Sierra Leone government has confessed to making bad judgments and exhibited indiscretion that badly hurt the banking sector of the country through its failure to service loans owed to two commercial banks.

Bank of Sierra Leone2

The country’s finance minister, Kaifala Marrah, and central bank governor, Momodu Kargbo, said the Sierra Leone Commercial Bank which is 100% state-owned, and the Rokel Commercial Bank in which the government has majority shares of 51%, experienced huge problems and had to be put into administration by the sector regulator, the Bank of Sierra Leone.

They admitted in a letter to the International Monetary Fund, IMF, that their collective actions in the last few years were in complete breach of the performance criteria set on domestic bank credit.

In a letter of intent dated October 30, 2015 and addressed to Christine Lagarde, Managing Director of IMF in Washington, D.C., USA, the government of admitted to their indiscretion of running the Sierra Leone Commercial Bank and the Rokel Commercial Bank into administration. In 2014 both banks failed to meet their capital commitment to the Bank of Sierra Leone, the sector regulator.

The government said: “Vulnerabilities in our banking system have increased, in large part due to the pressures created by Ebola and the iron ore crisis. In particular, two large banks, Rokel Commercial Bank (RCB) and Sierra Leone Commercial Bank (SLCB), have experienced growing problems. In December 2014, BSL put these two institutions under administration due to their failure to meet the minimum capital adequacy ratio”.

“… due to problems in credit review, connected lending, and some delays in government payments to contractors, which resulted in these contractors being late in payments on loans”.

As suggested in the above statement because contractors took excessive loans from the two banks to finance government projects and in return could not be paid back to be able to service their debts, the banks collapsed.

By their own admission the Minister of Finance and the Bank Governor said in the letter that: “At end-December, performance criteria (PC) on domestic bank credit to the central government, net domestic assets of the central bank, and on gross foreign exchange reserves of the central bank were missed. The PC on net domestic bank credit to the central government was breached by Le 314 billion; the PC on net domestic assets of the central bank was breached by Le 219 billion; and the PC on gross foreign reserves of the central bank was missed by $6.9 million.”

Spending on poverty-related expenditure reached Le 1.2 billion, exceeding the indicative target by Le 91 billion. However, the targets on domestic government revenue and on the domestic primary balance were missed because of the impact of Ebola on both revenue and expenditure.

Government information on domestic revenue generation is completely at variance with the position of the National Revenue Authority, which said in March this year that it “exceeded its 2014 target by Le 24 billion, despite the Ebola crisis.”

Its Corporate Affairs Manager, Mohamed Bangura, told the local media that their 2014 target was over two trillion leones. This, he added, was made possible because they introduced short-term revenue improvement strategies that enabled them to meet their target.

However, the government had promised the IMF that they were badly in need of support and were therefore instituting measures to increase their domestic base in the coming year.

“We will introduce measures in 2016 to increase revenue collection, including limitations on import duty waivers granted to Ministries Departments and Agencies. We will also seek to increase the top tax rate personal income tax from 30 to 35 percent, in line with regional average. Finally, we will eliminate implicit subsidies for petrol consumption, which have been executed through varying the excise rate to keep consumer pump prices constant. These measures should provide approximately 0.6 percent of non-iron ore GDP in 2016”. – By Tanu Jalloh (