...To enhance economic growth in Salone
September 28, 2016 By Alusine Sesay
John Wakeman-Linn, who led an International Monetary Fund (IMF) mission to Sierra Leone, yesterday told journalists that for the country’s economy to grow, government should broaden its tax rate by reducing exemption in certain areas, especially on non-governmental organisations.
“We generally do not support tax exemption and the government should broaden its tax rate to enhance economic growth,” he recommended.
The team visited Freetown to conduct the sixth and final review under the Extended Credit Facility (ECF). The ECF is a lending arrangement that provides sustained programme engagement over medium to long term in case of protracted balance of payments problems. The arrangement for Sierra Leone was approved by the IMF Executive Board in October 2013.
He recommended that the government’s fiscal policy should focus on increasing revenues, while raising the efficiency and quality of public spending.
“This would increase the fiscal space for pro-poor social expenditure.”
He noted that, “The practice of keeping the price of retail fuel constant by reducing the excise on retail fuel whenever oil prices rise or the exchange rate depreciates is no longer sustainable since the excise on retail fuel has now reached zero.”
The mission therefore recommended that the government should now take steps to adjust retail fuel prices as needed to ensure that this does not become an increasing burden on the budget.
The IMF head of mission said the country’s economic reforms over the last three years have been largely successful and that it proved resilient in the face of two major exogenous shocks: the Ebola epidemic and collapse of iron ore prices and associated loss of production in 2014-2015.
“Sound macroeconomic policies, together with generous support from development partners helped ensure fiscal and external sustainability, while providing sufficient resources to begin implementing the post-Ebola Recovery Strategy. Since the last quarter of 2015, economic growth has resumed, and it remains on an upward trend, supported by new investments in mining, agriculture and fisheries. The recovery underway is projected to remain sustainable over the medium term,” he said.
He observed that prudent fiscal policy throughout the programme contributed to the achievement of a relatively low fiscal deficit and that credible monetary policy contributed to price stability, bringing inflation down from over 20 percent at the beginning of the programme to single digits, although in recent months it had begun to increase.
“The current account balance has strengthened. International reserves have risen to more than US$500 million,” he said.
He continued that implementation of the structural reform agenda contributed to improvement in the transmission of economic policies.
“Reforms of revenue mobilisation and administration, expenditure control and public finance management have contributed to fiscal sustainability, while providing a framework for transparency and accountability in the use of public resources. Reforms of the monetary policy operating framework were instrumental to proactive monetary policy,” he said.
He said: “While these reforms have enabled the economy to grow and weather unanticipated shocks, challenges persist. Looking ahead, policy should focus on continuing to anchor economic stability through sound fiscal, monetary, and debt policies while making faster progress on structural reforms. Diversifying growth, making it more inclusive and distributing its benefits more widely should be the overriding focus of economic policy.”
He noted that on the monetary policy front, continued emphasis should be put on price stability, while remaining attentive to second round pressures on prices and that exchange rate and market policies should be transparently implemented.
“In addition, the country’s borrowing plans should be anchored on debt sustainability. Priority should be given to grants and concessional loans for financing investment projects.”
Wakeman-Linn said faster progress on the unfinished structural reform agenda would also help to enhance revenue, make public spending more efficient and transparent, the banking system more resilient, and the business environment more supportive of inclusive growth and private sector development.
He added that implementing the Treasury Single Account, establishing the Natural Resource Revenue Fund and adopting the Wage and Pay Reform strategy would improve fiscal outcomes.
He informed the press that the mission confirmed that all quantitative performance criteria for end of June 2016 were met and that the sixth and final programme review under the ECF arrangement was tentatively scheduled for consideration by the IMF Executive Board in November 2016.
“Upon approval, the last tranche of the loan for an amount of about US$34.20 million would become available, bringing total disbursements under the arrangement to SDR186.66 million (about US$261.12 million).”