## 1sleea2019001

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### Executive summary — context and program status
- Actions by the new government since April 2018 helped stabilize macroeconomic conditions, though the situation remains challenging.
- Program performance broadly on track; all quantitative targets met except:
  - the end-December performance criterion on net domestic assets (NDA) of the Bank of Sierra Leone (BSL), and
  - the end-March indicative target on poverty-related spending.
- Staff supports authorities’ requests for:
  - completing the first review of the ECF-supported program,
  - a waiver for the nonobservance of the performance criterion on NDA (corrective actions taken),
  - new QPCs for 2019 and five structural benchmarks for the second review. (June 14, 2019)

### Key policy priorities and recommendations
- Fiscal sustainability and spending space:
  - Strengthen revenue mobilization.
  - Adopt a cautious approach to expenditure.
- Macro-fiscal risk control:
  - Finalize strategy to clear arrears expeditiously.
  - Take a more strategic approach to debt management.
  - Put state-owned banks on a firm commercial footing.
- Financial sector integrity:
  - Enhance BSL governance framework.
- Monetary policy and reserves:
  - Anchor policy on bringing inflation down to single digits.
  - Build adequate foreign exchange reserve buffers over the program period.

### Recent economic developments — main findings
- Growth:
  - Real GDP growth slowed to 3.5 percent in 2018 from 3.8 percent in 2017.
  - Rutile production less-than-expected mainly because of strikes.
  - Agricultural output short of expectations partly due to disruptions in collecting and redistributing seeds following the election.
- Inflation:
  - Inflation peaked at 19.3 percent in September 2018 and moderated to 17.5 percent in March 2019.
- Fiscal outcomes:
  - Domestic revenue reached 13.7 percent of GDP in 2018.
  - Expenditure was more than 2 percent less than programmed in 2018; paused implementation of most domestically-financed capital projects in 2018H2.
  - Domestic primary deficit narrowed sharply to 0.5 percent of GDP in 2018.
  - 2019Q1: below-budget domestic capital spending and revenue exceeding the quarterly target (partly one-offs such as telecom and other license fees).
- Monetary and banking:
  - Broad money growth was 2.2 percentage points less-than-programmed over 2018 driven largely by substantially lower overall credit to the government.
  - Government borrowed a larger amount from BSL to bridge delayed World Bank budget support, contributing to higher-than-programed increase in BSL’s NDA and reserve money.
  - Banking-sector indicators on average: well capitalized, liquid, and profitable; recorded NPLs range from 0 to 30 percent across banks.
  - Two state-owned banks have capital adequacy ratios above 30 percent and declining NPLs.
- External sector and reserves:
  - Preliminary current account deficit narrowed to 13¾ percent of GDP in 2018 from 14½ percent of GDP in 2017.
  - Leone depreciated by about 12 percent against the U.S. dollar during 2018 despite BSL intervention.
  - Gross international reserves (excluding swaps) declined to US$483 million at end-2018 (about 3.6 months of imports) from US$501 million at end-2017.

### Outlook and risks
- Growth projections and drivers:
  - Real GDP growth projected to rebound to 5.1 percent in 2019 and then gravitate toward 4¾ percent over the medium term.
  - Drivers: increased agriculture and services, electricity supply, construction, modest resumption of higher-grade iron-ore mining.
- Major vulnerabilities and risk channels:
  - Exposure to external conditions and commodity price swings affecting mining production, revenues, and FX earnings.
  - Less-than-expected donor financing could complicate fiscal management and limit reorientation toward social priorities and infrastructure.
  - Capacity constraints or political resistance may jeopardize revenue mobilization and debt sustainability.
  - Inability to clear and prevent new arrears poses sizeable risk to debt sustainability.
  - Reoccurrence of politically-related, loss-making lending in state-owned banks could create fiscal contingent liabilities.
- Risk-mitigation advice (selected):
  - Strengthen communication and consultation to build buy-in for reforms.
  - Strengthen revenue mobilization and budget execution; seek supporting TA.
  - Limit discretionary expenditures and proportionally reduce expenditure if revenue underperforms.
  - Develop and implement strategy to put state-owned banks on a commercial footing and minimize undue government influence.
  - Maintain enhanced bank supervision, including regular on-site inspections and stress testing.
  - Allow exchange rate flexibility to absorb external shocks and build adequate FX reserve coverage.
  - Continue allowing the automatic pricing mechanism for fuel to work.

### Fiscal strategy and medium-term outlook
- Anchor: gradually reduce domestic bank borrowing to around 2 percent of GDP over the program period to alleviate inflation and interest bill pressures.
- Authorities aware of rising foreign-currency debt service toward the end of the program and potential impact of arrears clearance on debt sustainability.
- Principle: steady deficit reduction to achieve domestic primary surplus by 2021 (MEFP ¶15).
- 2019 budget consistent with program; overall deficit for 2019 at 3.6 percent of GDP (less than 4.3 percent at program request time) due to higher budget support.
- Medium-term revenue mobilization:
  - Government target: raise domestic revenue to 20 percent of GDP by 2023 (MEFP ¶17).
  - Program assumes a more measured path: domestic revenue nearing 16½ percent of GDP by end of the program.
- Expenditure path:
  - More conservative medium-term expenditure path (more than 1 percentage point below program by 2022).
  - Recommitment to reduce wage bill to 6 percent of GDP by end of program (MEFP ¶19).
  - Continued restraint on goods and services (MEFP ¶21).
  - More gradual increase in domestic capital spending; foreign-financed capital expenditure key to maintain overall capital envelope.

### Reforms to promote effective fiscal policy
- Tax policy and administration (MEFP ¶17):
  - Continued implementation of liberalized fuel price mechanism (continuous structural benchmark).
  - Review policy on tax exemptions and waivers.
  - NRA data matching exercise with other government agencies.
  - Planned reforms in second half of 2019:
    - Amend NRA Act to enhance governance, accountability, enforcement; share amended NRA Act with Fund by end-September 2019 (structural benchmark).
    - Automate tax processes via Integrated Tax Administration System (ITAS); interim roll-out of banking module to banks.
  - Securing GST benefits from Electronic Cash Registers depends on integrating information in ITAS.
- Public financial management (PFM) reforms (MEFP ¶¶18–24):
  - Public sector payroll verification to support wage bill containment.
  - Expand IFMIS coverage to remaining 30 MDAs (bringing total coverage to 56).
  - Additional MDAs incorporated into TSA; reconciliation of inter-agency arrears; publish quarterly report on arrears at MDAs and SOEs.
- Public investment management:
  - Request for IMF Public Investment Management Assessment (PIMA).
  - Plan to adopt National Public Investment Policy (MEFP ¶22).
  - Need coordinated process across Ministry of Planning and Economic Development, Vice President’s Office (PPP unit), and Presidential infrastructure initiative.

### Debt management and borrowing limits
- Domestic debt concerns:
  - Domestic debt almost doubled in recent years; higher cost and rollover risks.
  - High implicit domestic debt (arrears to suppliers) challenges lowering "high" risk of debt distress (2018 DSA).
- External borrowing limits:
  - US$100 million ceiling on new concessional public external debt for 2019; zero limit for non-concessional public external debt.
- Authorities preparing Medium-Term Debt Management Strategy (MEFP ¶25).
- Cautious approach: prioritize highly concessional loans and grants; consult staff before large infrastructure financing packages (MEFP ¶22).

### Domestic arrears: assessment and clearance strategy
- Authorities intensifying arrears clearance efforts (MEFP ¶¶26–29).
- Initial verification suggests stock expected to exceed program-estimated 4 percent of GDP; further work needed (Box 3).
- Timetable and steps:
  - Complete arrears stocktaking by end-August (structural benchmark).
  - Outline medium-term framework with resource envelope and repayment/rescheduling mechanisms by end-September.
  - Finalize arrears clearance strategy with medium-term resource allocation plan by end-October.
  - Submit 2020 budget to Parliament consistent with strategy by end-November.
  - Establish real-time monitoring system to keep database up-to-date (MEFP ¶¶18–23).
- Box 3 key figures and reconciliations:
  - Program-approved estimate: stock of arrears about 4 percent of GDP (unpaid checks).
  - ASSL audited claims totaling Le 11.6 trillion covering 2010–18; audit verified Le 4.5 trillion (nearly 14 percent of GDP), though likely overstates arrears pending adjustments.
  - MoF unpaid checks: Le 1,156 billion as of December 2018.
  - Government discussions with World Bank on scaling up budget support for FY19/20 to USD 100 million, intending to use around USD 60 million for clearing arrears.

### Monetary and price stability
- BSL aims to bring inflation down to 14 percent by end-2019 (MEFP ¶32).
- Monetary policy challenges due to large budgetary financing needs and need to build reserves.
- If inflationary pressures are persistent, staff supports tighter monetary stance.
- Money aggregates should continue as operating target while strengthening indirect instruments (with IMF TA).
- Recommendation: shift from ad hoc liquidity support to transparent, forward-looking approach.
- Deepen domestic debt instruments to establish yield curve and improve monetary transmission.
- External reserves objective: build and maintain adequate reserve coverage around 3½ months of imports.
- Staff encouraged authorities to start FX purchase auctions as soon as possible and allow exchange rate flexibility; limit FX sales to smoothing excessive volatility.

### Safeguarding financial system soundness
- Strengthen BSL and banking sector governance as banks shift from T-bills toward private sector lending.
- Legislation and governance:
  - New BSL and Banking Bills passed by Parliament in late May (MEFP ¶38); awaiting Presidential assent.
  - New BSL law to bolster independence, accountability, and oversight of Islamic banking activities.
- Forensic audit and safeguards:
  - Forensic audit final report presented mid-June; intended publication by late July after tabling in Parliament.
  - Authorities to develop remedial action plan by end-August 2019 (structural benchmark) (MEFP ¶34).
  - Appointment of international audit firm (with local firm) to audit FY2017 financial statements and commitment to maintain arrangement for 2018 audit (MEFP ¶11).
- State-owned banks:
  - Developing strategic plan proved complex; World Bank to conduct targeted diagnostic by end-September 2019 (structural benchmark) (MEFP ¶41).
  - Interim: staff supports BSL’s enhanced supervision of the two banks.

### Program modalities, performance, and financing assurances
- Program performance broadly on track; structural progress slower than anticipated.
  - All quantitative targets met except end-December NDA of BSL and end-March poverty-related spending target.
  - Three structural benchmarks missed: forensic audit of BSL, strategic plan for two state-owned banks, strategy for clearing domestic arrears—missed due to complexity and dependence on expert advice.
  - No new accumulation of non-concessional external public debt and no public sector arrears to sovereigns or external private creditors.
- NDA developments and corrective actions:
  - Borrowing from BSL in late 2018 to bridge delayed donor budget support contributed to higher-than-programmed end-December NDA; loan repaid in 2019Q1.
  - BSL extended another bridge loan in late April to cover delayed AfDB disbursement; repaid in late May.
  - Authorities repaid loans and committed to enhancing program monitoring; staff supports waiver request.
- Structural benchmarks for next review:
  - Five new structural benchmarks to be assessed during next review; carry-over of continuous SB on fuel price mechanism; three correspond to those missed and reformulated incrementally; one new SB on NRA Act amendment.
  - Indicative targets set for March 2020.

### Program implementation risks and capacity
- Risks significant but manageable; capacity constraints could endanger goals, especially on revenue mobilization and fiscal risks.
- Capacity to repay the Fund remains adequate.
  - Total outstanding debt to the Fund projected to peak in 2020–21 at SDR 290.6 million (140.1 percent of quota).
  - Debt service payments to the Fund remain manageable, despite exceeding 1 percent of GDP and 9 percent of gross reserves by the end of the program.
- Financing assurances:
  - Program fully financed for next twelve months; good prospects to cover remainder of ECF arrangement.
  - Procedural delays to donor financing from 2018 should not have ongoing implications given conservative timeline.
- Data provision and monitoring:
  - Data provision adequate for program monitoring; continued strengthening of data quality recommended.

### Staff appraisal — summary recommendations
- 2019 is a key test to consolidate reforms; requires strong policy leadership, capacity building, and donor support.
- Fiscal policy:
  - Maintain goal of reducing domestic bank borrowing to around 2 percent of GDP.
  - Cautious foreign borrowing to balance fiscal risks and investment capacity.
  - Revenue mobilization is critical; support for ITAS upgrade and NRA governance enhancements.
  - Conservative expenditure approach appropriate; windfalls or grants could support priority spending or reduce arrears.
  - IMF-led PIMA supported to improve public investment effectiveness.
- Arrears and state-owned banks:
  - Quick finalization of arrears stock and clearance strategy is vital.
  - Partner with World Bank on updated diagnostic of state-owned banks; enhanced supervision to continue.
- Debt management and monetary policy:
  - Develop Medium-Term Debt Management Strategy and prioritize grants and highly concessional loans.
  - Support lowering inflation to single digits; tight monetary stance appropriate given current pressures.
  - Continue using monetary aggregates as operating target while strengthening indirect instruments.
  - Increase exchange rate flexibility and maintain reserve buffers.
- Governance:
  - Passage of new BSL law is milestone; adopt remedial action plan to address forensic audit findings and strengthen BSL integrity.

### Structural benchmarks, QPCs, and financing schedule (selected figures)
- Disbursements under ECF arrangement (selected schedule): Availability 15.55 (in millions of SDRs); 57.50 (in percent of quota) for each scheduled tranche on: November 30, 2018; June 1, 2019; December 1, 2019; June 1, 2020; December 1, 2020; June 1, 2021; December 1, 2021; June 1, 2022.
- Total disbursements under the ECF arrangement: 124.44 (in millions of SDRs); 60.00 (in percent of quota).
- Benchmarks for First Review (selected statuses):
  - Complete audit of BSL’s 2017 financial statements — January 31, 2019 — Met.
  - Publish forensic audit final report & adopt remedial plan — May 31, 2019 — Not met.
  - Develop strategic plan for two state-owned banks — March 31, 2019 — Not met.
  - Continue automatic fuel price indexation — Continuous — Met.
  - Adopt plan for outstanding unpaid obligations to domestic suppliers (arrears) — March 31, 2019 — Not met.
- Proposed Benchmarks for Second Review (timing):
  - Adopt remedial action plan to address forensic audit findings — August 31, 2019.
  - Complete stocktaking of payment arrears to domestic suppliers — August 31, 2019.
  - Prepare draft amendments to NRA Act and submit to Fund staff — September 30, 2019.
  - Update 2016 diagnostic study of two state-owned banks with World Bank support — September 30, 2019.
  - Continue automatic fuel price indexation — Continuous.

### Key macro-financial indicators and selected figures (as presented)
- Selected external sector and financing projection entries (millions of U.S. dollars, across specified rows/columns):
  - Current account (CR No. 18/371 Prel. series): -165.3, -535.2, -545.1, -564.2, -489.9, -443.5, -421.2, -426.3, -417.3.
  - Trade balance: -318.4, -538.1, -626.5, -595.7, -427.7, -321.5, -296.1, -240.7, -248.0.
  - Exports, f.o.b.: 654.4, 652.1, 657.7, 602.0, 834.8, 1,015.1, 1,118.6, 1,206.2, 1,296.8.
  - Imports, f.o.b.: -972.8, -1,190.2, -1,284.2, -1,197.7, -1,262.5, -1,336.7, -1,414.7, -1,446.9, -1,544.8.
  - Overall balance: -146.8, -6.1, -39.7, -34.9, -13.5, 32.2, 12.0, 55.1, 86.9.
  - Gross International Reserves (memorandum, including swaps): 503, 534, 546, 516, 492, 503, 498, 489, 532, 494, 517, 563.
- Indicators of Fund obligations and outstanding credit (selected rows):
  - Fund obligations based on existing credit (in millions of SDRs) — Principal (2019–2033 sequence shown): 8.3, 21.2, 31.1, 42.1, 44.3, 46.5, 33.5, 20.7, 7.0, 3.1, 0.0, 0.0, 0.0, 0.0, 0.0.
  - Total obligations based on existing and prospective credit (in millions of US$): 11.5, 29.5, 43.3, 58.6, 61.6, 66.8, 57.4, 48.3, 37.9, 34.6, 28.1, 19.5, 10.8, 2.2, 0.0.
  - Outstanding Fund credit (in millions of SDRs): 280.6, 290.6, 290.6, 264.0, 219.7, 171.7, 130.4, 95.7, 68.4, 43.6, 23.3, 9.3, 1.6, 0.0, 0.0.

### Annex I — Capacity development (CD) strategy and priorities
- CD focus areas: public finance management; tax policy and revenue administration; financial sector supervision; central banking operations and governance; statistics compilation and dissemination.
- Key CD priorities:
  - PFM: operationalize legal framework; improve public debt management under Medium Term Debt Strategy; manage fiscal risks including SOEs; extend annual budget coverage to general government; strengthen TSA; migrate to general government finance statistics and IPSAS.
  - Tax policy: operationalize natural resource management framework; improve extractive industry fiscal modelling; address transfer pricing.
  - Revenue administration: increase tax compliance; broaden tax base; modernize NRA governance.
  - Bank supervision: strengthen supervisory process.
  - Central banking: modernize monetary policy frameworks; revise Banking and BSL Acts.
  - Statistics: produce timely, frequent, credible indicators.
- Main risks to TA implementation:
  - Capacity constraints, political constraints, financing constraints.
- Mitigation measures:
  - Hands-on workshops, Res Rep office outreach to Parliament and stakeholders, Res Rep office as interlocutor for development partner financing.

### Selected program and economic figures (selected entries preserved)
- Real GDP growth: 3.5 percent in 2018 (down from 3.8 percent in 2017).
- Inflation: Consumer prices peaked at 19.3 percent in September 2018; 17.5 percent in March 2019.
- Pump price of gasoline decreased by 15 percent following pass-through policy.
- Fiscal performance:
  - Overall fiscal deficit (excluding grants): 7.9 percent of GDP in 2018 (down from 11.3 percent in 2017).
  - Domestic revenues: Le 4.4 trillion (13.7 percent of GDP) in 2018, up from 12.3 percent of GDP in 2017.
  - Domestic debt stock: Le 5.66 trillion at end-2018 (up from Le 4.56 trillion at end-2017).
  - Domestic interest payments: Le 865.8 billion (2018) versus Le 535.28 billion (2017).
- Monetary and banking:
  - Monetary Policy Rate (MPR): 15 percent in December 2017 to 16.5 percent in July 2018.
  - Capital adequacy ratio for banking industry: 38.4 percent at end-December 2018 (minimum requirement 15 percent).
  - Gross loans and advances increased by 18.2 percent by end-2018.
  - Aggregate non-performing loans: 12.7 percent in December 2018 (down from 14.6 percent in December 2017).
- External sector and reserves:
  - Current account deficit: 13.8 percent of GDP in 2018 (improved from 14.5 percent in 2017).
  - Leone depreciation: 11.9 percent year-on-year against the US$ in 2018 relative to 2017.
  - Official foreign exchange reserves: US$502.80 million at end-December 2018 (down from US$533.8 million at end-December 2017).
- Public debt:
  - End-2018 stock of public debt: US$2.24 billion, nearing 60 percent of GDP in 2018.
  - External debt: US$1.57 billion at end-2018 (up from US$1.51 billion at end-2017).
    - Multilateral debt: US$1.2 billion at end-2018 (up from US$1.13 billion at end-2017).
    - Bilateral debt: US$185.82 million at end-2018 (up from US$177.61 million at end-2017).
    - Commercial debt: US$188.5 million at end-2018 (down from US$195.05 million at end-2017).

### Public financial management, procurement, TSA, and SOE oversight (selected reforms)
- Wage bill target: not more than 6 percent of GDP; biometric verification revealed >10 percent of public sector workers were not matched/verified.
- Procurement reforms: publish revised Public Procurement Regulations; introduce e-GP system; develop 5-year national procurement strategy; reconstitute Independent Procurement Review Panel (IPRP).
- TSA deepening:
  - Broadened coverage with five additional agencies added in early 2019.
  - Print and disseminate TSA Operations Manual; automate between Accountant-General’s Department and BSL.
  - Commence Phase II to include sub-vented agencies, semi-autonomous agencies and project accounts.
- SOE oversight:
  - New Fiscal Risk Management and Fiduciary Oversight of SOEs Division established in Ministry of Finance.
  - Publish quarterly report on arrears stock at MDAs and SOEs and annual financial statements of SOEs beginning with EDSA, EGTC and GVWC.

### Arrears clearance options and measures to prevent re-emergence
- Options under consideration:
  - i. Outright cash payments for small claims in MDAs.
  - ii. Apply revenue windfall or grant resources (e.g., World Bank scale-up to USD 100 million; intend to use around USD 60 million for arrears).
  - iii. Securitization of some claims (issuing medium/long-term securities; issuing treasury bills to raise resources).
- Preventative PFM measures:
  - Issue Quarterly allocations based on revenue trends.
  - Deploy Budget Officers and Internal Audit Staff in MDAs.
  - Improve cash management and commitment controls via IFMIS.
  - Enhance oversight of SOEs and local councils.

### Program monitoring, definitions, and reporting
- Program monitored semi-annually through QPCs and structural benchmarks.
- Quantitative performance criteria examples (Le billions; within-year cumulative changes):
  - Net domestic bank credit to central government (ceiling): Stock 5171; illustrative prog entries include 823; 407.
  - NDA of BSL (ceiling): Stock 858; illustrative prog entries include 404; 22.
  - Gross international reserves of BSL, US$ millions (floor): unadjusted target (floor) 7-20.
- Technical Memorandum assumptions:
  - Program exchange rate for 2019: Le 8,396.05/US$ (SDR: 1.00 = 11,677.14 Leones; US$: 1.39 = 8,396.05 Leones = 1.00 US$).
  - Program reference rate for six-month USD LIBOR: 3.34 percent (fixed for program duration).
  - Spread assumptions for Euro, JPY, GBP over six-month USD LIBOR: -250, -300, -100 basis points respectively.
  - Assumed external budgetary assistance (cumulative from January 1, 2019): End-March 2019: USD 0 million; End-June 2019: USD 13 million; End-September 2019: USD 61 million; End-December 2019: USD 85 million.

*Source: IMF staff and Sierra Leonean authorities (content unit: 1sleea2019001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and program status
- Actions by the new government since taking office in April 2018 helped to stabilize macroeconomic conditions, though the situation remains challenging.  
- Program performance is broadly on track; all quantitative targets were met except:
  - the end-December performance criterion on net domestic assets (NDA) of the central bank, and
  - the end-March indicative target on poverty-related spending.  
- Staff supports the authorities’ requests for completing the first review of the ECF-supported program and a waiver for the nonobservance of the performance criterion on NDA, noting corrective actions have been taken. Staff also supports the new QPCs for 2019 and five structural benchmarks for the second review. (June 14, 2019)

### Key policy priorities and recommendations
- Secure fiscal sustainability and create space for priority spending by:
  - strengthening revenue mobilization, and
  - adopting a cautious approach to expenditure.
- Control macro-fiscal risks by:
  - finalizing the strategy to clear arrears expeditiously (complemented by a more strategic approach to debt management), and
  - taking steps toward putting state-owned banks on a firm commercial footing.
- Safeguard the integrity and accountability of the financial system by enhancing the BSL’s governance framework.
- Anchor monetary policy on bringing inflation down to single digits and building adequate foreign exchange reserve buffers over the program period.

### Recent economic developments — main findings
- Growth:
  - Real GDP growth slowed to 3.5 percent in 2018 from 3.8 percent in 2017, reflecting less-than-full budget implementation and the continued shutdown of iron-ore mines.
  - Rutile production was less-than-expected mainly because of strikes.
  - Agricultural output fell short of expectations partly due to disruptions in collecting and redistributing seeds following the election.
- Inflation:
  - Inflation peaked at 19.3 percent in September 2018 and moderated to 17.5 percent in March 2019 as fuel price liberalization effects waned, tighter monetary policy began to take effect, and food inflation decelerated.
- Fiscal outcomes:
  - Domestic revenue slightly exceeded the 2018 nominal target, reaching 13.7 percent of GDP in 2018.
  - Expenditure was more than 2 percent less than programmed in 2018, with paused implementation of most domestically-financed capital projects in 2018H2.
  - The domestic primary deficit narrowed sharply to 0.5 percent of GDP in 2018.
  - Pattern continued in 2019Q1 with below-budget domestic capital spending and revenue exceeding the quarterly target, partially owing to one-offs (such as telecom and other license fees).
- Monetary and banking:
  - Broad money growth was 2.2 percentage points less-than-programmed over 2018 driven largely by substantially lower overall credit to the government.
  - The government borrowed a larger amount from the Bank of Sierra Leone (BSL) to bridge delayed World Bank budget support, contributing to a higher-than-programed increase in the BSL’s net domestic assets (NDA) and reserve money.
  - Banking-sector indicators on average show the sector is well capitalized, liquid, and profitable, but with wide variation: recorded NPLs range from 0 to 30 percent across banks.
  - Two state-owned banks have capital adequacy ratios above 30 percent and declining NPLs; enhanced BSL supervision helped stabilize FiBank after an ownership dispute.
- External sector and reserves:
  - Preliminary data suggest the current account deficit narrowed to 13¾ percent of GDP in 2018 from 14½ percent of GDP in 2017.
  - The Leone depreciated by about 12 percent against the U.S. dollar during 2018 despite BSL intervention.
  - Gross international reserves (excluding swaps) declined to US$483 million at end-2018 (about 3.6 months of imports) from US$501 million at end-2017.

### Outlook and risks
- Growth projections and drivers:
  - Real GDP growth is projected to rebound to 5.1 percent in 2019 and then gravitate toward 4¾ percent over the medium term, driven by increased agriculture and services, electricity supply, construction, and a modest resumption of higher-grade iron-ore mining.
- Major vulnerabilities and risk channels:
  - Lack of economic and policy buffers leaves Sierra Leone vulnerable to changes in external conditions, including global commodity price swings affecting mining production, revenues, and FX earnings.
  - Less-than-expected donor financing could complicate fiscal management and limit reorientation of spending toward social priorities and infrastructure.
  - Difficulty in maintaining domestic reform momentum—due to technical or absorptive capacity constraints or political resistance—could jeopardize revenue mobilization, expenditure prioritization, and debt sustainability.
  - Inability to clear and prevent new arrears poses a sizeable risk to securing debt sustainability.
  - Reoccurrence of politically-related, loss-making lending practices in the two state-owned banks could lead to fiscal contingent liabilities.
- Risk-mitigation policy advice (selected):
  - Strengthen communication and consultation to build broad buy-in for reforms.
  - Strengthen revenue mobilization and budget execution; seek supporting TA.
  - Limit discretionary expenditures and proportionally reduce expenditure if revenue underperforms.
  - Develop and implement a strategy to put state-owned banks on a commercial footing and minimize undue government influence.
  - Maintain enhanced bank supervision, including regular on-site inspections and stress testing.
  - Allow exchange rate flexibility to absorb external shocks and build adequate FX reserve coverage.
  - Continue allowing the automatic pricing mechanism for fuel to work.

### Program implementation and operational notes
- The ECF-supported program aligns broadly with the authorities’ National Development Plan (NDP) for 2019–23, which focuses on governance and accountability, resilience, and investing in people and infrastructure. The NDP is more ambitious on revenue mobilization than the ECF framework; the ECF takes a more cautious approach.
- Boxed diagnostic findings noted capacity constraints as a watch point given multiple reform activities; continued well-focused and timely capacity development is a priority (Annex 1).
- Boxed analysis of 2018H2 monetary dynamics highlighted that higher-than-programed NDA reflected competing pressures in the banking system and the BSL’s bridge loan; earlier remedial actions could have avoided the NDA breach.

*Source: EXECUTIVE SUMMARY of 1sleea2019001 (IMF).*

### 10.      The authorities remain strongly committed to achieving fiscal and debt sustainability.

### 10.      The authorities remain strongly committed to achieving fiscal and debt sustainability.

### Fiscal strategy and medium-term outlook
- Adjustment path anchored in gradually reducing domestic bank borrowing to around 2 percent of GDP over the program period to help alleviate pressure on both inflation and the interest bill.
- Authorities cognizant of rising foreign-currency debt service towards the end of the program (and associated exchange rate risk) and the potential impact of arrears clearance on debt sustainability.
- Principles guide a steady and significant deficit reduction over the program (MEFP ¶15), achieving a domestic primary surplus by 2021.
- 2019 budget remains consistent with the program despite structural factors increasing spending:
  - TSA expanded in 2019 to include five additional Ministries, Departments and Agencies (MDAs) (of which only 2 are revenue-generating) (MEFP ¶23), improving coverage but raising recorded expenditure.
  - Higher-than-anticipated interest spending will likely raise nominal expenditures in 2019.
  - Outlook for domestic revenue remains as programmed.
  - Overall deficit for 2019 at 3.6 percent of GDP should be less than at time of the program request (4.3 percent of GDP), thanks to higher budget support.
- Medium-term revenue mobilization:
  - Government target of raising domestic revenue to 20 percent of GDP by 2023 (MEFP ¶17).
  - Program adopts a more measured revenue assumption: domestic revenue path nearing 16½ percent of GDP by the end of the program remains broadly unchanged.
- Authorities adopted a more conservative medium-term expenditure path (more than 1 percentage point below the program by 2022).
  - Recommitment to reducing the wage bill to 6 percent of GDP by the end of the program (MEFP ¶19).
  - Continued restraint on goods and services expenditure (MEFP ¶21).
  - More gradual increase in domestic capital spending compared to the approved program; foreign-financed capital expenditure key to maintaining overall capital envelope.
  - Windfalls from revenue mobilization or additional grants could support higher development spending.

### Reforms to promote more effective fiscal policy
- Tax policy and administration reforms underpin revenue mobilization goals (MEFP ¶17):
  - Continued implementation of the liberalized fuel price mechanism (continuous structural benchmark).
  - Review of policy on tax exemptions and waivers.
  - NRA data matching exercise with other government agencies could yield near-term benefits.
  - Two planned reforms in second half of 2019 to enhance administration:
    - Amended NRA Act to enhance governance, accountability, and enforcement; authorities plan to share amended NRA Act with Fund for review by end-September 2019 (structural benchmark).
    - Automating tax processes via Integrated Tax Administration System (ITAS), supported by the World Bank, to enhance compliance; interim roll-out of the banking module to banks.
  - Securing GST benefits from planned upgrade to Electronic Cash Registers depends on integrating information in ITAS.
- Public financial management (PFM) reforms (MEFP ¶¶18–21, ¶¶23–24):
  - Public sector payroll verification exercise to support wage bill containment.
  - Improvements to IT systems to facilitate strict adherence to PFM law.
  - Expanded coverage of Integrated Financial Management System (IFMIS) to remaining 30 MDAs, bringing total coverage to 56.
  - Additional MDAs incorporated into TSA this year following inclusion of six agencies last year.
  - Reconciliation of inter-agency arrears to better control quasi-government agency risks; commitment to publish a quarterly report on arrears at MDAs and SOEs.
- Public investment management:
  - Government requested a Public Investment Management Assessment (PIMA) by the IMF to identify strengths and weaknesses.
  - Plan to adopt a National Public Investment Policy to align investments with the NDP (MEFP ¶22).
  - Need to contain contingent fiscal risks while addressing large infrastructure deficit.
  - Importance of coordinated process across Ministry of Planning and Economic Development (public investment unit), Vice President’s Office (PPP unit), and Presidential infrastructure initiative for effective project review, selection, and prioritization.

### Improving debt management
- Domestic debt concerns:
  - Domestic debt has almost doubled in recent years, with increasing cost and a term profile susceptible to rollover risks.
  - Potential high level of implicit domestic debt (arrears to suppliers) poses a challenge in reducing the “high” risk of debt distress (per the 2018 DSA).
- External borrowing limits:
  - US$100 million ceiling on new concessional public external debt for 2019, and zero limit for non-concessional public external debt, remain appropriate.
- Authorities preparing a Medium-Term Debt Management Strategy drawing on recent IMF TA (MEFP ¶25) focusing on reducing roll-over risk and borrowing costs.
- Cautious approach to foreign borrowing:
  - Budget financing strategy prioritizes highly concessional loans and more reliance on grants, with consultations with donors.
  - Exploring non-debt creating financing (such as PPPs) for potential large infrastructure projects while avoiding contingent fiscal risks; authorities committed to consult staff before deciding on any large infrastructure financing package (MEFP ¶22).

### Domestic arrears: assessment and clearance strategy
- Authorities intensifying efforts to clear domestic payment arrears (MEFP ¶¶26–29):
  - Persistent arrears undermine public sector credibility, service delivery, pressure banking system, and create uncertainties for NDP goals.
  - Initial arrears verification suggests total stock expected to exceed the 4 percent of GDP estimated in the program request; further work needed to complete stocktaking and obtain final arrears figure (Box 3).
  - Authorities intend to complete arrears stocktaking by end-August (structural benchmark) to finalize arrears clearance strategy.
  - Seeking additional resources from World Bank and others; received IMF TA on securitization scope to prioritize arrears and specify repayment/rescheduling mechanisms ahead of the 2020 budget.
- Box 3 — Progress Towards Domestic Arrears Clearance (key points preserved):
  - Program-approved estimate: stock of arrears about 4 percent of GDP (unpaid checks).
  - ASSL audited claims totaling Le 11.6 trillion covering 2010–18; audit verified Le 4.5 trillion (or nearly 14 percent of GDP), though this likely overstates arrears pending adjustments:
    - ASSL’s verified claims include future payment obligations that should not be included as arrears.
    - ASSL’s verified claims should be combined with unpaid checks recorded by MoF (Le 1,156 billion as of December 2018), eliminating any double counting.
    - Payments made to contractors during (or after) verification should be excluded from the arrears figure.
  - Authorities’ critical steps and timetable:
    - Form working group including MoF, ASSL, and relevant MDAs to transparently review individual claims (initiated) and determine comprehensive arrears figure, drawing on IMF TA recommendations (end-August).
    - Outline medium-term framework with resource envelope, prioritization, and mechanisms for repaying/rescheduling arrears (end-September):
      - Discuss available funding with development partners.
      - Identify other financing options, drawing on IMF TA and considering steps to address non-marketable securities on the BSL’s balance sheet.
      - Assess impact on debt sustainability.
    - Finalize arrears clearance strategy with medium-term resource allocation plan (end-October).
    - Submit 2020 budget to Parliament consistent with the strategy (end-November).
    - Establish real-time monitoring system to keep database up-to-date and strengthen PFM controls to prevent reemergence of arrears (MEFP ¶¶18–23).
  - Government discussions with World Bank on scaling up budget support for FY19/20 to USD 100 million, of which they intend to use around USD 60 million for clearing arrears.

### Achieving monetary and price stability
- BSL aims to bring inflation down to 14 percent by end-2019 (MEFP ¶32).
- Monetary policy challenges given large budgetary financing needs and need to build international reserve buffers.
- If inflationary pressures are more persistent, staff would support BSL adopting a tighter monetary stance.
- Money aggregates should continue as the operating target while indirect instruments are strengthened (with IMF TA).
- Recommendation for BSL to shift from ad hoc liquidity support to a transparent, forward-looking approach.
- Deepening domestic debt instruments of different maturities to establish a yield curve, develop monetary transmission, and improve traction of BSL’s policy rate.
- External vulnerabilities and reserves:
  - Key program objective: build and maintain adequate reserve coverage around 3½ months of imports.
  - Important to proactively accumulate reserve buffers to avoid decline in reserve coverage with projected increase in external debt service over medium term.
  - Staff encouraged authorities to start FX purchase auctions as soon as possible.
  - Authorities have drawn on BSL’s limited reserves to stem depreciation pressures, but resisting exchange rate flexibility will delay adjustment and harm competitiveness.
  - Recommend allowing exchange rate flexibility, limiting FX sales to smoothing excessive volatility, and reforms to deepen FX market.
  - BSL developing new FX guidelines for exporters and non-governmental organizations; important to avoid measures that give rise to restrictions on current international transactions or multiple currency practices.

### Safeguarding financial system soundness
- Strengthening BSL and banking sector governance to bolster regulatory and supervisory framework as banks shift from T-bills toward private sector lending.
- Legislation and governance measures:
  - New BSL and Banking Bills passed by Parliament in late May (MEFP ¶38) and should soon receive Presidential assent.
  - New BSL law will bolster independence, accountability, and ability to deliver monetary and financial stability mandates; amended to give BSL oversight of Islamic banking activities.
- Forensic audit and safeguards:
  - Forensic audit final report presented to authorities in mid-June; intended to be published by late July after tabling in Parliament.
  - Authorities intend to develop a comprehensive remedial action plan by end-August 2019 to address forensic audit findings (structural benchmark) (MEFP ¶34).
  - Some immediate actions identified to strengthen BSL internal controls and ensure MDAs deposit FX into BSL rather than commercial banks.
  - Progress on safeguards recommendations slow; key outstanding items include consultant engagement to review accounting controls, external quality assessment of internal audit, and addressing control deficiencies at BSL.
  - Progress: appointment of an international audit firm (with a local firm) to audit FY2017 financial statements and commitment to maintain this arrangement for 2018 audit (MEFP ¶11).
- State-owned banks:
  - Developing a strategic plan for two state-owned banks proved more complex than expected.
  - Fiscal risks eased but putting banks on firmer commercial footing remains a priority to minimize undue government influence and politically-motivated loss-making lending.
  - Authorities engaged the World Bank to conduct a targeted diagnostic of the banks by end-September 2019 (structural benchmark) (MEFP ¶41).
  - Results intended to inform strategic decisions on function, business model, and governance framework; authorities hope to complete steps by March/April 2020 but will require additional technical support.
  - Interim: staff supports BSL’s intention to maintain enhanced supervision of the two banks.

### Program modalities, performance, and financing assurances
- Program performance broadly on track; structural progress slower than anticipated:
  - All quantitative targets met except end-December performance criterion on NDA of the BSL and end-March indicative target on poverty-related spending.
  - End-March poverty-related spending target shortfall reflected late 2018 surge in flagship poverty-related spending and cautious execution in 2019Q1; likely to normalize over remainder of 2019.
  - Three structural benchmarks missed: forensic audit of the BSL, strategic plan for the two state-owned banks, and strategy for clearing domestic arrears—missed due to complexity and dependence on expert advice.
  - No new accumulation of non-concessional external public debt and no public sector arrears to sovereigns or external private creditors.
- NDA developments and corrective actions:
  - Borrowing from BSL in late 2018 to bridge delayed donor budget support contributed to higher-than-programmed end-December NDA; loan repaid in 2019Q1.
  - BSL extended another bridge loan in late April to cover delayed AfDB disbursement; repaid in late May.
  - Authorities repaid these loans and committed to enhancing program monitoring to avoid recurrence (MEFP ¶10); staff supports request for a waiver based on corrective actions.
- Structural benchmarks and next review:
  - Five new structural benchmarks (SBs) will be assessed during next program review (Table 10).
  - One carry-over of continuous SB on fuel price mechanism.
  - Three correspond to those missed in this review and reformulated as measured, incremental steps.
  - One new SB on NRA Act amendment supports revenue mobilization goals.
  - Review sets indicative targets for March 2020.

*IMF staff summary based on program documents and MEFP excerpts.*

### 27.      Program implementation risks are significant but manageable. If capacity constrains

### Program implementation risks are significant but manageable

### Program risks and capacity
- Program implementation risks are significant but manageable.
- If capacity constrains progress on reforms, this could endanger the program’s goals, particularly if revenue mobilization and tackling fiscal risks prove more challenging, or if exchange rate pressures motivate FX sales.
- The authorities remain firmly committed to advancing reforms under the program.

### Capacity to repay the Fund and debt service
- Capacity to repay the Fund remains adequate (Table 6).
- Sierra Leone has a good track record of meeting its external obligations, including to the Fund.
- Total outstanding debt to the Fund is projected to peak in 2020–21 at SDR 290.6 million (140.1 percent of quota).
- Debt service payments to the Fund remain manageable, despite exceeding 1 percent of GDP and 9 percent of gross reserves by the end of the program.

### Financing assurances and arrears
- Financing assurances are adequate.
- The program is fully financed for the next twelve months, with good prospects to cover financing needs for the remainder of the ECF arrangement.
- The procedural delays to donor financing from 2018 should not have ongoing implications for the program, particularly as the program is based on a conservative timeline for future budget support.
- The authorities continue to make good faith efforts to reach a collaborative agreement regarding Sierra Leone’s long-standing arrears to external commercial creditors.

### Data provision and monitoring
- Data provision is adequate for program monitoring.
- Continuing to strengthen data quality would better support economic policymaking and program monitoring.

### Staff appraisal — key findings and policy recommendations
- 2019 is a key test to consolidate reforms and entrench macroeconomic gains; continued reform and mitigating risks will require strong policy leadership, capacity building, and financial support from development partners.
- Staff welcomes the authorities’ commitment to securing fiscal sustainability.
  - The goal of reducing domestic bank borrowing to around 2 percent of GDP remains appropriate to complement efforts to reduce inflation.
  - A cautious approach to foreign borrowing strikes a balance between managing lingering fiscal risks and preserving investment capacity in priority areas.
- Revenue mobilization is a critical program pillar.
  - Staff supports the authorities’ ambitious goal for raising domestic revenue, while the program’s more cautious revenue path provides a prudent anchor for medium-term fiscal planning.
  - Successfully meeting the program’s revenue targets through 2019Q1 demonstrates the government’s strong commitment.
  - Continued success depends on sustained reforms, including upgrading to the new tax system (ITAS) and enhancing the NRA’s governance and operations.
- A conservative approach to expenditure is appropriate given macro-fiscal risks and rising debt service pressures.
  - The authorities propose a flatter medium-term expenditure path, underpinned by restraint on current expenditures and a more gradual acceleration in domestic capital expenditure.
  - Stronger-than-expected revenue performance or grants could be used to support additional priority spending and/or reduce arrears.
  - Staff strongly supports the government’s request for an IMF-led PIMA to identify strengths and weaknesses in public investment and promote the more effective use of scarce public resources.
- Quick action to finalize an arrears clearance strategy and ensure the viability of the two state-owned banks is vital to controlling macro-fiscal risks.
  - Domestic payment arrears are the most pressing risk; the authorities should move quickly to finalize the stock of arrears and the associated clearance strategy, cognizant of the risks to debt sustainability.
  - Finalizing arrears will provide more certainty on the scope for boosting critical social and infrastructure spending.
  - Staff welcome the authorities partnering with the World Bank on an updated diagnostic study of the two state-owned banks to better inform decisions on putting the banks on a firmer commercial footing.
- Strategic debt management improvements are welcomed.
  - Development of a new Medium-Term Debt Management Strategy and intention to prioritize grants and highly concessional loans will help limit the risk of debt distress.
- Monetary and exchange rate policy advice:
  - Staff strongly supports the goal of lowering inflation to single digits over the program period.
  - Given current inflationary pressures, a tight monetary policy stance remains appropriate.
  - The BSL should continue to use monetary aggregates as the operating target while strengthening the role of indirect instruments to promote more effective price-based monetary policy; staff will provide technical support.
  - The volatile external environment underscores the importance of increasing exchange rate flexibility and maintaining reserve buffers.
  - Steps to address policy and technical impediments to a deeper FX market will better position the BSL to actively meet its reserve targets while allowing the exchange rate to adjust as needed.
- Governance of the Bank of Sierra Leone is paramount.
  - The recent passage of the new BSL law is an important milestone.
  - The authorities plan to move quickly to develop and adopt a remedial action plan to address the findings of the forensic audit to bolster the BSL’s integrity and public trust.

*Source: 1sleea2019001 - 27. Program implementation risks are significant but manageable.*

### 40.      Staff supports the authorities’ request for completing the first review under the

### 40.      Staff supports the authorities’ request for completing the first review under the ECF-supported arrangement.

### Program actions and requests
- Staff supports the authorities’ request for completing the first review under the ECF-supported arrangement.
- Staff supports:
  - the new QPCs for end-December 2019;
  - the five SBs for the second review;
  - the request for a waiver regarding the nonobservance of the end-December 2018 performance criterion on the BSL’s NDA on the basis of corrective actions.

### Financing and disbursements under the ECF arrangement
- Scheduled availability and conditions (selected entries):
  - November 30, 2018: Availability 15.55 (in millions of SDRs); 57.50 (in percent of quota). Condition: The approval of the ECF arrangement.
  - June 1, 2019: Availability 15.55; 57.50. Condition: Board completion of the first review based on observance of continuous and December 31, 2018 performance criteria.
  - December 1, 2019: Availability 15.55; 57.50. Condition: Board completion of the second review based on observance of continuous and June 30, 2019 performance criteria.
  - June 1, 2020: Availability 15.55; 57.50. Condition: Board completion of the third review based on observance of continuous and December 31, 2019 performance criteria.
  - December 1, 2020: Availability 15.55; 57.50. Condition: Board completion of the fourth review based on observance of continuous and June 30, 2020 performance criteria.
  - June 1, 2021: Availability 15.55; 57.50. Condition: Board completion of the fifth review based on observance of continuous and December 31, 2020 performance criteria.
  - December 1, 2021: Availability 15.55; 57.50. Condition: Board completion of the sixth review based on observance of continuous and June 30, 2021 performance criteria.
  - June 1, 2022: Availability 15.55; 57.50. Condition: Board completion of the seventh review based on observance of continuous and December 31, 2021 performance criteria.
- Total disbursements under the ECF arrangement: 124.44 (in millions of SDRs); 60.00 (in percent of quota).
- Note: Following the 14th quota review, Sierra Leone doubled its quota at the Fund. The current numbers reflect this increased quota.

### Structural benchmarks and implementation status
- Benchmarks for First Review:
  - Complete the audit of BSL’s 2017 financial statements — Timing: January 31, 2019 — Status: Met
  - Publish the final report of the forensic audit of foreign exchange transactions between the BSL and MDAs during July 2015–June 2018 and adopt a remedial action plan to address findings — Timing: May 31, 2019 — Status: Not met (see new benchmarks)
  - Develop a strategic plan for the two state-owned banks including a timetable for putting in place an independent governance framework for the banks that protects them against political influence, and thereby durably limits their fiscal contingency risks — Timing: March 31, 2019 — Status: Not met (see new benchmarks)
  - Continue to use the automatic fuel price indexation mechanism to set fuel price determination — Timing: Continuous — Status: Met
  - Adopt a plan for dealing with the outstanding stock of unpaid obligations to domestic suppliers containing: (1) a comprehensive stock-taking, transparent verification, and prioritization of arrears; (2) measures to prevent new arrears; (3) making allocations for clearance of arrears in the medium-term budget framework; and (4) plans to rationalize the balance sheet of the BSL — Timing: March 31, 2019 — Status: Not met (see new benchmarks)
- Proposed Benchmarks for Second Review:
  - Adopt a remedial action plan to address the findings of the forensic audit report — Timing: August 31, 2019
  - Complete the stocktaking of payment arrears to domestic suppliers to determine a comprehensive arrears figure, drawing on IMF technical assistance recommendations — Timing: August 31, 2019
  - Prepare draft amendments to the NRA Act, drawing on technical assistance recommendations (from the IMF and the UK DfID), and submit to Fund staff for review (to be done prior to submitting to the Cabinet) — Timing: September 30, 2019
  - Update the 2016 diagnostic study of the two state-owned banks, with support from the World Bank — Timing: September 30, 2019
  - Continue to use the automatic fuel price indexation mechanism to set fuel price determination — Timing: Continuous

### Key macro-financial indicators (selected figures and projections from the source)
- Net domestic bank credit to the central government (ceiling) — illustrative entries from Quantitative Performance Criteria:
  - Unadjusted target (ceiling) 823; adjusted targets and met status appear in program monitoring (see table for detailed quarterly entries).
- Net domestic assets of the BSL (ceiling) — program monitoring entries (example): Stock 858; Prog. 404; Adj. 617; Prel. 670 — Status: Not met (table shows subsequent monthly/quarterly adjustments and statuses).
- Gross international reserves of the BSL, US$ millions (floor) — monitoring entries (examples): Unadjusted target (floor) 7-20; adjustments for external budget support and IMF disbursements reflected in program table; monitoring shows met/not met outcomes in specific months.
- External sector and financing (selected projections from tables):
  - Current account (CR No. 18/371 Prel. series, millions of U.S. dollars): -165.3, -535.2, -545.1, -564.2, -489.9, -443.5, -421.2, -426.3, -417.3 (across specified rows and projection columns).
  - Trade balance (millions of U.S. dollars): -318.4, -538.1, -626.5, -595.7, -427.7, -321.5, -296.1, -240.7, -248.0.
  - Exports, f.o.b. (millions of U.S. dollars): 654.4, 652.1, 657.7, 602.0, 834.8, 1,015.1, 1,118.6, 1,206.2, 1,296.8.
  - Imports, f.o.b. (millions of U.S. dollars): -972.8, -1,190.2, -1,284.2, -1,197.7, -1,262.5, -1,336.7, -1,414.7, -1,446.9, -1,544.8.
  - Overall balance (millions of U.S. dollars): -146.8, -6.1, -39.7, -34.9, -13.5, 32.2, 12.0, 55.1, 86.9.
  - Gross International Reserves (including swaps, in US$ millions) — memorandum (selected entries): 503, 534, 546, 516, 492, 503, 498, 489, 532, 494, 517, 563.
- Indicators of Fund obligations and outstanding credit (Table 6, selected rows):
  - Fund obligations based on existing credit (in millions of SDRs) — Principal: 8.3, 21.2, 31.1, 42.1, 44.3, 46.5, 33.5, 20.7, 7.0, 3.1, 0.0, 0.0, 0.0, 0.0, 0.0 (2019–2033 sequence shown).
  - Total obligations based on existing and prospective credit (in millions of US$): 11.5, 29.5, 43.3, 58.6, 61.6, 66.8, 57.4, 48.3, 37.9, 34.6, 28.1, 19.5, 10.8, 2.2, 0.0.
  - Outstanding Fund credit (in millions of SDRs): 280.6, 290.6, 290.6, 264.0, 219.7, 171.7, 130.4, 95.7, 68.4, 43.6, 23.3, 9.3, 1.6, 0.0, 0.0.
  - Net use of Fund credit (in millions of SDRs): 19.9, 10.0, 0.0, -26.6, -44.3, -48.1, -41.2, -34.7, -27.3, -24.9, -20.2, -14.0, -7.8, -1.6, -2.6.

Italic: Source: IMF staff and Sierra Leonean authorities (content unit: 1sleea2019001).

### Annex I. Sierra Leone—Capacity Development

### Annex I. Sierra Leone—Capacity Development

### A. CD Strategy
- Focus areas: public finance management; tax policy and revenue administration; financial sector supervision; central banking operations and governance; statistics compilation and dissemination.
- Purpose: complement macroeconomic objectives of the new 2018 ECF-supported program by improving transmission of economic policy and mitigating key economic risks.

### B. Key Overall CD Priorities
- Public Finance Management: Ensure fiscal sustainability through:
  - (i) operationalizing the new legal framework for PFM;
  - (ii) improving public debt management under a new Medium Term Debt Strategy framework;
  - (iii) improving the analysis and management of fiscal risks, including for SOEs;
  - (iv) extending the coverage of the annual budget to general government;
  - (v) strengthening the implementation of the Treasury Single Account (TSA);
  - (vi) migrating to general government finance statistics and IPSAS frameworks.
- Tax Policy: Improve effectiveness of tax policy by:
  - (i) operationalizing the framework for natural resource management;
  - (ii) improving understanding of extractive industry fiscal modelling;
  - (iii) understanding transfer pricing issues especially in the extractive and communications industries.
- Revenue Administration: Improve domestic resource mobilization by:
  - (i) increasing tax compliance;
  - (ii) broadening the tax base;
  - (iii) modernizing the governance structure of NRA, including with respect to extractive industries revenue.
- Bank Supervision and Regulation:
  - Increase banking system safety and soundness through strengthening the supervisory process.
- Central Banking Operations and Governance:
  - (i) Modernize monetary policy frameworks to be more responsive to market developments so as to safeguard price and foreign exchange stability.
  - (ii) Revise the Banking and BSL Acts to strengthen BSL’s ability to management the banking system.
- Statistics:
  - Produce timely, frequent and credible indicators of economic activities in all sectors to inform policy.

### C. Main Risks and Mitigation
- Main risks to TA implementation:
  - Capacity constraints (small number of capable officials).
  - Political constraints and vested interests hindering passage of legislation or reform implementation.
  - Financing constraints, especially costs of procurement of hardware or new systems.
- Mitigation measures:
  - Deploy alternative modes of capacity building, such as end of TA mission workshops, to provide hands-on experience to a broader range of officials.
  - Res Rep office conducts regular dialogue and outreach with Parliament and stakeholders to obtain buy-in and mitigate political risk.
  - Res Rep office acts as interlocutor for financial assistance from development partners to mitigate financing risks (example: forensic audit of the central bank).

### D. Authorities’ Views
- Authorities concur with the outlined priorities.
- Political opportunity: new political dispensation seen as chance to make faster progress on structural reforms.
- Implementation approach:
  - Work more closely with the Attorney General’s Office and Parliament to ensure speedy passage of legislation.
  - Request that TA delivery routinely includes hands-on workshops, as these have improved traction more than other modes.

### Selected Program and Economic Findings (from MEFP and related text)
- Real GDP growth:
  - 3.5 percent in 2018 (down from 3.8 percent in 2017).
- Inflation and prices:
  - Consumer prices peaked at 19.3 percent in September 2018; moderated to 17.5 percent in March 2019.
  - Pump price of gasoline decreased by 15 percent following policy to pass through falling global oil prices.
- Fiscal performance:
  - Overall fiscal deficit (excluding grants): 7.9 percent of GDP in 2018 (down from 11.3 percent in 2017).
  - Domestic revenues: Le 4.4 trillion (13.7 percent of GDP) in 2018, up from 12.3 percent of GDP in 2017.
  - Domestic debt stock: Le 5.66 trillion at end-2018, up from Le 4.56 trillion at end-2017.
  - Domestic interest payments: Le 865.8 billion (2018) versus Le 535.28 billion (2017).
- Monetary and banking indicators:
  - Monetary Policy Rate (MPR) increased from 15 percent in December 2017 to 16.5 percent in July 2018; no further increase in second half of 2018.
  - Broad money grew slower than programmed due to substantially lower overall credit to government.
  - BSL interventions: secondary market operations and bridge financing to government (bridge loan later repaid in Q1 2019).
  - Capital adequacy ratio for the banking industry: 38.4 percent at end-December 2018 (minimum requirement 15 percent).
  - Gross loans and advances increased by 18.2 percent by end-2018.
  - Aggregate non-performing loans: 12.7 percent in December 2018 (down from 14.6 percent in December 2017).
- External sector and reserves:
  - Current account deficit: 13.8 percent of GDP in 2018 (improved from 14.5 percent in 2017).
  - Leone depreciation: 11.9 percent year-on-year against the United States Dollar in 2018 relative to 2017.
  - Official foreign exchange reserves: US$502.80 million at end-December 2018 (down from US$533.8 million at end-December 2017).
- Public debt levels:
  - End-2018 stock of public debt: US$2.24 billion, nearing 60 percent of GDP in 2018.
  - External debt: US$1.57 billion at end-2018 (up from US$1.51 billion at end-2017).
    - Multilateral debt: US$1.2 billion at end-2018 (up from US$1.13 billion at end-2017).
    - Bilateral debt: US$185.82 million at end-2018 (up from US$177.61 million at end-2017).
    - Commercial debt: US$188.5 million at end-2018 (down from US$195.05 million at end-2017).

### Program Performance and Structural Reform Status
- Quantitative targets:
  - All end-2018 quantitative performance criteria met except NDA of BSL.
  - BSL’s bridge loan to government and FX interventions contributed to higher-than-programmed NDA; bridge loan repaid in Q1 2019.
- Indicative targets:
  - All end-December 2018 and end-March 2019 indicative targets met except the floor on poverty-related spending in March 2019.
- Structural reforms:
  - BSL’s 2017 financial statements audit completed in February 2019.
  - Joint audit of 2018 BSL financial statements planned (international and local firm), with publishing upon completion.
  - Developing a strategic plan for two state-owned banks proved complex; requires updated baseline from 2016 E&Y diagnostic study.
  - Progress on audit and validation of arrears supported by UK DFID and IMF TA; further work needed to consolidate efforts and identify financing for arrears clearance.
  - Forensic audit of foreign exchange transactions between BSL and quasi-government agencies (MDAs) missed initial benchmark due to broader-than-expected scope; final audit report expected in late May/early June.

*Annex I. Sierra Leone—Capacity Development; Attachment I. Memorandum of Economic and Financial Policies (excerpt).*

### 13. The economic outlook for 2019 and the medium term is broadly balanced. The

### 13. The economic outlook for 2019 and the medium term is broadly balanced.

### Economic outlook and key projections
- GDP growth projected to be 5.1 percent in 2019, and to average 4.8 percent during the program.
- Growth drivers: resumption of iron ore mining at the Marampa Mines (higher grade iron ore), normal agricultural activity, public construction activities, and improvements in the business environment (intensified fight against corruption and broad ranging structural reforms).
- Inflation projected to fall to 14 percent by end-December 2019 and return to single digits by 2021, supported by projected exchange rate stability, export increases in the medium-term, increased domestic food production, and a proactive monetary policy stance.
- Overall fiscal deficit (excluding grants) projected to decline from 7.4 percent of GDP in 2019 to 5.3 percent in 2022, driven by expenditure reforms and stronger revenue mobilization.
- Current account deficit expected to remain high but decline, financed by stronger foreign inflows including direct investment from expected expansion in rutile and iron ore mines.
- International reserves projected to rise over the program period, strengthening external stability and resilience to shocks.

### Program policies — Fiscal policy stance and objectives
- Tight fiscal stance maintained in 2018 helped mitigate near-term macro-fiscal risks; continued tightness necessary due to large public debt and classification as high risk of debt distress.
- Fiscal path aims for significant deficit reduction to ensure the debt-to-GDP ratio begins to turn down by end of program.
- Fiscal anchors: debt sustainability and limiting domestic financing.
- Target: gradual decline in the overall deficit (excluding grants), averaging nearly ¾ of a percentage point per year over the medium term.
- Limit net external debt financing of the deficit to averaging less than 1½ percent of GDP per year during the program period.
- Fiscal adjustment to facilitate a steady decline in domestic bank financing to 2.1 percent of GDP in 2022.
- Repayment of Fund budget support (on-lent from the BSL) scheduled to begin 2020 will curtail available net domestic financing to 1.4 percent by the end of the program.
- Escalation in total debt service payments, including repayments of Fund budget support, will average 25 percent of domestic revenue during 2020–23, constraining priority spending and NDP implementation.

### Structural reforms to improve fiscal policy transmission
- Implementation of a comprehensive Public Financial Management (PFM) Strategy 2018–21 to deepen reforms across strategic policy and budget planning; public investment management; Fiscal Risk and Debt management; budget execution; revenue administration; local Government finance; and PFM oversight and public accountability.
- New governance framework: PFM Steering Committee, PFM Technical Committee, and Thematic Working Groups to monitor implementation.

### Domestic revenue mobilization — measures and targets
- Revenue-enhancing measures implemented in the previous MEFP contributed to strong 2018 revenue performance, including:
  - liberalizing fuel pricing;
  - streamlining duty and tax waivers;
  - enforcing upfront payment of fuel taxes and duties;
  - implementing the ECOWAS Common External Tariff;
  - broadening Treasury Single Account (TSA) coverage;
  - revising fees/rates levied by MDAs including fisheries licenses;
  - data-matching and special tax audits;
  - strict enforcement of tax legislation;
  - migrating from ASYCUDA++ to ASYCUDA World.
- Target revenue-to-GDP ratio of 20 percent by 2023.
- Government will deepen reforms in specific areas of tax policy and administration to sustain improved performance.

### Tax policy actions
- Limit exemptions and waivers; develop a policy on duty and tax waivers using the Tax Incentive Handbook; enact legislation providing comprehensive guidance on exemptions and waivers; adopt an automated waiver system through ASYCUDA World to fully track and monitor utilization.
- Continue implementation of the liberalized formula for petroleum pricing (continuous structural benchmark); consider publishing the fuel price template regularly.
- Implement the Extractive Industry Revenue Act (2018) (EIRA) to all new mining and petroleum projects and mining Lease Agreements that come for renewal; draft EIRA Regulations in 2019; IMF to provide capacity building on fiscal modeling of the extractive sector to Ministry of Finance, NRA, National Minerals Agency and Petroleum Directorate.

### Tax administration reforms and benchmarks
- Prepare a revised NRA Act drawing on TA to modernize NRA governance and organizational structure; submit draft law to the IMF for review no later than end-September (structural benchmark), then to Cabinet by end-October, and subsequently Parliament.
- Automate tax processes with installation of the Integrated Tax Administration System (ITAS) and Electronic Cash Registers commencing in the second half of 2019; develop a migration plan for ITAS including data cleansing and ledger verification; roll out banking module to government revenue transit banks before ITAS delivery.
- Improve revenue collection by TSA agencies.
- Re-register businesses to verify existing taxpayers and register new taxpayers to expand the tax base.
- Intensify data matching and leverage results for a risk-based strengthening of field audit.
- Intensify monitoring and enforcement, including stricter enforcement of tax legislation and a robust taxpayer education strategy.
- Reduce leakages through enhancement of NRA integrity mechanisms, including establishing an internal affairs unit.
- Enhance intelligence and investigations, including the Tax Inspectors Without Borders (TIWB) Audit supported program.

### Expenditure management priorities and reforms
- Maintain human capital priorities: Free Quality Education Programme, Health, and Social Protection.
- Priorities also include infrastructure development to diversify and improve competitiveness for sustainable growth and job creation.
- Reforms to create fiscal space: maintain wage bill at sustainable levels, improve public procurement, curtail wasteful recurrent and extra-budgetary expenditures, and improve efficiency of domestic capital expenditures.

Wage reforms
- Commitment to a wage bill not more than 6 percent of GDP.
- Biometric verification showed more than 10 percent of public sector workers (including staff of sub-vented agencies) were either not matched or not verified.
- Key planned reforms:
  - Institutionalize regular monthly Payroll Quality Assurance checks (invalid NASSIT numbers, invalid BBANs, significant pay changes).
  - Remove retiring employees from payroll using payroll system analysis of Dates of Birth embedded in NASSIT numbers.
  - Strengthen the Payroll Oversight Committee to generate comprehensive monthly payroll reports.
  - Establish a Wages and Compensation Commission empowered by law as sole agency to determine pay and compensation across public service; consultant appointed and draft bill produced; consultative workshops underway.
  - Integrate tertiary institutions' payroll into centralized Government payroll beginning in 2019 (may increase wage-to-GDP ratio temporarily) while committing to bring ratio to 6 percent within program period.

Public procurement reforms
- Publish revised Public Procurement Regulations and update Public Procurement Manual in line with Public Procurement (Amendment) Act 2016 (Regulations awaiting Parliamentary approval).
- Continue quarterly publication of Price Norms to guide procurement contracts and ensure value for money.
- Introduce an electronic public procurement (e-GP) system; steps underway to select implementing agency.
- Develop a 5-year national strategy for public procurement to provide a roadmap for sequential and sustained procurement reforms.
- Reconstitute the Independent Procurement Review Panel (IPRP) as an independent grievance redressal mechanism for procurement challengers.

Goods and services expenditure control
- Strengthen expenditure commitment control systems to reduce arrears accumulation:
  - Expand IFMIS coverage to remaining 30 MDAs by end-May, bringing total covered to 56.
  - Enforce generation of Local Purchase Orders through IFMIS for goods and services expenditure.
  - Upgrade IFMIS to Version 7 to automate processing of Public Expenditure Tracking System (PETS) forms and add multi-year contract functionality to track medium-term commitments and reduce arrears.
  - Establish active Budget Committees in all MDAs (20 active to date; goal to have committees active in all 56 MDAs by 2021).
  - Strictly adhere to PFM Act (2016) provisions controlling extra-budgetary expenditures.

Capital expenditure management
- Key reforms planned:
  - Negotiate domestically-funded projects in local currency where possible to limit exchange rate risk; strengthen project appraisals; review compensations for domestically funded projects; strengthen monitoring and evaluation for all capital projects.
  - Undertake a Public Investment Management Assessment (PIMA) to identify strengths and weaknesses across planning, allocation, and implementation phases; IMF-led PIMA request made and hoped to begin later this year.
  - Adopt a National Public Investment Policy to improve planning and execution and inform capital-expenditure rationalization; policy to be informed by Fund-led PIMA findings.
  - Consult the Fund on externally-funded flagship infrastructure projects to ensure consistency with debt sustainability objectives and program commitments on external borrowing.

### Treasury Single Account (TSA) deepening
- TSA implementation contributed to strong 2018 revenue performance.
- Total revenue collected by original 6 TSA agencies amounted to just over 6 percent of total revenue in 2018; Ministry of Finance disbursed 37 percent of receipts to TSA agencies for operational needs.
- Planned actions:
  - Broaden TSA coverage further: five additional agencies added in early 2019 following Finance Act of 2019.
  - Print and disseminate TSA Operations Manual; complete automation between Accountant-General’s Department and BSL under agreed MOU.
  - Commence Phase II of TSA to include sub-vented agencies, semi-autonomous agencies and project accounts.

### State-owned enterprises (SOEs) oversight and fiscal risks
- New Fiscal Risk Management and Fiduciary Oversight of SOEs Division established in Ministry of Finance to monitor SOE financial performance and manage fiscal risks.
- Division initial focus on high-risk SOEs, e.g., Electricity Distribution and Supply Authority (EDSA); EDSA recorded substantial revenue and in February 2019 met all obligations without government subsidy.
- Actions taken/planned:
  - Data reconciliation of interagency arrears among SOEs to ascertain net arrears and develop clearance strategy.
  - Publish quarterly report on arrears stock at MDAs and SOEs and annual financial statements of SOEs beginning with EDSA, EGTC and GVWC.
  - Develop strategy with National Commission for Privatization to transform and limit SIERRATEL fiscal exposure.
  - Develop governance and ownership strategy for Sierra Leone Cables Limited (SALCAB) in line with 2010 Financial Agreement with the World Bank.
  - Eliminate backlog of SOE audited financial reports; classify SOEs according to GFSM2014; complete cross-SOEs arrears clearance strategy; prepare internal quarterly fiscal risk reports for Ministry of Finance; prepare consolidated SOE financial performance report; develop a fiscal risk register.

### Debt management and domestic arrears clearance strategy
- Fiscal consolidation under the ECF program essential to put debt on a sustainable path.
- Risks: high level of external debt, weak growth, exports and revenue; domestic debt nearly doubled over past 4–5 years at higher cost with rollover risks; high implicit debt in domestic arrears to suppliers.
- Reforms underway:
  - Sustain fiscal consolidation to improve domestic primary balance and slow domestic debt accumulation.
  - Prioritize grants and highly concessional loans to finance the budget and infrastructure projects.
  - Explore non-debt creating financing models such as Public-Private Partnerships (PPPs) with thorough fiscal risk analysis and without government guarantees.
  - Prepare a Medium-Term Debt Management Strategy to guide practices across domestic, external and implicit debt, and address BSL balance sheet linkages; action plan developed following recent IMF TA.
  - Strategy to analyze issuing a range of maturities: shorter-term securities (3, 6, 12 months) for cash management and short-term budget financing, gradually extending maturities to longer-term bonds for long-term financing needs such as infrastructure, aiming to reduce financing costs and rollover risks.
  - Complement strategy with regular Debt Sustainability Analyses prepared ahead of the annual budget cycle to provide early warning signals on debt levels and debt distress risks.

*Italic: IMF staff report chapter.*

### 26. The Government has made good progress toward clarifying the magnitude of

### 26. The Government has made good progress toward clarifying the magnitude of domestic procurement arrears

### Domestic procurement arrears: stocktaking and reconciliation
- Government steps taken to date:
  - Beginning in 2018, it estimated total arrears and future payment obligations at Le 10.7 trillion. This amount includes:
    - arrears comprising crystalized obligations (unpaid checks) of Le 1.03 trillion and unprocessed vouchers for works completed of Le 418.9 billion; and
    - outstanding balances on contracts entered into by MDAs for goods and services and infrastructure projects exceeding Le 9 trillion.
  - In June 2018, Government engaged the services of the Audit Services Sierra Leone (ASSL) to verify this stock of arrears. Claims totaling Le11.59 trillion, (including those submitted later by MDAs) were submitted to the Audit Service for verification.
- Reconciliation issues identified:
  - ASSL’s report includes future payment obligations, which have not fallen into arrears.
  - Outstanding unpaid checks as of December 2018 of about Le 1,156 billion are not included in the verified claims of ASSL due to timing difference.
  - Need to ensure elimination of any double-counting between amounts verified by ASSL and the outstanding stock of unpaid checks.
  - Arrears to five contractors captured as verified claims in ASSL’s report or as part of crystalized obligations have been liquidated by MoF and should no longer be included in the stock of arrears.
- Action and timing:
  - These reconciliation issues will be addressed in months ahead.
  - Complete the arrears stocktaking and obtain a comprehensive arrears figure, in line with IMF TA recommendations, by end-August (structural benchmark).
  - Recognize that a final estimate could result in a significant upward revision of the arrears included in the macroeconomic framework and could necessitate a faster fiscal adjustment path absent donor funding and/or a rescheduling plan that does not undermine debt sustainability.

### Arrears clearance planning and options (medium-term framework)
- Planning steps:
  - Build on the draft Strategy on the Treatment of Domestic Suppliers and Contractors Arrears to make the plan more concrete and operational.
  - By the end of September, outline details of the medium-term framework with a clear resource envelope, specifying prioritization and mechanisms for repaying and/or rescheduling arrears; these details will inform the 2020 budget and the next DSA.
- Options under consideration (drawing on IMF TA), mindful of debt sustainability and market capacity:
  - i. Outright cash payments for small claims in the MDAs category at a level to be determined. Rationale: many claims are smaller amounts; outright cash payments will allow suppliers, mostly SMEs, to be liquid to re-finance their operations.
  - ii. Apply revenue windfall or grant resources. Government discussions with the World Bank to significantly scale up its next annual budget support, and engagement with other development partners such as DfID, with a view to directing grant resources toward clearance of these arrears.
  - iii. Securitization of some claims. As upfront cash payment is limited, securitization may be unavoidable. Possible options under securitization include:
    - a. Issuing medium to long-term securities to settle arrears, which could trigger interest costs demanded by suppliers/contractors to compensate for extended settlement time.
    - b. Issuing treasury bills to raise resources and clear some of the verified arrears to allow suppliers and contractors settle obligations with the banking systems.

### Measures to prevent future arrears (PFM Strategy)
- Measures included in the Government’s PFM Strategy to avoid buildup of new arrears:
  - Issuance of Quarterly allocations on the basis of trends in revenue performance.
  - Improving fiduciary management in MDAs through deployment of Budget Officers and Internal Audit Staff.
  - Improved cash management.
  - Strengthening commitment controls through the IFMIS.
  - Improved debt management operations.
  - Enhanced oversight of state-owned enterprises and local councils to minimize contingent liabilities.

*Source: Excerpt from the provided IMF chapter text.*

### 47. Efforts to strengthen the governance and improve effectiveness of the national

### 47. Efforts to strengthen the governance and improve effectiveness of the national

### Governance reforms and results
- Reforms initiated by Statistics Sierra Leone’s (SSL’s) new leadership have attracted donor support from World Bank (who withdrew funding in 2017), the Bill and Melinda Gates Foundation, UNFPA, and others.
- With improved governance and financial management, both the coverage and quality of data have improved.

### Expanded coverage of statistical information
- Coverage expanded to:
  - Social Safety Nets;
  - National Civil Registration;
  - Rental Census to support NRA’s revenue mobilization;
  - Completion of the Sierra Leone Integrated Household Survey to support poverty analysis;
  - Launching the multiple indicator cluster survey report;
  - Undertaking a Business Establishment Survey to better support economic policy decision making and help rebase GDP.

### SSL forward agenda (as listed)
- Strengthen collaboration with, and seek additional funding from global development partners.
- Successfully partner with organizations across the country to bring better information about Sierra Leone, promoting wider coverage and dissemination of national statistics.
- Elevate Sierra Leone as a leader among low-and middle-income countries in ensuring full transparency of data and in using data to ensure achievements targeting the SDGs. This will help Sierra Leone collaborate with countries across the Global South and North, and help sustain our development path.
- Strengthen capacity at SSL and expand technical expertise to support the collection of essential routine data about Sierra Leone, including by launching new initiatives and completing others to collect better data and strengthen development across Sierra Leone.

### Program monitoring framework
- The program will be monitored on a semi-annual basis, through quantitative targets and structural benchmarks.
- Quantitative targets for end-June and end-December 2019 are performance criteria.
- Quantitative targets for end-September 2019 and end-March 2020 are indicative targets.
- The second review of the program will be completed on or after December 1, 2019, and the third review on or after June 1, 2020.

### Quantitative performance criteria and indicative targets (selected items and figures as presented)
- Time coverage: 2018–20 (Within-year cumulative change – starting from June for 2018, and from January for 2019 and 2020; Le billions, unless otherwise indicated).
- Performance criteria (examples from Table 1):
  - Net domestic bank credit to the central government (ceiling) 1/
    - Stock: 5171
    - Prog. Jun. 2018: 823
    - Adj. Prog. Jun. 2018: 1104
    - Prel. Status Jun. 2018: 533 Met
    - Prog. Mar. 2019: 407
    - Adj. Prog. Mar. 2019: 352
    - Prel. Status Mar. 2019: 271 Met
    - 2020 Prog. Mar.: 812
    - 2020 Stock: 791 1155 1085 1357 175 Unadjusted target (ceiling) 823 407
    - Adjustments: 175; 45; 106; -100
  - Net domestic assets of the BSL (ceiling)
    - Stock: 858
    - Prog. Jun. 2018: 404
    - Adj. Prog. Jun. 2018: 617
    - Prel. Status Jun. 2018: 670 Not met
    - Prog. Mar. 2019: 22
    - Adj. Prog. Mar. 2019: 3
    - Prel. Status Mar. 2019: 303 -124 Met
    - 2020 Prog. Mar.: 341
    - Additional figures: 522 458 634 576 15
    - Unadjusted target (ceiling): 404 223
    - Adjustment for the shortfall (excess) in external budget support: 175 45
    - Adjustment for exchange rate depreciation (appreciation): 38 34
  - Gross international reserves of the BSL, US$ millions (floor)
    - Stock: 47
    - Prog. Jun. 2018: 4
    - Adj. Prog. Jun. 2018: 7
    - Prel. Status Jun. 2018: -21 10 Met
    - Prog. Mar. 2019: -20 -21 -11 Met
    - 2020 Prog. Mar.: -27 -6 -33 17 14 -6
    - Unadjusted target (floor): 7-20
    - Adjustment for the shortfall (excess) in external budget support: -40-5
    - Adjustment for the shortfall (excess) in the US$ value of IMF disbursement: 0 0
    - Adjustment for the increase (decrease) in BSL short-term foreign currency liabilities: 13 4
  - New concessional external debt with original maturity of one year or more contracted or guaranteed by the public sector, US $ millions (ceiling)
    - 80 35 Met 100 42 Met 100 100 100 100 100 100
  - New non-concessional external debt contracted or guaranteed by the public sector, US$ million (ceiling) 2/
    - ... 0 0 Met 0 0 Met 0 0 0 0 0
  - Outstanding stock of external debt with maturities of less than one year contracted or guaranteed by the public sector (ceiling) 2/
    - ... 0 0 Met 0 0 Met 0 0 0 0 0
  - External payment arrears of the public sector (ceiling) 2/
    - ... 0 0 Met 0 0 Met 0 0 0 0 0
- Indicative targets (selected)
  - Total domestic government revenue (floor)
    - ... 2356 2430 Met 1224 1358 Met 2549 3797 3866 5302 5350 1485
  - Poverty-related spending (floor) 3/
    - ... 275 749 Met 293 196 Not met 634 1016 1027 1495 1467 403
  - Domestic primary balance (floor)
    - ... -282 -45 Met -98 254 Met -208 -171 -306 -247 -264 -58
- Memorandum items: External budgetary assistance (in $ million)
  - ... 67.0 27.5 5.0 0.0 13 61 24 85 41 30
- Exchange rate (Leones/US$)
  - Program: 7741 8743 9040 8999 9280 9635 9539 9932 9815
  - Actual: 7741 8396 8676

Notes:
- 1/ Includes IMF budget support-related SDR on-lending from the Central Bank to the Government.
- 2/ These apply on a continuous basis.
- 3/ Poverty-related spending is defined in paragraph 22 of the TMU.
- 4/ Preliminary status
- 5/ As set at the time of program approval on November 30, 2018.

### Structural benchmarks (selected items and statuses)
- Benchmarks for First Review:
  - Complete the audit of BSL’s 2017 financial statements — January 31, 2019 — Met
  - Publish the final report of the forensic audit of foreign exchange transactions between the BSL and MDAs during July 2015–June 2018 and adopt a remedial action plan to address findings — May 31, 2019 — Not met (see new benchmarks)
  - Develop a strategic plan for the two state-owned banks including a timetable for putting in place an independent governance framework for the banks that protects them against political influence, and thereby durably limits their fiscal contingency risks — March 31, 2019 — Not met (see new benchmarks)
  - Continue to use the automatic fuel price indexation mechanism to set fuel price determination — Continuous — Met
  - Adopt a plan for dealing with the outstanding stock of unpaid obligations to domestic suppliers containing: (1) a comprehensive stock-taking, transparent verification, and prioritization of arrears; (2) measures to prevent new arrears; (3) making allocations for clearance of arrears in the medium-term budget framework; and (4) plans to rationalize the balance sheet of the BSL — March 31, 2019 — Not met (see new benchmarks)
- Proposed Benchmarks for Second Review:
  - Adopt a remedial action plan to address the findings of the forensic audit report — August 31, 2019
  - Complete the stocktaking of payment arrears to domestic suppliers to determine a comprehensive arrears figure, drawing on IMF technical assistance recommendations — August 31, 2019
  - Prepare draft amendments to the NRA Act, drawing on technical assistance recommendations (from the IMF and the UK DfID), and submit to Fund staff for review (to be done prior to submitting to the Cabinet) — September 30, 2019
  - Update the 2016 diagnostic study of the two state-owned banks, with support from the World Bank — September 30, 2019
  - Continue to use the automatic fuel price indexation mechanism to set fuel price determination — Continuous

### Technical Memorandum — key definitions and program assumptions
- Program exchange rates (for the purpose of the program, foreign currency denominated values for 2019 converted into leone using program exchange rate of Le 8396.05/US$ and cross rates as of December 2018).
- Sierra Leone Program Exchange Rate for ECF Arrangement — Cross Rates as of end-December 2018:
  - SDR: 1.00 = 11,677.14 Leones
  - US dollars: 1.39 = 8,396.05 Leones = 1.00 US$ (presentation in table form in source)
  - British Pound Sterling: 1.10 = 10,659.19 Leones = 1.27 US$
  - Japanese Yen: 154.14 = 75.76 Leones = 0.01 US$
  - Euro: 1.21 = 9,616.83 Leones = 1.15 US$
- Quantitative performance criteria cover (for June 30, 2019 and December 31, 2019):
  - net domestic bank credit to the central government (NCG) (ceiling);
  - net domestic assets (NDA) of the Bank of Sierra Leone (BSL) (ceiling);
  - gross international reserves (GIR) of the BSL (floor);
  - New concessional external debt with original maturity one year or more contracted or guaranteed by the public sector, US$ millions (ceiling);
  - New non-concessional external debt contracted or guaranteed by the public sector, US$ million (continuous ceiling);
  - Outstanding stock of external debt with maturities of less than one year contracted or guaranteed by the public sector (ceiling) (continuous);
  - External payment arrears of the public sector (ceiling) (continuous).
- Definitions and adjustments (selected):
  - NCG: net banking system’s claims on the central government as calculated by the BSL, with components from commercial banks and the BSL (detailed in paragraphs 5–7).
  - NDA of the BSL: end-period stock of reserve money less end-period stock of net foreign assets calculated at program exchange rates (detailed in paragraph 8 and subpoints).
  - GIR: reserve assets of the BSL, excluding 2017–18 foreign exchange swap arrangements with commercial banks (paragraph 10).
  - Adjustment clauses include upward/downward adjustments for shortfalls/excesses in external budgetary assistance, exchange rate depreciation/appreciation, unpaid checks and other outstanding payments, net issues of government securities to non-bank private sector, and changes in BSL short-term foreign currency liabilities.
- Assumptions on external budgetary assistance (cumulative from January 1, 2019):
  - End-March 2019: USD 0 million
  - End-June 2019: USD 13 million
  - End-September 2019: USD 61 million
  - End-December 2019: USD 85 million
  - Cumulative from January 1, 2020 to end-March 2020: USD 30 million
- Concessionality definition (paragraph 15): a debt is concessional if it includes a grant element of at least 35 percent; grant element calculated using a discount rate of 5 percent.
- Program reference rates and spreads (paragraph 17):
  - Program reference rate for the six-month USD LIBOR is 3.34 percent (fixed for the duration of the program).
  - Spread of six-month Euro LIBOR over six-month USD LIBOR: -250 basis points.
  - Spread of six-month JPY LIBOR over six-month USD LIBOR: -300 basis points.
  - Spread of six-month GBP LIBOR over six-month USD LIBOR: -100 basis points.
  - For currencies other than Euro, JPY, and GDP, the spread over six-month USD LIBOR is -200 basis points.

*Source: 1sleea2019001 - 47. Efforts to strengthen the governance and improve effectiveness of the national (IMF PDF chapter).*

### 18. Definition. External short-term debt is defined as external debt stock with a maturity of less

### 18. Definition. External short-term debt is defined as external debt stock with a maturity of less than one year contracted or guaranteed by the public sector.

### Definitions: External short-term debt; External payment arrears
- External short-term debt:
  - Defined as external debt stock with a maturity of less than one year contracted or guaranteed by the public sector.
  - Debt is defined in Annex I of this TMU.
  - Excludes normal trade credit for imports.
  - Applies continuously.
- External payment arrears of the public sector:
  - Include all debt-service obligations (interest and principal) arising from loans contracted or guaranteed by the public sector.
  - Public sector (for this PC) comprises: the central government, regional government, state-owned enterprises (as listed in Annex 7 of the 2019 budget documents), and the BSL.
  - Non-accumulation of external arrears is a continuous performance criterion during the program period.
  - External arrears are obligations not paid on due dates (taking into account contractual grace periods, if any).
  - Excluded from this PC: debts subject to rescheduling or restructuring or under litigation.
  - Applies continuously.

### Quantitative indicative targets and program monitoring
- Domestic Revenue of Central Government:
  - Floor defined as total central government revenue, as presented in the central government financial operations table, excluding external grants.
- Domestic Primary Balance:
  - Defined as Central Government Revenue less expenditures and net lending adjusted for interest payments and foreign financed capital spending.
- Poverty Related Expenditure:
  - Defined for program monitoring as total current expenditures of the following ministries and institutions: Higher and Secondary Education, Health and Sanitation, the Health Service Commission, Social Welfare, Youth, Agriculture, Fisheries, Transport and Communications, Energy, Sierra Leone Electricity and Water Regulatory Commission, Water, Correctional Service, National Fire Authority, Local Councils, the National HIV and AIDS Commission, Anti-Corruption Commission, Statistics Sierra Leone, and the National Commission for Social Action; and capital expenditure for the Ministry of Works, Energy, Sierra Leone Electricity and Water Regulatory Commission, Water, Health and Sanitation, the Health Service Commission, Agriculture, Fisheries, Local Councils, and the National Commission for Social Action.
- Program monitoring committee:
  - Composed of senior officials from the MoFED, the BSL, and other relevant agencies.
  - Responsibilities: monitor performance under the program, recommend policy responses, inform the IMF regularly about program progress, transmit supporting materials for evaluation of PCs and benchmarks.
  - Will provide monthly reports to the IMF on progress in implementing the program’s quantitative targets and structural benchmarks.

### Annex I: Definition and scope of “debt”
- “Debt” (per point No. 8a of the Guidelines on Public Debt Conditionality, June 30, 2015) means:
  - A current, i.e., not contingent, liability created under a contractual arrangement through provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more future payments in assets (including currency) or services to discharge principal and/or interest.
- Primary forms of debt include:
  - (i) Loans: advances of money, including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, and official swap arrangements.
  - (ii) Suppliers’ credits: supplier permits obligor to defer payments after delivery.
  - (iii) Leases: present value (at inception) of all lease payments expected during the agreement period, excluding payments for operation, repair, or maintenance.
- Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
- Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

### Attachment A: Summary of data reporting to IMF Staff (selected reporting frequencies and deadlines)
- Real sector:
  - National accounts: Annual — End of year + 9 months
  - Revisions of national accounts: Variable — End of revision + 2 months
  - Disaggregated consumer price index: Monthly — End of month + 2 weeks
- Public finance:
  - Net government position and details of nonbank financing, including stock of the float, treasury bills, and bonds, as well as privatization receipts: Monthly — End of month + 6 weeks
  - Government flow-of-funds table (Government Financial Operations Table) with supporting documentation (final) and presented on commitment and cash bases: Monthly — End of month + 6 weeks
  - Petroleum product prices and tax receipts by categories of petroleum products: Monthly — End of month + 6 weeks
  - Stock of outstanding payment commitments with a breakdown between current and capital expenditures: Monthly — End of month + 6 weeks
  - Import duty exemptions by end-users and tariff regimes and estimates of corresponding revenue losses: Quarterly — End of quarter + 6 weeks
- Monetary and financial data (selection):
  - Monetary survey: Monthly — End of month + 6 weeks
  - Balance sheet of the BSL: Monthly — End of month + 6 weeks
  - Consolidated balance sheets of commercial banks: Monthly — End of month + 6 weeks
  - BSL monitoring sheet of net financing of the financial sector to the government: Daily — COB + 2 days
  - BSL monitoring sheet of treasury bills and bonds holdings: Weekly — COB + 1 day
  - Borrowing and lending interest rates: Monthly — End of month + 6 weeks
  - Results of foreign exchange and Treasury Bills auctions: Weekly — End of week + 1 days
  - Stocks of government securities: Monthly — End of month
  - Banking supervision ratios: Quarterly — End of quarter + 4 weeks
  - Gross official foreign reserves: Weekly — End of week + 1 week
  - Foreign exchange cash flow table: Monthly — End of month + 3 weeks
  - Revised balance of payments data: Monthly — When revisions occur
  - Exports and imports of goods (including the volume of key minerals and fuels): Monthly — End of month + 3 months
- External debt reporting:
  - Outstanding external arrears and repayments (if applicable): Monthly — End of month + 4 weeks
  - Details of all new external borrowing and guarantees provided by government on new borrowing, including the associated concessionality calculation (percentage) for each new loan: Monthly — End of month + 4 weeks
  - External debt service payments (separately on principal and interest payment) to each creditor, including and excluding new disbursements in the debt recording system. Also, including and excluding HIPC relief: Monthly — End of month + 4 weeks
  - Report on the stock of debt outstanding, and loan agreements under discussion: Quarterly — End of month + 3 months
- HIPC initiative and MDRI monitoring:
  - Statement of special account at the BSL that receives resources generated by the HIPC Initiative and tracks their use: Monthly — End of month + 4 weeks
  - Statement of special MDRI account at the BSL and the corresponding poverty reducing spending financed: Monthly — End of month + 4 weeks
- Minutes of the Monetary Policy Committee: Monthly — Date of meeting + 2 weeks

### Statement by Sierra Leone authorities: key findings, performance, and requests (June 28, 2019)
- Program performance:
  - All end-December 2018 quantitative performance criteria (QPCs) were met except:
    - Net domestic assets (NDA) of the Bank of Sierra Leone (BSL).
    - Indicative target on poverty-related spending.
  - NDA target missed due to a bridge loan extended by the BSL to government in anticipation of donor budget support disbursements; corrected in Q1 2019.
  - Authorities request an Executive Board waiver for non-observance of a performance criterion.
- Structural benchmarks (SBs) and arrears work:
  - Three out of five SBs were delayed due to technical complexities.
  - Strategic plan for two state-owned banks (SOBs) required an updated diagnostic; new diagnostic study to be prepared with World Bank support, completion by end September 2019.
  - Audit and validation of arrears work expected to be completed by end-August 2019.
  - Forensic audit of the BSL: scope broader than expected; audit report finalized; authorities to publish report and develop action plan by end-August 2019.
- Recent economic developments and outlook:
  - Real GDP growth slowed from 3.8 percent in 2017 to 3.5 percent in 2018.
  - Real GDP growth expected to rebound to 5.1 percent in 2019 and average 4.8 percent in the medium-term.
  - Inflation peaked at 19.3 percent in September 2018 and declined to 17.5 percent in March 2019.
  - External reserves declined from 3.7 months of imports in 2017 to 3.6 months of imports in 2018.
  - In the medium term, gross reserves expected to average 3.5 months of imports.
- Fiscal policy and debt management measures:
  - Tax administration measures being implemented: eliminating fuel subsidies; maintaining automatic fuel price adjustments; automating tax processes; conducting specialized tax audits; enforcing tax compliance; streamlining duty waivers and exemptions; expansion of the Treasury Single Account (TSA).
  - Ongoing data matching between the National Revenue Authority (NRA) and government agencies; adoption of the Extractive Industry Revenue Bill in 2018.
  - Expenditure controls on public sector vehicle procurement, fuel allocation, and travel expenses; development of a vehicle fleet policy with World Bank assistance.
  - Introduction of biometric verification of civil servants to reduce leakages.
  - Protecting poverty-reducing spending and other NDP priority expenditures.
  - Public investment management strengthening and renegotiation of infrastructure project terms to ensure fair pricing and value for money.
  - Plans to introduce an e-Government Procurement (e-GP) System.
  - Priority for concessional loans; preference for non-debt creating financing including PPP and BOT arrangements.
  - Medium-Term Debt Management Strategy developed with the World Bank; plans for regular self-assessments of debt sustainability.
- Monetary and financial sector policies:
  - Commitment to maintain tight monetary policy stance through reserve money targeting to reduce inflation to single digit levels in line with BSL objective.
  - Transition to a price-based monetary policy framework and improvement in monetary policy operations.
  - Development of the repo market and strengthening of indirect monetary policy instruments and domestic capital markets with Fund technical support.
  - BSL commits to confine foreign exchange interventions to smoothing disorderly market conditions to preserve reserve buffers and allow greater exchange rate flexibility.
  - Banking sector described as broadly stable, liquid, and profitable with ample capital buffers, expanding deposit base, and improved asset quality.
  - Withdrawal of correspondent banking relationships (CBRs) has slowed following AML/CFT measures.
  - BSL amending regulatory framework to mitigate fintech and cyber-risks; parliamentary passage of amendments to the BSL Act expected to strengthen central bank governance and operational autonomy.
- Structural benchmark priorities and arrears clearance:
  - Clearance of domestic arrears prioritized to reduce macro-fiscal risks.
  - PFM reforms, IFMIS implementation, and engagement with the World Bank to support arrears clearance.
  - Draft strategy to pay down arrears includes: outright cash payments; issuance of longer dated government securities; utilization of grant resources and budgetary allocations.
  - IMF assistance expected to help ascertain scope for securitization.
- State-Owned Banks (SOBs) and fiscal risks:
  - New Boards of Directors appointed for SOBs.
  - BSL adopted enhanced supervision approach and stringent rules to prevent lending to politically-exposed persons (PEPs).
  - Improvements in credit risk management, underwriting practices, internal controls, governance; SOB performance improved with better credit quality and profitability.
- Conclusion:
  - Authorities reaffirm commitment to implement reforms to raise growth, improve living standards, increase private investment, and achieve Sustainable Development Goals (SDGs).
  - Determination to implement ECF arrangement reforms to entrench macroeconomic stability and unlock growth potential.
  - Authorities optimistic that continued Fund policy engagement and technical support will aid realization of development objectives.

*Source: 1sleea2019001 - 18. Definition. External short-term debt is defined as external debt stock with a maturity of less than one year contracted or guaranteed by the public sector.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1sleea2019001.pdf_