|
From Standard Times Press News Paper BUSINESS WORLD In late 1999 the government adopted an emergency programme for the year 2000, designed to address the immediate critical needs of the population while laying the foundation for the resumption of the macroeconomic and structural reforms that were interrupted by the civil war. The strategy centered on ensuring the provision of critical services to the population in the context of a macroeconomic framework that will contain domestic and external imbalances. The relatively successful implementation of these stabilization policies resulted in a modest economic recovery in 2000. In 2001 the government unveiled an ambitious 10-year programme of action, setting out development strategies, policies, and priorities. It is estimated to cost US$1.07bn. An interim poverty reduction strategy paper (PRSP) was announced in mid-2001, which is an important stage in obtaining a PRGF loan and HIPC debt relief.
Structural Problems Faced with structural problems, mounting imbalances, and declining growth rates, the poor economic performance of the country since the mid-1970s was attributable largely to poor implementation of macroeconomic policies, reflecting the problem of inadequate executive capacity. For the overall macroeconomic environment to improve, the need for the implementation of rigorous macroeconomic policies has, since the mid-1980s, become very obvious. This requires that economic policy-makers and national economic managers must acquire the technical skills to analyze, formulate and implement economic policies, such that they can respond effectively to internal and external shocks. Despite several years of foreign technical assistance, however, a very serious management skills gap remains. It must be noted that the overall economic performance of Sierra Leone remains unimpressive.
Despite fifteen years of adjustment, the Sierra Leone economy is still defined by macroeconomic imbalances manifested in slow growth, rising unemployment, high inflation and huge external imbalances. It is my conviction that the time has come for a new approach and commitment to macroeconomic policy design and management, if Sierra Leone is to grow out of its current lack luster performance. This paradigm shift calls for the use of modern techniques of economic analysis and policy formulation such as financial programming.
Defining Financial Programming According to the IMF, a financial programme is a comprehensive set of policy measures designed to achieve a given set of macroeconomic objectives. These objectives usually include growing the economy, full employment, low inflation and a healthy balance of payments position. In general, a financial programme is usually adopted to correct macroeconomic imbalances, preferably as soon as they occur. In the past, many developing countries have, however, failed to adjust in a timely manner when faced with macroeconomic imbalances. The result, more often than not, was that the remedies came too late to make the desirable impact.
Crafting a credible financial programme begins with an assessment of economic problems and the quantification of a set of policy instruments to deliver a given outcome. In the Sierra Leone context, this phase of the design of a financial programme is especially challenging owing to the perennial problem of paucity of timely and reliable data. I urge you to give serious thought to this fundamental problem and proffer a lasting solution to it in your deliberations.
The financial programmer is often faced with policy dilemma. Using a holistic and integrated system of national accounts, the balance of payments, as well as the fiscal and monetary accounts, a financial programme would typically use monetary, fiscal and exchange rate policies to eliminate macro-economic imbalances and spur growth in an orderly and sustainable manner. In this context, a financial programmer could be confronted with conflicting policy choices in designing a financial programme. It is important therefore, that the programmer takes adequate care to ensure the coherence and internal consistency of all the elements in the financial programme. In our nascent democracies, where the society¡¦s expectations (sometimes conflicting) are high, it is particularly important that the framework takes into account trade-offs between competing goals. For instance, the financial programmer should bear in mind that: ¡P ƒndevaluation of the domestic currency aimed at reducing the current account deficit, could also push up local currency costs of external debt service and exacerbate inflation; ¡P dismantling price controls could also drive up inflation, at least in the short term; ¡P ƒnraising domestic interest rates to mop up excess liquidity may increase the cost of funds, spike domestic debt service payments and reduce growth in the real sector; ¡P ƒntrade liberalization and removal of exchange controls may worsen the balance of payments in the short run as a deluge of imports rush in to satisfy pent ¡Vup demand. The ability of a financial programmer to reconcile these conflicting goals is a critical factor in coming up with a credible and implementable reform programme.
In the present circumstance of rising economic difficulties and taking the country¡¦s circumstances into account, I would suggest four (4) strategies that should guide Sierra Leone¡¦s policy-makers in developing and implementing the IMF¡¦s Financial Programme.Sierra Leone should undertake the following reform programmes:
A) Get Macroeconomic Policies Right It is expedient that budget deficits are kept small in order to control inflation and avoiding balance of payments problems. In addition, the use of a realistic exchange rate enhances international competitiveness of the domestic economy.
B) Encourage Competition Competition leads to innovation, higher productivity and consumer-friendly activities by firms. In general, firms that are exposed to the rigours of competition are likely to be more efficient than others with privileged access to credit, foreign exchange, or protected market.
C) Use Scarce Institutional Capacity Effectively Sierra Leone has limited capacity to design, implement and effectively monitor economic policies. Therefore, high priority should be given to reforms that minimize unnecessary government involvement in the economy.
D) Good Governance Good Governance is manifested in the rule of law, equity, participatory democracy and the provision of basic services. In its absence, undesirable side effects of economic globalization and liberalization can take hold. These include widespread non-compliance, corruption, organized crime and drug trafficking. Among the major policy concerns, facing some Sierra Leone today is the problem of fiscal dominance that constrains the effectiveness of monetary policy. The concerns for high budget deficits and inflation emanate from their negative consequences on growth and employment and thus general welfare. Since both can adversely affect growth, they are inimical to poverty reduction as evidenced by recent studies, which established a strong relationship between growth and poverty reduction. Also, budget deficit is particularly harmful if the content of the government expenditure is biased towards imports, which would place pressure on domestic production and the exchange rate of the local currency. Moreover, it is undesirable if government expenditure to GDP ratio is unduly high, resulting in the government dominating the economy, thereby crowding out the private sector investment. However, the strongest argument against a budget deficit lies in the consequences of its sources of financing and their sustainability.
Recognizing the importance of macroeconomic stability to the promotion of investment and output growth towards poverty reduction in the country, it is expected that policy ¡Vmakers should be able to appreciate the need for ensuring the formulation and implementation of sound economic policies. In this way, government will not only avoid the re-occurrence of the present financial crisis, but also be in a position to raise enough revenue to be fairly distributed.
© Copyright by www.standardtimespress.net |