April 6, 2020

The Executive Board of the International Monetary Fund (IMF) completed the 2019 Article IV consultation[1] with Sierra Leone on April 3, 2020. At the same time, the Board also completed the second review of Sierra Leone’s performance under their program supported by the IMF’s Extended Credit Facility (ECF) arrangement. A press release on the ECF review was issued separately.

In recent years, macroeconomic conditions stabilized, and the economy had begun to cement its recovery. Since coming to office in early 2018, the Government implemented key reforms and launched a new National Development Plan with a strong emphasis on investing in education, infrastructure and improving governance. Growth stabilized at 3.5 percent in 2018 before picking up to an estimated 5.1percent in 2019, on the back of a broad‑based recovery of economic activity. At the same time, inflation moderated to under 14percent by end-2019.

A focus on fiscal sustainability and prudent budget execution saw the overall budget deficit decline from 11.3percent of non‑iron ore GDP in 2017 to 7.7 percent in 2018 and an estimated 6.3 percent in 2019. This helped to stabilize domestic borrowing needs. The current account deficit also narrowed substantially, although pressure on the exchange rate persists.

While the Sierra Leonean economy has great potential, the immediate outlook is overshadowed by the rapidly unfolding global COVID‑19 pandemic. Based on programmed policies, growth was projected to average around 4½percent over the medium term. However, prospects for the remainder of 2020 are subject to considerable uncertainty. The magnitude of the impact will depend heavily on the extent of vital prevention and containment measures—nationally, regionally and globally—and the associated economic spillovers.

With the fragile Sierra Leonean economy still recovering from the Ebola health crisis and past lax macroeconomic policies, the COVID‑19 shock will add to the country’s vast development challenges. Avoiding long‑lasting scarring and continuing the economy’s promising development trajectory will require significant support from development partners.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the progress in stabilizing the economy, underpinned by the authorities’ reform program. Noting the serious risk posed by the global COVID‑19 pandemic, Directors welcomed the decisive actions taken to protect the health of the population and to minimize potential economic spillovers. They acknowledged that the discussion on medium‑term issues had taken place prior to the outbreak of the pandemic, calling for contingency planning and continued external support given the country’s high debt burden and capacity constraints. 

Once the immediate priority to combat the COVID‑19 crisis has passed, Directors stressed the need to continue ensuring fiscal sustainability and creating space to meet development needs over the medium term. They emphasized the importance of mobilizing domestic revenues, strengthening public and debt management, and improving the management of fiscal risks, particularly from state entities and the financing of large public investments. Directors welcomed the new Medium‑Term Debt Management Strategy, and efforts to develop a transparent and sustainable plan for arrears clearance.

Directors encouraged continued efforts to bring down inflation and enhance the central bank’s operational independence. They recommended in particular improving liquidity management to better align the policy rate with money market rates. Directors highlighted that deepening foreign exchange markets could help level the playing field for businesses. They welcomed efforts to strengthen financial sector stability, through improved guidelines and oversight, and to promote financial inclusion, including by leveraging the Financial Sector Stability Review.

Directors welcomed the National Development Plan, with its focus on addressing governance weaknesses and investing in the education of a young population to establish a strong foundation for sustained development and inclusive growth. They looked forward to further progress in improving the business climate, thereby facilitating private sector‑led growth.

Directors took note of the authorities’ corrective actions to address the misreporting incident related to the inadvertent omission of securities issued to the non‑bank sector.