Flagging IMF Errors on Sierra Leone

 Flagging IMF Errors on Sierra Leone

In a Press Release dated October 21, 2013, the Deputy Managing Director of the IMF, Min Zhu, commended strong macro-economic gains in Sierra Leone, citing falling inflation, a stable currency exchange rate and lower food prices (source: http://www.imf.org/external/np/sec/pr/2013/pr13410.htm ). I want to caution readers to understand that this is not a critique of the government of Sierra Leone. Min Zhu did not quantify his claims. In the interest of my own education and verification, I went out to look for the data from three sources I consider reputable.

My investigation led to an interesting discovery. It is on that basis that I challenge Min Zhu’s hypothesis, if it was his individual opinion, or both; as an official representation of the IMF. It is hard to figure out the data sources and computation methodology of the World Bank, African Development Bank and the International Monetary Fund. The chart below shows inflation rates reported by the World Bank and the African development Bank:


It shows data uniformity from 2007 to 2009, after which derived inflation rates exposes a stark variation between the two. The IMF Executive Board’s Press Release No. 13/450 dated November 14, 2013, stated a different inflation rate at 12.1 in 2012 (source: http://www.imf.org/external/np/sec/pr/2013/pr13450.htm )  What is the root cause of the sensitive data uniformity and disparity?

Data accuracy matters a lot because errors can influence critical policy decisions affecting the livelihood of millions. The difference between ADB’s 2012 figures and the IMF is 0.77%, which translates to the negation of 46,200 people from a population of 6 million. That is significant.

The IMF is known for making statements that are sometimes economically illogical and statistically bogus. Min Zhu’s comments referenced were not only contradictory but quantitatively flawed. In June 2013, IMF mission Chief Poul M.Thomsen clearly admitted to mistakes on the Greek bailout fiasco (source: http://www.imf.org/external/np/tr/2013/tr060513.htm ). In a speech at the 14th annual meeting of the Christian association for company directors ACDE in Buenos Aires, French Economist and Head of the IMF between 1987- 2000, Dominique Strauss-Kahn admitted that “many silly mistakes” and errors were made with Argentina’s economic projections.

The Wall Street Journal edition of January 20 1999 published another admission of error by the IMF regarding its Asia rescue package. This was another case of “optimistic projections” noted by an IMF officer. Strauss- Kahn said IMF “did many things wrong “and has “learned a lot” from the crisis. The IMF also forecasted Sierra Leone real GDP to grow at about 5.1 percent in 2011 and 51.4% in 2012. This astonishing increase in 2012 GDP growth is due to long awaited revenues from large scale iron ore export projects (source: http://www.state.gov/e/eb/rls/othr/ics/2012/191232.htm ).  I thought it was an honest mistake, but it led me to investigate and thus began a catalogue of IMF false claims. Author of “Clouds of a Ghoulish War,” Bobby David Gboyoh was one of the choristers who had asked if a 51.4% projected growth was realistic (source: http://standardtimespress.org/?p=2780 )

GDP figures have seen a demonstrable leap under this administration, yet the litany of IMF errors gives a reason to pause and verify. Two poignant issues to note here are; first, the IMF is not an organization of saints, which is to say their imperfections should be a key consideration when using their figures to draft public policy. Second, no Sierra Leonean should buy into any institutional claim without supporting data.

In June 2013, when  Leones and Sense was launched,  local agents in Sierra Leone have been assigned to collect real time pricing on major food prices in markets in Freetown (source: http://www.leonesandsense.com/microeconomic-indicators/ ).  My team and I have also been diligently tracking the position of the Leone to the Dollar, courtesy of Yahoo Financial. From the strength of our data, we can extrapolate the trends and shifts in demand and prices.

Inflation has a direct correlation to food prices and currency exchange.  There is a compelling reason to argue, given the data computations, that Min Zhu’s optimism cannot be held as true until he can provide supporting data sources. The premise and authority of my economic analysis is anchored in unfiltered market data and output of the three conflicting sources mentioned earlier.

Falling Inflation                                                                                                      

I question the claim of falling inflation on the methodology of data collection and the depth of stratification. Sierra Leone has a complex variety of income and spending patterns. Until the data collection model used is made public, the accuracy of falling inflation will be casted as estimates and remain debatable. What sample size is used and how does it accurately reflects a cross section of the income and expense basket of the employed, unemployed, rich, poor, single, married, rural residents, urban residents, young, old, in different parts of the country from North, South, East, West and Central? Was the data collected using a consistent timeframe per month every month? Any methodology short of this depth of stratification is an educated guess.

Sierra Leone has a high rate of unemployment, a month over month lag in timely payment of wages, a 30 day income cycle and of course consumers shop for alternatives or go without. These factors can lead to reduction in the supply of money and reduce purchasing power. I would submit we have a case of lowering levels of demand and price stagnation not falling inflation.

Stable Currency Exchange Rate

Low volatility is not to be confused with stability. The best case scenario is getting more dollars for fewer Leones. The chart below show a three month rolling rate from September through part of November 2013:


Min Zhu’s idea of a stable currency exchange rate begs a lot of questions. “What bandwidth of volatility is considered stable?” If a “one table t-test” using a yearly sample proves that the difference between the high and the low is statistically significant, the currency is unstable.

Was there a short term stability from further weakening of the Leone? Yes, at the macroeconomic level the trending weakness of the Leone eased off for a short while. Macroeconomic measurements are not taken in short timeframes. The residuals from volatility becomes the bone of contention, because in my statistical purview, if the standard deviation is not zero or closer, the currency showed no stability. Intraday currency exchange rates defy his claims without question just as much as a 52 week moving average.

Lower Food prices

Prices of food can be marked down for liquidation but food prices rarely fall in Sierra Leone. There is hardly a record of lowering food prices according to data collected by Leones and Sense in the last few months. Rather, during the month of Ramadan, there was a slight increase in the price of certain food items. The latter is the basis of my contention. Food prices are submissive to the laws of demand. Consumer purchasing power has a direct correlative effect on demand for food and the market price. My analytic opinion is that certain food prices have been either increasing whilst others stagnated. Averaging the mix as part of the Consumer Price Index (CPI) cannot be justifiably interpreted as lowering food prices or market equilibrium. These are the details not seen from a macroeconomic lens, thus the complaints from the ordinary consumers about hard times even when we hear good news about macroeconomic gains.


The reported macroeconomic gains from the mining sector alone cannot alter the economic landscape. The proof lies in lingering deficits and the continued need to borrow more money on IMF’s draconian interest and conditions. Since income and expenses are tied to households, and where high rate of unemployment show no significant lift, it is hard to agree with Min Zhu that inflation is falling, the currency is stable and food prices are lowering.

~ By Francis Ken Josiah, ASQ Certified Six Sigma Black Belt

CEO, Leones and Sense