By Amin Kef (Ranger)
The authorities and the IMF team agreed on the need to tighten fiscal and monetary policies while strengthening policy coordination with view to restoring macro stability and containing increasing risks to debt sustainability.
An International Monetary Fund (IMF) team, led by Mr. Christian Saborowski, visited Freetown from April 17 to 28, 2023, for the sixth and seventh reviews of Sierra Leone’s financial and economic program supported by the Extended Credit Facility (ECF), approved on November 30, 2018.
Subject to approval by IMF Management and the Executive Board in the coming weeks, the completion of the reviews under the ECF will make available SDR 15.5 million (about US$ 20.8 million), bringing the total IMF financial support under the arrangement to SDR 108.8 million (about US$147.0 million).
At the conclusion of the mission, Mr. Saborowski issued the following statement:
“The Sierra Leonean authorities and the IMF staff team have reached a staff-level agreement on the sixth and seventh reviews of Sierra Leone’s economic program under the ECF arrangement. The agreement is subject to approval by IMF Management and the Executive Board.
“Sierra Leones’s economic challenges have intensified with multiple external shocks and looser-than-warranted macroeconomic policies. While growth in 2022 is estimated at 3.6 percent, in line with projections at the time of the fifth review in July 2022, inflation has continued to rise, the currency has depreciated sharply, and debt related risks have increased. The soaring cost of living has worsened already high levels of food insecurity.
“Weak program performance over the course of 2022 resulted in the delay of the sixth review. However, program performance has improved considerably since. The authorities have requested an extension of the program to November 2023 to accommodate an eighth, and final, review to continue building on recent reforms and achieve program objectives.
“The authorities and the IMF team agreed on the need to tighten fiscal and monetary policies while strengthening policy coordination with view to restoring macro stability and containing increasing risks to debt sustainability.
“Fiscal policy will focus on domestic revenue mobilization and expenditure containment while protecting social spending. Revenue mobilization will build on the new Finance Act 2023 and recent revenue administration measures and will be anchored in the new medium-term revenue strategy (MTRS). Expenditure containment measures will involve rationalizing discretionary spending, reducing energy subsidies, and improving the efficiency of capital expenditures, and will benefit from a planned medium-term wage bill management strategy. Social spending, including on the school feeding program, will be protected. Reform efforts will also focus on strengthening budget preparation and execution while containing domestic arrears accumulation.
“The central bank committed to tightening monetary conditions to bring down inflation and contain the currency depreciation, while further strengthening monetary policy communication to help anchor inflation expectations. It also plans to take steps to revive the interbank foreign exchange market. Maintaining a flexible exchange rate system and continuing to build foreign exchange reserves will boost resilience to economic shocks.
“Macroeconomic conditions are expected to stabilize over the medium, but the risks to the outlook are high. Growth is expected to decelerate in 2023 to 2.7 percent before recovering in 2024. Inflation is projected to gradually decline to single digits over the medium term amid the contractionary policy stance while foreign exchange reserves would stabilize. Risks to this outlook are high, as slower global growth, tighter global financial conditions and geographical fragmentation could weigh on external demand, exacerbate the decline in real incomes and deteriorate fiscal and external accounts. Policy implementation risks are also high amid the large adjustment need, capacity constraints and the soaring cost-of-living.
“The staff team is grateful to the authorities for the open and productive discussions to ensure success of their economic program supported by the IMF. The team met with His Excellency President Maada Bio, Finance Minister Bangura, Acting Governor Stevens, Deputy Governor Sesay, and other senior Government officials. It also met stakeholders from civil society, the private sector and development partners.
