An Op-ed first published in Awoko Newspaper by Iyabo Masha*
Sierra Leone's economy was brought to a virtual standstill by the onslaught of Ebola. The epidemic stretched already fragile public finances, and its direct and indirect socio-economic impacts resulted in the erosion of some of the post-civil war gains in human development.
The declaration of the end of Ebola transmission in early November now opens a new window of opportunity to implement reforms and rebuild the economy. With positive donor sentiments at or near the same level as in the immediate post-civil war period, the government has seized the moment with concrete plans, as enunciated in the Economic Recovery Strategy (ERS)
Still, the challenges are daunting. The economy is at low ebb, not only because Ebola contributed to a reduction in economic activities but also due to adverse global developments which affected the mining sector. Between 2014 and 2015, global iron ore prices declined by more than 60 percent, contributing to the eventual closure in 2015 of the mines that account for one quarter of Sierra Leone's economy and half of its exports.
Together with the Ebola virus epidemic, these developments contributed to an estimated 21.5 percent contraction of the economy in 2015. The outlook for global commodities over the medium term suggests that prices could be depressed for some time.
Fiscal consolidation is appropriately the starting point of recovery efforts. According to the government's Memorandum of Economic and Financial Policies which underpins the extended credit facility arrangement with the International Monetary Fund, attention will focus on raising more revenues, particularly revenues that do not depend on volatile natural resource exports. Strong moves on tax policies, and continuous improvement in tax administration should provide more resources for the government.
Given gaps in fiscal and external financing created by the economic downturn, a moderation in spending, both to balance the books at the new revenue level and also for long term fiscal sustainability, is the goal. Safeguarding pro-poor expenditure and taking care of the vulnerable - whose ranks are no doubt enlarged by Ebola survivors - continue to be priorities.
Complementary policies to mitigate other emerging macroeconomic risks are a key aspect of the reform strategy. The Bank of Sierra Leone is committed to the conduct of proactive monetary policy as a central element of safeguarding inflation. However, there is benefit in greater exchange rate flexibility.
As Ebola related donor flows are tapering off, and export proceeds from mining take a hit, the Bank of Sierra Leone could begin to signal to markets that the Leone will respond to economic fundamentals, and therefore, could move in either direction. On the banking system, both prudential tightening and supervisory vigilance are being enhanced. These will protect banks from adverse developments in the economy, while preserving macroeconomic stability.
The government recognizes that macroeconomic policies alone will not create the jobs needed to achieve durable economic progress. As such, the immediate focus of the ERS on health, education, and social safety nets would improve human development and labor productivity.
Medium term ERS plans, together with the longer term Agenda for Prosperity could drive investment and employment creation. With improvements in labor productivity, private sector investment and infrastructure upgrade, new sources of growth would complement recovery efforts. Sierra Leone could therefore progress towards its goal of becoming a middle income country by 2035.
Some sectors of the economy including agriculture, fishery, tourism and port services are already well placed to drive the next era of growth.
The agriculture sector is poised to benefit from ongoing and planned reforms, which would increase value-added and attract investment for large-scale agribusiness. Improving infrastructure for fisheries, promoting industrial fishing, and obtaining the European Union fishery certification would be important steps in becoming a key player in the world fishery market.
The focus on niche tourism as enunciated in the government's tourism recovery plan could put Sierra Leone on the international map while generating substantial foreign investment and employment. On port services, recent expansion plan by international logistics company, Bolloré, to use Freetown port as a hub for the West African hinterland opens up a new source of growth.
Developing the infrastructure and business environment necessary for these and other potentials to be competitive are key priorities. Major constraints to business include the infrastructure gap, business environment and government bureaucracy.
According to Doing Business Survey (2016) Sierra Leone ranks 147th out of 189 countries in the "overall business environment" score. On "electricity provision", it ranks 179th out of 189 countries. The energy sector reform program is already making a difference in power supply. Attention is now turning to enhancing the business climate and improving access to finance.
Given the state of public finances, the support of development partners, whose financial support was crucial in containing Ebola epidemic, should be sought and embraced. Apart from finance, development partners should be encouraged to open up their markets to enhanced trade access, provide policy advice and capacity building that will be necessary to support the reform agenda.
The IMF will continue to support the country, both financially and through technical advice and long term expert support. Even then, a large financing need will still remain. While borrowing from both domestic and external financial markets could fill the remaining gap, borrowing policies should remain prudent in view of the narrow export base and fragile fiscal position.
*Iyabo Masha is the IMF Resident Representative to Sierra Leone