Sierra Leone, IMF reach staff-level deal on new ECF arrangement
Freetown, Sierra Leone (PANA) - The International Monetary Fund (IMF) staff and the Sierra Leonean authorities have reached a staff-level agreement on economic policies and reforms that could be supported by a new 38-month Extended Credit Facility (ECF) arrangement, with requested access of US $253 million.
The ECF would support restoring stability through continued macroeconomic adjustment to address debt vulnerabilities, reduce inflation, and rebuild international reserves; bolster inclusive growth and poverty reduction through structural reforms and targeted social spending; and revitalize the reform agenda to strengthen governance and institutions – all advancing the poverty reduction and growth aspirations outlined in the country’s Medium Term National Development Plan (MTNDP) 2024-30.
An IMF mission, led by Mr. Christian Saborowski, visited Sierra Leone from 4-13 September, 2024, to conduct the 2024 Article IV consultation and discuss with the Sierra Leonean authorities economic and financial policies that could be supported by a new ECF arrangement.
The consultation focused on fiscal and debt sustainability, monetary policy operations, drivers of inflation, external sector stability, trade facilitation, macroeconomic implications of gender inequality, climate-related risks, and the adequacy of social policies.
The staff-level agreement is subject to approval by the IMF’s Management and Executive Board.
Concluding the discussions, Mr. Saborowski remarked that a new economic team took over last year and has since taken bold measures to tackle Sierra Leone’s macroeconomic imbalances including a severe cost-of-living crisis.
He said that the authorities reduced the domestic primary deficit by 2.8 percent of GDP in 2023 and were on track toward reducing it by another 2.1 percent this year. They also tightened monetary policy sharply by reducing year-on-year base money growth from a peak of 63.4 percent in June 2023 to 8.8 percent in June 2024, and raising the policy rate by 7.25 percentage points since end-2022.
“The reform momentum has borne fruit. Inflation declined to 25 percent in August 2024, down from a peak of 55 percent in October 2023, and the sharp exchange rate depreciation experienced in 2022 and early 2023 was arrested. However, T-bill rates remain stubbornly high at over 40 percent, international reserves have fallen to less than two months of imports, and the electricity distribution company (EDSA) continues to make losses, resulting in significant fiscal pressures,” Mr. Saborowski stated.
According to the IMF, Sierra Leone’s economic growth reached more than 5 percent in 2022 and 2023, buoyed by strong mining activity.
Sierra Leone’s public debt continues to be assessed as sustainable but at high risk of distress, while its external position in 2023 is assessed as broadly in line with the level implied by fundamentals and desirable policies.
“The new ECF arrangement would aim to (i) restore stability by bolstering debt sustainability, addressing fiscal dominance, bringing down inflation, and rebuilding reserves; (ii) support inclusive growth through reforms—including to narrow gender gaps—and targeted social spending; and (iii) confront corruption, as well as strengthen governance, institutions, and the rule of law,” Mr. Saborowski explained.
These objectives would advance the poverty reduction and growth aspirations outlined in Sierra Leone’s Medium Term National Development Plan (MTNDP) 2024-30.
According to the IMF team, restoring stability in the Sierra Leonean economy will require a continued ambitious macroeconomic adjustment over the programme period. Enhancing revenue mobilisation, boosting spending efficiency, and managing fiscal risks will be critical to make room for priority spending on social policies and investment.
In addition, strengthening the monetary policy framework and maintaining appropriately tight monetary conditions will be important to safeguard internal and external stability.
“Making durable progress in fighting poverty and raising standards of living will require a commitment to reform, sustained political and social consensus, and well-targeted social policies,” Mr. Saborowski underlined.
Besides, promoting gender equality and increasing women’s economic participation are crucial to boosting Sierra Leone’s growth potential. So too are reforms to enhance the business environment by improving EDSA’s operational and technical efficiency, strengthening customs administration and transparency, and addressing climate change risks. Guided by the MTNDP 2024-30, steadfast progress in addressing these challenges will be critical.
-0- PANA AR/MA 21Sept2024
