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Annual Report 1999 - Sierra Leone - The Economy
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1. Economic Performance
(a) Real Sector
Overall economic activity remained depressed throughout the first three quarters of the year due to inaccessibility to most of the economically productive areas of the country, despite the signing of the peace agreement. In the real sector, mining and agricultural activities recorded minimal outputs. Most of the alluvial diamond activity was carried out illegally behind rebel-controlled territory and therefore not reflected in official statistics. There was no production of rutile and bauxite whose mining centres had remained closed since 1995 but some amount of rutile was exported out of stockpiles. Significant amounts of cocoa and coffee are estimated to have been smuggled out of the country and exported through neighbouring countries.
The pace of economic activity, however, picked up somewhat during the fourth quarter as more manufacturing companies in the capital resumed normal operations. This followed the gradual opening up of provincial routes to commercial traffic and increased effective demand.
In the mining sector, official statistics on alluvial diamond mining exports showed 9.32 thousand carats in 1999 compared with 15.81 thousand carats in 1998. Major mining companies like Rutile and Bauxite still remained closed but some 4.76 thousand metric tons of rutile and 2.61 thousand metric tons of ilmenite were exported during the year from the stockpile of 1998.
Power generation fell by 35.7 percent from 82.30 GWhr in the previous year to 52.90 GWhr in 1999. The main power generation plant in the capital suffered extensive damage during the invasion of Freetown and required huge rehabilitation before the resumption of power supply. Industrial consumption of electricity followed a similar pattern decreasing by 41.5 percent from 13.41 GWhr to 7.85 GWhr in 1999.
(b) Fiscal Development
Notwithstanding a slow start in the first half of the year, total revenue grew by 51.7 percent in 1999 and amounted to Le151.21 billion (12.5 percent of GDP) compared with Le99.66 billion in 1998. Domestic revenue at Le85.82 billion was 2.6 percent and 11.1 percent above the 1999 target and 1998 domestic revenue, respectively. The improved performance was mainly on account of collections from Income Tax and Miscellaneous items resulting from increase in PAYE tax collection, payment of tax arrears and improvements in collections from Marine Resources and parastatals,. Customs revenue declined marginally compared to both the previous year and budget target. It was partly due to the lull in shipping activities coupled with cessations of operations by local companies due to destruction caused by the January 1999 political upheaval. This had an adverse effect on domestic sales tax collections, and resulted in a shortfall in total customs & excise collections for the period.
Total expenditure at Le264.90 billion (21.9 percent GDP) exceeded the previous year's figure of Le165.42 billion by 60.13 percent; but fell short of budget estimate by 3.8 percent. Recurrent expenditure at Le235.94 billion was 95 percent higher than the preceding year though well within the Le 241.14 billion target for 1999. The rise in recurrent expenditure was accounted for by increasing security outlays (23.6 percent), domestic and foreign interest payments (29.8 percent) and wages and salaries (30.9 percent) of government workers who were in previously inaccessible areas in the country. Most of the spending activities took place during the second half of the year following the signing of the Lome Peace Agreement. There were spending cuts mainly on goods and services and the elimination of rice supplement to the security forces. Development expenditure limited mostly to rehabilitation works amounted to Le28.97 billion which represents more than a three-fold increase over the previous year. It was, nevertheless 15 percent below its budget target of Le34.09 billion.
During the period there were cutbacks in external financing compared both to the previous year and budget estimate. This development shifted most of the financing burden to domestic sources. An overall deficit (including grants) of Le113.69 billion or 9.4 percent of GDP as against a target of Le108.51 billion or 9 percent of GDP was realised in 1999. Le31.37bn (47.7 percent) over the year and was Le11.38bn (10.5 percent) below the target. The primary deficit amounted to Le43.60 billion, about 38 percent of the overall deficit and 5.8 percent of GDP. In effect 61.8 percent of deficit was accounted for, by foreign and domestic interest payments.
(c) External Sector Development
(i) External Trade
Foreign trade remained subdued for the greater part of the first half of 1999 due to the lull in shipping activity that followed the January invasion. Exports amounted to $6.26mn, down by 4.5 per cent over the level recorded in the preceding year. Mineral exports which amounted to $4.81 million comprised mainly of diamonds ($2.45 million) and rutile ($2.07 million) and accounted for 42 percent of total exports. Agricultural exports totalling $2.55 million comprised mainly of cocoa and coffee contributed 22.5 percent while re-exports valued at $3.0 million accounted for the remaining 26.5 percent of total exports.
Total imports at $79.35mn, represented a contraction of 16.8 percent compared with the previous year's level of $95.54mn. The decrease, which was reflected in all categories of imports apart from chemicals, is attributable to the depressed state of economic activity and the lack of foreign exchange. Food imports for the review period dominated the import bill indicating the high level of dependency on imported food especially rice which accounts for over 50 per cent of the food category. Import of petroleum products levelled at $19.68mn during the review period.
The trade deficit of $73.09mn was much lower than the previous year's deficit of $88.98mn. The apparent improvement can be explained by the significant contraction in the import bill as against the marginal decrease in export receipts. The Gross External Reserves at end-December 1999 stood at $39.45mn reflecting a decrease of $4.37mn (10.0 percent) over the level recorded in the preceding year. The reduction in the Gross External Reserves was due largely to low level of inflows from donor and other external sources for the greater part of the review period resulting from the country's insecurity situation. Receipts were mainly from International Monetary Fund (IMF) in respect of Post Conflict Assistance and the United Kingdom Government through Department for International Development (DFID) and the European Union in respect of budgetary support to the Government of Sierra Leone. Outflows were mainly in favour of payments for the importation of petroleum products and rice, debt servicing, military and our foreign missions.
(ii) Exchange Rates
The average official exchange rate depreciated by 28.4 percent in 1999 after registering an annual average of Le2244.64/US$ as opposed to its previous year's annual average level of Le1606.36/US$. Similar trends were observed in the commercial banks, foreign exchange bureaux and parallel market rates, with parallel market recording the highest rate of depreciation over the year when compared with its average rates at end-December 1998 (Le1,743.40/US$) against its end-December 1999 position of Le2,780.83/US$. The depreciation could be attributed to a number of factors such as the negative impact of the January invasion on foreign exchange inflows and lack of exports.
(iii) External Debt
The country's external debt stock outstanding at end-December1999 amounted to $1201.90mn, up by $43.70mn when compared with the end-December 1998 position. Of the debt stock outstanding, 59.6 percent constituted multilateral debt while Paris Club loans accounted for 29.3 percent. The increase in the debt stock was due largely to disbursement from International Monetary Fund in December 1999. The burden of debt servicing has put pressures on both the budget and foreign exchange reserves and debt service has been limited to the major multilateral creditors.
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