By Alfred Koroma
Recent World Food Program (WFP) report discloses high inflation rate and a damning continued depreciation of the Leone currency against the US dollar.
The report dubbed as Quarterly Market Bulletin looks at Sierra Leone’s Gross Domestic Product (GDP) growth rates, consumer price index trends, currency exchange rates, and trends of sectoral breakdowns in GDP composition and summarizes the country’s recent macro-economic developments and commodity price trends.
It outlines slower expansion of agriculture and services sectors below overall GDP growth rate and notes a continued depreciation of the Leone currency in the third quarter of 2022 with 40 percent value depreciation from 2021.
High inflation, WFP says hindering long term sustainable GDP growth by diminishing citizens’ purchasing power and weakening domestic consumer spending.
Over three months ago, Bank of Sierra Leone stripped off the three zeros from the Leone currency but no positive impact of the redenomination can be appreciated now. The value of the currency keeps draining excessively against the US dollar, triggering unprecedented cost of living in the country.
Here are six areas of the economy WFP report hit on.
Gross Domestic Product
After a strong recovery in 2021 with a 4% GDP growth rate, Sierra Leonean economy is expected continue its expansion in 2022 at a lower 3.8% growth rate1. Fitch solutions, a subbranch of Fitch Ratings agency, also places its current forecast at a close 3.7% although this figure was revised from an earlier 4.1% forecasted growth rate2. As for the main factor behind the downward revision, fitch solutions stated “We expect mounting headwinds from elevated inflation will weigh on consumer spending and wider economic activity” in their online article published in August 20223.
In 2021, GDP in current prices was 44,3 Billion SLL / 4.2 Billion USD and when broken down to its main sectoral components: Agriculture, Forestry and Fishing constituted the biggest share of GDP with 57.4% followed by Services sector with 32.3% and lastly, Industry, consisting of mining, manufacturing, construction, electricity, and water supply with 5.9%4. It should be noted that the 4% GDP growth rate in 2021 was achieved supported by an unsustainable 17.4% growth rate for the economies’ smallest component, mainly mining while larger components agriculture and services sectors only achieved 2.5% and 2.8% growth rates in the same calendar year.
September Annual Consumer Inflation Rate in Sierra Leone was announced at 29.10%6 (YoY). Amongst the items included in the basket of goods and services for inflation calculations, Inflation rate for Food and Non-Alcoholic Beverages category was 35.2%7 and the Housing, Utility and Fuel costs was 20.93%.8
Focusing on the trends for quarterly average inflation rates portray a negative outlook for the economy with an average rate of 28.9% for Q3, 2022, up by 3.9 percentage points from Q2, 2022 at 25.08% which was 6.32% percentage points higher compared to Q1, 2022 at 18.76%. (Derived from StatsSL monthly CPI figures)
These historically high inflation rates continue to hinder long term sustainable GDP growth by diminishing Sierra Leonean’s purchasing power and weakening domestic consumer spending. The negative impact of inflation from the previous year on consumer spending is also visible at slow recovery of wholesale and retail sales sector growth as their contribution to GDP is yet to reach annual 2019 levels at 3,085 million SLL with an expected figure for 2022 at 2,813 million SLL9 after dipping in 2020 at 2,308 million SLL due to global COVID-19 pandemic restrictions.
Currency Exchange Rates
Value of the national currency, Sierra Leone Leones (SLL) continued its depreciation in the third quarter of 2022. According to Bank of Sierra Leone, the currency exchange rates of national currency against US dollar was 14,746 SLL in September 2022.
Compared to same time last year, the latest figure represents a value depreciation of 40.7% from 10,477 SLL11. When examining the monthly currency exchange rates for the past 6 months, the data indicates continuation of rapid decline in value of SLL after it briefly plateaued between July and August 202212.
Sierra Leone’s reliance on imports for fossil fuels is a significant stressor to both its macroeconomic and household level indicators. Increases in fuels costs directly translate to increases in manufacturing costs, transportation of goods and peoples.
Continued depreciation of national currency inevitably triggers increases in fuels costs, although the prices are regulated by central national authority. Rising fuel costs hinder development of industrial manufacturing sector by increased energy input costs, increases in transportation of goods and peoples; contribute to diminishing purchasing power of households and curbs smallholder farmers’ access to markets.
Average price of fuels such as Gasoline, Diesel and Kerosine continued to increase in the third quarter of 2022, reaching 19,333 SSL rising by 20.83 percentage points compared to previous quarter’s 16,000 SLL. When compared to price levels from the previous year, total increase in fuels costs reached 93.33% from 10,000 SLL in Q3, 2021.
Staple Commodity Prices
Access to food markets and adequate nutritional intake is the focus area of WFP’s activities in Sierra Leone. Through regular nationwide food security assessments WFP analyzes food consumption trends of the local population to inform its programmatic decision-making process. To support these findings WFP, Ministry of Agriculture (MoA) Planning, Evaluation Monitoring and Statistics Division (PEMSD), collects monthly food commodity items’ prices from 60 locations covering all 16 districts of Sierra Leone.
The collected data is presented in this bulletin for outlining the impacts of macro-economic trends on food prices. According to data collected in the third quarter of 2022, staple food commodity prices continued to rise compared their price levels in the second quarter. Price of palm oil, a commodity often used in preparation of Sierra Leonean households’ meals increased by 13.52% followed by locally produced rice and cassava with price increases of 9.31% and 9.06% respectively from their price levels in August 2022. Amongst the food commodity prices monitored, groundnuts was the item with the highest price change from Q2 to Q3 2022, with a price increase of 15.73%. When examining the changes in staple food commodities prices compared to their levels in September 2021, cassava leaves lead the charts with a price hike of 92.9% and price of potato leaves experienced an increase of 85.7%.