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Press Release No. 99/62
December 17, 1999
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves US$21 Million
in Emergency Post-Conflict Assistance for Sierra Leone

The International Monetary Fund (IMF) today approved SDR 15.56 million (about US$21 million) in emergency post-conflict assistance for Sierra Leone to help the government's reconstruction and economic recovery program aimed at starting to rebuild the economy, which was devastated in the aftermath of the civil war and its repercussions. The amount will be available immediately.

In commenting on the Executive Board's discussion of the request by Sierra Leone, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, made the following statement:

"During the Executive Board discussion of Sierra Leone's request, Directors emphasized the following key points:

"Directors welcomed the signing of the Lomé peace agreement, which they hoped would end the enormous suffering and destruction inflicted by the conflict. They also welcomed the various steps taken by the government and the international community to consolidate the peace. Directors urged the expeditious implementation of the disarmament, demobilization and reintegration program (DDR) for ex-combatants, and of the reintegration, rehabilitation and reconstruction program (RRR) for ex-combatants and displaced civilians. They encouraged the authorities to continue rebuilding institutional capacity and restoring core government functions as rapidly as possible.

"Directors considered that the macroeconomic framework for 2000 strikes an appropriate balance between the need to support the rehabilitation and reconstruction programs, to provide basic social services, to reduce poverty, and to lower internal and external imbalances. They recognized the risks facing the fiscal program for 2000, reflecting the difficulty of collecting government revenue and containing expenditure in a delicate security situation. The authorities were encouraged to monitor budgetary execution very closely to ensure that budgetary objectives are attained. Directors strongly emphasized the importance of transparent management of public finances. They also emphasized the need to maintain a tight monetary policy to contain inflation, as well as the need to strengthen the banking system. Directors welcomed the steps being taken by the authorities to achieve a more flexible and realistic exchange rate.

"Directors stressed the importance of generous financial and technical support from the international community for Sierra Leone's rehabilitation and reconstruction programs. They urged the authorities to develop as soon as possible a comprehensive medium-term program that could be supported under the Fund's Poverty Reduction and Growth Facility (PRGF). They noted Sierra Leone's high level of debt in relation to its resources and considered that the country's eligibility for assistance under the HIPC Initiative should be explored further," Sugisaki said.

ANNEX

Program Summary

The civil war in Sierra Leone caused tremendous damage to the economic and social infrastructure, and inflicted extensive suffering on the population. More than 2 million people, nearly half of the population, were displaced. A modest recovery following the restoration of the democratically elected government in March 1998 was sharply reversed by the rebel invasion of Freetown in January 1999. Economic activity shrank, contributing to a collapse in the fiscal revenue base and to significant increases, in the budget deficit, bank financing, and external payments arrears. Inflation surged, and the exchange rate depreciated sharply.

A peace agreement, signed in July 1999 in Lomé, Togo, has generally been followed by the cessation of fighting in most areas. The ex-rebel leaders returned to Freetown in October 1999, which facilitated the formation on October 20 of a government of national unity, as well as the launch of the program of disarmament, demobilization, and reintegration.

The strategy of supporting the authorities' program under the emergency post-conflict assistance policy is predicated upon the need to rebuild Sierra Leone's administrative and institutional capacity, which was disrupted by the civil war. The proposed program should provide time for the authorities to rebuild their capacity and to reestablish adequate security and pave the way for a more comprehensive program of reforms that could be supported under the IMF's Poverty Reduction and Growth Facility.

The main macroeconomic objectives are to promote the resumption of economic growth, reduce financial imbalances, and begin regularizing relations with external creditors. Satisfactory implementation of the DDR program would help real GDP to rebound to a growth of 4% in 2000 from a decline of 8% in 1999.

The central objective of fiscal policy during 2000 is the targeted reduction in the domestic primary budget deficit, which is programmed to fall to about 4.2% of GDP in 2000 from an estimated 7.4% in 1999. This objective can be achieved through concerted efforts to improve tax collection and strict control on government outlays.

Monetary policy will be geared toward reducing inflation while reconstituting external reserves. The rate of inflation is targeted to fall to 15% by end-December 2000 from the 30% projected for end-December 1999. Owing to the destruction of export capacity and the large programmed increase in humanitarian assistance and reconstruction imports, the external current account deficit, before official transfers, is projected to rise to 19% of GDP in 2000 from 9% in 1999.

To improve efficiency in the foreign exchange market and reduce market segmentation, the authorities will introduce a foreign exchange auction effective January 2000. Other measures that will be taken include regularizing financial relations between the government and public enterprises, reducing tax and duty exemptions, reviewing the civil service and pensioners to remove "ghost" workers and pensioners, and strengthening the regulatory and supervisory framework for commercial banks.

Social indicators in Sierra Leone remain weak. Outlays in the DDR program, amounting to 4.6% of GDP and costing US$29 million in 2000, are almost entirely externally financed. The DDR program will provide ex-combatants with transitional social safety nets. The consolidated budget aims at the provision of the minimum social and economic services for the population and also includes a capital outlay budget expenditure relating to a program for schools, health care, and other social services.

Sierra Leone joined the IMF on September 10, 1962 and its quota1 is SDR 103.7 million (about US$142 million). Its outstanding use of IMF financing totals SDR 132.5 million (about US$182 million).


Sierra Leone: Selected Economic and Financial Indicators, 1996-2000
           
           
 

1996

1997

1998

1999

2000

     

Est.

Prog.

Prog.

           
           
 

(Annual percentage change, unless otherwise indicated)

           

Income and expenditure

         

Real GDP

5.0

-17.6

-0.8

-8.1

4.2

GDP deflator

26.3

16.8

27.0

25.0

15.0

Nominal GDP

32.6

-3.8

26.0

14.9

19.8

Consumer prices (end of period)

6.4

66.9

-5.7

29.6

15.0

Consumer prices (annual average)

23.1

14.9

35.5

33.2

15.0

           

Money and credit

         

Broad money

         

(including foreign currency deposits) 1/

28.3

47.1

11.3

40.7

23.2

(excluding foreign currency deposits)

17.8

55.9

4.3

47.4

23.4

Velocity (level)

10.1

6.6

7.5

6.1

5.9

Domestic credit 2/

39.4

57.5

27.1

50.9

20.7

Government 2/

33.2

50.9

26.2

53.1

17.7

Private sector 2/

6.2

6.2

1.2

-2.2

3.1

(annual percentage change)

22.8

24.6

5.8

-10.8

23.7

Reserve money

17.7

109.0

-20.4

36.1

21.3

Interest rate 3/

20.0

8.8

34.4

32.0

...

           

External sector

         

Exports (U.S. dollars)

3.2

-16.0

-26.2

0.0

26.6

Imports (U.S. dollars)

53.7

-56.1

4.9

0.1

74.0

Terms of trade (- deterioration)

-3.2

-1.0

4.9

-4.0

-1.1

Real effective exchange rate (- depreciation)

0.5

15.8

-14.1

...

...

           
 

(In percent of GDP)

           

Consumption

103.7

104.3

101.9

107.4

104.1

Government

10.9

9.0

8.9

13.1

11.2

Private

92.8

95.3

93.0

94.3

92.9

Gross investment

11.0

-2.4

5.3

0.3

12.8

Government

3.3

1.5

4.9

3.0

7.6

Private

7.7

-3.9

0.4

-2.7

5.2

Gross national saving

0.2

-3.4

-1.0

-2.8

4.8

Gross domestic saving

-3.7

-4.3

-1.9

-7.4

-4.1

Government

-0.8

-3.6

-1.6

-6.1

-3.1

Private

-2.9

-0.7

-0.3

-1.3

-1.0

Current account balance, including official transfers

-10.8

-1.0

-6.3

-3.1

-8.1

Current account balance, excluding official transfers

-17.2

-3.2

-9.1

-9.3

-19.4

Goods and nonfactor services (net)

-14.7

-1.9

-7.2

-7.7

-16.9

Unrequited private transfers and factor services (net)

-2.5

-1.3

-1.9

-1.6

-2.5

           

Overall balance of payments

-2.9

-13.3

-7.1

-5.5

-8.3

           

Government revenue 4/

10.1

5.4

7.3

7.0

8.1

Total expenditure and net lending 4/

16.9

13.0

20.1

24.4

30.4

Of which: current expenditure 4/

13.6

11.5

15.2

21.4

22.8

Overall fiscal deficit 4/

         

commitment basis, excluding grants)

-6.8

-7.5

-12.8

-17.4

-22.3

(commitment basis, including grants)

-5.1

-7.0

-10.4

-10.3

-14.1

Domestic primary fiscal balance 4/ 5/

-1.6

-4.1

-3.8

-7.4

-4.2

Domestic financing 4/

2.7

4.3

5.1

6.2

2.4

External debt 6/

118.5

134.6

175.7

181.5

205.2

           
 

(In percent of exports of goods and nonfactor services)

           

Debt service due 7/

38.3

30.7

47.8

57.5

51.9

External interest due 7/

12.7

8.7

15.7

15.5

13.4

           

Memorandum items:

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

External current account balance, excluding
official transfers

-161.6

-27.5

-60.8

-62.4

-122.4

Gross international reserves

26.8

38.5

43.5

49.0

40.0

(in months of imports) 8/

2.2

2.8

3.1

2.3

1.6

GDP (millions of leones)

867,073

834,499

1,051,335

1,207,721

1,447,212

Exchange rate (leones per U.S. dollar)

920.7

981.9

1,565.4

1,800.0

...

           
           

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

             

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

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

3/ Treasury bill rate (end of period; in percent); for 1999, end-September.

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

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

6/ Includes arrears.

           

7/ Before debt relief.

           

8/ In months of imports of goods and services of subsequent year.


1A member's quota in the IMF determines, in particular, the amount of its subscriptions, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


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