A damp squid by the Minister of Trade on Inflation
The Minister of Trade and Industry Dr. Richard Conteh in his usual weekly press briefing on the 4th February 2010, at the Ministry of Information and Communications said that he was perturbed by the spate of increases in prices of food and non-food items in the country. He said ‘the way at which prices have been increased cannot be explained by MARKET FORCES, adding that greed, unpatriotic and selfish behaviour could possibly explain the reasons for the price increase.’ (Photo: Idrissa Koroma (Babito))
Generally speaking, the Hon. Minister was talking about inflation – a prolonged period of rising general prices. Apparently inflation is determined by market forces (demand and supply). The factors the Hon. Minister claimed were responsible for the astronomical increase in prices – greed, unpatriotic and selfish behaviour by the business community sound absurd and calls for ridicule and mockery. The Hon. Minister knows exactly what has created the upsurge in prices, but because he wants to score cheap political marks he decided to make an erratum of the realities on the market. Though the world economy continues to shrink, but there are signs that some economies in the west and emerging economies in Asia have starting picking up from the brunt of the recession. But Sierra Leone economic woes continue unabated.
The Sierra Leone economy is not balanced, an economy based on importing more than its exporting is not viable in the medium to long term. As a nation we need to start living within our means, producing more and consuming less. Thus agriculture, manufacturing and mining constitute the major components of Sierra Leone’s export. Though there have been some increased revenue from export, facilitated by the mining sector through the sale of diamonds, but its impact on the depreciation of the Leone does not arouse much confidence to say the least. The depreciated Leone is being traded against the vehicular currencies – dollar and sterling, at a rate over $4,500 and more than £6,500 respectively. And with the country’s intemperance on imported consumer goods, the cost of imports will increase relative to our exports hence, prices for consumer goods will definitely increased. Therefore, inflation will increase as suppliers want to make profit by surpassing the cost of their imports.
At the tail end of the last financial year, IMF warned about the need for fiscal prudence – though it is encouraging to mobilise funds for ambitious infrastructure projects such as electricity, roads, pipe borne water etc but this should be balanced with debt sustainability. The warning by IMF was unheeded as the government went on a spending spree due to the progress made by the National Revenue Authority in revenue collection, estimated to be over Le900 billion.
No one would deny the fact that the country needs infrastructural development, but spending on never-ending protects will continue to put strains on the economy and swirling budgets deficit to say the least. One thing is for sure that this reckless spending by the government must either be paid for by increasing taxes or by printing money (quantitative easing). The later may lead to higher inflation, while higher taxes in the future, can be seen as a way to force future generations to pay for our excessive spending created today. Although it is through the collection of taxes that government can increase its coffers on the Consolidated Fund to meet the demands of public utilities, the introduction of the Goods and Service Tax (GST) last January, does not help in stabilising the prices of consumer goods. As any increase in excise tax or Value Added Tax (VAT) which are components of the GST will continue to increase prices further.
However, it is not only Sierra Leone that is grappling with the fight of inflation; even organised economies like UK are still fighting to maintain inflation at their stated 3% bench mark. Inflation is still hovering above 3% and the increase in VAT just made matters worse. So, the comments made by the Minister on the determinants of inflation in the country, sounds preposterous and utterly idiocy. To me the comment made by the Minister is like a motorist driving too fast on a slippery road, who needs to slow down, but fears that breaking too hard could provoke a crash. So it is a ‘damp squid’ and a ‘fig leaf’ to uncover the real solutions to the inflationary woes of the country. Therefore, if the minister thinks by sending scouts (messengers) to monitor prices in the nook and cranny across the business spectrum in the city and the provinces, his wishes will come flat as it will exacerbate the situation further. In fact sending officials to start monitoring the prices is a sufficient recipe for hoarding which will create artificial scarcity and hence increase prices of goods further. For me the only solution will be the ‘St Augustine’s solution’, which says we must change our wicked ways. But not yet! This allows the government to carry on over-spending up to 2012 election, even though that will delay the necessary correction and threatens serious inflation in future.
By Idrissa Koroma (Babito), MSC Economics, UK
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