The Impact of the Ebola Outbreak on our Economy

 By M.B. Jalloh, Press Attaché, Saudi Arabia

Many Sierra Leoneans are grumbling about the current economic hardship. But most of them are aware of the fact that the Government of His Excellency the President, Dr. Ernest Bai Koroma has recorded an exemplary economic environment since he came to power in 2007.

In fact, the President was elected to power during a very difficult time, when the global melt-down was affecting every part of the world, including the advanced economies like the United States of America where the whole global economic problem started.  But that did not stop President Ernest Bai Koroma from recording a very impressive economic and a stable macro-economic environment on to the time of the outbreak of the Ebola Viral Disease (EVD) in May this year. Like the decade-long civil conflict, the outbreak of the EVD has had a devastating effect on our economy as many economic activities in the country have either slow down or have stopped temporarily, thus reducing the sources of revenue for the Government.

The country’s economy grew strongly since President Ernest Bai Koroma took the reins of power recording double digit growth in 2012 and 2013. This was driven largely by iron mining and supported by buoyant agricultural output, increased construction activities and an expanding services sector, including transportation and tourism.

Before the outbreak of the Ebola virus, the Sierra Leone Economy was expected to boom, but the disruption to agricultural production, mining, manufacturing, construction, tourism and transportation following the outbreak is seriously undermining the growth prospects of the economy. Besides, it is also posing a significant threat to macroeconomic stability and human development, which might likely reverse the gains made in poverty reduction since President Koroma acceded to power. If the Ebola virus is not contained as quickly as possible, many people say, most of the gains made by the government would likely be reversed.

A recent Assessment Survey by the Food and Agriculture Organization (FAO) reveals that the EVD has had an impact on food security countrywide. According to the FAO Country Representative, Dr. Gabriel Rugalema, the Ebola outbreak has caused shortage of labour for weeding, harvesting and other crucial activities due to the death of able-bodied persons, and that families are reported to have abandoned their farms or displaced to areas perceived as ‘safe’ from the disease.

The study reveals that the closure of periodic markets has created an increase in prices of commodities in places where they are highly demanded and reduction in those places where the supply is in excess. The study also reveals that the decrease in prices has deprived the income of farming households, especially those participating in both production and agribusiness subsectors and that the reduction in production levels and incomes has directly affected food security.

The study noted that urgent measures are needed to address the current food security gaps and rehabilitate key agricultural market infrastructure to enable quick recovery of the sector as women mostly bear the brunt because they contribute the greater percentage of persons engaged in the sector.

Kailahun and Kenema Districts where the disease is more prevalent are the main export crop producing areas and also major source of food stuff including palm oil, rice, cassava and others. The spread of the disease to other parts of the country especially the rice producing areas like Port Loko and Kambia districts is likely to lead to a decrease in production. This will not only drag economic growth but also worsen the already fragile food security situation in the country.

According to the Ministry of Finance and Economic Development, the mining companies projected significant increase in output in 2014 on account of the installation of additional production capacity and improved mining technology. Despite the outbreak of the epidemic, the Finance Ministry’s ‘Preliminary Assessment’ states that the five major mining companies are continuing with their normal operations though some companies fell short of  their production targets.

In spite of these largely optimistic expectations, the Finance Ministry states that there is the possibility of evacuation of expatriate staff and the consequent sealing down of operations, if the outbreak is not contained in the shortest possible time, and this will also have severe dent on economic growth for this year, given that the mining sector is the ‘lead growth driver’ in recent years. According to the Ministry’s ‘Preliminary Assessment’, the hardest hits are the Sierra Leone Brewery, the Sierra Leone Bottling Company and Leocem Factory, which are the three biggest manufacturing firms in the country.

The report furthered that Government, in consultation with the International Monetary Fund (IMF) has reviewed the 2014 macroeconomic framework in September 2014 to reflect the impact of the Ebola outbreak on the economy. The outbreak of the Ebola disease and its dampening effect on economic activities is adversely affecting domestic revenue collection. With the lull in economic activities, the report states that decline in the sale of certain goods and services and the resultant loss of jobs and personal incomes, domestic revenue is projected to fall this year. On the basis of the trends in revenue collection for the months of July and August, the report reveals that the National Revenue Authority (NRA) projected domestic revenue to drop by Le 271.2 billion (US$60 million), including the Le 75 billion (US$ 17 million) shortfall recorded in the first half of the year.

According to the Finance Ministry, the shortfall in domestic revenue combined with the increase in contingency expenditure for Ebola related expenditures gave rise to a financing gap of Le 384 billion. And to reduce the financial gap, domestically funded capital expenditures were cut by Le 194.3 billion including the supplement provision of Le 60 billion for rural electrification.

In spite of the significant cut in domestic capital expenditure, the report noted that the shortfall in domestic revenue combined with the increase in recurrent and contingency expenditures gave a rise to an increase in the overall budget deficit including grants, by Le 286.4 billion (US$ 66 million) to Le 1.19 trillion (US$ 261.6 million) in 2014.

According to the ‘Preliminary Assessment’ of the Finance Ministry, to finance the deficit, Government requested an augmentation of access under the existing Extended Credit Facility with the IMF in the amount SDR 25.93 million (equivalent to US$ 40 million) to support the Government budget, in addition to the total committed budget support of Le 317.8 billion (US$87.4 million), of which the Multi-Dollar Budget support partners (US$ 80 million) and the Global Fund also makes provision to additional borrowing of  Le 75 billion (US$ 17 million) from the domestic securities market. The report reveals that the government had earlier borrowed Le 40 billion from the domestic securities market to contribute to the Ebola Trust Fund. The revised framework also makes provision for the further cut in expenditure by Le 36 billion for additional bank financing of Le 36 billion (US$ 8 million) to close the financing gap.

On poverty and social impact, the report noted that the outbreak of the disease has also had severe social impact on women and children, being the most vulnerable. The disease has killed more females than males; women and girls (54%) compared to men and boys (46%). Consequently, the affected women have become widows and single mothers. Children have also been infected with and affected by the virus; with most of them becoming orphans and separated from their parents.

The Finance Ministry fears that with an income poverty increase of 52.9 percent, weak social indicators and low expectancy at 46 years (2012), infant mortality of 92 deaths per 1000 births, under-five mortality of 156 deaths per 1000 births, worsened by weak health symptoms - the EVD audits adverse effects on personal income, business incomes, employment, government revenues, will exacerbate the poverty situation. It also noted that Sierra Leone is an environment where social protection measures are not well established and not fully supported by government given the paucity of revenues.

Given the aforementioned analysis by the Ministry of Finance, the devastating impact of the disease on the Sierra Leone economy is clear. Efforts to contain the spread of the disease and supporting those infected and affected require substantial amount of financial technical resources as well as logistics. While the government is mobilizing internal resources to stem the spread of the disease, the disruption to economic activities is posing a major challenge in domestic revenue mobilization. That is why the support of the international community is critical in addressing the emerging financing gaps in the fiscal and external sector accounts of Sierra Leone.

On that note, I think we (Sierra Leoneans) should therefore remain patient until the battle against Ebola, which has reversed all the gains made by President Koroma, is finally won. Had it not been for the outbreak of the Ebola virus, the ‘Agenda for Prosperity’ would have been on course. But let us hope that we must get there before the second term of His Excellency the President ends.