## 1sleea2020003

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---

### Context
- COVID-19 is "severely impacting the Sierra Leonean economy," threatening to wipe out gains since the Ebola crisis.
- Key constraints: "a tight financing situation, a fragile health sector, and vast development needs."
- Reform commitment continues under the Government’s National Development Plan and the Extended Credit Facility (ECF), including to "enhance governance."

### Impact of the COVID-19 pandemic and outlook
- Health situation and testing:
  - Official case load escalated rapidly to "above 700 as of May 26."
  - WHO expects cases to escalate as testing improves; health crisis expected to "peak only later this year."
- Macroeconomic outlook and key projections:
  - Real GDP growth: "about -3.1 percent" in 2020 (a downward revision "by more than 7 percentage points compared to the pre-COVID estimate").
  - Inflation (end-2020): "17½ percent" (up "4½ percentage points from the pre-COVID estimate").
  - Domestic revenue-to-GDP ratio: expected drop of "1¾ percentage points" versus pre-COVID projections.
  - Exports (mining activity): projected "to decline by -16.6 percent y-o-y."
  - Balance of payments gap: "US$214 million."
- Recent performance prior to shock:
  - Growth: "3.5 percent in 2018" and estimated "5.1 percent in 2019."
  - Medium-term growth set to average "4½ percent."
  - Overall fiscal deficit narrowed from "8.8 percent of GDP in 2017" to "2.9 percent of GDP in 2019."
- Other risks and consequences:
  - Asset quality likely to deteriorate.
  - Long-term development outcomes at risk (school closures, potential rise in violence).
  - A more severe/protracted global crisis or further commodity price fall could widen financing gap.

### Policy response and fiscal costs
- Containment measures (selected):
  - Declared a "12-month national state of emergency on March 24."
  - Mandatory quarantine for arrivals from countries with "50 or more cases"; closed land borders; suspended for three months all incoming and outgoing regular passenger flights; closed education institutions "as of end-March 2020"; restricted religious events; limited public transport passengers; mandated masks in public spaces; national evening curfew.
- COVID-response framework:
  - Health Response Plan.
  - Quick Action Economic Response Programme (QAERP) — priorities: essential commodities, local food production, SMEs support, social protection, planned public works.
  - QAERP governance structure and Macro-Fiscal Working Group (co-chaired by the Ministry of Finance and IMF) for costing and sustainability.
- Fiscal costs and planned spending:
  - Initial containment measures cost: "Le 294 billion" (security, personnel, screening, public awareness).
  - Expected budgetary cost of health response: "around Le 423 billion" (testing, surveillance, labs, case management, information, logistics).
  - Mitigating socio-economic impact requires "Le 464 billion (around US$40-45 million)" (cash/in-kind transfers, one-time payments to informal workers, import tax deferrals, rural road works).

### Financing needs, development partner support, and IMF request
- Total fiscal impact (revenue and expenditure): "approximately US$230 million."
- Authorities identified budget reallocations: "US$18.7 million."
- Fiscal financing gap reported: "in excess of Le 2 trillion (around US$210 million or around 5.4 percent of GDP)."
- Development partner commitments:
  - World Bank: "US$7.5 million health project grant approved in April" and "US$100 million budget support grant" expected to be approved in June ("US$40 million above the financing provisioned in the authorities’ 2020 budget").
  - European Union exploring increased support and delinking fixed/flexible tranches for earlier disbursement.
- IMF support request:
  - Authorities request "SDR 103.7 million or 50 percent of quota" under the Rapid Credit Facility (RCF); to be on-lent by the Bank of Sierra Leone to the Treasury.
  - Staff assesses Sierra Leone meets qualification criteria and supports the request.
  - RCF disbursement expected to catalyze additional support, "ideally grants."

### Monetary and financial policies and measures
- BSL Monetary Policy Committee decisions (March 18):
  - Reduce policy rate by "150 bps from 16.5 percent to 15 percent."
  - Extend reserve requirement maintenance period from "14 to 28 days."
  - Create a "Le 500 billion special credit facility" to support production, procurement and distribution of essential goods.
  - Support private sector importation of essential goods.
- Exchange rate: "continued depreciation of 10 percent (y-o-y) in April 2020."
- Special credit facility modalities and safeguards:
  - Facility via commercial banks, in Leones or FX at prevailing market rate.
  - Eligibility: businesses with "at least 75 percent of their revenues from operations in Sierra Leone."
  - Commercial banks bear "100 percent of credit risk"; use existing underwriting; register collateral with Collateral Registry.
  - Accountability: submissions to BSL’s Banking Supervision Department and Credit Reference Bureau.
  - IMF staff recommended clearer operational aspects; BSL amended Rules addressing collateral and transparency.
- Financial sector monitoring and contingency:
  - Banking sector "profitable and adequately capitalized," but monitor NPLs and reassess provisioning.
  - Apply asset classification, prudential and IFRS 9 provisioning to restructured loans and loans covered by moratoria.
  - Staff encouraged banks to forgo dividends, buybacks, or increasing executive compensation during the crisis.

### Accountability, transparency, and public financial management (PFM)
- Anti-Corruption Commission launched a "COVID-19 response task force on transparency."
- Audit Service Sierra Leone (ASSL) reiterated legal procedures and oversight role; ASSL to audit COVID-related interventions ex post.
- Government established a COVID-19 Fund (CF), an extra-budgetary account at the BSL, with a counterpart account at a commercial bank for emergency spending.
- Authorities plan regular reporting and ex post audit by ASSL in line with the "Public Financial Management Act (2016)," and to publish names and beneficial owners of companies winning large COVID-19-related contracts.
- IMF technical assistance underway to strengthen CF management, emergency spending approval processes, and increased use of electronic transactions.
- Timely disbursement of resources to ASSL and empowering ASSL to audit all resources will be important.

### Debt sustainability, Fund obligations, and capacity to repay
- Large COVID-induced balance of payments gap: "US$214 million or around 5½ percent of GDP."
- Additional support narrowing the gap: development partner grants ("around US$50 million") and debt service relief through the CCRT and DSSI ("nearly US$10 million").
- Including the RCF disbursement, total outstanding credit to the Fund at end-2020 would be "SDR 393.4 million, 189.7 percent of quota, or 14 percent of GDP."
- Capacity to repay remains adequate, though gross repayments would be "above 1 percent of GDP per year during 2021-28."
- Updated DSA: temporary relaxation of the deficit and RCF disbursement keep the "risk of external and public debt distress high"; crisis-related setbacks call for "highly concessional financing or grants."
- On-lending framework: MoU to specify government account maintenance at the central bank, holding FX balances only with the central bank, BSL–Ministry of Finance agreement on servicing IMF obligations, and repayment schedules.
- Implementation of safeguards assessment recommendations remains slow; FY2018 audit of BSL expected "by end-June 2020" (past statutory deadline). Outstanding recommendations include:
  - Conduct external quality assessment of internal audit function.
  - Adopt fraud prevention and whistleblower policy.
  - Engage accounting consultant to review controls.

### DSA key quantitative indicators (selected, preserve values as reported)
- Real GDP growth (annual): 3.8; 3.5; 5.1; 4.2; -3.1; 2.7; 4.2; 4.5; 4.5; 4.6
- GDP excluding Iron ore (annual): 3.6; 5.4; 4.5; 4.4; -2.5; 2.3; 4.1; 4.4; 4.4; 4.4
- Consumer prices (end-of-period): 15.3; 14.2; 13.9; 13.0; 17.5; 13.5; 11.1; 9.8; 8.8; 8.0
- Exports of goods (annual percent change): -0.3; -2.0; 11.3; 28.1; -16.6; 24.1; 15.9; 9.9; 11.1; 10.5
- Gross international reserves (US$ millions): 501; 487; 506; 572; 565; 569; 575; 582; 589; 600
- Total revenue and grants (billions of Leone): 4,023; 5,101; 6,666; 8,229; 7,394; 7,947; 9,467; 10,989; 12,795; 14,668
- Overall balance including grants (billions of Leone): (2,389); (1,819); (1,076); (1,458); (3,390); (2,496); (1,997); (1,716); (1,774); (2,159)
- Overall balance including grants (percent of non-iron ore GDP): -8.8; -5.6; -2.9; -3.3; -8.2; -5.2; -3.6; -2.7; -2.5; -2.7
- Nonperforming loans to total gross loans (percent, quarterly series examples): 15.3; 23.7; 35.3; 33.2; 15.5; 15.0; 15.8; 13.2; 12.9; 13.0; 13.4; 13.1; 12.4; 16.8
- RCF disbursement recorded in projections: "143.2 (US$ millions, indicated as RCF disbursement in the financing tables)"
- Outstanding Fund credit (millions of SDRs, selected): 393.4; 394.3; 367.7; 323.4; 276.9; 226.9; 171.4; 123.4; 77.8; 35.3; 9.3; 1.6; 0.0; 0.0

### Staff appraisal, risks, and policy recommendations
- Staff supports widening the fiscal deficit to create room for urgent health spending and mitigation measures (social safety nets, access to credit for affected businesses).
- Fund support is "instrumental to catalyze additional development partner support" and could be crucial if downside risks materialize.
- Key macroeconomic downside risks:
  - Larger-than-expected domestic outbreak requiring higher health and priority spending and more aggressive containment.
  - A more protracted global crisis exacerbating shocks to external demand and commodity prices.
- Policy recommendations and implications:
  - Seek substantial additional grant financing and concessional resources from development partners.
  - Reprioritize expenditures and limit recourse to domestic debt to preserve space for development spending.
  - Strengthen public financial management, effective expenditure prioritization, and structural reforms to reduce debt and support recovery.
  - Continue revenue mobilization reforms and rely on concessional external borrowing.
  - Implement governance, transparency, and audit commitments (ASSL ex-post audits; publish large procurement contracts and beneficial owners; ACC transparency taskforce).
- Contingency: Authorities stand ready to "seek additional emergency support from the IMF" if the shock proves deeper or more protracted.

*Source: 1sleea2020003 — IMF staff report excerpt and Letter of Intent (May 27, 2020).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The COVID-19 pandemic is severely impacting the Sierra Leonean economy, threatening to wipe out the hard-won gains since the Ebola health crisis five years ago.
- Key constraints limiting the authorities’ ability to respond include a tight financing situation, a fragile health sector, and vast development needs.
- Sierra Leone’s reform commitment continues under the Government’s National Development Plan and the Extended Credit Facility (ECF), including to enhance governance.

### Impact of COVID-19 Pandemic and Outlook
- Health situation and testing:
  - Sierra Leone’s official case load escalated rapidly to above 700 as of May 26.
  - The World Health Organization expects cases to escalate rapidly once testing capacity improves and the health crisis is expected to peak only later this year.
- Macroeconomic outlook and key projections:
  - Real GDP growth would turn sharply negative in 2020 to about -3.1 percent, down by more than 7 percentage points compared to the pre-COVID estimate.
  - Inflation would rise to 17½ percent towards the end of 2020, up 4½ percentage points from the pre-COVID estimate.
  - The domestic revenue-to-GDP ratio is expected to drop by 1¾ percentage points compared to pre-COVID projections.
  - Exports (mining activity) projected to decline by -16.6 percent y-o-y.
  - A balance of payments gap of US$214 million (Table 4), even after policy adjustments.
- Recent performance prior to the shock:
  - Growth stabilized at 3.5 percent in 2018 and was an estimated 5.1 percent in 2019.
  - Growth was set to average 4½ percent over the medium term.
  - The overall fiscal deficit narrowed from 8.8 percent of GDP in 2017 to 2.9 percent of GDP in 2019.
- Other risks and consequences:
  - Asset quality likely to deteriorate.
  - Longer-term development outcomes would suffer (e.g., school closures stalling human capital accumulation; potential rise in violence against children and women).
  - A more severe or protracted global crisis or further fall in commodity prices could widen the financing gap.

### Policy Response and Measures
- Government containment measures (Box 1 highlights):
  - Declared a 12-month national state of emergency on March 24 and implemented measures to limit virus importation, encourage social distancing, and curtail interactions (including mandatory quarantine for arrivals from countries with 50 or more cases; closing land borders; enhanced border controls; suspending for three months all incoming and outgoing regular passenger flights; closing education institutions as of end-March 2020; restricting attendance of religious events; limiting public transport passengers; mandating masks in public spaces; restricting inter-district travel; shortening public working hours; implementing a national evening curfew).
- COVID-response policy framework:
  - Health Response Plan to address urgent health needs.
  - Quick Action Economic Response Programme (QAERP) to mitigate impacts on economy, businesses, and households—priorities include ensuring supply of essential commodities, energizing local food production, supporting small and medium enterprises, improving social protection, and planned public works.
  - A coordination mechanism (QAERP governance structure) engages development partners; the Macro-Fiscal Working Group (co-chaired by the Ministry of Finance and IMF) focuses on costing and sustainability.
- Fiscal costs and planned spending:
  - Initial containment measures cost Le 294 billion (security, personnel, screening, public awareness).
  - Expected budgetary cost of the health response around Le 423 billion (testing and surveillance, laboratory information, case management, information and social mobilization, logistics).
  - Mitigating socio-economic impact (cash and in-kind transfers, one-time payments to affected informal workers, import tax deferrals, rural road works) require Le 464 billion (around US$40-45 million).

### Financing Needs and Request for IMF Support
- Sierra Leone faces urgent and widening external and fiscal financing gaps due to weakened external demand, depressed mining exports, and containment measures.
- Measures that substantially narrow financing gaps include reallocation of budget resources, additional grant financing (World Bank), IMF debt service relief, and the Debt Service Suspension Initiative (DSSI) supported by the G20 and Paris Club.
- The Government requests financial assistance under the “exogenous shocks” window of the Rapid Credit Facility (RCF):
  - Request in attached LOI for a disbursement of SDR 103.7 million or 50 percent of quota, to become available upon Board approval.
  - To address urgent fiscal needs, the Bank of Sierra Leone would on-lend the RCF disbursement to the Treasury.
- Staff assessment:
  - Staff assesses that Sierra Leone meets the qualification criteria and other requirements and supports the request.
  - Public debt is sustainable and the capacity to repay the Fund remains adequate.
  - The RCF disbursement helps meet a large portion of the currently estimated need and is expected to play a vital role in catalyzing additional support—ideally grants—from development partners.

### Policy Issues and Discussions (Summary of Areas)
- Fiscal policy:
  - The crisis and Government response will widen the fiscal deficit due to revenue declines and additional spending needs; the Macro-Fiscal Working Group is cost-assessing measures to ensure sustainability.
- Monetary and financial policies:
  - Measures are being discussed to soundly safeguard economic activity and financial stability amid deteriorating asset quality and a shallow banking sector.
- Accountability and transparency:
  - Emphasis on strong governance and public financial management to ensure efficient, targeted, and well-implemented COVID-response measures; weaknesses in PFM could slow implementation despite recent improvements.

*Source: EXECUTIVE SUMMARY, 1sleea2020003 - EXECUTIVE SUMMARY (May 27, 2020)*

### 12.      Notwithstanding efforts to reprioritize 2020 budget spending and scaled-up financing

### 12.      Notwithstanding efforts to reprioritize 2020 budget spending and scaled-up financing from other development partners, a significant financing gap remains

### Fiscal impact and financing gap
- Total fiscal impact of the COVID-19 related shock (revenue and expenditure): approximately US$230 million.
- Authorities identified budget reallocations for crisis needs: US$18.7 million.
- Substantial fiscal financing gap in excess of Le 2 trillion (around US$210 million or around 5.4 percent of GDP).
- Evidence from the Ebola health crisis: fiscal pressures likely to be long-lasting; economic recovery expected to be gradual and revenue mobilization momentum may take years to regain.
- Even with reprioritization and development partner grants, efforts to steadily reduce the deficit post-crisis and limit recourse to domestic debt could constrain spending, including critical development spending.

### Development partner support and financing composition
- Development partners committing additional emergency support significantly narrowed the initial financing gap.
- World Bank support:
  - US$7.5 million health project grant approved in April.
  - US$100 million budget support grant (US$40 million above the financing provisioned in the authorities’ 2020 budget), expected to be approved in June.
- European Union: delinking fixed and flexible tranches of budget support to enable earlier disbursements and exploring increased support.
- On-lending of the proposed RCF—and other prospective debt service relief (including the second CCRT tranche)—is crucial to substantially narrowing the fiscal financing gap.
- Ongoing discussions with other development partners, such as the African Development Bank, are expected to close the small residual gap.

### Monetary and financial policies to safeguard economic activity
- Bank of Sierra Leone (BSL) emergency Monetary Policy Committee decisions (March 18):
  - Reduce the monetary policy rate by 150 bps from 16.5 percent to 15 percent.
  - Extend the reserve requirement maintenance period from 14 to 28 days.
  - Create a Le 500 billion special credit facility to support production, procurement and distribution of essential goods.
  - Support the private sector in the importation of essential goods.
- Exchange rate: continued depreciation of 10 percent (y-o-y) in April 2020.
- Special credit facility modalities and safeguards:
  - BSL credit window via commercial banks, in Leones or FX at the prevailing market rate.
  - Eligibility: businesses with at least 75 percent of their revenues from operations in Sierra Leone.
  - Commercial banks bear 100 percent of credit risk; use existing underwriting procedures; register collateral with Collateral Registry.
  - Accountability: submit supporting documents and credit information to evaluate loans to the BSL’s Banking Supervision Department and Credit Reference Bureau.
- IMF staff encouraged clearer operational aspects for the facility (adequate collateral, transparency on auction process and all-inclusive interest rate, exchange rate transparency); BSL amended Rules for Administering the Facility addressing collateral and transparency.
- Financial sector monitoring and contingency measures:
  - Banking sector is profitable and adequately capitalized, but monitor NPLs closely and reassess provisioning.
  - Consider prudent loan restructuring if conditions deteriorate; continue applying asset classification, prudential and IFRS 9 provisioning to restructured loans and loans covered by moratoria.
  - Staff encouraged consideration of requiring banks to forgo paying shareholder dividends, buying back stock, or increasing executive compensation during the crisis period.

### Accountability, transparency, and public financial management
- Anti-Corruption Commission (ACC) launched a COVID-19 response task force on transparency.
- Audit Service Sierra Leone (ASSL) issued a public notice in March reiterating legal procedures in the use of public funds and its oversight role.
- Government established the COVID-19 Fund (CF), an extra budgetary account at the BSL, with a counterpart account at a commercial bank to execute emergency spending—improvement over Ebola-era makeshift funds.
- Authorities plan for regular reporting and ex post audit by ASSL of COVID-related interventions in line with the Public Financial Management Act (2016), and to publish online the names and beneficial owners of companies winning large COVID-19-related contracts.
- IMF technical assistance underway to strengthen management and oversight of the CF, emergency spending approval processes, and increased use of electronic transactions.
- Timely disbursement of resources to ASSL and empowering ASSL to audit all resources spent will be important.

### Access to Fund resources and capacity to repay
- Authorities requesting a disbursement under the RCF equivalent to 50 percent of quota (SDR 103.7 million).
- Large COVID-induced balance of payments gap: US$214 million or around 5½ percent of GDP.
- Additional support narrowing the gap: development partner grants (around US$50 million) and debt service relief through the CCRT and DSSI (nearly US$10 million).
- Including the RCF disbursement, total outstanding credit to the Fund at end-2020 would amount to SDR 393.4 million, 189.7 percent of quota, or 14 percent of GDP.
- Capacity to repay the Fund remains adequate, although gross repayments would be substantial (above 1 percent of GDP per year during 2021-28).
- Updated DSA: temporary relaxation of the deficit and RCF disbursement keep Sierra Leone’s risk of external and public debt distress high; crisis-related setbacks to revenue mobilization and large development needs call for highly concessional financing or grants.
- Government and BSL to establish a framework for on-lending in a Memorandum of Understanding (MoU) specifying government account maintenance at the central bank, holding foreign exchange balances only with the central bank, BSL–Ministry of Finance agreement on servicing IMF obligations, and repayment schedules.
- Implementation of safeguards assessment recommendations remains slow (audit of BSL’s FY2018 financial statements expected by end-June 2020, past statutory deadline). Outstanding recommendations include:
  - Conduct external quality assessment of internal audit function.
  - Adopt fraud prevention and whistleblower policy.
  - Engage accounting consultant to review controls.

### Staff appraisal and downside risks
- COVID-19 is a damaging shock to Sierra Leone’s economy, external balances, and public finances—creating large external and fiscal financing gaps.
- Staff supports widening the fiscal deficit to create room for urgent health spending and measures to mitigate economic impact, including boosting social safety nets and ensuring access to credit for affected businesses.
- Fund support is instrumental to catalyze additional development partner support and could be crucial if downside risks materialize, potentially necessitating additional IMF emergency support.
- Key macroeconomic risks:
  - Larger-than-expected domestic outbreak requiring higher health and priority spending and more aggressive containment measures.
  - More protracted global crisis exacerbating shocks to external demand and commodity prices, increasing balance of payments pressures.
- Staff strongly supports authorities’ efforts to seek additional grants from development partners to address short-term pressures; sustained additional support will be necessary for Sierra Leone’s recovery and development.

*Source: IMF staff report excerpt (Text: “Notwithstanding efforts to reprioritize 2020 budget spending and scaled-up financing from other development partners, a significant financing gap remains”).*

### 30.      Staff commends the authorities’ commitment—in line with their Fund-supported

### 1sleea2020003 - 30.

### Findings
- Staff commends the authorities’ commitment—in line with their Fund-supported program—to ensuring the effective use of funds.
- Staff supports the steps the authorities are taking to stave off macroeconomic instability throughout the crisis and pursue their NDP goal of more effective governance.
- To ensure integrity, accountability and transparency in the use and management of funds in the current setting, the ACC’s COVID-19 Transparency Taskforce and the ASSL will play a crucial role.

### Transparency and accountability measures
- The authorities established a COVID-19 account to ensure transparency in the receipt and use of funds, and are implementing it supported by IMF TA.
- ASSL will audit COVID-19 related transactions after the crisis and publish its ex-post assessment.

*From: 1sleea2020003 - 30.*

### 31.      Against this background, staff supports the authorities’ request for a disbursement

### 1sleea2020003 - 31.      Against this background, staff supports the authorities’ request for a disbursement

### IMF decision and financing
- Staff supports the authorities’ request for a disbursement under the Rapid Credit Facility in the amount of SDR 103.7 million (50 percent of quota).

### Macroeconomic projections and key real-sector indicators
- GDP at constant prices (annual growth): 3.8, 3.5, 5.1, 4.2, -3.1, 2.7, 4.2, 4.5, 4.5, 4.6
- GDP excluding Iron ore (annual growth): 3.6, 5.4, 4.5, 4.4, -2.5, 2.3, 4.1, 4.4, 4.4, 4.4
- Consumer prices (end-of-period): 15.3, 14.2, 13.9, 13.0, 17.5, 13.5, 11.1, 9.8, 8.8, 8.0
- Consumer prices (average): 18.2, 16.0, 14.8, 13.4, 15.7, 15.5, 12.3, 10.5, 9.3, 8.4
- Terms of trade (deterioration -): 15.5, -9.9, -4.2, 2.3, 2.4, -2.2, -0.4, 0.0, -0.1, 0.1
- Exports of goods (annual percent change): -0.3, -2.0, 11.3, 28.1, -16.6, 24.1, 15.9, 9.9, 11.1, 10.5
- Imports of goods (annual percent change): 23.7, 0.6, 4.9, 4.0, -4.3, 4.1, 4.5, 2.5, 6.4, 5.1
- Current account balance (including official grants, percent of non-iron ore GDP): -21.1, -18.7, -13.8, -11.3, -15.8, -14.7, -13.3, -11.8, -11.4, -10.6

### External sector, reserves, and balance of payments
- Gross international reserves (excluding swaps, US$ millions): 501, 487, 506, 572, 565, 569, 575, 582, 589, 600
- Gross international reserves (months of imports): 3.8, 3.7, 3.5, 3.7, 4.2, 4.1, 3.9, 3.9, 3.7, 3.6
- Trade balance (US$ millions): -551.2, -570.8, -557.5, -406.3, -620.9, -527.9, -466.8, -415.0, -396.5, -360.2
- Exports, f.o.b. (US$ millions): 652.1, 639.2, 711.3, 912.1, 593.2, 736.3, 853.8, 938.7, 1,043.3, 1,152.4
- Imports, f.o.b. (US$ millions): -1,203.3, -1,210.0, -1,268.8, -1,318.4, -1,214.2, -1,264.2, -1,320.6, -1,353.7, -1,439.8, -1,512.6
- Current account (US$ millions): -781.5, -762.6, -573.1, -466.9, -611.2, -559.8, -512.1, -466.4, -469.1, -454.3

### Fiscal sector and public finances
- Total revenue and grants (billions of Leone): 4,023; 5,101; 6,666; 8,229; 7,394; 7,947; 9,467; 10,989; 12,795; 14,668
- Revenue (billions of Leone): 3,340; 4,428; 5,377; 6,467; 5,399; 6,578; 7,936; 9,453; 11,110; 12,930
- Tax revenue (billions of Leone): 3,034; 3,809; 4,560; 5,486; 4,511; 5,561; 6,754; 8,114; 9,604; 11,236
- Grants (billions of Leone): 683; 673; 1,289; 1,762; 1,798; 1,369; 1,531; 1,535; 1,685; 1,738
- Expenditures and net lending (billions of Leone): 6,412; 6,920; 7,742; 9,687; 10,784; 10,443; 11,464; 12,704; 14,569; 16,827
- Domestic primary balance (billions of Leone): (1,223), (176), (239), 117, (2,033), (196), 353, 912, 1,068, 991
- Overall balance including grants (billions of Leone): (2,389), (1,819), (1,076), (1,458), (3,390), (2,496), (1,997), (1,716), (1,774), (2,159)
- Overall balance including grants (percent of non-iron ore GDP): -8.8, -5.6, -2.9, -3.3, -8.2, -5.2, -3.6, -2.7, -2.5, -2.7
- Total stock of arrears (billions of Leone): 3,077; 3,377 (mem. item)

### Monetary and financial indicators
- Base money (annual percent change): 9.0, 6.5, 12.4, 6.3, 19.6, 19.8, 15.5, 13.9, 13.1, 12.5
- M3 (annual percent change): 7.0, 14.5, 14.3, 17.4, 14.6, 16.3, 15.5, 13.9, 13.1, 12.5
- Domestic credit to the private sector (growth): 4.9, 30.6, 22.9, 9.3, 10.6, 15.7, 16.3, 2.1, 2.6, 14.4
- Credit to the private sector (percent of non-iron ore GDP): 5.2, 5.7, 6.0, 5.7, 6.1, 6.1, 6.1
- Reserve money (end of period, billions of Leone): 2,284; 2,433; 2,735; 3,456; 3,273; 3,922; 4,530
- Commercial bank claims on government (billions of Leones, time series across figures): 500–4,500 scale shown in figures; see monetary tables for exact levels.

### External financing needs and sources
- Financing needs (US$ millions): -887; -854; -807; -776; -917; -793; -771; -729; -737; -728
- Financing sources (US$ millions): 801; 455; 785; 711; 620; 708; 737; 732; 740; 728
- Disbursements from IMF (ECF, US$ millions): 53; 22; 21; 64; 43; 22; 0; 0; 0; 0
- RCF disbursement recorded in projections: 143.2 (US$ millions, indicated as RCF disbursement in the financing tables)

### Debt, Fund obligations, and capacity to repay
- Outstanding Fund credit based on existing and prospective credit (in millions of SDRs): 393.4; 394.3; 367.7; 323.4; 276.9; 226.9; 171.4; 123.4; 77.8; 35.3; 9.3; 1.6; 0.0; 0.0
- Outstanding Fund credit (in millions of US$): 543.3; 547.0; 511.9; 451.5; 387.6; 318.7; 236.1; 166.6; 103.0; 45.8; 11.9; 1.9; 0.0; 0.0
- Fund obligations based on existing and prospective credit (principal, in millions of SDRs): 21.2; 30.2; 42.1; 44.3; 46.5; 50.1; 55.5; 48.0; 45.6; 42.5; 25.9; 7.8; 1.6; 0.0
- Total obligations (in millions of US$): 29.2; 41.9; 58.7; 61.8; 65.1; 70.3; 76.4; 64.8; 60.4; 55.2; 33.0; 9.7; 1.9; 0.0
- Total obligations (percent of exports of goods and services): 3.7; 4.6; 5.7; 5.5; 5.2; 5.2; 5.1; 3.9; 3.4; 2.8; 1.6; 0.4; 0.1; 0.0
- Outstanding Fund credit (percent of gross international reserves): 94.2; 96.2; 89.0; 77.6; 65.8; 53.1; 38.0; 25.3; 14.7; 6.2; 1.5; 0.2; 0.0; 0.0
- Net use of Fund credit (in millions of SDRs): 129.2; 0.9; -26.6; -44.3; -46.5; -50.1; -55.5; -48.0; -45.6; -42.5; -25.9; -7.8; -1.6; 0.0

### Banking system soundness (selected indicators)
- Regulatory capital ratio (period series, percent): ranges shown from 28.0 up to 47.2 and back to 41.7 across 2012–2019 observations.
- Nonperforming loans to total gross loans (percent): 15.3; 23.7; 35.3; 33.2; 15.5; 15.0; 15.8; 13.2; 12.9; 13.0; 13.4; 13.1; 12.4; 16.8 (quarterly series across 2012–2019)
- Return on assets (percent): quarterly series showing values such as 3.8; 2.2; 2.6; 3.2; 3.8; 5.6; 6.0; 6.3; 6.0; 6.0; 6.1; 6.5; 6.6; 6.1
- Liquidity ratio and statutory minimum liquidity ratio (quarterly series reported; see table for exact series).

*Source: Sierra Leonean authorities; and IMF staff estimates and projections.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Context and immediate impact
- Date: May 27, 2020.
- First recorded COVID-19 case: March 31.
- Confirmed cases: Sierra Leone has "surpassed 700 confirmed cases."
- The pandemic is described as "an unprecedented setback" threatening recent recovery and macroeconomic stabilization.
- Expected real GDP contraction: "about 3 percent", described as "a downward revision of more than 7 percentage points compared to the pre-COVID outlook."
- Expected per capita GDP decline: "about 5 percent."
- Sectoral impacts highlighted: trade and tourism most severely affected; supply chain disruptions dampening manufacturing and construction; falling commodity prices and social distancing depressing mining activity; limited FDI and remittances creating pressure on the balance of payments.

### Economic projections, fiscal and external gaps
- Revenue shortfall: "around 1¾ percent of GDP," reflecting drops in external and domestic activity and delayed revenue administration gains.
- Budgetary cost of scaling up health response: "about US$40 million."
- Estimated budgetary cost of measures to address the shock—health and containment, and economic and social support: "will approach US$130 million."
- Aggregate external and fiscal financing gaps: "in the order of US$210 million."
- Exchange rate: authorities "allowed the exchange rate to serve as a buffer."
- Debt relief and financing already sought/received: commitments from development partners, the Catastrophe Containment and Relief Trust (CCRT), IMF debt service relief approved in mid-April, and seeking temporary relief under the Debt Service Suspension Initiative supported by the G20 and Paris Club.

### Health response and Quick Action Economic Response Plan (QAERP)
- Health containment measures included: "periodic nation-wide lockdowns, border closures, flight suspensions, restrictions on movements, and requiring the use of masks in public spaces."
- Operational structures: Public Health Emergency Operations Center, dedicated call centers, contact tracing, disease surveillance, testing, isolation, and treatment.
- QAERP objectives: ensure stable supply of essential commodities (including food security), ramp up social protection, and provide support to the private sector—especially affected small and medium enterprises.
- Central Bank measures: Bank of Sierra Leone (BSL) "reducing the policy rate and creating a Le 500 billion special credit facility to support production, procurement and distribution of essential goods."
- Prudential stance on loan quality: continue to apply "asset classification and prudential and IFRS 9 provisioning requirements to restructured loans and loans covered by any moratoria."

### Financing request and modalities
- Requested IMF support: disbursement of "SDR 103.7 million, equivalent to 50 percent of quota, under the Rapid Credit Facility."
- On-lending arrangement: "the BSL would on-lend the disbursement to the Treasury, based on a forthcoming Memorandum of Understanding that will establish a framework clarifying the responsibilities for timely servicing of the financial obligations to the IMF ahead of the RCF Board date."
- Conditionality and intent: authorities express hope that IMF support "will help catalyze further support from development partners" and note they "do not intend to introduce measures or policies that would exacerbate balance of payments difficulties."

### Governance, transparency and accountability measures
- Coordination and transparency mechanisms established to ensure effective, sustainable, and accountable response with development partners and stakeholders.
- Anti-Corruption Commission action: launched the "COVID-19 Response Transparency Taskforce to ensure integrity, accountability and transparency in the use and management of funds."
- Dedicated COVID-19 account established for emergency response; regular reporting on use of emergency funds already commenced and intended to be refined with IMF FAD and AFRITAC West 2 TA.
- Audit and publication commitments:
  - "The Audit Service Sierra Leone will audit the management of the COVID-19 Fund and COVID-19 response, and publish its report online, within 12 months of the end of the fiscal year as required under the Constitution and laws of Sierra Leone, including the PFM Act 2016."
  - Plan to "publish on the Government’s website large public procurement contracts related to crisis mitigation, the names of the companies awarded contracts, their beneficial owners, and ex-post validation of delivery."
- Commitment on safeguards and audits: commit to "undergoing an update safeguards assessment ahead of any subsequent new arrangement with the IMF, and to finalise the FY2018 audit as soon as possible."

### Policy stance and conditional commitments
- Fiscal stance: reprioritizing non-essential expenditures where possible; emphasize restarting revenue-mobilization reforms as quickly as possible.
- Trade and payments commitments: will "comply with the provisions of the IMF’s Articles of Agreement, including those related to the imposing new or intensifying existing restrictions on the making of payments and transfers for current international transactions and also bilateral payments under Article VIII, and will implement public policies under that framework and avoid additional trade restrictions for balance of payment purposes."
- Contingency: "should the pandemic related shock prove deeper or more protracted than currently estimated, we may need to seek additional emergency support from the IMF."

### Debt Sustainability Analysis (DSA) summary lines included in the letter
- "Risk of external debt distress High"
- "Overall risk of debt distress High"
- "Granularity in the risk rating Sustainable"
- "Application of judgment No"
- Macroeconomic projections summary: "This DSA incorporates the expected economic impact of the COVID-19 pandemic and policy response, with a sharp decline in growth (down more than 7 percentage points relative to pre-crisis projections) and exports (down one-third), and the fiscal deficit widens (by 3½ percentage points of GDP, including expected additional budget support grants and debt relief)."

*Ministry of Finance and Bank of Sierra Leone — Letter of Intent, May 27, 2020.*

### 2020. Growth is assumed to gradually rebound in 2021.

### 1sleea2020003 - 2020. Growth is assumed to gradually rebound in 2021.

### Overview and context
- The DSA follows the IMF and World Bank Staff Guidance Note on the Bank-Fund Debt Sustainability Framework for Low-Income Countries (February 2018).
- Composite Indicator (CI) score: 2.693 (based on October 2019 WEO and World Bank’s 2018 CPIA).
- Debt-carrying capacity classification: medium.
- Corresponding external debt indicative thresholds:
  - PV of debt-to-GDP ratio: 40 percent
  - PV of debt-to-exports ratio: 180 percent
  - Debt service-to-exports ratio: 15 percent
  - Debt service-to-revenue ratio: 18 percent
- Realism tools flagged: No
- Mechanical risk rating under the external DSA: High
- Mechanical risk rating under the public DSA: High
- DSA approved by Dominique Desruelle and Kevin Fletcher (IMF) and Marcello Estevão (IDA).
- Prepared by the staffs of the International Monetary Fund and the International Development Association — May 27, 2020.

### Financing strategy and assumptions
- With little fiscal space and a shallow domestic banking system, highly concessional financing and grants from development partners are essential to meet urgent and large financing gaps arising from the pandemic.
- This DSA incorporates a proposed RCF disbursement equivalent to 50 percent of quota.
- The DSA assumes:
  - The external financing gap created by the COVID-19 shock will be almost entirely filled by disbursement of the Rapid Credit Facility (RCF) (on-lent to support the budget) and additional budget and project support grants from the World Bank after the COVID-19 shock.
  - Debt service relief under the IMF’s Catastrophe Containment and Relief Trust (CCRT).
  - The authorities are seeking temporary relief under the Debt Service Suspension Initiative supported by the G20 and Paris Club.
  - Continued discussions with development partners to finalize support for the remaining gap.

### Key findings on debt sustainability and risks
- While Sierra Leone’s debt remains sustainable, the risk of external and overall debt distress remains high—and the COVID-19 shock has elevated risks.
- The baseline macro scenario reflects deleterious COVID-19 effects on growth, exports, and revenues, and measures to combat health and socio-economic effects.
- External and domestic financing needs have widened sharply in 2020, worsening external and public finance indicators relative to the March 2020 DSA, despite additional grant assistance.
- The setback to revenue mobilization under the baseline is long-lasting, causing a larger and more prolonged breach of the external-debt-service-to-revenue ratio relative to the previous DSA.
- The PV of public-debt-to-GDP tracks downward from 2021 but remains above the threshold until 2024.
- Other indicators deteriorate with the COVID-19 shock but remain below thresholds.
- Public-debt-service-to-revenue ratio and gross financing need increase over the medium term, indicating liquidity vulnerabilities.
- Stress scenarios show significant and persistent breaches for shocks to exports and growth (and combinations thereof).

### Policy recommendations and implications
- Reducing debt requires sustained adjustment underpinned by:
  - Strengthened public financial management.
  - Effective expenditure prioritization.
  - Redoubling structural reform efforts.
- Authorities remain committed to continuing revenue mobilization reforms; this is key for reducing sustainability risks.
- Required fiscal adjustment will be challenging; steadily reducing recourse to domestic debt limits scope for public investment relative to pre-crisis outlook.
- External borrowing should continue to rely on concessional financing, and substantial additional grant support will be essential to:
  - Boost post-COVID recovery efforts.
  - Maintain sustainability.
  - Continue meeting Sierra Leone’s large development needs.

### Selected quantitative projections and indicators (baseline, selected years)
- Real GDP growth (in percent):
  - 2019: 5.1
  - 2020: -3.1
  - 2021: 2.7
  - 2022: 4.2
  - 2023: 4.5
  - 2024: 4.5
  - 2025: 4.6
  - 2030: 4.5
  - Average projection (first projection years): 3.8
- External debt (nominal, percent of GDP):
  - 2019: 43.2
  - 2020: 55.0
  - 2021: 56.7
  - 2022: 55.6
  - 2023: 53.5
  - 2024: 51.1
  - 2025: 48.8
  - 2030: 36.7
  - 2040: 30.4
- PV of PPG external debt-to-GDP ratio (selected):
  - 2019: 28.0
  - 2020: 35.2
  - 2021: 37.0
  - 2022: 36.7
  - 2023: 35.5
  - 2024: 33.9
  - 2025: 32.5
  - 2030: 23.4
  - 2040: 19.9
- PV of PPG external debt-to-exports ratio:
  - 2020: 172.4
  - 2021: 154.3
  - 2022: 137.3
  - 2023: 125.7
  - 2024: 113.4
  - 2025: 103.9
  - 2030: 66.9
  - 2040: 63.4
- PPG debt service-to-exports ratio (selected):
  - 2019: 7.5
  - 2020: 12.1
  - 2021: 12.5
  - 2022: 13.4
  - 2023: 12.6
  - 2024: 11.9
  - 2025: 10.0
  - 2030: 7.8
  - 2040: 4.4
- PPG debt service-to-revenue ratio (selected):
  - 2019: 11.6
  - 2020: 18.1
  - 2021: 20.4
  - 2022: 24.4
  - 2023: 24.0
  - 2024: 23.3
  - 2025: 19.8
  - 2030: 15.7
  - 2040: 7.2
- Gross external financing need (Million of U.S. dollars):
  - 2017: 416.2
  - 2018: 574.5
  - 2019: 256.8
  - 2020: 478.6
  - 2021: 314.1
  - 2022: 255.6
  - 2023: 184.5
  - 2024: 192.7
  - 2025: 184.3
  - 2030: 259.1
  - 2040: 406.8
- Government revenues (excluding grants, percent of GDP):
  - 2017: 12.2
  - 2018: 13.7
  - 2019: 14.2
  - 2020: 13.6
  - 2021: 14.8
  - 2022: 14.7
  - 2023: 14.8
  - 2024: 15.3
  - 2025: 15.7
  - 2030: 17.5
  - 2040: 19.3
- Grants (in percent of GDP, grant element of new public sector borrowing and grant-equivalent financing):
  - Grant element of new public sector borrowing (selected): 2020: 35.6, 2021: 40.1, 2022: 44.4, 2023: 48.5, 2024: 50.0, 2025: 49.0, 2030: 45.6, 2040: 40.9
  - Grant-equivalent financing (in percent of GDP, selected): 2020: 8.8, 2021: 4.6, 2022: 4.3, 2023: 3.9, 2024: 3.9, 2025: 3.7, 2030: 3.4, 2040: 2.8
  - Grant-equivalent financing (in percent of external financing, selected): 2020: 59.9, 2021: 63.8, 2022: 68.5, 2023: 71.1, 2024: 71.3, 2025: 69.5, 2030: 67.2, 2040: 62.9
- PV of public debt-to-GDP ratio (public DSA):
  - 2019: 56.3
  - 2020: 60.5
  - 2021: 61.5
  - 2022: 60.1
  - 2023: 57.9
  - 2024: 55.4
  - 2025: 53.1
  - 2030: 34.8
  - 2040: 22.1
- Public sector debt (percent of GDP, headline):
  - 2019: 69.4
  - 2020: 77.2
  - 2021: 78.5
  - 2022: 76.8
  - 2023: 74.1
  - 2024: 71.1
  - 2025: 68.4
  - 2030: 47.8
  - 2040: 32.4
- Debt service-to-revenue and grants ratio (public DSA, selected):
  - 2019: 22.6
  - 2020: 27.7
  - 2021: 45.4
  - 2022: 61.9
  - 2023: 72.4
  - 2024: 77.7
  - 2025: 79.2
  - 2030: 55.6
  - 2040: 7.3
- Gross financing need (public DSA, percent of GDP):
  - 2019: 4.2
  - 2020: 9.1
  - 2021: 8.9
  - 2022: 11.2
  - 2023: 12.6
  - 2024: 13.8
  - 2025: 14.6
  - 2030: 9.8

### Stress tests and sensitivity analysis (high-level)
- Stress tests identify the most extreme shocks over 2020–2030 by indicator; examples of most extreme shocks:
  - PV of debt-to-GDP ratio: Combination shock.
  - PV of debt-to-exports ratio: Exports shock.
  - Debt service-to-revenue ratio: Growth shock.
  - Debt service-to-exports ratio: Exports shock.
- Sensitivity tables (2020–2030) show multiple scenarios (alternative scenarios A1; bound tests B1–B6; tailored tests C1–C4) and indicate breaches of thresholds in several scenarios (bold values in the source).
- Note: All additional financing needs generated by shocks in the external DSA are assumed to be covered by PPG external MLT debt; default terms of marginal debt are based on baseline 10-year projections. The public DSA allows for domestic financing to cover additional financing needs generated by shocks.

*Prepared by the staffs of the International Monetary Fund and the International Development Association, May 27, 2020.*

### Introduction

### Introduction

### Authorities’ request and transparency measures
- Requested emergency financial support under the Rapid Credit Facility (RCF) in the amount of SDR 103.7 million, equivalent to 50 percent of quota, to address urgent balance of payments needs.
- Seeking additional resources from other development partners, including debt service relief under the G20 Debt Service Suspension Initiative (DSSI).
- Stand ready to seek additional emergency support from the IMF if the shock turns out to be more severe and prolonged than anticipated.
- Transparency and oversight measures implemented or planned:
  - Established a dedicated COVID-19 Fund at the Bank of Sierra Leone (BSL), implemented with Fund TA support.
  - Plan to publish on the government’s website large public procurement contracts related to crisis mitigation, including the names of the companies awarded contracts, their beneficial owners, and ex-post validation of delivery.
  - Audit Service Sierra Leone (ASSL) will conduct ex-post audits on the management of government’s COVID-19 Fund and the broader pandemic response; assessments will be published online, consistent with the provisions of the 2016 Public Financial Management Act.
  - Anti-Corruption Commission’s COVID-19 Transparency Taskforce and the ASSL to ensure integrity, accountability, and transparency in the use and management of COVID-19 related funds.
  - Authorities stand ready to undergo an updated safeguards assessment ahead of subsequent Fund arrangements.

### Impact of the COVID-19 pandemic
- First confirmed COVID-19 case reported on March 31, 2020.
- Case load reached levels above 700 at end May 2020; numbers likely to continue rising as testing capacity intensifies.
- Economic impacts and projections:
  - Trade, tourism, and other services (which account for about 40 percent of GDP) are expected to contract sharply.
  - Economic growth is projected to decline by over 7 percentage points to -3.0 percent in 2020, compared to the pre-COVID-19 estimate.
  - Revenue mobilization is estimated to be depressed by 1.8 percent of GDP in the context of elevated health expenditures.
  - The fiscal deficit is estimated to widen by 4.9 percentage points in 2020 compared to the pre-crisis estimate.
- Other pressures:
  - Downturn in international metal prices and delayed investments constrain mining activity and depress export receipts.
  - Delays in project disbursements, declining remittances, and elevated imports of food and medical supplies exert substantial pressure on the balance of payments.
  - The pandemic places a heavy burden on a weak health system, increasing uncertainty and risks to the outlook.

### Interventions and policy responses (health, fiscal, monetary, and social)
- Governance and coordination:
  - Leveraged Ebola crisis experience to establish a governance structure to coordinate the COVID-19 response and engage development partners and stakeholders.
  - Implemented national emergency measures since the first recorded case: restricting gatherings, closure of land borders, suspension of international passenger flights, and shutting down education institutions.
  - Activated the Public Health Emergency Operations Center to intensify contact tracing, disease surveillance, and testing; revamped isolation and treatment facilities.
  - Developed the COVID-19 Preparedness and Response Plan for the health sector in collaboration with the World Health Organization and other development partners.
- Economic and social measures:
  - Developed an economic response plan: the Quick Action Economic Response Program (QAERP), geared at cushioning the impact on businesses and households.
  - Ramped up expenditure on social protection and public works, consistent with the National Development Plan (NDP).
  - In collaboration with the World Bank and other partners, providing cash transfers to families of people with disability, vulnerable workers, and low-income earners in the informal sector.
  - Re-orienting non-essential expenditures in the national budget and leveraging budget resources ear-marked for on-going projects to shore-up private sector activity and create employment.
  - Plan to introduce import tax deferrals to facilitate importation of essential goods.
- Monetary and financial sector measures by the BSL:
  - Implemented accommodative monetary policy measures including cutting the policy rate.
  - Maintained a flexible exchange rate to absorb external shocks.
  - Established a Le 500 billion Special Credit Facility to provide finance for the production, procurement, and distribution of essential goods and services.
  - Extended the reserve requirement maintenance period for commercial banks to ease liquidity conditions.
  - Will continue to closely monitor banks’ asset portfolios and apply IFRS9 provisioning to restructured loans.
  - Advancing governance reforms at the BSL to enhance financial sector oversight.

### Post-crisis medium-term objectives and structural reforms
- Commitment to resume growth-friendly fiscal consolidation efforts to restore fiscal and debt sustainability once the crisis abates; remain committed to the medium-term policy objectives of the ECF-supported program.
- Financing strategy:
  - Continue to seek grant and concessional resources and non-debt creating capital inflows.
- Fiscal policy stance:
  - Pursue both revenue enhancing and expenditure rationalization measures to consolidate gains made under the ECF program.
- Monetary and financial sector objectives:
  - Strengthen monetary policy implementation to bring down inflation.
  - Seek to build FX reserves.
  - Strengthen central bank governance.
  - Deepen the financial sector and enhance the bank regulatory and supervisory framework.
- Structural reforms:
  - Accelerate reforms to promote good governance, develop human capital, intensify the fight against corruption, and improve the business environment.
  - Continue to leverage Fund technical support in strengthening the reporting of securities previously issued to clear arrears.

### Conclusion and outlook
- Authorities reaffirm commitment to sustained implementation of prudent macroeconomic policies to lay a solid foundation for accelerated, durable, and inclusive growth once the pandemic abates.
- View policy efforts to unlock the country’s growth potential as important to attaining the key development objectives articulated in the NDP.
- Authorities look forward to Executive Directors’ support for emergency financing under the RCF to anchor on-going efforts to contain the spread of the pandemic and limit its impact on the economy.

*Source: Introduction (1sleea2020003).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1sleea2020003.pdf_