## 1sleea2023001

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---

### Executive summary — context and program performance
- Context and immediate challenges:
  - Since the 5th review under the ECF arrangement in July 2022: macro policies became more expansionary than expected; inflation continued to rise; the leone depreciated sharply; debt-related risks increased notably.
  - Deadly floods weakened activity and highlighted climate-related risks.
  - Risk of social unrest remains high given soaring cost of living and record levels of food insecurity.
  - New economic team appointed in early 2023 has begun decisive action.
- Program performance and corrective actions:
  - H2-2022 performance weak; corrective action undertaken in H1-2023.
  - End-June 2022 PCs: all but one met; Net Credit to Government (NCG) PC breached by a significant margin.
  - End-December 2022 PCs: three missed, with the NCG breached by a 7½ percent of GDP margin; continuous PCs were met.
  - Corrective measures include raising tax revenues through 2.2 percent of GDP in additional measures; reducing spending by 5.6 percent of GDP in 2023 relative to 2022; strengthening budget execution and preventing arrears; bolstering expenditure transparency and accountability.
  - Structural reforms: authorities met 5 of 15 structural benchmarks (SBs) and completed 9 with a delay.
  - All four prior actions for the 6th and 7th reviews were completed.

### Recent economic developments — key statistics and findings
- Growth and inflation:
  - Growth decelerated to 3.6 percent in 2022.
  - Headline inflation rose to 41.5 percent yoy in March 2023; food inflation at 49.5 percent.
- External sector and reserves:
  - Current account deficit remained at around 9 percent of GDP in 2022 despite the 67.3 percent yoy leone depreciation as of end-2022.
  - International reserves: adequate at 4 months of imports at end-2022.
- Banking system indicators (March 2023):
  - Capital adequacy ratio: 41 percent.
  - NPL ratio: 13 percent.
  - Share of FX deposits: increased from 36 to 53 percent between end-2021 and March 2023.
  - Share of government securities in banks’ total assets declined from 46 percent in mid-2021 to 34 percent.
- Fiscal outturn (percent of non-iron ore GDP; Text Table 1 highlights):
  - Total revenue and grants: Act. 21.1; ECF 5th Rev 21.0; Prel. 19.9; Budget 3.9; Target. 3.7
  - Revenue: Act. 15.7; ECF 5th Rev 14.7; Prel. 13.0; Budget 3.0; Target. 3.0
  - Tax revenue: Act. 12.7; ECF 12.1; Prel. 10.9; Budget 2.3; Target. 2.2
  - Grants: Act. 4.6; ECF 5.8; Prel. 6.5; Budget 0.8; Target. 0.7
  - Expenditures and net lending: Act. 28.4; ECF 25.1; Prel. 30.8; Budget 5.1; Target. 6.2
  - Domestic primary balance: Act. -5.0; ECF -2.5; Prel. -9.4; Budget -0.2; Target. -1.2
  - Overall balance including grants: Act. -7.4; ECF -4.1; Prel. -10.9; Budget -1.2; Target. -2.5
- 2022 fiscal deficit exceeded the 5th review target by 6.8 percent of GDP due to under-budgeting, policy discretion and rising costs.
- Money and interest rates:
  - Base money: expansion of 25.6 percent yoy (-11.5 percent in real terms) at end-December 2022, compared to 1.3 percent projected during the 5th review.
  - Q1 2023 base money growth decelerated to 4.4 percent qoq from 23 percent in the previous quarter.
  - Policy rate: 275-bps increase to 18.25 percent in January 2023; real rates remain negative.

### Outlook and key macro projections (chapter 7)
- Growth:
  - 2023 projected to decelerate to 2.7 percent as fiscal consolidation takes hold.
  - Growth in 2024 should accelerate as mining and agriculture recover and stabilization sets in.
- Inflation:
  - Projected to gradually decline to single digits over the medium-term amid contractionary policy.
- External sector and reserves:
  - Current account deficit projected to decline with increasing iron ore exports and tighter fiscal policy.
  - FX reserves would stabilize at 3 months of imports assuming an annual financing gap of around US$40 million after 2024 is closed.

### Fiscal policy and 2023 adjustment (detailed measures)
- Overall fiscal tightening:
  - Deficit projected to contract from 10.9 percent of GDP in 2022 to 5.6 percent of GDP in 2023.
- Revenue measures (estimated yields, percent of non-iron ore GDP):
  - Total revenue measures estimated yield: 2.4
  - Tax policy measures (Finance Act 2023): 1.8 with itemized yields:
    - (1) Minimum alternative tax at 3% of turnover: 0.2
    - (2) Removed exemptions on GST: 1.3
    - (3) Harmonized excise tax rates and annual vehicle circulation fees at Nle 200: 0.3
  - Tax administration measures: 0.4 (digital IDs, excise stamps, fuel marking, ECRs for 19 large companies, strengthened compliance, collected outstanding lease payments)
  - Mining related measures:
    - Renegotiated one mining contract: 0.2
    - Implemented safe harbor regulations for iron ore: tbd
- Expenditure adjustment and composition of savings (2023 focus):
  - Authorities plan a 5.6 percentage points reduction in spending relative to 2022, of which reversals of one-offs account for some 3.4 ppts.
  - Itemized changes relative to 2022:
    - Wages and salaries: Reduced by 1.0 ppts of GDP (no new hires except critical sectors; no new wage increases).
    - Goods and services: Reduced by 1.5 ppts of GDP.
    - Domestically financed capital expenditure: Projected to decrease from 5.3 ppts of GDP in 2022 to 2.8 ppts in 2023.
    - Interest: Projected to increase due to higher-than-expected debt and coupons.
  - Budget support grants in 2023: US$65 million under WB DPO, US$25 million from WB’s Crisis Response Window (CRW), and US$2.4 million in UNDP election funding.

### Contingency planning and additional measures
- Contingency actions if pressures reemerge:
  - Further reprioritize spending, including curbing domestically financed capital expenditure.
  - Seek additional budget support.
  - Implement additional tax measures informed by the MTRS, including:
    - Fast tracking harmonization of taxes on capital income (excluding capital gains) at 20 percent from 10 percent.
    - Increasing stamp duty on immovable property.
    - Streamlining GST exemptions while protecting the poor.
    - Introducing an excise tax on single use, non-biodegradable plastics.

### Medium-term fiscal trajectory (2023–2028) and financing
- Medium-term fiscal path:
  - Domestic primary balance projected to strengthen by another 4.3 ppts of GDP until 2028.
  - Primary balance surplus projected at 1.9 percent of GDP in 2028.
  - Cabinet approved the MTRS (Prior Action #2); include tax measures yielding at least 1 percent of GDP in the 2024 Finance Bill and 1 percent of GDP in 2025 Finance Bill.
- Financing strategy for 2023:
  - Domestic bank financing projected at 3.4 ppts of GDP in 2023.
  - Non-bank financing: 0.8 ppts of GDP.
  - Use of 2021 SDR allocation: additional 2.5 percent of GDP (bringing cumulative use to 55 percent of the total).

### Debt sustainability — assessment and implications
- Assessment:
  - Overall and external public debts assessed as sustainable, but risk of debt distress is high and rising.
  - Sharp depreciation and 2022 deficit pushed up several DSA indicators.
  - External debt service-to-revenue ratio and PV of public debt-to-GDP exhibit large and sustained breaches of thresholds.
  - All debt indicators remain on a declining trend over medium to long-term, predicated on planned ambitious fiscal adjustment and reliance on grants and concessional financing.
- Key numeric debt indicators and risks:
  - End-2022: Total public debt rose to 96 percent of GDP in 2022 (from 79 percent of GDP in 2021).
  - Composition: Approximately 67 percent of total public and PPG debt is external; 80 percent of external debt comprises non-restructurable obligations to multilateral creditors (IMF: 26 percent of total PPG debt stock; WB: 24 percent).
  - Stock of domestic legacy arrears: Le 2,581.3 billion (4.8 percent of GDP) by end 2022.
  - Debt-carrying capacity: “medium” with composite indicator value 2.73.
  - Contingent liabilities estimated at 12 percent of GDP (SOE debt 7 percent; financial markets 5 percent).
- Policy implications:
  - Urgent action needed to bring down the debt service burden over time.
  - Enhance domestic debt management to reduce high interest bill and refinancing risk from reliance on T-bills.
  - Continue seeking grant financing and issuing longer-term securities as conditions permit.

### Monetary and exchange rate policies
- Monetary policy stance:
  - Monetary policy set to tighten sharply.
  - Base money projected to contract by 15.5 percent in real terms in 2023 supported by strictly limited BSL purchases of government securities.
  - Authorities committed to continue raising the policy interest rate.
  - BSL to publish quarterly monetary policy reports and announce dates of MPC meetings.
- FX reserves and interventions:
  - Tighter policy stance expected to help maintain adequate reserve buffers.
  - Space to intervene constrained after larger-than-expected reserve decline.
  - Intervention should be two-sided and strictly limited to excess volatility and de-anchoring risks.
  - Authorities plan to enforce FX repatriation requirements more rigorously and have extended them to the mining sector.
- FX market development and redenomination risks:
  - Priority to develop the interbank FX market; began daily FX rate publication (end-April 2023 SB) and adopted prudential guidelines on net open positions (end-September 2022 SB).
  - Currency redenomination elevated risks: (i) lack of vault space; (ii) limited capacity to destroy notes; (iii) cost overruns. Authorities plan to publish detailed information on redenomination (Proposed end-October 2023 SB).

### Financial sector policies and safeguards
- Strengthening governance and supervision:
  - Implemented revised Prudential Guidelines for banks (September 30, 2022 SB).
  - Outlined supervisory strategy to address high NPLs (December 15, 2022 SB).
  - Completed corporate governance action plan for SOBs (end-September 2022 SB).
  - Ran stress tests and published in the 2021 Financial Stability Report.
  - Planned actions include establishing a Financial Policy Committee by end-July 2023; adopt Corporate Governance Guidelines for banks by end-October 2023; launch Deposit Protection Fund Act by end-September 2024.
- Safeguards and audits:
  - Published BSL’s audited FY2021 financial statements (end-September 2022 SB).
  - FY2022 audit in progress; BSL appointed a director of Internal Audit (end-December 2022 SB).

### Governance, PFM, arrears management, and procurement
- Strengthening budget execution and arrears management:
  - Mandatory processing of expenditures through web-based IFMIS; EFT system went live and rollout planned to all MDAs.
  - Intend to incorporate all outstanding verified domestic arrears as of end-June 2023 into a new arrears clearance strategy (Proposed end-October 2023 SB); post-June 2023 domestic arrears to be paid only when budgeted.
  - Plan to deploy an arrears profiling system.
- TSA expansion and cash management:
  - Phase II: all SVA accounts in commercial banks identified; all balances, except donor-funded project balances, transferred to BSL disbursement accounts; BSL to redesignate as treasury accounts by end-August 2023.
- Transparency and procurement:
  - Published detailed information on spending on legacy arrears and roads projects in 2022 (Prior Actions #3 and #4).
  - Plans to roll out e-procurement across MDAs and implement legal reforms associated with Electronic Transaction Act.

### Social protection, food insecurity, and human capital (Annex I)
- Food insecurity statistics and drivers:
  - Feb 2023: some 78 percent of households are food insecure (WFP).
  - Drivers: global food price increases (Russia–Ukraine war), August 2022 floods, low productivity, high inflation, and leone depreciation.
  - Domestic price changes (as of December 2022 compared to January): Rice price per kilogram increased by 45 percent; Palm oil prices increased by 108 percent.
  - WFP minimum expenditure basket: 80 percent of households cannot afford the cost.
- Current interventions:
  - School feeding program: up to 600,000 students in food vulnerable districts benefiting; cost about US$ 24cts per meal.
  - E-voucher program for rice farmers: inputs, tractor services, fertilizers, labor.
  - BSL previously introduced a special food facility of US$50 million (now expired).
- International assistance and needs:
  - Access to World Bank CRW (US$50 million grant); WFP, FAO, ECOWAS support monitoring.
  - Additional financing needed to scale up social safety nets and support farmers; medium-term priorities include shock-responsive social programs and investment to increase agricultural productivity.

### Program modalities, conditionality, financing requests, and staff appraisal
- Authorities’ requests:
  - Completion of the 6th and 7th ECF reviews; waivers of non-observance for end-June 2022 NCG and end-December 2022 NCG, GIR and NDA based on corrective actions; a five-month extension of the ECF and rephasing of disbursements; completion of the financing assurances review.
- Proposed modifications and conditionality:
  - Disbursements under the 6th and 7th reviews reduced by half, remainder available at newly set 8th review with an end-June 2023 test date; total disbursements under the ECF remain unchanged.
  - Staff proposes new QPCs and ITs for June 2023 and three new SBs to inform the 8th review:
    - Include additional revenue measures in the 2024 Finance Act yielding at least 1 percent of GDP.
    - Adopt a new arrears clearance strategy incorporating outstanding verified domestic arrears as of end-June 2023.
    - Publish on the BSL’s website detailed information on the redenomination process.
- Financing assurances and IMF exposure:
  - ECF fully financed with firm commitments for remainder of program.
  - Cumulative disbursement of SDR 15.555 million under the 6th and 7th reviews to be on-lent to the budget per existing MoU.
  - Outstanding debt to the IMF as a percentage of GDP: 13.3 percent.
  - Outstanding IMF credit projected to peak at end-2023 at 173 percent of quota and 103 percent of gross reserves.
  - Annual gross repayments to the Fund projected to peak in 2024 at 5.1 percent of exports and 1½ percent of GDP.
- Staff appraisal and policy recommendations:
  - Support for decisive tightening of fiscal policy to contain inflation and depreciation pressures, limit crowding out of private credit, protect priority social spending, and bolster debt sustainability.
  - Monetary policy: contain base money growth; policy rates should rise further; FX intervention strictly limited.
  - Debt and financial sector: issue domestic debt at longer maturities; mobilize additional grant resources; strengthen public financial management and EDSA’s financial independence; reinforce BSL governance and crisis management frameworks; operationalize Deposit Protection Fund.
  - Governance and accountability: strengthen tribunal proceedings; meet legal payment obligations to public sector staff; implement Audit Service Amendment Act and secure MDA compliance.

### Risks, stress tests, and capacity development (TA priorities)
- Risks to program:
  - Program and debt sustainability risks high; Sierra Leone highly vulnerable to external shocks; large adjustment required.
  - Policy implementation challenges amid capacity constraints and political risks.
  - Specific program risks: larger-than-programmed government domestic financing needs; further deposit dollarization; larger-than-programmed BSL purchases of government paper could reignite inflation-depreciation spiral.
- Stress test and financing pressures:
  - Debt service-to-revenue and gross financing needs high; T-bills amortization accounts for around 70 percent of gross financing needs.
  - Debt service-to-revenue and grants ratio (selected series from Text Table 6) includes values such as: 111.0 122.8 102.9 107.5 102.7 95.5 100.5 95.8 94.3 84.0 76.9 71.2 23.7.
  - Gross financing need (series): 28.8 24.6 20.3 21.3 19.8 18.7 19.4 18.5 18.0 16.0 14.7 13.6 5.4.
- TA risks and mitigants:
  - TA implementation constrained by small number of officials, bunched missions, and financing for investments.
  - Mitigants: remote missions, resident advisors (two placed March 2022 at BSL), pilot country for expenditure policy TA, extensive CD agenda across PFM, tax policy, revenue administration, financial supervision, debt management, statistics.

*Source: EXECUTIVE SUMMARY and chapters, Annex I, and MEFP excerpts from IMF staff report (1sleea2023001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Since the 5th review under the ECF arrangement in July 2022, macro policies became more expansionary than expected, inflation continued to rise, the leone depreciated sharply and debt-related risks increased notably.
- Deadly floods weakened activity and highlighted climate-related risks.
- The risk of social unrest remains high given the soaring cost of living and record levels of food insecurity.
- The President appointed a new economic team in early 2023 which has begun to take decisive action to tackle these challenges.
- Discussions focused on recent developments as well as policy commitments to restore stability, maintain debt sustainability, and achieve program objectives.

### Program performance
- H2-2022 performance was weak; corrective action undertaken in H1-2023.
- End-June 2022 quantitative performance criteria (PCs): all but one met; Net Credit to Government (NCG) PC breached by a significant margin.
- End-December 2022 PCs: three missed, with the NCG breached by a 7½ percent of GDP margin; continuous PCs were met.
- Corrective actions include measures to:
  - raise tax revenues through 2.2 percent of GDP in additional measures;
  - reduce spending by 5.6 percent of GDP in 2023 relative to 2022;
  - strengthen budget execution and prevent arrears;
  - bolster expenditure transparency and accountability.
- Structural reforms: authorities met 5 of 15 structural benchmarks (SBs) and completed 9 with a delay.
- All four prior actions for the 6th and 7th reviews were completed.

### Recent economic developments (key statistics and findings)
- Growth decelerated to 3.6 percent in 2022.
- Headline inflation rose to 41.5 percent yoy in March 2023; food inflation at 49.5 percent.
- The current account deficit remained at around 9 percent of GDP in 2022 despite the 67.3 percent yoy leone depreciation as of end-2022.
- International reserves remained adequate at 4 months of imports at end-2022.
- Banking system indicators (March 2023):
  - Capital adequacy ratio: 41 percent.
  - NPL ratio: 13 percent.
  - Share of FX deposits increased from 36 to 53 percent between end-2021 and March 2023.
  - Share of government securities in banks’ total assets declined from 46 percent in mid-2021 to 34 percent.
- Fiscal outturn (Text Table 1 highlights; percent of non-iron ore GDP):
  - Total revenue and grants: Act. 21.1; ECF 5th Rev 21.0; Prel. 19.9; Budget 3.9; Target. 3.7
  - Revenue: Act. 15.7; ECF 5th Rev 14.7; Prel. 13.0; Budget 3.0; Target. 3.0
  - Tax revenue: Act. 12.7; ECF 12.1; Prel. 10.9; Budget 2.3; Target. 2.2
  - Grants: Act. 4.6; ECF 5.8; Prel. 6.5; Budget 0.8; Target. 0.7
  - Expenditures and net lending: Act. 28.4; ECF 25.1; Prel. 30.8; Budget 5.1; Target. 6.2
  - Domestic primary balance: Act. -5.0; ECF -2.5; Prel. -9.4; Budget -0.2; Target. -1.2
  - Overall balance including grants: Act. -7.4; ECF -4.1; Prel. -10.9; Budget -1.2; Target. -2.5
- 2022 fiscal deficit exceeded the 5th review target by 6.8 percent of GDP due to under-budgeting, policy discretion and rising costs.
- Base money: expansion in base money of 25.6 percent yoy (-11.5 percent in real terms) at end-December 2022, compared to 1.3 percent projected during the 5th review.
- Q1 2023 base money growth decelerated to 4.4 percent qoq from 23 percent in the previous quarter.
- Policy rate: 275-bps increase to 18.25 percent in January 2023; real rates remain negative.

### Policy recommendations
- A decisive tightening of macroeconomic policies is critical to restoring macroeconomic stability and keeping debt on a sustainable path.
- Fiscal consolidation should:
  - continue efforts to raise revenues;
  - curtail expenditures while protecting social spending;
  - seek grant financing.
- Monetary policy should tighten to break upward inflation and depreciation trends and help rebuild FX reserves.
- Structural reforms to reduce the need for energy subsidies should continue at pace.
- Bring down the debt service burden over time amid the notable increase in debt sustainability risks.
- Continue governance reforms and reinforce transparency around the currency redenomination.
- Strengthen the crisis management framework and financial safety net.

### Program issues and proposed IMF responses
- Authorities request:
  - completion of the 6th and 7th ECF reviews;
  - waivers of non-observance for the end-June 2022 NCG and the end-December 2022 NCG, GIR and NDA based on corrective actions;
  - a five-month extension of the ECF and a rephasing of disbursements;
  - completion of the financing assurances review.
- Proposed modifications:
  - Disbursements under the 6th and 7th reviews would be reduced by half, with the remaining access available at the newly set 8th review with an end-June 2023 test date.
  - Total disbursements under the ECF would remain unchanged.
  - Staff proposes new QPCs and ITs for June 2023 and three new SBs to inform the 8th review of the ECF.

### Risks to the program
- Program risks, including those related to debt sustainability, are high; contingency planning is key.
- Sierra Leone is highly vulnerable to external shocks, and the required adjustment is sizable.
- Policy implementation will remain a significant challenge despite decisive initial steps.
- Risk mitigants:
  - authorities’ commitment to the ECF and its strong conditionality;
  - the extensive capacity development agenda;
  - authorities’ strong track record of servicing their obligations to the Fund.

*Source: EXECUTIVE SUMMARY (1sleea2023001) — International Monetary Fund*

### 7.      Macroeconomic conditions are expected to stabilize but the outlook remains

### 7.      Macroeconomic conditions are expected to stabilize but the outlook remains challenging.

### Outlook and key macro projections
- Growth:
  - Growth in 2023 is projected to decelerate to 2.7 percent as fiscal consolidation takes hold.
  - Growth in 2024 should accelerate given the expected recovery in mining and agriculture, the less contractionary fiscal stance, and as macroeconomic stabilization sets in.
- Inflation:
  - Inflation is projected to gradually decline to single digits over the medium-term amid the contractionary policy stance.
- External sector:
  - The current account deficit is projected to decline on the back of increasing iron ore exports and tighter fiscal policy.
  - FX reserves would stabilize at 3 months of imports assuming that an annual financing gap of around US$40 million after 2024 is closed.

### Risks to the outlook
- Policy and implementation risks:
  - Policy implementation risks are high amid the large adjustment need.
  - Larger-than programmed government domestic financing needs, and further deposit dollarization, could intensify rollover risks as banks’ ability to increase holdings of government paper may come under strain.
  - Larger-than-programmed BSL purchases of government paper could further spur the inflation-depreciation spiral, thus reigniting deposit dollarization.
- External/global risks:
  - An abrupt global slowdown, tighter global financial conditions, a more protracted Russia’s war in Ukraine, and geographical fragmentation could weigh on external demand.
  - A worse-than-anticipated ToT shock, and higher inflation, could deteriorate fiscal and external accounts.

### Policy stance and required actions (summary)
- A decisive tightening of macroeconomic policies is required to restore stability, contain increasing risks to debt sustainability and achieve program objectives.
- Authorities’ planned measures:
  - Sharply curtail expenditures and raise tax revenues.
  - Monetary policy will be contractionary to arrest upward inflation and depreciation trends, and to relieve pressure on FX reserves.
  - Improve PFM and governance; strengthen BSL crisis management frameworks and the safety net.

### Fiscal policies and 2023 adjustment
- Overall fiscal tightening:
  - The deficit is projected to contract from 10.9 percent of GDP in 2022 to 5.6 percent of GDP in 2023.
- Revenue measures (estimated yields, percent of non-iron ore GDP):
  - Total revenue measures estimated yield: 2.4
  - Tax policy measures (Finance Act 2023): 1.8 (itemized yields)
    - (1) Introduced a minimum alternative tax at 3% of turnover: 0.2
    - (2) Removed exemptions on GST (machinery and equipment, aviation operations, gambling, fees-based financial services, mobile data, digital services, voice calls, and first sale of property): 1.3
    - (3) Harmonized excise tax rates for local and imported excisable products and introduced annual vehicle circulation fees at Nle 200: 0.3
  - Tax administration measures (digital IDs, excise stamps, fuel marking, ECRs for 19 large companies, strengthened compliance, collected outstanding lease payments): 0.4
  - Mining related measures:
    - (5) Renegotiated one mining contract to unwinde concessions awarded in 2022: 0.2
    - (6) Implemented a safe harbor regulations for iron ore: tbd
- Additional revenue actions underway:
  - Renegotiating a mining contract expected to yield 0.2 percent of GDP.
  - Implementing a safe harbor regulation for iron ore (potential to raise mining revenues; tbd).
  - Reinstating a fixed, predictable, and stable excise on fuel going forward, consistent with the historical average and the continuous SB.

### Expenditure adjustment and composition of savings (2023 focus)
- Overall planned spending reduction:
  - Authorities plan a 5.6 percentage points reduction in spending relative to 2022, of which reversals of one-offs account for some 3.4 ppts.
- Itemized spending changes (percent of GDP differences relative to 2022 where specified):
  - Wages and salaries: Reduced by 1.0 ppts of GDP relative to 2022 (assuming no new hires except for critical sectors and no new wage increases).
  - Goods and services: Reduced by 1.5 ppts of GDP relative to 2022 by removing one-offs and adjusting the baseline.
  - Domestically financed capital expenditure: Projected to decrease from 5.3 ppts of GDP in 2022 to 2.8 ppts in 2023 through removal of one-off spending items and postponement of certain projects.
  - Interest: Projected to increase due to higher-than-expected debt and coupons.
  - Legacy arrears: Consistent with budget and arrears clearance strategy.
  - Budget support grants in 2023: US$65 million under WB DPO, US$25 million from WB’s Crisis Response Window (CRW), and US$2.4 million in UNDP election funding.

### Contingency planning and potential additional measures
- Contingency actions if pressures reemerge:
  - Further reprioritize spending, including by curbing domestically financed capital expenditure.
  - Seek additional budget support.
  - Implement additional tax measures informed by the MTRS in case of revenue shortfalls, including:
    - (i) Fast tracking harmonization of taxes on capital income (excluding capital gains) at 20 percent from 10 percent.
    - (ii) Increasing stamp duty on immovable property.
    - (iii) Streamlining GST exemptions while protecting the poor.
    - (iv) Introducing an excise tax on single use, non-biodegradable plastics.

### Medium-term fiscal trajectory (2023–2028)
- Fiscal consolidation focus:
  - Following 2023, the domestic primary balance is projected to strengthen by another 4.3 ppts of GDP until 2028, largely on the back of increasing tax revenues and a decline in interest expense.
  - At 1.9 percent of GDP in 2028, the primary balance surplus is higher than projected at the 5th review, reflecting the need to offset the fiscal slippages in 2022 through a larger adjustment.
- Revenue drivers:
  - Cabinet approved the MTRS (Prior Action #2); a high-level steering committee established (end-March 2023 SB).
  - Include tax measures yielding at least 1 percent of GDP in the 2024 Finance Bill (proposed end-October SB), and 1 percent of GDP in the 2025 Finance Bill.
  - Additional support from recovery in buoyancy, efficiency gains from automation (ITAS, ECR, computer aided audits), and adherence to the fuel price formula.
- Expenditure drivers:
  - Finalize a medium-term wage bill management strategy by end-October 2023.
  - Subsidies to decrease with reforms in EDSA and other SOEs.
  - Interest obligations projected to drop as yields moderate and debt ratios fall.

### Financing strategy for 2023
- Expected sources of financing:
  - Domestic bank financing projected at 3.4 ppts of GDP in 2023.
  - Non-bank financing: 0.8 ppts of GDP.
  - Use of 2021 SDR allocation: additional 2.5 percent of GDP (bringing cumulative use to 55 percent of the total).

### Debt sustainability
- Assessment:
  - Sierra Leone’s overall and external public debts are assessed as sustainable, but the risk of debt distress is high and rising.
  - Sharp depreciation and the larger-than-expected 2022 deficit have pushed up several DSA indicators.
  - External debt service-to-revenue ratio and the PV of the public debt-to-GDP ratio exhibit large and sustained breaches of their thresholds.
  - All debt indicators remain on a declining trend over the medium to long-term, predicated on planned ambitious fiscal adjustment and continued reliance on grants and concessional financing.
- Policy implications:
  - Action is urgently needed to bring down the debt service burden over time.
  - Enhancing domestic debt management is a priority to reduce high interest bill and refinancing risk from reliance on T-bills.
  - Authorities committed to external borrowing limits and to continue seeking grant financing and issuing longer-term securities as conditions permit.

### Monetary and exchange rate policies
- Monetary policy:
  - Monetary policy is set to tighten sharply.
  - Base money—the BSL’s operational target—is projected to contract by 15.5 percent in real terms in 2023 supported by strictly limited BSL purchases of government securities.
  - Authorities committed to continue raising the policy interest rate to send a strong signal of their intention to reduce inflation.
  - Improved communication: publication of quarterly monetary policy reports and announcement of dates of forthcoming MPC meetings.
- FX reserves and interventions:
  - Tighter policy stance should help maintain adequate reserve buffers.
  - With the larger-than-expected decline in reserves, space to intervene in the FX market is constrained.
  - Intervention should be two-sided and strictly limited to addressing excessive volatility and concerns about de-anchoring inflation expectations in case of very large temporary shocks.
  - To shore up reserve buffers, authorities plan to enforce existing FX repatriation requirements more rigorously and have extended them to the mining sector.
- FX market development:
  - Priority to develop the interbank FX market.
  - Authorities began to publish the FX rate daily (end-April 2023 SB), adopted prudential guidelines covering net open positions (end-September 2022 SB) and plan to abolish FX regulatory limits on forward transactions.
- Currency redenomination risks:
  - Elevated risks materialized from the 5th review: (i) lack of vault space; (ii) limited capacity to destroy notes; (iii) cost overruns.
  - Demand for the new currency has been larger than expected; authorities satisfied some demand with unused old notes and extended the deadline to withdraw old notes.
  - Authorities plan to publish detailed information on the redenomination (Proposed end-October 2023 SB) to strengthen transparency and confidence.

### Financial sector policies and safeguards
- Strengthening governance and supervision (actions taken and planned):
  - Implemented the revised Prudential Guidelines for banks (September 30, 2022 SB).
  - Outlined a supervisory strategy to address high NPLs (December 15, 2022 SB).
  - Completed a corporate governance action plan for SOBs (end-September 2022 SB).
  - Ran stress tests supported by the Fund’s resident advisor, published in the 2021 Financial Stability Report.
  - Planned actions:
    - Establish a Financial Policy Committee in line with the BSL Act 2019 by end-July 2023.
    - Adopt Corporate Governance Guidelines for banks by end-October 2023 and operationalize the corporate governance action plan for SOBs.
    - Launch the Deposit Protection Fund Act by end-September 2024—after taking timebound action vis-à-vis any banks that are in breach of regulatory requirements—and make progress on operationalizing the financial crisis management framework and financial safety net in accordance with the TA Roadmap in the FSSR 2020.
- Safeguards and audits:
  - Implemented most safeguards recommendations.
  - Published the BSL’s audited FY2021 financial statements (end-September 2022 SB).
  - Working towards normalizing the audit cycle for FY2022 and finalizing prior year Management Letters.
  - FY2022 audit is in progress.
  - BSL appointed a director of Internal Audit (end-December 2022 SB).

### Governance and public financial management (PFM)
- Steps taken:
  - Published a roadmap to strengthen the ASSL’s budgetary autonomy (with a delay; end-September 2022 SB).
  - Published the 2021 financial statements of NaCOVERC.
  - Amended (with a delay) the Audit Service Act 2014 (October 15, 2022, SB).
  - Plan to publish a roadmap that revives dormant statutory provisions on surcharges with an implementing regulation (Section12 Audit Service Act 2014).
- Judicial and institutional issues:
  - The Judicial and Legal Service Commission adopted new tribunal guidelines (with a delay; end-December 2022 SB).
  - Ongoing tribunal on the suspension of the Auditor General and her Deputy has made little progress over 18 months.
  - Authorities have taken initial steps towards meeting the commitment to pay all salaries and allowances legally due to ASSL management.

*Source: IMF staff report text provided in the chapter "7.      Macroeconomic conditions are expected to stabilize but the outlook remains challenging."*

### 26.      The authorities are taking additional measures to strengthen budget execution,

### 1sleea2023001 - 26.      The authorities are taking additional measures to strengthen budget execution,

### Strengthening budget execution and arrears management
- Measures introduced:
  - Mandatory processing of expenditures through the web-based IFMIS.
  - Plan to fully implement the Electronic Funds Transfer (EFT) system (MEFP ¶34); the implementation of EFT recently went live, and the authorities plan to roll it out to all MDA to prevent the accumulation of printed cheques.
  - Intention to incorporate all outstanding verified domestic arrears as of end-June 2023, including unpaid checks, into a new arrears clearance strategy (Proposed end-October 2023 SB) with a view to fully budgeting for their clearance starting with the 2024 budget.
  - Post-June 2023 domestic arrears will be paid only when budgeted for.
  - Plan to deploy an arrears profiling system to help track arrears payments across MDAs.

- New structural benchmark proposed to inform the 8th review:
  - Adopting a new arrears clearance strategy that incorporates outstanding verified domestic arrears as of end-June 2023.

### TSA expansion and cash management
- Implementation of Phase II of the TSA expansion:
  - All SVA accounts in commercial banks were identified.
  - All balances, except those related to donor-funded projects, were transferred to BSL disbursement accounts.
  - The BSL is expected to redesignate the disbursement accounts as treasury accounts by end-August 2023.
- Note: Redesignation will allow the BSL to calculate interest on ways and means advances considering all government balances in BSL accounts.

### Expenditure transparency and gender-responsive budgeting
- Transparency efforts:
  - Authorities published detailed information on spending on legacy arrears (Prior Action #3) and roads projects (Prior Action #4) in 2022 (MEFP Table 2a).
- Gender-responsive budgeting (GRB):
  - The Gender Equality and Women’s Empowerment Act 2022 will help operationalize the gender policy.
  - Authorities committed to introducing GRB in five pilot ministries where gender needs assessments are ongoing (MEFP ¶ 32).

### Structural policies: energy sector and SOE policy
- Energy subsidy reduction efforts:
  - Authorities working with the World Bank to improve EDSA’s financial and operational performance.
  - World Bank projection: average technical and commercial losses reduced from 40 percent in 2022, to 27 (18) percent in 2025 (2030).
  - EDSA plans to adopt a tariff formula that contains the local currency cost of imported fuels and intends to adjust tariffs to reflect the formula on a regular basis (MEFP ¶ 30).
- Governance of SOEs:
  - Authorities developed an SOE Ownership Policy (September 2022 SB).

### AML/CFT framework
- 2020 evaluation identified significant weaknesses, including:
  - Making beneficial ownership of companies available by amending the 2009 companies act.
  - Enhancing AML/CFT risk-based supervision of NBFIs, particularly exchange houses exposed to FX market manipulation, and monitoring of dealers of precious metals and stones (currently not regulated for AML/CFT purposes).
  - Strengthening enforcement against money laundering and financial crimes.
- Plan to complete the now overdue National AML/CFT Risk Assessment by July 2023.

### Program modalities, conditionality, and financing
- Requests and adjustments:
  - Authorities request completion of the 6th and 7th ECF reviews and waivers of non-observance for the end-June 2022 NCG and the end-December 2022 NCG, GIR and NDA.
  - Authorities request a five-month extension of the ECF and a rephasing of disbursements: disbursements under the 6th and 7th reviews would be reduced by half, and the remaining access available at a newly set 8th review with an end-June 2023 test date; the extension to November 29, 2023.
  - Total disbursements under the ECF would remain unchanged.
- New conditionality and benchmarks:
  - New QPCs and ITs are set for June 2023 to inform the 8th review; continuous PCs maintained through end of program.
  - Three new structural benchmarks proposed for the 8th review:
    - Including additional revenue measures in the 2024 Finance Act that would yield at least 1 percent of GDP in additional annual revenues.
    - Adopting a new arrears clearance strategy that incorporates outstanding verified domestic arrears as of end-June 2023.
    - Publishing on the BSL’s website detailed information on the redenomination process.
- Financing assurances:
  - The ECF is fully financed with firm commitments for the remainder of the program.
  - Cumulative disbursement of SDR 15.555 million under the 6th and 7th reviews will be on-lent to the budget based on the existing Memorandum of Understanding.
  - In the medium term, grant support is expected from development partners.

### Risks, debt sustainability, and repayment capacity
- Risk overview:
  - Risks to the program, including those related to debt sustainability, are considerable but manageable, conditional on authorities’ program ownership; primary sources are the large adjustment need and capacity constraints.
- Debt and repayment metrics:
  - Outstanding debt to the IMF as a percentage of GDP: 13.3 percent.
  - Outstanding IMF credit projected to peak at end-2023 at 173 percent of quota and 103 percent of gross reserves.
  - PPG external debt service expected to stay at around 25 percent of revenue until 2026 (DSA Table 3).
  - Annual gross repayments to the Fund projected to peak in 2024 at 5.1 percent of exports and 1½ percent of GDP (Table 6).
- Mitigants and actions:
  - Repayment risks can be mitigated through program implementation and improved debt management.
  - Authorities continue efforts to reach a collaborative agreement with external commercial creditors on long-standing pre-HIPC initiative arrears.
  - Staff assesses the capacity to repay remains adequate but subject to high downside risks.

### Staff appraisal and policy recommendations
- Fiscal policy:
  - Staff supports decisively tightening fiscal policy to contain inflation and depreciation pressures, limit crowding out of private credit, create space for priority social spending, and bolster debt sustainability.
  - Urgency of restoring stability calls for a frontloaded adjustment; authorities should build on recently adopted revenue measures by mobilizing additional tax revenues and grant support and containing expenditures.
- Monetary policy:
  - Focus on bringing down inflation and rebuilding reserve buffers.
  - Contain pace of base money growth; policy rates should rise further to signal the BSL’s intention to bring inflation down.
  - FX intervention should be strictly limited.
- Debt and financial sector:
  - Continue issuing domestic debt at longer maturities.
  - Mobilize additional grant resources and take steps to reduce the high debt service burden to prudent levels.
  - Strengthen public financial management and EDSA’s financial independence.
  - BSL should strengthen financial sector governance and supervision, reinforce transparency in the leone redenomination, build a strong financial safety net and crisis management framework, and take timebound action vis-à-vis banks in breach of regulatory requirements.
  - Renew efforts to revive the nascent FX inter-bank market and strengthen the AML/CFT framework.
- Governance and accountability:
  - Continue strengthening governance, including time-bound and transparent tribunal proceedings and meeting legal payment obligations to public sector staff.
  - Implement effective roll out of the Audit Service Amendment Act with secured MDA compliance.

*Source: Excerpt from IMF country document (Sierra Leone).*

### 48.      Staff supports the completion of the sixth and seventh reviews under the ECF, given

### 1sleea2023001 - 48.      Staff supports the completion of the sixth and seventh reviews under the ECF, given

### Program decisions and staff recommendation
- Staff supports the completion of the sixth and seventh reviews under the ECF, given the authorities’ strong commitment to the program.
- Staff supports:
  - the request for waivers of the June 2022, and December 2022 performance criteria—based on strong corrective measures;
  - the extension of the arrangement through November 29, 2023;
  - the rephasing of disbursements; and
  - the completion of the financing assurances review.

### Real and external sector developments (highlights)
- Growth recovery in 2021 was interrupted in 2022.
- Inflation has increased rapidly, reaching 41.5 percent yoy in March 2023.
- Imports and exports picked up beyond pre-pandemic levels, partly driven by higher prices for fuel and food.
- Official reserves were bolstered by the 2021 SDR allocation but dropped in 2022.
- The pace of depreciation against the dollar has accelerated sharply since 2022, leading to a sizable adjustment in the REER.

### Fiscal sector developments (highlights)
- The 2022 overall balance widened relative to 2021 driven by both exogenous and policy related slippages.
- The 2022 financing of the wider balance was largely through domestic bank financing and SDR use, while external borrowing turned negative.
- Revenue collection edged down in 2022 as import duties, timber and mining revenues disappointed, while expenditures increased further.

### Monetary and financial sector developments (highlights)
- Growth in monetary aggregates increased but remained below nominal GDP growth.
- Private credit growth was crowded out by official sector borrowing; private credit remains low and edged down as a share of GDP.
- Nonperforming loans declined modestly.
- Excess commercial bank reserves have remained broadly constant.
- Yields on long-term government securities have risen to pre-pandemic levels.

### Selected key statistics and indicators from the report
- Inflation: 41.5 percent yoy (March 2023).
- Extension date for the arrangement: through November 29, 2023.
- Selected central government fiscal ratios (Table 2b, percent of non-iron ore GDP):
  - Total revenue and grants: 19.9 (2023 Prel.), 19.5 (2024 ECF 5th Rev 1/), 19.5 (2025 Proj. 2/).
  - Revenue: 13.0 (2023 Prel.), 15.0 (2024 ECF 5th Rev 1/), 14.1 (2025 Proj. 2/).
  - Expenditures and net lending: 30.8 (2023 Prel.), 22.3 (2024 ECF 5th Rev 1/), 25.2 (2025 Proj. 2/).
  - Overall balance including grants: -10.9 (2023 Prel.), -2.8 (2024 ECF 5th Rev 1/), -5.6 (2025 Proj. 2/).
  - Overall balance (excluding grants): -12.0 (2023 Prel.), -9.9 (2024 ECF 5th Rev 1/), -17.4 (2025 Proj. 2/).
- Gross international reserves (excl. swaps), months of next year's imports: 5.5 (2021), 4.0 (2022), 4.0 (2023 Proj.).
- Public debt (percent of non-iron ore GDP): 79.8 (2021), 80.8 (2022), 98.9 (2023).
- Net international reserves (excl. swaps) (US$ millions): 355 (2021), 120 (2022), 82 (2023).
- GDP at market prices (Leone billions, memorandum): 44,360 (2021), 54,926 (2022), 55,774 (2023).
- Exports of goods and services (millions of US$; memorandum, Table 6): 1,172 (2023), 1,211 (2024), 1,331 (2025).
- Fund obligations (principal, millions of SDRs, Table 6): 36.7 (2023), 45.6 (2024), 48.5 (2025), 52.2 (2026).

### Policy implications and next steps reflected in the report
- Completion of reviews and grant of waivers are predicated on corrective measures and continued strong policy commitment by the authorities.
- Rephasing of disbursements and completion of the financing assurances review are part of the recommended program adjustments to reflect recent developments and financing realities.
- Continued focus is implied on restoring macroeconomic stability: containing inflation, rebuilding reserves, mobilizing external financing, and reducing reliance on domestic bank financing to crowd in private credit.

*Source: Sierra Leone—IMF staff report (selected figures and text as provided).*

### Annex I. Food Insecurity and Interventions

### Annex I. Food Insecurity and Interventions

### Trends and drivers of food insecurity
- In Feb 2023, some 78 percent of the households are food insecure-according to WFP.
- Drivers:
  - External: increasing global food prices following Russia’s war in Ukraine.
  - Domestic: the August 2022 floods, low productivity, high inflation, and the depreciation of the Leone, all of which led to very high domestic food prices.
- Domestic price changes (period: as of December 2022 compared to January):
  - Rice: price per kilogram had increased by 45 percent compared to January.
  - Palm oil: prices increased by 108 percent over the same period.

### Availability versus accessibility
- Food availability: Food is available domestically.
- Food accessibility: Falling incomes and eroded purchasing power have reduced access.
  - According to the WFP’s minimum expenditure basket measure, 80 percent of Sierra Leonean households cannot afford the cost of the minimum food basket.
  - Resulting coping mechanisms include unfavorable behaviors (e.g., one meal per day).
- Structural contributors to limited access:
  - Low agricultural productivity of rural households for domestic staples, resulting in reliance on food imports.
- Long-term development impact:
  - Poor dietary and nutritional intakes are associated with lower learning abilities and outcomes in children.

### Current interventions and programs
- School feeding program:
  - Up to 600,000 students in food vulnerable districts are benefiting from daily meals.
  - Cost: about US$ 24cts per meal.
  - Delivery partners include WFP, Plan International and Catholic Relief Society (CRS).
- Government agricultural policy interventions:
  - E-voucher program providing rice farmers access to farming inputs, tractor services, fertilizers, and labor.
- Central Bank intervention (expired):
  - The BSL previously introduced a special facility for food (SFF) of US$50 million to enable importers to have access to FX for essential food imports at competitive rates (these facilities have since expired).

### International assistance and financing gaps
- Available international support:
  - Sierra Leone has access to the World Bank’s Crisis Response Window (CRW), a US$50 million project grant that supports emergency responses to food shortages and promotes agricultural productivity.
  - WFP, FAO, and ECOWAS support monitoring and collecting accurate information on household food security and vulnerability.
- Identified financing and program needs:
  - Additional financial support is needed to scale-up the social safety net program, including school feeding, and to provide targeted support to farmers.
  - Medium-term priorities:
    - Expand shock responsive social programs.
    - Bring current transfer levels in line with rising costs of essential needs.
  - Long-term priorities:
    - Investment to increase productivity in agriculture, soil management, conservation, and climate smart agriculture to meet conservation goals.

*Source: Annex I. Food Insecurity and Interventions (IMF staff).*

### 2.      Risks to TA implementation in Sierra Leone relate to absorptive capacity, political risks

### 2.      Risks to TA implementation in Sierra Leone relate to absorptive capacity, political risks

### Key risks to technical assistance (TA) implementation
- TA implementation is constrained by the small number of officials handling a large variety of tasks, which can become binding without careful prioritization.
- Numerous and sometimes bunched TA missions (Table AIII.2) and TA delivery by other development partners can strain absorptive capacity.
- The cost of implementing TA recommendations, especially those involving investments in hardware or new systems, has sometimes delayed implementation.
- Political risks and financing constraints are additional factors that undermine TA implementation.

### Actions and mitigations discussed by staff
- Remote missions continue to be effective and provide scope for increased integration with program work and peer learning.
- With gradual resumption of in-person missions, alternative capacity building methods (e.g., end of CD mission workshops) could provide hands-on experience to officials.
- Placement in March 2022 of two resident advisors at the BSL, on banking supervision and monetary policy, has helped support CD delivery in a fragile institutional setting.
- Sierra Leone is a pilot country for the expenditure policy TA that is focused on medium-term (MT) capacity building.

### Capacity Development priorities (Table AIII.1)
- 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.
  - Improve budget execution through: (i) enhancing and rolling out more widely the Integrated Financial Management Information System (IFMIS); and (ii) work with ECDC to improve cash flow projections and alignment with quarterly allotments.
  - Accelerate transparency and governance reforms, including on follow-up of audit recommendations.
  - Improve fiscal reporting: (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 design and implementation of individual MTRS measures, as requested by the authorities; cooperation with other development partners to ensure each MTRS action is led by one cooperation partner.
  - Support to developing the iron ore safe harbor (led by Revenue Administration), linking closely with fiscal regime (tax policy) modeling training on iron ore mines (provided under the Managing Natural Resources Wealth Topical Fund).
- Revenue Administration
  - Improve efficiency of domestic resource mobilization by (i) increasing tax compliance, including with respect to extractive industries revenue and contribution of large taxpayers; (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; (v) automating tax administration; and (vi) limiting tax exemptions and better managing, monitoring and controlling the end use of exempt goods.
- Expenditure Policy
  - FAD-EP has a medium-term programmatic CD engagement on expenditure policy. In 2022, missions were on (1) benefit incidence analysis in education and health, and (2) Medium-term wage bill management. Future actions are being developed following feedback from authorities and in the context of 2023 CD 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.
- Debt Management
  - Improving debt recording and debt management.
- Central Banking Operations and Governance
  - (i) 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; and (iii) Continue to enhance oversight and supervisory framework for financial market infrastructures.
- 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.

### TA activity intensity and scope (Table AIII.2)
- The record shows extensive TA activity in FY 2021-FY2023 across customs, wage bill, banking supervision, monetary policy analysis, CPI updating, GDP rebasing, mining revenue modeling, SOE monitoring, risk management, revenue administration, payment systems oversight, financial stability/systemic risk, IFRS supervision, stress-testing capacity, and many other areas.
- TA modalities have included LTX (long-term expert), STX (short-term expert), field missions, HQ missions, remote missions, and training events.

### Program performance, corrective actions, and policy commitments (from Letter of Intent and MEFP)
- Requests and program changes
  - Request to complete the sixth and seventh reviews of the Extended Credit Facility (ECF) arrangement, a five-month extension of the ECF to Nov 29, 2023, rephasing of disbursements including to add an 8th review, and completion of the financing assurances review.
  - Request approval of disbursement of the seventh and eighth tranches following requests for waivers of non-observance for quantitative performance criteria (PCs).
- Program performance and breaches
  - Met the end-June 2022 quantitative PCs on NDA and gross GIR, the continuous PCs and the IT on poverty spending.
  - Missed the end-June NCG by a 1.2 percent of GDP margin and missed ITs on domestic revenue and the primary balance.
  - Missed all three end-December 2022 PCs on NCG, NDA and GIR. The NCG was breached by 7½ percent of GDP.
  - Missed all ITs for end-March 2023 (preliminary data).
  - Met 5 of 15 structural benchmarks (SBs) and completed another 9 of them with a delay.
  - Completed all 4 prior actions for the 6th and 7th reviews of the ECF.
- Corrective actions taken and fiscal measures
  - Raised domestic revenues—through a total of 2.2 percent of GDP in revenue measures implemented as part of the 6th and 7th reviews.
  - Began to curtail spending—by a total of 5.6 percent of GDP in 2023 relative to 2022.
  - Started steps to prevent arrears and strengthen cash management.
  - Bolstered expenditure transparency and accountability.
  - Request waivers of non-observance for the end-June 2022 NCG PC and the end-December 2022 PCs on NCG, NDA and GIR.
- Revenue mobilization specifics
  - Finance Act 2023 approved by Parliament in April with annual tax revenue measures of about 1.8 ppts of GDP by 2024.
  - Tax administration measures expected to yield 0.4 ppts of GDP.
  - Renegotiating one mining contract to reverse concessions previously extended (0.2 percent of GDP).
  - Implementing a safe harbor regulation for iron ore.
  - Cabinet approved a new Medium-Term Revenue Strategy (MTRS) for 2023-27.
  - Committed to include additional tax measures in the 2024 Finance Act that will raise tax revenues by at least another 1 percent of GDP.
- Public expenditure and budget management commitments
  - Commit to submit a supplementary budget in July 2023 that (i) is consistent with program projections for revenues and expenditures, (ii) will be informed by program projections for macro variables, and (iii) will target a deficit of some 5.6 percent of GDP.
  - Strengthening cash management through regular meetings of the cash management committee, aligning quarterly budget allotments to cash flow projections, mandatory processing of payments through IFMIS, and limiting printing of checks through rollout of the EFT.
  - Committed to include in a revised arrears clearance strategy all domestic arrears, aiming to fully budget for their clearance starting with the 2024 budget.
  - Plan to increasingly issue domestic debt at longer maturities and to mobilize additional grant resources to address high risk of debt distress.
- Monetary and FX policy commitments
  - Monetary policy will focus on bringing down inflation and rebuilding reserve buffers.
  - Committed to tightening macroeconomic policies to contain inflation and depreciation pressures, limit crowding out of private credit, and bolster debt sustainability.
  - Commit to limit FX intervention to the room provided under the GIR target, with a view to rebuilding reserve buffers.
  - Internal audit to prepare for the BSL Board a status and assessment report as of end-June 2023 on the currency redenomination process; a detailed report will also be submitted to Parliament.
- Specific financing and budget notes
  - The supplementary budget includes US$25 million CRW grants from the World Bank to offset certain expenditures to be identified. The budgetary expenditures may be lower once the CRW expenditures are taken out.

*Source: IMF staff report text and Letter of Intent and MEFP excerpts in the provided content.*

### 10. In line with its commitment to transparency and accountability, the Government

### Attachment I. Memorandum of Economic and Financial Policies

### INTRODUCTION
- Supplements the MEFP dated June 2022; reviews recent economic developments and reports on performance under Sierra Leone’s programme supported by the IMF under the Extended Credit Facility (ECF) arrangement.
- Outlines key policy and reform measures for the remainder of 2023 and the medium-term aimed to:
  - restore macroeconomic stability;
  - safeguard financial stability through strengthening public finances and addressing debt vulnerabilities;
  - lay the foundation for sustainable, inclusive green economic growth and poverty reduction over the medium-term.
- Notes multiple and repeated shocks (including the Ukraine crisis and lingering COVID-19 pandemic), weak global growth, and a strengthening US Dollar as contributors to low domestic output, weak fiscal and external accounts, sharp Leone depreciation, higher inflationary pressures, and heightened debt vulnerabilities.

### RECENT ECONOMIC DEVELOPMENTS
- Growth:
  - Economy grew by 3.6 percent in 2022, compared to 4.1 percent in 2021.
  - Uncertain global environment, high food and energy prices weighed on 2022 growth.
- Inflation:
  - Year-on-year headline inflation rose from 17.9 percent in December 2021 to 37.1 percent in December 2022 and accelerated to 41.5 percent by March 2023.
  - Food inflation: 49.5 percent in March 2023.
  - Non-food inflation: 32.1 percent in March 2023.
- External sector and reserves:
  - Goods and services deficit widened to US$788 million in 2022 from US$755 million in 2021.
  - Total exports: US$1.26 billion in 2022 from US$1.11 billion in 2021.
  - Imports: US$2.05 billion in 2022 from US$1.87 billion in 2021.
  - Gross international reserves of the BSL: US$610.4 million as of end-December 2022, down from US$931.8 million at end-December 2021.
  - Leone depreciation: 65.7 percent from January to December 2022; 32.7 percent since redenomination on 1st of July 2022.
- Public finances:
  - Total expenditures: 29.8 percent of GDP in 2022 from 27.8 percent of GDP in 2021; 7.5 percentage points above the budgeted amount.
  - Domestic revenue: 13.0 percent of GDP in 2022 versus original budget projection of about 14.2 percent of GDP.
  - Overall budget deficit, including grants: 10.9 percent of GDP in 2022 from 7.4 percent of GDP in 2021.
- Debt and financing:
  - Total public debt estimated at NLe 51.7 billion (93.4 percent of GDP) in 2022 from NLe 34.0 billion (76.6 percent of GDP) in 2021.
  - External debt in Leone terms: NLe 35.5 billion (US$1.9 billion) in 2022 from NLe 22.5 billion (US$2.0 billion) in 2021.
  - Domestic debt: NLe 16.9 billion (31.3 percent of GDP) in 2022 from NLe 12.6 billion (28.7 percent of GDP) in 2021.
  - Debt service payments increased from 25.9 percent to 27 percent of domestic revenues.
  - Deficit financed largely by borrowing from the domestic banking system.
- Monetary policy and liquidity:
  - BSL policy rate raised to 18.25 percent in December 2022 from 14.25 percent in March 2022; further raised by 50 basis points to 18.75 percent in March 2023.
  - Base money growth: 25.6 percent year-on-year in December 2022 (-1.3 percent in real terms) and 34 percent in March 2023.
- Banking sector:
  - Generally well capitalized, liquid and profitable.
  - Non-performing loans remain high and above tolerable levels of 10.0 percent but have been declining.
  - Efforts underway to strengthen capital adequacy of two banks facing solvency issues.

### PROGRAMME PERFORMANCE
- Overall performance described as weak in 2022 due to exogenous shocks and policy slippages; 6th review delayed.
- End-June 2022:
  - Met PCs on net domestic assets (NDA) and gross international reserves (GIR), continuous PCs, and IT on poverty spending.
  - Missed end-June Net Credit to Government (NCG) by 1.2 percent of GDP; missed ITs on domestic revenue and the primary balance.
- End-December 2022:
  - Missed three PCs on NCG, NDA and GIR and most ITs; continuous PCs and IT on poverty spending were met.
  - NCG breached by 7½ percent of GDP.
  - NDA missed as BSL injected liquidity to address commercial bank liquidity strains.
  - GIR missed due to BSL FX intervention, timber export ban, and currency management costs.
- Preliminary data indicate all ITs missed for end-March 2023.
- Corrective actions and waivers requested:
  - Implemented 2.2 percent of GDP in additional revenue measures.
  - Broadly on track to reduce spending in 2023 by 5.6 percentage points of GDP relative to 2022.
  - Bolstered expenditure transparency and accountability.
  - Begun strengthening budget execution and cash management, including preventing arrears.
  - Repatriation requirement reinforced to support GIR correction.
- Prior actions completed for 6th and 7th reviews:
  - Parliament passed new Finance Act with 1.8 percent of GDP in additional tax policy measures.
  - Cabinet approved new Medium-Term Revenue Strategy (MTRS) for 2023-27.
  - Published detailed information on recent budgetary overruns on roads construction and legacy arrears clearance payments.

### REVENUE, EXPENDITURE, AND STRUCTURAL REFORMS
- Revenue measures and administration:
  - MTRS sets policy and administrative tax measures to improve domestic revenue in short and medium-term.
  - Implementation of Finance Act, 2023 measures commenced in first half of 2023.
  - High-level Steering Committee on the MTRS established; to meet quarterly and be led by the Ministry of Finance with representation from NRA, development partners, civil society, private sector, and other MDAs.
  - Renegotiation of one mining contract underway to reverse concessions; implementing safe harbor regulation for iron ore.
  - Duty and Tax Waivers Law enacted to improve transparency and accountability in duty and tax exemptions.
- Expenditure containment measures:
  - Payment of legacy arrears consistent with updated arrears clearance strategy.
  - Sustain efforts to ensure payroll integrity and reduce wage bill as share of GDP.
  - Disallow unbudgeted expenditures under goods and services (including purchase of vehicles, delaying non-priority international subscriptions, biometric identification of school children).
  - Curtail roads budget by postponing feeder road projects that are monitorable.
  - Strengthen cash management and improve public investment management.
  - Plans to reduce large debt service burden over time to create fiscal space for priority spending.
- Structural benchmarks and governance improvements (progress and actions):
  - Published action plan on corporate governance frameworks for two state-owned banks.
  - Developed an SOE Ownership Policy.
  - Published 2021 audited financial statements of the Bank of Sierra Leone.
  - Issued revised prudential guidelines for commercial banks per the 2019 Banking Act.
  - Prepared supervisory strategy to address high system-wide NPLs and move toward the 10 percent prudential limit.
  - Appointed a Chief Internal Auditor at the Bank of Sierra Leone.
  - Prepared a budget outturn report including progress on unpaid cheques, recommendations of the expanded cash and debt management committee, disbursement and use of SDR backed resources for fiscal purposes, analysis of performance against budget allotments, and corrective options for overruns.
  - Updated Legacy Arrears Clearance Strategy.
  - Prepared MTRS approved by Cabinet in April 2023 and established high-level steering committee.
  - Moved to daily calculation and publication of exchange rates.
  - Enhanced budgetary autonomy of the Audit Service Sierra Leone (ASSL) with a published road map in March 2023 and proposed statutory amendments to strengthen ASSL budget setting, disbursement, and processing of audit fees.
  - Amended the 2014 ASSL Act to strengthen implementation of ASSL recommendations and compliance during audit processes; developed Standard Operating Procedures (SoPs) for follow-up on audit recommendations.
  - Judicial and Legal Service Commission adopted tribunal guidelines consistent with constitutional principles.
  - Continued structural benchmark to ensure full implementation of the fuel pricing formula was not met.

### MEDIUM-TERM ECONOMIC OUTLOOK
- Risks: outlook vulnerable to slower global growth, Ukraine crisis spillovers, strengthening US dollar, limited fiscal space, supply-side constraints, and weak domestic demand.
- Growth projections:
  - Projected expansion of 2.7 percent in 2023.
  - Average around 4.8 percent in the medium-term.
  - Non-iron ore economy projected to average around 4.7 percent in the medium-term driven by agriculture investment, other mining activities, manufacturing expansion, tourism recovery, and improvements to the business environment.
- Inflation projections:
  - Headline inflation projected to remain elevated in 2023.
  - Expected to decline to 21.7 percent in 2024 and to 16.8 percent in 2025 as fiscal consolidation and tighter monetary conditions take effect, domestic food production increases, and exchange rate stabilizes with higher export earnings.
- Fiscal outlook:
  - Overall fiscal deficit, including grants, projected to narrow from 10.9 percent of GDP in 2022 to 2.5 percent of GDP in 2025 due to improved revenue mobilization, expenditure containment and PFM reforms.
  - Government projects the overall budget deficit to decrease from 10.9 percent of GDP in 2022 to an average of 2.8 percent over the medium-term (paragraph 22).
- External accounts:
  - Current account deficit, including official grants, projected to narrow from 6.8 percent of GDP in 2023 to 5.6 percent of GDP in 2024 and to 3.0 percent of GDP in 2025.
  - Gross foreign reserves programmed to average 3.1 months of imports in the medium term.
  - Exchange rate expected to move in line with the inflation differential between Sierra Leone and major trading partners.
- Downside risks highlighted:
  - Heightened geo-political tensions and fragmentation;
  - Escalation of Ukraine crisis;
  - Higher international prices for food and energy;
  - Continuous exchange rate depreciation;
  - Declining international donor support;
  - Re-emergence of COVID-19 or other health emergencies.

### PROGRAMME OBJECTIVES AND POLICIES
- Broad objectives (consistent with 2018 programme, adjusted for recent shocks):
  - Maintain a stable economic environment and financial system.
  - Vigorously pursue structural reforms to enable sustainable, inclusive, green growth.
  - Pursue PFM reforms to ensure transparency and accountability, strengthen budget discipline, improve business environment, and enhance social protection systems.
- Fiscal policy (primary goals and instruments):
  - Key objective: achieve fiscal and debt sustainability through fiscal consolidation.
  - Policies focused on improving domestic revenue collection and expenditure rationalization to create room for priority social programmes within a stable environment.
  - Government will implement a mix of revenue enhancement and expenditure containment measures, and seek additional grant and SDR resources to support priority spending.
- Use of SDRs and budget support:
  - Government will make use of additional SDRs in financing the budget to support emergency energy subsidies, ambulance services, cash transfers, school feeding, tree planting, hygiene and welfare packages for schoolgirls, and critical domestic capital expenditures for improving water and electricity supply.
  - Will update the MoU that underpins the use of SDRs for budget consistent with domestic institutional frameworks.
  - Commits to transparent accounting and use of SDR resources through regular budget monitoring.
  - Reference made to "Text Table 1. Sierra Leone: IMF SDR Allocations Use for Budget, 2023 (Millions of New Leones)" (table contents not reproduced here).

*Source: Memorandum of Economic and Financial Policies (Attachment I) contained in the Government letter to the IMF.*

### 23.      To ensure continued improvement in domestic revenue collection during the first half

### 23.      To ensure continued improvement in domestic revenue collection during the first half

### Revenue performance and near-term measures
- Preliminary data for Q1 2023 shows revenue collections are broadly on target, supported by:
  - stricter tax enforcement and improved compliance (for income taxes and GST);
  - implementation of automatic pricing formula on fuels;
  - relatively higher mineral royalties.
- A new Finance Act, 2023 was approved by Parliament in April.
- The new tax policy measures are estimated to yield additional annual tax revenue of 1.8 percentage points of GDP by 2024 (Prior Action #1).
- Tax administration measures are expected to yield additional tax revenues of 0.4 percentage points of GDP.
- Government will restore full pass-through of the petroleum pricing formula starting in July 2023 to ensure a fixed, predictable, and stable excise duty on petroleum products.
- Renegotiation of a mining contract is expected to bring in at least 0.2 percent of GDP in additional revenues; cabinet approval has been received, the mining company notified, and a public statement issued by the mining company to its shareholders.
- A safe harbor regulation for iron ore is being established to mitigate iron ore mispricing; this is expected to gradually replace the current self-weighing, self-assessing, self-assaying and self-reporting tax and royalty system.
- Fund TA will support strengthening capacity on valuation techniques for minerals and pricing methodologies including the use of a price index.

### Medium-term revenue strategy (MTRS) and targets
- Government aims to increase tax revenue mobilization over the medium-term to achieve a target of 20 percent of GDP in revenues.
- The MTRS, 2023-2027, developed with IMF and World Bank support, was approved by Cabinet in April 2023 (Prior Action #2).
- Additional MTRS-based tax revenue measures expected:
  - at least 1 percent of GDP to be submitted to Parliament as part of the 2024 Finance Act (Proposed end-October 2023 SB);
  - at least 1 percent of GDP as part of the 2025 Finance Act.

### Text Table 2 — Revenue measures (Percent of non-iron ore GDP)
- Tax policy measures (Finance Act 2023)
  - (1) Introduced a minimum alternative tax at 3% of turnover: 0.2
  - (2) Removed exemptions on GST (machinery and equipment, aviation operations, gambling, fees-based financial services, mobile data, digital services, voice calls, and first sale of property): 1.3
  - (3) Harmonized excise tax rates for local and imported excisable products and introduced annual vehicle circulation fees at Nle 200.: 0.3
- Tax administration measures
  - (4) Introduced digital IDs, excise stamps and fuel marking technology; integrated company systems with electronic cash registers (ECR) for 19 large companies; strengthened compliance of key large taxpayers (extractives, financial, telecoms); and collected outstanding lease payments from two large hotels.: 0.4
- Mining related measures
  - (5) Renegotiated one mining contract to unwinde concessions awarded in 2022: 0.2
  - (6) Implemented a safe harbor regulations for iron ore: tbd
- Total: 2.4

### MTRS policy and administration measures (high level)
- Tax policy actions include:
  - review of corporate income taxation to increase revenue and encourage investment;
  - initiate transition to a Global Income Tax system;
  - introduce a Minimum Alternate Tax;
  - broaden the GST base by streamlining exemptions and measures to extend GST to the informal sector while protecting the poor;
  - maintain excises on fuel at a fixed and predictable rate and increase it gradually to NLe 2.4/liter for Diesel and NLe 2.8/liter for gasoline;
  - convert ad valorem excise taxes into specific taxes; harmonize rates for local and imported excisable goods; introduce a vehicle circulation tax; institutionalize policy of not negotiating fiscal incentives for greenfield investments in the extractive sector.
- Tax administration priorities include improving taxpayer registration, strengthening tax compliance, improving auditing, compliance risk and debt management, and improving customs valuation.

### Climate finance and green instruments
- Government will explore leveraging climate finance from forests, including:
  - carbon credits, REDD+ payments, and grants for forest conservation or reforestation;
  - international public finance including transition and adaptation financing;
  - potential access to the IMF’s RST facility in the future;
  - consideration of levying carbon taxes on certain sectors and exploring issuing green bonds in the medium term.

### Public expenditure management and budget execution
- Short-term: Government intends to submit a 2023 supplementary budget in July 2023 consistent with program projections; it will:
  - take into account updated macro developments since November 2022 and Q1 2023 outturn;
  - base projections on macro framework for the 6th and 7th reviews, including price and exchange rate projections;
  - include updated revenue targets in line with the 2023 Finance Act and additional expenditure measures (postpone feeder roads projects, delay non-priority subscriptions to international organizations, delay energy infrastructure completion); vehicle purchases to be kept strictly within dedicated envelopes.
- The supplementary budget includes US$25million CRW grants from the World Bank to offset certain expenditures to be identified.
- Medium-term actions to rationalize spending include:
  - develop a medium-term wage bill management strategy (by October 2023);
  - administrative cuts within goods and services and containment of energy subsidies;
  - work with EDSA to strengthen their own revenue mobilization (by connecting mining companies to the grid) and with the World Bank to reduce technical and commercial losses.

### Energy subsidies and tariff policy
- Projected energy subsidies:
  - to EDSA to meet power purchases from Karpower: US$25.5million for 2023;
  - to cater for power purchases from the CLSG power pool: US$9 million in 2023.
- These projections are based on a payment agreement signed on March 16, 2023 between the MoF, EDSA and Karpower.
- Government plans to adopt a tariff formula reflecting the local currency cost of imported fuels and to adjust tariffs on a regular basis.

### Cash, arrears, IFMIS, TSA, and payment systems
- IFMIS upgraded from version 6.5e to web-based GRP version 7 and rolled-out to 61 MDAs; over 90 percent of Government expenditures are processed through the system; rollout to additional 24 MDAs and subvented agencies in 2023.
- The Cash Management Unit will continue to use the Cash Forecasting Tool to inform the Expanded Cash and Debt Management Committee (ECDMC); quarterly budget allocations will be based on cash flow forecasts approved by the ECDMC.
- Expenditure commitments will be based on cash availability; the Electronic Funds Transfer (EFT) System ensures payment requests are sent to the Bank of Sierra Leone only when funds are available.
- Government will incorporate all outstanding domestic arrears as of end June 2023 including unpaid checks into a newly published arrears clearance strategy by end-October 2023 (Proposed end-October 2023 SB); payables to be verified by the ASSL and budgeted for clearance starting with the 2024 budget.
- Post-July 2023 domestic arrears including unpaid checks will be paid only if budgeted for in the 2024 or future budgets.
- Government committed to deploy an arrears profiling system to track arrears payments across MDAs.
- TSA expansion: transfer all balances of SVAs in commercial banks to treasury accounts at the BSL by end-August 2023, except balances related to donor-funded projects.

### Wage bill and payroll reforms
- Payroll reforms implemented since 2018 have improved transparency and reliability; measures include reconciliation of dates of birth, verification of NIN/NASSIT/BBAN for new employees, timely removal of retirees, and biometric verification of civil servants and pensioners.
- Remaining actions:
  - (i) Develop a Medium-term Wage Bill Management Strategy by October 2023;
  - (ii) Operationalise the Wages and Compensation Commission after enactment of Wages and Compensation Commission Act in April 2023;
  - (iii) Conduct biometric verification exercise for teachers and health workers;
  - (iv) Institute workforce planning for all payroll categories to improve controls over new recruitments and salary adjustments.

### Public investment management and contingency planning
- Adopted the National Public Investment Management Policy (NPIMP) to ensure projects go through the Public Investment Management Cycle and screening by Ministerial Investment Committee and Technical Investment Committee.
- Government commits to reprioritize spending (administrative cuts, curbs on domestically financed capital expenditure) if spending pressures reemerge.
- In case of revenue shortfalls, actions include seeking additional budget support and implementing additional tax measures informed by the MTRS, such as:
  - (i) fast tracking harmonization of taxes on capital income (excluding capital gains) at up to 20 percent from 10 percent;
  - (ii) increasing further stamp duty on immovable property;
  - (iii) streamlining further GST exemptions;
  - (iv) introduction of excise tax on single use, non-biodegradable plastics.

### Transparency, debt risk management, and procurement
- Expenditure transparency actions:
  - published detailed information on the payment of legacy arrears in 2022 on the MoF website (Prior Action #3);
  - published detailed contract information on seven largest road construction projects in 2022 budget outturn report (Prior Action #4).
- Debt stance:
  - Sierra Leone assessed as a country with a high risk of both external and overall debt distress, but debt is sustainable on a forward-looking basis.
  - Government actions to reduce debt risks include:
    - (i) limit domestic borrowing in line with program projections;
    - (ii) maintain adherence to annual external borrowing ceilings under the program;
    - (iii) continue to seek grant financing or borrow concessional loans for key investments;
    - (iv) introduce local medium to long-term bonds for infrastructure financing;
    - (v) explore non-debt-creating financing models such as PPPs with fiscal risk analyses;
    - (vi) implement the updated Arrears Clearance Strategy;
    - (vii) annually update and implement the Medium-term Debt Strategy;
    - (viii) strengthen debt management and improve debt reporting and transparency through regular publication of publicly guaranteed debt;
    - (ix) develop and implement a debt management strategy aimed at improving the debt service profile before the 8th Review under the ECF Arrangement, in consultation with Fund staff.
- Procurement reform:
  - build on ongoing procurement reforms and support wider e-procurement roll out across MDAs, including an Action Plan covering change management, roll out, adoption and mainstreaming of e-Procurement in health and education sectors;
  - implement accompanying legal reforms associated with the Electronic Transaction Act.

### Monetary and exchange rate policy context
- The Bank of Sierra Leone remains focused on price and financial sector stability while supporting government objectives.
- Monetary policy implementation challenges in 2022 included:
  - shallow financial markets and lack of a functioning secondary government securities market;
  - high credit risk and low financial intermediation;
  - dominance of the informal sector and emerging signs of currency substitution;
  - lack of effective monetary policy instruments and increasingly negative real interest rate.
- Macroeconomic challenges during 2022 through Q1 2023 include high and lingering inflation pressures and persistent depreciation of the Leone driven by multiple supply and demand shocks, heavy reliance on food imports, inadequate infrastructure, lack of credit and capital, global supply chain disruptions, lingering effects of the Ukraine war and Covid-19 controls, and tight global liquidity from aggressive policy tightening by major central banks.
- Risks to inflation going forward include:
  - depreciation of the Leone;
  - lower than expected domestic output;
  - faster growth in monetary aggregates;
  - increase in election-related expenditures;
  - high inflation expectations;
  - increase in international food and energy prices.

*Source: 1sleea2023001 - 23.      To ensure continued improvement in domestic revenue collection during the first half*

### 43.      The BSL is committed to decisive monetary policy action to reduce inflation. In an

### The BSL is committed to decisive monetary policy action to reduce inflation

### Monetary policy, inflation, and liquidity management
- The Monetary Policy Rate increased by 4.50 percentage points during the reference period, after consecutive rate hikes in the past five quarters from March 2022 until March 2023.
- Two one-off BSL facilities (now expired) to support importation of essential commodities:
  - special food facility of US$50 million (rice, flour, sugar);
  - special facility of US$36 million to support fuel importation.
- Policy commitments and operational measures:
  - limit purchases of government securities in the secondary market to contain base money growth within program limits with the IMF and enhance monetary policy effectiveness aimed at achieving single-digit inflation over the medium term;
  - continue raising the policy rate as needed to signal tightening and reduce inflation;
  - consider strategies to enable use of BSL instruments for effective liquidity management operations;
  - adopt strategies to engage the wider public (formal and informal) to explain basic monetary policy concepts and anchor medium-term inflation expectations;
  - regular engagements with commercial banks to communicate monetary policy framework, goals, outcomes, and banks’ role in policy implementation.
- Institutional improvements:
  - in 2022 BSL established a Monetary Policy Strategy and Communications unit to improve communication and anchor inflation expectations;
  - with IMF technical assistance, ongoing efforts to improve liquidity and inflation forecasting and computation of the composite index of economic activities (CIEA).
- Reporting requirement:
  - consistent with the BSL Act 2019, BSL will provide by end-October 2023 a detailed report on the currency redenomination process through end-June 2023 to Parliament (proposed end-October 2023 SB).

### Exchange rate dynamics and foreign exchange policy
- Exchange rate developments:
  - the Leone has depreciated notably in recent years with high and persistent exchange rate pressures across foreign exchange market segments, reflecting structural imbalances between foreign exchange demand and supply.
  - foreign exchange inflows have dwindled since the emergence of the COVID-19 pandemic, particularly from mining and agriculture and low inflows from development partners; demand remains high due to costly imports (food and oil).
  - evidence of emerging currency substitution: increased level and share of foreign currency deposits in commercial banks.
- FX support provided in 2022:
  - BSL provided FX liquidity amounting to USD133.25 million in 2022 to support private sector importation of essential goods and services, including food and oil (including food and fuel facilities created in April 2022, now expired), FX auctions, and FX sales to oil importers.
- Future FX intervention policy:
  - BSL will limit FX intervention to exceptional circumstances to prevent excessive volatility and de-anchoring of inflation expectations during very large temporary shocks;
  - commitment to limit FX intervention to within the envelope provided under the GIR target.
- Coordinated and structural FX measures (to be coordinated with IMF early before any measures that could breach Article VIII commitments):
  - enhance coordination between fiscal and monetary policy to support productive sectors and reduce FX market pressures (noting significant FX demand for goods that could be produced locally, including rice);
  - enforce the 30 percent export proceeds repatriation requirement to support FX market liquidity;
  - encourage development partners to direct inflows from donor projects through the BSL to support reserves, noting government project loan repayments use Central Bank resources;
  - emphasize government equity participation in FX-earning sectors, including mining, to increase FX inflows;
  - develop the interbank FX market, building on prudential guidelines covering net open positions implemented in January 2023, and abolish FX regulation limits on forward transactions in the period ahead, in line with IMF TA recommendations.

### Financial sector policies and supervision
- Supervision and regulatory framework:
  - BSL will continue regulatory and supervisory oversight using Risk Based Supervision (RBS) and plans to adopt Basel 2 and Basel 3 frameworks commencing in 2023.
  - Board-approved Financial Policy Committee (FPC) Charter to commence meetings and strengthen financial sector policy management.
  - Deposit Protection Bill enacted by Parliament; implementation work ongoing.
- State-owned banks (SOBs) and governance:
  - two state-owned banks are viable with fully constituted Boards; efforts underway to assess board performance and improve corporate governance in line with new Corporate Governance Guidelines for Financial Institutions.
  - recent onsite examinations concluded for the two SOBs; RBS trainings continue with IMF resident advisor support.
- Implementation timetable and commitments:
  - establish the Financial Policy Committee (FPC) by July 2023;
  - finalize the crisis management plan in accordance with the FPC Charter by December 2023;
  - enhance the resolution framework and an Emergency Liquidity Assistance framework, building on FSSR recommendations;
  - adopt new corporate governance guidelines for banks by October 2023;
  - enhance corporate governance framework of the two SOBs per the action plan;
  - fully operationalize the Deposit Insurance Fund Act by end-September 2024.
- Ongoing technical assistance:
  - BSL will complete and implement draft instruments with Resident Advisors and STX where necessary and follow through on FSSR and FSAP recommendations.

### Inclusive growth, social protection, and human capital
- Social and human capital priorities:
  - continue Free Quality Education Programme, Free Health Care Initiative, and ongoing unconditional cash transfers.
- Specific programs and targets:
  - intensify local food production and distribution; prioritize local food purchases in government programs and facilitate food importation where necessary;
  - provide cash-based and in-kind transfers to vulnerable farming households to meet immediate food needs and strengthen household food security;
  - continue Radical Inclusion Policy and enhance support for girls’ education, including provision of sanitary hygiene kits for school-going girls;
  - continue efforts to establish the Sierra Leone Health Insurance Scheme (SLeSHI);
  - expand the ongoing Social Safety Nets (SSN) Project to provide cash transfers to 100,000 extremely poor households;
  - provide cash transfers to 15,000 youths for productive activities and labour-intensive public works;
  - implement provisions of the Gender Empowerment Act.

### Improving the business environment and economic diversification
- Competitiveness and reforms:
  - Sierra Leone ranked 134 out of 140 countries in the 2019 Global Competitiveness Report.
  - government measures: business regulatory and financial sector reforms, infrastructure investment, agriculture policy shift in 2020 with electronic voucher system for agricultural inputs, policies to rebrand country and promote tourism, and support for SME growth.
- Payments, collateral, and SME support:
  - Collateral Registry at BSL upgraded to include moveable assets, individual search and e-payment services; Regulations for the Borrowers and Lenders Act 2019 prepared.
  - National Payment Switch first phase went live on April 29, 2023 to facilitate interoperability among commercial banks.
  - World Bank–funded Sierra Leone Economic Diversification Project supports Online Business Registration System (single window), SME capacity building, and financial support; MUNAFA Fund provides microfinance services mainly credit to SMEs through intermediaries.
- Tourism:
  - World Bank-supported upgrading of tourist sites in Freetown (Leicester Peak, Tacugama Sanctuary, Bureh Beach) started in 2023.

### Climate resilience and disaster risk financing
- Climate action priorities:
  - re-afforest and protect existing forests; restore degraded lands, mangroves, and wetlands to preserve environment and attract carbon credits;
  - invest in renewable energy (solar, hydro, natural gas) for electricity production.
- Planning and financing:
  - World Bank preparing the Country Climate Development Report (CCDR) to identify climate impacts, policy priorities, costed strategies, and financing sources.
  - with World Bank support, developing a Disaster Risk Financing Strategy (DRFS) to limit budgetary impact of crises and shocks; Strategy will outline priorities, procedures, rules, and disaster risk financial instruments.
  - establishment of a Climate Finance Unit in the Ministry of Finance to coordinate mobilisation of climate finance; IMF and World Bank technical support requested to build Unit capacity and develop a Climate Finance Strategy.

### Improving governance, transparency, and audit follow-up
- Anti-corruption and governance measures:
  - adopted new tribunal guidelines (end-December 2022, structural benchmark);
  - ASSL committed to pay all salaries and allowances legally due to positions listed in its “Management Profile” (as of May 31, 2022) in line with constitutional and statutory provisions;
  - published 2021 and 2022 financial statements of the National Covid Emergency Response Center to increase transparency in COVID-19 funds use.
- Auditor-General independence and audit follow-up:
  - published roadmap to strengthen ASSL budgetary autonomy (end-September 2022, SB); Parliament passed statutory amendment of the Audit Service Act 2014 (end-October 15, 2022 SB) to strengthen ASSL recommendations’ implementation and extend powers related to withholding salaries of vote controllers for non-submission of financial statements.
  - development and validation in August 2022 of Standard Operating Procedures (SOPs) on follow-up of audit recommendations with three primary objectives:
    - determine status of audit issues and executive commitments to implement recommendations;
    - confirm implementation of executive commitments by verifying remedial actions;
    - analyze and disseminate audit follow-up information to improve governance and accountability.
  - planned policy to embed implementation of audit recommendations in performance contracts of vote controllers, subjecting non-implementing Permanent Secretaries/Heads of Agencies to negative performance assessments and potential sanctions.
- State-Owned Enterprise (SOE) governance:
  - Ministry of Finance, NCP, World Bank and supervisory ministries developed a State-Owned Enterprises Ownership and Governance policy to:
    - simplify and harmonize roles of NCP, MOF and supervisory ministries;
    - review and update NCP Act 2002 and other laws to remove ambiguities and overlaps;
    - improve transparency and disclosure with full adoption of IFRS and international standards on auditing by all SOEs;
    - ensure adequate representation of women on all SOE boards.
  - Government will consolidate and harmonize policy provisions into a comprehensive oversight and governance Act that will repeal the National Commission for Privatization (NCP) Act, 2002.
  - Ministry of Finance and Bank of Sierra Leone developed an action plan to address corporate governance challenges of the two state-owned banks (Rokel Commercial Bank and Sierra Leone Commercial Bank).

*Source: Excerpt from IMF country document content unit 1sleea2023001.*

### 64.      The compilation and dissemination of credible and timely data is critical to informed

### 1sleea2023001 - 64.      The compilation and dissemination of credible and timely data is critical to informed

### Data compilation and statistical capacity building activities
- National Accounts rebasing:
  - With technical assistance from AFRITAC West 2 Stats-SL has commenced the process of rebasing GDP, improving data collection instruments, producing Quarterly National Accounts and developing Supply and Use tables.
- High frequency indicators:
  - With IMF technical assistance, work is underway to develop credible high frequency indicators of economic activity to improve monitoring of macroeconomic and structural reforms and to refine monetary and fiscal policy settings in response to shocks or changed circumstances.
- CPI Enhancements:
  - With technical assistance from the IMF and AFRITAC West 2, Stats SL has fully rebased the CPI to December 2021.
  - The CPI basket has been updated with revised weights based on the 2018 Sierra Leone Integrated Household Survey.
- Other macroeconomic statistics:
  - IMF technical assistance is supporting the Ministry of Finance to improve debt recording and the Bank of Sierra Leone to improve balance of payments, Monetary statistics and financial soundness indicators.
- Business Establishments Census and household survey plans:
  - Statistics Sierra Leone, in collaboration with partners, has carried out a Census of Business Establishments and is analyzing the data.
  - Stats-SL is planning to conduct the Sierra Leone Integrated Household Survey (SLIHS) which will commence in the second half of this year (as stated).
- Agriculture census and surveys:
  - Stats-SL, FAO, WFP and the Ministry of Agriculture and Food Security plan to conduct an agriculture census in 2023, the first in over 40 years.
  - Two agricultural surveys will be conducted through the 50X2030 project, in collaboration with FAO, WFP and the Ministry of Agriculture and Food Security.

### World Bank HISWA-supported modernization and harmonization priorities
- Under the Harmonizing and Improving Statistics Project in West Africa (HISWA), Stats-SL will continue to improve economic statistics using harmonized methodologies through:
  - (i) Design and implementation of a coherent system of enterprise statistics using electronic platforms and conduct of related data collection;
  - (ii) Design and implementation of comprehensive collection of agricultural statistics;
  - (iii) Modernization of National Accounts using enterprise and agriculture statistics and additional data to be collected;
  - (iv) Adopt the use of international standards on administrative data processing; support improvement of statistical infrastructure and enhance data accessibility through creation of national data bases and development of or update web-based apps and platforms;
  - (v) Continue partnership with organizations across the country to bring timely, accurate, and useful information about Sierra Leone;
  - (vi) Collaborate with the DSTI and other institutions to make data easily accessible online;
  - (vii) Work with the Fund and other development partners on migrating to GFSM2014 to allow clear fiscal classifications and facilitate better targeted and informed policy making.

### Programme monitoring and reporting commitments
- Monitoring cadence and targets:
  - The program will be monitored on a semi-annual basis, through quantitative targets and structural benchmarks (Table 1, Table 2).
  - Quantitative targets for end-June 2023 are performance criteria.
  - The eighth and final review of the program will take place on or after October 1, 2023.
- High-frequency reporting commitments:
  - Authorities committed to provide monthly data on the NCG, NIR and NDA PCs, as defined in the TMU, to support high-frequency monitoring under the program.

### Progress on prior actions and structural benchmarks (selection of outcomes and statuses)
- Proposed Prior Actions for the combined 6th and 7th Reviews:
  - 1 Parliament to approved a new 2023 Finance Act implementing tax measures estimated to yield additional annual tax revenues of 1.6 percent of GDP. — Met.
  - 2 Cabinet to approved the Medium-Term Revenue Strategy (MTRS). — Met.
  - 3 Published on the MoF website payments of legacy arrears in 2022, including the amounts paid and the names of the creditors. — Met.
  - 4 Published in the 2022 budget outturn report detailed contract information on the seven road construction projects that accounted for the largest domestically financed capital expenditures in 2022. — Met.
- Benchmarks for 6th Review (examples):
  - 5 Develop and publish an action plan on corporate governance frameworks for the two state-owned banks — September 30, 2022 — Not Met. Implemented with delay.
  - 6 Publish on the website of the BSL the BSL’s FY 2021 financial statements audited by a reputable audit firm with experience in central banking — September 30, 2022 — Not Met. Implemented with delay.
  - 7 Develop an SOE Ownership Policy — September 30, 2022 — Met.
  - 8 Prepare a quarterly budget out-turn report including specified elements — September 30, 2022 — Not Met. Implemented with delay.
  - 9 Update and issue revised prudential guidelines for banks in line with the 2019 Act — September 30, 2022 — Met.
- Benchmarks for 7th Review (examples):
  - 17 Move to daily calculation and publication of an exchange rate that is based on a one-day lag, in consultation with AFRITAC West II — April 30, 2023 — Met.
  - 18 Establish a high-level steering committee on the MTRS to meet quarterly — March 31, 2023 — Not Met. Implemented with delay.
  - 19 Continue to use the automatic fuel price indexation mechanism and publish formula and outcomes — Continuous — Not Met.
- Benchmarks proposed for 8th Review (examples, status: Proposed):
  - 20 Adopt and publish on the MoF website a new arrears clearance strategy that includes all outstanding domestic arrears as of end June 2023 — October 31, 2023 — Proposed.
  - 21 Submit to Parliament as part of the 2024 Finance Act additional tax revenue measures that would yield at least 1 percent of GDP in additional annual tax revenues — October 31, 2023 — Proposed.
  - 22 BSL to provide by end-October 2023 a detailed report on the currency redenomination process through end-June 2023 to parliament, including specified monthly and total cost items — October 31, 2023 — Proposed.

### Technical Memorandum of Understanding (TMU): program definitions and exchange rates
- Applicability:
  - This TMU applies to test dates starting in June 2023.
- Program exchange rates (Cross Rates as of December 23, 2022):
  - SDR: Currency units per SDR 1.33; Leones per currency unit 25,093.10/1; US dollars per currency unit 1.33
  - US dollars: Currency units per SDR 1.00; Leones per currency unit 18,847.40; US dollars per currency unit 1.00
  - British Pound Sterling: Currency units per SDR 1.10; Leones per currency unit 22,738.40/1; US dollars per currency unit 1.21
  - Japanese Yen: Currency units per SDR 176.53; Leones per currency unit 142.08; US dollars per currency unit 0.01
  - Euro: Currency units per SDR 1.25; Leones per currency unit 20,010.00/1; US dollars per currency unit 1.06
  - Renminbi: Currency units per SDR 9.30; Leones per currency unit 2,697.86; US dollars per currency unit 0.14
  - Note: As shown on the BSL website as at 23rd December 2022.
- For calculating program targets for 2023:
  - All end-December 2022 stock variables will be based on the program exchange rate of Old Le 18,847.40/US$.
  - The program exchange rates for test dates are specified in Table 1 of the Memorandum of Economic and Financial Policies (MEFP).
- Quantitative performance criteria (June 30, 2023) include ceilings or floors on:
  - Net domestic bank credit to the central government (NCG) (ceiling);
  - Net domestic assets (NDA) of the Bank of Sierra Leone (BSL) (ceiling);
  - Gross international reserves (GIR) of the BSL (floor);
  - New concessional external debt with original maturity one year or more contracted or guaranteed by the public sector, US$ millions (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).
- Indicative targets (June 30, 2023) include:
  - Total domestic government revenue (floor);
  - Domestic primary balance (floor);
  - Poverty related -expenditure (floor).

### Definitions and adjustment clauses for key monetary aggregates
- Net Domestic Bank Credit to the Central Government (NCG):
  - Definition: Sum of (a) net position of the government with commercial banks (treasury bills; treasury bearer bonds; loan and advances of commercial banks to the government; less government deposits in commercial banks) and (b) net position of the government with the BSL (including 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); ways and means; any other type of direct credit from the BSL to the government, including the special lending arrangements relating to budget support; less central government deposits; and any debt relief received, notably HIPC, MDRI and relief deposits, as well as debt relief under the CCR Trust).
- Adjustment clauses for the NCG ceiling:
  - (a) Upward adjustment by the Leone value of the shortfall in external budgetary assistance—the upward adjustment will be capped at the equivalent of US$50 million;
  - (b) Downward (upward) adjustment by the increase (decline) in the value of the cumulative net flow of unpaid checks and other outstanding payments (or known as ‘crystalized obligations’) (relative to the end-December 2022);
  - (c) Downward (upward) adjustment by the excess (shortfall) in Leone value of net issues of government securities to the non-bank private sector;
  - (d) Upward (downward) adjustment by the increase (decrease) in the cumulative net flow of non-tradeable securities issued to the non-bank sector for regularizing the stock of legacy arrears.
- Data source for NCG:
  - Series “Claims on Government (net)”, submitted to IMF staff and reconciled with the monthly monetary survey prepared by the BSL.
- Definition of Central Government (for TMU purposes):
  - Central government comprises the central government and those special accounts classified as central government in the BSL statement of accounts.
  - The National Social Security and Insurance Trust and state-owned enterprises are excluded.
- Net Domestic Assets (NDA) of the BSL:
  - Definition: End-period stock of reserve money less the 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).
  - BSL Gross foreign exchange reserves include: BSL’s 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; and BSL’s holdings of convertible currencies in cash or in nonresident financial institutions (deposits, securities, or other financial instruments).
  - BSL Gross foreign exchange reserves exclude: pledged or encumbered reserve assets used as collateral or guarantees for third-party external liabilities; deposits with Crown Agents and other correspondent banks rated below BBB; precious metals other than gold, assets in nonconvertible currencies and illiquid foreign assets.
  - BSL Gross foreign exchange liabilities are defined as: 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 (such as futures, forwards, swaps, and options), including 2017–18 foreign exchange swap arrangements with commercial banks; and balance on zero coupon bonds issued by the BSL to Securiport LLC on behalf of the government.

*Source: IMF staff report text as provided in the content unit.*

### 10. Adjustment clauses. The ceiling on changes in NDA of the BSL will be adjusted upward

### 10. Adjustment clauses. The ceiling on changes in NDA of the BSL will be adjusted upward

### Adjustment clauses on NDA (Net Domestic Assets) of the BSL
- The ceiling on changes in NDA of the BSL will be adjusted upward (downward) by the Leone value of the shortfall (excess) in the external budgetary assistance.
- The upward adjustment will be capped at the equivalent of US$50 million.
- The ceiling will also be adjusted by exchange rate depreciation (appreciation).

### Gross International Reserves (GIR) of the BSL — definition and exclusions
- GIR of the BSL will be calculated as reserve assets of the BSL, as defined in IMF’s Balance of Payments Manual (5th ed.) and elaborated in the Fund’s International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template.
- Specifically, GIR of the BSL excludes foreign exchange swap arrangements with commercial banks.

### Adjustment clauses on GIR
- The floor on the change in gross international foreign exchange reserves will be adjusted:
  - (a) downward (upward) by U.S. dollars equivalent cumulative shortfall (excess) in programmed external budgetary assistance;
  - (b) downward (upward) for any cumulative shortfall (excess) in the U.S. dollar value of disbursements from the IMF under the ECF arrangement;
  - (c) 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);
  - (d) a downward adjustment by a cumulative maximum of US$12 million in case the BSL decides to implement its plan to sell FX through SALPOST on a pilot basis.

### Assumptions on External Budgetary Assistance (for NCG, NDA, and GIR targets)
- Programmed external budgetary assistance from January 1, 2023 to End-June 2023: US$ 0.0 million.

### New Concessional External Debt with Original Maturity of One Year or More
- Definition: All forms of new external debt with original maturity of one year or more contracted or guaranteed by the public sector based on the residency of the creditor.
- Exclusions: Disbursements from the IMF and debts subject to rescheduling are excluded from this performance criterion (PC).
- Timing: For program purposes, debt is deemed contracted when signed by the government of Sierra Leone and ratified by Parliament.
- Application: The ceiling on new concessional external debt with original maturity of one year or more will be applied on a continuous basis and evaluated in terms of cumulative changes within each calendar year.
- Concessionality threshold: A debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element calculation: the difference between the net present value (NPV) of debt and its nominal value, expressed as a percentage of nominal value.
  - Discount rate for NPV at the time of signing: 5 percent.

### New Non-Concessional External Debt Contracted or Guaranteed by the Public Sector
- Definition: External debt on terms that do not meet the concessionality definition in paragraph 16.
- Reporting: External debt and its concessionality will be reported by the Debt Management Division of the Ministry of Finance and measured in U.S. dollars at current exchange rates.
- Variable-rate loan PV calculation:
  - Use a program reference rate plus the fixed spread (in basis points) specified in the loan contract.
  - Program reference rate for the six-month USD SOFR: 0.42 percent (fixed for the remainder of the program).
  - Spread of six-month Euro ESTR over six-month USD SOFR: 50 basis points.
  - Spread of six-month JPY TONAR over six-month USD SOFR: 50 basis points.
  - Spread of six-month GBP SONIA over six-month USD SOFR: zero basis points.
  - For currencies other than Euro, JPY, and GBP, the spread over six-month USD SOFR is 50 basis points.
  - Where the variable rate is linked to a benchmark other than six-month USD SOFR, add a spread reflecting the difference between that benchmark and six-month USD SOFR (rounded to the nearest 50 basis points).

### Outstanding Stock of Short-term External Debt (maturity < one year)
- Definition: External debt stock with maturity of less than one year contracted or guaranteed by the public sector.
- Exclusions: Normal trade credit for imports is excluded.
- Application: This PC applies on a continuous basis.

### External Payment Arrears of the Public Sector
- Definition: Include all debt-service obligations (interest and principal) arising from loans contracted or guaranteed by the public sector.
- Public sector composition for this PC: central government, regional government, state owned enterprises (as listed in Annex 9 of the 2023 budget documents), and the BSL.
- Non-accumulation of external arrears is a continuous performance criterion during the program period.
- Exclusions from this PC:
  - (i) external arrears accumulated before approval of this ECF arrangement;
  - (ii) debts subject to rescheduling or restructuring or under litigation.
- For this PC, external arrears are obligations not paid on due dates (taking into account contractual grace periods, if any).

### Quantitative Indicative Targets — Key Definitions
- Domestic Revenue of Central Government (floor): Total central government revenue, as presented in the central government financial operations table, excluding external grants.
- Domestic Primary Balance (definition): Central Government Revenue less expenditures and net lending adjusted for:
  - interest payments;
  - foreign financed capital expenditure;
  - foreign financed elections;
  - foreign financed energy spending;
  - cash paydown of arrears (arrears refers to the stock of legacy (pre-April 2018) arrears determined for the Sierra Leonean authorities’ arrears clearance strategy).
- Poverty Related Expenditure (definition for monitoring): Total non-salary, non-interest current expenditures of specified ministries and institutions, and capital expenditure for a specified subset of ministries and institutions (listing preserved in source).

### Program Monitoring
- A program-monitoring committee (senior officials from MoF, BSL, and other relevant agencies) will:
  - monitor performance, recommend policy responses, inform the IMF regularly, and transmit supporting materials for evaluation of PCs and benchmarks.
  - provide monthly reports to the IMF on progress in implementing quantitative targets and structural benchmarks.

### Implementation and Reporting (selected reporting deadlines and items)
- Details of all new external borrowing and guarantees (including associated concessionality calculation) — Frequency: Monthly — Reporting deadline: End of month + 4 weeks; contracting or guaranteeing of external debt should be immediately reported to IMF staff.
- External debt service payments (principal and interest, separately) to each creditor — Frequency: Monthly — Reporting deadline: End of month + 4 weeks.
- Report on the stock of debt outstanding, and loan agreements under discussion — Frequency: Quarterly — Reporting deadline: End of quarter + 3 weeks.
- Gross official foreign reserves — Frequency: Weekly — Reporting deadline: End of week + 1 week.
- Balance sheet of the BSL; Monetary survey; Consolidated balance sheets of commercial banks — Frequency: Monthly — Reporting deadline: End of month + 6 weeks.
- Outstanding external arrears and repayments — Frequency: Monthly — Occurrence of new external arrears should be immediately reported to IMF staff.

### Debt Sustainability Analysis — key statements and numeric assumptions
- Risk of external debt distress: High
- Overall risk of debt distress: High
- Total contingent liabilities estimated at 12 percent of GDP.
  - Contingent liability for SOE debt: 7 percent of GDP.
  - Contingent liabilities from financial markets: 5 percent of GDP.
  - Other elements of the general government: 0 percent of GDP.
- Debt-carrying capacity: “medium” with a composite indicator value of 2.73 (based on April 2023 WEO and 2021 CPIA).

*Source: 1sleea2023001 - 10. Adjustment clauses. The ceiling on changes in NDA of the BSL will be adjusted upward*

### 3.      End-2022 stock data shows that Sierra Leone’s public debt continued its increasing

### 3.      End-2022 stock data shows that Sierra Leone’s public debt continued its increasing trend.

### End-2022 debt stock and drivers
- Total public debt rose to 96 percent of GDP in 2022 (from 79 percent of GDP in 2021).
- Key drivers:
  - Sharp depreciation of the leone: 67.3 percent yoy depreciation at end-2022.
  - High 2022 fiscal deficit, leading to substantial additional domestic borrowing, largely through 364-day T-bills.
- Authorities maintained new external borrowing below the Fund-supported program ceiling.

### Composition of public and PPG debt (end-2022)
- Approximately 67 percent of total public and publicly guaranteed (PPG) debt is external debt.
- About 80 percent of external debt comprised non-restructurable obligations to multilateral creditors, including:
  - IMF: 26 percent of total PPG debt stock.
  - WB: 24 percent of total PPG debt stock.
- Domestic debt composition:
  - Around 60 percent of domestic debt is owed to commercial banks mainly in the form of 364-day T-bills.
  - Remainder distributed between the BSL, the non-bank sector, and legacy domestic arrears owed to suppliers.
- Stock of domestic legacy arrears amounted to Le 2,581.3 billion (or 4.8 percent of GDP) by end 2022.

### Macroeconomic assumptions underlying the DSA (comparisons with previous DSA)
- Framework consistent with the macroeconomic framework in the 6th and 7th ECF reviews staff report.
- Growth:
  - 2023 projected growth: 2.7 percent (0.9 ppts lower than in the previous DSA).
  - Medium-term projection: reach long-run potential of about 4½ percent.
  - Downside risks: general election in June 2023, adverse ToT shock, faster inflation acceleration, slower growth in China.
- Inflation (GDP deflator):
  - 2023 projection: 34.7 percent (18.7 ppts higher than the previous DSA).
  - Expected average consumer price inflation for 2023: 37 percent.
  - Medium-term: projected to gradually decline to single digits.
- Fiscal:
  - 2022 overall deficit widened by 6.9 ppts of GDP.
  - 2023 overall deficit projected to widen by 2.3 ppts (including exogenous shocks and policy slippages).
  - Revenue mobilization measures estimated to yield additional annual tax revenues of 2.2 percent of GDP by 2024, of which:
    - 1.8 ppts of GDP come from tax policy measures approved by parliament in April.
    - 0.4 ppts from tax administration measures.
  - Spending reduction from 2022 to 2023: 5.6 ppts of GDP (of which removal of one-offs accounts for 3.4 ppts of GDP, including 0.9 ppts goods and services, 0.4 ppts election and NaCOVERC, 0.3 ppts TSA, and 1.4 ppts in roads projects).
  - Overall deficit in 2023 projected to narrow to 5.6 percent of GDP from 10.9 percent of GDP in 2022.
  - Cash paydown of arrears limited to a low budget ceiling and accompanied by NPV reductions in the face value of debt (assumption unchanged from July 2022 DSA).
- External:
  - Current account deficit projected to have remained high in 2022.
  - Current account projected to gradually improve over the medium term, supported by strengthening mining production (unchanged from previous DSA).
- IDA financing:
  - Firm grants commitments until 2027 and 100 percent regular IDA credits after 2028 (assumption unchanged).
- Use of 2021 IMF SDR allocation:
  - Authorities utilized an additional Le 376 billion in 2022 and will utilize an additional Le 1,666 billion in 2023 compared to the July DSA.
  - This DSA assumes approximately Le 1,233 billion (2.3 percent of GDP) and Le 1,866 billion (2.5 percent of GDP), to be used in 2022 and 2023 respectively.
  - Operation: retrocession transaction; SDR assets sold back to the central bank, converted into local currency, credited to government accounts; results in SDR liabilities counted as additional long-term and highly concessional external debt in the DSA.
- Other financing assumptions:
  - External financing gap during 2024-28 assumed covered by concessional financing with an overall grant element of 35.5 percent.
  - IMF ECF financing: 5.5-year grace period and 10-year maturity; currently carries a zero interest (interest rate subject to Executive Board review every two years).
  - Loans from other multilateral creditors other than the World Bank assumed to have an overall grant element of 35 percent.
  - 364-day T-bills purchased by the central bank in secondary markets are now included as part of gross financing needs (GFN) and revised historically through 2020-21.

### Realism tools, fiscal adjustment needs, and policy measures
- 3-year average primary balance adjustment is over 8 ppts of GDP—close to the 99th percentile of the historical distribution for Sierra Leone’s peers.
- Authorities have begun implementing corrective measures ahead of the completion of the 6th and 7th reviews:
  - Revenue measures and expenditure containment/controls to ringfence current year’s budget and underpin a sustainable medium-term fiscal framework.
  - Revenue mobilization measures estimated to yield additional annual tax revenues of 2.2 percent of GDP by 2024.
  - Expenditure reduction commitment: 5.6 percentage points of GDP in 2023 relative to 2022 (3.4 ppts accounted by removal of one-offs).
  - Contingency measures identified; prepared to take additional revenue measures based on the MTRS; seeking additional budget support grants; would reprioritize spending and curb domestically financed capital expenditure if needed.
- Expected fiscal mitigation for near-term growth: fiscal drag cushioned by Sierra Leone’s open economy and relatively insulated mining and agricultural sectors.

### Debt-carrying capacity and stress testing
- Debt-carrying capacity: medium (Composite Indicator (CI) score of 2.73 based on latest data including April 2023 WEO and World Bank’s 2021 CPIA).
- Stress tests:
  - Standardized settings plus two tailored stress tests for contingent liabilities and commodity price shocks.
  - Commodity price shock magnitudes based on IMF Research Department commodity prices outlook.
  - Combined contingent liabilities stress test described elsewhere in the DSA.

### External DSA findings and risks
- Assessment: Sierra Leone at high risk of external debt distress; PPG external debt assessed to be sustainable.
- Causes: sharp exchange rate depreciation increased PV of external debt-to-GDP and debt service-to-revenue ratio.
- Baseline scenario:
  - PV of PPG external debt-to-GDP and PV of PPG external debt-to-exports decline over the medium term.
  - Projected decline reflects repayment of past ECF disbursements and projected improvement in GDP and exports.
- Liquidity indicators:
  - PPG external debt service-to-revenue ratio stays above threshold over the medium term and remains significantly above its threshold of 18 percent for the next six years.
  - PPG external debt service-to-exports ratio stays slightly below the threshold of 15 percent over the medium term.
  - Staff assesses gross international reserves as adequate to fulfill upcoming debt service obligations despite near-term indicator breaches.
- Stress tests: external debt indicators sensitive to exports and GDP growth; under stress scenarios, all external debt indicators remain above thresholds over the medium term.
- Conclusion: assessed to be at high risk of external debt distress given PPG external debt service-to-revenue ratio breaches.

### Overall public debt sustainability and policy implications
- Overall assessment: high overall risk of public debt distress, but public debt assessed to be sustainable—conditional on strong fiscal adjustment, continued reliance on concessional financing and grants, and moderately high growth rates.
- Baseline public debt trajectory:
  - PV of public debt-to-GDP breaches the 55 percent threshold initially but gradually declines and falls below it by 2026.
  - Compared with previous assessment, indicator shifted up due to leone depreciation and falls below threshold one year later than before.
- Public debt service-to-revenue ratio:
  - Projected to decline steadily over the medium term but remains high at the end of the projection horizon, indicating tight liquidity.
  - Recent efforts to lengthen maturity structure reduce the ratio somewhat versus the previous DSA.
  - Assumptions on new domestic debt financing: 15 percent and 20 percent of new domestic debts financed by 1-3 years bonds in 2023 and 2024 respectively; 25 percent of new domestic debts financed by 1-3 years bonds and 5 percent by 4-7 years bonds between 2025-28 (previous assumption: all new domestic debt financed by 364 days T-bills).
- Stress tests: public debt indicators most sensitive to shocks to growth; both external and public debt indicators exceed thresholds under the baseline—supporting the high overall risk classification.
- Policy priorities emphasized:
  - Sustained and significant fiscal adjustment (frontloaded).
  - Continued reliance on highly concessional external financing (ideally grants), including from IFIs which account for a large share of Sierra Leone’s PPG external debt.
  - Strengthen budget execution, regular meetings of extended cash and debt management committee, ensure quarterly budget allotments backed by credible cash flow projections.
  - Implement MTRS to anchor tax policy and revenue administration, and manage wage bill and subsidies to contain recurrent expenditures.

*Source: IMF staff DSA and macroeconomic analysis as presented in the supplied content.*

### 12.      The debt service to revenue ratio and gross financing needs are high and their

### 12.      The debt service to revenue ratio and gross financing needs are high and their

### Key findings
- The need to roll over T-bills issued in the previous year (“T-bills amortization” in Text Table 6) accounts for around 70 percent of gross financing needs.
- Given Sierra Leone’s domestic financial market characteristics—commercial banks’ business models rely heavily on T-Bills, absence of a secondary market trading between commercial banks, and absent foreign participation—staff assesses that liquidity risks from this rollover are manageable under the baseline.
- Banks are assessed to have the capacity to absorb the projected volumes assumed under the baseline.
- Rollover risks should decline with a reduction in the government’s domestic financing needs and a general tightening of macroeconomic policies, which should contain inflation and the depreciation, thus addressing the upward trend in foreign currency deposits.
- If significant negative shocks materialize, the burden on banks to absorb short-term government debt will rise, leading to larger rollover risks, especially if banking sector health also deteriorates following the shock.
- Gross financing needs will increase if the authorities are unable to roll over at reasonable costs.
- Lengthening of the maturity structure, strong fiscal consolidation, and efforts to secure more grant financing are imperative.

### Debt-service to revenue and gross financing needs (Text Table 6)
- Debt service-to-revenue and grants ratio 1/: 111.0 122.8 102.9 107.5 102.7 95.5 100.5 95.8 94.3 84.0 76.9 71.2 23.7
- of which: T-bills amortization: 77.9 81.3 59.8 54.8 52.1 47.6 52.1 49.9 50.2 48.0 42.0 37.4 6.6
- of which: others: 33.1 41.4 43.1 52.7 50.6 47.9 48.4 45.9 44.2 36.0 34.9 33.8 17.1
- Gross financing need 2/: 28.8 24.6 20.3 21.3 19.8 18.7 19.4 18.5 18.0 16.0 14.7 13.6 5.4
- of which: T-bills amortization: 15.1 15.4 12.5 11.5 10.6 9.7 9.1 8.9 8.7 8.5 7.5 6.6 1.2
- of which: others: 13.8 9.2 7.8 9.8 9.2 9.0 10.3 9.6 9.3 7.5 7.2 6.9 4.2
- Notes from Text Table 6:
  - Sources: Country authorities; and staff estimates and projections.
  - 1/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.
  - 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.

### Risks, vulnerabilities, and stress tests
- Sierra Leone is assessed to be at high risk of external and overall public debt distress, though its debt is assessed to be sustainable; growing debt sustainability risks call for increased attention.
- Large fiscal overruns and exchange rate depreciation have increased risks around the baseline, requiring a bigger and more frontloaded fiscal adjustment to achieve program objectives.
- The increasing public debt service-to-revenue ratio over the medium term suggests high liquidity-related vulnerabilities.
- Stress tests highlight that debt indicators are sensitive to shocks to exports and GDP growth.
- The most extreme stress test is Growth (Text Figure 3). The figure distinguishes baseline, of which excluding rollover, most extreme shock 1/, and historical scenario.

### Policy implications and recommendations
- Continued fiscal discipline and structural reforms, supported by technical assistance and prudent financing choices, are essential.
- To avoid imperiling the post-pandemic recovery and to protect critical social and health spending while addressing development needs, reliance on highly concessional financing and ideally grants is vital.
- Securing more grant financing is a first-order issue as debt sustainability risks increase.
- Sierra Leone has a zero ceiling on non-concessional external debt under the ECF-supported program and WB SDFP and performance actions (PPAs).
- Additional measures to mitigate risks include:
  - Developing a deeper domestic debt market.
  - Securing additional grant support.
  - Issuing medium- to long-term paper to extend the yield curve and reduce rollover risks on bonds held by domestic banks.
  - Continued technical assistance on debt management and development of the domestic market, including recent IMF technical assistance on debt recording and joint World Bank/IMF technical assistance on a medium-term debt strategy.
- Risks would increase if the authorities are unable to issue medium maturity domestic debt at a reasonable cost, if fiscal adjustment falls short of the programmed path, or if the BSL is called upon to finance additional residual borrowing needs (which could reignite depreciation and deposit dollarization).

*Source: IMF staff estimates and projections as presented in the DSA chapter.*

### 16.      The authorities agreed with staff’s views on the DSA. They concurred with the urgency of

### 1sleea2023001 - 16.      The authorities agreed with staff’s views on the DSA. They concurred with the urgency of

### Authorities' agreement and commitments
- Authorities agreed with staff’s views on the DSA and concurred with the urgency of ensuring a sustained and credible fiscal adjustment in 2023 and onward.
- Steps taken and commitments:
  - Recently adopted revenue mobilization measures.
  - Continue to prioritize grant resources.
  - Seek only highly concessional financing.
  - Ratify only loans within the agreed annual ceiling under the ECF-supported program to safeguard debt sustainability.
  - Address high T-Bill rollover risks by issuing medium-to-long-term bonds and supporting the development of the domestic debt market.
  - Reiterate commitment to clear domestic arrears and work to address challenges in obtaining NPV discounts through an updated arrears clearance strategy.

### DSA findings, projections, and key indicators (external DSA baseline, selected)
- Time horizon covered in figures and tables: 2023–33.
- PV of PPG external debt-to-GDP ratio (selected baseline values as reported): 33.5, 38.7, 36.9, 34.9, 32.4, 30.1, 29.0, 26.9, 27.7.
- PV of PPG external debt-to-exports ratio (selected baseline values as reported): 105.3, 116.0, 110.1, 99.2, 93.9, 89.3, 88.3, 82.8, 81.8, 85.8.
- PPG debt service-to-exports ratio (baseline sequence as reported): 11.0, 12.3, 12.0, 11.6, 11.8, 10.0, 9.3, 6.4, 6.4, 6.3.
- PPG debt service-to-revenue ratio (baseline sequence as reported): 26.7, 30.0, 26.2, 25.1, 24.5, 20.0, 18.1, 12.3, 11.8.
- Gross external financing need (Million of U.S. dollars, selected baseline values): 424.3, 374.7, 247.6, 215.4, 176.9, 178.0, 195.3, 211.2, 1907.4.
- Key macro assumptions (selected baseline projections as reported):
  - Real GDP growth (in percent): 3.6, 2.7, 4.7, 5.2, 4.5, 4.5, 4.6, 4.6, 4.5, 2.9, 4.5.
  - Effective interest rate (percent): 0.7, 0.4, 0.6, 0.8, 0.9, 0.9, 1.0, 1.0, 1.0, 0.7, 0.9.
  - Government revenues (excluding grants, in percent of GDP): 13.0, 13.7, 15.3, 16.3, 16.6, 16.8, 16.8, 17.1, 17.2.
  - Nominal GDP (Million of US dollars, selected reported values): 3,970, 3,504, 3,607, 3,780, 4,063, 4,467, 4,823, 6,489, 11,499.
- Public sector debt (baseline, selected PV and ratios reported in public DSA):
  - Public sector debt (percent of GDP, selected): 96.2, 89.3, 81.4, 76.5, 69.8, 64.6, 64.0, 57.2, 54.4, 63.6, 67.8.
  - PV of public debt-to-GDP ratio 2/ (as reported): 75.2, 69.0, 63.0, 60.0, 55.0, 51.0, 50.0, 42.7, 31.4.
  - PV of public debt-to-revenue and grants ratio (selected): 388.9, 364.6, 302.5, 286.1, 269.9, 251.5, 286.0, 240.3, 176.9.
  - Debt service-to-revenue and grants ratio (selected): 111.0, 122.8, 102.9, 107.5, 102.7, 95.5, 100.5, 71.2, 23.7.
  - Gross financing need (selected): 28.8, 24.6, 20.3, 21.3, 19.8, 18.7, 19.4, 13.6, 5.4.

### Stress tests, sensitivity, and risks
- Stress testing and scenarios covered across 2023–33 include:
  - Historical scenario, most extreme shock identification, one-off breach presentation rules, commodity price shock magnitudes based on IMF research department outlooks.
  - Sensitivity analyses show multiple bound and tailored tests (e.g., Real GDP growth, Primary balance, Exports, Other flows, One-time 30 percent nominal depreciation, Combined shocks, Commodity price shock).
- Selected sensitivity table highlights (external debt PV-to-GDP, baseline and scenario values as reported):
  - Baseline series (PV of PPG external debt-to-GDP ratio): 38.7, 36.9, 34.9, 32.4, 30.1, 29.0, 28.0, 27.3, 27.2, 27.0, 26.9.
  - Alternative scenarios and tailored tests produce higher ratios under adverse shocks (examples reported include values above baseline reaching into the 40s, 50s, and beyond in some scenarios).

### Policy implications and priorities reflected in the content
- Immediate priorities emphasized by authorities to safeguard debt sustainability:
  - Deliver sustained and credible fiscal adjustment starting in 2023.
  - Prioritize grants and highly concessional financing within ECF program ceilings.
  - Reduce reliance on short-term T-Bills by shifting to medium-to-long-term instruments and developing the domestic debt market.
  - Clear domestic arrears and pursue updated arrears clearance strategy to improve access to NPV discounts.
- The DSA and stress tests underline vulnerability to growth, export, commodity price, and exchange rate shocks; policy focus is on fiscal consolidation, concessional financing, domestic debt-market reforms, and arrears resolution to mitigate these risks.

*Statement by Mr. Nakunyada, Mr. Garang, and Mr. Mansaray on Sierra Leone, Executive Board Meeting, June 5, 2023*

### 1. Our  Sierra  Leonean  authorities  appreciate  the constructive  engagements  with  staff

### 1. Our  Sierra  Leonean  authorities  appreciate  the constructive  engagements  with  staff

### Program Performance
- All the end -June 2022 quantitative performance criteria (QPCs) and indicative targets (IT) were met except the QPC on net credit to government (NCG) and the ITs on domestic revenue and primary balance due to revenue shortfalls.
- All three QPCs on net domestic assets (NDA), gross international reserves (GIR), and NCG, for end-December 2022 were missed, reflecting the central bank’s foreign exchange and liquidity interventions.
- The end-March 2023 ITs were missed, but the authorities met the continuous PC and the IT on poverty spending.
- Out of fifteen structural benchmarks (SB) reviewed during the 6th and 7th review mission in April 2023:
  - Five were met.
  - Nine were implemented with delay.
  - The SB on the continued use of the automatic fuel price indexation mechanism was missed.
- Remedial and corrective actions:
  - Completed four prior actions for the 6th and 7th reviews.
  - Additional revenue measures to mobilize 2.2 percent of GDP.
  - Expenditure containment measures to reduce spending by 5.6 percent of GDP in 2023.
  - Measures to strengthen budget execution and prevent accumulation of arrears; policies to enhance expenditure transparency and accountability.
- Requests to Fund Directors:
  - Support in completion of the Sixth and Seventh ECF reviews and associated waivers for the non-observance of QPCs.
  - A five (5) month extension of the ECF program to November 29, 2023.
  - Rephasing of the disbursement with half of the funds on completion of the 6th and 7th reviews and the remainder on completion of an 8th review with an end-June 2023 test date.

### Recent Economic Developments and Outlook
- Growth and shocks:
  - Sierra Leone experienced multiple shocks including the Ebola epidemic, mudslides, devastating floods, the COVID-19 pandemic, and spillovers from the ongoing conflict in Ukraine.
  - Economic growth is projected to decelerate from 3.6 percent in 2022 to 2.7 percent in 2023.
  - Real GDP growth is expected to rebound to an average of 4.5 percent driven by increased investments in agriculture, infrastructure, recovery in the tourism sector, and expansion in mining and light manufacturing.
- Inflation and monetary conditions:
  - Inflation peaked to 42.7 percent in February 2023.
  - Inflation is projected to decline in the near-term owing to increased domestic food production, tight monetary conditions, and fiscal consolidation measures.
- External sector and reserves:
  - Current account deficit projected to improve from 9.0 percent of GDP in 2022 to 6.8 percent of GDP in 2023, and further to 5.6 and 3.0 percent of GDP in 2024 and 2025, respectively.
  - Gross international reserves declined from US$931.8 million in 2021 to US$610.4 million in 2022, covering 3.1 months of imports in FY 2023/2024.
  - Reserve decline largely reflects the central bank’s FX interventions and high external debt service payments.

### Fiscal Policy
- Revenue mobilization and tax measures:
  - Parliament passed the Finance Act of April 2023, with 2.2 percent of GDP in additional tax revenue measures.
  - National Revenue Authority (NRA) enhanced revenue mobilization through automation and removal of some tax exemptions.
  - Ongoing tax administrative measures include rollout of digital IDs and the Electronic Cash Register.
  - Plans to restore the full passthrough of the petroleum pricing formula, enforce tax compliance, and fast track harmonization of taxation on capital income from 10 to 20 percent.
  - Intent to increase stamp duty on immovable property, introduce an excise tax on single use of non-bio-degradable plastic, and expand the cash transfer program.
- Medium-term revenue strategy and governance:
  - Cabinet approved a new Medium Term Revenue Strategy (MTRS 2023–27) and established a high-level Steering Committee on the MTRS.
  - Enacted the Duty and Tax Waivers Law to improve transparency and accountability in administering duty and tax exemptions.
- Expenditure rationalization:
  - “No Budget, No Funding” theme: discontinued unplanned and unbudgeted expenses under goods and services, including purchase of vehicles.
  - Delayed non-priority international subscriptions and biometric identification of school children.
  - Reduced roads budget by deferring several feeder roads projects.
  - Continued efforts to maintain payroll integrity, minimize the wage bill as a share of GDP, strengthen cash management, and improve public investment management.
- Debt management:
  - Ensured payment of legacy arrears in accordance with updated arrears clearance strategy.
  - Lengthened maturities of domestic instruments; limited borrowing in line with program objectives; implement medium-term debt management strategy; pursue grants or concessional loans with strict adherence to annual borrowing ceilings.

### Monetary and Exchange Rate Policies
- Policy rate changes:
  - Increased policy rate from 14.25 percent in March 2022 to 18.25 percent in December 2022.
  - Further tightened policy from 18.25 percent in December 2022 to 18.75 percent in March 2023.
  - Central bank stands ready to further tighten monetary policy to bring inflation down to single digits in the medium term.
- Exchange rate and interventions:
  - BSL continues to allow exchange rate flexibility and intends to limit foreign exchange interventions to smoothen volatile market conditions.
  - Declining reserves reflect FX interventions.
- Institutional measures:
  - BSL established the Monetary Policy Strategy and Communications Unit to improve engagement with the public and commercial banks.
  - Audits of the entire currency redenomination process instituted; a detailed report will be submitted to Parliament soon.

### Financial Sector Policies
- Stability and supervision:
  - Financial sector remains stable and well capitalized.
  - BSL to continue risk-based supervision, bolster crisis management and bank regulatory frameworks, including for two state-owned banks (SOBs).
- Regulatory actions and safeguards:
  - Issued revised prudential guidelines for all commercial banks.
  - Prepared a strategy to address high non-performing loans.
  - Completed a governance action plan for the SOBs; appointed a chief auditor.
  - Board approved the Financial Policy Committee (FPC) Charter to improve financial sector management and stability.
  - Deposit protection bill passed in Parliament.
  - Working to finalize and adopt the crisis management plan and build on recommendations from the recent financial sector stability report with IMF resident advisor support.

### Structural Reforms
- Governance, audits, and transparency:
  - Developed and validated standard operating procedures for follow-up of Audit Service Sierra Leone (ASSL) audit recommendations.
  - Adopting a policy on audit implementation requiring vote controllers to implement internal and external audit recommendations and imposing sanctions for noncompliance.
  - Parliament passed an amendment to the Audit Service Act 2014 to strengthen the budgetary independence of the Auditor-General and allow withholding of salaries of vote controllers for non-submission of financial statements at verification and explanation stages.
  - Developed and adopted guidelines on conduct of any tribunal consistent with constitutional provisions.
- State-Owned Enterprises and fiscal risk:
  - Developed the State-Owned Enterprises Ownership and Governance Policy to improve oversight and governance.
- Anti-money laundering / countering financing of terrorism:
  - Accelerated completion of the AML/CFT risk assessment in July 2023.
  - Strengthened collaboration between the central bank and the Financial Intelligence Unit (FIU) to address AML/CFT deficiencies.
- Business environment and resilience:
  - Promoting sustainable green growth via renewable energy, reforestation, and protection of forests, lands, and wetlands.
  - Implementing regulatory and financial sector reforms and investing in infrastructure to improve the business environment, ensure inclusive and sustainable growth, and create employment.
  - Food security measures include implementation of the 2020 agricultural policy shift using electronic voucher systems to provide inputs to farmers; private sector supporting farmers to improve productivity.
- Transparency commitments:
  - Ensuring regular publication of budget reports and statutory audit reports by the ASSL.
  - Published detailed information on recent budgetary overruns on roads construction, legacy arrears clearance, and the 2021 and 2022 financial statements on the use of COVID-19 resources.

### Conclusion and Policy Priorities
- Authorities remain committed to macroeconomic stability and inclusive growth.
- Priorities identified:
  - Fiscal consolidation.
  - Monetary tightening.
  - Structural reforms to replenish buffers and place public finances on a sustainable path.
- Authorities value continued Fund engagement and seek Directors’ support in completing the combined Sixth and Seventh ECF Reviews to anchor medium-term reform efforts.

*Source: 1sleea2023001 - 1. Our  Sierra  Leonean  authorities  appreciate  the constructive  engagements  with  staff*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1sleea2023001.pdf_