Professor Kallon was speaking in the context of an ongoing public debate around the state of the economy which has been going through torrid times amidst a worrying level of depreciation of the local currency, the Leone, against the United States dollar.
Business people have made complaints of high taxes; with some saying they would stop their businesses if the government doesn’t act. Last month the capital, Freetown, went without bread, the most popular breakfast diet, for about two days, due to strike action by bakers who said they were demonstrating against high prices of imported flour.
The importers, on the other hand, continue to blame the high prices of flour and other commodities because of the high taxes levied by the government which is making it impossible for traders to reduce the costs for consumers.
Professor Kallon noted that when compared to the rest of the sub-region, Sierra Leone’s tax revenue relative to Gross Domestic Product GDP was quite low. He said that’s partly the reason why the country’s commitment to the structural adjustment of the International Monetary Fund required it to raise its taxes.
But, he stressed that this must be done in a way that it doesn’t force businesses out of the country. “The message I have been giving to government is that we have to normalize our taxes, particularly import duties with neighboring countries. If tariffs are higher than the others, people can transit to countries that have lower tariffs, he said.
Governor Kallon also spoke on the fiscal discipline, which he said the country needs to put under control the current economic hardship. The new government of President Bio he said has come under sustained criticisms for failing to handle the issue of the Leone’s depreciation.
When Bio assumed office one year ago, in April 2018, the Leone was going for a little over Le5000 to a dollar. Today, it is going for about Le9000 to a dollar. This is all despite over three dollar auctions by the Central Bank, among other short term measures.
The emphasis among economists has been that the country hadn’t been able to meet the excessive demand for the Dollar among business people. But the Bank Governor said their experiences in the Dollar actions in the last few months have proven this notion wrong.
He said after three foreign currency auctions, it has not changed anything about the depreciation. “What that is telling us is that the traditional factors that affect the exchange rate are no longer the case. Fiscal imbalance is the final solution,” he said.
Bank Governor Kallon assumed the position of Governor of the Bank of Sierra Leone in August 2018, with the change in leadership in the country.