*High Inflation
*High Dollar Shortage
*Unfavourable Terms Of Trade
*Balance of Payment and Budget Deficits
*Poor Living Standard
Hope in a thriving economy was renewed after Professor Kelfala Kallon was made Sierra Leone’s Bank Governor in April, 2018. Expectations were high as the country reels of from the effect of the twin shocks. Ebola outbreak and the fall in the Iron Ore price at the world market were key shocks that hit the economy very badly. By his knowledge and experience, the Economics professor was expected to fix the problem, at least, in a year.
But, the people’s expectations turned into a nightmare as the economy performed worse than in the past. Sky-rocketed inflation, dollar shortage, unfavourable terms of trade, balance of payment and budget deficits, non-productiveness and poor living standard hallmark Sierra Leone’s economy throughout President Maada Bio’s rule. These factors weighed down government for which the Bank Governor was asked to lay down kits. Notwithstanding the Bank Governor’s dismissal, the damage caused will linger for years.
High Inflation
Sierra Leone’s inflation prior to the appointment of the Bank Governor stood at 14.19 percent. Today, it stands at 38. 48 percent. Other inflation ranking shows a figure higher than the one shown by national records. Professor Hanke’s latest inflation ranking indicates 43 percent for Sierra Leone. Apart from facts on paper, the inflation realities on the ground remains appalling. The price of almost every commodity in the market has tripled than ever before. A bag of rice which was NLe200 or Le200, 000 (two hundred thousand Leones) is now sold at Le650, or Le650, 000 (six hundred and fifty thousand Leones).
A ‘batta’ (jerry can) of palm oil whose price was NLe160 or Le160, 000 (one hundred and sixty thousand Leones) is now sold at NLe650, or Le650, 000 (six hundred and fifty thousand Leones). The transport service is also badly hit, and Kailahun residents being the hardest-hit.
The transport fare from Freetown to Kailahun stands between Le300, 000 to Le400, 000 excluding the return fare. Prices of other goods and services also are badly affected. The list of high prices for goods is endless. Comparatively, the inflation rate in Sierra Leone is much more higher than the one in other MRU (Mano River Union) countries. Sierra Leone’s neighbour, Guinea has an inflation rate of 12 percent while Cote d’voire battles with just 4.2 percent.
Dollar Shortage
The shortage of the US dollar in Sierra Leone is a key factor for the high inflation confronting the country. The shortage itself is caused by the Bank Governor’s unpopular fiscal and monetary policies. While in the hot seat, he had, on several occasions, auctioned the US dollar with a hope to positively alter the trend, but the result has always been counter-productive. Economics experts argue that it is not an auction that brings the exchange rate down, but it is about direct foreign investment.
The conducive atmosphere for the US dollar to come into the country was created by the past government, but reversed by the current administration. Sometime in 2020, government closed down SL Mining Company over what it called an erroneous agreement left behind by the government of former President Ernest Bai Koroma.
After a year of legal wrangling, the case went against the Bio administration who were ordered to compensate the company. Undermining mining operations in the country means low foreign exchange. When SL Mining company now called Marampa Mines resumed operations, thousands of workers were laid off. The ore was also carted away for over year without any royalty paid to government as it
It was a means of compensation to the company after winning government in an English court. How can government get foreign exchange when a key Iron Ore miner does not pay for a year. The restrictions imposed on the dollar trade by the former Bank Governor worsened an already polarised situation. When and how can the new Bank governor turn situation in the country’s favour?
Unfavourable Terms Of Trade
For a long time, government has been battling with bad business outside the country. Sierra Leone is a price taker for most of its exports since she does nothing to transform the extracted raw materials into finished goods. Sierra Leone also does not polish its raw materials to command high prices at international markets. The country was hit hard in 2014 when the Iron Ore price considerably fell at the world market. Sierra Leone was nearly sinking down in the deep blue sea when a Chinese company, Shandong Steel Group rescued her. The company took over the Iron Ore mines in Tonkoli district for a brief moment. It is hoped that when SLPP took over, Professor Kallon will come up with sound policies to reverse the trend.
Balance of payment and Budget deficits
Unfavourable terms of trade is the product of balance of payment and budget deficits. It is rooted in the country’s inability to furnish and polish her exports. Every year, Sierra Leone receives less for her exports and pays higher for imports. It is no good business for a country with a weak economy. A country that is highly desirous of growth should pay much attention in receiving for her exports the same way she pays for her exports.
Even if a country does not receive the same rate owing to the absence of the necessary infrastructure and technology, the margin of the balance of payment deficit should not be too wide. It damages the economy. As Sierra Leone receives less for her exports, it goes without saying that the annual budget will be nothing to write home about. For many years, Sierra Leone has had to rely on donor support to finance deficit budgets.
This year’s budget is no exception. The cointry’s external budget support needs around 1.6 percent support to achieve set goals. The Bank Governor also cannot change the narrative.
Poor Living Standard
High cost of living and poor living standard is a typical characteristic of a country whose economy has fallen into wrong hands. The ageing Bank Governor adopted unpopular fiscal and monetary policies that created economic hardship in in the country. The have-nots or men in the streets are the main victims. Prof Kallon spent billions of Leones to print new currencies for the country.
By this time, every Sierra Leonean expected that the old Leone must have gone out of use, but it still continues in use. Several deadlines for the old money to go out of use has expired. Few days ago, another deadline for the use of the old money was extended. It makes many Sierra Leoneans think that it is a real maverick on the part of the Bank Governor. He is seen as one who does not know what he is doing.
A big business magnate in Freetown has accused the Bank Governor of being more theoretical than practical in the management of the economy. The flip-flop as well as hit-and-miss methods of managing the economy corrodes confidence. Businessmen hold back their resources, many businesses shut down, investors run away, capital flight became the order of the day, potential investors do not come, and the country was thrown into deep hardship.
Survival became a big problem, and life is about seeing tomorrow. Professor Kallon, by all standards, is a bull in a China shop. He has messed up President Julius Maada Bio whose action to sack is much more late. Who will clear the mess with just two months more to go?