IMF Staff Initiates Discussions on a Possible IMF-Supported Financial Arrangement for Sierra Leone

The economy proved resilient in the face of two major exogenous shocks: the Ebola epidemic and collapse of iron ore prices and associated loss of production in 2014-2015.

The economy is projected to expand by 6 percent in real terms in 2017, but the macroeconomic situation remains challenging.

The IMF team welcomes the authorities' plan to enhance domestic revenue, while increasing public investment aimed at reducing social and infrastructure gaps.

An International Monetary Fund (IMF) team led by John Wakeman-Linn visited Freetown from March 14-28, 2017, to initiate discussions on a possible Extended Credit Facility arrangement that could be supported by the IMF. [1]

At the conclusion of the visit, Mr. Wakeman-Linn issued the following statement:

Sierra Leone's economic reforms over the last three years have been largely successful. The economy proved resilient in the face of two major exogenous shocks: the Ebola epidemic and collapse of iron ore prices and associated loss of production in 2014-2015. While the economy is projected to expand by 6 percent in real terms in 2017, the macroeconomic situation remains challenging. End-period inflation increased significantly in 2016, to 17.4 percent from 10.1 percent in 2015. The fiscal deficit is estimated to have increased from 4.6 percent in 2015 to 8.2 percent in 2016. The budget was under severe pressure, leading to expenditure overruns in goods and services and domestic capital expenditures late in the year and arrears to domestic contractors and suppliers. On the external front, renewed iron-ore exports contributed to a strengthening of the trade balance, but it was not enough to compensate for the decline in donor support. As a result, the current account deficit is estimated to have widened from 17.5 percent in 2015 to 19.9 percent in 2016.

Against this backdrop, the authorities aim to safeguard macroeconomic policy, and institute a package of structural reforms that place the country on a sustained path toward economic diversification and growth, employment creation, and improved social conditions, consistent with the objectives of the Agenda for Prosperity and the Sustainable Development Goals (SDGs).

The team made significant progress in discussing the authorities' policies for 2017, and the proposed program period, and their implications for macroeconomic stability, fiscal and external sustainability and inclusive growth. The IMF team welcomes the authorities' plan toenhance domestic revenue, while increasing public investment aimed at reducing social and infrastructure gaps. Staff support the plan to take decisive steps to increase the efficiency, effectiveness, transparency and accountability in the use of public resources, while strengthening social protection for the most vulnerable. Bank of Sierra Leone's (BSL) objective of tightening monetary policy so as to bring inflation back to single digits by end-2017, increase reserve accumulation and enhance prudential oversight by strengthening the supervisory process are also steps in the right direction. Discussions will continue in the coming weeks with a view to reaching understandings on these and other measures that could be supported by the IMF in the context of a new arrangement.

The team met with President Koroma, Minister of Finance, Momodu Kargbo, and Minister of State for Finance Patrick Conteh; the Deputy Governor of Bank of Sierra Leone, Dr. Ibrahim Stevens, senior government and BSL officials, representatives of the financial sector, private sector, civil society, and development partners.

The IMF team wishes to express its gratitude to the Sierra Leonean authorities for the constructive discussions during its visit to Freetown.rdquo;

[1] The ECF is a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems. The arrangement for Sierra Leone was approved by the IMF Executive Board in October 2013 (see Press Release No. 13/410 ).

Source: International Monetary Fund (IMF).