Press Release: IMF Completes Fourth Review Under Sierra Leone's PRGF Arrangement and Approves US$21 Million Disbursement
February 23, 2004
The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Sierra Leone's performance under a SDR 130.84 million (about US$196 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 01/39). The completion of this review enables the release of an amount equivalent to SDR 14 million (about US$21 million), which will bring the total amount drawn under the arrangement to SDR 88.84 million (about US$133 million).
In completing the review, the Board waived the nonobservance of performance criteria pertaining to net domestic bank credit to the government and to the domestic primary budget balance, as well as the nonobservance of the structural performance criteria related to the completion of payroll photo verification for all existing teachers with valid credentials and the issuance of identification cards for all verified teachers.
The Board also approved an SDR 14.75 million (about US$22 million) advance of additional interim assistance under the enhanced HIPC Initiative, as well as a six-month extension of the arrangement to March 25, 2005 from the current expiration date of September 25, 2004.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.
Following the Executive Board's discussion of Sierra Leone's economic performance, Agustín Carstens, Deputy Managing Director and Acting Chair, made the following statement:
"Sierra Leone has made continued progress in stabilizing the macroeconomy, providing sustainable growth, reducing poverty, and consolidating peace, despite continuing regional instability. Nevertheless, many challenges lie ahead in solidifying these gains, developing a realistic and ambitious medium-term framework, and progressing on a broad range of structural reforms. In view of the scheduled withdrawal of United Nations forces from Sierra Leone at year-end, the government also confronts the need to assume full responsibility for security with significant budgetary costs to the country.
"The authorities' macroeconomic objectives for 2004 will support higher growth and reduced inflation. Achievement of the fiscal target will entail reduced recourse to domestic bank financing of the budget, to support the reduction in inflation. An increased and timely availability of donor support is critical in easing financing constraints. The budget aims at raising poverty-reducing spending and revenue collection. Structural measures will aim at achieving efficiency gains in public service delivery and management.
"To strengthen monetary policy implementation, the authorities need to widen the set of monetary policy instruments, including by making a more active use of interest rates, in the context of maintaining a market-based exchange rate regime. Measures to improve bank supervision are also on-going.
"The authorities need to take strong measures to improve governance and foster the development of the private sector, including strengthening legal and judicial frameworks. In view of the critical importance of mineral and natural resources to the economy, the authorities also need to begin developing a medium- to long-term policy framework to guide their development.
"The authorities are aiming at completing the Poverty Reduction Strategy Paper for Sierra Leone by mid-2004, which will provide a critical medium-term framework to address the socio-economic challenges facing the country. They will continue to pursue debt relief with non-Paris Club creditors in the context of the enhanced HIPC Initiative. The authorities are commended for the progress made in implementing HIPC Initiative completion point triggers.
"It is expected that the authorities will build upon already solid progress on the peace front in order to consolidate gains in restoring macroeconomic stability and growth, and reducing poverty," Mr. Carstens said.