the country through exports was and is still infinitesimal amidst the huge demands he pointed out in his speech. Yet he agreed that during 2011the fiscal deficit widened due to higher wage bills…and increased spending on infrastructural projects, apparently referring to the massive roadwork, relatively stable electricity in Freetown and water supply. But he confessed that government’s method of financing these deficits was a serious “concern for inflationary consequences.” These are facts.
With all these, how come the Bank of Sierra Leone was, in the words of the governor, “very accommodative” to such domestic bank credits to government? If the Bank of Sierra Leone and its Governor were that concerned why didn’t they ensure that the ceiling for net domestic bank credit to government was observed throughout 2011?
The situation in 2010 does not seem to have changed in this regard. Let me refer you to a letter of intent co-written and signed by the Governor and the Finance Minister Dr Samura Kamara, dated November 18, 2011 and addressed to the Managing Director of the International Monetary Fund Washington, D.C. 20431, USA to give an idea of how government exceeded credit net ceiling.
“Program implementation was uneven in the second half of 2010. While domestic revenue overshot projections by 0.3 percent of GDP, spending on infrastructure projects, fuel subsidies, wages, and goods and services led to higher–than-envisaged domestic financing. As a result, the ceiling for net domestic bank credit to government was exceeded by 2.4 percent of GDP for the year and the target for net domestic assets of the central bank was exceeded by 0.9 percent of GDP.”
After what seemed a tightened fiscal policy in 2011, in the words of the governor, implying “a lowering of the program ceiling for net credit to government by 1 percent of GDP,” there was no clear explanation of how a serious constraint or restraint could be brought to bear on government, thereby ensuring that it does not abuse its lending privilege to the central bank.
Put in context, a Memorandum of Economic and Financial Policies also dated November 18, 2011 disclosed that “excess budgetary spending was executed in anticipation of a US$50 million one-off tax payment from a mining investor, which did not materialize. The excess spending was only partly offset by an increase in domestic revenue collection by 0.3 percent of GDP while external budget financing was 0.3 percent of GDP lower than programmed. As a result, domestic financing from banks and nonbank financial institutions was 2.4 percent of GDP higher than envisaged, totaling 5.8 percent of GDP for the year.”
A 2009 USAID sponsored report on the country’s economic recovery assessment pointed out that one of the main concerns in politically and socially fragile economies like Sierra Leone was to ensure that the central government has the capacity to sustain fiscal balance and low and stable inflation and follow policies that are accountable to the population. “The government [of Sierra Leone] budget must therefore balance the needs for critical services to support growth and poverty reduction and for stimulation of the private sector.”
While I pick on them, the Governor insinuated that they were proud of the Bank of Sierra Leone’s work towards ensuring exchange rate flexibility and managing the foreign exchange cash flow geared towards meeting the Gross Reserves target. But this putative intervention has been very, very limited, according to him “to smoothening short term volatility and to absorb the impact of foreign financed budget spending.” The last statement contradicts the preceding one which expressed hope to meet the country’s gross reserves target by properly handling foreign exchange cash flow.
The impression created in my parting short there is exactly what I had set out to achieve – bringing out the chasms and spasms in the Governor’s speech. We look forward to picking on some of the rest of the speech, and those of others, as part of our watchdog role that is informed by the spirit of this civic forum that is Politico – a foremost agenda-setter in Sierra Leone today.
