Rankanomics is a term that was coined by NGC presidential candidate, Dr. Kandeh Yumkella. It refers to an economic policy that is perceived to be unrealistic and ill-advised. Tolongbo pursued rankanomics throughout its ten-year at the helm of state in Sierra Leone. The result has been ugly and devastating as Sierra Leone has teetered on the verge of economic collapse.
The news in many social media outlets indicates that Ernest Koroma and Tolongbo left the sum of $507 million for the new government. Tolongbo claims that this money is in the Bank of Sierra Leone (hereafter, the Bank). Of course, there is $507 million in the Bank. But the money is the Bank’s reserves.
As usual, Tolongbo's rankanomists will stop at nothing to lie to the gullible public. With the average Sierra Leonean having only a limited understanding of how the Bank operates, it is easy for unscrupulous politicians to make claims that are not backed by facts. Given this quagmire, I have decided in a nutshell to explain the operations of the Bank and in the process expose Tolongbo’s blatant lies.
Set up to be “independent” within government, the Bank operates on its own earnings. To the extent that it formulates monetary policy to achieve overall goals set by Parliament and the President, the Bank works within government.
Like other central banks, the Bank is the sole institution that implements monetary policy in Sierra Leone. Monetary policy refers to the management of the money supply in the economy with the specific goal of constraining inflation or deflation. It also involves the manipulation of interest rates to influence aggregate demand and stimulate economic growth.
Aggregate demand is the sum of all demands in the economy and is represented by the function, AD = C + I + G + (X-M). C represents consumption demand, I, business investment demand, G, government demand and X-M, foreign demand. C, the largest component of this function, accounts for over seventy percent of all economic activities in the economy. Moreover, C captures the demand/spending made by household members in the economy.
Three main tools are at the disposal of the Bank when it pursues monetary policy. These are: 1) open market operations; 2) the reserve requirement; 3) the discount rate.
Open market operations involve the buying or selling of short-term government securities in the open market. On the other hand, the reserve requirement requires all commercial banks in the country to reserve a fraction of their total deposits with the Bank. This requirement ensures that commercial banks will be able to provide their clients with cash upon request. The third tool, the discount rate, is the interest rate charged to commercial banks and other depository institutions that borrow money from the Bank’s discount window.
During bad economic times such as a recession, the Bank will pursue an expansionary monetary policy, which involves the buying of short-term government securities in the open market. Additionally, it would lower the reserve requirement so that commercial banks would have more money to lend out to the public. Further, the Bank would lower the discount rate, thereby encouraging commercial banks to borrow at lower interest rates from the Bank’s discount window. Expansionary monetary policy increases the money supply in the economy thereby stimulating spending. As spending increases, the economy slowly recovers.
However, in times of an inflationary spiral, a contractionary monetary policy will be pursued by the Bank. This policy is the exact opposite of the expansionary monetary policy in that the Bank now would sell short-term government securities in the open market, raise the reserve requirement and raise the discount rate.
It follows that unlike fiscal policy, which is implemented by the president and parliament, monetary policy does not go through the political process. Thus, the Bank's operations cannot be politicized. What this means is that the Bank's independence is respected and and as mentioned earlier, it operates on its own earnings.
There is no truth in the assertion that Tolongbo had left $507 million for the new administration. The $507 million being referrred to is the Bank’s reserves. It is money that the government of Sierra Leone cannot touch. Had Tolongbo left any money for Bio, it would have been in the Consolidated Fund, the most important of all government accounts.
Interestingly, when Ernest Koroma was first sworn in as president in 2007, the late president Ahmad Tejan Kabbah announced for all to hear how much money was left in the Consolidated Fund. By contrast, Sierra Leone’s Consolidated Fund was empty when president Bio was sworn in on April 4.
So, how has the Bio administration survived since coming to power a month ago? Bio and his men have pursued an aggressive domestic revenue mobilization scheme. For example, tax waivers hitherto granted to many private companies at the Port Authority were rescinded while revenue collecting institutions like the National Revenue Authority (NRA) have been instructed to deposit monies collected into the Consolidated Fund. Consequently, for the month of April, the government was able to raise over forty million dollars. Thus, there was no need to resort to domestic borrowing (a critical Tolongbo rankanomic policy) to run the government and pay salaries.