By Marcus Bangura
ND The recent upswing in the exchange rate at the expense of the Sierra Leone Leone (SLL) is broken-hearted, leaving everyone fuming in desperation. Â The frailty of SLL is a significant question for the Sierra Leone Bank Governor, Dr Ibrahim Stevens to answer, who took over the mantle of leadership from Professor Kelfala Kallon months before the June 2023 general elections, as acting governor with the optimism that he has all that it takes to awake the economy from slumber, which has been in coma but held up by life support machine, vis-Ã -vis Donor Funds. Like Professor Kallon, like Dr Stevens, all things remain equal, the economy is still in shambles; as SLL keeps chasing the USD like a madman chasing nothing.
By and large, Sierra Leone Leone (SLL) is currently the weakest currency in Africa, with a fluctuating exchange rate of SLL 19, 678.65, courtesy of africa.businessinsider.com in its latest report. Whilst Forbes Report 2023, has it that SLL is the 4th weakest currency in the World.
Diving into the latest updates of the exchange rate in the country, C4D Media observed that the current exchange rate is approximately SLL 22, 524.2 to 1USD and black-market rate is SLL 24,000 to 1USD.
The weakness of Sierra Leone and the unfavourable exchange rate is a reflection of the nature and character of the country’s economic woes and the struggle for survival, fluid with economic hardship, which is liquidating citizens into stress and frustration for quite a long time now. The weakness of the Sierra Leone currency has squeezed SLL out of the stock exchange market. It remains quite inactive with limited capital market and portfolio investment opportunities.
The alarming high cost of living due to exorbitant prices of petroleum products, goods and services disparages citizens faced-down from a country rich in mineral resources but caught in a web of economic hardship or poverty.
This suggests that Sierra Leone currency is weak and experts say, weak currencies like ours can lead to economic impact with the penchant to spark higher inflation rates, making goods more expensive for citizens, reducing their purchasing power, and undermining overall economic stability. A weak currency kindles investment challenges, due to potential currency depreciation, which can erode returns on investment. A weak currency like ours affects trade imbalances and can make imports more expensive and exports cheaper. It can increase costs for imported goods of which Sierra Leone is no exception. For example, the cost of imported goods at the Queen Elizabeth II Quay is exorbitant to the extent that citizens suffer with the cost of basic goods imported in the country, thereby making cost of living prevalent. Sierra Leone’s weak currency and its higher debt burden servicing costs in a stronger foreign currency like the US Dollars or Euro is a cause for concern.
It has been alluded that economic and political instability are the main factors responsible for the country’s weak currency due to low GDP growth and high levels of debt, which contributes to currency depreciation, and undermines investors’ confidence. Political Instability and governance issues have also affected the currency’s value due to uncertainty in the political landscape, which like economic instability deter foreign investment and economic growth in the country.
Inflation and trade deficits are other strong catalysts for the weakening of Sierra Leone currency. The high inflation rates erode the value of the currency, making it weaker against stronger currencies like the US dollar. Trade deficits, where Sierra Leone imports more than it exports, weakens the SLL. This imbalance only puts pressure on the local currency; as more foreign currency is needed to pay for imports. The internal factors as above, coupled with external factors, such as fluctuations in commodity prices and changes in foreign exchange markets also impact the value of the Leone
Addressing these issues requires comprehensive economic reforms and stable governance to improve investor confidence and economic stability.
According to Business Insider Africa: ‘’Fluctuations in exchange rates, impediment in local commerce and weak investment ecosystems are some of the issues currently plaguing a few African countries. This in hindsight is partly due to currencies that are way below their intended value. However, a weak currency can go beyond its direct economic consequence, as it has the potential to undermine national pride’’
As it is, Sierra Leone national pride has been eroded, as its currency depreciates and the cost of imported products and services rises, resulting in increased consumer costs. All these, is as a result of the country’s weak currency. It can also go beyond affecting international trade, undermine internal production, resulting in increased prices for home made goods.
Generally speaking, weak currencies often result from a combination of factors as highlighted above, Inflation is one of the most direct and serious repercussions of a weak currency in that It reduces regular residents’ purchasing power, making it more difficult for them to get the essentials such as food, gasoline, and medication. It can also lead to increased costs for imports, reduced purchasing power, and overall economic hardship; as well as giving rise to high inflation, political instability, and economic mismanagement. The frailty of the Sierra Leone Leone (SLL) is a significant issue for the Sierra Leone economy. It goes without saying that, if the SLL is left to depreciate further there is the proclivity that it will continue to deter foreign investment, stifle job creation, and hinder economic growth, investors are often reluctant to invest in countries with unstable currencies like ours, due to the risk of rapid devaluation. It is no secret that the depreciation of the local currency has led to a sharp rise in the cost of living; as evidenced in higher prices for food, transport, and other commodities, which significantly impact the purchasing power of citizens.
The frailty of SLL has made it harder for Sierra Leone exporters to compete in the global market, as their goods become more expensive for foreign buyers, which in turn leads to trade deficits and further pressure on the currency.
‘’ High inflation has also waned the SLL and fanned inflationary pressures, making imported goods more expensive and reducing the overall purchasing power of the population. Social and political stability due to economic challenges are posed by SLL frailty in the country. High inflation and reduced purchasing power can exacerbate poverty and inequality, leading to social and political unrest’’ C4D Media observed.
