## SIERRA LEONE: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA, MODIFICATIONS OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW

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### Executive summary and program context
- IMF support: 124.44 million (about US$172.1 million at that time or around 60 percent of the country’s quota), extended by 12 months on July 27, 2021.
- Program aims: reduce inflation, mobilize revenue to allow for necessary spending consistent with debt sustainability, safeguard financial stability, and maintain external resilience to shocks.
- Pandemic and vaccination: Despite decisive response to COVID-19, around 17¼ percent of the population have received two vaccination doses as of mid-May; less than one in five Sierra Leoneans is vaccinated in other references.
- Development context: National Development Plan (NDP) focused on human capital; human development outcomes remain among the weakest worldwide.
- Vulnerabilities: continued exposure to shocks (including spillovers from the war in Ukraine), capacity needs, still-fragile institutions, and high climate vulnerability.

### Recent economic developments and program performance
- Growth and outlook:
  - Real GDP growth: 2021 Est. 3.2 percent; 2022 Proj. 3.6 percent (revised down from 5.9 percent); 2023 Proj. 3.4 percent.
  - Iron ore production contributed to the 2021 recovery; 2022 growth revised down due to terms-of-trade deterioration and global uncertainty.
- Inflation and external:
  - Consumer prices (end-of-period): 2020 10.4; 2021 17.9; 2022 22.1; 2023 19.6.
  - Inflation rose since mid-2021; expected to average about 22 percent in 2022.
  - Exchange rate depreciation: e.g., 23.3 percent y-o-y in April 2022 in one account; program exchange rate for 2022 and 2023: Le 11,255.72/US$1.
  - Gross international reserves (excl. swaps, US$ millions): 2020 677; 2021 932; 2022 689; 2023 600.
- Fiscal performance:
  - Fiscal space extremely tight; 2021 overall balance (percent of non-iron ore GDP): 2021 -7.3; 2022 -4.1; 2023 -2.8.
  - Domestic primary balance (percent of non-iron ore GDP): 2021 -5.0; 2022 -2.5; 2023 0.3.
  - Revenue (excl. grants, percent of non-iron ore GDP): 2021 15.5; 2022 14.7; 2023 15.0.
  - Public debt: 2020 76.3; 2021 78.8; 2022 80.8; 2023 80.4 (percent of non-iron ore GDP in staff table).
- Program performance and waivers:
  - Quantitative PCs on GIR and NDA observed at end-September and end-December 2021; significant breach in Net Credit to Government (NCG) at end-December 2021 (4 percent of non-iron ore GDP) due to expenditure overruns financed by large T-Bill issuance and unpaid checks.
  - Continuous PCs on new multiple currency practices (MCPs) and exchange restrictions were missed; authorities requested waivers and Article VIII approvals for temporary FX facilities introduced in April 2022 (SFF US$50 million; RFF US$50 million).
  - Most structural benchmarks for the 5th Review were met.

### Macroeconomic outlook, risks, and key vulnerabilities
- Medium-term risks:
  - War in Ukraine: higher fuel, food, fertilizer prices; risks to budget and external balances; potential to prolong fuel subsidies and stoke social tensions.
  - A sharper-than-expected slowdown in China would negatively affect iron ore prices.
  - Future COVID-19 strains, other health and climate shocks could worsen growth and inflation.
  - Upcoming elections in 2023 could raise expenditure pressures.
- Macro-financial vulnerabilities:
  - Sovereign–bank nexus: heavy bank holdings of short-term government paper increase rollover risks and potential crowding out of private credit.
  - NPLs rose from 12.7 to 15.2 percent of gross loans between 2020Q4 and 2021Q4; thematic reviews suggest NPLs may be underestimated in some banks.
  - Banks’ liquidity ratios high but market illiquidity and absence of active secondary market amplify liquidity risk under stress.
  - Two large state-owned banks: Rokel Commercial Bank 65 percent government-owned; Sierra Leone Commercial Bank 100 percent state-owned.

### Main policy recommendations and corrective measures
- Fiscal:
  - Tight fiscal space requires corrective actions after 2021 overruns; revised 2022 budget submitted to Parliament (Prior Action) to begin consolidation while protecting priority spending.
  - Priorities: domestic revenue mobilization (MTRS), securing more budget support grants, improving expenditure controls and efficiency, strengthen commitment controls, and consider adoption of a debt anchor.
  - Use of SDR allocation: expected total use increased from 0.9 to 1.6 percent of non-iron ore GDP in the revised 2022 budget (Le. billions: FY2022 Budget 452.7 → FY2022 Rev. budget 856.9; Diff. 404.2).
  - Revised SDR-financed priority spending (Le. billions, Rev. budget line items): Health 36.2; NEMS 26.4; Education 145.0; School feeding program 128.8; Water supply services in six district capitals 155.0; Energy (subsidies) 156.9; Environment 37.2; Sierra Leone Social Safety Net 20.0.
- Monetary and external:
  - Money growth should remain tight; policy rate may need to increase further (MPR raised from 14¼ to 15 percent in April 2022; staff noted MPR currently negative in real terms and may require more tightening).
  - Central Bank facilities for food and fuel deemed necessary short-term but should remain temporary; staff supports capping and non-renewal commitments.
  - Exchange rate flexibility and FX market reforms recommended; move to daily calculation/publication of a rate based on one-day lag (structural benchmark April 30, 2023).
- Macro-financial:
  - Monitor and reduce rollover risks by lengthening domestic debt maturities per Medium-Term Debt Strategy (MTDS); attract non-bank investors and develop secondary market.
  - Address rising NPLs and strengthen bank supervision, regulation of non-bank sector, and corporate governance of SOBs.
  - BSL should lengthen preparatory phase for Leone redenomination and ensure robust logistic and audit arrangements.
- Governance:
  - Strengthen institutional and financial independence of the Audit Service Sierra Leone (ASSL); amend Audit Service Act 2014 and publish roadmaps to enhance budget autonomy and enforce audit recommendations (structural benchmarks and timelines included).

### Fiscal adjustment measures and medium-term framework
- Drivers of 2021 overruns:
  - Inflation changes account for about 0.9 percentage points; other unanticipated expenditures up to 2.8 percentage points (wages, energy subsidies, capital spending, census, security, legal fees, etc.).
- Revised FY2022 measures (percent of non-iron ore GDP):
  - Additional revenue measures: about 0.4 percent (Le.186.0 billlions) — PAYE Le.24.0; GST Le.43.0; Others Le.119.0 (including timber Le.22.5; TSA Le.86.0; Digital IDs Le.10.5).
  - Expenditure savings: about 0.4 percent (Le.233.2 billlions) — Wage bill Le.140.2; Goods and services Le.93.0.
- Medium-term projections:
  - Domestic primary balance shifts into surplus in 2023 and to 1.7 percent of non-iron ore GDP by 2024 under baseline.
  - Domestic revenue projected at 15.5 percent of non-iron ore GDP by 2024 (Text Table 5).

### Debt sustainability, DSA findings and debt policy
- Assessment:
  - Overall and external public debts assessed as sustainable but at high risk of debt distress.
  - Public debt-to-GDP ratio above NDP ceiling (70 percent); DSA targets a debt anchor of about 51 percent of non-iron ore GDP by 2033 under an ambitious consolidation path.
- Key numeric highlights:
  - Public debt: 2020 76.3; 2021 76.8 (other tables show variations reflecting non-iron ore GDP basis).
  - External: 2020 49.7; 2021 50.5; 2022 57.9; 2023 58.2 (percent of non-iron ore GDP in staff tables).
  - Outstanding debt to the IMF: 13.3 percent of GDP; outstanding IMF credit peaks end-2022 at 187 percent of quota and almost 77 percent of gross reserves.
  - PV of public debt-to-GDP projected to decline to threshold levels with sustained adjustment.
- Policy implications:
  - Continue reliance on concessional and grant financing; zero or tight non-concessional borrowing; adopt a credible debt anchor and frontloaded fiscal adjustment; active liability management to lengthen domestic maturities and reduce rollover concentration.
  - MTDS (2021–2025) approved to lengthen maturities and reduce domestic rollover risk; update MTDS to current borrowing requirements.

### Financial sector vulnerabilities and reforms
- Banking sector:
  - System appears well capitalized, profitable, and liquid, but asset concentration in government securities increases risk.
  - Private sector credit low (18 percent of total bank assets in 2021Q4 in one table); credit rebound observed (private sector credit growth examples: 2021 32.9 percent y-o-y in one table; other tables show series).
  - NPLs elevated and uneven across banks; BSL to set system-wide strategy to bring NPLs to 10 percent prudential limit (Structural Benchmark, December 15, 2022).
- Supervision and AML/CFT:
  - 2020 GIABA mutual evaluation identified legal and effectiveness deficiencies; priorities include making beneficial ownership available, enhancing AML/CFT risk-based supervision of non-bank sector and DNFBPs, and strengthening enforcement.
  - BSL implementing reforms, appointing resident advisors, and preparing prudential guideline updates (SB reset and proposed deadlines noted).
- Deposit insurance and crisis management:
  - Deposit Protection Bill laid in Parliament; BSL to set up deposit protection fund once passed.
- Currency redenomination:
  - BSL plan to remove three zeros and introduce higher denomination Le.20 note; staff advises lengthening preparation phase and an independent audit.

### Program monitoring, prior actions, and structural benchmarks
- Monitoring:
  - Program monitored semi-annually via quantitative targets (performance criteria at end-June 2022 and end-December 2022) and indicative targets for interim dates.
  - Program exchange rate for 2022 and 2023: Le 11,255.72/US$1 for calculating stock variables.
- Prior actions completed for 5th review include submission of revised 2022 budget, reactivation of Expanded Cash and Debt Management Committee, publication of NACOVERC unaudited statements, and publication of second COVID-19 audit report.
- Structural benchmarks and timelines:
  - Numerous SBs covering MTRS, prudential guideline updates, publication of audited BSL FY2021 financial statements (SB reset to September 30, 2022), corporate governance frameworks for SOBs, updated arrears clearance strategy (Structural Benchmark October 31, 2022), ASSL Act amendments and roadmaps (deadlines mid-October and November 30, 2022), move to daily exchange rate publication (April 30, 2023), and others.

### Capacity development, statistics, and CD priorities
- CD priorities: revenue mobilization, PFM and arrears management, debt recording and management, banking supervision and regulation, monetary operations, AML/CFT, and statistics (rebasing national accounts, CPI update completed March 2022, BOP improvements).
- Technical assistance: extensive TA and missions listed across FAD, STA, MCM, LEG, AFRITAC and resident advisors; two resident advisors placed at BSL for supervision and monetary policy.
- Statistical improvements: CPI rebased to December 2021; national accounts rebasing delayed to end-2022; plans for labour force and agriculture censuses and improved high-frequency indicators.

### Modeling and longer-term COVID impact (Annex I)
- GE model results:
  - Combined human capital and sectoral productivity shocks yield a medium-term GDP decline of 3 percent.
  - Mitigating policies: social safety nets protect incomes and lower urban inequality; investment in human capital boosts GDP by 6 percent; combined package (safety nets, human capital investment, agricultural productivity) can boost GDP by 10 percent and reduce inequality while expanding manufacturing employment.

### Executive Board and staff views
- Board and staff emphasized:
  - Nascent recovery severely impacted by spillovers from the war in Ukraine and higher inflation; need for strong revenue mobilization, expenditure containment, and strengthened PFM.
  - Importance of continued concessional financing and grants, developing domestic debt markets, adopting a debt anchor, enhanced monetary policy framework and possible further tightening, exchange rate flexibility, and financial stability measures (NPLs, supervision, SOB governance).
  - Governance reforms: strengthen ASSL independence, follow-up on audits, and invest in human capital, climate adaptation, and social safety nets.
- Next Article IV consultation recommended within 24 months per Executive Board decision on consultation cycles for members with Fund arrangements.

*Source: SIERRA LEONE STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT (IMF staff report, June 13, 2022).*

### 124.44 million (about US$172.1 million at that time or around 60 percent of the country’s

### SIERRA LEONE: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA, MODIFICATIONS OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW

### Executive summary and context
- IMF support: 124.44 million (about US$172.1 million at that time or around 60 percent of the country’s quota), extended by 12 months on July 27, 2021.
- Program aims: reduce inflation, mobilize revenue to allow for necessary spending consistent with debt sustainability, safeguard financial stability, and maintain external resilience to shocks.
- Pandemic and vaccination: Despite a decisive health and economic response to the COVID-19 pandemic, less than one in five Sierra Leoneans is vaccinated.
- Development context: Authorities’ National Development Plan shows first results in education, but human development outcomes remain among the weakest worldwide.
- Vulnerabilities: Continued exposure to shocks, capacity needs, and still-fragile institutions.

### Recent economic developments and program performance
- Growth:
  - Growth is estimated to have recovered moderately in 2021 (about 3 percent).
  - Projected to increase to 3½ percent in 2022, reflecting higher iron ore production.
  - Downward revision relative to the 3rd/4th review due to deterioration of the terms of trade and increased uncertainty about global prospects.
- Inflation:
  - Rising since mid-2021 due to higher international fuel and food prices.
  - Expected to average about 22 percent in 2022, exacerbating already-high levels of food insecurity.
- External position:
  - Drawdown on reserves to service debt and facilitate food and fuel imports will exert additional pressure on the external position.
- Fiscal:
  - Fiscal space is extremely tight.
  - Exogenous shocks, much-needed additional priority spending, and challenges in commitment controls undermined fiscal performance in 2021, requiring a revised 2022 budget and strengthened public financial management.
  - Sierra Leone remains at high risk of debt distress.
- Program performance:
  - Authorities observed quantitative PCs on gross international reserves and central bank net domestic assets, and continuous PCs on external arrears and debt.
  - Requests for waivers: (i) significant breach in net credit to government at end-December (expenditure overruns financed by large issuances of T-Bills and accumulation of unpaid checks), and (ii) continuous PCs on new multiple currency practices (MCPs) and exchange restrictions.
  - Most structural benchmarks for the 5th Review were met.

### Macroeconomic outlook and risks
- Medium-term risks:
  - War in Ukraine and concerns about global growth pose renewed challenges.
  - Further increases in fuel, food and fertilizer prices could:
    - Deteriorate budget and external balances,
    - Put debt sustainability at risk,
    - Increase costs for businesses,
    - Prolong fuel subsidies,
    - Stoke social tensions.
  - A sharper-than-expected slowdown in China would negatively impact the iron ore price.
  - Future strains of COVID-19, other health and climate shocks could reduce global growth prospects, exacerbate supply bottlenecks, and increase inflation.
  - Expenditure pressures could also arise due to general elections in 2023.

### Executive Board and staff views
- Statement by Mr. Okamura, Deputy Managing Director and Acting Chair:
  - Nascent recovery severely impacted by spillovers from the war in Ukraine and higher inflation, increasing debt and reducing external buffers.
  - Strong efforts to support macroeconomic stability and growth-enhancing reforms would help ease fiscal and external pressures.
  - Revised 2022 budget appropriately balances recovery support, development needs and reducing debt vulnerabilities.
  - Importance of revenue mobilization, Medium-Term Revenue Strategy, expenditure containment, strengthened expenditure controls, improved budgeting, and adoption of a debt anchor.
  - Continued reliance on concessional and grant financing and developing domestic debt markets recommended.
  - Further monetary tightening may be needed given rising inflation; enhance monetary policy framework and communication.
  - Exchange rate flexibility and foreign exchange market reforms important response to terms of trade shock.
  - Financial stability measures: address rising NPLs, improve bank supervision and regulation, strengthen corporate governance of two state-owned banks, reduce rollover risks and mitigate sovereign-bank nexus.
  - Focus on enhancing AML/CFT implementation.
  - Governance: strengthen independence of the supreme audit institution; continue progress on human capital development, climate adaptation, and expansion of social-safety nets.
- Executive Directors:
  - Agreed with staff appraisal thrust; welcomed decisive COVID-19 response and commitment to development.
  - Noted severe impact of war in Ukraine on nascent recovery and elevated risks.
  - Welcomed corrective actions and stressed need to maintain macroeconomic stability, ensure adequate external buffers, and advance reforms for inclusive and resilient growth.
  - Supported revised 2022 budget balance and encouraged domestic revenue mobilization and strengthened expenditure management and commitment controls.
  - Noted high risk of debt distress and called for continued reliance on concessional and grant financing and development of domestic debt markets; saw merit in adoption of a debt anchor.
  - Recommended possible further monetary tightening, strengthened monetary policy framework and communication, and exchange rate flexibility and FX market reforms.
  - Called for close monitoring of financial stability risks, strengthened supervision and regulation, corporate governance improvements at state-owned banks, and progress on AML/CFT.
  - Emphasized governance reforms, timely action to ensure independence of the supreme audit institution, and investment in human capital and social-safety nets. Encouraged mainstreaming climate adaptation into development plans.
- Next Article IV consultation expected in accordance with Executive Board decision on consultation cycles for members with Fund arrangements.

### Main policy recommendations
- Fiscal:
  - Tight fiscal space; corrective actions required after large fiscal overruns in 2021.
  - Revised 2022 budget and strengthened public financial management.
  - Agreed medium-term fiscal framework balances debt reduction and post-crisis recovery.
  - Priorities: domestic revenue mobilization, securing more budget support grants, improving expenditure controls and efficiency.
  - Sustainable timber management to achieve revenue mobilization and environmental protection.
  - Use of SDR allocation to support priority spending, including school feeding, policies to keep girls in school, and health projects.
  - Continued reliance on concessional financing and grants given high risk of debt distress.
- Monetary and external:
  - Money growth should remain tight; policy rate may need to increase further given rising inflation.
  - Central Bank facilities for food and fuel are necessary short-term measures but should remain temporary given vulnerable international reserves.
- Macro-financial:
  - Monitor rollover risks from strong sovereign-bank nexus due to dependence on short-term government paper; lengthen domestic debt maturities.
  - Address rising NPLs, weaknesses in supervision and regulation of the non-bank sector, and strengthen corporate governance of state-owned banks.
  - Bank of Sierra Leone (BSL) should lengthen preparatory phase for redenomination of the Leone per international experience.
- Governance:
  - Strengthen institutional and financial independence of the Audit Service Sierra Leone (ASSL).
  - Implement corrective actions and recommendations of existing audits, strengthen the audit process, and consider legal amendments to strengthen ASSL’s financial independence.

### Key economic indicators (select figures from staff table)
- Nominal GDP (Le billions): 2020 Est. 39,938; 2021 Est. 45,775; 2022 Proj. 54,926; 2023 Proj. 66,987.
- Nominal GDP, excl. iron ore (Le billions): 2020 Est. 39,938; 2021 Est. 44,618; 2022 Proj. 52,857; 2023 Proj. 64,361.
- GDP at constant prices (percent change): 2020 -2.0; 2021 3.2; 2022 3.6; 2023 3.4.
- GDP excl. iron ore (percent change): 2020 -1.8; 2021 2.3; 2022 2.4; 2023 3.2.
- Consumer prices (percent change, end-of-period): 2020 10.4; 2021 17.9; 2022 22.1; 2023 19.6.
- Government operations (percent of non-iron ore GDP):
  - Domestic primary balance: 2020 -4.2; 2021 -5.0; 2022 -2.5; 2023 0.3.
  - Overall balance: 2020 -5.8; 2021 -7.3; 2022 -4.1; 2023 -2.8.
  - Revenue (excl. grants): 2020 13.8; 2021 15.5; 2022 14.7; 2023 15.0.
  - Grants: 2020 5.3; 2021 4.6; 2022 5.8; 2023 4.5.
  - Total expenditure and net lending: 2020 25.7; 2021 28.1; 2022 25.1; 2023 22.3.
  - Public debt: 2020 76.3; 2021 78.8; 2022 80.8; 2023 80.4.
  - of which: external: 2020 49.7; 2021 50.5; 2022 57.9; 2023 58.2.
- External sector:
  - Exports of goods (percent change): 2020 -34.2; 2021 30.7; 2022 30.6; 2023 6.8.
  - Imports of goods (percent change): 2020 -12.0; 2021 27.8; 2022 9.6; 2023 -4.1.
  - Current account (incl. grants, percent of non-iron ore GDP): 2020 -6.8; 2021 -14.6; 2022 -13.6; 2023 -10.9.
  - Gross international reserves (excl. swaps, months of next year's imports): 2020 4.2; 2021 5.3; 2022 4.0; 2023 3.5.
  - Gross international reserves (excl. swaps, US$ millions): 2020 677; 2021 932; 2022 689; 2023 600.
  - Net international reserves (excl. swaps, US$ millions): 2020 96; 2021 355; 2022 120; 2023 71.
- Money and credit:
  - Domestic credit to the private sector (percent change): 2020 4.9; 2021 32.9; 2022 22.8; 2023 30.4.
  - Domestic credit to the private sector (percent of non-iron GDP): 2020 6.0; 2021 7.1; 2022 7.3; 2023 7.9.
  - Base money (percent change): 2020 54.8; 2021 8.7; 2022 1.3; 2023 20.4.
  - Broad money (percent change): 2020 38.2; 2021 22.1; 2022 10.1; 2023 16.8.

### Program issues and capacity development (high-level)
- Mixed program performance with corrective actions; waivers requested for specific breaches.
- Staff and mission engagement: IMF team held in-person discussions in Freetown during March 31-April 13, 2022 and virtual discussions April 18-May 18, 2022.
- Technical and capacity development priorities include fiscal governance, monetary policy framework enhancement, financial sector supervision, AML/CFT implementation, and governance reforms—particularly strengthening ASSL independence.

*Source: SIERRA LEONE STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT (IMF staff report, June 13, 2022).*

### 1.       Sierra Leone continues to pursue its development path amidst continued vulnerability

### 1.       Sierra Leone continues to pursue its development path amidst continued vulnerability

### Key vulnerabilities and development context
- Government’s National Development Plan (NDP) aims at developing human capital while strengthening governance.
- Sierra Leone remains vulnerable to natural disasters, health shocks, and commodity price drops. Recent coup d’états in the region increase regional risk despite a comparatively stable national situation.
- Human development indicators remain weak.
- Engagement within the IMF’s new Strategy on Fragile and Conflict-affected States is appropriate given institutional weaknesses.
- Climate vulnerability and lack of coping capacity increase poverty and weaken food security.

### Health, COVID-19 response, and social outcomes
- Authorities responded decisively to the COVID-19 crisis, but major challenges remain.
- Reported caseloads have been low, reflecting in part low testing capacity.
- Around 17¼ percent of the population have received two vaccination doses as of mid-May.
- Vaccine hesitancy and logistical challenges persist.
- The COVID-19 shock reduced household incomes; poverty has likely risen above the 57 percent rate pre-crisis.
- Almost every fourth Sierra Leonean is facing chronic hunger.
- High climate vulnerability, limited coping capacity, and weak food security pose challenges to long-term sustainable growth.

### Fiscal trilemma, fiscal space, and macro constraints
- Sierra Leone faces a “fiscal trilemma”: high development spending needs, managing a high debt burden, and increasing a low revenue base.
- High public debt constrains development spending; revenue collection is still recovering from the 2020 shock.
- External financial support, exceptional in 2020, is moderating; borrowing needs remain significant and weigh on banks’ balance sheets.
- Spillovers from the war in Ukraine (fuel, fertilizer, wheat/cereal imports) tightened fiscal space and raised risks to social stability.
- Tight fiscal position, rising inflation, and a still overvalued exchange rate leave little policy space to absorb further shocks; contingency planning is necessary.

### Governance and anti-corruption priorities
- Improvements in governance and fighting corruption are essential to safeguard scarce resources.
- Progress recorded in some third-party indicators, but continued efforts needed to improve governance of key economic institutions and reduce corruption vulnerabilities.
- Priorities: address macro-critical fiscal weaknesses, strengthen implementation of AML/CFT measures, and improve financial oversight of state-owned banks.
- Strengthen financial and operational independence of the Audit Service of Sierra Leone (ASSL), including follow up on audit findings.

### Progress on past recommendations and financial sector reforms
- Authorities have focused on reducing fiscal deficits and debt vulnerabilities through broadening the tax base, strengthening expenditure controls, and assessing fiscal risks.
- Publication of COVID-related spending and procurement and real-time audits were welcome; follow-up through institutional and legal accountability frameworks is needed.
- Financial sector reforms progressing; 2021 Financial Sector Stability Review (FSSR) provides a roadmap (strengthen regulatory and supervisory regime for banks; address vulnerabilities from state-owned banks (SOBs)).
- Work is progressing on updating prudential guidelines in line with the 2019 Banking Act.
- Publication of the 2021 audited financial statements of the BSL delayed; an auditor has been appointed and the audit has commenced.

### Recent economic developments (preliminary 2021 and early 2022)
- Real GDP growth is estimated at 3.2 percent for 2021, driven by recovery in the mining sector.
- Iron ore production grew strongly in early 2022.
- Sales tax and import duty collections fell in real terms in 2022Q1, suggesting a slowdown in private consumption relative to 2021.
- Inflation picked up strongly: 22.1 percent y-o-y in March.
- Exchange rate depreciation: 23.3 percent y-o-y in April against the US dollar.
- Food and transport-related items accounted for the bulk of recent inflation in 2022Q1.
- Fiscal position remains extremely tight due to successive shocks, emerging spending pressures, and weak public financial management (PFM) controls.
  - In 2021, notwithstanding revenues being on target, the overall fiscal deficit was about 3.5 percentage points higher than the target of 3.8 percent of non-iron ore GDP, reflecting expenditure pressures (containing a third wave of COVID-19, wages and salaries, goods and services due to inflationary pressures, domestically financed capital spending, including Free Quality School Education (FQSE)) and higher-than-anticipated energy subsidies.
  - Slippages also resulted from new expenses on a mid-term population and household census; equipment for the security sector; and an integrated civil registration system.
  - Preliminary 2022Q1 out-turn shows non-COVID pressures persisted.
- Current account balance deteriorated; international reserves initially rose due to 2021 SDR allocation but have declined since 2021Q3 as debt service obligations and FX provided through the Bank of Sierra Leone’s Special Credit Facility (SCF) increased.
- Parallel market spread temporarily widened in August 2021 (currency redenomination announcement) and again in March 2022, but has narrowed more recently.
- Bank of Sierra Leone (BSL) kept reserve money growth tight and raised interest rates: monetary policy rate increased by 25 basis points in December 2021 and by a further 75 basis points in March 2022.
- Private sector credit growth rebounded: 29 percent y-o-y in January 2022.
- Non-performing loans (NPLs) rose from 12.7 to 15.2 percent of gross loans between 2020Q4 and 2021Q4.

### Program performance (MEFP Tables 1 and 2) — summary
- Quantitative PCs and ITs on gross international reserves (GIR) and central bank net domestic assets (NDA) were observed at end-September and end-December 2021.
- A significant net credit to government (NCG) breach from the banking system at end-December was recorded (4 percent of non-iron ore GDP) reflecting expenditure pressures; financed by large issuance of T-Bills to bank and non-bank sectors and a large accumulation of unpaid checks.
- Preliminary data suggest breaches in the end-March ITs for GIR, NDA and NCG.
- Continuous PCs on external debt ceilings were met; no external arrears accumulation.
- Continuous PCs on new multiple currency practices (MCPs) and exchange restrictions were missed.
- ITs on domestic revenue and poverty-related spending for September and December 2021 were met but the IT on the domestic primary balance missed by 1.5 percent of non-iron ore GDP in December 2021.
- Structural Benchmarks (SBs): most SBs for the 5th Review were met (study of High Net Worth Individuals, stocktaking of income tax exemptions, development of an infrastructure appraisal template, thematic review of NPLs in SOBs).
- Authorities suspended application of the fuel pricing mechanism (continuous SB) but then increased prices by 50 percent in March and a further increase of 20 percent in June 2022.

### Medium-term macroeconomic outlook (selected framework projections)
- Projected GDP growth lowered from 5.9 to 3.6 percent in 2022 (less favorable iron ore prospects, deterioration in terms-of-trade, more uncertain global prospects).
- Inflation projections increased given recent trends, inflation persistence, and significantly higher import prices, notably for fuel.
- External position expected to remain weak; current account deficit in 2022 expected to remain unchanged from 2021 while official reserves decrease.

Selected rows from Text Table 1 (Est. 3/4 RevEst. 3/4 RevProj.Proj.Proj.Proj. — in percent or specified units as in source)
- GDP at constant prices (percent change): -2.0 3.2 3.2 5.9 3.6 3.4 5.0 5.1
- Excluding iron ore: -1.8 2.6 2.3 3.1 2.4 3.2 4.8 4.9
- Consumer prices (end-of-period): 10.4 13.9 17.9 12.0 22.1 19.6 16.4 13.2
- Gross international reserves (excluding swaps, months of next year's imports): 4.2 4.3 5.3 3.4 4.0 3.5 3.3 3.0
- Current account balance (incl. grants): -6.8 -15.6 -14.6 -15.9 -13.6 -10.9 -8.8 -6.4
  - Excl. grants: -11.3 -19.0 -17.8 -18.4 -16.9 -13.6 -12.1 -9.6
- External public debt: 49.7 51.1 50.5 51.6 57.9 58.2 56.4 53.5
- Revenue (excl. grants): 13.8 14.1 15.5 14.2 14.7 15.0 15.5 15.9
- Domestic primary balance: -4.2 -2.1 -5.0 0.3 -2.5 0.3 1.7 1.6
- Overall Balance: -5.8 -3.8 -7.3 -2.8 -4.1 -2.8 -2.4 -1.9
(Note: figures are in percent of non-iron ore GDP unless otherwise indicated.)

### Downside risks and macro-financial vulnerabilities
- Downside risks are rising and little policy space remains to absorb further shocks.
  - Further increases in fuel, food, and fertilizer prices could deteriorate budget and external balances, put debt sustainability at risk, increase costs for businesses, prolong fuel subsidies, and provoke social discontent.
  - A sharper-than-expected slowdown in China’s growth would negatively impact the iron ore price.
  - Future COVID-19 strains or other health shocks (e.g., anthrax outbreak) could reduce global growth prospects, exacerbate supply bottlenecks, and increase inflation.
  - Elections in 2023 could add pressures and political uncertainty.
- Macro-financial risks:
  - Contracting activity or new government arrears could worsen banks’ asset quality.
  - Higher international fuel and commodity prices increase firms’ costs, potentially raising NPLs.
  - More government borrowing from the banking sector would aggravate the sovereign-bank nexus, crowd out private credit, and raise interest and rollover risks on government securities.
  - This could trigger central bank financing and further fuel inflation.
  - Banks’ liquidity ratios remain high, but market impairments (primary auction market, lack of active secondary market) raise liquidity risks under stress.
  - Government ownership of the two largest banks exposes the public finances to bank sector risks (Rokel Commercial Bank is 65 percent owned by government; Sierra Leone Commercial Bank is 100 percent state owned).
  - Weaknesses in supervision and regulation could leave financial sector risks undetected, including in the growing non-bank sector.

### Policy discussions — Achieving an inclusive and resilient recovery
- Inclusive growth remains constrained by many factors:
  - Access to electricity doubled per the NDP mid-term review but remains low at less than one third of the population.
  - Maternal mortality-to-live births ratio declined but remained at 0.7 percent in 2019.
  - Education outcomes improved due to Free Quality School Education Programme and increased education budgets.
  - Food insecurity remains high; social transfers are fragmented and dependent on external financing, with limited domestic resources for programs such as school feeding.
- Accelerating digitalization to improve PFM and public service delivery:
  - Progress: doubled internet access, extended IT systems to support budget execution, targeting of subsidies, and adoption of digital financial services (DFS).
  - E-vouchers used to provide agricultural input subsidies to rice farmers.
  - Constraints: signal coverage limitations (15 percent of the population having no mobile phone signal), lack of connectivity, affordability, and low service quality.
  - Addressing these constraints will help Sierra Leone benefit from digitalization opportunities.
- Enhancing financial inclusion:
  - Access to credit is the main constraint to business; private sector credit (as percent of GDP) is among the lowest in SSA.
  - Banks prefer government securities; widespread informality and a narrow economic base hinder financial development.
  - Large unbanked population, partly due to lack of formal identification and verifiable credit histories.
  - Mobile money expanded: in 2020, over two million mobile money account users, five times those in 2017; services remain limited in number and value of transactions relative to peers.
  - BSL upgraded the collateral registry and is automating the Credit Reference Bureau.
  - Wider adoption of DFS, with regulatory improvements, offers potential for greater financial access.
  - Implementation of the National Switch this year, allowing interoperability of payment platforms (including mobile money), would increase ease and speed of payments and enhance financial inclusion.

*Source: IMF staff and Sierra Leonean authorities (excerpts from 1sleea2022001).*

### 15.      Climate change is macro-critical for Sierra Leone; well-calibrated fiscal policies and

### 1sleea2022001 - 15.      Climate change is macro-critical for Sierra Leone; well-calibrated fiscal policies and

### Climate change: macro-critical implications and fiscal costs
- Changes in precipitation and temperature, increase in risks of drought, floods, and a rising sea level affect agricultural production, food security, infrastructure, energy, water supply, and coastal areas.
- High dependence on agriculture, lower level of development, environmental degradation, and elevated poverty amplify the impact of climate shocks on the most vulnerable.
- The updated Nationally Determined Contributions estimates climate-related spending at US$2.8 billion before 2030, which implies an ambitious annual fiscal cost of 6.6 percent of GDP.
- Policy recommendations to mainstream adaptation into fiscal frameworks:
  - integrate climate risks into debt sustainability analysis;
  - calibrate climate costs and adaptation benefits and mainstream adaptation into fiscal policies;
  - tap into international (grant) funding and explore the possibility of issuing carbon credits to finance priority projects (including in Forestry, Annex V);
  - adapt the existing PFM framework to integrate climate targets and prioritize investment projects that meet both development and adaptation purposes (SIP: Climate).

### Fiscal position, shocks, and 2022 budget adjustments
- Successive shocks and emerging spending pressures, including from lack of spending control, have led to an extremely tight fiscal situation.
- Revenue mobilization in 2022Q1 was below target by about 0.6 percent of GDP due to shortfalls from excise, GST, and mining royalties.
- Expenditure pressures include rapid increases in domestic prices raising administrative and operational costs, implementation of past wage policies in education, health and security sectors, scaling up cash transfers, and energy subsidies (Annex VI).
- The approved 2022 budget was revised via a supplementary budget to begin consolidation while reflecting additional expenditure needs, financed by new revenue measures and additional budget support grants from the World Bank.
- The deficit is fully financed and broadly consistent with the program objective of keeping bank domestic financing at around 2 percent of non-iron ore GDP.
- To facilitate parliamentary approval of the supplementary budget, the government expedited its submission by mid-June 2022 (Prior Action).

### 2021 overruns: drivers and magnitudes
- Changes in inflation relative to the 3rd/4th review account for about 0.9 percentage points of overruns.
- Other factors (including one-off unanticipated expenditures) account for up to 2.8 percentage points of the overruns.
- Specific overrun drivers: higher than anticipated depreciation rate affecting wages, additional COVID-19 risk allowances, under budgeted leave allowances for tertiary sector, unanticipated legal fees, hosting ECOWAS parliament session, purchase of specialized vehicles (fire engines), establishment of two new foreign missions, participation in AfCON games, surge in energy subsidies to Karpowership (including due to higher fuel costs), COVID-delayed roads projects, higher spending on learning materials and examination fees, agriculture inputs subsidy, electricity to six rural districts, integrated civil registration ID management system, and a mid-term population and household census.

### Revised FY2022 fiscal measures and financing
- Additional revenue measures yielding about 0.4 percent of non-iron ore GDP (PAYE, GST, other non-tax items including timber, TSA, digital IDs).
- Expenditure savings of about 0.4 percent of non-iron ore GDP expected from containment of recurrent spending (unwinding of general COVID-19 risk allowances and delayed hiring, and a cut in the administrative costs budget).
- Contingency plans include delaying some domestically financed capital spending, and cutting administrative costs.
- The expected total use of the 2021 IMF SDR allocation for budget financing has been increased from 0.9 to 1.6 percent of non-iron ore GDP in the revised budget (23 percent of US$282 million, Text Table 4).
- In 2023, some US$12.2 million are allocated for fiscal financing purposes from SDR-related resources.
- SDR-financed priority spending (Revised 2022 Budget) increases include:
  - Total (Le. billions) 452.7 (FY2022 Budget) → 856.9 (FY2022 Rev. budget) → Diff. 404.2
  - in percent of non-iron ore GDP 0.9 (FY2022 Budget) → 1.6 (FY2022 Rev. budget) → Diff. 0.8
  - Notable line items (Le. billions; Rev. budget):
    - Health 36.2 (Diff. 24.3)
    - National Emergency Medical Services (NEMS) 26.4 (Diff. 24.3)
    - Education 145.0 (Diff. 65.0)
    - School feeding program 128.8 (Diff. 60.0)
    - Water supply services in six district capitals 155.0 (Diff. 110.0)
    - Energy (subsidies) 156.9 (Diff. 156.9)
    - Environment (Support Tree Planting and carbon financing) 37.2 (Diff. 28.0)
    - Sierra Leone Social Safety Net (Cash Transfers) 20.0 (Diff. 20.0)

### Medium-term fiscal framework and projections
- Under the baseline scenario, the domestic primary balance shifts into surplus in 2023 and to 1.7 percent of non-iron ore GDP by 2024.
- Domestic revenues projected at 15.5 percent of non-iron ore GDP by 2024 (Text Table 5).
- Selected fiscal projections (percent of non-iron ore GDP) across scenarios/projections:
  - Total revenue and grants: 19.3, 20.8, 18.7, 19.6, 21.0, 19.5, 20.7 (columns by milestone in Text Table 5)
  - Domestic revenue: 14.1, 15.5, 14.2, 15.1, 14.7, 15.0, 15.5
  - Tax revenue: 11.8, 12.5, 11.9, 12.6, 12.1, 12.5, 13.0
  - Grants: 4.5, 4.6, 4.1, 4.1, 5.8, 4.5, 5.2
  - Expenditures and net lending: 23.1, 28.1, 21.5, 23.6, 25.1, 22.3, 23.1
  - Current expenditures: 16.3, 19.3, 14.7, 16.1, 17.7, 15.0, 15.3
  - Wages and salaries: 7.8, 8.8, 6.9, 7.7, 8.2, 7.2, 7.1
  - Subsidies and transfers: 3.3, 3.9, 2.6, 3.0, 3.9, 2.6, 2.4
  - Capital Expenditure: 6.4, 7.9, 6.7, 7.2, 7.3, 7.0, 7.4
  - Domestic primary balance: -2.1, -5.0, 0.3, -0.5, -2.5, 0.3, 1.7
  - Overall balance including grants: -3.8, -7.3, -2.8, -3.9, -4.1, -2.8, -2.4
  - Financing (total): 3.8, 7.3, 2.8, 3.9, 4.1, 2.8, 2.4
  - External financing (net): 0.5, 0.8, 0.7, 0.8, 0.5, 0.4, 0.9
  - Domestic financing (net): 2.9, 6.2, 2.2, 3.2, 2.1, 2.1, 1.6
  - SDR onlending, Net: 1.9, 1.9, 0.3, 0.4, 0.4, -0.4, -1.1
  - Other, Use of SDR allocations: 0.0, 0.0, 0.0, 0.9, 1.6, 0.3, 0.0
  - Memorandum: Non-iron ore GDP (Le billions) 47,055; 44,618; 53,823; 50,662; 52,857; 64,361; 77,846

### Revenue, expenditure, and PFM reform priorities
- Revenues:
  - Resumed implementation of the automatic pricing formula for fuel products (continuous SB).
  - Reversed the floor pricing instruction to telecoms, and reviewed electricity tariffs (MEFP ¶26).
  - Medium-Term Revenue Strategy (MTRS) under development (MEFP ¶28, Structural Benchmark) with Fund TA.
  - Automation measures: tax filing/payment automation, installation of Electronic Cash Register (ECR) machines, computer aided audits for large taxpayers (MEFP ¶26-¶27).
  - Implement excise stamps and fuel marking technology; review the timber tax regime (Annex V, Forestry).
- Expenditure rationalization and reprioritization:
  - Continued prioritization toward human capital development and food security (expanded rice production with input subsidies).
  - Need to scale up targeted transfers to protect the most vulnerable.
  - Wage bill management measures:
    - regular cleaning and audit of the payroll;
    - minimize manual voucher payments;
    - finalize a new payroll policy with TA from FCDO;
    - develop a medium-term wage bill management strategy (with Fund TA);
    - establish a Wages and Salaries Compensation Commission (MEFP ¶39-¶40).
  - Energy subsidies: strengthen EDSA revenue model, install pre-paid meters in all government buildings, reduce illegal power connections (MEFP ¶31).
  - Domestic capital spending: use infrastructure project appraisal template and guidelines developed with Fund/EU TA to improve project selection and execution (MEFP ¶41).

### Strengthening budget execution and arrears management
- Key PFM shortcomings to address:
  - Accumulation of unpaid checks in IFMIS, delayed disbursement of funds, and carry over of previous years’ commitments.
  - Quarterly budget allotment at execution stage often delayed, producing payables queued up in IFMIS and the Treasury.
  - Expanded Cash and Debt Management Committee (ECDMC) has not met regularly since COVID-19 and is not producing key outputs.
- Priority PFM reforms and actions:
  - MOF committed to regularly publish budget reports on actual budget performance against actual budget allotment (PA#1) to monitor budget execution and new arrears accumulation.
  - Leverage IFMIS (upgraded to web-based in early 2022) and integrate electronic Public Expenditure Tracking Survey (ePETS) to strengthen in-year expenditure monitoring and commitment controls (MEFP ¶34).
  - Rollout and transition management for Electronic Cash Registers (ECRs) to monitor small business transactions and predict tax revenues in real time (MEFP ¶26).
  - Update the legacy arrears clearance strategy, halt arrears clearance in 2022 until a new strategy is in place (Structural Benchmark), with a complete list of creditors, a medium-term repayment schedule, and proposed discounts based on strategy criteria.
  - Reinvigorate the expanded cash and debt management committee (PA#3) and improve its functioning (MEFP ¶35).
  - Request IMF TA to explore adopting strategic top-down budgeting to reconcile availability of resources with commitments and improve budget credibility (MEFP ¶33).

### Debt policy and anchor
- Adoption of a debt anchor is planned to credibly guide fiscal policy to reduce debt ratios; transition to a medium-term debt anchor after the current ECF.
- The Fund’s debt anchor tool for low-income countries was tailored to Sierra Leone’s context to calibrate fiscal policy to reduce debt to 51 percent of non-iron ore GDP between 2021-33.
- This implies a safety buffer of around 19 percent of non-iron ore GDP below the authorities’ own maximum debt limit of 70 percent of non-iron ore GDP (Box 1, SIP: Medium-Term Fiscal Framework and Debt Anchor for Sierra Leone).

### Authorities’ views
- Authorities broadly agree with staff’s assessment.
- They emphasize COVID-19’s economic impact and deterioration of the fiscal position, worsened by the war in Ukraine which raised energy, food, and fuel prices.
- Expanded subsidies budget driven by the energy crisis and human capital development agenda (FQSE attracting many new learners and higher costs for learning materials and examination fees).
- They view deterioration of fiscal position and debt indicators as driven by unanticipated macro and fiscal shocks from COVID-19 and the war in Ukraine.

*Source: IMF staff report chapter on Sierra Leone (excerpts provided).*

### 26.      Sierra Leone’s overall and external public debts are sustainable, but remain at high risk

### 26.      Sierra Leone’s overall and external public debts are sustainable, but remain at high risk

### Debt sustainability and risk assessment
- Overall and external public debts are assessed as sustainable, but remain at high risk of debt distress.
- Fiscal slippages and external factors have increased risks around the baseline, requiring a larger and more frontloaded fiscal adjustment to achieve program objectives.
- All debt burden indicators remain on a declining trend over the medium to long term provided the authorities implement ambitious fiscal adjustment and continue to rely on concessional financing and grants.
- The external debt service-to-revenue ratio will continue breaching the threshold due to high debt repayments falling due in coming years; repayments to the IMF account for more than 40 percent of forthcoming total debt service.
- Public debt-to-GDP ratio is above its benchmark (see DSA).

### External borrowing plan (Text Table 6 summary points)
- PPG external debt contracted or guaranteed: Volume of new debt, US million: 66-74; PV of new debt, US million: 66-74.
- Sources of debt financing: Concessional debt 2/: 66-74; Non-concessional debt 3/: 00.
- Use of debt financing: Project financing: 66-74; Budget financing: 00.
- Memorandum items — Indicative projections CY2023: 100<65.
- Notes: 1/ Contracting and guaranteeing of new debt (defined in the TMU). The present value of debt is calculated using the terms of individual loans applying the 5 percent program discount rate. 2/ Debt with a grant element that exceeds a minimum threshold of 35 percent. 3/ Debt which does not meet the definition of concessional debt.

### Debt management and domestic debt market recommendations
- An effective debt management and borrowing strategy is required to preserve debt sustainability while creating space for priority spending.
- High domestic interest bill and reliance on 364-day T-Bills create refinancing and rollover risks.
- Recommendations:
  - Provide TA on domestic market development building on the Medium-Term Debt Strategy (MTDS) to lengthen the maturity structure and reduce rollover risk.
  - Reign in inflation to support domestic market development.
  - Increase issuance at shorter maturities (3-month and 6-month) to manage government liquidity and allow development of a yield curve to facilitate pricing of longer-term bonds.
  - Attract more non-bank participants (long-term pension, insurance funds) and facilitate a more actively traded secondary market to help lengthen maturities.
  - Review regulatory and investment guidelines for pension funds and insurance companies, and clarify tax treatment on sovereign bonds to support bond market development.

### Fiscal governance and institutional reforms
- Continued efforts to improve governance, but additional reforms needed to strengthen institutional and financial independence of the ASSL and reduce corruption.
- Prior actions and commitments:
  - Unaudited financial statements of NaCOVERC and key procurement contract details published up to March 2022 (Prior Action).
  - ASSL published the July-December 2020 financial audit of NaCOVERC on ASSL’s website (Prior Action).
  - ASSL implemented standard operating procedures, trained District Covid-19 Emergency Response Centers on financial management, and took HR process improvement steps.
  - Procedural rules for tribunal proceedings developed and published (Prior Action).
  - ASSL commits to pay all salaries and allowances legally due to persons listed in the “Management Profile” section of ASSL’s website (as of May 31, 2022) in accordance with the Sierra Leone Constitution, the Audit Service Act 2014, and the ASSL Conditions of Service 2014 (as amended in 2018).
  - By September 2022, commitments include amending the 2014 ASSL Act to strengthen ASSL’s powers to follow-up and enforce audit recommendations (Structural Benchmark); jointly (ASSL, Attorney General’s Office and MOF) publishing a roadmap, in consultation with IMF staff, on enacting statutory provisions on surcharges with an implementing regulation (MEFP ¶85); and developing a roadmap to enhance ASSL’s budgetary autonomy (Structural Benchmark).
- Authorities emphasize strengthening audit process and enforcement; included in the 2022 Finance Act provisions to sanction lack of implementation of audit recommendations and are working with the World Bank to strengthen the audit process.

### Fiscal anchor, debt anchor calibration, and scenarios
- Debt to GDP is estimated at about 76.3 percent of non-iron ore GDP at end-December 2020, above the 70 percent NDP ceiling.
- The maximum debt limit of 70 percent of non-iron ore GDP appears appropriate and should not be exceeded in almost all circumstances, calling for a sufficient safety buffer around the limit.
- A standard debt dynamics equation was used to derive the overall balance that allows public debt to converge to its debt anchor, given baseline assumptions, the gap between current debt level and anchor, and desired pace of adjustment (fast, slow, and slower).
- Assumption: at least 12 years for debt to converge from the current level to the debt anchor (in 2033).
- Scenario outcomes:
  - The scenario of reaching a debt stabilizing overall balance in five years appears the most realistic to guide medium term fiscal policy post-ECF.
  - Implied long term overall balance is about 0.1 percent of GDP between 2026-33 and debt converges to its anchor of about 51 percent of non-iron ore GDP by 2033.
- Credibility of proposed fiscal adjustment depends on ongoing structural reforms to expand potential growth, enhanced revenue mobilization, and efficiency gains on spending.

### External stability, FX management, and diversification
- Sierra Leone’s external position remains weaker than the level implied by fundamentals and desirable policies; reducing REER overvaluation is critical to maintain external sustainability.
- FX market intervention should be limited to reducing excessive volatility.
- Reserve coverage projected to decline over time with an annual US$40 million BOP financing gap after 2026.
- Although 3-month coverage of imports is deemed sufficient, unfolding war in Ukraine, pandemic-related uncertainty, and macroeconomic vulnerabilities call for higher buffers.
- BSL introduced two temporary facilities in April 2022 to provide FX to importers of essential commodities:
  - Special Facility for Food (SFF) for rice, sugar and flour: US$50 million.
  - Reserve Fuel Facility (RFF): US$50 million.
  - Combined total: US$100 million; staff stressed these facilities should not be renewed once the US$100 million is disbursed.
- The facilities and certain FX allocation practices give rise to MCP and exchange restriction issues; authorities requested approvals under Article VIII and waivers for program PCs, and staff supports the request given they are imposed for BOP reasons, necessary and temporary.
- Corrective actions: capping total amount of these facilities and changing BSL calculation methodology to more closely represent prevailing market exchange rates (MEFP ¶60, Structural Benchmark).
- Other measures:
  - Temporarily allowing selected companies and international organizations to pay for certain imported goods in foreign currency (mining companies and large commercial users account for over 50 percent of all fuel demand).
  - Considering limited FX provision through SALPOST on a pilot basis for travel-related FX needs; staff cautioned licensed agents should play this retail role and supply through this scheme should be limited given level of reserves.
- Diversification priorities:
  - Reforms (supported by Fund TA) to facilitate FX market clearing and support sufficient exchange rate flexibility.
  - Strengthen competitiveness and expand agricultural, fisheries, mining production and increasing value added.
  - Leverage climate finance from forests (carbon credits, REDD+ payments, grants); Sierra Leone has issued 1 million carbon credits, primarily through the GOLA Rainforest.

### Monetary and financial sector policies
- Tackling inflation requires a multi-pronged approach.
- BSL raised the monetary policy rate (MPR) in April from 14¼ to 15 percent; more aggressive tightening may be appropriate if inflation persists since the MPR is currently negative in real terms.
- A significant projected reduction of NFA in 2022 will offset the increase in reserve money from the SDR allocation use (Le. 857 billion via retrocession) and on-lending of ECF disbursements (about Le. 629 billion).
- Overvalued real exchange rate contributes to tighter monetary policy; controlling money growth, limiting exchange rate depreciation, and raising interest rates will not be sufficient to bring inflation down in the short run.
- SFF and RFF should temporarily relieve inflationary pressures but are not sustainable in the medium term.
- Fiscal consolidation and reduction in government domestic borrowing requirement will help in the longer run.
- Over the medium term, BSL could strengthen its monetary policy framework:
  - Limit use of secondary market purchases to support government issuance.
  - Consider introducing its own short-term liquidity management operation with a standardized tenor.
  - Strengthen coordination with MOF on cash management.
  - Remove structural impediments to FX market functioning to improve monetary policy transmission.
  - Improve monetary and exchange rate policy communication (e.g., publish and explain BSL’s inflation goal, timely publication of statistics, economic reviews, and monetary policy statements on the BSL’s website).

*Source: 1sleea2022001 - 26.      Sierra Leone’s overall and external public debts are sustainable, but remain at high risk*

### 38.      The recent FSSR provides a comprehensive overview of the weaknesses in the financial

### 1sleea2022001 - 38.      The recent FSSR provides a comprehensive overview of the weaknesses in the financial

### Financial-sector vulnerabilities and banking system
- Banking system appears well capitalized, profitable, and liquid, mainly due to high asset concentration in government securities.
- Concentration in government securities increases risk to banks in the event of government repayment difficulties.
- Simultaneous increase in NPLs and gross loans (with rising private sector credit) is a vulnerability, with significant variation among banks.
- Recent on-site examinations (of two SOBs) suggest NPLs may be underestimated.
- Private sector credit remains low at 18 percent of total bank assets in 2021Q4.
- Lending is concentrated in commerce, finance, and construction activities.
- For banks with high NPLs and inadequate capital and provisioning, enhanced supervision should continue.
- The BSL should set out a systemwide strategy for bringing down NPLs to the 10 percent prudential limit (MEFP ¶67).
- Following IMF TA, the BSL should complete the draft of the prudential guidelines while ensuring proper consultation with the banking industry.

### Sovereign–bank nexus and holdings
- Banks’ assets heavily concentrated in government securities; non-banks account for only a small proportion of total holdings.
- Banks’ Holdings of Government Debt, 2015-21 shown as percent of total assets (figures presented in source).

### Monetary policy and inflation drivers
- Monetary policy framework is de jure reserve money targeting; a policy rate and rates on standing facilities set quarterly, but transmission to bank lending rates is weak.
- Assessing monetary policy stance is difficult given the hybrid framework, output gap uncertainty, and limited monetary policy effectiveness.
- Inflation experience: two secular waves (mid-1980s to mid-1990s high inflation; mid-1990s to present disinflation); long-term inflation higher and more volatile relative to peers.
- Structurally high inflation strongly associated with persistently high monetary growth (CDLOG(M3) noted in decomposition).
- Exchange rate adjustments and monetary accommodation have contributed to inflation-depreciation spirals and de-anchored expectations.
- Analysis since 2009 finds:
  - Inflation highly correlated with its own past values (high persistence).
  - Domestic supply shocks (e.g., delayed harvests) tend to increase inflation instantly.
  - Exchange rate depreciation and terms of trade deterioration associated with higher inflation with lagged impacts.
  - Inflation responds to monetary policy shock with a lag of about two quarters, suggesting relatively weak transmission mechanism.
- Policy recommendations:
  - Improve central bank communication to mitigate pressures on the exchange rate and inflation.
  - Ensure policy responses to exogenous shocks (e.g., high fuel prices, fuel shortages) are well-communicated and temporary given limited policy buffers.
  - Exchange rate flexibility should be an important element of the policy response to the terms of trade shock.

### AML/CFT, supervision, and governance
- 2020 GIABA mutual evaluation identified legal and effectiveness deficiencies, including:
  - (i) making beneficial ownership (BO) of legal entities available;
  - (ii) enhancing AML/CFT risk-based supervision of non-bank financial institutions and monitoring of DNFBPs;
  - (iii) strengthening enforcement against money laundering and financial crimes.
- National Risk Assessment and related strategy should prioritize monitoring, supervisory, and enforcement actions and provide necessary resources (MEFP ¶70).
- BSL has appointed a second deputy governor in charge of financial stability.
- 2019 BSL Act and Banking Act enhanced legislative ability, but several guidelines and regulations need development or strengthening.
- Financial Policy Committee at the BSL slated for establishment in 2021 but still needs to be operationalized.
- Annual Financial Stability Reports prepared but could be finalized and published more timely.
- Weaknesses in supervision and governance of the non-bank sector (including DFS) pose financial stability concerns.

### State-owned banks (SOBs)
- Two SOBs under enhanced BSL supervision since April 2019; profits from government securities have shored up capital adequacy ratios.
- A 2019 diagnostic identified material weaknesses in asset quality, credit processes, internal controls, and governance; follow-up TA delayed due to COVID.
- Authorities note some governance improvements and revised business plans, but viability and business models remain questionable.
- World Bank assessing gaps in corporate governance frameworks of these banks to support an action plan (MEFP ¶66, Structural Benchmark).

### Currency redenomination
- BSL announced plans to redenominate the Leone by removing three zeros and introducing a higher denomination Le. 20 note.
- Redenomination involves extensive logistical and communications preparations and requires an adequate planning horizon.
- Staff urges BSL to extend the preparation phase to ensure a smooth transition; responsibilities and accountability of stakeholders should be agreed.
- An audit by a reputable independent firm would boost public confidence in the conversion process (equivalent to about 9 percent of GDP).
- Authorities indicated plans were proceeding and did not see need to extend preparation phase.

### Program issues, financing, and debt vulnerabilities
- Staff supports authorities’ requests for modifications and waivers to program conditionality including:
  - Waiver for non-observance of end-December PC on NCG with three prior actions to assure future performance: improved monitoring of budget execution and arrears paydown (report for 2021 and 2022Q1; structural benchmark to continue such reports), strengthened cash management via debt management committee functioning, and a revised 2022 budget (MEFP Table 2) with realistic expenditure envelope and updated macro assumptions and revenue measures (PAYE, GST, Timber taxation among others).
  - Additional SB for the 6th review to align quarterly budget allotment with cash and debt committee recommendations.
  - Waivers for the introduction of a new MCP and exchange restriction; BSL committed to non-renewal of new fuel and food facilities (and ACF) (MEFP ¶61) and to improve computation/publication of the BSL rate and implement automated reporting/tracking mechanisms (MEFP ¶60, Structural Benchmark).
  - Modifications to QPCs and ITs to reflect changed environment and fiscal consolidation path, and to raise the limit on concessional borrowing by adding unimplemented portion of 2021 to 2022.
- Financing:
  - Program fully financed with firm commitments for next 12 months; World Bank DPO will provide US$100 million in budget support in 2022.
  - Disbursement of SDR 15.55 million under the 5th review will be on-lent to the budget.
  - Medium-term grant support expected from development partners.
  - The Fund’s contribution in budget support declines modestly in 2022 and 2023 (31 percent in 2022 and 24 percent in 2023).
- Debt and repayment capacity:
  - Outstanding debt to the IMF is 13.3 percent of GDP.
  - Outstanding IMF credit peaks at end-2022 at 187 percent of quota, almost 77 percent of gross reserves, 88 percent of revenue (excluding grants) and over 23 percent of public and publicly-guaranteed (PPG) external debt.
  - PPG external debt service expected to peak at 29 percent of gross international reserves in 2026.
  - Annual gross repayments to the Fund peak in 2024 at 5.1 percent of exports; 1½ percent of GDP.
  - Sierra Leone received SDR 58.24 million (US$82.2 million) relief in total of five CCRT tranches; DSSI debt deferment during 2020-21 was US$17.6 million.
  - Staff advises continuing pursuit of highly concessional external support, fiscal adjustment, and active liability management.

### BSL safeguards, audits, and internal controls
- BSL implemented all but one recommendation from 2017 safeguards assessment.
- FY2021 external audit underway; delay resulted in resetting the end-April SB for publication of 2021 financial statements to end-September.
- FY2019 and FY2020 audited financial statements finalized and published on the central bank’s website.
- External quality assessment of internal audit function (2021) noted shortcomings; BSL developed action plan including appointing a director of Internal Audit (Structural Benchmark) and further capacity strengthening (MEFP ¶63).

### Program risks and capacity development
- Significant program risks: new COVID-19 variants, weaker global outlook, delays in external financing, higher fuel prices, higher inflation, capacity constraints, fragile institutions.
- Staff view: risks are high but manageable conditional on authorities’ sustained ownership and tailored conditionality.
- Statistics and CD:
  - BOP statistics improved with IMF TA; remaining gaps to address.
  - Updated CPI introduced in March 2022 with more representative consumption basket and new data collection center in the north-west region (SIP: Inflation).
  - Rebasing national accounts delayed due to COVID, expected by end-2022; once in place, work on a quarterly GDP series will commence.
  - Authorities working with Fund to introduce a Monthly Indicator of Economic Growth and on an employment and remuneration matrix.
  - Sierra Leone is a major recipient of IMF CD on revenue mobilization, PFM and debt recording, BSL supervision/regulation capacity, monetary operations, macroeconomic statistics, and legal/governance support.
  - Two resident advisors placed at the BSL on banking supervision and monetary policy to support CD delivery (Annex VIII).

### Staff appraisal and policy priorities
- Sierra Leone pursuing ambitious development strategy for inclusive growth amidst frequent shocks and limited policy buffers.
- Staff lauds National Development Plan’s focus on human capital and governance; emphasizes urgent action on climate adaptation, digitization efficiencies, infrastructure investment, and agricultural productivity.
- Macro recommendations:
  - Maintain macroeconomic stability through expanding the revenue base, mobilizing more grant financing, and growth-enhancing reforms.
  - In response to shocks (e.g., war in Ukraine spillovers), use temporary import facilities for critical food and fuel items and ensure exchange rate flexibility; mindful of inflation and limited buffers.
  - Continue vaccination efforts to mitigate COVID-19 risks.

*Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1sleea2022001.pdf*

### 53.      Against this difficult background, the ECF program has provided a policy anchor but

### Against this difficult background, the ECF program has provided a policy anchor but

### Program performance and structural benchmarks
- The ECF program "has provided a policy anchor but performance has been mixed."
- "While most PCs were met, the fiscal targets were breached by significant margins both on account of the shocks and inadequate budget controls."
- "Performance on structural benchmarks has been encouraging with most criteria met, even if in some cases after delays."
- The authorities "submitted a revised 2022 budget to Parliament and are taking other corrective actions to prevent fiscal slippages."
- "Staff supports the authorities’ strategy to balance medium-term fiscal consolidation with supporting the recovery and addressing pressing development needs."

### Fiscal policy, consolidation, and debt vulnerabilities
- "Reducing debt vulnerabilities is critical given high risk of debt distress, limited reserve buffers and the need to create fiscal space."
- "Fiscal slippages and external factors have increased risks around the baseline, as a larger and more frontloaded fiscal adjustment is now required to achieve the program objectives."
- Staff is "encouraged by the revised 2022 budget, that is calibrated to begin the consolidation while taking into account the many priorities in the NDP and from the difficult economic context."
- Policy measures welcomed by staff:
  - "commitments to develop an MTRS"
  - "ongoing efforts to automate tax filing and payments and review exemptions"
  - "commitments to review the fiscal regime for timber"
- Staff notes: "Sierra Leone’s risk of debt distress remains high, but debt is sustainable provided the authorities’ implement ambitious fiscal adjustment and continue to rely on concessional financing and grants."
- "The adoption of a debt anchor could be an important additional element to the medium-term debt reduction strategy."

### Public financial management and budget controls
- "Successful fiscal adjustment will also require stronger public financial management."
- "Arrears have recurred frequently reflecting weaknesses in budget assumptions, inadequate commitment and other controls in IFMIS, and shortcomings in cash and debt management."
- Recommendation: "strategic top-down budgeting approach to ensure budget ceilings are consistent with financing constraints"; staff "welcome the interest in TA in this area."

### Governance, audits, and institutional independence
- "Further improvements in governance and continued effectiveness of the ASSL depend on its ability to perform its functions independently."
- Sierra Leone "has a good track record of producing comprehensive audits of public finances, and of COVID-19 emergency spending."
- Safeguards urged: "timely action to ensure the institutional and financial independence of ASSL, including enhancing powers to enforce audit recommendations as agreed under the program."
- Broader governance priorities: "strengthen the governance of key fiscal, monetary and financial institutions to reduce vulnerabilities to corruption, foster private sector development and growth, and ensure more effective delivery of essential public services."

### Monetary policy, inflation, and external position
- "Rising inflation requires policy action on various fronts to ensure macroeconomic stability is maintained."
- Agreed actions: "fiscal consolidation and a reduction in domestic borrowing should ensure that second-round effects are contained."
- "The path for money growth should remain tight going forward and the BSL may need to raise the policy rate further."
- "While the new facilities for food and fuel will help to relieve pressure on the exchange rate and inflation in the short term, staff welcomed the BSL’s intention not to renew them, given the level of reserves, and to keep the remainder of the SDR allocation in reserves."
- External assessment: "Sierra Leone’s external position remains weaker than the level implied by fundamentals and desirable policies."
- "Despite significant depreciation this year, the real exchange rate remains overvalued, and recommended that the BSL implement reforms, with Fund TA, to improve functioning of the FX market."

### Financial stability, banking sector, and redenomination
- "Staff urges the authorities to pay close attention to financial stability risks."
- "The strong sovereign-bank nexus from heavy dependence on short-term government paper suggests rollover risks require regular monitoring."
- Policy recommendations:
  - "work to lengthen domestic debt maturities following the recent MTDS, including to lower borrowing costs."
  - Address "rising NPLs, weaknesses in supervision of the non-bank sector and strengthened supervision and regulation, notably completing prudential guidelines."
  - Tackle "weaknesses in the corporate governance of the SOBs" that "also pose risks to the health of the financial system and its ability to support private sector development."
- Operational advice: "Based on international experience with logistical preparations, staff urges the BSL to lengthen its preparatory phase for redenomination of the Leone."

### Risks, ownership, and staff support
- Program risks beyond the pandemic and global economy include:
  - "further increases in inflation, which could fuel unrest"
  - "upcoming elections"
  - "delays in external financing"
  - "capacity constraints in fragile institutions"
- Mitigating factors: "Strong ownership, the authorities’ strong track record of servicing their debt obligations to the Fund, and extensive TA plans mitigate these risks."
- Staff support and decisions:
  - "Staff supports the authorities’ requests for completion of the fifth review."
  - "Staff also supports the modification of PCs, ITs, and SBs under the ECF arrangement, and waivers of nonobservance of performance criteria."
  - "Staff also supports the completion of the financing assurances review."
- Assessment: "Although program performance was mixed, the external shocks faced, corrective actions taken, and the authorities’ commitment to meeting program objectives are all mitigating factors."
- Note on capacity to repay: "The capacity to repay the Fund is constrained, although risks to the program are manageable."

*Source: 1sleea2022001 - 53.*

### 61.      Staff recommends that the next Article IV consultation be held within 24 months in

### 1sleea2022001 - 61.      Staff recommends that the next Article IV consultation be held within 24 months in

### Article IV consultation recommendation
- Staff recommends that the next Article IV consultation be held within 24 months in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.

### Real and external sectors (Figures and highlights)
- Growth:
  - Growth rebounded in 2021 and is expected to stay flat in 2022.
- Inflation:
  - Inflation has increased steadily, reaching 22 percent yoy in March 2022.
  - Panel labels show "Overall", "Food", "Non-Food" inflation series (index reference: Mar-18 to Mar-22).
- Trade and reserves:
  - Imports and exports picked up beyond pre-pandemic levels, partly driven by higher prices for fuel and food.
  - Official reserves were bolstered by the SDR allocation and are being drawn down to support the crisis response.
- Exchange rates:
  - The pace of depreciation against the dollar has continued to rise while the REER has appreciated.
- Sources: Sierra Leonean authorities and IMF staff estimates.

### Fiscal sector (Figure 2 highlights)
- Deficits and financing:
  - Deficits have remained elevated due to crisis response.
  - The share of external debt in financing is decreasing.
- Revenues and expenditures:
  - Revenue collection rebounded, buoyed by income and mining receipts.
  - Both current and capital expenditure remain elevated due to the crisis response.
- Fiscal deficit and financing shown as Percent of Non-Iron Ore GDP.

### Monetary and financial indicators (Figure 3 highlights)
- Monetary aggregates:
  - The growth of monetary aggregates moderated in 2021.
- Credit:
  - Domestic credit growth continued to be driven by government securities issuance.
  - Private sector credit growth picked up; NPLs registered an uptick.
- Liquidity and interest rates:
  - The excess liquidity from 2020H2 has fallen.
  - Yields on long-term government securities returned to pre-pandemic levels.
- Series and indices cover 2013–22 with multiple panels including Monetary Base, M3, Credit to government and private sector, NPLs, Commercial Bank Reserves (billions of leone), and Interest Rates on Government Securities (Percentage).

### Selected economic indicators (Table 1 — key figures)
- GDP and growth:
  - GDP at constant prices (selected years): 2020 Est. -2.0; 2021 3.2; 2022 5.9; 2023 3.6; 2024 3.4; 2025 5.0; 2026 5.1; 2027 4.4; 2028 4.3.
  - GDP excluding Iron ore: 2020 -1.8; 2021 2.6; 2022 2.3; 2023 3.1; 2024 2.4; 2025 3.2; 2026 4.8; 2027 4.9; 2028 4.4; 2029 4.4.
- Prices and inflation:
  - GDP deflator (selected): 2020 10.9; 2021 11.8; 2022 11.1; 2023 10.5; 2024 15.8; 2025 17.9; 2026 15.9.
  - Consumer prices (end-of-period): 2020 10.4; 2021 13.9; 2022 17.9; 2023 12.0; 2024 22.1; 2025 19.6; 2026 16.4.
  - Consumer prices (average): 2020 13.4; 2021 10.7; 2022 11.9; 2023 13.0; 2024 21.7; 2025 21.0; 2026 18.0.
- External sector:
  - Terms of trade (deterioration -): 2020 20.4; 2021 -5.2; 2022 -15.1; 2023 -2.2; 2024 -11.5; 2025 3.4; 2026 2.7.
  - Exports of goods: 2020 -34.2; 2021 63.9; 2022 30.7; 2023 14.6; 2024 30.6; 2025 6.8.
  - Imports of goods: 2020 -12.0; 2021 6.9; 2022 27.8; 2023 3.2; 2024 9.6.
  - Gross international reserves (excl. swaps, months of next year's imports): 2020 4.2; 2021 4.3; 2022 5.3; 2023 3.4; 2024 4.0; 2025 3.5.
- Money and credit:
  - Domestic credit to the private sector (growth): 2020 4.9; 2021 15.6; 2022 32.9; 2023 19.9; 2024 22.8.
  - Base money and M3: series reported with large percent changes (e.g., Base money 2020 54.8; 2021 7.6; etc.; M3 2020 38.2; 2021 14.0).
- Financing and debt:
  - Public debt: 2020 76.3; 2021 73.0; 2022 78.8; 2023 72.5; 2024 80.8; 2025 80.4; 2026 77.4.
  - External public debt (including IMF): 2020 49.7; 2021 51.1; 2022 50.5; 2023 51.6.
- Current account balance (including official grants) as percent of non-iron ore GDP:
  - 2020 -6.8; 2021 -15.6; 2022 -14.6; 2023 -15.9; 2024 -13.6; 2025 -10.9; 2026 -8.8.
- Central government budget balances:
  - Domestic primary balance 2/ (selected): 2020 -4.2; 2021 -2.1; 2022 -5.0; 2023 0.3; 2024 -2.5.
  - Overall balance: 2020 -5.8; 2021 -3.8; 2022 -7.3; 2023 -2.8; 2024 -4.1.
  - Revenue (excluding grants): 2020 13.8; 2021 14.1; 2022 15.5; 2023 14.2; 2024 14.7.
  - Grants: 2020 5.3; 2021 4.5; 2022 4.6; 2023 4.1; 2024 5.8.
- Memorandum:
  - GDP at market prices (billions of Leone): 2020 39,938; 2021 47,583; 2022 45,775; 2023 56,316; 2024 54,926.
  - Excluding iron ore (Le billions): 2020 39,938; 2021 47,055; 2022 44,618; 2023 53,823; 2024 52,857.
  - Per capita GDP (US$): 2020 509; 2021 534; 2022 526; 2023 537; 2024 505.

### Central government fiscal operations (Tables 2a–2c — selected figures)
- Table 2a (Billions of Leone):
  - Total revenue and grants (selected): 2020 Act. 797; 2021 Est. 490; 2022 Prel. 769; 2023 ECF 288; 2024 100; Projected later years up to 24,314 in 2027 memo.
  - Revenue (selected): 2020 550; 2021 166; 2022 426; 2023 917; 2024 763.
  - Tax revenue (selected): 2020 461; 2021 355; 2022 745; 2023 585; 2024 637.
  - Expenditures and net lending (selected): 2020 1,027; 2021 1,086; 2022 812; 2023 533; 2024 1,157.
  - Current expenditures (selected): 2020 706; 2021 776; 2022 608.
  - Capital Expenditure (selected): 2020 302; 2021 630; 2022 173.
  - Arrears Paydown (cash): 2020 159; 2021 149; 2022 298.
  - Domestic primary balance 3/ (selected): 2020 -1697; 2021 -965; 2022 -221; 2023 3158 (note formatting as in source).
  - Overall balance including grants (selected): 2020 -2300; 2021 -1793; 2022 -3245; 2023 -1510.
  - Financing (selected): 2020 2300; 2021 1793; 2022 3245.
- Table 2b (Percent of non-iron ore GDP):
  - Total revenue and grants: 2020 20.0; 2021 19.3; 2022 20.8; 2023 18.7; 2024 21.0.
  - Revenue (excluding grants): 2020 13.8; 2021 14.1; 2022 15.5; 2023 14.2; 2024 14.7.
  - Expenditures and net lending: 2020 25.7; 2021 23.1; 2022 28.1; 2023 21.5; 2024 25.1.
  - Current expenditures: 2020 17.7; 2021 16.3; 2022 19.3; 2023 14.7; 2024 17.7.
  - Capital Expenditure: 2020 7.6; 2021 6.4; 2022 7.9.
- Table 2c (Quarterly, Billions of Leone) — 2022–23 Projections:
  - Revenue Q1–Q4 2022 (Prel.): 162, 019, 511, 947 (quarter labels as in source).
  - Grants and donor support quarterly and expenditures listed with quarterly breakdowns (e.g., Wages, Goods and Services, Interest, Capital Expenditure).

### Monetary accounts and Bank of Sierra Leone (Table 3 — selected)
- Monetary survey snapshots (Billions of Leone):
  - Money and quasi-money (M3): Mar-2022 12,279; Jun-2022 12,611; Sep-2022 12,996; Dec-2022 14,391. Projections increasing through 2027 up to 35,897.
  - Reserve money: Mar-2022 4,141; Dec-2022 4,602; projected Dec-2027 11,218.
  - Net foreign assets and net domestic assets series provided; net domestic credit rising in projections (e.g., to 27,615 by Dec-2027).
- Memorandum items:
  - Base money percent changes listed (e.g., 55.4; 10.8; 0.3; 8.7; etc.).
  - M3 percent changes listed (e.g., 43.0; 32.2; 22.8; 22.1; etc.).
  - Nominal exchange rate, average (Leones/US $): 2021 10,206; 2022 10,238; 2023 10,350; 2024 10,968; 2025 11,546.

### Balance of payments (Table 4 — selected, Millions of US$)
- Current account (US$ millions):
  - 2020 -275.6; 2021 -673.1; 2022 -611.1; 2023 -678.1; 2024 -549.5; 2025 -426.3; 2026 -344.8; 2027 -254.9.
- Trade balance:
  - 2020 -573.0; 2021 -611.3; 2022 -713.7; 2023 -551.2; 2024 -604.3.
- Exports, f.o.b. (selected): 2020 648.0; 2021 694.9; 2022 846.8; 2023 796.4; 2024 1,105.9.
  - Diamonds (selected): 2020 303.5; 2021 177.2; 2022 261.1; 2023 174.1; 2024 249.4.
  - Iron ore (selected): 2020 0.0; 2021 134.9; 2022 144.8; 2023 375.1; 2024 404.8.
- Imports, f.o.b. (selected): 2020 -1,221.0; 2021 -1,306.1; 2022 -1,560.5; 2023 -1,347.7; 2024 -1,710.2.
  - Oil imports: 2020 -184.5; 2021 -300.1; 2022 -269.3; 2023 -309.6; 2024 -431.6.
- Transfers (selected): 2020 467.8; 2021 350.6; 2022 479.4; 2023 319.7.
- Capital and financial account:
  - Capital account 2020 94.1; 2021 115.6; 2022 124.5; 2023 139.2.
  - Financial account 2020 198.6; 2021 419.7; 2022 635.6; 2023 421.2.
- Gross international reserves (excluding swaps, US$ millions): 2020 677; 2021 652; 2022 932; 2023 532; 2024 689; projected through 2027 576.
- Memorandum: Current account as percent of non-iron ore GDP: 2020 -6.8; 2021 -15.6; 2022 -14.6; 2023 -15.9; 2024 -13.6.

### External financing requirements and sources (Table 5 — Millions of US$)
- Financing needs (selected): 2020 -715; 2021 -881; 2022 -1,095; 2023 -790; 2024 -550; 2025 -572.
- Financing sources (selected totals): 2020 519; 2021 738; 2022 943; 2023 730; 2024 509.
- Disbursements from official creditors (excluding IMF): 2020 172; 2021 808; 2022 290; 2023 87; 2024 811.
- Exceptional financing (selected): 2020 42; 2021 48; 2022 57; 2023 7; 2024 13.

### Indicators of capacity to repay the Fund (Table 6 — selected)
- Fund obligations based on existing credit (millions of SDRs, Principal):
  - 2022 30.6; 2023 44.3; 2024 46.5; 2025 48.5; 2026 51.2; 2027 47.3; 2028 43.4.
- Fund obligations (existing and prospective credit, Principal in millions of US$):
  - 2022 42.6; 2023 62.4; 2024 66.1; 2025 69.5; 2026 73.8; 2027 70.7.
- Ratios (fund obligations in percent of exports of goods and services):
  - 2022 3.7; 2023 5.1; 2024 5.1; 2025 4.9; 2026 5.0.
- Outstanding Fund credit (millions of SDRs, existing and prospective):
  - 2022 387.4; 2023 358.7; 2024 312.2; 2025 263.7; 2026 212.5.
- Outstanding Fund credit (millions of US$):
  - 2022 539.9; 2023 505.5; 2024 444.0; 2025 377.8; 2026 306.3.
- Memorandum items:
  - Exports of goods and services (millions of US$): 2022 1,160; 2023 1,234; 2024 1,286; 2025 1,414.
  - Total debt service (millions of US$): 2022 122; 2023 141; 2024 147; 2025 157.
  - Nominal GDP (millions of US$): 2022 4,200; 2023 4,084; 2024 4,082; 2025 4,177.
  - Gross international reserves (millions of US$): 2022 706; 2023 600; 2024 572; 2025 545.
  - Quota (millions of SDRs): 207.4 (each year listed).

### ECF disbursements schedule (Table 7 — 2018–23)
- Availability and disbursements (In millions of SDRs and percent of quota 1/):
  - Each scheduled tranche: 15.555 SDRs representing 5.75 percent of quota on multiple dates from November 30, 2018 through June 1, 2023.
  - Total disbursements: 124.446 SDRs representing 60.00 percent of quota.
- Notes:
  - Following the 14th quota review, Sierra Leone doubled its quota at the Fund. The current numbers reflect this increased quota.
  - The third and fourth reviews are combined.

### Financial soundness indicators (Table 8 — Banking system, 2013–21)
- Capital adequacy (Regulatory capital ratio 1/):
  - Series show high ratios across 2013–21 (e.g., 30.1, 30.2, 34.0, 34.1, rising to 49.0 in some quarters).
- Asset quality:
  - Nonperforming loans to total gross loans (selected): 23.7 (2013); spikes in quarterly series, with measures such as 15.5, 13.0, 16.8, 13.7, 15.5, 15.2 (end points in source).
- Profitability:
  - Return on assets (selected): 2.2; 2.6; 3.2; 3.8; 5.6; 6.0; 6.1.
  - Return on equity (selected): 9.6; 15.4; 18.0; 21.8; 29.8; 28.6; 26.1.
- Liquidity:
  - Liquid assets to short-term liabilities (selected): 81.3; 87.0; 87.0; 86.0; 77.8; 82.3; 86.8.
- Memorandum: Number of banks ranged 13–14 in the period.

### Decomposition of public debt and debt service by creditor (Table 9 — 2021–23, selected)
- Total public debt (2021, in mil. US$): 3,125 (100.0 percent total debt; 76.8 percent of GDP).
- External vs Domestic (2021):
  - External: 2,002 (64.1 percent of total debt; 49.2 percent of GDP).
  - Domestic: 1,123 (35.9 percent of total debt; 27.6 percent of GDP).
- Multilateral creditors (2021 totals, in mil. US$): 1,581 (50.6 percent total debt; 38.9 percent of GDP).
  - IMF exposure (2021): 541 (17.3 percent total debt; 13.3 percent of GDP).
  - World Bank (2021): 464 (14.8 percent total debt; 11.4 percent of GDP).
- Domestic holdings:
  - T-Bills (2021): 595 (19.0 percent total debt; 14.6 percent of GDP).
- Debt service flows by creditor are provided for 2021–23 with percent of GDP and percent total debt breakdowns.

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

### Annex I. Modeling the Longer-Term Impact of Covid and

### Annex I. Modeling the Longer-Term Impact of Covid and Mitigating Policies

### Background
- Calibrated a general equilibrium model with heterogenous agents to assess:
  - (i) the pandemic impact via decline in human capital from school closures and sectoral productivity; and
  - (ii) mitigating policies on macroeconomic and distributional outcomes.
- Objective: quantify longer-term impacts on Sierra Leone beyond short-term survey and national accounts evidence.

### Long-term impact of the Covid shock
- Human capital shock features:
  - Declines in the share of skilled workers.
  - Declines in productivity, particularly for lower-skilled workers.
  - Result: shifts relative worker productivity and increases urban income inequality as urban low-skilled workers suffer higher income losses relative to high-skilled peers.
- Sectoral effects:
  - Reduced relative weight of the services sector.
  - Differential impact implies a shift to agriculture away from manufacturing, consistent with COVID affecting agriculture less severely.
- Aggregate macro impact:
  - Combining the human capital shock with sectoral productivity shocks yields a medium-term decline in GDP of 3 percent and a fall in incomes across the board.

### Impact of mitigating policies
- Social safety nets:
  - Targeted towards low-income urban workers.
  - Effects: protect incomes, decrease urban inequality, and increase demand for food.
  - Distributional caveat: large farmers benefit more than small farmers, increasing overall inequality in the agricultural sector.
- Investment in human capital:
  - Large gains from increasing investment in human capital.
  - Higher share of skilled population raises overall productivity; GDP increases by 6 percent.
  - Manufacturing sector grows and absorbs a large portion of skilled workers.
- Agricultural productivity and combined policy package:
  - Increasing agricultural productivity decreases food prices.
  - Combined effects of social safety nets, higher human capital investment, and agricultural productivity improvements:
    - Boost GDP by 10 percent in the modeled scenario.
    - Manufacturing sector increases beyond its contribution before the COVID shock due to increased formalization.
    - Policies support an inclusive recovery by boosting incomes and decreasing inequality across the board.

*Source: Annex I. Modeling the Longer-Term Impact of Covid and Mitigating Policies*

### 3.      Reforms. The authorities are

### 1sleea2022001 - 3.      Reforms. The authorities are

### Energy sector reforms and operational targets
- Authorities are implementing comprehensive energy sector reforms, supported by the World Bank, to:
  - improve EDSA’s operational efficiency,
  - increase generation capacity,
  - improve connection infrastructure.
- Revenue and tariff measures:
  - Government plans to review electricity tariffs, which are currently at US$0.13 cents per Kwh, while maintaining the social band.
  - Government plans to connect two mining companies to the grid.
- Loss reduction and metering:
  - EDSA aims to decrease losses to 35 percent by replacing meters to combat power theft and by installing pre-paid meters in government buildings.
- Reducing reliance on Karpowership and diversification:
  - EDSA can further scaleup purchases from cheaper sources, such as the Cote d’Ivoire-Liberia-Sierra Leone-Guinea (CLSG) power pool, and further invest in renewable energy.
- Infrastructure and governance:
  - Government is investing in transmission lines and completing rural electrification projects.
  - Development partners support efforts to strengthen corporate governance and design performance incentives to improve EDSA’s viability.

### Annex VII. External Sector Assessment — Overall assessment and policy priorities
- Overall assessment:
  - The external position of Sierra Leone in 2021 was weaker than the level implied by fundamentals and desirable policies.
  - The assessment is subject to wide margin of error given the quality and availability of official data and model sensitivity.
- Potential policy responses to maintain external sustainability:
  - (i) rely on highly concessional financing largely grants to contain external liabilities,
  - (ii) make progress on fiscal adjustment while protecting essential spending,
  - (iii) undertake reforms to facilitate FX market clearing, including allowing sufficient exchange rate flexibility while being mindful of the impact on inflation,
  - (iv) enhance productivity and improve competitiveness, keeping in mind that external financial support and FDI cannot be relied on indefinitely.
- These policies are key to maintain adequate reserves over the medium term.

### A. Current Account — recent developments, outlook, and risks
- Recent developments:
  - The current account in 2021 is estimated to be around -14 percent of GDP.
  - Data shows large fluctuation in remittances from the previous year and service balance due to quality and availability of official data.
  - Exports increased significantly after the COVID-19 crisis, but impact on the current account is offset by an increase in imports in both prices and quantities.
- Outlook and risks:
  - The current account balance in 2022 is expected to be about the same as in 2021 (-13 percent of GDP) due to the increase in import prices, especially in fuel and food.
  - Projected to moderately improve over the medium term, underpinned by an increase in mining exports.
  - The current account deficit is expected to remain large (double digits), with risks associated with international commodity price development and resulting changes in commodity exports and imports.
- Data quality note:
  - These data fluctuations raise questions on the quality of official data; authorities should address data gaps to improve the quality of BOP statistics.

### B. Capital and Financial Accounts: flows and drivers
- Capital account:
  - The capital account in 2021 is estimated to be around 3 percent of GDP, increased somewhat over 2020 due to an increase in project grants, and expected to continue increasing slightly.
- Financial account:
  - FDI and other investment are the main drivers of the financial account.
  - Net inflows are estimated to have increased in 2021 with higher FDI and are projected to recover as mining activity increases.

### C. Real Exchange Rate (NEER and REER developments)
- NEER:
  - The nominal effective exchange rate (NEER) has been on a depreciating trend.
- REER:
  - The real effective exchange rate (REER) appreciated until mid-2010s due to high inflation, then depreciated until 2018 as inflation declined.
  - REER appreciated somewhat in 2019-21, as inflation differential with trading partners more than offset nominal depreciation.

### D. Foreign assets and liabilities: position, trajectory, and ES model assessment
- Background position (end-2021 estimates):
  - NIIP at end-2021 is estimated to be around -60 percent of GDP.
  - Gross foreign assets of around 37 percent of GDP.
  - Gross foreign liabilities of around 98 percent.
  - BSL’s gross official reserves constitute more than half of foreign assets; remaining foreign assets include deposit-taking corporations and other nonofficial sectors.
  - About two-thirds of foreign liabilities are FDI liabilities; the rest is other investment liabilities (mainly public sector but also commercial banks and other sectors).
  - NIIP has worsened over the last five years and is projected to worsen further as sizeable current account deficits persist.
- ES model assessment and required adjustment:
  - The revised EBA-lite external sustainability (ES) model is used to estimate the REER adjustment necessary to keep the NIIP at the 2021 level over the medium term.
  - The ES model indicates that a REER depreciation of around 6.6 percent is necessary over the medium term to keep the NIIP (as a percentage of GDP) at the 2021 level.
  - Using the elasticity of the current account with respect to REER of -0.35, this corresponds to a current account gap of around -2.3 percent of GDP — the desirable level of current account balances over the medium term based on the ES model.
- Model-based summary statistics for 2021:
  - CA-Actual (in percent of GDP): -14.3%
  - CA Gap (in percent of GDP): -2.3%
  - Elasticity of CA with respect to REER: -0.35
  - REER Gap: 6.6%
  - 2021 (% GDP) NIIP: -60 NIIP: -60 Gross Liab.: 98
- Caveats:
  - Assessment subject to wide margin of error due to questionable data quality (very large errors and omissions), potentially omitted variables such as terms of trade worsening risks, and sensitivity to parameter choices.

### E. FX intervention and reserves level
- Reserves background and coverage:
  - BSL’s gross official reserves (excluding swaps) at end-2021 were USD 932 million, corresponding to about 5.3 months of next year’s imports of goods and services.
  - Gross reserves sharply increased in 2021, mainly due to the SDR allocation in August, emergency financing from the IMF, and continued debt service relief and deferment (the CCRT and the DSSI).
  - Gross reserves are projected to steadily decrease over the medium term, mainly because of increasing external debt service, the absence of exceptional support, and the BSL’s additional facilities for supporting food and fuel import implemented in 2022.
- Assessment and policy responses:
  - Reserve coverage in 2021 and 2022 is higher than the recommended level based on one reserve coverage metric (3 months of next year’s imports), due partly to the SDR allocation in August 2021.
  - Exceptionally large uncertainty after the COVID-19 crisis and severe macroeconomic vulnerabilities justify the higher reserve coverage.
  - Over the medium term, the reserve coverage is projected to decrease toward 3 months of imports.
  - Policies to ensure external sustainability described earlier would help maintain adequate reserve coverage over the medium term.

### Annex VIII. Capacity Development — strategy, priorities, and risks
- CD strategy and priorities:
  - Sierra Leone’s CD Strategy is anchored to the government’s medium-term development goals and integrated with the Fund supported program.
  - Priorities remain focused on revenue mobilization, improving spending efficiency and effectiveness, selecting priority projects, strengthening budget credibility, and improved debt management.
  - Specific CD focuses:
    - Strengthening the medium-term budget framework (MTEF);
    - Building public finance management capacity to strengthen commitment controls, wage bill management;
    - Promoting transparency and accountability in public funds use;
    - Improving accounting and fiscal reporting;
    - Limiting tax exemptions and improving compliance, including for extractive industries;
    - More effective debt management to address rising debt vulnerabilities.
  - Monetary policy and central bank operations require strengthening; BSL is developing analytical capacity and forecasting tools with Fund assistance.
  - Improving infrastructure and systems for foreign exchange operations to eliminate a MCP is high on the agenda.
  - Financial sector priorities: bank supervision, systemic risk, financial stability and macroprudential policy frameworks, stress-testing capacity, oversight of financial market infrastructure, and implementation of the new Banking and BSL Acts with capacity development on risk-based supervision and Basel II/III.
  - Data priorities: debt recording and management, public debt compilation and reporting, rebasing national accounts, improving compilation methodologies, developing and disseminating the producer price index, and increasing high frequency data availability.
- Main risks to TA implementation:
  - Absorptive capacity constraints (small number of officials handling many tasks),
  - Political risks and differences among political and interest groups,
  - Financing constraints and costs of implementing TA recommendations (investments in hardware or new systems).
- Risk mitigation measures:
  - Use of remote missions and increased integration with program work or peer learning,
  - Placement of two resident advisors to the BSL on bank supervision and monetary policy,
  - Alternative capacity building methods (e.g., end of CD mission workshops),
  - Regular outreach with Parliament and other stakeholders to mitigate political risk and coordinate TA delivery.

*IMF staff summary of the chapter/section provided in the source content.*

### 4.      The authorities concur with the priorities outlined above and emphasized expediting

### 1sleea2022001 - 4.      The authorities concur with the priorities outlined above and emphasized expediting

### Authorities' views and capacity development (CD) preferences
- The authorities concur with the priorities outlined and emphasized expediting implementation.
- The reform orientation of the current administration provides an opportunity to make sustained progress on structural reforms on governance and transparency.
- Strong preference for in-person missions.
- Strongly underscored the importance of CD that included hands-on workshops and requested that workshops be made a more routine part of CD delivery.
  - Note: Under an FAD pilot project, the Ministry of Finance is currently participating in weekly training workshops on benefit-incidence analysis.
- Better dialogue and planning ahead of missions—both with the Fund and other development partners—has allowed them to schedule CD missions more effectively to coincide with ongoing workflows, hence somewhat mitigating absorption capacity concerns.

### Capacity Development Priorities (Public Finance Management, Tax, and Expenditure)
- Public Finance Management
  - Ensure fiscal sustainability through: (i) implementing reforms to better manage public investment with stronger focus on project appraisal and selection; (ii) more effectively prioritize spending to critical sectors within a medium‑term budget framework; and (iii) improve debt recording and management.
  - Improve budget execution through: (i) enhancing and rolling out more widely the Financial Management Information System (FMIS); and (ii) strengthening liquidity management and implementation of the Treasury Single Account (TSA).
  - Accelerate transparency and governance reforms, with particular focus on the use of emergency funds by implementing commitments made under RCF and following standards set in recent COVID-19 Regulations.
  - Improve fiscal reporting through: (i) enhanced coverage to the whole of central government and gradually extended to the general government; (ii) international standards (IPSAS) based accounting and fiscal reporting and (iii) improved data integrity of the financial statements.
- Tax Policy
  - Support the Authorities to extend their tax analysis capability by developing a sectoral revenue forecasting model for mining revenue.
  - Ensure the new extractive industries tax law is settled and minor legislative corrections are made where needed.
- Revenue Administration
  - Improve the efficiency of domestic resource mobilization by (i) increasing tax compliance, including with respect to extractive industries revenue and contribution of large taxpayers and High Net Worth Individuals; (ii) broadening the tax base and strengthening border controls; (iii) modernizing the governance structure of NRA; (iv) building capacity in data analytics and audit of the specialized industries and (v) automating tax administration.
- Expenditure Policy
  - A benefit incidence analysis on education and health is ongoing with FADEP combined with medium-term programmatic CD engagement with the Ministry of Finance.
  - The first activity of the CD engagement provided training on how to conduct a distributional analysis of public spending on education and health, and how to map such analyses to policy discussions such as adequacy and efficiency of expenditure (including SDGs’ costing).
  - In March, FADEP has started to analyze the public sector wage bill (e.g., wage bill projections and estimating public sector wage premia) and design sound government compensation and employment reforms.

### Financial sector, central bank, financial stability, and statistics priorities
- Financial Sector Supervision and Regulation
  - Increase financial system safety and soundness through strengthening prudential regulations as well as supervisory frameworks and processes.
- Financial Stability
  - Establish the Financial Policy Committee and design new tools to monitor systemic risk, conduct stress tests and improve financial stability analysis.
- Central Banking Operations and Governance
  - (i) Continue to implement the revised Banking and BSL Acts to strengthen the BSL’s ability to supervise the banking system.
  - (ii) Continue to improve monetary policy analysis and foreign exchange operations, and to modernize the monetary policy framework to be more responsive to market developments and more effectively promote price stability.
  - (iii) Continue to enhance oversight and supervisory framework for financial market infrastructures (FMIs).
  - (iv) Support the authorities in its planned currency redenomination reform.
- Statistics
  - Produce timely, frequent, and credible indicators of economic activities in all sectors to inform policy, including more attention to developing and leveraging high frequency data.

### Technical Assistance and CD activities (FY2020-22) — selected items
- Apr-22: LEG remote mission on High level conference on Governance and Corruption Issues
- Apr-22: FAD remote mission on Audit training -telecom sector
- Apr-22: MCM STX Improving oversight and supervisory framework for FMIs
- Apr-22: MCM remote mission on Improving monetary policy analysis and near-term forecasting capabilities
- Apr-22: FAD/AFW2 remote mission on the development of a framework for SOE Ownership
- Apr-22: ICD ATI Course on Macroeconomics of Climate Change
- Apr-22: FAD/AFW2 STX on strengthening Fiscal reporting and compliance with cash based IPSAS
- Mar-22: FAD remote mission component (joint with MNRW mission)
- Mar-22: STA remote mission on Sierra Leone-TA-GDP- GDP rebasing
- Feb-22: FAD remote mission/HQ Workshop on MTRS
- Jan-22: STA remote mission on Sierra Leone - TA - PRC - Updating CPI
- Jun-21: FAD Benefit Incidence Analysis on Health and Education
- Jun-21: FAD/AFW2: Implementing budget execution controls
- Apr-20 to Jul-20: Multiple FAD and MCM engagements supporting COVID‑19 response, cash management in COVID‑19 context, and follow-up on commitment control measures
- Aug-20: STA remote mission on Debt recording and management
- Apr-20: STA National accounts - Rebasing of GDP

### Economic developments, programme performance, and policy actions (Letter of Intent, June 10, 2022)
- Requests and programme context
  - Request to the IMF Executive Board to complete the fifth review of the Extended Credit Facility (ECF) arrangement and approval of the disbursement of sixth tranche of the credit.
  - Request waivers for not meeting the quantitative performance criterion relating to Net Credit to Government from the banking system at end-December 2021, and for the introduction of a new MCP and exchange restriction.
  - Request modifications of end-June 2022 quantitative performance criteria and the completion of the financing assurances review.
- Recent economic performance
  - The economy grew by 3.2 percent in 2021, reflecting broad-based recovery in key sectors.
  - Growth in 2022 has been revised downwards to an estimated 3.6 percent from 5.9 percent at the time of the 3rd/4th review.
  - The war in Ukraine, which started in February 2022, is threatening to undo the nascent economic recovery while undermining macroeconomic stability.
- Fiscal and programme implementation challenges
  - High but necessary expenditures to respond to COVID-19, increase in energy subsidies, increases in prices of goods and services, unexpected wage pressures, and cost overruns on capital projects resulted in expenditure overruns amid weak revenues and decline in programme grants.
  - Government borrowing from the domestic banking system increased and unpaid checks accumulated, weakening programme performance in 2021.
  - Met QPCs and indicative targets on Gross International Reserves and Net Domestic Assets of the Bank of Sierra Leone as at end-September and end-December 2021, but missed the criterion on Net Credit to Government from the banking system at end-December 2021 by a large margin.
  - Preliminary data indicate missing the March 2022 indicative targets on Net Domestic Assets of the Bank of Sierra Leone, gross international reserves and Net Credit to Government owing largely to the impact of the war in Ukraine leading to revenue shortfalls and sharp increase in fuel prices and general price level.
  - Complied with the continuous Performance Criteria on concessional and non-concessional external debt and on external arrears, and the indicative targets on domestic revenue and poverty related spending for September and December 2021; however, missed the IT on the domestic primary balance.
- Fiscal policy and corrective actions
  - Government will refocus on consolidation of public finances aimed at returning to a sustainable fiscal path and reduced debt vulnerabilities.
  - Fiscal efforts will include:
    - Continuing to implement the full pass-through petroleum pricing formula.
    - Reviewing GST collection from telcoms and the energy sector.
    - Strengthening tax administration including stricter enforcement of tax laws and carrying out field audit of large tax payers.
    - Sustaining the roll-out of the electronic cash register and integrated tax administration system.
    - Extending the Block Management Registration System to other parts of Freetown.
    - Exploring carbon financing, and levy taxes on timber exports going through the land borders, among others.
  - A medium-term revenue strategy will guide revenue administration and policies.
  - Proactively seeking additional budget support and an emergency project financing to help address emerging expenditure pressures.
  - Committed to submitting a supplementary budget to Parliament by mid-June to reflect these efforts and critical steps and efforts to step up social protection.
  - Increasing the use of the SDR for fiscal purposes, while continuing to use the allocation as a buffer against possible future shocks.
- Expenditure management measures
  - Embark on expenditure rationalisation and management by improving budget planning and execution and strengthening cash management.
  - Reactivated the Expanded Cash and Debt Management Committee, held four regular meetings since mid-April in line with the committee’s terms of references and taken stock of a list of actions to strengthen the committee’s functioning.
  - Efforts to align quarterly budget allocations with recommendations from the cash and debt management committee on cash projections.
  - Sustain implementation of payroll management reforms introduced so far and develop a Payroll Reform Strategy to guide payroll management in the medium-term.
  - Continue to improve management of capital projects as recommended in the Public Investment Management Assessment (PIMA) Report.
  - Given the high risk of debt distress, continue reliance on concessional loans and especially grants to finance infrastructure projects.
- Exchange rate and foreign exchange measures
  - Committed to exchange rate flexibility and improving the functioning of the FX market.
  - The BSL introduced two new one-off facilities in April 2022 to provide foreign exchange for the importation of fuel and food, intended to help alleviate supply shortages occasioned by the war in Ukraine.
  - Request waivers of non-observance of performance criteria on Multiple Currency Practices and exchange restrictions related to these facilities, in conjunction with requests for approvals for these exchange measures.
  - Corrective actions by the BSL include: (i) cap the total amount of these facilities and the non-renewal of these facilities, except with the consent of the Fund, and (ii) a move to calculate the official exchange rate with a one-day lag.
- Structural reform progress
  - Met most structural benchmarks for the 5th review including:
    - Study on High Net Worth Individuals.
    - Stocktaking of Income Tax exemptions.
    - Development of an infrastructure appraisal template.
    - Thematic review of non-performing loans at the state-owned banks.
  - Substantial progress on updating prudential guidelines in line with the 2019 Banking Act.
  - Structural benchmark on publication of the 2021 audited financial statements of the BSL delayed beyond April 2022; the BSL has appointed an audit firm which has started the work.
  - Temporarily suspended continuous SB on the automatic fuel pricing mechanism since October 2021 given the immense burden on citizens.
  - Government increased the pump price of fuel by 50 percent in March 2022 to insulate the budget from continued increase in global fuel prices, thereby moving towards restoring the implementation of the full pass-through fuel pricing formula.
  - Committed to reducing energy subsidies going forward.

*Source: IMF mission materials and Letter of Intent (June 10, 2022).*

### 9.      We remain committed to good governance, building on past efforts, and are in

### 1sleea2022001 - 9.      We remain committed to good governance, building on past efforts, and are in

### Governance, accountability, and institutional strengthening
- Commitment to strengthen institutional and financial independence of Audit Service Sierra Leone (ASSL).
- Actions underway:
  - Strengthen preparation, follow-up, and implementation of audit recommendations through a set of standard operating procedures.
  - Amend the 2014 ASSL Act to strengthen ASSL’s powers to follow-up and enforce audit recommendations.
  - Develop a roadmap to enhance ASSL’s budgetary autonomy.
  - Publish procedural rules for future tribunal proceedings by mid-June to strengthen transparency and efficiency of tribunal legal cases.
- Government agrees to publication of this letter, its attachments, and related staff report in accordance with Fund procedures.

### Programme timeline and IMF reviews
- The Government will consult the IMF in advance of revisions to the policies contained in the MEFP.
- Review schedule:
  - Sixth review of the program: on or after December 1, 2022.
  - Seventh and final review: on or after June 1, 2023.

### Recent economic developments and shocks
- Recovery from COVID-19 in 2021: economy grew by 3.2 percent in 2021.
- Russia-Ukraine war (started in February 2022) has added pressure to inflation, fiscal space, balance of payments, reserves, and the exchange rate; caused sharp increases in prices of food, fertilizer, and fuel.
- Growth forecast revision for 2022: revised downwards to 3.6 percent from an earlier forecast of 5.9 percent.
- Mining: more-than-expected increase in mining output contributed to 2021 recovery; continued uncertainty and somewhat lower production prospects in 2022.

### Inflation and external sector
- Inflation developments:
  - 8.9 percent in March 2021 (single digit).
  - 17.9 percent in December 2021.
  - Year-on-year inflation rose to 22.1 percent in March 2022.
- Policy response: increased fuel prices by 50 percent in March 2022.
- Current account:
  - Widened from 6.8 percent of GDP in 2020 to 14.6 percent of GDP in 2021.
- Reserves and exchange rate:
  - Gross foreign reserves increased to 5.3 months of imports (partly due to SDR allocation of US$282 million).
  - Exchange rate depreciated by 16 percent (March 2021 to March 2022).

### Fiscal performance and pressures
- Domestic revenues and deficit:
  - Domestic revenues improved to 15.5 percent of GDP in 2021 (from 13.8 percent in 2020).
  - Budget deficit (including grants) widened to 7.3 percent of GDP in 2021 (from 5.8 percent in 2020).
- 2022Q1 budget outturn: revenue shortfall of about Le 330 billion due to under-collection from excise on petroleum products, mineral royalties (especially bauxite), fisheries, and GST.
- Expenditure pressures: energy subsidies (Karpower and CLSG), goods and services, wage awards, and domestic capital spending; cost of electricity supply from Karpower ship increased beyond programmed subsidies and transfers.

### Public debt and debt structure
- Total public debt: US$3.1 billion (76.8 percent of GDP) in 2021 (up from US$3.0 billion, 76.3 percent of GDP in 2020).
  - Domestic debt including verified arrears: US$1.1 billion.
  - External debt: US$2.0 billion.
  - External debt composition: multilateral 79 percent, bilateral 13 percent, commercial 8 percent.
- Debt assessment: risk of debt distress is high but sustainable; external debt service to revenue ratio projected to continue breaching the threshold; public debt to GDP ratio above benchmark.
- Policy guidance: continued reliance on concessional financing and grants, effective debt management and borrowing strategy; adoption of a medium-term fiscal anchor to help reduce debt ratios and keep debt below the NDP ceiling of 70 percent of GDP.

### Banking sector indicators
- Banking system: largely resilient and stable; banks were profitable and adequately capitalized.
- Performance indicators improved: total assets, investments, gross loans and advances, and deposits.
- Capital adequacy: all but one bank met statutory capital adequacy ratio requirements.
- Non-performing loans (NPLs):
  - Aggregate NPLs to gross loans increased to 14.8 percent by December 2021 (from 12.4 percent in December 2020).
  - Excluding two state banks, NPL fell to 13.3 percent at end-December 2021; three banks recorded zero NPLs.
- World Bank review: team reviewing two state-owned banks (RCB and SLCB) to advise on long-term strategy and corporate governance.

### Programme performance against targets
- 2021 performance:
  - Met QPCs and ITs on Gross International Reserves and Net Domestic Assets of Bank of Sierra Leone at end-September and end-December 2021.
  - Missed QPC on Net Credit to Government from the banking system at end-December 2021 by a large margin.
- 2022Q1 preliminary data: missed indicative targets on Net Domestic Assets of BSL, gross international reserves, and Net Credit to Government.
- Continuous PCs and indicators:
  - Complied with continuous PCs on concessional and non-concessional external debt and continuous PC on external arrears.
  - Met indicative targets on domestic revenue and poverty related spending for September and December 2021.
  - Missed the indicative target on the domestic primary balance.
- Request: Government requests IMF Executive Board to approve a waiver for non-observance of the December 2021 QPC on Net banking system Credit to Government (NCG).

### Fiscal consolidation and revenue measures
- Fiscal strategy: refocus on consolidation to return to sustainable fiscal path and reduce debt vulnerabilities.
- Revenue mobilization measures:
  - Continue implementing full pass-through petroleum pricing formula (continuous Structural Benchmark).
  - Consolidate automation of tax processes through ECR and ITAS; intensify field audits of key sectors.
  - Reverse NATCOM floor price instruction for telecommunications Companies.
  - Expand application of specific export levy on timber to cover all timber and timber related products.
  - Explore opportunity for carbon financing in the medium-term.
  - Proactively seek additional budget grants and an emergency energy support grant.
- Expenditure rationalization and cash management:
  - Reactivated the Expanded Cash and Debt Management Committee; held four regular meetings since April (Prior Action).
  - Prior actions include presenting reliable cash forecasts, producing minutes with recommended policy options, and presenting options to the Minister for budget preparation and allotment.
  - Public Debt Management Division (PDMD) prepared an agreed action plan based on previous TA reports and published quarterly report for 2022Q1 and annual report for 2021 on actual performance against budget allotments (Prior Action).
  - Align quarterly budget allocations with cash and debt committee recommendations.
  - Sustain payroll management reforms and develop a Payroll Reform Strategy.
  - Continue improving management of capital projects per the PIMA Report.

### Corrective measures (Revised 2022 Budget) — aggregate figures from Text Table 1
- Total additional revenue measures: Le.186.0 billlions (in percent of non-iron ore GDP) 0.4
  - PAYE: Le.24.0
  - GST: Le.43.0
  - Others: Le.119.0
    - of which timber and related products: Le.22.5
    - of which TSA: Le.86.0
    - of which Digital IDs: Le.10.5
- Expenditure containment: Le.233.2 billlions (in percent of non-iron ore GDP) 0.4
  - Wage bill: Le.140.2
  - Goods and services: Le.93.0

### Structural benchmarks and reforms
- Structural benchmark progress:
  - Met most SBs for the 5th review: study on High Net Worth Individuals, stocktaking of Income Tax exemptions, development of an infrastructure appraisal template, thematic review of strategy for non-performing loans.
  - Update of prudential guidelines in line with the 2019 Banking Act: pending.
  - Publication of 2021 audited financial statements of the BSL: delayed beyond April 2022; audit firm appointed and work started; aim to publish final statements by end-September 2022 (structural benchmark).
  - Temporary suspension of continuous SB on automatic fuel pricing mechanism since October 2021 to ease burden on citizens; restored implementation of full pass-through fuel pricing formula after 50 percent pump price increase in March 2022.

### Medium-term outlook and risks
- Growth projections:
  - 2022: revised to 3.6 percent (from 5.9 percent).
  - 2023: projected to slow to 3.4 percent.
  - 2024–2025: projected average growth of 5.0 percent.
- Inflation projections:
  - End-2022 forecast: 22.1 percent (compared to original projection of 12 percent).
  - Annual average inflation expected to hover around 21 percent (initial projection 13 percent).
  - Inflation projected to decline to 19.6 percent in 2023 and 16.4 percent in 2024.
- External and reserves outlook:
  - Overall fiscal deficit (including grants) projected to narrow from 3.8 percent of non-iron ore GDP in 2022 to 2.5 percent in 2023.
  - Current account deficit expected to narrow from 13.6 percent of non-iron ore GDP in 2022 to 8.8 percent of non-iron ore GDP in 2024.
  - Gross foreign reserves will average 3.3 months of imports during 2022-2025.
- Key risks:
  - Uncertainty associated with the Russia-Ukraine war and global impact.
  - Resurgence of COVID-19.
  - Inadequate international financial support.
  - Sharp rise in prices of food and fuel with implications for domestic inflation and fiscal and external balances.

### Programme objectives
- Core objectives under the ECF program:
  - Safeguard macroeconomic and financial system stability.
  - Pursue structural reforms and promote sustainable, resilient, green and inclusive growth centered on human capital development.
  - Ensure fiscal and debt sustainability, strengthen financial sector stability, promote transparency and accountability in use of public funds, improve business environment, and expand social protection systems.

*Source: Memorandum of Economic and Financial Policies (MEFP), ECF 5th Review, Freetown, June 2022.*

### 20.      The key objective of fiscal policy remains the pursuit of sustainable fiscal consolidation

### 1sleea2022001 - 20.      The key objective of fiscal policy remains the pursuit of sustainable fiscal consolidation

### Fiscal objective and overall strategy
- Key objective: pursue sustainable fiscal consolidation through intensification of domestic revenue collection and prudent expenditure management to provide fiscal space for priority spending.
- Government actions given shocks and expenditure overruns in 2021:
  - Implement measures to return the fiscal situation to a sustainable path and stabilise the debt situation.
  - Adopt combination of revenue enhancing measures and reprioritise expenditures.
  - Seek grant financing to boost fiscal space for priority spending.
  - Increase somewhat the use of the SDR allocation for fiscal purposes.
- Structural commitment: transparent accounting and use of SDR resources through regular budget monitoring process (Structural Benchmark for the 6th review).

### Fiscal targets, SDR use, and revised 2022 budget
- Fiscal deficit objective:
  - Reduce fiscal deficit from 7.3 percent of GDP in 2021 to an average of 2.5 percent during 2023 and 2024.
  - Move into a primary surplus in 2024 to stabilize the debt situation.
- Domestic banking financing target: reduce to a sustainable level of 2 percent of GDP, consistent with ECF arrangement.
- SDR resources: utilize the Le 857 billion equivalent of SDR resources to scale up:
  - cash transfers,
  - support to the COVID-19 health response,
  - critical domestic capital expenditures (water supply),
  - programs to address food insecurity and improve educational outcomes (e.g., school feeding program, hygiene and welfare packages for girls),
  - support climate mitigating activities to boost social and economic resilience.
- Prior action: On June 15, submitted to parliament a revised 2022 budget consistent with agreed fiscal consolidation path; includes commitment to freeze further payments of legacy arrears until a new arrears clearance plan is in place (Structural Benchmark).

- Priority Spending (Revised 2022 Budget, Le. billions) — FY2022 Budget → FY2022 Rev.budget
  - Transfers to NaCOVERC: 174.0 → 174.0
  - Arrears clearance: 100.0 → 100.0
  - Other priority expenditures: 178.7 → 582.9
    - o/w Health: 11.9 → 36.2
      - National Emergency Medical Services (NEMS): 2.1 → 26.4
      - Support to Ambulances services: 4.9 → 4.9
      - Construction of Cancer and diagnostic medical center: 4.9 → 4.9
    - o/w Education: 80.0 → 145.0
      - Welfare and hygiene for school going girls: 9.5 → 14.5
      - School feeding program: 68.8 → 128.8
      - Rehabilitation/expansion of boarding facilities: 1.7 → 1.7
    - o/w Water: 48.8 → 158.8
      - Water supply services in six district capitals: 45.0 → 155.0
      - 45 industrial boreholes(urban wash supply): 3.8 → 3.8
    - o/w Agriculture: 18.6 → 18.6
    - o/w Energy (Rehabilitation of Goma-Dodo Hydro dam): 5.0 → 5.0
    - o/w Energy (subsidies): 0.0 → 156.9
    - o/w Fisheries(Support to Artisanal fisheries, including women): 5.2 → 5.2
    - o/w Environment (Support Tree Planting and carbon financing): 9.2 → 37.2
    - o/w Sierra Leone Social Safety Net (Cash Transfers): -- → 20.0
  - Total (Le. billions): 452.7 → 856.9
  - in percent of non-iron ore GDP: 0.9 → 1.6

- Note: In 2022, reprioritized allocation for arrears clearance to honour outstanding obligations to the World Food Program and Plan International, and to procure essential drugs for the government’s flagship Free Health Care drugs initiative.

### Revenue performance and outlook
- 2021 domestic revenue: broadly on target, attributed to:
  - recovery in economic activities,
  - stricter enforcement of tax laws including Finance Act 2021,
  - opening of international trade enhancing customs collection and export revenues (timber and minerals),
  - close monitoring of revenue collection (stakeholder collaboration, weekly revenue meetings),
  - increased taxpayer sensitisation and education,
  - roll-out of Electronic Cash Register (ECR) for GST and Integrated Tax Administration System (ITAS),
  - one-royalty payments.
- Q1 2022 shortfall: domestic revenue collection weak with a shortfall Le 330 billion relative to quarterly target agreed during the 3rd/4th review under the ECF.
  - Drivers of poor performance:
    - weak tax compliance,
    - transition challenges to a lower GST threshold administered with ECR,
    - delays in payment of mineral and fisheries license fees,
    - suspension of full pass-through fuel pricing formula implementation,
    - supply chain challenges in export of timber logs.
- Despite Q1 shortfall, Government expects to meet original annual revenue target for 2022 via tax policy and administration measures.

### Tax administration measures (current and near-term)
- Actions underway:
  (i) Expect parliament approval of the NRA Act at the latest in 2022Q3.
  (ii) Implement change management strategy to support reforms; expand taxpayer engagement on tax administration reforms (workshops, meetings on ECR and ITAS).
  (iii) Undertake intensive and extensive trainings on ITAS for many of the new taxpayers.
  (iv) Dedicate more resources to field and desk audit and intensify use of data analytics tools – Computer Assisted Audits of financial and petroleum sectors; undertake transfer pricing audits for risky companies; DTD staff refocused towards audit after automation.
  (v) Close tracking of filing and payment compliance and enforcement for non-compliant taxpayers and non-tax revenue payers.
  (vi) Engage importers and beneficiaries of the QAERP to pay accumulated arrears and encourage ex-warehousing.
  (vii) Maintain implementation of policy on full pass-through for domestic fuel pump prices for all products.
  (viii) High-level engagement with the Ministry of Fisheries and development partners to revamp collection from marine resources; engage EU to relax restriction on licensing of fishing vessels.
  (ix) Implement and enforce the Finance Act 2022 (whistle blower policy, differentiated penalty rates, recovery of overdue arrears, minimum floor price for telecommunication data services).
  (x) Reverse the NATCOM Floor Price instruction to telecommunication companies.
  (xi) Implement recommendation of Non-Tax Revenue enhancement study to improve collection of MDAs revenue.
  (xii) Engage MOF, MOPED, NaCSA, and NPPA to provide information on contractors and consultants to track withholding tax payments.
  (xiii) Enforce collection of GST from EDSA.
  (xiv) Implement compliance improvement measures, including:
    - Implementation of the administrative phase of the Block Management System in the Western Area.
    - Roll out of mobile payment app especially for medium and small taxpayers.

### Medium-term tax administration measures (2023-27)
- Considered measures and timelines:
  (i) Block registration exercise in the provinces to formalize businesses and bring more taxpayers into the tax net (June 2023).
  (ii) Build capacity in data analytics and risk analysis (use of AI technology, data warehouse, training in data analytics and econometrics) (March 2023).
  (iii) Strategy for operationalisation of a High Net Worth Individual Taxation regime (September 2024).
  (iv) Introduction of an Excise Tax Stamp and fuel marking scheme to combat smuggling of excisable goods (March 2023).
  (v) Development and Implementation of Telecoms auditing tool to aid collection of GST revenues on telecoms sector (June 2024).
  (vi) Implement centralised tax exemption monitoring and reporting system; activate ITAS exemption module (September 2023).
  (vii) Initiate and conclude negotiation with Kingho Iron Ore Mining Company to ensure utilisation of the Port and Rail by Marampa Mines when expansion commences (December 2024).
  (viii) Continue strengthening and implementing the compliance risk management framework (September 2024).
  (ix) Explore opportunity for carbon financing (December 2023).

### Tax policy measures and medium-term revenue strategy
- Policy measures:
  (i) Escalate the Duty Waiver Policy approved by Cabinet in March 2022 to a law.
  (ii) Implement recommendations of the World Bank Tax Policy mission.
  (iii) Formulate a Medium-term Revenue Strategy (MTRS) with IMF and World Bank support; submit draft MTRS to Cabinet for approval by December 31, 2022 (structural benchmark).

### Exploring climate finance
- Government will explore leveraging climate finance from forests, including carbon credits, REDD+ payments, and grants for forest conservation or reforestation.
- Actions:
  - Strengthen legislative framework around forest protection.
  - Meet transparency and verification prerequisites; build capacity.
- Status and potential:
  - Government has already issued 1 million carbon credits, primarily through the GOLA Rainforest (first REDD+ project in West Africa).
  - Existing activities with potential: #Freetown the TreeTown, Ministry of Environment’s plan to plant 5 million trees, Western Area Peninsula National Park, renewable energy projects.

### Expenditure management and budget execution
- Commitment: improve public expenditure management to ensure effective and efficient public spending and strengthen budget credibility by improving budget planning and execution, cash management, payroll integrity and sustainability, and public investment efficiency.

- Electricity Distribution and Supply Authority (EDSA) fiscal risk:
  - Projected payments to Karpower under new contract: US$70 million in 2022.
  - Measures to lower energy subsidies and strengthen EDSA revenue:
    - adjustment of the average tariffs;
    - connect two mining companies to the grid and upgrade the Bumbuna 161 Line to increase uptake from the CLSG line into national grid;
    - work with the World Bank to decrease commercial and technical losses, while maintaining the lifeline tariff band (i.e. those who consume less 25kWh per month) to protect the poor.
  - Expected effect: reduce EDSA’s dependence on budget transfers and open fiscal space.

- Agriculture input subsidy reform:
  - Government withdrawn from direct procurement and distribution of agricultural inputs.
  - Adopted policy: agro-dealers import inputs (fertilizer, seeds) for sale to farmers.
  - Government subsidy provided through an electronic voucher system domiciled in one of the commercial banks.
  - E-voucher system expected to address over-pricing, poor quality, and late delivery.

- Improving budget execution:
  - Ministry of Finance to regularly release quarterly budget allocations on time, align with cash forecasts, and implement “Not in Budget, No Funding”.
  - Seek Fund TA to adopt strategic top-down budgeting to determine total expenditure before negotiating detailed items.

- IFMIS upgrade and coverage:
  - IFMIS upgraded from version 6.5e to web-based GRP version 7 effective January 2022; rolled out to 61 MDAs.
  - Integrated application (Payroll, Budget Planning, core Financial Modules) with unified database; internet access.
  - Coverage ensures over 80 percent of Government expenditures are processed through the system.
  - Next step: roll out IFMIS to additional MDAs and sub-vented agencies in 2023 (list of agencies provided in source).

### Cash management and reporting
- Expanded Cash and Debt Management Committee:
  - Strengthen functioning; meet on a weekly basis to review revenue/expenditure performance, arrears accumulated/paid, prepare/review quarterly cash flow and determine Government borrowing requirement.
  - Reconcile revenue and expenditure issues among AGD, NRA and BSL before meetings using unified data template; present reliable cash forecast and policy options; adopt cash forecasting tool.
- Reporting and transparency:
  - Prepare agreed plan incorporating TA recommendations on Budget Execution and Cash Management to prevent arrears recurrence.
  - Public Debt Management Division (PDMD) published quarterly report for 2022Q1 and annual report for 2021 on actual performance against budget allotments (Prior Action).
  - Going forward, prepare quarterly budget out-turn reports including:
    i) progress in reduction of unpaid checks,
    ii) implementation of ECDMC recommendations,
    iii) the disbursement and use of SDR-backed resources for fiscal purposes,
    iv) actual fiscal performance against budget allotments (structural benchmark).

### State-owned enterprises (SOEs) and contingent liabilities
- Government monitoring of SOEs and state-owned banks to enhance financial sustainability and reduce recourse to budget support.
- Comprehensive review of aggregate financial position and performance of SOEs undertaken for 2020; a similar exercise for 2021 covering 14 SOEs including two state-owned banks is in progress.
- Publication: compiled and published borrowings and guarantees of 14 SOEs to identify contingent liabilities.
- SOE outstanding loans as of end-2021: 3.4 percent of non-iron ore GDP.
- Governance measures: developing an SOE ownership policy and governance policy (structural benchmark for September, 2022).

### Payroll reforms and wage bill sustainability
- Institutionalized payroll reforms initiated in 2018; Payroll Quality Assurance Team established.
- Reforms include:
  - timely retirement of employees who have attained retirement age,
  - adding employees to payroll only with valid NASSIT Number, National Identification Number (NIN), a unique BBAN and Date of Birth (DOB) matching NASSIT DOB,
  - implementation of teacher recruitment and retirement policy,
  - routine payroll monitoring and payroll audit reports.
- 2022 payroll reforms implemented:
  (i) Teacher reassessment and promotion:
    - 4,158 teachers reassessed and promoted during 2021.
    - Additional 1,083 teachers promoted and reassessed effective April 2022.
    - Payroll cost of promotions: Le 550 million per month and about Le5 billion for FY2022.
  (ii) Minimizing manual voucher payments:
    - From January 2022, retirees paid gratuity with last salary directly from central payroll; pilot with Military and Police during 2021.
  (iii) Payroll Policy:
    - Draft Payroll Policy prepared with FCDO support; captures statutory provisions and policy instructions impacting Government payroll; next steps include stakeholder consultations and finalization.

*Italic: IMF staff report text (excerpt) provided in the source content.*

### 40.      For rest of FY2022 and the medium-term, the following payroll reforms are planned:

### 1sleea2022001 - 40.      For rest of FY2022 and the medium-term, the following payroll reforms are planned:

### Payroll reforms (rest of FY2022 and medium-term)
- (i) The Health Service Commision will take over delegated responsibility for recruitment, including the issuance of PIN Codes, promotion, transfer and managing the personnel files of professional health care personnel. This reform will address the current delays in the recruitment of health workers especially nurses.
- (ii) Conduct of a biometric verification of teachers to continue to maintain a clean and reliable teacher payroll.
- (iii) Complete a follow-up verification of Government Pensioners following the initial verification exercise conducted during 2021. The objective is to have a clean and reliable pension roll.
- (iv) Develop a medium-term payroll strategy to guide payroll reforms in the medium-term. The Ministry of Finance is currently seeking Technical Assistance to prepare the strategy. The establishment of the proposed Wages and Salaries Compensation Commission is expected to support implementation of this strategy. A training on wage bill management is currently ongoing with support by the IMF’s Fiscal Affairs department.

### Improving the Efficiency of Public Investment Management
- Government has adopted a National Public Investment Management Policy and accompanying Investment Guidelines.
- Technical Investment Committee shall review all new projects; the Ministerial Steering Committee will consider only projects and programmes vetted for inclusion in the Public Investment Programme (PIP).
- Government will rationalise and streamline existing projects on the basis of their socio-economic benefits.
- Government will develop public investment regulations to ensure adherence to the PIM cycle and public procurement of investment projects as part of implementing recommendations of Public Investment Management Assessments (PIMA).
- Government will take measures to avoid late budget releases.

### Improving Public Procurement
- Finance Act of 2022 gave power to the Ministry of Finance to give pre-approval to all MDAs before they engage in high value procurement related activities; the Ministry reviews requests for procurement of goods, services and works in relation to budgetary provisions to ensure allocations are not exceeded.
- Ministry is rolling out an electronic contract profiling system (ECOPS) to track outstanding payments for contracts and capture upcoming procurement expenditure from planning stage through payment stage.
- Introduction of Electronic Procurement Systems by the National Public Procurement Authority (NPPA) is at an advanced stage to improve efficiency and transparency of public procurement transactions.

### Public Debt Management — findings, objectives and actions
- New global shock from the Russian-Ukraine war has increased public debt vulnerability.
- Total public debt is estimated at US$3.12 billion or 76.8 percent of GDP as at end-December 2021, of which external debt is estimated at US$2.00 billion and domestic US$1.12 billion as at end-December 2021.
- Overall objective: maintain debt sustainability despite the Russian-Ukraine war and lingering challenges from the COVID-19 pandemic.
- Government will implement fiscal and external sector adjustments through revenue mobilization, exports diversification to build reserves, and rely on highly concessional external financing (largely grants) to limit recourse to expensive domestic debt.
- Government anticipates that public debt-to-GDP ratio will return to below the NDP target of 70 percent in the medium-term.
- A new Medium-Term Debt Strategy (MTDS) 2021-2025 was developed in 2021, approved by Cabinet in April 2022 and published on the website of the Ministry of Finance. Cabinet adopted a strategy which assumes concessional external financing and market development aimed at reducing domestic borrowing and lengthening maturities of domestic instruments.
- MTDS rationale: increase the Average Time to Maturity (ATM) of domestic debt and reduce interest rate costs. The MTDS 2021-2025 will be updated to reflect borrowing requirements implied under the current fiscal framework.
- External priorities: continue to prioritise concessional loans and especially grants to finance infrastructure projects; explore innovative financing including Public Private Partnership arrangements for self-liquidating projects.
- National DSA: yearly conduct upheld; the last National DSA conducted in December 2021 shows Sierra Leone is at high risk of debt distress mainly as a result of sustained breach in debt service to revenue and debt service to export ratios.
- Despite risks, overall debt is assessed to be sustainable predicated on strong fiscal adjustment, continued reliance on concessional financing and grants, and moderately high growth rates.
- Sierra Leone’s debt carrying capacity has improved from low to medium (CI is 2.75) with recent improvement in the Composite index under the Low Income Countries (LICs) Debt Sustainability Framework.
- Domestic debt strategy: cognisant of high rollover risks; Government will issue medium-to-long-term bonds to reduce rollover risks and support domestic debt market development to raise medium- to long-term resources for infrastructure under the National Development Plan.
- Arrears Clearance Strategy 2020-2025: implementation commenced in 2020. Full discount application was rejected by vendors due to Government liquidity constraints and contractors’ rejection of five-year payment plans for discounted amounts.
- To avoid litigation, Government used section 4.1.1 of the Arrears Clearance Strategy 2020-2025 to make gradual payments under payment plans for contractors who supported: i) economic growth, ii) response to CoVID-19, iii) health-related interventions, iv) agriculture and v) roads. Payments were also made to contractors whose exposure to banks posed challenges to the financial sector in line with 3.1.6 of the strategy.
- Going forward, Government will update its Arrears Clearance Strategy to be consistent with fiscal sustainability and financial stability. The new Arrears Clearance Strategy will include a list of creditors, criteria to prioritize the list of creditors, and amounts to be paid over the next three years (structural benchmark, October 31, 2022).
- Debt transparency: publication of liabilities of the biggest State-Owned Enterprises (SoEs), in terms of balance sheet, has been expanded from 5 to 10. Publication of SoEs loans and guarantees is a continuous practice in line with the Public Debt Management Act 2011.

### Monetary and Exchange Rate Policies — actions and measures
- Bank of Sierra Leone (BSL) mandate: price and financial stability while supporting Government’s economic recovery programme.
- Monetary policy implemented based on monetary targeting framework using indirect policy instruments.
- Flexible exchange rate regime maintained; exchange rate of the Leone against international currencies freely determined by market forces. BSL intervention limited to smoothing excessive volatility.
- 2021 challenges: continued rise in prices from global supply chain disruptions, high freight charges, COVID-19 uncertainties; exacerbated by Russia-Ukraine war.
- A 50 percent increase in the retail price of fuel initiated in March will put further pressure on prices; accelerating depreciation of the exchange rate (16 percent y-o-y in March) with inflation forecast to average close to 22 percent over 2022.
- BSL raised the Monetary Policy Rate by 75 basis points in April 2022 to dampen inflationary pressures.
- BSL introduced two new one-off facilities in April 2022 to provide foreign exchange for importation of fuel and food:
  - Special Facility for Food in the sum of US$50 million to support importation of rice, flour and sugar.
  - Special Facility to the tune of US$36 million to support importation of fuel.
- These two Facilities together with the Agriculture Credit Facility (all temporary and not subject to renewal, except with the consent of the Fund) aim to enhance supply of essential commodities and help moderate price increases and exchange rate pressures.
- Over the medium term, BSL will strengthen its monetary policy framework to improve transmission; maintain an asymmetric corridor around the monetary policy rate with standing facilities; limit use of secondary market purchases to support government issuance and consider introducing its own instrument for liquidity management.
- Monetary policy communication will be improved to better anchor expectations, for example publishing and clearly explaining the BSL’s goal to bring inflation to single digits in medium term.
- Technical assistance from the IMF is being used to improve inflation and liquidity forecasting and to enhance the composite index of economic activity (CIEA).
- Exchange rate developments: depreciation picked up in second half of 2021 and accelerated in 2022; parallel market spread appears to be widening. Commercial banks currently not able to fully supply FX needs of importers due to limited supply and market imperfections.
- BSL may allow selected companies and international organizations with FX to pay locally for certain imported goods, particularly fuel and electricity, in dollars to increase FX supply; demand for fuel from mining companies alone accounts for close to 50 percent of all fuel demand.
- BSL is considering providing a limited amount of FX through the SALPOST to meet wider public FX needs and increase financial inclusion.
- External position: remains weaker than level implied by fundamentals and desirable policies; reducing overvaluation of the real effective exchange rate is critical to maintain external sustainability.
- Market intervention should be limited to reducing excessive volatility. Government will pursue reforms to improve export competitiveness to complement FDI and external official loans in financing the current account deficit. BSL will retain an adequate reserve buffer to avoid risk of a sharper depreciation.
- Structural benchmark: move to a daily calculation and publication of an exchange rate based on a one-day lag by April 30, 2023. Engagement with AFRITAC West II for technical assistance and work with Reuters (Refinitiv) to automate bank reporting.
- IMF approvals and waivers: request temporary approval from the IMF Executive Board for the exchange restriction and the multiple currency practice under Article VIII; request waivers of non-observance of the continuous performance criterion on the non-introduction of MCPs and exchange restrictions. Commitment to cap total amount of new facilities and anticipate winding down new facilities and the ACF before end of the program.
- Commitment: do not intend to introduce new measures that would compound balance of payments difficulties; commit to not imposing new or intensifying existing restrictions on payments and transfers for current international transactions, or introducing/modifying MCPs, or concluding bilateral payments agreements inconsistent with Article VIII.
- Governance at BSL: FY 2019 and 2020 audits of BSL financial statements finalized in March 2022 and published on BSL’s website. A reputable external auditor with central banking experience appointed for FY 2021 audit, expected to be finalized by August (structural benchmark 5th review). Commitment to ensure external audits completed within statutory deadline (end-March).
- Internal audit: developed action plan to address recommendations from external quality assessment of internal audit function in 2021; will appoint a chief internal auditor (structural benchmark December 31, 2022) and strengthen internal audit capacity.

### Financial Sector Policy — supervision, governance, NPLs
- BSL continues regulatory and supervisory oversight using a Risk Based approach with eventual focus on adopting the Basel 2 and Basel 3 framework over time.
- Enhanced supervision of state-owned banks remains in force to strengthen capacity to handle shocks with adequate and resilient capital.
- Banks are subject to regular examinations and constant monitoring by resident supervisors to ensure directives are implemented.
- BSL started reviewing key banking sector guidelines including Prudential Guidelines and corporate governance guidelines; aim to finalize revision of the Prudential Guidelines, in line with the 2019 Banking Act, by September 2022 (structural benchmark).
- BSL is working on introducing Cyber Security guidelines for Financial Institutions.
- Two state-owned banks continue to be viable with fully constituted Boards; efforts underway to assess performance and effectiveness of boards and improve board efficiency and corporate governance.
- Onsite examinations concluded; next round slated for late 2022 to early 2023. With World Bank technical assistance, Government is developing an updated corporate governance framework for the two state-owned banks focusing on: (a) Board and Senior management oversight; (b) operational management; (c) risk management; (d) compliance with regulations; (e) internal audit; (f) external audit. Aim to have an action plan ready to address identified governance gaps by end-September 2022 (structural benchmark).
- BSL examinations including a thematic review of governance and NPLs found high NPLs of the two state-owned banks remain a challenge as they are above the 10% threshold.
- High NPLs were driven primarily by the COVID-19 pandemic.
- BSL recommendations with timelines aim to reduce NPLs to below the 10% threshold and improve corporate governance; recommendations also focus on strategies to boost recoveries, develop sound credit underwriting standards and frameworks to enhance risk management.
- Structural Benchmark: BSL will prepare a document to be shared with the Fund setting out the BSL’s system-wide strategy for bringing down NPLs to the 10 percent prudential limit (Structural Benchmark, December 15, 2022).

*Source: Extracted content from the provided IMF chapter/section.*

### 68.      The Bank of Sierra Leone with the technical assistance from the US Treasury

### 1sleea2022001 - 68.      The Bank of Sierra Leone with the technical assistance from the US Treasury

### Financial sector stability, crisis management, and AML/CFT
- The Bank of Sierra Leone, with technical assistance from the US Treasury Department, is working on setting up a deposit protection fund.
  - A Deposit Protection Bill has been laid in Parliament for legislation; the Bank will set up the fund once the bill is passed.
  - This is in line with the Bank’s policy of setting up an effective crisis management and resolution framework.
- The World Bank’s Financial Sector Assessment Program (FSAP) team completed its assessment mission in March 2022 and presented a draft Aide Memoir to the Bank for comments.
  - The Bank will utilize the FSAP findings and recommendations to strengthen financial sector policies, set out action plans for financial sector reforms, and build capacity to monitor and safeguard financial stability.
- Progress and planned actions on AML/CFT:
  - The 2020 mutual evaluation by the Inter-Governmental Action Group against Money Laundering (GIABA) identified some challenges.
  - While the legal basis is sound, regulation of a proliferation of finance and non-profit organizations requires further work.
  - Planned actions include:
    - making beneficial ownership of legal entities available;
    - enhancing risk-based supervision and monitoring of non-bank financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs);
    - strengthening enforcement against money laundering and financial crimes.
  - If necessary, the Government will engage in legal changes, such as amendments to the Companies Act, comprehensive allocation of supervisory powers over all relevant DNFBPs, and extending the sanctioning powers to the Financial Intelligence Unit.
  - Work will continue towards completing the National Risk Assessment and a national AML/CFT strategy reflecting practical analysis, monitoring, supervisory, and enforcement actions necessary to achieve concrete outcomes.

### Inclusive growth and social protection
- Government priorities to enhance inclusive growth and social protection amid COVID-19 and the Ukraine-Russia war impacts:
  - Continue to pay tuition fees for all children in Government-owned and Government-assisted schools;
  - Expand school feeding for Government-owned and Government-assisted pre-primary and primary schools in impoverished communities;
  - Continue to improve the efficiency of the school bus services and provide assistive devices for special needs children;
  - Develop a new national basic and senior secondary education policy focusing on radical inclusion;
  - Expand the provision of accelerated learning to out of school girls and scale-up efforts for their reintegration into school as well as teenage mothers;
  - Provide sanitary hygiene kits for school going girls;
  - Continue to construct classrooms, schools and boarding schools;
  - Continue the Cost Recovery Initiative for the provision of drugs and encourage private sector participation through public-private partnerships;
  - Continue efforts to establish the Sierra Leone Social Health Insurance Scheme (SLeSHI);
  - Expand the National Emergency Services (NEMS) to all districts;
  - Expand the unconditional cash transfer scheme for the extremely poor and vulnerable households, including Persons Living with Disabilities (PWDs);
  - Develop a Social Protection Register and rollout the economic inclusion project;
  - Enact the Social Protection Bill;
  - Implement the National Street Children Project to re-integrate street children with their families;
  - Continue to implement the Gender Equality and Women’s Empowerment Policy and the Women’s Economic Empowerment Fund for female entrepreneurs;
  - Invest in the productivity of youths through entrepreneurship and job creation;
  - Sustain capital expenditures to address macro-critical infrastructure bottlenecks and improve business competitiveness.
- Contextual notes:
  - Ongoing crises (COVID-19 and the Ukraine-Russian war) continue to affect economic fundamentals, public service delivery, and socio-economic life, notably through high food and fuel prices.
  - The Government implemented the Quick Action Economic Response Programme (QAERP) alongside the COVID-19 Health Response to maintain macroeconomic stability and mitigate impacts.

### Business environment and economic diversification
- Ongoing regulatory and institutional reforms to improve the ease of doing business:
  - Government implementing reforms to improve business registration, trading across borders, and streamlining property registration processes.
  - Country overall score of 47.5 percent in 2020 was below the sub-Saharan average of 51.8 percent in 2020.
  - The score for starting a business was 91.3 and overall global ranking at 58; that indicator was above the Sub-Saharan average of 80.1.
- World Bank funded Economic Diversification Project support:
  - A One-Stop-Shop for business registration has been established; automation by electronically linking Corporate Affairs Commission, National Revenue Authority, National Social Security and Insurance Trust, and the Office of the Administrator-and Registrar General is underway.
  - Review of the Companies Act, the Companies Amendment Act and accompanying Regulations is in progress; nationwide consultations on the revised Companies Act will start in June 2022.
- Access to finance and related infrastructure:
  - The Collateral Registry at the Bank of Sierra Leone upgraded to include moveable assets, individual search and e-payment services; the upgraded online collateral registry was launched in December 2021.
  - Efforts underway to upgrade the Credit Reference Bureau.
  - Regulations for the revised Borrowers and Lenders Act have been developed.
  - Discussions ongoing with the Ministry of Lands and Country Planning and the Office of the Administrator and Registrar-General to streamline and automate property registration and construction permit processes.
  - A National Switch to facilitate interoperability among commercial banks is being installed with support of the World Bank funded Financial Inclusion Project.
- Sectoral policy shifts and programs:
  - Agriculture: Major policy shift encouraging private sector leadership in procurement and distribution of agricultural inputs (fertiliser and improved seeds).
    - An Electronic Voucher (E-Voucher) system domiciled at Rokel Commercial Bank provides agricultural inputs to farmers.
    - Machine Rings at district level, managed by private sector, prepare large tracts of land for cultivation.
    - Bank of Sierra Leone established an Agricultural Credit Facility to provide credit to agro-dealers for importation and distribution of agricultural inputs.
  - Fisheries: Continued surveillance and remote monitoring to combat illegal, unregulated and illegal fishing; continued observance of “Closed Season” for conservation.
  - Tourism: Upgrading of tourist destination sites in Freetown (Leceister Peak, Tacugama Sanctuary and Bureh Beach) planned in 2022 with World Bank support.

### Improving governance and public financial management
- Anti-corruption measures and achievements:
  - Government enacted the Anti-Corruption Act 2019 (amendment of the Anti-Corruption Act 2008) to strengthen legal framework.
  - The Anti-Corruption Amendment Act of 2019:
    - increases minimum punishment for major corruption offences;
    - introduced a robust asset declaration regime for all public servants—moved to web-based from paper-based, with an over 90 percent response from public servants;
    - made provisions for creation of a special division of the high courts with its own registrar and five dedicated judges to expedite corruption cases.
  - The Anti-Corruption Commission (ACC) adopted a new Anti-Corruption Strategy aligned with the Anti-Corruption Act 2019 and the United Nations Convention Against Corruption 2005, shifting focus to enforcement while retaining prevention.
  - The ACC recovered over Le35 billion from corrupt officials and institutions in the past three years.
  - International recognition:
    - MCC control on corruption ranking moved to 81 percent in 2020, from 49 percent in 2019, securing the country a compact with MCC.
    - Corruption Perception Index (CPI) ranking moved by 12 places, from 129 in 2018 to 117 in 2020.
- Strengthening the Audit Service Sierra Leone (ASSL) and related reforms:
  - Government will amend the Audit Service Act 2014 and implementing regulations to strengthen implementation of ASSL recommendations and compliance during the audit process. Amendments include:
    - a detailed provision obliging auditees to provide justification or explanation, issue a timeline, assign staff and agree to an ongoing engagement process with the ASSL (Section 93 Audit Service Act) (structural benchmark);
    - a provision to extend the power to withhold salaries of vote controllers for non-submission of financial statements to the verification and explanation stage (Sections 11 & 12 Audit Service Act 2014) (structural benchmark).
  - Government developing Standard Operating Procedures (SOPs) that place responsibilities and sanctions on auditees for implementation of audit recommendations; approval of SOPs will allow incorporation into amendments of the Public Financial Management Act, 2016 and Audit Service Act, 2014.
- Transparency commitments in crisis response:
  - Published unaudited financial statements of NaCOVERC and key details of large procurement contracts related to crisis mitigation.
  - Published the second audit of the COVID-19 response (covering July to December 2020) (Prior Action).
- ASSL independence and operational commitments:
  - Commitment to a time-bound and transparent tribunal for the suspended auditor general and her deputy; published procedural rules for tribunal proceedings (Prior Action).
  - ASSL commits to pay all salaries and allowances legally due to positions listed in the “Management Profile” section of ASSL’s website (as of May 31, 2022) in accordance with the Sierra Leone Constitution, the Audit Service Act 2014, and the ASSL Conditions of Service 2014, as amended in 2018.
  - By mid-October 2022:
    - amend the 2014 ASSL Act to strengthen ASSL’s powers to follow-up and enforce audit recommendations (Structural Benchmark);
    - develop a roadmap to enhance ASSL’s budgetary autonomy (Structural Benchmark).
  - By November 30, 2022:
    - jointly (through ASSL, AGO and MOF) publish a roadmap, in consultation with IMF staff, to enact dormant statutory provisions on surcharges with an implementing regulation (Section 12 Audit Service Act 2014) to strengthen compliance with audit recommendations. The roadmap will include proposals on safeguards related to surcharges, the appropriate body/instrument for issuing the regulation, and timing for key steps.

### Strengthening statistics and data systems
- Importance and recent improvements:
  - Compilation and dissemination of credible and timely data is critical for policy design, analysis, and implementation; quarterly GDP estimates are currently absent, so high-frequency indicators received increased attention with IMF technical assistance.
  - With IMF Headquarters and AFRITAC West 2 support, Stats SL fully rebased the CPI to December 2021; updated the CPI basket and revised weights based on the 2018 Sierra Leone Integrated Household Survey.
  - AFRITAC West 2 provided technical support for rebasing estimates, improving data collection instruments, production of Quarterly National Accounts and development of Supply and Use tables.
  - IMF is providing technical assistance to the Ministry of Finance to improve debt recording and to the Bank of Sierra Leone to improve balance of payments statistics and financial soundness indicators.
- Planned statistical activities and capacity building:
  - Stats-SL carried out the Mid-term Population and Housing Census and is processing and analyzing the data.
  - Labour force survey planned in 2022; a costed proposal has been developed.
  - An agriculture census planned in 2022 in collaboration with FAO, WFP and the Ministry of Agriculture and Food Security — none conducted for over 40 years.
  - With World Bank support under the Harmonizing and Improving Statistics Project in West Africa (HISWA), Stats-SL will:
    - design and implement a coherent system of enterprise statistics using electronic platforms and conduct related data collection;
    - design and implement comprehensive agricultural statistics collection;
    - modernize National Accounts using enterprise and agriculture statistics and additional data;
    - adopt use of international standards on administrative data processing;
    - improve statistical infrastructure and enhance data accessibility through national databases and web-based apps and platforms.
  - Additional commitments:
    - partner across the country to bring timely, accurate, and useful information about Sierra Leone;
    - collaborate with the DSTI and other institutions to make data easily accessible online;
    - elevate Sierra Leone as a leader among low-and middle-income countries in ensuring transparent, high-quality data for SDG monitoring;
    - strengthen capacity at Stats-SL and expand technical expertise for routine data collection and evidence-based policy decision-making;
    - work with the Fund and other development partners on migrating to GFSM2014 for clear fiscal classifications and better targeted policy making.

### Building climate resilience
- Vulnerability and impacts:
  - Sierra Leone is highly vulnerable to adverse impacts of climate change, experiencing high temperatures, inconsistent weather patterns, recurrent storms, floods, mudslides, rising sea levels, coastal erosion, poor water quality and scarcity, ecosystem changes, and biodiversity loss.
  - Sierra Leone ranks 47th among 181 nations for vulnerability, susceptibility and lack of coping capacities on the World Risk Index 2021.
  - August 2017 mudslides and flooding in Freetown and outskirts:
    - affected thousands of people with multiple deaths;
    - caused widespread destruction of at least 1,245 properties with over 300 houses destroyed;
    - displaced over 11,000 people and destroyed livelihoods.
- Institutional and policy responses:
  - Adopted National Climate Change Policy (NCCP) and National Climate Change Strategy and Action Plan (NCCS&AP) to reduce vulnerabilities, strengthen adaptation, and implement mitigation initiatives for a low-carbon, high-growth development path.
  - Established a Ministry of the Environment in November, 2019 to consolidate Climate Change and Environmental Governance; mandate includes formulating and facilitating implementation of policies for sustainable environment management.
  - Reviewed six key environmental legislations to strengthen coordination, governance, enforcement and compliance. Legislation reviewed includes:
    - Wildlife Act of 1972;
    - Environment Protection Agency Act of 2008 as amended in 2010;
    - National Protected Area Authority and Conservation Trust Fund Act of 2012;
    - Sierra Leone Meteorological Agency of 2017;
    - Nuclear Safety and Radiation and Protection Authority of 2012;
    - Forestry Act of 1988.
  - Established an Environmental Court to prosecute environmental offenders throughout the country.
  - Established an inter-Ministerial Committee on Water Catchment, Mangroves and Forest Reserves in the Western Area to facilitate quick response and develop long-term conservation strategies.
- Concrete climate actions:
  - Sierra Leone Meteorological Agency conducted a Vulnerability Impact Assessment within 10 disaster prone communities to ascertain impact levels and identify safeguard measures.
  - Massive reforestation programme targeting planting and maintenance of five million trees on approximately 13,500 hectares of degraded lands and coastal areas from 2020 to 2023 to minimize climate impacts and support the Medium-Term National Development commitments.
  - In 2020, the Ministry, through Service Providers (NGOs and CBOs) and Communities, planted approximately [text ends].

*IMF staff summary of Sierra Leone authorities’ policies and plans as presented in the source content.*

### 1.2 million assorted tree crop seedlings in degraded community lands in all the

### 1.2 million assorted tree crop seedlings in degraded community lands in all the

### Reforestation targets and schedule
- Planting completed across sixteen (16) districts.
- The Ministry aims to plant another 1.6 million in 2022 and the remaining 2.2 million in 2023.

### Nationally Determined Contribution (NDC, 2021) — mitigation and adaptation priorities
- Climate change mitigation is particularly crucial for Sierra Leone given its ranking as one of the least able countries to adapt to climate change.
- The NDC proposes sector-based measures for both adaptation and mitigation (as project and policy actions) to address current and emerging vulnerabilities and contribute to reduction of Greenhouse Gas (GHG) emissions.
- Long-term mitigation goals envisioned by the NDC:
  - A reduction in CO2 emission levels by 10% by 2030 from about 74,655 Gg of CO2 in 2020.
  - A transformational shift toward a low-emission development pathway by:
    - Targeting priority sectors.
    - Implementing REDD+ (Reducing Emissions from Deforestation and Forest Degradation).
    - Promoting innovation and technology transfer for sustainable breakthroughs in energy, waste management, transport, agriculture, etc.
- Technology transfer through private sector partnerships expected outcomes:
  - Create new markets.
  - Provide jobs.
  - Support economic growth while reducing GHG emissions.
- Given the low electricity access rate of about 25%, investment in green energy generation infrastructure remains a top priority.

### Budget 2022 green recovery commitments
- Government committed in Budget 2022 to invest in low-cost renewable energy options:
  - hydro-power,
  - Liquefied Petroleum Gas,
  - solar mini-grids.
- Objective: reduce carbon emissions while stimulating economic activities.

### Programme monitoring: timing and form of reviews
- The program will be monitored on a semi-annual basis through quantitative targets and structural benchmarks.
- Quantitative targets for end-June 2022 and end-December 2022 are performance criteria.
- Quantitative targets for end-March 2022, end-September 2022, and end-March 2023 are indicative targets.
- Review schedule:
  - Sixth review: on or after December 1, 2022.
  - Seventh and final review: on or after June 1, 2023.

### Quantitative performance criteria and indicative targets (high-level highlights)
- Performance criteria proposed for June 30, 2022, and December 31, 2022 include:
  - Net domestic bank credit to the central government (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 (continuous annual 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 (continuous ceiling).
  - External payment arrears of the public sector (continuous ceiling).

### Selected numeric program values and exchange rate conventions
- Program exchange rate for 2022 and 2023: Le 11,255.72/US$1.
- Cross rates as of end-December 2021 (selected entries preserved):
  - US dollars: 1.40 currency units per SDR; Leones per currency unit 11,255.72; US dollars per currency unit 1.00.
  - British Pound Sterling: 1.04 currency units per SDR; Leones per currency unit 15,120.93; US dollars per currency unit 1.34.
  - Japanese Yen: 159.85 currency units per SDR; Leones per currency unit 98.55; US dollars per currency unit 0.01.
  - Euro: 1.24 currency units per SDR; Leones per currency unit 12,748.23; US dollars per currency unit 1.13.
  - SDR: 1.00 currency unit per SDR; Leones per currency unit 15,753.44; US dollars per currency unit 1.40.
  - Renminbi: 8.90 currency units per SDR; Leones per currency unit 1767.66; US dollars per currency unit 6.37.
- For calculating program targets for 2022 and 2023, all end-December 2021 stock variables will be based on the program exchange rate of Le 11,255.72/US$.

### Prior actions, corrective measures, and structural benchmarks (selected)
- Prior actions to address fiscal management and transparency include:
  - PDMD to prepare an agreed action plan based on previous TA reports and publish quarterly and annual budget execution reports.
  - Submit to Parliament a revised 2022 budget consistent with agreed fiscal consolidation path including specific measures (no further pre-April 2018 domestic arrears payments until a new arrears clearance plan is in place).
  - Reactivate the Expanded Cash and Debt Management Committee and submit a note with actions to improve its functioning.
  - Publish quarterly unaudited financial statements of NACOVERC up to March 2022 on the Ministry of Finance’s website.
  - Publish the second audit report on the COVID-19 response, covering July-December 2020, on ASSL’s website.
- Benchmarks and deadlines (selected):
  - Undertake a stock-take and prepare a report on existing income tax exemptions. Deadline: December 31, 2021. Status: Met.
  - Update and issue revised prudential guidelines for banks in line with the 2019 Banking Act. Deadline: December 31, 2021 (Not met); SB reset to September 2022.
  - Conduct a study on identifying and taxing High Net Worth Individuals (HNWI). Deadline: March 31, 2022. Status: Met.
  - Develop infrastructure project appraisal templates and guidelines. Deadline: March 31, 2022. Status: Met.
  - Publish BSL’s FY 2021 financial statements audited by a reputable audit firm. Original deadline: April 30, 2022 (Not met). Proposed reset: September 30, 2022.
  - Develop and publish an action plan on corporate governance frameworks for the two state-owned banks. Proposed deadline: September 30, 2022.
  - Develop a Medium-Term Revenue Strategy (MTRS) and submit a draft for Cabinet approval. Proposed deadlines: September 30, 2022 and December 31, 2022 (draft submission).
  - Move to daily calculation and publication of an exchange rate based on a one-day lag. Deadline: April 30, 2023 (Proposed).
  - Establish a high-level steering committee on the MTRS to meet quarterly. Deadline: March 31, 2023 (Proposed).

*Source: IMF — Sierra Leone program documents and Technical Memorandum of Understanding (selected excerpts).*

### 4. Indicative targets are proposed for September 30, 2022 and March 31, 2023 with

### 1sleea2022001 - 4. Indicative targets are proposed for September 30, 2022 and March 31, 2023 with

### Indicative targets and coverage
- Indicative targets proposed for:
  - September 30, 2022 and March 31, 2023 with respect to NCG, NDA and GIR.
  - June 30, 2022; September 30, 2022; December 31, 2022; and March 31, 2023 with respect to:
    - Total domestic government revenue (floor);
    - Domestic primary balance (floor);
    - Poverty related-expenditure (floor).

### Quantitative performance criteria — overview
- Performance criteria cover:
  - A. Net Domestic Bank Credit to the Central Government (NCG)
  - B. Net Domestic Assets of the BSL (NDA)
  - C. Gross International Reserves of the BSL (GIR)
  - D. Assumptions on External Budgetary Assistance
  - E. New Concessional External Debt with Original Maturity of One Year or More Contracted or Guaranteed by the Public Sector
  - F. New Non-Concessional External Debt Contracted or Guaranteed by the Public Sector
  - G. Outstanding Stock of Short-term External Debt with Maturities of Less Than One Year Contracted or Guaranteed by the Public Sector
  - H. External Payment Arrears of the Public Sector

### A. Net Domestic Bank Credit to the Central Government (NCG)
- Definition:
  - NCG = net banking system’s claims on the central government as calculated by the BSL.
  - Components:
    - Net position of the government with commercial banks: (a) treasury bills; (b) treasury bearer bonds; (c) loans and advances of commercial banks to the government; less government deposits in commercial banks.
    - Net position of the government with the BSL:
      - including: (a) treasury bills and bonds, excluding holdings of special bonds provided by government to cover BSL losses and/or to increase its capital, but including any bonds issued in the conversion/securitization of ways and means into debt (government’s overdraft at the central bank); (b) ways and means; and (c) any other type of direct credit from the BSL to the government, including the special lending arrangements relating to budget support;
      - less (a) central government deposits; and (b) any debt relief received, notably HIPC, MDRI and relief deposits, as well as debt relief under the CCR Trust.
- Adjustment clauses (changes in NCG ceiling will be adjusted):
  - Upward by the Leone value of the shortfall in external budgetary assistance — capped at the equivalent of US$50 million.
  - Downward (upward) by the increase (decline) in the value of the cumulative net flow of unpaid checks and other outstanding payments (‘crystalized obligations’) relative to end-December 2021.
  - Downward (upward) by the excess (shortfall) in Leone value of net issues of government securities to the non-bank private sector.
  - Upward (downward) by the increase (decrease) in the cumulative net flow of nontradeable securities issued to the non-bank sector for regularizing the stock of legacy arrears.
- Data source: series “Claims on Government (net)” reconciled with the monthly monetary survey prepared by the BSL.
- Central government definition: central government plus special accounts classified as central government in the BSL statement of accounts; excludes the National Social Security and Insurance Trust and state-owned enterprises.
- Note: stock of legacy arrears from September 2019 stocktaking totals Le 3.287 trillion; authorities have not yet issued any securities for clearing these arrears.

### B. Net Domestic Assets of the BSL (NDA)
- Definition:
  - NDA = end-period stock of reserve money less end-period stock of net foreign assets calculated at the program exchange rates.
  - Reserve money includes currency issued (currency outside banks plus cash in vaults), deposits of commercial banks with the BSL and BSL liabilities to other private sector entities.
  - Net foreign assets = gross foreign exchange reserves minus gross foreign liabilities (defined below).
- Gross foreign exchange reserves include:
  - BSL holdings of monetary gold (excluding amounts pledged as collateral);
  - holdings of Special Drawing Rights (SDRs), including the August 28, 2009 General allocation, the September 9, 2009 Special allocation, the August 23, 2021 SDR allocation, and any future allocation of SDRs by the IMF to its membership;
  - BSL holdings of convertible currencies in cash or in nonresident financial institutions (deposits, securities, or other financial instruments).
- Exclusions from gross reserves:
  - pledged or encumbered reserve assets; deposits with Crown Agents and other correspondent banks rated below BBB; precious metals other than gold; assets in nonconvertible currencies and illiquid foreign assets.
- Gross foreign exchange liabilities include:
  - total outstanding liabilities of the BSL to the IMF excluding those arising from the August 28, 2009 SDR general allocation, the September 9, 2009 SDR special allocation, the August 23, 2021 SDR allocation, and any future allocation of SDRs by the IMF to its membership; and debt relief from the Catastrophe Containment and Relief (CCR) Trust granted in 2015;
  - convertible currency liabilities of the BSL to nonresidents with an original maturity of up to and including one year; excluding foreign liability to China of US$8.4 million relating to a legacy clearing account for a previous Bilateral Trade Agreement;
  - commitments to sell foreign exchange arising from derivatives, including 2017–18 foreign exchange swap arrangements with commercial banks;
  - balance on zero coupon bonds issued by the BSL to Securiport LLC on behalf of the government.
- Adjustment clauses:
  - NDA ceiling adjusted upward (downward) by the Leone value of the shortfall (excess) in external budgetary assistance — upward adjustment capped at equivalent of US$50 million — and by exchange rate depreciation (appreciation).

### C. Gross International Reserves of the BSL (GIR)
- Definition:
  - GIR calculated as reserve assets of the BSL per IMF’s Balance of Payments Manual (5th ed.) and Fund’s Guidelines for a Data Template; GIR excludes foreign exchange swap arrangements with commercial banks.
- Adjustment clauses for GIR floor:
  - Downward (upward) by U.S. dollars equivalent cumulative shortfall (excess) in programmed external budgetary assistance.
  - Downward (upward) for any cumulative shortfall (excess) in the U.S. dollar value of disbursements from the IMF under the ECF arrangement.
  - Upward (downward) for any increase (decrease) in BSL short-term (one year or less in original maturity) foreign currency-denominated liabilities (to residents and nonresidents).
  - Downward adjustment by a cumulative maximum of US$12 million if the BSL implements plan to sell FX through SALPOST on a pilot basis.

### D. Assumptions on External Budgetary Assistance
- Programmed external budgetary assistance for NCG, NDA, and GIR calculations from January 1, 2022 to:
  - End-June 2022 US$ 0.0 million
  - End-September 2022 US$ 0.0 million
  - End-December 2022 US$ 100.0 million
- Programmed external budgetary assistance from January 1, 2023 to:
  - End-March 2023 US$ 0.0 million

### E. New Concessional External Debt (original maturity ≥ 1 year) contracted/guaranteed by public sector
- Definition and treatment:
  - New external debt = all forms of new external debt with original maturity of one year or more contracted or guaranteed by the public sector based on creditor residency; includes commitments contracted or guaranteed for which value has not been received.
  - Excludes disbursements from the IMF and debts subject to rescheduling.
  - For program purposes debt is deemed contracted when signed by the government and ratified by Parliament.
  - Ceiling applied on a continuous basis, evaluated as cumulative changes within each calendar year.
- Concessionality criterion:
  - A debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element = (nominal value – NPV) / nominal value, where NPV is calculated by discounting the future stream of payments using a discount rate of 5 percent.

### F. New Non-Concessional External Debt contracted/guaranteed by the public sector
- Definition:
  - Non-concessional external debt = external debt on terms that do not meet the concessionality definition in paragraph 17.
  - External debt and its concessionality reported by the Debt Management Division of the Ministry of Finance and measured in U.S. dollars at current exchange rates.
  - This PC applies on a continuous basis.
- Variable-rate loans:
  - PV of loans with variable rates (benchmark + fixed spread) is calculated using program reference rate plus fixed spread.
  - Program reference rate for the six-month USD SOFR is 0.42 percent and will remain fixed for the remainder of the program.
  - Spreads:
    - six-month Euro ESTR over six-month USD SOFR = 50 basis points;
    - six-month JPY TONAR over six-month USD SOFR = 50 basis points;
    - six-month GBP SONIA over six-month USD SOFR = zero basis points;
    - for currencies other than Euro, JPY, and GBP, spread over six-month USD SOFR = 50 basis points.
  - If variable rate linked to a benchmark other than six-month USD SOFR, add a spread reflecting difference between the benchmark and six-month USD SOFR (rounded to nearest 50 basis points).

### G. Outstanding Stock of Short-term External Debt (< 1 year) contracted/guaranteed by public sector
- Definition:
  - External short-term debt = external debt stock with maturity of less than one year contracted or guaranteed by the public sector.
  - Excludes normal trade credit for imports.
  - Applies on a continuous basis.
  - Debt defined in Annex I of the TMU.

### H. External Payment Arrears of the Public Sector
- Definition:
  - External payment arrears include all debt-service obligations (interest and principal) arising from loans contracted or guaranteed by the public sector.
  - Public sector for this PC: central government, regional government, state-owned enterprises (as listed in Annex 9 of the 2022 budget documents), and the BSL.
  - Non-accumulation of external arrears is a continuous performance criterion.
  - External arrears are obligations not paid on due dates (accounting for contractual grace periods, if any).
  - Exclusions from this PC: (i) external arrears accumulated before approval of this ECF arrangement; (ii) debts subject to rescheduling or restructuring or under litigation.

### Quantitative indicative targets — definitions
- I. Domestic Revenue of Central Government
  - Floor on total domestic central government revenue = total central government revenue as presented in the central government financial operations table, excluding external grants.
- J. Domestic Primary Balance
  - Definition: Central Government Revenue less expenditures and net lending adjusted for interest payments; foreign financed capital, elections and energy spending; and cash paydown of arrears.
  - Arrears refers to stock of legacy (pre-April 2018) arrears determined for the authorities’ arrears clearance strategy.
- K. Poverty Related Expenditure
  - Definition: For monitoring, poverty-related expenditures = total non-salary, non-interest current expenditures of specified ministries and institutions (list provided in the text), and capital expenditure for selected ministries/institutions (list provided in the text).

### Program monitoring and reporting
- Program-monitoring committee:
  - Composed of senior officials from the MoF, the BSL, and other relevant agencies.
  - Responsibilities: monitor performance under the program, recommend policy responses, inform the IMF regularly on progress, transmit supporting materials for evaluation of PCs and benchmarks.
  - Committee to provide monthly reports to the IMF on progress in implementing quantitative targets and structural benchmarks.
- Data reporting summary (Attachment A) — selected reporting frequencies and deadlines (exact table entries preserved):
  - Real sector:
    - National accounts. Annual. End of year + 9 months.
    - GDP deflators by sectors. Annual. End of year + 9 months.
    - Mining production and exports. 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 changes in stocks of arrears, stock of the float, treasury bills, and bonds. Monthly. End of month + 6 weeks.
    - Government flow-of-funds table (Government Financial Operations Table). Monthly. End of month + 6 weeks.
    - Structure of petroleum product prices by categories of petroleum products. Monthly. End of month + 6 weeks.
    - Import duty and GST exemptions by end-users estimates of corresponding revenue losses. Quarterly. End of quarter + 6 weeks.
  - Monetary and financial data:
    - 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.
  - External sector data:
    - Gross official foreign reserves. Weekly. End of week + 1 week.
    - Foreign exchange cash flow table. Monthly. End of month + 3 weeks.
    - Balance of payments data. Annual. (Updated data when revisions occur.)
    - Exports and imports of goods (including volume of key minerals and fuels). Monthly. End of month + 3 months.
  - Public finance external reporting:
    - Outstanding external arrears and repayments (if applicable). Monthly. End of month + 4 weeks; occurrence of new external arrears should be immediately reported to IMF staff.
    - Details of all new external borrowing and guarantees provided by government on new borrowing, including associated concessionality calculation (percentage) for each new loan. Monthly. End of month + 4 weeks; contracting or guaranteeing of external debt should be immediately reported to IMF staff.
    - 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 quarter + 3 weeks.

### Debt policy and framing in Annex I and staff report summary
- Annex I restates the term “debt” per Guidelines on Public Debt Conditionality (June 30, 2015) emphasizing loans, suppliers’ credits, leases, arrears, penalties, and judicially awarded damages as debt where they constitute current contractual liabilities.
- Staff report key points:
  - Risk of external debt distress: High.
  - Overall risk of debt distress: High.
  - Granularity in the risk rating: Sustainable.
  - Composite Indicator score: 2.75 based on the April 2022 WEO and World Bank’s 2020 CPIA indicates a medium debt-carrying capacity (upgraded from weak).
  - Assessment highlights:
    - Sierra Leone’s risk of external and overall debt distress remains high, but debt is sustainable.
    - Fiscal slippages and external factors have increased risks around the baseline; a larger and more frontloaded fiscal adjustment is required.
    - One external debt burden indicator and the PV of public debt-to-GDP ratio exhibit sustained breaches of sustainability thresholds.
    - Heavy reliance on short-term domestic financing (T-Bills) creates potential rollover risks; elevated debt service ratios and gross financing needs persist over medium- and long-term.
    - Domestic rollover risks are mitigated by limited alternative investment options for domestic banks and authorities’ commitment to limit future domestic borrowing.
    - Critical recommendation: lengthening maturity structure of domestic debt via active liability management operations.
    - Debt sustainability contingent on authorities’ ambitious fiscal adjustment, continued reliance on concessional financing and grants, and moderately high growth rates.
    - Maintaining debt sustainability requires: sustained fiscal adjustment, strengthened public financial management, effective expenditure prioritization, and redoubled structural and revenue mobilization reforms.
- Notable numeric and specific references in the text:
  - Cap on upward adjustment for shortfall in external budgetary assistance: equivalent of US$50 million.
  - Program reference rate for six-month USD SOFR: 0.42 percent.
  - Excluded BSL foreign liability to China of US$8.4 million (legacy clearing account).
  - Cumulative maximum downward adjustment for SALPOST FX sales pilot: US$12 million.
  - Debt relief grant recorded: SDR 11.5545 million under the CCRT fifth tranche in December 2021.
  - Stock of legacy arrears total: Le 3.287 trillion.

*Source: 1sleea2022001 - 4. Indicative targets are proposed for September 30, 2022 and March 31, 2023 with.*

### 1.      The DSA covers known sources of public debt (Text Table 1). As in earlier DSAs, the debt

### The DSA covers known sources of public debt (Text Table 1)

### Coverage of public debt under the baseline scenario
- Debt stock includes central government public and publicly-guaranteed debts, and the latest estimate of the consolidated stock of domestic payment arrears.
- Authorities are working, with development partners, to improve financial and debt management systems and the accounting and timely reporting of public debt, including those of state-owned enterprises (SOEs) and self-accounting-bodies.
- Sub-sectors covered (selected as reported):
  - Central government: X
  - Social security fund: X
  - Guarantees (to other entities in the public and private sector, including to SOEs): X
  - Central bank (borrowed on behalf of the government): X
  - Non-guaranteed SOE debt: listed

### Contingent liabilities’ stress test coverage and assumptions
- Contingent liability for SOE debt:
  - Default setting: 2 percent of GDP
  - Used in analysis: 7.0 (percent of GDP)
  - Rationale: Reflects the authorities’ estimate of total indebtedness of SOEs and self-accounting bodies not captured in the baseline.
- Contingent liabilities from financial markets:
  - Default/minimum value: 5 percent of GDP
  - Used in analysis: 5.0 (percent of GDP)
  - Rationale: Represents the average fiscal cost of a financial crisis in LICs since 1980.
- Other elements of general government not captured in baseline:
  - Default: 0 percent of GDP
  - Used in analysis: 0.0 (percent of GDP)
- PPPs:
  - Default: 35 percent of PPP stock
  - Used in analysis: 0.0
- Total contingent liabilities (2+3+4+5) used in analysis: 12.0 (percent of GDP)

### Recent public debt developments and composition (end-2021)
- Total public debt at end-2021: around 76.8 percent of GDP (slightly increased from end-2020).
- Public and publicly guaranteed (PPG) external debt at end-2021: around 50 percent of GDP (almost same as end-2020); expected to increase in 2022.
- Composition of PPG external debt at end-2021:
  - About 79 percent comprised non-restructurable obligations to multilateral creditors.
  - IMF: US$541 million (about 27 percent of total PPG external debt).
  - World Bank: US$464 million (about 23 percent).
  - African Development Fund: around 8 percent or US$165 million.
  - Islamic Development Bank: around 6 percent or US$128 million.
  - EEC/EIB: around 4 percent or US$78 million.
  - Official bilateral creditors: around 13 percent of total PPG external debt; Kuwait Fund: around 3 percent or US$62 million.
  - Pre-HIPC arrears to external commercial creditors: about 8 percent of PPG external debt or around US$168 million at end-2021.
- Domestic public debt:
  - Increased from 26.6 percent of GDP at end-2020 to 27.6 percent at end-2021.
  - Around 59 percent of domestic debt owed to commercial banks, mainly in the form of 364-day T-Bills.
  - Pre-April 2018 legacy arrears reduced from about 9.8 percent of GDP in 2019 to about 5.6 percent of GDP in 2021 (largely at face value).

### SDR retrocession and fiscal space (2022–2023)
- Total SDR assets and liabilities: 6.6 percent of GDP.
- Assumed transfers to the government (retrocession transaction) counted in DSA:
  - 2022: 1.6 percent of GDP
  - 2023: 0.3 percent of GDP
- Operation: SDR assets transferred to government, sold back to central bank to convert into local currency for financing priority expenditures; resulting SDR liabilities counted as additional long-term highly concessional external debt in the DSA.
- DSA assumptions for retrocession calculation include a maturity of 100 years and payment of USD-equivalent of the SDR interest rate on the government SDR liabilities net of SDR assets.

### Key macroeconomic and fiscal assumptions under the baseline
- Growth:
  - Real GDP growth: estimated 3.2 percent in 2021; projected 3.6 percent in 2022 (downgraded from 5.9 percent in previous DSA).
  - Medium-term convergence: around 4½ percent (historical average) over the medium term.
  - Vaccine coverage: around 17¼ percent of the population have received two vaccination doses as of mid-May.
- Inflation:
  - GDP deflator inflation: 11.1 percent in 2021; 15.8 percent in 2022.
  - Consumer price inflation: averaged 11.9 percent in 2021 and projected to average 21.7 percent in 2022.
  - Projection: GDP deflator inflation declines gradually after 2022 and reaches single digits by 2027.
- Fiscal:
  - Overall fiscal deficit widened by about 3.5 percentage points higher than the target of 3.8 percent of non-iron ore GDP in 2021.
  - Under the baseline, domestic primary balance shifts into surplus in 2023 and to 1.7 percent of non-iron ore GDP by 2024.
  - Risks: energy subsidies, wages, goods and services, social transfers, pre-election spending.
- External:
  - Current account deficit projected to remain high in 2022 due to Russia-Ukraine war and fuel price increases; partly offset by strong exports from commodity (iron ore) price increase.
  - Gradual improvement toward medium-term supported by mining production.
- IDA financing assumptions:
  - IDA financing assumed to be all grants until 2027, and 100 percent regular IDA credits after 2028.
  - Revision implies widened fiscal deficits and increased external debt after 2028; PV of external debt to GDP ratio increases by more than 10 percent in the long run.
  - Higher IDA credit financing implies need for a relatively steep medium-term fiscal adjustment compared to previous DSA.
- Other financing and assumptions:
  - Reflects two RCF disbursements: June 2020 (SDR 103.7 million or 50 percent of quota) and March 2021 (SDR 35.3 million or 17 percent of quota).
  - Reflects SDR allocation in August 2021, debt relief under the CCRT, and debt deferment under the DSSI.
  - Assumes projected external financing gap during 2026-27 will be covered by concessional financing with overall grant element of 35.5 percent.
  - T-Bills issued in the past are now included in calculation of GFN and the debt service to revenue ratio.

### Arrears clearance and legacy arrears
- Authorities paid Le. 457 billion of pre-April 2018 legacy arrears over 2020-21 without large discounts (overall NPV reduction on total stock of 35-40 percent envisaged under the approved arrears clearance strategy).
- Reasons for rejection of haircuts by vendors included lack of resources for upfront payment of discounted amounts and strategic importance of some creditors.
- Authorities plan to update the arrears clearance strategy with IMF FAD TA; temporary halt in clearance of legacy arrears agreed for 2022 until a new strategy is in place.
- Assumption: term to fully pay arrears after NPV reductions extended by a year to 2028, assuming a new plan effective from 2023.
- Overall NPV reduction on total stock maintained at about 35-40 percent.

### Realism tool assessment and fiscal adjustment needs
- Realism tools indicate optimism relative to historical trend; a bigger and more frontloaded fiscal adjustment is needed to achieve program objectives.
- Domestic revenue projected to increase from about 13.8 percent of GDP in 2020 to about 16.0 percent in 2025 (lower relative to previous DSA due to lower than anticipated efficiency yields from the automation program).
- Reforms to support revenue mobilization include adoption of a new duty waiver policy.
- Expenditure control and greater spending efficiencies will be essential for fiscally sustainable adjustment.
- Under IMF ECF-supported program and World Bank SDFP, authorities committed to a concessional debt ceiling and a zero non-concessional borrowing policy and to continue seeking additional budget support grants.

### Country classification, thresholds, and debt-carrying capacity
- Composite Indicator (CI) score: 2.76 based on latest data including April 2022 WEO and World Bank CPIA.
- Debt-carrying capacity assessment: upgraded to medium (from weak in previous DSA).
- Upgrade driven by improved reserves coverage (SDR allocation in August 2021) and increased remittances.
- Applicable thresholds for debt indicators (medium capacity):
  - PV of PPG external debt in percent of GDP: 40%
  - PV of PPG external debt in percent of exports: 180%
  - PPG external debt service in percent of exports: 15%
  - PPG external debt service in percent of revenue: 18%
  - PV of total public debt in percent of GDP: 55%

### External and public debt sustainability assessment
- Overall assessment: Sierra Leone is at high risk of external debt distress, and PPG external debt is assessed to be sustainable under the program.
- Baseline projections:
  - PV of PPG external debt-to-GDP ratio and PV of PPG external debt-to-exports ratio projected to stay below thresholds and decline over the medium term.
  - Projected decline reflects repayment of past ECF disbursements and projected improvements in GDP and exports.
- Debt service and liquidity:
  - PPG external debt service-to-revenue ratio rises over the medium term, indicating a tight liquidity situation, before declining in the medium- to long-term; however it remains significantly above its threshold of 18 percent for the next ten years.
  - PPG external debt service-to-exports ratio stays slightly below the threshold of 15 percent over the medium term.
- Stress tests:
  - External debt indicators are most sensitive to exports.
  - Under stress scenarios, all external debt indicators remain above thresholds over the medium term.
- Conclusion:
  - Since one external debt indicator breaches its threshold under the baseline, the country is assessed to be at high risk of external debt distress.
  - Despite the high risk rating, PPG external debt is assessed to be sustainable given strong fiscal adjustment, continued reliance on concessional financing and grants, and moderately high growth rates under the ECF-supported program.

*IMF staff report content (excerpts) from the Sierra Leone DSA chapter.*

### 12.      Sierra Leone is assessed to be at high overall risk of public debt distress, but public

### 12.      Sierra Leone is assessed to be at high overall risk of public debt distress, but public

### Debt sustainability assessment — main findings
- Sierra Leone is assessed to be at high overall risk of public debt distress, but public debt is assessed to be sustainable under the policy settings in the ECF-supported program.
- The assessment is predicated on:
  - strong fiscal adjustment;
  - continued reliance on concessional financing and grants; and
  - moderately high growth rates.
- Under the baseline scenario, the PV of public debt-to-GDP ratio gradually declines to the threshold of 55 percent by 2025.
- The public debt service-to-revenue ratio is projected to rise over the medium term, indicating a tight liquidity situation; the rising debt service is expected to be financed with external grants and concessional loans and government revenues.
- Stress tests indicate public debt indicators are most sensitive to shocks to commodity price.
- Despite some indicators exceeding thresholds under the baseline, the downward trend in debt indicators under the ECF policy settings supports the assessment of sustainability.

### Key vulnerabilities and risks
- Increasing public debt service-to-revenue ratio over the medium term points to high liquidity-related vulnerabilities.
- Setbacks in fiscal adjustment increase risks around the baseline and require a bigger and more frontloaded fiscal adjustment to meet program objectives.
- Downside risks to the baseline include the Russia-Ukraine war and emergence of new COVID-19 variants, which could:
  - increase fuel, food and fertilizer prices;
  - exacerbate the burden on the population;
  - deteriorate budget and external balances;
  - increase costs for businesses;
  - prolong fuel subsidies;
  - provoke social discontent; and
  - put debt sustainability at risk.
- Market characteristics: commercial banks’ business model relies heavily on T-Bills, no secondary market exists, and foreign participation is absent — these features make rollover risk concentrated in the banking sector.
- A structural break in 2027-2028 is noted in the debt service to revenue and grants ratio and gross financing needs because the World Bank financing assumption changes from all grants to all loans at that time.

### Financing dynamics and numerical highlights
- T-Bills amortization (the need to rollover T-Bills issued in the previous year) accounts for around 70 percent of gross financing needs and the debt service-to-revenue ratio.
- Gross financing needs are driven substantially by short-term rollover requirements; reducing residual rollover risks requires containing inflation and extending issuance maturities.
- The authorities have a zero ceiling on non-concessional external debt under the ECF-supported program and WB SDFP and performance actions (PPAs).

### Policy implications and recommendations
- Fiscal policy:
  - sustain and implement significant fiscal adjustment;
  - prioritize effective expenditure prioritization and strengthened public financial management to protect critical social and health spending while reducing deficits.
- Financing strategy:
  - continue reliance on highly concessional external financing and ideally grants, including from IFIs which account for a large share of Sierra Leone’s PPG external debt;
  - limit recourse to expensive domestic debt.
- Debt management and market development:
  - develop a deeper domestic debt market to mitigate rollover risks;
  - implement plans for issuance of medium- to long-term papers to extend the yield curve and reduce rollover concentration in short-term T-Bills;
  - draw on recent IMF technical assistance on debt recording and joint World Bank/IMF technical assistance on a medium-term debt strategy.
- Contingency planning:
  - prepare for adverse commodity price and export shocks given stress test sensitivities;
  - guard against potential fiscal pressures related to upcoming elections.

*IMF staff assessment as presented in the DSA section of the Sierra Leone country report.*

### 18.      The authorities agreed with the conclusions of the DSA. They concurred with the

### 18. The authorities agreed with the conclusions of the DSA.

### Authorities' commitments and policy actions
- Agreed with the conclusions of the DSA.
- Committed to ensuring sustained fiscal adjustment.
- Highlighted ongoing reforms to:
  - strengthen revenue administration,
  - improve public expenditure management,
  - further enhance debt management.
- Financing stance:
  - Continue to prioritize grants.
  - Seek only highly concessional financing.
  - Ratify only loans within the agreed annual ceiling under the ECF-supported program to safeguard debt sustainability.
- Domestic debt strategy:
  - Recognized high rollover risks of T-Bills.
  - Will make efforts to issue medium-to-long-term bonds to reduce rollover risks and support development of the domestic debt market.
- Arrears strategy:
  - Reiterated commitment to clear domestic arrears.
  - Working to address challenges of obtaining NPV discounts through an updated arrears clearance strategy.

### Debt sustainability indicators and stress scenarios (selected observations)
- Figures present indicators of Public and Publicly Guaranteed External Debt and Public Debt under alternative scenarios, 2022–32, including:
  - Debt service-to-revenue ratio (charted 2022–2032).
  - PV of debt-to-exports ratio (charted 2022–2032).
  - PV of debt-to-GDP ratio (charted 2022–2032).
  - Debt service-to-exports ratio (charted 2022–2032).
- Stress-test rules:
  - "The most extreme stress test is the test that yields the highest ratio in or before 2032."
  - Commodity price shock magnitudes are based on the commodity prices outlook prepared by the IMF research department.
- Note: The public DSA allows for domestic financing to cover additional financing needs generated by shocks under the stress tests.

### Drivers of debt dynamics (selected elements)
- Charts and decomposition include drivers such as:
  - Real GDP growth,
  - Nominal interest rate,
  - Price and exchange rate changes,
  - Current account plus FDI,
  - Other debt-creating flows,
  - Residuals/unexpected changes in debt.
- Distributional comparisons provided across LICs for which LIC DSAs were produced (interquartile ranges and medians).

### Key projections and numerical highlights (from External and Public Debt Sustainability Frameworks)
- External debt (nominal) and PPG external debt:
  - External debt (nominal) 2021: 49.2 (percent of GDP).
  - External debt (nominal) 2022: 55.7; 2023: 55.9; 2024: 53.9; 2025: 50.7; 2026: 48.0; 2027: 45.6; 2032: 39.9; 2042: 37.0.
  - PV of PPG external debt-to-GDP ratio: 2021: 32.8; 2022: 34.4; 2023: 35.5; 2024: 35.3; 2025: 34.1; 2026: 32.9; 2027: 31.7; 2032: 26.2; 2042: 24.1.
  - PV of PPG external debt-to-exports ratio: 2021: 155.5; 2022: 124.4; 2023: 117.3; 2024: 112.0; 2025: 100.6; 2026: 96.2; 2027: 94.6; 2032: 76.0; 2042: 70.7.
  - PPG debt service-to-exports ratio: 2021: 12.0; 2022: 12.0; 2023: 11.4; 2024: 11.4; 2025: 11.0; 2026: 10.9; 2027: 10.3; 2032: 6.7; 2042: 5.4.
  - PPG debt service-to-revenue ratio: 2021: 16.0; 2022: 22.7; 2023: 23.9; 2024: 24.2; 2025: 24.7; 2026: 24.3; 2027: 22.2; 2032: 13.5; 2042: 9.9.
- Gross external financing need (Million of U.S. dollars): 2021: 325.7; 2022: 553.0; 2023: 333.3; 2024: 273.7; 2025: 250.8; 2026: 224.3; 2027: 230.9; 2032: 241.0; 2042: -372.8.
- Key macro assumptions:
  - Real GDP growth (in percent): 2021: 3.2; 2022: 3.6; 2023: 3.4; 2024: 5.0; 2025: 5.1; 2026: 4.4; 2027: 4.3; 2032: 4.5; 2042: 4.5.
  - GDP deflator in US dollar terms (change in percent): 2021: 2.2; 2022: -5.3; 2023: -5.9; 2024: -4.9; 2025: -2.6; 2026: -0.6; 2027: 0.5; 2032: 1.5; 2042: 1.0.
  - Effective interest rate (percent): 2021: 0.6; 2022: 0.6; 2023: 0.6; 2024: 0.7; 2025: 0.8; 2026: 0.9; 2027: 1.0; 2032: 1.1; 2042: 0.9.
  - Growth of exports of G&S (US dollar terms, in percent): 2021: 28.7; 2022: 28.6; 2023: 6.4; 2024: 4.2; 2025: 10.0; 2026: 4.8; 2027: 2.7; 2032: 6.7; 2042: 6.5.
  - Growth of imports of G&S (US dollar terms, in percent): 2021: 35.7; 2022: 10.5; 2023: -3.3; 2024: -0.4; 2025: 2.3; 2026: 3.0; 2027: 2.9; 2032: 6.0.
  - Grant element of new public sector borrowing (in percent): 2022: 42.4; 2023: 36.2; 2024: 33.7; 2025: 33.7; 2026: 34.2; 2027: 34.2; 2032: 44.8; 2042: 40.1.
  - Government revenues (excluding grants, in percent of GDP): 2021: 15.8; 2022: 14.6; 2023: 14.4; 2024: 14.8; 2025: 15.1; 2026: 15.4; 2027: 15.5; 2032: 17.1; 2042: 18.8.
  - Aid flows (in Million of US dollars) 2021: 191.1; 2022: 234.6; 2023: 177.5; 2024: 200.9; 2025: 175.7; 2026: 190.5; 2027: 196.4; 2032: 164.8; 2042: 190.2.
  - Grant-equivalent financing (in percent of GDP): 2022: 7.5; 2023: 5.4; 2024: 5.7; 2025: 5.0; 2026: 4.6; 2027: 4.6; 2032: 2.3; 2042: 2.0.
  - Grant-equivalent financing (in percent of external financing): 2022: 74.3; 2023: 75.0; 2024: 78.0; 2025: 76.0; 2026: 67.8; 2027: 67.7; 2032: 53.1; 2042: 48.7.
  - Nominal GDP (Million of US dollars): 2021: 4,280; 2022: 4,200; 2023: 4,084; 2024: 4,082; 2025: 4,177; 2026: 4,334; 2027: 4,543; 2032: 6,063; 2042: 10,936.
  - Nominal dollar GDP growth: 2021: 5.5; 2022: -1.9; 2023: -2.7; 2024: -0.1; 2025: 2.3; 2026: 3.8; 2027: 4.8; 2032: 6.1; 2042: 5.6.
- Public sector debt (percent of GDP):
  - Public sector debt 2021: 76.8; 2022: 77.7; 2023: 77.2; 2024: 74.0; 2025: 70.1; 2026: 66.4; 2027: 63.0; 2032: 56.9; 2042: 46.2.
  - PV of public debt-to-GDP ratio: 2021: 62.1; 2022: 61.0; 2023: 60.8; 2024: 58.5; 2025: 55.7; 2026: 52.9; 2027: 50.3; 2032: 43.8; 2042: 33.4.
  - Debt service-to-revenue and grants ratio: 2021: 80.2; 2022: 89.5; 2023: 92.6; 2024: 93.8; 2025: 97.4; 2026: 101.5; 2027: 97.7; 2032: 76.9; 2042: 40.1.
  - Gross financing need: 2021: 20.6; 2022: 19.2; 2023: 17.5; 2024: 17.5; 2025: 17.8; 2026: 18.3; 2027: 18.3; 2032: 14.5; 2042: 8.9.
- Public sector assumptions:
  - Real GDP growth (in percent) same as external DSA assumptions (see above).
  - Average nominal interest rate on external debt (in percent): 2021: 0.7; 2022: 0.7; 2023: 0.7; 2024: 0.8; 2025: 0.9; 2026: 1.0; 2027: 1.1; 2032: 1.1; 2042: 1.0.
  - Average real interest rate on domestic debt (in percent): 2021: -0.4; 2022: -4.1; 2023: 1.2; 2024: 3.0; 2025: 3.6; 2026: 3.5; 2027: 3.7; 2032: 2.0; 2042: 2.1.
  - Inflation rate (GDP deflator, in percent): 2021: 11.1; 2022: 15.8; 2023: 17.9; 2024: 15.9; 2025: 13.4; 2026: 11.2; 2027: 8.9; 2032: 6.6; 2042: 6.1.
  - Primary deficit that stabilizes the debt-to-GDP ratio (percent): 2021: 3.8; 2022: 0.2; 2023: 0.6; 2024: 2.2; 2025: 2.9; 2026: 2.9; 2027: 3.1; 2032: 2.3; 2042: 1.8.

### Sensitivity analyses (selected outcomes)
- External debt (PV of PPG external debt-to-GDP ratio) baseline and alternative tests, 2022–2032:
  - Baseline: 2022: 34.4; 2023: 35.5; 2024: 35.3; 2025: 34.1; 2026: 32.9; 2027: 31.7; 2028: 30.2; 2029: 28.5; 2030: 27.3; 2031: 26.8; 2032: 26.2.
  - Example bound tests (B1–B6) and tailored tests (C1–C4) reported; bold values indicate breaches of thresholds where applicable.
- Public debt sensitivity (PV of public debt-to-GDP ratio and other indicators) reported for scenarios including key variables at historical averages, real GDP growth shocks, primary balance shocks, export shocks, one-time 30 percent nominal depreciation, combinations, and commodity price shocks.

### Staff report excerpts and institutional relations (selected facts)
- Document: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA, MODIFICATIONS OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—INFORMATIONAL ANNEX.
- Dates listed: June 10, 2022; June 13, 2022.
- Relations with the Fund (as of April 30, 2022):
  - Quota: 207.40 SDR Million.
  - Net cumulative allocation SDR: 298.29.
  - Outstanding Purchases and Loans: RCF Loans 138.96 (SDR Million) 67.00 (percent of quota); ECF Arrangements 247.01 (SDR Million) 119.10 (percent of quota).
  - Latest financial arrangements include ECF and other facilities with amounts and dates detailed in the annex.
- Implementation highlights:
  - HIPC Initiative decision point date March 2002; completion point date December 2006.
  - Assistance committed by all creditors (NPV terms) under HIPC: US$ 675.20 million; IMF assistance US$ 125.21 million (SDR equivalent 100.00).
  - MDRI-eligible debt (SDR Million): 117.34.
  - Catastrophe Containment and Relief (CCR) disbursements: multiple dates and SDR amounts listed (e.g., Mar 02, 2015: 20.74; Apr 13, 2020: 13.36; Oct 02, 2020: 12.22; Apr 01, 2021: 15.11; Oct 06, 2021: 6.00; Dec 15, 2021: 11.55).
- Safeguards at the Bank of Sierra Leone (BSL):
  - 2017 safeguards assessment found deterioration and need for mitigation.
  - Remedial action plan implemented with delays; most recommendations implemented except one outstanding.
- Exchange rate arrangement:
  - De jure: accepted obligations of Article VIII (since December 14, 1995); classified as floating.
  - De facto arrangement reclassified as "other managed".
  - As of end-December 2021, BSL mid-rate: Le 11,255.72 = US$1 (new Program exchange rate).

*Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1sleea2022001.pdf*

### Section 3 of the IMF’s Articles of Agreement, due to (i) the use of the BSL Rate, which is not

### 1sleea2022001 - Section 3 of the IMF’s Articles of Agreement, due to (i) the use of the BSL Rate, which is not

### Exchange restrictions and compliance with Articles of Agreement
- Use of the BSL Rate:
  - The BSL Rate is not considered a prevailing market rate because it is calculated weekly and computed based on transactions over the previous five business days.
  - The BSL Rate has exceeded the prevailing market rate by more than 2 percent at certain points in time.
- Use of an exchange rate for transactions under certain facilities:
  - This rate is not considered a prevailing market exchange rate because it is calculated based on commercial banks’ weighted average exchange rates on the previous day.
  - There is no mechanism to ensure the spread between this rate and the prevailing market rate at the time of transactions does not exceed 2 percent.
- Consequence:
  - Sierra Leone maintains an exchange restriction, subject to IMF approval under Article VIII, Section 2(a) of the IMF’s Articles of Agreement, arising from prioritization of foreign exchange through various BSL facilities that limits availability of foreign exchange for payments of current international transactions when there is a shortage of FX in the market.

### Article IV Consultation, Technical Assistance, and Resident Representative
- Article IV Consultation:
  - The Executive Board concluded the last Article IV consultation on April 3, 2020.
- Technical Assistance:
  - Referenced: See Staff Report, Annex VIII.
- Resident Representative:
  - Ms. Monique Newiak assumed responsibility for the Fund office in Freetown on September 3, 2019.

### Relations with other international financial institutions
- World Bank Group:
  - https://www.worldbank.org/en/country/sierraleone
- African Development Bank:
  - https://www.afdb.org/en/countries/west-africa/sierra-leone

### Statistical issues — Assessment of data adequacy for surveillance (As of May 18, 2022)
- General:
  - Data provision is broadly adequate for surveillance, with some key data shortcomings in most sector statistics.
  - Major and sustained improvements require greater interagency coordination, restructuring institutional framework, and continued well-coordinated capacity building support from development partners.
- National Accounts:
  - Stats SL produces and disseminates GDP estimates by activity in current price and constant prices of 2006, according to the 1993 SNA.
  - With STA assistance, annual GDP estimates have been improved (construction, informal sector, government services, agricultural production, household final consumption, constant price GDP).
  - A rebasing project launched in 2019 with 2018 as the base year (technical assistance from AFRITAC West II). Planned release of rebased accounts is now scheduled for December 2022 due to delays from COVID-19 and competing priorities.
  - Remaining issues: better data sources for agricultural and mineral production; continued improvement of informal sector measurement.
  - Constraints: shortages of resources and staff at SSL.
- Price Statistics:
  - Prior to March 2017 SSL compiled two measures of inflation (national CPI and Freetown index), causing confusion and inconsistent aggregation from regional sub-indices; missing price data imputed per CPI Manual 2004.
  - In March 2017 SLL recompiled and published the national CPI with STA assistance.
  - Sierra Leone suspended publishing the CPI in March 2019 to correct treatment of several items (abolition of public secondary school fees, revisions of midwifery services, mobile phone charges); publication resumed in October 2019.
  - An updated CPI was launched in March 2022 with a revised CPI basket using the 2018 Integrated Household Survey; effort supported by STA technical assistance.
  - The authorities have not released the producer price index (PPI) in recent years.
- Government Finance Statistics (GFS):
  - Sierra Leone reports annual GFS to STA with institutional coverage of budgetary central government; reporting suspended since 2019 data.
  - Improvements recommended: expand coverage to general government (including social security funds, local governments, autonomous agencies) and implement GFS Manual 2014 framework.
  - Sierra Leone does not compile or report public sector debt statistics to the IMF-World Bank Quarterly Public Sector Debt Statistics database.
  - June 2021 TA mission assisted in improving recording and reporting of debt liabilities, including legacy commercial debt and arrears and integrating stock and flow data.
- Financial Sector Surveillance:
  - Sierra Leone does not participate in the IMF’s CDIS and CPIS.
  - Provisional FSIs compiled for several years but only shared bilaterally with the country team; authorities are not publishing or reporting these to the Fund.
- Monetary and Financial Statistics:
  - Main components of the central bank balance sheet are available daily and weekly under the early warning system on key financial targets.
  - BSL compiles full monetary survey with a lag of about six weeks; comprehensive coverage of commercial banks.
  - BSL completed migration to standardized report forms (SRFs) for the central bank and other depository corporations with STA assistance.
  - Need to expand coverage by including data on other financial corporations.
  - Sierra Leone has not reported data to the Financial Access Survey since 2012.
- External Sector Statistics (ESS):
  - BSL compiles balance of payments and IIP statistics on an annual basis using administrative-based data (BSL records, line ministries, Customs and Excise Department records), partner-country and international organization data, and annual survey of major companies.
  - Data weaknesses: cross-border surveys, low response rates, low quality of data reported to BSL including Customs data, use of rough estimates—these adversely affect ESS quality.
  - Recommended mitigation: closer follow-up with data providers; address weak legal environment and institutional cooperation and resource constraints.
- Data Standards and Quality:
  - Sierra Leone is a participant in the Enhanced General Data Dissemination System (GDDS) and launched the National Summary Data Page in December 2016.
  - No data ROSC is available.

### Table of Common Indicators Required for Surveillance (As of End-May 2022) — selected entries with exact dates and frequencies
- Exchange Rates:
  - Date of Latest Observation: May 23, 2022
  - Date Received: May 24, 2022
  - Frequency of Data: D
  - Frequency of Reporting: D
  - Frequency of Publication: D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities:
  - Date of Latest Observation: February 2022
  - Date Received: May 2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- Reserve/Base Money:
  - Date of Latest Observation: February 2022
  - Date Received: May 2022
  - Frequency: M / M / M
- Broad Money:
  - Date of Latest Observation: February 2022
  - Date Received: May 2022
  - Frequency: M / M / M
- Central Bank Balance Sheet:
  - Date of Latest Observation: February 2022
  - Date Received: May 2022
  - Frequency: M / M / M
- Consolidated Balance Sheet of the Banking System:
  - Date of Latest Observation: February 2022
  - Date Received: May 2022
  - Frequency: M / M / M
- Interest Rates:
  - Date of Latest Observation: February 2022
  - Date Received: May 2022
  - Frequency: M / M / M
- Consumer Price Index:
  - Date of Latest Observation: April 2022
  - Date Received: May 2022
  - Frequency: M / M / M
- Revenue, Expenditure, Balance and Composition of Financing—General Government:
  - Date of Latest Observation: N/A (all reporting fields N/A)
- Revenue, Expenditure, Balance and Composition of Financing—Central Government:
  - Date of Latest Observation: March 2022
  - Date Received: April 2022
  - Frequency: M / M / M
- Stocks of Central Government and Central Government-Guaranteed Debt:
  - Date of Latest Observation: December 2021
  - Date Received: March 2022
  - Frequency: Q / Q / Q
- External Current Account Balance:
  - Date of Latest Observation: 2020
  - Date Received: January 2022
  - Frequency: A / A / A
- Exports and Imports of Goods and Services:
  - Date of Latest Observation: 2021
  - Date Received: March 2022
  - Frequency: A / A / A
- GDP/GNP:
  - Date of Latest Observation: 2020
  - Date Received: July 2021
  - Frequency: A / A / A
- Gross External Debt:
  - Date of Latest Observation: 2021
  - Date Received: March 2022
  - Frequency: A / A / A
- International Investment Position:
  - Date of Latest Observation: 2017
  - Date Received: October 2019
  - Frequency: A / A / A

Notes embedded in the table:
- 1 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).
- 2 Although the Leone:US$ rate is currently set weekly, exchange rate data is published on a daily basis (including exchange rates with other currencies).
- 3 Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
- 4 Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
- 5 Includes external gross financial asset and liability positions vis-à-vis nonresidents.

### Staff report supplement: Prior action on publication of procedural rules for tribunals (June 22, 2022)
- New information: It is not practically possible for authorities to complete the prior action on publication of procedural rules for future tribunals before the scheduled Board date (June 27).
- Legal constraint:
  - Attorney General informed staff on June 17 that rules of procedure for tribunals can only be published by the Rules of Court Committee established under Section 145 of Sierra Leone’s constitution.
  - Establishing general procedural rules for tribunals would be at least a three-month process.
- Authorities’ commitment:
  - Adopt Guidelines (Practice Directions) for tribunals by end-December 2022 via the Judicial and Legal Service Commission.
  - The Guidelines (Practice Directions) will apply to any Tribunal (under Section 137.5(ff) of the Constitution) that may be established in the future.
  - The measure is proposed to be set as a structural benchmark for end-December 2022 instead of a prior action.
- Status of other prior actions:
  - The authorities have completed the other five prior actions required for completion of the review.
- Staff recommendation:
  - Staff continues to recommend completion of the review. A revised proposed decision and a supplementary LOI are attached.

### Appendix I: Letter of Intent (MINISTRY OF FINANCE / BANK OF SIERRA LEONE, June 22, 2022)
- Key points:
  - Supplement to the Letter of Intent dated June 10, 2022 requesting completion of the 5th review under the ECF arrangement.
  - Based on Attorney General information, prior action on publication of procedural rules for future tribunals cannot be completed before June 27 Board date due to constitutional requirement that the Rules of Court Committee publish such rules and the minimum three-month process.
  - Authorities committed to adopt Guidelines (Practice Directions) by the Judicial and Legal Service Commission by end-December 2022 for any Tribunal (under Section 137.5(ff) of the Constitution).
  - Request that the prior action be converted into a structural benchmark for end-December 2022; paragraph 85 and Table 2 of the MEFP amended accordingly.
  - All other commitments and understandings under the June 10, 2022 LOI remain the same, and other prior actions have been completed.
  - Authorities agree to publication of this letter and attachments per Fund procedures.
- Signatories:
  - Dennis K. Vandi — Minister of Finance
  - Dr. Ibrahim Stevens — Deputy Governor, Bank of Sierra Leone

### Attachment I: Revised Memorandum of Economic and Financial Policies (MEFP) ECF 5th Review — Introduction (Freetown, June 2022)
- Purpose:
  - Supplements the MEFP dated July 2021; reviews recent developments and reports performance under Sierra Leone’s program supported by the IMF ECF arrangement; outlines key policy and reform measures for remainder of 2022 and medium-term.
- Policy objectives:
  - Restore macroeconomic stability, reduce debt vulnerabilities, boost resilience against external shocks, and promote broad-based inclusive, green economic growth and poverty reduction over the medium-term.
- Context:
  - With development partner support, government implemented COVID-19 economic and health response programs facilitating recovery in 2021.
  - The Russia-Ukraine war (started in February 2022) threatens to undo the nascent recovery and undermines macroeconomic stability—adding pressure to inflation, fiscal space, balance of payments, reserves, and the exchange rate.
  - The war caused sharp increases in prices of food, fertilizer and fuel with adverse implications for food security and poverty reduction.
- Policy response:
  - Government will continue to implement sound economic policies, sectoral and structural reforms including governance reforms consistent with the National Development Plan (2019–23 NDP).

*International Monetary Fund — Staff Report and Supplementary Information (June 22, 2022).*

### 3.      The Sierra Leone economy recovered from the devastating impact of COVID-19 in

### 3.      The Sierra Leone economy recovered from the devastating impact of COVID-19 in 2021 but the uncertainty associated with the ongoing war in Ukraine is constraining economic activity in 2022

### Economic recovery and growth
- Economy grew by 3.2 percent in 2021, driven by recovery in agriculture, trade, tourism and travel, manufacturing, and a more-than-expected increase in mining output.
- Growth for 2022 revised downwards to an estimated 3.6 percent from an earlier forecast of 5.9 percent, citing rising food and fuel prices, somewhat lower mining production prospects, and global uncertainty.
- Growth projected to slow to 3.4 percent in 2023.
- Economy projected to grow by an average of 5.0 percent during 2024 to 2025, supported by expected ramping up of iron ore mining, increased agricultural output, expansion in construction and manufacturing, recovery of tourism, and business environment improvements.

### Inflation and price shocks
- Inflation fell to 8.9 percent in March 2021, then rose to 17.9 percent in December 2021, driven by higher food and non-food prices, supply bottlenecks, and exchange rate depreciation.
- Year-on-year inflation rose to 22.1 percent in March 2022 following supply disruptions from the Ukraine-Russian war and a 50 percent increase in fuel prices in March 2022.
- Inflation forecast: rise to 22.1 percent by end December 2022 (compared to original projection of 12 percent); annual average inflation expected to hover around 21 percent (initial projection 13 percent).
- Inflation projected to decline to 19.6 percent in 2023 and 16.4 percent in 2024.

### External sector, reserves, and exchange rate
- Current account deficit widened from 6.8 percent of GDP in 2020 to 14.6 percent of GDP in 2021 due to higher imports of fuel, food, machinery and transport equipment and intermediate foods, and a drop in official transfers, despite resumed iron ore exports from Tonkolili mine.
- Gross foreign reserves increased to 5.3 months of imports, partly due to an SDR allocation of US$282 million to Sierra Leone.
- Exchange rate depreciated by 16 percent (March 2021 to March 2022).
- Current account deficit expected to narrow from 13.6 percent of non-iron ore GDP in 2022 to 8.8 percent of non-iron ore GDP in 2024, supported by increased iron ore exports; gross foreign reserves will average 3.3 months of imports during 2022-2025.
- Increased inflows of FDI and project support grants expected to finance the current account deficit.

### Fiscal developments and budgetary pressures
- Domestic revenues improved to 15.5 percent of GDP in 2021 from 13.8 percent of GDP in 2020, aided by economic recovery, improved tax administration, and one-off royalties on Marampa Mines stockpile.
- Budget deficit including grants widened to 7.3 percent of GDP in 2021 from 5.8 percent in 2020 due to higher recurrent and capital expenditures responding to lingering COVID-19 effects.
- Preliminary 2022Q1 budget outturn indicates a revenue shortfall of about Le 330 billion due to under-collection from excise on petroleum products, mineral royalties (especially bauxite), fisheries, and GST.
- Expenditure pressures in 2022 include energy subsidies (Karpower and CLSG), goods and services, wage awards for lower cadre civil servants, judges, security, and domestic capital spending; cost of electricity supply from Karpower ship has increased beyond programmed subsidies and transfers.
- Revised 2022 budget measures (Text Table 1 summary):
  - Total additional revenue measures: 186.0 Le.billions (0.4 in percent of non-iron ore GDP)
    - PAYE 24.0
    - GST 43.0
    - Others 119.0
      - o/w timber and related products 22.5
      - o/w TSA 86.0
      - o/w Digital IDs 10.5
  - Expenditure containment: 233.2 Le.billions (0.4 in percent of non-iron ore GDP)
    - Wage bill 140.2
    - Goods and services 93.0

### Public debt and debt sustainability
- Total public debt increased to US$3.1 billion (76.8 percent of GDP) in 2021 from US$3.0 billion (76.3 percent of GDP) in 2020.
- Domestic debt including verified arrears: US$1.1 billion; external debt: US$2.0 billion.
- Composition of external debt: multilateral creditors 79 percent, bilateral 13 percent, commercial 8 percent.
- Debt distress assessment: risk of debt distress is high but sustainable (same classification as previous DSA); external debt service to revenue ratio projected to continue breaching the threshold due to large debt service in coming years; public debt to GDP ratio above its benchmark.
- Policy emphasis: continued reliance on concessional financing and grants, effective debt management and borrowing strategy, adoption of a medium-term fiscal anchor to guide fiscal policy and reduce debt ratios while considering macro shocks and preventing debt levels from returning to and staying below the NDP ceiling of 70 percent of GDP.

### Banking system and financial sector
- Banking system remains largely resilient and stable; banks profitable and adequately capitalized.
- Improvements recorded in total assets, investments, gross loans and advances, and deposits.
- Return on equity and return on assets for some banks were very low due to high and rising overheads.
- All but one bank met statutory capital adequacy ratio requirements.
- Aggregate non-performing loans (NPL) to gross loans increased to 14.8 percent by December 2021 from 12.4 percent in December 2020.
  - Excluding two state-owned banks, NPL fell to 13.3 percent at end-December 2021.
  - Three banks recorded zero NPLs.
- World Bank team reviewing the two state-owned banks (RCB and SLCB) to advise on long-term strategy and corporate governance.

### Programme performance and compliance
- Programme performance weakened in 2021 due to expenditure overruns from higher prices of goods and services, cost overruns on capital projects, unexpected wage pressures, and continued COVID-19 response.
- Quantitative performance criteria and indicative targets:
  - Met criteria on Gross International Reserves and Net Domestic Assets of the Bank of Sierra Leone as at end-September and end-December 2021.
  - Missed criterion on Net Credit to Government from the banking system at end-December 2021 by a large margin due to increased government borrowing and arrears accumulation.
  - Preliminary data indicate missing March 2022 indicative targets on Net Domestic Assets of the Bank of Sierra Leone, gross international reserves and Net Credit to Government.
- Compliance:
  - Complied with continuous Performance Criteria on concessional and non-concessional external debt, continuous PC on external arrears (all new accumulated arrears are domestic), and indicative targets on domestic revenue and poverty-related spending for September and December 2021.
  - Missed the indicative target on the domestic primary balance.
- Government actions to restore program performance:
  - Refocus on consolidation of public finances to return to a sustainable fiscal path and reduce debt vulnerabilities.
  - Improve domestic revenue mobilization by continuing implementation of the full pass-through petroleum pricing formula (continuous Structural Benchmark), consolidate automation of tax processes (ECR and ITAS), intensify field audits, reverse the NATCOM floor price instruction for telecommunications Companies, expand application of specific export levy on timber to cover all timber and timber related products, and explore carbon financing opportunities.
  - Proactively seek additional budget grants and an emergency energy support grant.
  - Expenditure rationalisation: improve budget planning and execution, strengthen cash management, reactivate Expanded Cash and Debt Management Committee (four regular meetings since April), present reliable cash forecasts and policy options, produce minutes with recommended policy options for the Minister, align quarterly budget allocations with cash and debt management committee recommendations.
  - Public Debt Management Division prepared an agreed action plan based on TA reports and published quarterly report for 2022Q1 and annual report for 2021 on actual performance against budget allotments (Prior Action).
  - Sustain payroll management reforms and develop a Payroll Reform Strategy; improve management of capital projects per PIMA recommendations.
- Request to IMF Executive Board: approve a waiver for non-observance of the December 2021 Quantitative Performance Criterion on Net banking system Credit to Government (NCG).

### Structural benchmarks and reforms
- Significant progress on structural benchmarks for the 5th review: study on High Net Worth Individuals, stocktaking of Income Tax exemptions, development of infrastructure appraisal template, thematic review of strategy for non-performing loans.
- Pending/ delayed items:
  - Update of prudential guidelines in line with the 2019 Banking Act is still pending.
  - Publication of 2021 audited financial statements of the Bank of Sierra Leone delayed beyond April 2022; audit firm appointed and work started with aim to publish final statements by end-September 2022 (structural benchmark).
- Fuel pricing:
  - Continuous structural benchmark on automatic fuel pricing mechanism temporarily suspended since October 2021 to ease burden on citizens.
  - Government increased pump price of fuel by 50 percent in March 2022, restoring implementation of the full pass-through fuel pricing formula.

### Medium-term economic outlook and risks
- Medium-term outlook challenging due to deteriorating terms of trade, Ukraine war impacts, and lingering COVID-19 risks.
- Ukraine war effects: disruptions in supply of fuel, fertilizer, and food; weakening economic activity and spiking domestic prices.
- Projections summary:
  - 2022 growth: revised from 5.9 percent to 3.6 percent.
  - 2023 growth: 3.4 percent.
  - 2024-2025 average growth: 5.0 percent.
  - Inflation: 22.1 percent end-2022; annual average around 21 percent; 19.6 percent in 2023; 16.4 percent in 2024.
  - Overall fiscal deficit (including grants) projected to narrow from 3.8 percent of non-iron ore GDP in 2022 to 2.5 percent in 2023.
  - Current account deficit projected to narrow from 13.6 percent of non-iron ore GDP in 2022 to 8.8 percent of non-iron ore GDP in 2024.
  - Gross foreign reserves to average 3.3 months of imports during 2022-2025.
- Key risks: uncertainty associated with the Russia-Ukraine war and global economic impact; resurgence of COVID-19; inadequate international financial support; sharp rises in food and fuel prices and implications for domestic inflation and fiscal and external balances.

### Programme objectives and fiscal policy stance
- Programme objectives: safeguard macroeconomic and financial system stability, pursue structural reforms, and promote sustainable, resilient, green and inclusive growth centered on human capital development.
- Fiscal policy focus:
  - Sustainable fiscal consolidation through intensified domestic revenue collection and prudent expenditure management to provide space for priority spending.
  - Combination of revenue-enhancing measures and expenditure reprioritization while seeking grant financing and increasing use of SDR allocation for fiscal purposes.
  - Objective to gradually reduce fiscal deficit from 7.3 percent of GDP in 2021 to an average of 2.5 percent during 2023 and 2024, and move into a primary surplus in 2024.
  - Commitment to reduce domestic banking financing to a sustainable level of 2 percent of GDP under the ECF arrangement.
  - Plan to utilise Le 857 billion equivalent of SDR resources for cash transfers, COVID-19 health response, critical domestic capital expenditures (water supply), programs addressing food insecurity and improving educational outcomes (school feeding, hygiene and welfare packages for girls), and climate mitigating activities; commitment to transparent accounting and use of SDR resources through regular budget monitoring (Structural Benchmark for the 6th review).
- On June 15, revised 2022 budget submitted to parliament (prior action) aligned with agreed fiscal consolidation path, including commitment to freeze further payments of legacy arrears until a new arrears clearance plan is in place (Structural Benchmark).

### Revenue administration and digitalization
- Domestic revenue broadly on target in 2021 due to recovery in activities, stricter enforcement of tax laws including Finance Act 2021, opening of international trade, close monitoring of revenue collection via stakeholder collaboration and weekly revenue meetings, increased taxpayer sensitisation and education, rollout of Electronic Cash Register (ECR) for GST administration, and Integrated Tax Administration System (ITAS) for electronic registration, filing and payment of taxes.
- One-royalty payments also boosted revenues.

*IMF staff report content (section 3).*

### 24.      However, domestic revenue collection during the first Quarter of 2022 was weak with

### 1sleea2022001 - 24. However, domestic revenue collection during the first Quarter of 2022 was weak with

### Domestic revenue performance (Q1 2022)
- Shortfall of Le 330 billion relative to the quarterly target agreed during the 3rd/4th review under the ECF.
- Main drivers of weak revenue performance:
  - weak tax compliance
  - transition challenges to a lower GST threshold to be administered with the electronic cash register
  - delays in the payment of mineral and fisheries license fees
  - suspension of the implementation of the full pass-through fuel pricing formula
  - supply chain challenges in the export of timber logs
- Despite the Q1 shortfall, Government expresses hope to meet the original annual revenue target for 2022 through a combination of tax policy and tax administration measures.

### Tax administration — near-term actions (2022)
- Expected parliament approval of the NRA Act at the latest in 2022Q3.
- Implement change management strategy to support reforms; expand taxpayer engagement (workshops and meetings) to educate and train on the ECR and ITAS systems.
- Undertake intensive and extensive trainings on ITAS for many new taxpayers.
- Dedicate more resources to field and desk audit and intensify use of data analytics tools — Computer Assisted Audits of financial and petroleum sectors; undertake transfer pricing audits for risky companies; refocus DTD staff toward audit following automation.
- Close tracking of filing and payment compliance and enforcement for non-compliant taxpayers and non-tax revenue payers.
- Engage importers and beneficiaries of the QAERP to pay accumulated arrears and encourage importers stocking goods in warehousing regime to ex-warehouse.
- Maintain implementation of the policy on full pass-through for domestic fuel pump prices for all products.
- High level engagement with the Ministry of Fisheries and development partners on revamping collection from marine resources; engage the EU to relax restrictions on licensing of fishing vessels while preventing overfishing.
- Implement and enforce the Finance Act 2022 (whistle blower policy, differentiated penalty rates for late and non-filers, recovery of overdue arears, minimum floor price for telecommunication data services).
- Reverse the NATCOM Floor Price instruction to telecommunication companies.
- Implement recommendations of the concluded Non-Tax Revenue enhancement study to improve collection of MDAs revenue.
- Engage MOF, MOPED, NaCSA, and NPPA to provide information on contractors and consultants to track withholding tax payments.
- Enforce collection of GST from EDSA.
- Implement compliance improvement measures, including:
  - Implementation of the administrative phase of the Block Management System in the Western Area.
  - Roll out of mobile payment app especially for medium and small taxpayers.

### Tax administration — medium-term measures (2023–27)
- Embark on block registration exercise in the provinces to bring more taxpayers into the tax net through formal registration of businesses (June 2023).
- Build capacity in data analytics and risk analysis (through use of AI technology, data warehouse, training in data analytics and econometrics) (March 2023).
- Implement strategy for operationalisation of a High Net Worth Individual Taxation regime (September 2024).
- Introduce an Excise Tax Stamp and fuel marking scheme to combat smuggling of excisable goods and raise additional revenues (March 2023).
- Develop and implement a Telecoms auditing tool to aid collection of GST revenues on telecoms sector (June 2024).
- Implement a centralised tax exemption monitoring and reporting system, including activating the ITAS exemption module (September 2023).
- Initiate and conclude negotiations with Kingho Iron Ore Mining Company to ensure utilisation of the Port and Rail by Marampa Mines when expansion commences (December 2024).
- Continue strengthening and implementing the compliance risk management framework (September 2024).
- Explore opportunity for carbon financing (December 2023).

### Tax policy and revenue strategy
- Escalate the Duty Waiver Policy approved by Cabinet in March 2022 to a law.
- Implement recommendations of the World Bank Tax Policy mission.
- Formulate a Medium-term Revenue Strategy (MTRS) with support from the IMF and the World Bank; intention to submit a draft MTRS to Cabinet for approval by December 31, 2022 (structural benchmark).

### Exploring climate finance
- Government will explore leveraging climate finance from Sierra Leone’s forests, including carbon credits, REDD+ payments, and grants for forest conservation or reforestation.
- Strengthen legislative framework around forest protection; meet transparency and verification prerequisites; build capacity.
- Government has already issued 1 million carbon credits, primarily through the GOLA Rainforest (the first REDD+ project in West Africa), though the pace of projects has declined in recent years.
- Potential sources include reforestation activities (e.g., #Freetown the TreeTown and the Ministry of Environment’s plan to plant 5 million trees), protected areas like the Western Area Peninsula National Park, and renewable energy projects.

### Expenditure management and fiscal risks
- Government committed to improving public expenditure management: improve budget planning and execution, cash management, payroll integrity and sustainability, and public investment efficiency.
- Large fiscal risks posed by Electricity Distribution and Supply Authority (EDSA):
  - Projected payments to Karpower under the new contract amount to US$70 million in 2022.
- Measures to lower energy subsidies and strengthen EDSA revenue generation include:
  - adjustment of the average tariffs
  - connecting two mining companies to the grid and upgrade the Bumbuna 161 Line to increase uptake from the CLSG line into the national grid
  - working with the World Bank to decrease commercial and technical losses while maintaining the lifeline tariff band (i.e. those who consume less 25kWh per month) to protect the poor
- Agriculture input subsidy policy shift:
  - Government withdrawn from direct procurement and distribution of agricultural inputs; agro-dealers encouraged to import inputs for sale to farmers.
  - Subsidy provided through an electronic voucher system domiciled in one of the commercial banks; farmers submit vouchers to agro-dealers who encash at the commercial bank.
  - E-voucher system expected to address over-pricing, poor quality and late delivery of inputs.

### Improving budget execution and IFMIS
- Ministry of Finance will regularly release quarterly budget allocations on time, align allocations with cash forecasts, and implement the principle “Not in Budget, No Funding”.
- Seek technical assistance from the Fund to adopt strategic top-down budgeting.
- IFMIS upgraded from version 6.5e to a web-based GRP version 7 application effective January 2022 and rolled out to 61 MDAs.
  - Wider coverage ensures that over 80 percent of Government expenditures are processed through the system.
  - Next step: roll out IFMIS to additional MDAs and sub-vented agencies in 2023 (list of agencies provided in source).

### Cash management and reporting
- Expanded Cash and Debt Management Committee to meet weekly to review revenue and expenditure performance, arrears, prepare and review quarterly cash flow and determine government borrowing requirements.
- Efforts to reconcile revenue and expenditure issues among AGD, NRA and BSL before meetings using a unified data template and adopt the cash forecasting tool.
- Government to prepare an agreed plan incorporating TA recommendations on Budget Execution and Cash Management to prevent arrears recurrence.
- Public Debt Management Division (PDMD) has published on MOF’s website the quarterly report for 2022Q1 and an annual report for 2021 on actual performance against actual budget allotments (Prior Action).
- Going forward, prepare quarterly budget out-turn reports that include:
  - progress in reduction of unpaid checks
  - implementation of the ECDMC recommendations
  - the disbursement and use of SDR-backed resources for fiscal purposes
  - actual fiscal performance against budget allotments (structural benchmark)

### State-owned enterprises and contingent liabilities
- Ministry of Finance undertook a comprehensive review of aggregate financial position and performance of SOEs in 2020; similar exercise for 2021 covering 14 SOEs including two state-owned banks.
- Government compiled and published all borrowings and guarantees of 14 SOEs to identify contingent liabilities.
- As of end-2021, state-owned enterprises’ outstanding loans amounted to 3.4 percent of non-iron ore GDP.
- Government developing an SOE ownership policy and governance policy (structural benchmark for September, 2022).

### Payroll reforms and sustainability
- Payroll reforms institutionalized since 2018; Payroll Quality Assurance Team established.
- Reforms include:
  - timely retirement of employees who have attained retirement age
  - adding employees on the payroll only if they have a valid NASSIT Number, National Identification Number (NIN), a unique BBAN and a Date of Birth that matches the DOB embedded in the NASSIT Number
  - implementation of the teacher recruitment and retirement policy
  - routine payroll monitoring and payroll audit reports
- 2022 implementations:
  - Following reassessment and promotion of 4,158 teachers during 2021, additional 1,083 teachers were promoted and reassessed effective April 2022, with a payroll cost of Le 550 million per month and about Le5 billion for FY2022.
  - Minimizing manual voucher payments: effective January 2022, retirees from all categories will be paid gratuity with last salary directly from central payroll.
  - Draft Payroll Policy prepared with support from FCDO; next steps include stakeholder consultations and finalization.
- Planned payroll reforms for rest of FY2022 and medium-term:
  - Health Service Commission to take delegated responsibility for recruitment and personnel management of professional health care personnel.
  - Conduct biometric verification of teachers to maintain a clean and reliable teacher payroll.
  - Complete follow-up verification of Government Pensioners following 2021 exercise.
  - Develop a medium-term payroll strategy (seeking Technical Assistance); establishment of a Wages and Salaries Compensation Commission expected to support implementation. Training on wage bill management ongoing with IMF Fiscal Affairs support.

### Public investment management and procurement
- Adopted a National Public Investment Management Policy and Investment Guidelines.
- Technical Investment Committee to review all new projects; Ministerial Steering Committee to consider only projects vetted for inclusion in the Public Investment Programme (PIP).
- Government will rationalise and streamline existing projects based on socio-economic benefits; develop public investment regulations and implement PIMA recommendations.
- Strengthening legal/regulatory framework for public procurement:
  - Finance Act of 2022 gives Ministry of Finance power to pre-approve MDAs before high value procurement activities.
  - Rolling out an electronic contract profiling system (ECOPS) to track outstanding contract payments and capture upcoming procurement expenditure.
  - Electronic Procurement Systems by NPPA at an advanced stage to improve efficiency and transparency.

### Public debt management — stock and vulnerabilities
- New global shock from the Russian-Ukraine war has increased public debt vulnerability.
- Total public debt estimated at US$3.12 billion or 76.8 percent of GDP as at end-December 2021.
  - External debt estimated at US$2.00 billion as at end-December 2021.
  - Domestic debt estimated at US$1.12 billion as at end-December 2021.
- Government will ensure future new borrowing and pipeline loans would not worsen the debt distress rating.

*Source: 1sleea2022001 - 24. However, domestic revenue collection during the first Quarter of 2022 was weak with*

### 45.      The overall objective of debt policy is to maintain debt sustainability despite the new

### 1sleea2022001 - 45.      The overall objective of debt policy is to maintain debt sustainability despite the new

### Debt policy objectives and medium-term strategy
- Overall objective: maintain debt sustainability despite the new Russian-Ukraine war and lingering challenging from the COVID-19 pandemic.
- Key fiscal/external adjustments:
  - Revenue mobilization.
  - Exports diversification to build reserves.
  - Rely on highly concessional external financing (largely grants) from Development Partners to limit recourse to expensive domestic debt.
- Government anticipates public debt-to-GDP ratio will return to below the NDP target of 70 percent in the medium-term.
- Medium-Term Debt Strategy (MTDS) 2021-2025:
  - Developed in 2021, approved by Cabinet in April 2022 and published on the website of the Ministry of Finance.
  - Assumes concessional external financing and market development aimed at reducing domestic borrowing and lengthening maturities of domestic instruments.
  - Rationale: increase the Average Time to Maturity (ATM) of domestic debt and reduce interest rate costs.
  - MTDS 2021-2025 will be updated to reflect the borrowing requirements implied under the current fiscal framework.

### External debt priorities and debt sustainability analysis
- External financing priorities:
  - Prioritise concessional loans and especially grants to finance infrastructure projects to lower risk of unsustainable debt levels.
  - Explore innovative financing including Public Private Partnership arrangements for specific self-liquidating projects.
- Debt Sustainability Analysis (DSA):
  - Yearly DSA by the National DSA team to signal risks of external and public debt sustainability.
  - Result of last National DSA (December 2021): Sierra Leone is at high risk of debt distress mainly due to sustained breach in debt service to revenue and debt service to export ratios.
- Overall assessment:
  - Overall debt assessed to be sustainable predicated on strong fiscal adjustment, continued reliance on concessional financing and grants, and moderately high growth rates.
  - Sierra Leone’s debt carrying capacity has improved from low to medium (CI is 2.75) with recent improvement in the Composite index under the Low Income Countries (LICs) Debt Sustainability Framework.

### Domestic debt management and market development
- Risks and instruments:
  - Government cognisant of high rollover risks in the domestic debt portfolio.
  - Plan to issue medium-to-long-term bonds to reduce rollover risks and support development of domestic debt market.
  - Develop domestic debt market to raise medium to long-term resources for National Development Plan infrastructure projects rather than utilising short-term instruments which trigger liquidity and refinancing risks.

### Arrears clearance and debt transparency
- Arrears Clearance Strategy 2020-2025:
  - Implementation commenced in 2020.
  - Full discount application rejected by vendors because Government lacks liquidity for upfront discounted payments and contractors/suppliers rejected five-year payment plan of the discounted amount.
  - To avoid litigation, Government pursued section 4.1.1 to make gradual payments under payment plans for contractors who supported: i) economic growth, ii) response to CoVID-19, iii) health-related interventions, iv) agriculture, and v) roads.
  - Payments also made to contractors whose exposure to banks posed challenge to the financial sector in line with 3.1.6 of the strategy.
- Future actions:
  - Government will update its Arrears Clearance Strategy and commit to transparency in debt management.
  - New Arrears Clearance Strategy will be consistent with fiscal sustainability and financial stability and will include a list of creditors, criteria to prioritize creditors, and amounts to be paid over the next three years (structural benchmark, October 31, 2022).
  - Publication of liabilities of the biggest State-Owned Enterprises (SoEs), in terms of balance sheet, expanded from 5 to 10 to help track contingent liability exposures across SOEs.
  - Publication of SoEs loans and guarantees is a continuous practice in line with the Public Debt Management Act 2011.

### Monetary policy framework and inflation outlook
- Bank of Sierra Leone (BSL) mandate and framework:
  - Committed to price and financial stability while supporting Government’s economic recovery programme.
  - Implements monetary policy based on monetary targeting framework using indirect policy instruments.
  - Maintains flexible exchange rate regime; exchange rate freely determined by market forces; BSL interventions limited to smoothening excessive volatility.
- 2021–2022 challenges:
  - Continued rise in prices due to global supply chain disruptions, high freight charges, COVID-19 uncertainties, and supply disruptions from the Russia-Ukraine war.
  - 50 percent increase in the retail price of fuel initiated in March (2022) will put further pressure on prices.
  - Exchange rate depreciation accelerating: 16 percent y-o-y in March (2022).
  - Inflation forecast to average close to 22 percent over 2022.
- Policy response:
  - BSL raised the Monetary Policy Rate by 75 basis points in April 2022 to dampen inflationary pressures.
  - BSL introduced two one-off facilities in April 2022:
    - Special Facility for Food in the sum of US$50 million to support importation of rice, flour and sugar.
    - Special Facility of US$36 million to support importation of fuel.
  - These Facilities together with the Agriculture Credit Facility (all temporary and not subject to renewal, except with the consent of the Fund) aim to enhance supply of essential commodities and help moderate price increases and exchange rate pressures.

### Medium-term monetary policy improvements and exchange rate management
- Planned improvements:
  - Strengthen monetary policy framework to improve transmission.
  - Maintain an asymmetric corridor around the monetary policy rate with standing facilities; interbank rate largely maintained within this corridor.
  - Limit use of secondary market purchases to support government issuance and consider introducing BSL’s own instrument for liquidity management.
  - Improve monetary policy communication, including publishing and explaining BSL’s goal to bring inflation to single digits in medium term.
  - Improve inflation and liquidity forecasting with IMF technical assistance; enhance composite index of economic activity (CIEA).
- Exchange rate developments and measures:
  - Depreciation picked up in second half of 2021 and accelerated in 2022; parallel market spread appears to be widening.
  - Commercial banks currently not able to fully supply FX needs of importers due to limited supply and market imperfections.
  - Short-term measures: the two BSL facilities for basic food items and fuel imports (described above).
  - In line with the 2019 BSL Act, transactions of goods and services should be done in Leones, but BSL may allow selected companies and international organizations with FX to pay locally for certain imported goods, particularly fuel and electricity, in dollars, to increase FX supply (mining companies’ fuel demand accounts for close to 50 percent of all fuel demand).
  - BSL considering providing a limited amount of FX through SALPOST to meet wider public FX needs and increase financial inclusion.
- External position and reforms:
  - Sierra Leone’s external position remains weaker than implied by fundamentals and desirable policies; reducing overvaluation of the real effective exchange rate is critical to maintain external sustainability.
  - Market intervention should be limited to reducing excessive volatility.
  - Government will pursue reforms to improve competitiveness of export sector to complement FDI and external official loans in financing the current account deficit.
  - BSL will retain an adequate reserve buffer to avoid risk of an even sharper depreciation.
- Operational improvements:
  - Intend to move to a daily calculation and publication of an exchange rate based on a one-day lag (structural benchmark, April 30, 2023); current BSL Rate is calculated and published weekly.
  - Engaging AFRITAC West II on technical assistance and working with Reuters (Refinitiv) to automate reporting by banks.

### Exchange restriction and multiple currency practice (MCP) requests
- Request to IMF:
  - Temporary approval from the IMF Executive Board for the exchange restriction and the multiple currency practice under Article VIII.
  - Proposed ECF-supported program actions will support removal of the exchange restriction.
  - Prioritization through the facilities giving rise to the exchange restriction is imposed for BOP reasons, necessary and temporary; the measure related to the MCP is imposed for BOP reasons, temporary, does not give an unfair competitive advantage, and is non-discriminatory.
  - Request waivers of non-observance of the continuous performance criterion on the non-introduction of MCPs and exchange restrictions.
  - Commit to capping the total amount of new facilities and anticipate the new facilities as well as the ACF will have been wound down before the end of the program.
- Policy commitment:
  - Do not intend to introduce new measures that would compound balance of payments difficulties.
  - Commit to not imposing new or intensifying existing restrictions on payments and transfers for current international transactions, introducing/modifying MCPs, or concluding bilateral payments agreements inconsistent with Article VIII.

### BSL governance and transparency
- Audits and internal audit improvements:
  - FY 2019 and 2020 audits of BSL financial statements finalized in March 2022 and published on BSL website.
  - External auditor with central banking experience appointed for FY 2021 audit; expected to be finalized by August (structural benchmark 5th review).
  - Commit to ensuring external audits completed within statutory deadline (end-March).
  - Action plan developed to address recommendations from external quality assessment of internal audit function (2021).
  - Appoint a chief internal auditor (structural benchmark December 31, 2022) and continue to strengthen internal audit capacity.

### Financial sector policy, supervision, and stability
- Supervisory framework:
  - BSL to continue regulatory and supervisory oversight using a Risk Based approach with eventual focus on adopting Basel 2 and Basel 3 over time.
  - Enhanced supervision of state-owned banks to strengthen capacity based on adequate and resilient capital.
  - Banks subject to regular examinations and constant monitoring by resident supervisors.
- Regulatory advances:
  - Review of key banking sector guidelines underway, including Prudential Guidelines and corporate governance guidelines.
  - Aim to finalize revision of Prudential Guidelines, in line with 2019 Banking Act, by September 2022 (structural benchmark).
  - Introduction of Cyber Security guidelines for Financial Institutions under development.
- State-owned banks governance:
  - Two state-owned banks viable with fully constituted Boards.
  - Ongoing assessment of board performance and efficiency improvements.
  - Onsite examinations concluded; next round slated for late 2022 to early 2023.
  - With World Bank technical assistance, an updated corporate governance framework is being developed focusing on: (a) Board and Senior management oversight; (b) operational management; (c) risk management; (d) compliance with regulations; (e) internal audit; (f) external audit.
  - Action plan to address identified corporate governance gaps in state-owned banks targeted by end-September 2022 (structural benchmark).
- Non-performing loans (NPLs):
  - Thematic review found high NPLs of the two state-owned banks remain above the 10% threshold.
  - High NPLs driven primarily by the COVID-19 pandemic.
  - BSL recommendations with timelines to reduce NPLs to below the 10% threshold and improve corporate governance.
  - Other recommendations: boost recoveries, develop sound credit underwriting standards and frameworks to enhance risk management.
  - BSL will prepare a document to share with the Fund setting out system-wide strategy for bringing down NPLs to the 10 percent prudential limit (Structural Benchmark, December 15, 2022).
- Deposit protection and crisis management:
  - With U.S. Treasury technical assistance, BSL working on setting up a deposit protection fund.
  - Deposit Protection Bill laid in Parliament; BSL will set up fund once bill is passed as part of crisis management and resolution framework.
- FSAP and AML/CFT:
  - World Bank’s FSAP team completed assessment mission in March 2022; draft Aide Memoir presented to BSL for comments.
  - BSL will utilize FSAP findings to strengthen financial sector policies, set out reforms action plans, and build monitoring capacity.
  - AML/CFT progress and plans:
    - 2020 GIABA mutual evaluation identified challenges: legal basis sound but regulation of proliferation of finance and non-profit organizations requires further work.
    - Planned actions: make beneficial ownership of legal entities available; enhance risk-based supervision and monitoring of non-bank financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs); strengthen enforcement against money laundering and financial crimes.
    - If necessary, consider legal changes (e.g., amendments to the Companies Act), allocation of supervisory powers over DNFBPs, and extending sanctioning powers to the Financial Intelligence Unit.
    - Work towards National Risk Assessment and national AML/CFT strategy reflecting practical analysis, monitoring, supervisory, and enforcement actions.

### Inclusive growth and social protection measures
- Government focus: implement policies, programmes, and projects to drive inclusive growth, reduce inequality, and alleviate multidimensional poverty, supported by development partners; public financial management reforms to create fiscal space for human capital, economic diversification, climate adaptation, and expanded social protection.
- Effects of crises:
  - COVID-19 and the Ukraine-Russian war continue to affect economic fundamentals, public service delivery, and socio-economic life, especially via high food and fuel prices.
  - Sierra Leone yet to recover completely from COVID-19 economic contraction.
  - Government implemented Quick Action Economic Response Programme (QAERP) and COVID-19 Health Response.
- Policy commitments to enhance inclusive growth and social protection:
  - Continue to pay tuition fees for all children in Government-owned and Government-assisted schools.
  - Expand school feeding for Government-owned and Government-assisted pre-primary and primary schools in impoverished communities.
  - Continue to improve efficiency of school bus services and provide assistive devices for special needs children.
  - Develop a new national basic and senior secondary education policy focusing on radical inclusion.
  - Expand accelerated learning to out of school girls and scale-up reintegration efforts for teenage mothers.
  - Provide sanitary hygiene kits for school going girls.
  - Continue to construct classrooms, schools and boarding schools.
  - Continue the Cost Recovery Initiative for provision of drugs and encourage private sector participation through public-private partnerships.
  - Continue efforts to establish the Sierra Leone Social Health Insurance Scheme (SLeSHI).
  - Expand the National Emergency Services (NEMS) to all districts.
  - Expand unconditional cash transfer scheme for extremely poor and vulnerable households, including Persons Living with Disabilities (PWDs).
  - Develop a Social Protection Register and rollout the economic inclusion project.
  - Enact the Social Protection Bill.
  - Implement the National Street Children Project to re-integrate street children with their families.
  - Continue to implement the Gender Equality and Women’s Empowerment Policy and the Women’s Economic Empowerment Fund for female entrepreneurs.
  - Invest in youth productivity through entrepreneurship and job creation.
  - Sustain capital expenditures to address macro-critical infrastructure bottlenecks and improve business competitiveness.

*Source: 1sleea2022001 - Chapter/section content (IMF PDF).*

### 74.      Government recognizes that improving the business environment is critical to

### 1sleea2022001 - 74.      Government recognizes that improving the business environment is critical to

### Business environment reforms and ease of doing business
- Government implements regulatory reforms to improve ease of doing business to attract new investments and expand existing businesses, promoting economic growth and job creation.
- Reforms include: improving business registration, tackling obstacles to trading across borders, and streamlining processes for registering properties.
- Country overall score: 47.5 percent in 2020 (below the sub-Saharan average of 51.8 percent in 2020).
- Indicator highlights:
  - Score for starting a business: 91.3
  - Overall global ranking for starting a business: 58
  - Sub-Saharan average for the starting-a-business indicator: 80.1

### Business registration modernization (Economic Diversification Project, World Bank support)
- One-Stop-Shop for business registration established.
- Automation efforts: electronic linking of Corporate Affairs Commission, National Revenue Authority, National Social Security and Insurance Trust, and Office of the Administrator-and Registrar General is underway.
- Review in progress: Companies Act, Companies Amendment Act and accompanying Regulations.
- Nationwide consultations on the revised Companies Act scheduled to start in June 2022.

### Access to finance and digital infrastructure improvements
- Collateral Registry at the Bank of Sierra Leone upgraded to include moveable assets, individual search and e-payment services.
- Upgraded online collateral registry launched in December 2021.
- Upgrades underway for the Credit Reference Bureau.
- Regulations developed for the revised Borrowers and Lenders Act.
- Ongoing discussions with Ministry of Lands and Country Planning and Office of the Administrator and Registrar-General to streamline and automate property registration and construction permit processes.
- National Switch to facilitate interoperability among commercial banks is being installed with World Bank funded Financial Inclusion Project support.

### Agriculture sector policy shift and operational measures
- Policy shift to encourage private sector-led procurement and distribution of agricultural inputs (fertiliser and improved seeds) to boost productivity.
- Electronic Voucher (E-Voucher) system established, domiciled at Rokel Commercial Bank, for efficient and transparent input distribution to farmers.
- Machine Rings established at district level, managed by private sector, to prepare large tracts of land for cultivation.
- Bank of Sierra Leone established an Agricultural Credit Facility to provide credit to agro-dealers for importation and distribution of agricultural inputs.

### Fisheries and tourism sector actions
- Fisheries: ongoing efforts to combat illegal, unregulated and illegal fishing via routine surveillance patrols and remote monitoring of fishing vessels; continued observance of the “Closed Season” for conservation and preservation of fish stock.
- Tourism: with World Bank support, Government will upgrade tourist destination sites in Freetown starting with Leceister Peak, Tacugama Sanctuary and Bureh Beach in 2022.

### Anti-corruption and governance measures
- Anti-Corruption Act 2019 enacted (amendment of Anti-Corruption Act 2008) to strengthen legal framework.
- Anti-Corruption Amendment Act of 2019 measures:
  - Increases minimum punishment for major corruption offences.
  - Introduces robust asset declaration regime for all public servants—moved to web-based from paper-based, with an over 90 percent response from public servants.
  - Provides for creation of special division of the high courts with its own registrar and five dedicated judges to expedite corruption cases.
- Anti-Corruption Commission (ACC) adopted a new Anti-Corruption Strategy aligned with Anti-Corruption Act 2019 and United Nations Convention Against Corruption 2005; strategy shifts focus to enforcement while retaining prevention.
- ACC recovered over Le35 billion from corrupt officials and institutions in the past three years.
- International recognition and index movements:
  - MCC control on corruption ranking: moved to 81 percent in 2020 from 49 percent in 2019, securing a compact with MCC.
  - CPI ranking: moved from 129 in 2018 to 117 in 2020 (improvement of 12 places).

### Audit Service Sierra Leone (ASSL) reforms and capacity strengthening
- Planned amendments to the Audit Service Act 2014 and implementing regulations to strengthen ASSL operational functionality and independence.
- Proposed amendments to include:
  - Obligation for auditees to provide justification or explanation, issue a timeline, assign staff and agree to ongoing engagement with ASSL (Section 93 Audit Service Act) — structural benchmark.
  - Provision to extend power to withhold salaries of vote controllers for non-submission of financial statements to verification and explanation stage (Sections 11 & 12 Audit Service Act 2014) — structural benchmark.
- Development of Standard Operating Procedures (SOPs) placing responsibilities and sanctions on auditees for implementation of audit recommendations; SOP approval to enable incorporation into Public Financial Management Act, 2016 and Audit Service Act, 2014 amendments.
- Transparency and crisis response:
  - Published unaudited financial statements of NaCOVERC and key details of large procurement contracts during COVID-19 crisis.
  - Published second audit of COVID-19 response (covering July to December 2020) — Prior Action.
- Commitments on ASSL independence and remediation (timelines and actions):
  - Adoption of practice directions for tribunal proceedings (Structural Benchmark).
  - ASSL commits to pay all salaries and allowances legally due to persons listed in the “Management Profile” section of ASSL’s website (as of May 31, 2022) in accordance with the Sierra Leone Constitution, Audit Service Act 2014, and ASSL Conditions of Service 2014, as amended in 2018.
  - By mid-October 2022: amend the 2014 ASSL Act to strengthen ASSL’s powers to follow-up and enforce audit recommendations (Structural Benchmark) and develop a roadmap to enhance ASSL’s budgetary autonomy (Structural Benchmark).
  - By November 30, 2022: jointly (ASSL, AGO and MOF), in consultation with IMF staff, publish a roadmap enacting dormant statutory provisions on surcharges with an implementing regulation (Section 12 Audit Service Act 2014); roadmap to include safeguards, appropriate issuing body/instrument, and timing for key steps.

### Strengthening statistics and data systems
- Importance: credible and timely data critical for informed policy design, analysis and implementation; absence of quarterly GDP estimates has increased focus on high frequency indicators.
- Recent statistical advances:
  - Stats SL fully rebased the CPI to December 2021; updated CPI basket and revised weights based on the 2018 Sierra Leone Integrated Household Survey (with IMF Headquarters and AFRITAC West 2 support).
  - AFRITAC West 2 support: rebasing of estimates, improving data collection instruments, production of Quarterly National Accounts and development of Supply and Use tables.
  - IMF technical assistance to Ministry of Finance to improve debt recording and to Bank of Sierra Leone to improve balance of payments statistics and financial soundness indicators.
- Surveys and censuses:
  - Stats-SL carried out Mid-term Population and Housing Census and is processing and analyzing the data.
  - Labour force survey planned for 2022; a costed proposal developed.
  - Agriculture census planned for 2022 (first in over 40 years) in partnership with FAO, WFP and Ministry of Agriculture and Food Security.
- World Bank HISWA project support: planned activities include:
  - Design and implement coherent system of enterprise statistics using electronic platforms and related data collection.
  - Design and implement comprehensive collection of agricultural statistics.
  - Modernization of National Accounts using enterprise and agriculture statistics and additional data.
  - Adopt international standards on administrative data processing.
  - Improve statistical infrastructure, enhance data accessibility through national databases and web-based apps/platforms.
  - Partner with institutions to provide timely, accurate information and make data easily accessible online (collaboration with DSTI and others).
  - Elevate Sierra Leone as a leader among low-and middle-income countries on data transparency and SDG data-driven efforts.
  - Strengthen capacity at SSL and expand technical expertise for routine data collection and evidence-based policy decision-making.
  - Work with the Fund and development partners on migrating to GFSM2014 for clearer fiscal classifications.

### Climate resilience and environmental actions
- Vulnerability overview:
  - Sierra Leone highly vulnerable to climate change impacts: high temperatures, inconsistent weather, recurrent storms, floods, mudslides, rising sea levels, coastal erosion, poor water quality and scarcity, ecosystem changes and biodiversity loss.
  - World Risk Index 2021 ranking: 47th among 181 nations for vulnerability, susceptibility and lack of coping capacities.
  - August 2017 mudslides and flooding in Freetown: at least 1,245 properties destroyed or damaged, over 300 houses destroyed, over 11,000 people displaced.
- Institutional and policy responses:
  - Adopted National Climate Change Policy (NCCP) and National Climate Change Strategy and Action Plan (NCCS&AP).
  - Established a separate Ministry of the Environment in November, 2019.
  - Reviewed six key environmental legislations: Wildlife Act of 1972; Environment Protection Agency Act of 2008 as amended in 2010; National Protected Area Authority and Conservation Trust Fund Act of 2012; Sierra Leone Meteorological Agency of 2017; Nuclear Safety and Radiation and Protection Authority of 2012; Forestry Act of 1988.
  - Established Environmental Court to prosecute environmental offenders.
  - Established inter-Ministerial Committee on Water Catchment, Mangroves and Forest Reserves in the Western Area.
- Specific mitigation and adaptation initiatives:
  - Sierra Leone Meteorological Agency conducted Vulnerability Impact Assessment within 10 disaster prone communities.
  - Massive reforestation programme targeting planting of five million trees in four years (2020 to 2023), targeting approximately 13,500 hectares of degraded lands and coastal areas.
    - 2020: approximately 1.2 million assorted tree crop seedlings planted in degraded community lands across all sixteen (16) districts.
    - 2022 target: plant another 1.6 million.
    - 2023 target: plant remaining 2.2 million.
  - Sierra Leone’s updated Nationally Determined Contribution (NDC, 2021) sets mitigation and adaptation measures and sector-based project and policy actions.
  - NDC long-term mitigation goal: reduction in CO2 emission levels by 10% by 2030 from about 74,655 Gg of CO2 in 2020.
  - Emphasis on REDD+, innovation and technology transfer, and private sector partnerships to create markets and jobs while reducing GHG emissions.
  - Note on electricity access: low electricity access rate of about 25% — investment in green energy generation infrastructure prioritized.
  - Budget 2022 commitment: invest in low-cost renewable energy such as hydro-power, Liquefied Petroleum Gas and solar mini-grids to reduce carbon emissions and stimulate economic activity.

*Italic: Content summarized from IMF PDF chapter "1sleea2022001 - 74.      Government recognizes that improving the business environment is critical to".*

### 89.      The program will be monitored on a semi-annual basis, through quantitative targets

### 1sleea2022001 - 89.      The program will be monitored on a semi-annual basis, through quantitative targets

### Monitoring framework and review schedule
- The program will be monitored on a semi-annual basis, through quantitative targets and structural benchmarks.
- Quantitative targets classification:
  - Performance criteria: end-June 2022 and end-December 2022.
  - Indicative targets: end-March 2022, end-September 2022, and end-March 2023.
- Review schedule:
  - The sixth review of the program will take place on or after December 1, 2022.
  - The seventh and final review will take place on or after June 1, 2023.

### Key quantitative targets and selected indicators (as presented)
- Net domestic bank credit to the central government (ceiling) — Unadjusted target (ceiling): 1858; 1775; 259.
  - Reported entries in table: 1858 602 1920 Not met; 1775 482 2255 Not Met; 259 656 837 Not met; 757 1762 681 2498 1366 1362 651.
  - Adjustments shown in table: 0; 9; 0; -516; -634; 372; -740; -668; 25; 0.
- Net domestic assets of the BSL (ceiling) — Unadjusted target (ceiling): 1170; 995; 291.
  - Table entries: 1170 -1860 -2532 Met; 995 -1829 -2493 Met; 291 424 572 Not met; 723 2112 612 2993 1328 2220 405.
  - Adjustments shown: 0; 9; 0; -29; -117; 100; -3002; -3131; 0; 0; 414; 33.
- Gross international reserves of the BSL, US$ millions (floor) — Unadjusted target (floor): -84; -25; -56.
  - Table entries: -84 195 265 Met; -25 216 268 Met; -56 -61 -78 Not met; -78 -222 -85 -304 -120 -243 -44.
  - Adjustments shown: 0; -1; 0; 0; 0; -7; -7; -2; 286; 286; 0; -38; -3.
- New concessional external debt with original maturity of one year or more contracted or guaranteed by the public sector, US$ millions (annual ceiling)
  - Program and outturn examples: 130 87 Met; 130 104 Met; 70 65 Met; 70 115 70 115 70 115 100.
- New non-concessional external debt contracted or guaranteed by the public sector, US$ million (ceiling): 0 0 Met; 0 0 Met; 0 0 Met; subsequent entries 0 0 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): 0 0 Met; 0 0 Met; 0 0 Met; subsequent entries 0 0 0 0 0 0 0.
- External payment arrears of the public sector (ceiling): 0 0 Met; 0 0 Met; 0 0 Met; subsequent entries 0 0 0 0 0 0 0.
- Total domestic government revenue (floor) — select table entries: 4848 4969 Met; 6642 6917 Met; 1951 1620 Not met; 3939 3571 5642 5518 7637 7787 2356.
- Poverty-related spending (floor) — select table entries: 1585 1740 Met; 2034 2565 Met; 421 451 Met; 965 1141 1562 1841 2165 2496 572.
- Domestic primary balance (floor) — select table entries: -981 -1480 Not met; -965 -2213 Not met; 202 -204 Not met; 356 -932 112 -1271 158 -1153 -43.
- Memorandum items:
  - External budgetary assistance (in $ million): 27 26 102 101.
  - Exchange rate (Leones/US$) — Program and actual examples: Program 10486 10939 11832 11966 13282 12184 14085 12614 14805 15164; Actual 10571 11256 11889.

(Note: table entries above are reproduced exactly as they appear in the source tables, including status annotations such as "Met" and "Not met".)

### Prior actions (for 5th Review) — objectives and required actions
- Prior action 1:
  - PDMD to (i) prepare an agreed action plan based on previous TA reports (Budget Execution TA report, Cash Management TA report) for preventing recurrence of new domestic arrears before the Board meeting, to be reviewed by FAD; and (ii) publish on the Ministry of Finance’s website, the quarterly report for 2022Q1 and an annual report for 2021 on actual performance against actual budget allotments. These reports shall provide updates on budget execution and arrears paydown or accumulation of due payables during the quarter.
  - Purpose: Corrective actions for fiscal overruns in 2021 that led to breach of NCG. Actions include enhanced monitoring of budget allocations and cashflows to strengthen PFM controls.
- Prior action 2:
  - Submit to Parliament a revised 2022 budget consistent with agreed fiscal consolidation path and including specific measures (no further pre-April 2018 domestic arrears payments until a new arrears clearance plan is in place) that are necessary for a fully financed budget in line with program targets.
  - Purpose: To correct for fiscal overruns and revert to medium-term fiscal consolidation path.
- Prior action 3:
  - MoF reactivated the Expanded Cash and Debt Management Committee and held at least four meetings between April 15 to June 15 in line with the committee’s terms of references. Submit to the IMF a note with a list of actions to improve the functioning of the cash management committee.
  - Purpose: Corrective action to enhance cash management in the face of tight liquidity.
- Prior action 4:
  - Publish all quarterly unaudited financial statements of NACOVERC up to March 2022 on the Ministry of Finance’s website.
  - Purpose: As per RCF commitments.
- Prior action 5:
  - Publication of the second audit report on the COVID-19 response, covering July-December 2020, on ASSL’s website, in compliance with the commitments in the 2021 RCF Letter of Intent.
  - Purpose: As per RCF Commitments.

### Structural benchmarks (selected items, due dates, and status)
- Benchmarks for 5th Review:
  - 6. Undertake a stock-take and prepare a report on existing income tax exemptions. December 31, 2021 — Met.
  - 7. Update and issue revised prudential guidelines for banks in line with the 2019 Banking Act. December 31, 2021 — Not met. (SB reset to September 2022.)
  - 8. Conduct a study on effective ways to identify and tax High Net Worth Individuals (HNWI); share the study with IMF staff. March 31, 2022 — Met.
  - 9. Develop infrastructure project appraisal templates and guidelines. March 31, 2022 — Met.
  - 10. Conduct a thematic review of NPL strategy and management in the two state-owned banks and share actionable recommendations. March 31, 2022 — Met.
  - 11. Publish on the BSL website the BSL’s FY 2021 financial statements audited by a reputable audit firm with experience in central banking. April 30, 2022 — Not met. (SB proposed to be reset to September 2022.)
  - 12. Continue to use the automatic fuel price indexation mechanism and begin publishing the fuel price formula and outcomes. Continuous — Not met.
- Benchmarks for 6th Review (selected):
  - 13. Develop updated corporate governance frameworks for the two state-owned banks. September 30, 2022 — Proposed to be modified (see #16). World Bank assessment expected to inform refinement.
  - 14. Develop and publish an action plan on corporate governance frameworks for the two state-owned banks. September 30, 2022 — Proposed.
  - 15. Publish on the website of the BSL the BSL’s FY 2021 financial statements audited by a reputable audit firm. September 30, 2022 — Proposed.
  - 16. Develop an SOE Ownership Policy. September 30, 2022 — In progress.
  - 17. Develop a Medium-Term Revenue Strategy (MTRS) approved by Cabinet. September 30, 2022 — Proposed to be modified. FAD assisting; more time likely needed.
  - 18. A draft MTRS, developed with stakeholder inputs, submitted to Cabinet for approval. December 31, 2022 — Proposed.
  - 19. Prepare a quarterly budget out-turn report including progress in reduction of unpaid checks, implementation of ECDMC recommendations, disbursement and use of SDR-backed resources for fiscal purposes, and additional monitoring statements; provide corrective policy options in case of budget overruns (in line with PA#1). September 30, 2022 — Proposed. (Corrective action for the NCG breach.)
  - 20. Prepare a document to be shared with the Fund setting out BSL’s supervisory strategy and approach to address high system-wide NPLs and gradually realize compliance with the 10 percent prudential limit. December 15, 2022 — Proposed.
  - 21. Update and issue revised prudential guidelines for banks in line with the 2019 Banking Act. September 30, 2022 — Proposed.
  - 22. Appoint a Chief Internal Auditor at the Bank of Sierra Leone. December 31, 2022 — Proposed.
  - 23. Adopt by parliament a statutory amendment of the Audit Service Act 2014 and implementing regulations to strengthen ASSL’s audit process (Sections referenced). October 15, 2022 — Proposed.
  - 24. MoF and ASSL to jointly publish a roadmap to enhance budgetary autonomy of the ASSL, including statutory amendment proposals on budget setting/approval, disbursement of mandatory spending, and processing of audit fees. September 30, 2022 — Proposed.
  - 25. Update the legacy arrears clearance strategy, consistent with debt sustainability, that includes a list of creditors, prioritization criteria, and amounts to be paid over the next three years. October 31, 2022 — Proposed.
  - 26. Adoption by JLSC of Guidelines (Practice Directions) for any Tribunal under Section 137 5(ff) of the Constitution, reflective of constitutional principles (fair hearing, public procedure, reasonable timelines, independent and impartial Tribunal, public announcement of decisions). December 31, 2022 — Proposed.
- Benchmarks for 7th Review:
  - 27. Move to daily calculation and publication of an exchange rate based on a one-day lag, in consultation with AFRITAC West II. April 30, 2023 — Proposed.
  - 28. Establish a high-level steering committee on the MTRS to meet quarterly, led by the Ministry of Finance with representation from NRA, development partners, civil society and other relevant agencies. March 31, 2023 — Proposed.

*Statement by Ms. Mannathoko and Mr. Ekeocha on Sierra Leone June 27, 2022*

### Introduction

### Introduction

### Recent Economic Developments and Outlook
- Real GDP recovered from -2.0 percent in 2020 to 3.2 percent in 2021.
- Real GDP growth is expected at 3.6 and 3.4 percent in 2022 and 2023, respectively.
- Inflation rose from 10.4 percent at end-2020 to 17.9 percent in December 2021; projected to peak in 2022 and taper in the medium term.
- Current account deficit worsened from -6.8 percent of GDP in 2020 to -14.6 percent of GDP in 2021; projected to improve to -10.9 percent of GDP in 2023.
- Gross official reserves increased from 4.2 months of import cover in 2020 to 5.3 months in 2021, buoyed by the general SDR allocation.
- COVID-19 vaccination: 21 percent of the adult population fully vaccinated.
- COVID-19 incidence: Level-1, with an incidence rate of 0.1 per 100,000 population.

### Program Performance
- Indicative targets (ITs) on domestic revenue and poverty-related spending were met; the IT on the domestic primary balance was missed.
- All quantitative performance criteria (QPCs) and ITs in 2021 were met for gross international reserves and net domestic assets; the criterion for net credit to government was missed.
- March 2022: continuous PC on the concessional and non-concessional external debt ceiling met with no external arrears accumulation; continuous PCs on new multiple currency practices (MCPs) and exchange rate restrictions were missed.
- BSL introduced two new temporary one-off facilities in April 2022 to provide foreign exchange for importation of fuel and food; authorities requested waivers for non-observance of related performance criteria.
- Corrective actions committed:
  - Cap the total amount of the BSL facilities and non-renewal except with Fund consent.
  - Move to calculating the official exchange rate with a one-day lag.
  - Strengthen budget planning, cash and debt management, and payroll management to address net credit to government.

### Fiscal Policy
- Government aims to target a primary surplus in 2024.
- Target to reduce reliance on domestic banks’ financing to 2 percent of GDP (consistent with the ECF arrangement).
- Revenue and administration measures:
  - Review GST collection from telecoms and the energy sector.
  - Reverse the national telecommunication commission’s floor price instruction for telecommunication companies.
  - Strengthen tax administration: stricter enforcement of tax laws, field audits of large taxpayers, roll-out of the electronic cash register and integrated tax administration system, extend Block Management Registration System to other parts of Freetown.
  - Expand application of a specific export levy on timber and related products.
- Social and priority spending commitments:
  - Scale up cash transfers, support for the COVID-19 health response, critical domestic capital expenditures (water supply), programs addressing food insecurity, climate mitigation activities, and education improvements.
- Revised 2022 budget submitted to Parliament consistent with agreed fiscal consolidation path.
- Consideration of carbon credits (REDD+) and grants for forest conservation and reforestation.
- Public debt objectives and measures:
  - Aim for public debt-to-GDP ratio to fall below the NDP target of 70 percent in the medium term.
  - Cabinet-approved strategy prioritizing concessional foreign financing and market development to lower domestic borrowing and lengthen maturities.
  - Revise medium-term debt strategy 2021-2025 to match current fiscal framework.
  - Publish liabilities of biggest State-Owned Enterprises and their loans and guarantees; update arrears clearance strategy.

### Monetary and Exchange Rate Policies
- BSL hiked the monetary policy rate by 75 basis points in April 2022.
- BSL to monitor pricing movements, balance inflation control with recovery support, and strengthen monetary policy framework to boost transmission.
- Future measures: limit secondary market purchases to support government issuance, may introduce BSL instrument for liquidity management, and strengthen monetary policy communication including announcing the BSL's medium-term inflation target.
- Authorities to move from weekly to daily calculation of the BSL exchange rate to limit departures from the 2 percent limit on deviation allowed from market rates.
- Risks highlighted:
  - Shallow financial markets constrain transmission and amplify exchange rate movements.
  - Potential for FX depreciation to de-anchor and fuel inflation given high pass-through, erode monetary policy credibility, create second-round effects, and magnify debt service costs.
  - 2022 inflation projected at double the levels seen in 2020 (which were already over 10 percent).

### Financial Sector Policy
- BSL reviewing banking sector guidelines including prudential and corporate governance guidelines; amendment of prudential guidelines expected by September 2022.
- Developing cyber security standards for financial institutions.
- Continued supervision under a risk-based approach with a goal of adopting Basel 2 and Basel 3 frameworks.
- Heightened supervision of state-owned banks; ongoing evaluations of boards and updates to corporate governance with World Bank technical support.
- Onsite examinations completed; next round scheduled for late 2022 to early 2023.
- BSL will communicate a system-wide strategy to reduce NPLs to the 10 percent prudential limit.
- Deposit Protection Bill sent to Parliament; deposit protection fund to be established after passage.
- Aim to establish a robust crisis management and resolution structure.

### Structural Reforms
- Anti-corruption measures:
  - Anti-Corruption Commission recovered almost Le35 billion from corrupt officials and institutions over the last three years.
  - Enhancements to laws and legal framework governing graft.
- Transparency and governance:
  - Second audit of COVID-19 spending published.
  - Commitment to publish quarterly reports and purchase details via the National Public Procurement Authority.
  - Commitment to increase independence of the audit service Sierra Leone (ASSL) and establish a time-bound and transparent tribunal for the suspended auditor general and her deputy.
- Inclusive growth and poverty reduction:
  - Create fiscal space for human capital development, economic diversification, climate change adaptation, and social protection expansion.
  - Strengthen legal framework on forest conservation, pursue climate credits and meet transparency and verification requirements.
- Regulatory reforms to improve ease of doing business: business registration, cross-border trade barriers, property registration.
- Strengthening AML/CFT framework: regulate finance and non-profit organizations, beneficial ownership measures, improved risk-based supervision and monitoring of non-bank financial entities, and possible modifications to the Companies Act.

### Conclusion and Authorities' Requests
- Authorities reiterate commitment to prudent macroeconomic policies to achieve ECF program objectives and support the National Development Plan 2019-2023.
- Request Directors’ support for completion of the fifth review under the ECF arrangement, waivers for missed performance criteria given corrective measures, modifications of performance criteria, and the financing assurances review.
- Authorities anticipate continued close Fund engagement and technical assistance to bolster reform implementation under the ECF program.

*Source: 1sleea2022001 - Introduction*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1sleea2022001.pdf_