Question 22M.2.SL.TZ0.2g
| Date | May 2022 | Marks available | [Maximum mark: 15] | Reference code | 22M.2.SL.TZ0.2g |
| Level | SL | Paper | 2 | Time zone | TZ0 |
| Command term | Evaluate | Question number | g | Adapted from | N/A |
Text D — Overview of Sierra Leone
- Sierra Leone is located on the west coast of Africa. Economic activity is concentrated on agriculture and mining, which together contribute 70 % of gross domestic product (GDP) and 77 % of export revenue.
- Economic growth rates fluctuated from +20.1 % in 2013 to −21.5 % in 2015. The economic slowdown in China contributed to a significant drop in mining activities and a fall in Sierra Leone’s export revenue. China is Sierra Leone’s largest market for exported minerals.
- Economic growth rates in Sierra Leone have improved in recent years due to increased activity in agriculture, mining and construction. Increased employment in these labour-intensive sectors could help reduce poverty, which remains widespread in the country. Sierra Leone’s ranking in the Inequality adjusted Human Development Index (IHDI) is very low.
- The fall in export revenue has led to a 50 % depreciation of the leone (Sierra Leone’s currency) over the past five years. Even recent increases in the price of commodities have not been sufficient to offset the high import expenditure on food, medication, cars and capital equipment.
- The depreciation of the leone has led to inflationary pressures. The removal of a fuel subsidy resulted in an increase in the price of fuel and pushed the inflation rate from 16.8 % in 2018 to 17.2 % in 2019.
- To make matters worse, access to essential, life-saving health care services in Sierra Leone is often disrupted by regional conflicts. Healthcare in Sierra Leone is generally charged for and is provided by a mixture of government, private and non-governmental organizations (NGOs). NGOs are relied on to protect the health and wellbeing of citizens. NGOs help to achieve this by distributing medicine and teaching families about hygiene and proper sanitation.
- Another area of concern is the government debt, which stood at 62 % of GDP in 2019. The government has reduced its budget deficit from 5.7 % to 3.4 % of GDP by minimizing non-payment of taxes and implementing cost-saving measures such as the automation of some government services.
- The newly elected government has made good progress in its fight against corruption, but it is facing many macroeconomic challenges. Foreign aid has been reduced, infrastructure is inadequate and many economic activities remain untaxed. Youth unemployment is also high due to low literacy rates and a lack of skills required in the job market.
Text E — Sierra Leone’s new development plan
- In 2019, the government of Sierra Leone introduced a new five-year development plan. The plan includes policies aimed at increasing the welfare of Sierra Leone’s citizens by working towards the Sustainable Development Goals.
- The development plan ensures access to free primary and secondary education in all public schools. The cost of education is the main reason that many households are not sending their children, particularly girls, to school. For those paying private education fees, switching to public education would allow more of their household income to be spent on other essential services and farming equipment.
- The expected increase in human capital should facilitate economic activities and lead to investment. Schools now teach modern farming practices, such as those involving the use of farm machinery and fertilizers. These would benefit rice farmers and help achieve food security (ensuring people have access to enough food).
- The provision of technical education should not only increase agricultural output but also allow for the diversification of the economy. The manufacturing sector contributes only 2 % of the country’s GDP and could provide an alternative source of employment. The five-year plan also addresses the lack of infrastructure, in particular for electricity generation, which has so far restricted the development of the manufacturing sector.
Text F — Investment in Sierra Leone
- The World Bank ranked Sierra Leone 160th among 190 countries in 2018 for the ease of doing business, citing difficulties in accessing electricity and in obtaining loans and business permits. Government borrowing from the banking sector has increased in recent years, resulting in high interest rates and limited credit availability for the private sector. Foreign investors, however, usually bring capital from abroad.
- Despite the challenges, Sierra Leone offers significant opportunities for investment. Foreign investors are involved in the energy sector, infrastructure, agriculture, tourism, and natural resources. Reduced tax rates on corporate income are offered for investments in agriculture and tourism.
Table 3: Economic data for Sierra Leone
[Text E: Sustainable Development Goals Knowledge Platform, n.d. [online] Available at: https://sustainabledevelopment.
un.org/memberstates/sierraleone [Accessed 20 April 2021]. Source adapted.
Text F: U.S. Department of State, n.d. 2018 Investment Climate Statements: Sierra Leone [online] Available at:
https://www.state.gov/reports/2018-investment-climate-statements/sierra-leone/ [Accessed 20 April 2021].
Source adapted.
Table 3: Data from The World Bank [online] Available at: https://data.worldbank.org/ [Accessed 20 April 2021]. Source adapted.]
Using information from the texts/data and your knowledge of economics, evaluate the impact of government intervention in promoting economic growth and economic development in Sierra Leone.
[15]
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions and conclusions should be presented clearly and supported with appropriate evidence and sound argument.
Responses may include:
- a definition of economic growth.
- a definition of economic development.
- an explanation of the sources of economic growth and development.
- an explanation of the link between economic growth and development.
Budget deficit (Text D, paragraph [7])
- The government has reduced the budget deficit, and this will slow the increase in the government debt, reducing the future debt burden (Text D, paragraph [7]).
- The reduction in the budget deficit could mean that there will be less government spending on social welfare negatively impacting economic development.
- The government maintains a budget deficit and this could have an expansionary impact on AD, leading to economic growth since injections (government spending) remain higher than withdrawals (taxes). Economic growth may lead to development.
- The government is still borrowing from banks and this leads to crowding out (Text F, paragraph [1]). However, this would not affect foreign investment.
Removal of fuel subsidy (Text D, paragraph [5])
- This will have a disproportionate impact on those in poverty who are already adversely affected by the high inflation rate (Text D, paragraph [5]).
- This may lead to cost-push inflation.
- It will help reduce government spending and close the budget deficit (Text D, paragraph [7])
- This would help reduce the negative externalities/market failure associated with the burning of fossil fuels and reduce pollution.
- This could lead to higher energy and transportation costs for businesses and may dampen efforts to diversify the economy.
Provision of healthcare services in tandem with the private sector and NGOs (Text D, paragraph [6])
- It improves access to, and quality of public health and increases the productivity of workers.
- Reliance on the private sector and NGOs avoids adding to the mounting public debt (Text D, paragraph [7]).
Fight against corruption (Text D, paragraph [8])
- This will help bring in foreign investment and may make the country more credible in taking loans with multilateral organisations such as the World Bank and the IMF. This would help increase access to foreign aid (Text D, paragraph [8]).
Free primary and secondary education, inclusive of technical education (text E, paragraph 2 and 4)
- This will help households break the poverty trap as more income can be used to spend on necessities and capital equipment (Text E, paragraph [2]).
- This will have an impact on the empowerment of women (Text E, paragraph [2]).
- Productivity will increase in the agricultural sector, ensuring food security (Text E, paragraph [3]) and reduce the price of rice and other food items (Text E, paragraph [4]).
- This will promote diversification (Text E, paragraph [4]) and reduce structural unemployment, particularly amongst youths (Text D, paragraph [8]).
- This may worsen the budget deficit and increase government debt in the short term (Text D, paragraph [7]).
Improvement in infrastructure
- This will help attract MNCs (Text F, paragraph [1]) and allow for the development of the manufacturing sector (Text E, paragraph [4]), which could help achieve diversification. This would reduce volatility in export revenue and promote economic growth (Text D, paragraph [2]) and it may help reduce the current account deficit (Table 3).
- This reduces unemployment (Text D, paragraph [8]) and prevents rural-urban migration if manufacturing takes place in rural areas.
- This could worsen the budget deficit and increase the government debt (Text D, paragraph [7]).
Tax benefits for foreign investment
- This would help diversify the economy by developing the tourism sector (Text F, paragraph [2]).
Excessive reliance on foreign investment might lead to a loss of sovereignty as many essential services are provided by MNCs (Text F, paragraph [2]). - MNCs might exploit resources (Text F, paragraph [2]) and labour.
- The increase in FDI inflows could help compensate for the current account deficit (Table 3, answer to (b)(i)) through the financial account. MNCs would also provide an export market which would increase the export revenue and reduce the current account deficit. The overall increase in the balance of payments could prevent further depreciation of the currency.
- However, the repayment of profit and interest might widen the deficit on the net income account (Table 3).
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Most candidates understood the difference between economic growth and economic development and could identify some relevant development issues such as the lack of diversification and the need for sustainable development. The responses which reached 10-12 marks and 13-15 marks were those where the discussion of implemented policies presented sufficient links to economic growth and development. Such links had to be explained rather than stated. It was not uncommon to read responses with some possibly good but unfortunately underdeveloped economic arguments. In such cases, a low score on the second descriptor often brought down the entire score as theory was ‘described’ rather than ‘explained’. Stronger responses distinguished between different types of government intervention/policies, while weaker responses only focused on one type of intervention/one specific policy (supply-side interventionist for example). A few candidates did not achieve high marks because their response mostly suggested/recommended policies (such as import substitution) rather than evaluating the impact of the intervention being implemented in Sierra Leone.
