IMF Staff Completes Staff-Level Agreement on the Fifth Review of the Extended Credit Facility for Sierra Leone and Conducts 2022 Article IV Consultation

IMF staff and the Sierra Leonean authorities have reached a staff-level agreement on economic policies to conclude the fifth review of the 55-month ECF-funded program, releasing $20.8 million in financing once the review formally completed by the IMF Executive Board; Economic recovery from the pandemic has been hampered by the impact of the war in Ukraine and the medium-term outlook remains challenging; The program aims to build resilience and lay the foundations for stronger growth through fiscal consolidation and the resolution of debt vulnerabilities, while protecting the most vulnerable from the shock.

A team from the International Monetary Fund (IMF) led by Sukhwinder Singh, conducted a mission to Sierra Leone and Washington DC from March 31 to May 18 to discuss reform progress and the authorities’ policy priorities under the fifth review. . Sierra Leone’s Extended Credit Facility (ECF)-supported program. The arrangement was approved for a total amount of SDR 124.44 million ($172.1 million at the time) on November 30, 2018. The team also conducted the 2022 consultation under Article IV.

At the conclusion of the mission, Mr. Singh issued the following statement:

“The Sierra Leonean authorities and the IMF staff team have reached a staff-level agreement on the fifth review of Sierra Leone’s economic program under the ECF arrangement. The agreement is subject to approval by IMF management and the Executive Board in the coming weeks. Following the Executive Board’s review, Sierra Leone would have access to SDR 15.555 million (about US$20.8 million), bringing the IMF’s total financial support under the arrangement to 93 .33 million SDR (approximately $125.0 million).

“Sierra Leone’s economy has been severely impacted by COVID-19 in 2020 and the first half of 2021. Fiscal slippages, war in Ukraine and concerns over global growth pose new challenges. Soaring international fuel and food prices have delayed an incipient recovery and projected growth in 2022 has been revised down to 3.6% from 5.9% at the time of the 3rd/4th review in July 2021 The shock has increased pressure in several countries. areas such as poverty and other key development indicators, inflation, exchange rate, foreign exchange reserves, as well as an already tight fiscal situation. Inflation has been revised to 22.1% (end of period, 2022) from 12%, given the rise in import prices and the depreciation of the exchange rate.

“The medium-term outlook remains challenging due to deteriorating terms of trade, a more uncertain global outlook, and lingering risks from COVID-19. A global supply shock resulting from the war in Ukraine is negatively impacting global growth and increasing inflation, with spillovers to Sierra Leone. Further increases in already high global fuel and food prices could deteriorate fiscal and external balances, as well as development outcomes.

“The fiscal situation in Sierra Leone is extremely tight, partly due to the significant fallout from the war in Ukraine in addition to the painful impact of COVID-19, but also other emerging spending pressures. Rapidly rising subsidy costs in the face of limited fiscal space and urgent social/development spending needs necessitated bold action on fuel and energy prices, with the government raising fuel prices by 50% in total in March this year, while targeting transfers to the poorest. . The 2022 budget resumes fiscal adjustment towards a consolidation path despite a challenging environment. Given the high risk of over-indebtedness, additional needs in the event of a crisis call for additional financing in the form of grants and a limitation of external borrowing.

“The authorities and the IMF team have agreed on a medium-term fiscal framework that continues to strike a balance between reducing debt vulnerabilities and supporting post-crisis recovery. This hinges on increasing domestic revenue mobilization, securing more budget support grants, and strengthening expenditure management and commitment controls. A Medium Term Revenue Strategy (MTRS) is being developed to identify a properly sequenced and coherent set of tax policies and administrative measures aimed at broadening the tax base. Given limited resources, better control and efficiency of spending is essential to create fiscal space for priority spending such as the school feeding program and health spending. The use of additional SDR resources will also support priority spending.

“The banking sector appears to have remained well capitalized, profitable and liquid thanks to investments in sovereign securities. Credit to the private sector is showing signs of recovery, although the pandemic has contributed to some increase in NPLs. The authorities are working to strengthen the regulation of the banking sector, including efforts focused, with the help of the World Bank, on improving the governance of the two public banks. The BSL has responded appropriately to rising inflationary pressures by gradually tightening policy and is making progress in strengthening its monetary policy framework.

“While efforts to improve governance in Sierra Leone have generally continued, further reforms are needed to strengthen the institutional independence of the Sierra Leone Audit Service (ASSL). Earlier in the COVID-19 crisis, the government released NaCOVERC’s unaudited financial statements and key details of major supply contracts. A real-time audit of the early health response by the ASSL was international good practice and helped identify key areas for improvement. Going forward, it will be essential to implement the necessary corrective actions and recommendations of existing audits, to work on strengthening the audit process and the collaboration between the ASSL and the Ministry of Finance and to review the law. of 2014 on audit services with regard to possible amendments aimed at strengthening the financial system of the ASSL. independence.

“The staff team is grateful to the authorities for the open and productive discussions to ensure the success of their IMF-supported economic program. The team met with His Excellency President Maada Bio, Chief Minister Saffa, Finance Minister Vandi, BSL Governor Kallon, Planning and Economic Development Minister Kaikai and other senior government officials. He also met with a range of other stakeholders, including the private sector, civil society organizations and development partners, as he took stock of the state of Sierra Leone’s economy.

Distributed by APO Group on behalf of the International Monetary Fund (IMF).