The 2014 Budget Is A Long Road To Economic Recovery
The 2014 Budget of Sierra Leone read in the Chamber of Parliament on Friday 29th November, 2013 by the Minister of Finance and Economic Development, Dr. Kaifala Marah is a piece of document that outlined the economic infrastructure of a long road to economic recovery. It is a budget that is too donor driven, too debt ridden and offer no blue print in balancing the national budget in the foreseeable future. The budget represents the long history of excessive government spending without accountability and less revenue collections – noticeably domestic revenues at the end of September 2013 was Le 1.65 trillion while total expenditures and net lending amounted to Le 2.2 trillion or 12.7 percent of GDP respectively. Even though the overall budget deficit was lower than previous years, the Le 548.9 billion is still higher for a small country like Sierra Leone. And this reflects the lack of sound fiscal and monetary policies of the government of President Koroma. (Photo: M C Bah, author)
DONOR FUNDS
Perhaps, the most troubling economic trend is the “life support system” under which the national budget of Sierra Leone has been subjected to – that of the supplementary budget support from donor development partners. This means, the government of President Koroma like his predecessors cannot operate the national budget independently without external donor assistance. For instance, Donor partners intend to pay an outstanding budgetary support of about Le 236.7 billion by the end of December, 2013.Even with the natural and mineral resources that Sierra Leone possess – it still don’t have the financial ability to develop its own budget and run the national economy without donor driven funds. According to the Organization for Economic Co-operation and Development (OECD), net Official Development Assistance (ODA) to Sierra Leone was $448 million in 2009, $467 million in 2010 and $429 million in 2011 respectively. Indeed, this is the reflection of the misguided policies and poor budget- to- deficit management of the APC led government. And this has been the usual economic phenomenon since the days of former President Stevens.
Clearly, the projection of total grants from development partners – donor money – will amount to Le 639.9 billion or 3.1 percent of GDP in 2014.As the Finance Minister eloquently puts it: “of this, our Multi-Donor Budget Support Partner group, including the African Development Bank, the United Kingdom Department for International Development (UK-DfID), the European Union and the World Bank will disburse Le 245.8 billion” to the government of Sierra Leone. Indeed, a country like Sierra Leone cannot rely on supplementary budget year after year without reducing or eliminating such dangerous addiction. The donor community is becoming fatigue about throwing money into despotic governments that claims legitimacy in the name of democracy but behaves like ruthless kings and Barons who worship the self-proclaimed religion of narcissism. Ghana is today experiencing a donor withdrawal episode and many Sub-Saharan countries like Sierra Leone will soon begin to swallow the bitter pills of rejection.
DEBT MANAGEMENT
Another disappointing observation of the 2014 budget is the way Sierra Leone’s national debt has skyrocketed. The rapid acceleration of our debt after completing the Heavily Indebted Poor Countries (HIPC) debt cancellation of $1.6 billion and $600.00 million from the multi–lateral debt relief initiatives (MDRI) in 2006 is alarming and economically suicidal. At the end of June 2013, Sierra Leone’s total debt stood at Le 6.0 trillions, almost three times the amount of the national revenues received in that same year. And the obvious reasons as the Finance Minister explained were: “mainly due to finance infrastructure, agriculture and human development projects.” But where are these so-called human development projects or Infrastructures around the country? I know they are nowhere to be found in Sierra Leone – only in the beautiful red planet of Mars. Until a project is completed – no one will believe that it is developmentally feasible to affect the social and economic livelihoods of average Sierra Leoneans.
Indeed, Sierra Leone’s financial resources are being grossly mismanaged with the lack of a strong transparent system to account for both donor funds and national revenues collectively. This is the sad state of affairs to which a nation with 6 million people has been unduly subjected to and to no faults of their own. And clearly, this is not a gateway to economic progress from a government that claims sanctity on the eight pillars of the new “agenda for prosperity” in the next coming years. We can create all the comprehensive Medium Term Debt Management Strategy (MTDS), conduct a debt sustainability analysis, limit borrowing in domestic securities market or extend the maturity date for Treasury bonds – if we don’t have a viable transparent system and people in government who are honest and forthright –we will be in the trenches of debts and failing economic performance for many decades to come.
This singular problem of a debt burden economy has been overlooked and neglected for over half a century now. It takes away resources from the education and health budgets that are so critical to national development. If Sierra Leone focuses on creating debt laws, but does not develop a strategic debt policy of eliminating international debts with the goal of upgrading its credit ratings, we will not be able to produce a robust economy that can create jobs for the next 100 years. Even though Sierra Leone’s ratio of external debt to GDP is 24.2 percent and well below the threshold of 40 percent, government debt as a percent of GDP is used by investors to measure a country’s ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields. More is required inevitably to eliminate those debts and put Sierra Leone in a sound economic footing.
According to the 2014 budget, domestic interest payments on debt incurred by government was Le 293.3 billion – representing about 63% of domestic capital budget from which most of government priority projects are being financed. On the Goods and Services budget, Minister Marah frankly stated that: “the projected Le 293.3 billion in domestic interest payments exceeds the total allocation to the social and economic sectors which are responsible to implement effective service delivery programs in Education, Health, Social Welfare, Agriculture, Works, Fisheries and Transport.” So, where do you create jobs from skyrocketing debts with uncontrollable interest payments that are toxic to sensible economic indicators? International investors are looking for competent and transparent governments that are capable of managing their economies with less debt-burden, a good balanced budget, outstanding credit rating, good business climate and strong investor protection laws.
REVENUES
When an extracting company like London Mining posts whopping revenues of $ 142.1 million and African Minerals Ltd. generating increasing revenues of $246.9 million, one wonders why Sierra Leone is still hovering around its Le 1.6 trillion annual domestic revenues. Sierra Leone’s revenue collection is too weak and stagnant, less innovative and too many fingerprints of massive corruption in most government institutions. The Auditor General’s report on the past year – December 31st, 2011- on the public account of Sierra Leone with the compliance audits on Ministries, Departments and Agencies, Schools and Vocational Institutions, Local Councils, City, Municipal and District Councils, Public Enterprises, Commissions and Donor Funded Projects remains one of the most valuable and visible piece of documents that displayed the height of financial irresponsibility perpetrated by many government officials. That Audit report was a declaration of war against corruption and mismanagement of public funds. But what happened to that block buster report? It was dead on arrival even before reaching the sacred halls of the Sierra Leone Parliament. Today, it is being archived in the dark distance shelves of Parliament.
According to the Auditor General’s Report, the estimated cash losses to the public purse was Le110, 914,263,391 for 2011. As for the following Ministries audited from January 2011 to December 31, 2011, the problems included revenues collected and not paid into bank accounts, revenues not accounted for, expenditures without authentic documents, fuel utilized without operating records, fuel chits issued to illegal vehicles, withdrawal without supporting documents and other reasons related to that Ministry or Department. These are the common practices of those who work to defraud our nation behind the desk of public trust for so many years. And Sierra Leone will not have strong revenue baseline if these endemic corrupt practices are not strategically and comprehensively addressed. Sierra Leone is beginning to see the adversity such unpatriotic behavior brings – like recently losing the MCC and the Millennium Development Goals reselection process and the troubling Transparency International report about Sierra Leone becoming one of the most corrupt countries in Sub Saharan Africa. Issuing empty warning to departments and agencies is the wrong approach to setting standards and dealing with such national dilemmas.
Somehow, we must develop accountability standards to improve on the collection and retention of our goods and service taxes, custom and excise duties, increase the fees on our royalties and licenses from the mining sector to 8.5 percent of GDP, increase Road User Fees and Vehicle Licenses to a projected Le 328.9 billion, provide NASSIT social security numbers to every Sierra Leonean and create a more advance approach in collecting income taxes while increasing corporate taxes to about 38 percent. If government can foster the environment for job creation where more direct foreign investments will be enhanced – more people will pay taxes, more companies will pay corporate taxes and revenue numbers will increase dramatically. But these hikes must be simultaneous with job growth, better road networks with adequate public delivery services like 95% electricity access, clean water, computer based skilled education, strong judicial system, sound labor laws, broad band internet access, structural financial institutions that provides access to credit and capital market and other technological capacity.
GDP, INFLATION & EMPLOYMENT
Objectively, the government of President Koroma, more than President Tejan Kabba, has made some tremendous achievements on growing the Gross Domestic product (GDP) especially due to the buoyant activities in the mining sector, the expansion in agriculture, services and the construction sector. Sierra Leone’s economy is expected to grow by 6.0 percent in 2013 and if this trend holds, projected growth rate may well reach 13.3 percent. These are some exciting news especially when most Sub – Saharan countries suffered sluggish GDP growth due to the global financial crisis since 2008 which began with the subprime lending troubles in the United States of America. According to the honorable Finance Minister, Dr. Marah: “Inflationary pressures moderated during 2013 with the year-on-year inflation returning to a single digit of 9.5 percent in July and further declined to 9.1 percent in September of 2013.” It was interesting to note that the 3-months Treasury bill rate declined from 19 percent in December 2012 to 3.5 percent in October, 2013. Interest rates on Treasury declined from 20 percent in December, 2012 to 6 percent in October, 2013.However, commercial bank lending rates still remains high.
Nonetheless, employment which is one of the leading indicators of a growing economy continues to be a huge social and economic problem in Sierra Leone. The need to develop a growing private sector that will create job opportunities for the youths in particular should have been the budget theme for 2014. One of the ways to “improving the livelihood of Youth, Women and our Workforce” is through job creation. It was ironical to increase the minimum wage in government to Le 480,000 without increasing the national minimum wage. This alludes to the reality that government realizes the enormous absence of a private sector workforce. Funds allocation may be part of helping to build institutional capacity, but it is not a better strategy in creating jobs. Diversification of our economy should be broaden to include: investment in technology, adequate energy access, computer literacy, internet access, sound financial institutions with access to credit and capital market, investor protection laws and bringing down our national debt. And corruption is the big elephant in the room that must be tackled with a degree of seriousness rather than depending on an anti-corruption commission that has no backbone to fight against this insidious social epidemic.
EXPORT GROWTH
Impressively, Sierra Leone’s total export rose by 68 percent during the first half of 2013 to $850 million dollars compared to $ 506 million for the corresponding period of 2012. The rise in export was largely driven by iron ore which amounted to $433.5 million or 51 percent of total export. And total import also increased by 31 percent to $995 million for the first half of 2013 – mainly due to food and fuel imports. Thus, the trade balance for the first half of 2013 declined to $145.2 million compared to $251.3 million in 2012.The government of President Koroma together with former Finance Minister Dr. Samura M. Kamara and Dr. Kaifala Marah deserve laudable recognitions for moving the giant ship of the nation on safer sailing economic territories. Government must, however, continue to narrow the trading gap, invest heavily in agriculture to reduce reliance in food import, re-open the oil refinery at Kissy Dock yard and increase Sierra Leone’s international reserve from its current $426.7 million to $2.5 billion by 2017.
It is abundantly clear that Sierra Leone does not lack the resources to make it prosperous – it is morally bankrupt to produce the viable economic results that will transform the lives of its own citizens because of the faults in the characters of those who govern. The lack of serious commitment to managing the natural resources, the “no-national focus” in applying the principles of good governance such as inclusion, participation, equity, pluralism, accountability and transparency in the process of serving the people of Sierra Leone. These are some of the hurdles that are blocking national development initiatives and agendas. The budget of 2014 demonstrated the political and economic attitudes of those who are managing the resources of our nation – that they are increasingly looking for outside donor money to fund projects instead of developing innovative revenue potentials that will keep government operating independently. Perhaps, the rationale behind this social philosophy is enriching themselves against the full faith and credit of Sierra Leone. But that will not benefit them in the long run or the country in which they hold allegiances and upon which they took their oath of office to faithfully serve.
THE WAY FORWARD
The way forward for a nation that we all love and a place that gave us the identity of nationhood is to work and secure the dream of every Sierra Leonean – a Sierra Leone free from poverty and one with a more hopeful and brighter future for the next generation. The government of President Koroma can graciously do this: by balancing the budget in 2015, increasing the national revenues from Le 1.65 trillion to Le 10.5 trillion by 2016, reducing expenditures by 25 percent and completing donor funded projects as transparently as possible, downsizing donor supplementary budget assistance to 1.0 percent, developing internal funds that will pay for national projects like roads, energy security, clean water, education, communication and technology, reducing and gradually eliminating the Le 6.0 trillion debt from national and international creditors, plugging the gaping hole on the massive government corruption on donor funds by the enforcement of the anti-corruption laws and learning to serve the people of Sierra Leone as patriots with the values of fidelity and allegiances. This is the Sierra Leone that every nationalist should aspire to build – the arch of the moral foundation upon which our nation’s motto: UNITY, FREEDOM AND JUSTICE will live forever.
May our nation continue to be the realm of the free!
by M C Bah, Atlanta, GA, USA
The author of this article can be reached via e-mail: mcbah60@gmail.com
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