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IMF deputy comments on "Gron Dry"

13 February 2020 at 22:23 | 1915 views

The First Deputy Managing Director of the International Monetary Fund (IMF) – the second most senior official there – has ended a three-day visit to Sierra Leone. David Lipton’s visit comes at a time when the country is struggling to create jobs, stabilise the currency and fund its ambitious programmes. He spoke to Umaru Fofana (of the BBC).

Umaru Fofana: Why are you in Sierra Leone?

David Lipton: We have a program of economic support for Sierra Leone and I wanted to come learn more about the country, about the government’s plan for development and to offer a voice of support for what the government is trying to do.

Umaru Fofana: And based on your assessment what’s the economic outlook for Sierra Leone?

David Lipton: Sierra Leone has obviously enormous challenges but what’s been impressive to me during this visit is the dynamism and wisdom of the government in laying out a program of development. They have the idea of developing education so that the most precious resource, which is an abundant resource which is young people, can be strong contributors to the economy in time. And they have the ambition of using innovation and technology as an integral part of their development. Innovation in education, digitalization for the data to be able to evaluate the progress in education, innovation in technology to fight corruption and to make government more efficient. Innovation in general in order to raise the productivity of the country and I think that all of those are incredibly positive. I say this knowing that and having acknowledged at the outset that the challenges are very great. The starting point is difficult with a poor country, a displaced population, remnants still legacies from all the conflicts, from the Ebola that are still being dealt with. But what’s really impressive is the vision and the dynamism of the leadership here.

Umaru Fofona: Now when you say there are challenges or rather the economy is challenged what specifically do you mean? Because people listening out there might think about the fact that every now and again there are complaints about lack of jobs, the devaluation of the country’s currency and all of those things.

David Lipton: Well I think it’s fair for people to have discontent over the current situation, because it is a very low income country, a very substantial fraction of the country living in poverty and with subsistent income. It is a country with very low literacy and a country demographically challenged. I think roughly half of the population is under the age of 19. So bringing about a broad rise in living standards is not something that can happen overnight. So I think it is fair both to be daunted by the challenges but very excited by the prospects and the plans and intentions of the government right now.

Umaru Fofana: Be that as it may this is also a country that has huge mineral resources. It’s got a lot of potential but then all of that has not been realised. But people say all of that has not been realised because of the poor management by the state of all that mineral wealth.

David Lipton:There is a long history of the extraction of minerals and the terms under which that happened. But I think mineral extraction simply, with the presently known resources, is not enough to raise the living standards of Sierra Leonean people to even middle income standing. That can only happen with a more educated population, a population that with education can be more productive, with a stronger private sector with businesses. Sixty or so percent of the population is engaged in agriculture. Unless there can be agro-business and more manufacturing business and more developed service structure say tourism that takes advantages of the plentiful beautiful beaches and other attractive features of the country. This is not a country that can be rich through resources, the resources can help. It’s important that the terms of extraction contracts are fair to Sierra Leone. But I think the government is right in its development program in saying that using innovation to educate the population, having better health services so people will be healthy and having the infrastructure to facilitate the development of economic activity are the main objectives.

Umaru Fofana: Isn’t the Fund glossing over the harsh reality in the views of many, maybe most Sierra Leoneans, namely that - I’m not sure how familiar you’re with the word here “the gron dry” meaning the ground is hard or terms are hard – despite all these positive things you’re talking about.

David Lipton: I don’t think that’s fair. I think we’ve acknowledged as I just said the very difficult present circumstance. It may be that the ground is dry but you don’t make it rain by waving your arms. To use the analogy in agricultural circumstance where there is no water you need to build irrigation, levies, in some cases roads for transportation of crops. Everything to develop a country has to be built from the ground up. That is where I think it is fair to both acknowledge the very difficult present circumstance but then to ask giving that what best can be done. To respond to your point, I think there is the need both to try to help people today – and there are things that the government is doing to help people today – but also to invest in the future so that the situation gets better all the time. And the balance between spending money to try to make sure that there is better heath, better education, better transportation, better electricity. Those are things that are going to take time.

Umaru Fofana: Do you think it makes sense in a country that needs every dime, for the government to be sending away investors such as in the case of SL Mining and Shandong?

David Lipton: You know eh…unfortunately from time to time the choice between fighting to get a better deal and driving away investors. I have no particular knowledge of the contractual dispute so I’m making a general statement. But a government that in essence isn’t benefiting from a project because of the terms of the project has every right to ask for reconsideration and I think that there is always this tradeoff. You want to have investors come into your country because they’re willing to invest with a fair deal and insisting on a fair deal shouldn’t dissuade that kind of investor.

Umaru Fofana: Well somebody might say government can play hardball with investors but to throw them away without an alternative doesn’t make business sense, does it?

David Lipton: I don’t know the circumstance of the particular case so I’m speaking generally. Of course government shouldn’t act in a confiscatory way, inviting an investor in, waiting for them to invest and then depriving them of the product of their investment. On the other hand companies shouldn’t invest if the terms of the contract really are ultimately not gonna bring any benefit or very limited benefit to the country in which there’re investing because that won’t be sustainable. So there’s need always to strike a balance.

Umaru Fofana: And what’s your prognosis for the country’s economy in the short term say in the next couple of years?

David Lipton: We see the economy continuing to grow as it has been in the neighborhood of 5%. If you take out the mineral part of GDP a little above 4% and we hope that can rise over time as some of the reforms bring benefit. That said, because the population growth rate is very fast, that’s only a modest rise in income per person and so certainly aspiring to a faster growth rate than that makes sense. Everything we’re doing to support Sierra Leone is microeconomic because that’s the job of the IMF. We’re helping them keep the public finances in order, put them in better order and helping the central bank maintain monetary stability and the soundness of the banking system. And we hope that those things would create a foundation that the government’s development plan can build upon to build a structure that will allow more rapid growth and faster rise in living standards in time. It’s always difficult to project how quickly something like that takes hold. Here we’re in a country and it’s a good case scenario that setting out to do things it wants to do and it has a path to go down and we see that same path as the government does. So we’re on the same side, guides or shepherds trying to help give advice along the way of that path to avoid obstacles and to proceed as well as possible. And we’re very pleased at the collaboration that we have with the government here.

Umaru Fofana: Is there anything you would rather the government of Sierra Leone did in terms of improving on its economy that it wasn’t doing?

David Lipton: No I think we embrace the government’s approach, I think we share with the government sense of what the challenges are. You’ve touched upon some of them, I mean there’s a plethora of infrastructure needs and whenever one is faced with so many things at the same time the question of prioritization comes up. Africa has experienced indebtedness problems in the past when infrastructure spending raised too far and was financed by loans that were really disadvantageous. This program is built to provide sound public finances to avoid overspending, to avoid undesirable loan terms, and I think that’s one of the ways in which we can help. It is more the government’s job along with it other development partners, the World Bank and the African Development Bank to choose its infrastructure agenda and priorities wisely. That’s not an area of expertise for us but I think that’s a significant agenda item.

Umaru Fofana: Finally what would you say the main risks are in the way of recovering Sierra Leone’s economy?

David Lipton: Let me end by saying that for me the most fascinating part of my visit was visiting the Regent Square Primary School here in Freetown [Monday] morning. I visited with the Mayor of Freetown and the Minister of Education. And there visiting six or seven aid classrooms, speaking with the children, seeing how quiet they were when the teachers wanted them to be quiet and how they welcomed me enthusiastically when she urged them to do so, how they answered the questions like “what’s your favorite subject”, and then how they answered the question “what do you want to become when you grow up?” This was a room filled with youngsters who have the hunger to learn and have the aspiration that young people should have. There’re people who wanted to be doctors, lawyers, bankers, actresses, pilots. No one wanted to be an economist but I can live with that. But the point is that, this was the promise of this country which as I said has half the population under the age of 19. This will be the next generation. At the same time one could see right there all of the challenges: 70 or more children in the class, overburdened teachers, a very old school building that could use renovation and greater creature comfort. I know that’s an issue more broadly across the country. So to me this encapsulated both the promise, the challenges but also the wisdom of the national development plan having as its principal focus what they call developing human capital in their free quality education program. Really it’s hard to envision a successful Sierra Leone 20 years from now if this project is not successful.

Umaru Fofona: take it that you don’t see any risks in the way of the country’s recovery

David: Well there’re always risks. I mean we live in a risky world, iron ore prices here have gone down for a while and recovered a bit. There’re always economic risks. The key is to make a good economic program to try to accomplish the developing goals and have the flexibility to adjust along the way if shocks arise. This is a country that suffered through all sorts of shocks, some that arose from conflicts here and some like Ebola that were just very unfortunate and devastating shocks. One has to be ready to do the best one can.

Credit: Politico Online