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Press Release No. 98/55
November 9, 1998
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves Emergency Post Conflict Assistance for the Republic of Sierra Leone

The International Monetary Fund (IMF) has approved a loan for the Republic of Sierra Leone equivalent to SDR 11.58 million (about US$16 million) under its emergency post conflict assistance policy1 to support the government’s economic program for 1998/89 (July-June).

Background

During the nine-month period of military rule that followed the May 25, 1997 coup d’état in Sierra Leone, there was widespread displacement of the population, as well as looting, destruction of the economic and social infrastructure, and major dislocation of the financial system.

Economic activity was seriously affected, contributing to a collapse in the revenue base and to significant increases in the budget deficit, bank financing, and domestic and external payment arrears.

Since March 1998, the government’s efforts have focused on restoring peaceful conditions to the country, resettling displaced persons, and rehabilitating infrastructure. These efforts have been severely constrained by the limited availability of budgetary and technical resources. The economic situation has remained difficult, because of the adverse impact of armed conflict in the north and east on agricultural production and diamond and gold mining operations. The strategy of supporting the authorities’ reforms, initially in the context of post conflict emergency assistance, is predicated upon the need to rebuild Sierra Leone’s administrative and institutional capacity.

The 1998/99 Program

The 1998/99 program aims at promoting a resumption of economic growth, reducing financial imbalances, and continuing to normalize relations with external creditors. The rebuilding of Sierra Leone’s institutional and administrative capacity should lay the ground for a more comprehensive program of reforms, possibly supported under an ESAF, beginning from mid-1999. Real GDP is expected to rise by only 0.7 percent in 1998 and by 5.9 percent in 1999, after falling by 20.2 percent in 1997. The 12-month rate of consumer price inflation is targeted to fall to 6.0 percent by the end of 1999 from 43.5 percent in the last quarter of 1997. However, reflecting the planned expansion in reconstruction activities, the external current account deficit,excluding grants, is projected to widen to 12.2 percent of GDP in 1998 and to 26.5 percent in 1999, from 4.2 percent in 1997.

To attain these goals, a key objective of fiscal policy is to reduce the basic primary fiscal deficit to 2.8 percent of GDP in 1998 and to 0.6 percent in 1999, from 4.2 percent in 1997. The budget in 1998 envisages an improvement in the revenue effort of 1.6 percent of GDP, notwithstanding the negative impact of last year’s upheaval on the revenue base and tax administration. The revenue gain is largely attributable to the increase in petroleum excise duty rates of July 1998 and to a projected expansion in imports. The program for 1998 also represents a major effort at expenditure consolidation. Monetary and credit policies, including more effective use of indirect instruments of monetary policy, are designed to reduce inflation.

Structural Reforms

The structural measures include the privatization of oil import operations from the fourth quarter of 1998, the establishment of an independent revenue authority from mid-1999, the rationalization of the tariff system beginning in the last quarter of 1998, and a review of the civil service and pensions payrolls to remove "ghost" workers and pensioners in the first quarter of 1999. Other structural efforts include upgrading the government accounting services, strengthening the judicial and legal system, reorganizing the armed and police forces, and reviewing the institutional and legal arrangements for managing the public enterprise sector, including divesture of parastatals.

Addressing Social Needs

The program accords priority to the health and education sectors and will help the most vulnerable segments of the population, specifically displaced persons, while laying the basis for the reconstruction of the country and its economic recovery.

The Challenge Ahead

The main challenges facing Sierra Leone are to consolidate and deepen the peace process, address the social dislocations caused by the conflict and implement a comprehensive medium term program of economic reform. An early resolution of the armed conflict is crucial to progress in all these areas.

Sierra Leone joined the IMF on September 10, 1962, and its quota2 is SDR 77.2 million (about US$108 million). Its outstanding use of IMF financing currently totals SDR 124 million (about US$173 million).


Sierra Leone: Selected Economic and Financial Indicators, 1995-99










1995

1996

1997

1998

1999





Est.

Prog.

Prog.










(Annual percentage change, unless otherwise indicated)









Income and expenditure







Real GDP

-10.0

5.0

-20.2

0.7

5.9


GDP deflator

33.6

26.3

16.8

27.0

9.6


Nominal GDP

20.2

32.6

-6.8

27.8

16.1


Consumer prices (end period)

34.5

6.4

66.9

12.5

6.0


Consumer prices (annual average)

26.0

23.1

14.9

37.4

9.5









Money and credit







Broad money







(including foreign currency deposits)1

19.8

28.3

47.1

13.3

12.3


(excluding foreign currency deposits)

12.8

17.8

55.9

8.0

12.3


Velocity (level)

10.2

10.1

6.4

7.2

7.4


Domestic credit2

5.5

39.4

57.5

29.9

0.8


Government2

3.9

33.2

50.9

21.8

-9.4


Private sector2

1.6

6.2

6.2

4.1

10.2


(annual percentage change)

5.1

22.8

24.6

19.3

45.5


Reserve money

12.1

17.7

109.0

-26.8

12.4


Interest rate3

34.2

20.0

8.8

35.8

. . .









External sector







Exports (U.S. dollars)

-48.0

3.8

-16.1

14.3

15.3


Imports (U.S. dollars)

-10.5

57.9

-56.1

42.7

78.5


Terms of trade (- deterioration)

0.3

-3.3

-0.6

4.5

-1.2


Real effective exchange rate (- depreciation)

-9.6

0.8

13.2

. . .

. . .










(In percent of GDP)









Consumption

101.8

105.5

108.0

101.2

97.8


Government

14.0

11.0

9.7

8.7

9.7


Private

87.8

94.5

98.3

92.5

88.1


Gross investment

5.6

9.3

-5.1

8.3

25.4


Government

2.6

3.3

1.5

3.4

10.4


Private

3.0

6.0

-6.6

4.8

15.0


Gross national saving

-4.5

-1.9

-7.2

8.5

2.54


Gross domestic saving

-1.8

-5.5

-8.0

-1.2

2.2


Government

-4.5

-0.9

-4.1

-1.6

0.2


Private

2.7

-4.6

-3.9

0.4

2.0


Current account balance, including official transfers

-10.1

-11.2

-2.1

0.2

-22.94


Current account balance, excluding official transfers

-13.9

-18.3

-4.2

-12.2

-26.5


Goods and nonfactor services (net)

-7.4

-14.9

-2.9

-9.5

-23.8


Unrequited private transfers and factor services (net)

-6.5

-3.4

-1.3

-2.7

-2.6









Overall balance of payments

-8.2

-3.0

-12.4

-5.6

-16.5









Government revenue5

9.5

10.1

5.6

7.2

9.9


Total expenditure and net lending5

19.3

16.9

13.4

17.4

24.8


Current expenditure5

16.7

13.6

11.9

13.2

14.5


Overall fiscal deficit5







(commitment basis, excluding grants)

-9.8

-6.8

-7.8

-10.2

-14.9


(commitment basis, including grants)

-6.3

-5.1

-7.2

-8.1

-11.3


Primary fiscal balance5 6

-5.3

-1.6

-4.2

-2.8

-0.6


Domestic financing5

0.4

2.7

4.4

4.0

-1.1


External debt

127.5

122.4

133.0

178.4

176.7









(In percent of exports of goods and nonfactor services)









Debt service due7

54.0

38.5

29.9

33.3

31.9


External interest due7

33.4

18.3

8.6

11.5

9.9









Memorandum items:

(In millions of U.S. dollars, unless otherwise specified)


External current account balance, excluding





official transfers

-120.1

-172.1

-34.5

-78.9

-184.9


Gross international reserves

35.0

26.8

38.4

36.0

45.0


(in months of imports)

3.6

1.7

5.7

3.7

2.6


GDP (millions of leones)

653,943

867,073

807,848

1,032,736

1,198,694


Exchange rate (leones per U.S. dollar)

755.2

920.7

981.9

1,597.2

. . .









Sources: Sierra Leonean authorities; and IMF staff estimates and projections.










1Data on foreign currency deposits only reported separately from total demand deposits by the authorities since November 1994.


2Changes as a percentage of beginning-period money stock (including foreign currency deposits).


3Treasury bill rate (end of period; in percent); for 1998, end-August.



4Excludes expected donor assistance not yet committed.




5Fiscal year ending June for data through 1994, and calendar-year basis thereafter.


6Domestic revenue minus total expenditure and net lending, excluding interest payments and externally financed capital expenditure.


7Before debt relief.








1 For a country to be eligible for IMF emergency post conflict assistance, which was created in 1995, certain conditions must be met: disruption of institutional and administrative capacity; sufficient capacity for planning and policy implementation; demonstrated commitment; urgent balance of payments need; catalytic role of IMF support; concerted international effort; and intention by the member to move in a short time frame to an upper credit tranche stand-by or to an arrangement under the Enhanced Structural Adjustment Facility (ESAF).

2 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


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