Press Release No. 06/285

Press Release: IMF Executive Board Completes First Review Under PRGF Arrangement for Sierra Leone and Approves US$6.6 Million Disbursement

December 18, 2006

The Executive Board of the International Monetary Fund (IMF) has completed the first review of Sierra Leone's performance under an SDR 31.1 million (about US$46.7 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release 06/94). With the completion of this review, Sierra Leone would be able to draw the equivalent of SDR 4.4 million (about US$6.6 million), bringing the amount disbursed under the arrangement to the equivalent of SDR 9.1 million (about US$13.7 million).

The Board agreed to waive the nonobservance of the end-June 2006 structural performance criterion on the updating and auditing of the civil service database, as this measure has been implemented as a prior action for completion of the first review.

Following the Executive Board's discussion on Sierra Leone, Mr. Murilo Portugal, Deputy Managing Director and Acting Chairman, said:

"The Sierra Leonean authorities are to be commended for their progress in consolidating peace and macroeconomic stability, which has supported continued robust and broad-based growth and a recent moderation in inflation. This progress places Sierra Leone, with the assistance of the international community, including the United Nations Peacebuilding Commission, in a favorable position to surmount its daunting post-conflict challenges.

"The realization of the Millennium Development Goals (MDGs) will depend on strengthened program performance, including progress towards fiscal sustainability, the avoidance of excessive debt accumulation, and strong private-sector led growth, supported by significant external financial assistance. In order to create fiscal space for poverty reduction, the Sierra Leonean authorities will need to increase the domestic revenue-to-GDP ratio, and rationalize public expenditure. A key policy measure will be civil service reforms, which should improve the quality of public services while also helping to bring the wage bill under control.

"Financial sector reforms will be important for fostering domestic savings and spurring investment and growth. Implementation of a comprehensive strategy to strengthen the financial system according to a firm timetable will be a crucial element of the reforms. A further important element will be sustained implementation of the Anti-Money Laundering Act.

"Vigilance will be needed to ensure the containment of inflation. In this regard, the decision to provide government securities to the Bank of Sierra Leone (BSL), which will help strengthen the monetary framework, is welcome. The authorities appropriately aim to pursue a flexible exchange rate policy which will facilitate economic adjustment to exogenous shocks.

"The acceleration of governance and other structural reforms will enhance transparency and accountability, and improve the regulatory framework. The authorities' commitment to critical reforms in the context of the Improved Governance and Accountability Pact, and to the full implementation of the Extractive Industries Transparency Initiative is welcome.

"The provision of debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) will lead to a significant decline in Sierra Leone's debt ratio, lowering the risk of debt distress. The authorities' commitment to using freed up resources for poverty-reducing spending and their intention to borrow only on highly concessional terms are commendable. Non-Paris Club creditors are encouraged to grant debt relief in line with the HIPC framework," Mr. Portugal said.