Redenomination Backed by Sustained Economic Growth would Work

By Amin Kef Sesay

No doubt, despite the development progress made so far by the previous Government and this one, Sierra Leone’s economic growth remains fragile, standards of living are still very low, and poverty is widespread. Health and education indicators continue to be poor, job opportunities have not kept pace with the growth of the labour force. The country depends heavily on external concessional assistance.

As such, faster sustainable growth is essential for improving living standards and reducing poverty. Given the low level of per capita income in the country, redenomination alone would barely dent the problem of poverty.

To lift the country out of the economic doldrums that has been exacerbated by the economic ravages of COVID-19, what the monetary and development authorities should be busy at, looking to the post COVID 19 rebuilding period, is how to sow the seeds of an economic renaissance to achieve faster growth and less poverty within the short to medium term.

Given that the gap between imports and exports remains very wide, and productivity very low, making the country unable to break away from paths of low or negative per capita income growth, high inflation, and balance of payments difficulties, the vision of the economic renaissance should be to put in place sound macroeconomic policies and better management of the economy to address the daunting economic and social challenges; as well as better terms of trade. According to the IMF, where these policies have been sustained, they have raised growth and reduced poverty.

In addition to the need to maintain the focus on macroeconomic stability – through appropriate fiscal, monetary, and exchange rate policies – and on structural reforms to improve the efficiency of markets, there are fundamental challenges in three key areas.

One is to design and implement comprehensive policy strategies that promote faster growth and poverty reduction and at the same time have the broad public support needed to ensure their sustainability. These objectives require greater participation by civil society in consultation on program design, and more efficient use of public sector resources for poverty reduction.

Second is to improve governance, promote the rule of law, encourage openness and transparent governance, reduce opportunities for corruption, and create a more favorable environment for private sector investment and production. All these will enhance productivity and competitiveness and help to secure the full benefits from the ongoing globalization of the world economy.

Third is to strengthen external payments positions. Debt relief in support of poverty-reducing policy programs has an important role here.

Within the above context, macroeconomic factors that should be on the Government’s radar screen include gross domestic product, the rate of employment, the phases of the business cycle, the rate of inflation, the money supply, the level of Government debt, and the short-term and long-term effects of trends and changes in these measures.

Two types of policy interventions need strengthening: “work support” programs, which reduce poverty, provide positive work incentives that boost work activity, improved employment outcomes for low-wage workers; and investments in early education and skills and job training programs.

Overall, a combination of sound, prudently and robustly implemented fiscal, monetary and exchange rate policies, the IMF says, can help promote stable and sustainable non-inflationary growth characterized by low inflation, low unemployment, equilibrium in balance of payments and fair distribution of income.