## SIERRA LEONE STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION AND REQUEST FOR A 38-MONTH ECF ARRANGEMENT ## Source details **Canonical URL:** [SIERRA LEONE STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION AND REQUEST FOR A 38-MONTH ECF ARRANGEMENT](https://www.imf.org/-/media/files/publications/cr/2024/english/1sleea2024001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1sleea2024001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1sleea2024001-print-pdf.pdf.json) --- ### Executive Board decision and program summary - IMF Executive Board approved a 38-month arrangement under the Extended Credit Facility (ECF) with requested access of SDR 186.663 million (about US$248.5 million). - Immediate disbursement enabled: SDR 34.999 million (about US$ 46.6 million). - Arrangement objectives: - Restore stability: bolster debt sustainability, address fiscal dominance, bring down inflation, rebuild reserves. - Support inclusive growth: structural reforms and targeted social spending. - Confront corruption; strengthen governance, institutions, and the rule of law. - Program financing and modality: - ECF access SDR 186.663 million (approximately 90 percent of quota). - IMF financing share: 45.6 percent of total projected budget support during program period. - All disbursements provided as budget support; disbursements frontloaded to bolster reserves. - Total Projected Budget Support: 544.8; IMF ECF: 248.3; World Bank DPO: 225.0; EU: 71.5 (USD Million and Percent). ### Macroeconomic developments and outlook - Recent outcomes and policy moves: - Domestic primary deficit reduced by 2.8 percentage points of GDP in 2023 and on track to reduce by another 2.1 percentage points in 2024. - Year-on-year base money growth: peak 63.4 percent (June 2023) → 8.8 percent (June 2024); alternate series: 44.0 percent (Dec 2023) and 13.5 percent (July 2024) noted in different sections. - Policy rate increases: raised by 7.75 percentage points since end-2022; MPC raised to 24.75 percent (October 2024). - Inflation: 55 percent y-o-y (October 2023) → 25 percent (August 2024); various series: 52.2 (2023 end), 21.0 (2024 proj), 14.9 (2025 proj). - Growth: Real GDP growth 2022–2023 >5 percent; projected to stabilize around 4.6 percent over the medium term. - Reserves: fallen to less than two months of imports; gross reserves (months of imports) 2023 Prel. 2.6; 2024 Proj. 2.4; 2025 Proj. 2.7. - Key vulnerabilities: - Debt at high risk of distress. - International reserves low (< two months of imports). - Elevated inflation and borrowing costs. - Electricity Distribution and Supply Authority (EDSA) losses creating fiscal pressure. - Persistent cost-of-living crisis, high poverty and food insecurity. ### Selected macro-numerics (as presented) - Output: - Real GDP growth: 2023 Prel. 5.7; 2024 Proj. 4.0; 2025 Proj. 4.5. - Real GDP growth, excl. iron ore: 2023 Prel. 3.0; 2024 Proj. 3.9; 2025 Proj. 4.6. - Prices: - Inflation, end of period (%): 2023 Prel. 52.2; 2024 Proj. 21.0; 2025 Proj. 14.9. - Central government finances (percent of non-iron ore GDP): - Revenue, excl. grants: 2023 Prel. 7.9; 2024 Proj. 8.9; 2025 Proj. 9.8. - Grants: 2023 Prel. 5.6; 2024 Proj. 4.1; 2025 Proj. 4.6. - Expenditure and net lending: 2023 Prel. 18.9; 2024 Proj. 16.1; 2025 Proj. 18.3. - Overall balance: 2023 Prel. -5.3; 2024 Proj. -3.2; 2025 Proj. -3.9. - Public debt: 2023 Prel. 53.4; 2024 Proj. 46.5; 2025 Proj. 46.6. - Money and credit: - Broad money: 2023 Prel. 32.8; 2024 Proj. 16.5; 2025 Proj. 14.5. - Credit to private sector: 2023 Prel. 25.0; 2024 Proj. 21.0; 2025 Proj. 20.4. - External sector (percent of non-iron ore GDP): - Current account: 2023 Prel. -5.3; 2024 Proj. -4.0; 2025 Proj. -4.5. - Gross reserves (months of imports): 2023 Prel. 2.6; 2024 Proj. 2.4; 2025 Proj. 2.7. - External debt: 2023 Prel. 36.5; 2024 Proj. 30.2; 2025 Proj. 29.7. ### Executive Board assessment and Directors’ recommendations - Diagnosis: external shocks, suboptimal policies, and weak governance drove low growth, high inflation, high debt distress risk, and low reserves. - Key recommendations: - Sustained fiscal consolidation to keep debt on sustainable path; target domestic primary surplus of 1.5 percent of GDP by 2027 (adjustment ~4.4 ppts of GDP relative to 2023). - Implement Medium Term Revenue Strategy (MTRS) with emphasis on implementation, compliance, tax administration, enhanced mining revenues. - Expenditure restraint while protecting social spending; maintain social spending floor as an indicative target. - Strengthen debt management and public financial management (PFM). - Tight monetary policy to reduce inflation to single digits; limit monetary financing and enhance liquidity management. - Allow flexible exchange rate adjustment while rebuilding reserves. - Implement safeguards assessment recommendations for central bank governance and transparency. - Strengthen financial sector regulation, establish macroprudential framework, Deposit Protection Fund, Emergency Liquidity Assistance framework, finalize crisis management plan, and bolster bank solvency measures. - Strengthen AML/CFT framework and address governance/corruption, gender gaps, customs administration, social safety nets, and climate risks. ### Program design, risks, and mitigation - Design highlights: - Frontloaded disbursement schedule to bolster reserves. - ECF integrated with National Development Plan 2024-30; includes measures to protect vulnerable groups. - Governance and Corruption Diagnostic (GCD) to guide conditionality and capacity development. - Main risks: - Reform execution downside risks: food insecurity, governance challenges, fragile social/political landscape, weakening ownership. - External risks: global slowdown, tighter financial conditions, protracted Russia’s war in Ukraine, adverse terms of trade shocks. - Financial stability risks: entrenched sovereign-bank nexus, rollover risks, high borrowing costs. - Risk mitigation: - Contingency planning, substantial capacity development, ongoing political dialogue; staff notes Sierra Leone’s good IMF repayment track record. ### Staff recommendation - Staff recommends concluding the 2024 Article IV consultation and supports the authorities’ request for the ECF arrangement based on strong policy commitments. --- ### Fiscal consolidation, revenue strategy, and public finances - Fiscal targets and composition: - Domestic primary balance path: 2023: -2.9; 2024: -0.8; 2025: 0.3; 2026: 0.8; 2027: 1.5; 2028: 1.7; 2029: 1.7 (percent of non-iron ore GDP). - Budget and medium-term projections (percent of non-iron ore GDP): Total revenue and grants: 2023: 13.6; 2024: 13.0; 2025: 14.4; 2026: 14.4; 2027: 15.0; 2028: 15.6; 2029: 15.0. - Expenditures and net lending: 2023: 18.9; 2024: 16.1; 2025: 18.3; 2026: 16.2; 2027: 15.9; 2028: 16.1; 2029: 16.6. - Revenue mobilization and MTRS: - Finance Acts 2023/24 measures estimated yield 1.8 percent of GDP; authorities to submit 2026 Finance bill delivering at least 1 percent of GDP in additional annual tax revenues (end-November 2025 SB). - Measures include harmonizing CIT rates at 20 percent (possible), transition to global income tax, rationalizing tax expenditures, and a safe harbor pricing framework for iron ore (end-December 2024 SB). - Applying EIRA fiscal terms could increase revenue by 40 percent over a project’s life cycle (simulation on a hypothetical project). - Customs and Port of Freetown taskforce: establish revenue taskforce with AFRITAC TA by end-December 2024. ### Expenditure, arrears, and energy sector commitments - Spending restraint: - Plan to reduce spending by 3 ppts of GDP between 2023 and 2027; protect social programs; maintain wage ratio near 4.0 percent of non-iron-ore GDP. - Arrears paydown (cash): 2023: 0.3; 2024: 0.1; 2025: 0.1; 2026: 0.1; 2027: 0.1; 2028: 0.1; 2029: 0.1 (percent of non-iron ore GDP). - Energy/EDSA: - EDSA inefficiencies caused financial losses and large fiscal transfers. - Arrears to IPPs: stock increased Q1-2024 US$59 million → US$68 million; by end-August 2024 arrears stock US$56 million. - 2024 payments: government will pay US$56 million in arrears and additional invoices; EDSA expected to pay at least US$42 million. - Net fiscal transfers projected: 0.5 percent of GDP in 2025 and 0.4 percent of GDP in 2026 (staff estimates). - Metering: 1,250 AMI meters installed; commitment to install additional 3,000 meters by mid-2025 (WB support). MCC US$480 million grant and DFC US$412 million financing noted for grid and plant upgrades. ### Mining revenue mobilization - Institutional developments: SLMMDMC and Mineral Wealth Fund (MWF) established; financed first year via a 50 million new leones budget allocation. - Oversight and accountability: authorities committed to review oversight and accountability frameworks of SLMMDMC and MWF with IMF/WB staff (end-August 2025 SB). - NMA/NRA cooperation: NRA remains in charge of assessing and collecting mineral royalties (MEFP ¶13). --- ### Debt, DSA, and safeguards - Debt assessment and projections: - Public debt: 2023: 53.4; 2024 Proj. 46.5; 2025 Proj. 46.6 (percent of non-iron ore GDP). - External public debt (percent non-iron ore GDP): 2023: 36.5; 2024: 30.2; 2025: 29.7. - DSA: Sierra Leone assessed at high risk of debt distress though debt judged sustainable under baseline with ambitious fiscal adjustment and concessional financing. - Key debt/numbers: - Total public debt (US$ mil): Actual 2023: 2,988; 2024: 3,012; 2025: 3,001; 2026: 2,873. - Multilateral creditors: 2023: 1,651; 2024: 1,589; 2025: 1,551; 2026: 1,492. - IMF share (o/w): 2023: 627; 2024: 613; 2025: 624; 2026: 616 (millions). - Nominal GDP: 2023: 6,397; 2024: 7,413; 2025: 7,807; 2026: 7,952 (units implied as in source). - Fund-specific repayment and exposure metrics: - Outstanding Fund credit based on existing and prospective credit (millions of SDRs): 2024 347.2; 2025 357.0; 2026 352.5; 2027 350.3; 2028 302.3; 2029 252.7. - Outstanding IMF credit projected to peak end-2025 at 172.1 percent of quota, 91.4 percent of gross reserves. - Annual gross repayments to IMF projected to peak in 2026 at 4.8 percent of exports, 0.9 percent of GDP, and 6.6 percent of government revenues and grants. - Public debt limits and ceilings: - New non-concessional external debt continuous ceiling: US$ 0 (per TMU). - New concessional external debt ceiling cumulative adjustments and reporting obligations specified in TMU. - Enhanced safeguards and central bank actions: - Safeguards assessment recommendations to improve BSL governance and transparency; commitments to recapitalize BSL by end-August 2025 SB and publish audited 2023 and 2024 financial statements per timeline. - TMU program exchange rates and detailed definitions for NCG, NDA, NIR and reporting timelines provided. --- ### Banking system, sovereign–bank nexus, and financial safety net - Banking vulnerabilities: - Banks’ holdings of government paper over one-third of total assets; peaked at 46 percent in 2021. - Tier 1 regulatory capital adequacy ratio rose to 45.6 percent in June (selected line). - NPL ratio declined to 7.5 percent (selected line); other series note nonperforming loans to total gross loans values across periods (e.g., 2024 June 13.0; recent lower values listed). - Private credit low: 3.1 percent of GDP in 2023 (selected figure). - One domestic bank faces severe solvency challenges; staff does not assess it as systemically important; diagnostic (Ernst and Young Ghana) shared. - Sovereign–bank nexus risks: - More than 70 percent of sovereign debt holdings are 365-day T-bills; rollover pressure concentrated in short-term instruments. - Safety net gaps: resolution framework and lender-of-last-resort not fully operationalized; Deposit Protection Fund not yet launched until solvency issues addressed. - Financial safety net and remedial steps: - Launch Deposit Protection Fund once solvency challenges addressed. - Establish macroprudential policy framework, crisis management plan, and operational Emergency Liquidity Assistance framework (end-July 2025 SB). - Enforce Banking Act 2019: require capital restoration plans; diagnostics and resolution proceedings per timetable (end-February 2025 SB; end-June 2025 for resolution framework). - Adopt elements of Basel II/III pillar 1 after Quantitative Impact Study; preparatory work underway. --- ### Electricity subsidies, EDSA reforms, and fiscal implications (Box 3) - Key findings: - EDSA inefficiencies: limited, costly, unreliable supply; technical, commercial, collection losses led to arrears accumulation. - Information quality on EDSA financials low; WB-supported audit ongoing; reliable information expected by end-2024. - Arrears and payments: - Arrears stock: Q1-2024 US$68 million (from US$59 million); end-August 2024 arrears stock US$56 million. - 2024: government to pay US$56 million in arrears and additional invoices; EDSA to pay at least US$42 million. - EDSA continues to accumulate new arrears but at a slower pace. - Short-term measures: - 1,250 AMI meters installed; plan to install additional 3,000 meters for high-value customers with WB support by mid-2025. - Adherence to payment plans could increase availability from lower-cost IPPs. - Medium-term reforms and investments: - Regulatory modernization, cost-reflective tariffs, concession to private sector; grid upgrade under US$480 million MCC grant; US$412 million DFC financing and insurance for plant upgrade. - Fiscal projection: - Staff estimates net fiscal transfers remain large near term: 0.5 percent of GDP in 2025; 0.4 percent of GDP in 2026. --- ### Governance, institutions, AML/CFT, and capacity development - Governance and Corruption Diagnostic (GCD): to provide holistic analysis and concrete recommendations; authorities commit to publishing GCD (end-May 2025 SB). - PFM reforms and prior actions: - Cabinet approved ministerial directive to enforce commitment/payment ceilings (Prior Action); directive published October 22. - IFMIS rollout: web-based IFMIS to 115 agencies; expand to add 20 SVAs/MDAs by end-December 2024. - Commit to publish SOE transfers and contingent liabilities starting with 2025 budget; approve SOE Ownership and Governance bill by end-2024. - AML/CFT: - Emphasize effective implementation: convict launderers, confiscate proceeds, strengthen supervision of NBFIs, address real estate and precious metals sectors. - Amendments to 2009 Companies Act for beneficial ownership ongoing. - Capacity development priorities (CD): - Support for MTRS implementation, BSL monetary policy operations, financial sector regulation/supervision, and statistical improvements. - Plan to adopt GFSM 2014 during program period; STA missions and resident advisors to support national accounts rebasing, PPI, BOP improvements. --- ### Program monitoring, performance criteria, and TMU highlights - Monitoring: semi-annual and continuous performance criteria (PCs), quarterly indicative targets (ITs), and reviews. - Key semi-annual PCs: ceiling on net domestic credit to government (NCG); ceiling on NDA of BSL; floor on NIR. - Indicative targets include: floor on revenue collection; floor on social spending; floor on domestic primary spending; ceiling on net domestic arrears accumulation. - TMU exchange rates (as of June 28, 2024): - US$: 1.315 / 22.507 / 1.000; SDR: 1.000 / 29.604 / 1.315. - Schedule of ECF disbursements (Table 7): - Oct 31, 2024: 34.999 million (16.88) - May 15, 2025: 34.999 million (16.88) - Nov 15, 2025: 23.333 million (11.25) - May 15, 2026: 23.333 million (11.25) - Nov 15, 2026: 23.333 million (11.25) - May 15, 2027: 23.333 million (11.25) - Nov 15, 2027: 23.333 million (11.25) - Total disbursements: 186.663 million (90.00 percent of quota). - Programed cumulative external budgetary assistance by test dates: - December 31, 2024: US$ 72.1 million; June 30, 2025: US$ 0 million. --- ### Risks to baseline and contingency planning - Elevated downside risks: - Political tensions, food insecurity, governance challenges, climate shocks, global slowdown, tighter external financing. - Entrenched sovereign-bank nexus and rollover risks. - Contingency measures: - Reprioritize spending while protecting social spending. - Frontload revenue measures from MTRS and implement short-term emergency measures. - Substantial capacity development and active donor engagement. --- *Source: SIERRA LEONE STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION AND REQUEST FOR A 38-MONTH ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY (1sleea2024001-print-pdf).* ### 186.663 million (about US$248.5 million). The Executive Board’s decision enables an ### SIERRA LEONE STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION AND REQUEST FOR A 38-MONTH ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY ### Executive Board decision and ECF arrangement - The IMF Executive Board approved a 38-month arrangement under the Extended Credit Facility (ECF) with requested access of SDR 186.663 million (about US$248.5 million). - The Executive Board’s decision enables an immediate disbursement of SDR 34.999 million (about US$ 46.6 million). - The ECF arrangement is designed to support the authorities’ National Development Plan 2024-30 and is frontloaded to bolster Sierra Leone’s international reserves position. - Program objectives: - Restore stability by bolstering debt sustainability, addressing fiscal dominance, bringing down inflation, and rebuilding reserves. - Support inclusive growth through structural reforms and targeted social spending. - Confront corruption, and strengthen governance, institutions, and the rule of law. ### Macroeconomic developments and outlook - Recent policy actions and outcomes: - Domestic primary deficit reduced by 2.8 percentage points of GDP in 2023 and on track to reduce by another 2.1 percentage points in 2024. - Year-on-year base money growth reduced from a peak of 63.4 percent in June 2023 to 8.8 percent in June 2024. - Policy rate raised by 7.75 percentage points since end-2022. - Inflation declined from 55 percent y-o-y in October 2023 to 25 percent in August 2024. - Exchange rate depreciation observed in 2022 and early 2023 was arrested. - Growth reached more than 5 percent in 2022 and 2023, supported by strong mining sector activity, and is expected to stabilize at 4.6 percent over the medium term. - Remaining macroeconomic challenges: - Debt remains at high risk of distress. - International reserves have fallen to less than two months of imports. - Inflation and borrowing costs remain elevated. - Electricity distribution company continues to make losses, creating significant fiscal pressures. - Cost-of-living crisis persists amid high levels of poverty and food insecurity. ### Selected economic indicators (as presented) - Output (annual percentage change) - Real GDP growth: 2023 Prel. 5.7; 2024 Proj. 4.0; 2025 Proj. 4.5 - Real GDP growth, excl. iron ore: 2023 Prel. 3.0; 2024 Proj. 3.9; 2025 Proj. 4.6 - Prices (annual percentage change) - Inflation, end of period (%): 2023 Prel. 52.2; 2024 Proj. 21.0; 2025 Proj. 14.9 - Central Government Finances (percent of non-iron ore GDP) - Revenue, excl. grants: 2023 Prel. 7.9; 2024 Proj. 8.9; 2025 Proj. 9.8 - Grants: 2023 Prel. 5.6; 2024 Proj. 4.1; 2025 Proj. 4.6 - Expenditure and net lending: 2023 Prel. 18.9; 2024 Proj. 16.1; 2025 Proj. 18.3 - Overall balance: 2023 Prel. -5.3; 2024 Proj. -3.2; 2025 Proj. -3.9 - Public debt: 2023 Prel. 53.4; 2024 Proj. 46.5; 2025 Proj. 46.6 - Money and credit (annual percentage change) - Broad money: 2023 Prel. 32.8; 2024 Proj. 16.5; 2025 Proj. 14.5 - Credit to the private sector: 2023 Prel. 25.0; 2024 Proj. 21.0; 2025 Proj. 20.4 - Balance of payments (percent of non-iron ore GDP) - Current account: 2023 Prel. -5.3; 2024 Proj. -4.0; 2025 Proj. -4.5 - Gross reserves (months of imports): 2023 Prel. 2.6; 2024 Proj. 2.4; 2025 Proj. 2.7 - External debt: 2023 Prel. 36.5; 2024 Proj. 30.2; 2025 Proj. 29.7 ### Executive Board assessment and Directors’ views - Directors agreed with the staff appraisal: external shocks, suboptimal policies, and weak governance contributed to low growth, high inflation, high risk of debt distress, and low reserves. - Key Director recommendations and observations: - Sustained fiscal consolidation is required to keep debt on a sustainable path. - Welcome the authorities’ Medium Term Revenue Strategy and emphasis on implementation, compliance, tax administration, and enhanced mining revenues. - Call for expenditure restraint while protecting social spending amid high food insecurity. - Strengthen debt management and public financial management. - Monetary policy should be sufficiently tight to reduce inflation to single digits; strengthen the monetary policy framework, limit monetary financing, and enhance liquidity management. - Allow flexible exchange rate adjustment while rebuilding international reserves. - Implement safeguards assessment recommendations to improve central bank governance, accountability, and transparency. - Enhance financial sector regulation and oversight given the elevated sovereign-bank nexus, high deposit dollarization, and solvency and prudential challenges. - Establish macroprudential framework, Deposit Protection Fund, Emergency Liquidity Assistance framework, finalize crisis management plan, and prepare measures to bolster bank solvency. - Strengthen the AML/CFT framework. - Emphasize addressing governance and corruption, narrowing gender gaps, bolstering customs administration, building a strong social safety net, and proactively addressing climate-related risks. - Look forward to the Governance and Corruption Diagnostic to guide reforms. ### Program design, risks, and mitigation - Program design highlights: - ECF access of SDR 186.663 million (approximately 90 percent of quota) to meet balance of payments needs. - Disbursement schedule is frontloaded to bolster reserves. - ECF integrates with National Development Plan 2024-30 and includes measures to protect vulnerable groups and maintain social spending amid fiscal consolidation. - Governance and Corruption Diagnostic to guide conditionality and capacity development; safeguards reforms based on recent assessment. - Main program risks: - High downside risks to reform execution due to high food insecurity, governance challenges, fragile social and political landscape, and potential weakening of ownership. - External risks: global slowdown, tighter financial conditions, protracted Russia’s war in Ukraine, adverse terms of trade shocks. - Financial stability risks: entrenched sovereign-bank nexus, rollover risks, high borrowing costs. - Risk mitigation: - Contingency planning, substantial capacity development to strengthen institutional capacity, and ongoing political dialogue between main factions. - IMF staff notes Sierra Leone has a good track record of IMF repayment. ### Staff recommendation - Staff recommends concluding the 2024 Article IV consultation and supports the authorities’ request for the ECF arrangement, considering their strong policy commitments. *Source: SIERRA LEONE STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION AND REQUEST FOR A 38-MONTH ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY* ### 3. Electricity Subsidies and Reforms ______________________________________________________________ 18 ### 3. Electricity Subsidies and Reforms ### Context and overarching findings - External shocks and suboptimal domestic policies contributed to stagnating income levels and rising poverty over the past decade. - Despite abundant natural resources and demographic advantages, low growth, high inflation, a high risk of debt distress, and low reserves persisted. - Expansionary policies paired with structural and governance challenges crowded out inclusive and private sector led growth, producing: a robust sovereign-bank nexus, high borrowing costs, pervasive arrears, poor revenue mobilization, and underperformance of the mining sector. - Gender inequality has declined over two decades but remains high; women’s labor force participation has fallen more than men’s, widening the gender divide. - The previous ECF arrangement “served as a critical policy anchor but failed to deliver on all its objectives (Annex I).” Lessons from the program include: - (i) conditionality should be clearly defined, parsimonious, and cognizant of ownership and capacity; - (ii) reforms should be well aligned with CD; and - (iii) contingency measures are critical when PFM is weak. ### Recent policy actions and macroeconomic stance - Authorities tightened macroeconomic policies significantly since early 2023 and implemented difficult reforms during a competitive election cycle. - Fiscal policy: - The domestic primary deficit narrowed by 2.8 ppts of GDP in 2023 amid improvements in tax collections and tight spending restraint on wages and salaries, goods and services, subsidies and transfers, and capital expenditure. - Authorities aim to narrow the domestic primary balance by another 2.1 ppts of GDP in 2024. - Monetary policy: - Base money growth increased from 10.2 percent y-o-y at end-2022 to a peak of 63.4 percent in June 2023, before declining to 13.5 percent in July 2024. - The MPC raised the policy rate from 17 percent in end-2022 to 24.75 percent in October 2024. - Central Bank foreign exchange (FX) intervention was modest: the BSL sold only $23.1 million in 2023 and $1.0 million in H1-2024, down from $93.7 million in FX sales in 2022. - As the public borrowing envelope has shrunk, reducing BSL financing of the budget has been a priority; authorities plan to reduce domestic financing and step-up communication with the market to bring yields down. ### Outcomes, indicators, and vulnerabilities - National accounts rebasing: - Nominal GDP in 2022 was revised up by 74 percent; the rebasing reduced ratios of debt, revenues, trade, and other variables to GDP. - Inflation and exchange rate: - Inflation declined from 55 percent y-o-y in October 2023 to 25 percent in August 2024. - The real effective exchange rate (REER) has appreciated, which may impede a rapid external rebalancing and reserve accumulation. - The nominal exchange rate and the illegal parallel market rate have been similarly stable. - Debt and reserves: - Reserves coverage dropped to under two months of imports in August 2024, including due to significant external debt service. - Financial market conditions: - Treasury bill rates remain stubbornly high despite policy tightening and falling inflation; staff projects yields to start falling in H2-2024 as domestic financing is reduced and communication improves. - Growth: - Growth reached more than 5 percent in 2022 and 2023, buoyed by strong mining activity. - Non-mining output grew by 4.2 percent in 2022 and 3.5 percent in 2023. - Both non-mining and overall growth are projected to converge towards Sierra Leone’s potential of 4.5 percent over the medium-term as the economy stabilizes and mining and agricultural activity remain buoyant. - External position: - Sierra Leone’s 2023 external position is assessed as broadly consistent with the level implied by fundamentals and desirable policies (Annex III). - The current account strengthened in 2023 amid a large real depreciation the year before and as imports contracted due to fiscal tightening. ### Policy implications and reforms highlighted - The successor ECF arrangement supports the National Development Plan 2024-30 (NDP) and aims to: - restore macroeconomic stability; - tackle structural reforms, including policies to promote gender equality; - support social spending; and - strengthen governance. - The NDP’s Big Five Game Changers include: - (i) the Feed Salone initiative; - (ii) programs to develop a skilled, healthy, inclusive and gender-sensitive labor force; - (iii) employment schemes for the youth; - (iv) initiatives to improve technology and infrastructure; and - (v) programs to transform the public service architecture to achieve effective service delivery. - Feed Salone aims to achieve food self-sufficiency through measures including improved mechanization and irrigation, better targeting of seed and input subsidy systems, aggregating farmers’ output and processing, promoting agricultural finance, adopting modern ag-tech and climate smart agriculture, and empowering women and youth in agriculture. - Authorities have developed new entities to increase state value from the mining sector and are committed to refining institutional arrangements to contain governance risks. - Structural reforms to lift productivity growth remain critical for sustaining convergence to medium-term potential. *Source: IMF country report content (chapter and surrounding material as provided).* ### 13. The authorities discovered new external arrears but are current on the agreed ### 13. The authorities discovered new external arrears but are current on the agreed ### External arrears - In February 2024, the authorities verified external arrears of US$ 23.4 million owed to two companies for road construction and penalty interest on delayed payment of civil war-related services. - The arrears add to the existing debt stock and debt service projection. ### Banking system vulnerabilities and sovereign‑bank nexus - Tier 1 regulatory capital adequacy ratio rose to 45.6 percent in June. - NPL ratio declined to 7.5 percent. - One domestic bank continues to face severe solvency challenges; staff does not assess it as systemically important. - Banks’ holdings of government paper account for more than a third of total assets, though the ratio remains below recent peaks. - Banks’ negative net open positions increased, suggesting continued long leone positioning. - Private credit stood at only 3.1 percent of GDP in 2023. - Bank appetite for government paper has been strong amid high yields and zero risk weights; government securities stood at over a third of total bank assets over the past two years and declined from a peak of 45 percent in Q1-2021. - Going forward, the public borrowing need is expected to decline, and incentives for deposit dollarization should subside, freeing up balance sheet space for an expansion in private credit. ### Macroeconomic framework: selected medium‑term indicators (2023–29) - GDP at constant prices (percent change): 2023: 5.7; 2024: 4.0; 2025: 4.5; 2026: 4.7; 2027: 4.7; 2028: 4.7; 2029: 4.6 - Consumer prices (end-of-period): 2023: 52.2; 2024: 21.0; 2025: 14.9; 2026: 11.4; 2027: 9.0; 2028: 8.0; 2029: 7.0 - Revenue (excl. grants): 2023: 7.9; 2024: 8.9; 2025: 9.8; 2026: 10.1; 2027: 10.7; 2028: 11.3; 2029: 11.6 - Domestic primary balance: 2023: -2.9; 2024: -0.8; 2025: 0.3; 2026: 0.8; 2027: 1.5; 2028: 1.7; 2029: 1.7 - Overall Balance: 2023: -5.3; 2024: -3.2; 2025: -3.9; 2026: -1.8; 2027: -1.0; 2028: -0.5; 2029: -1.6 - Public Sector Debt (percent of non-iron ore GDP): 2023: 53.4; 2024: 46.5; 2025: 46.6; 2026: 46.4; 2027: 44.1; 2028: 41.5; 2029: 40.2 - Current account balance (incl. grants): 2023: -5.3; 2024: -4.0; 2025: -4.5; 2026: -3.7; 2027: -3.4; 2028: -3.8; 2029: -3.7 - Gross international reserves (months of next year's imports): 2023: 2.6; 2024: 2.4; 2025: 2.7; 2026: 2.9; 2027: 3.0; 2028: 3.0; 2029: 3.0 - External public debt (percent of non-iron ore GDP): 2023: 36.5; 2024: 30.2; 2025: 29.7; 2026: 29.0; 2027: 28.4; 2028: 27.3; 2029: 27.2 ### Risks to the baseline - Risks to reform execution remain high due to political tensions, food insecurity, and governance challenges that could fuel social tensions and threaten the reform agenda. - Reform fatigue could reinvigorate deposit dollarization, intensify debt-related risks, and counter efforts to finance the deficit sustainably, potentially leading to a loss of domestic market access. - External financing could fall short, compounding domestic financing challenges. - Climate shocks could significantly impact output since rainfed agriculture accounts for a significant share of GDP. - A global slowdown, tighter financial conditions, and a protracted Russia’s war in Ukraine could weigh on demand. - The entrenched sovereign-bank nexus constitutes a significant financial stability risk. - Adverse terms of trade or export shocks could adversely impact the current account and fiscal position, and rollover risks could materialize. ### Authorities’ views - The authorities broadly agreed with staff’s assessment of recent developments, the outlook, and risks. - They see strong potential for an extended growth recovery as the reform agenda takes hold under the ECF-supported program and as growth impulses from the mining and agricultural sectors set in as expected. - They agreed that the external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - They cautioned that repeated adverse external shocks could jeopardize progress in bringing down inflation and could derail the broader reform agenda. ### Program objectives (ECF arrangement) - Aim to (i) restore stability by bolstering debt sustainability, addressing fiscal dominance, bringing down inflation and rebuilding reserves; (ii) support inclusive growth through reforms—including to narrow gender gaps—and targeted social spending; and (iii) confront corruption, and strengthen governance, institutions, and the rule of law. ### Fiscal consolidation and revenue strategy - Program target: domestic primary surplus of 1.5 percent of GDP by 2027, an adjustment of some 4.4 ppts of GDP relative to 2023. - Adjustment is frontloaded—with around half taking place in 2024—and revenue based—with 2.6 ppts of GDP achieved through revenue mobilization. - Authorities have published an MTRS implementation plan and activated the committees established by its governance framework (MEFP¶9-11). - Near-term revenue mobilization focus: implementation, compliance, and tax administration. - Authorities have implemented most tax policy measures legislated under the Finance Acts 2023/24. - They revised the fuel price mechanism and are committed to setting prices consistent with the excise rates established in the 2024 Finance Act (continuous SB). - Compliance measures: implement a compliance risk management framework, bolster tax audit capacity, and carry out tax audits for high-risk taxpayers. - Tax administration measures: (i) integrate National Revenue Authority (NRA) revenue systems; (ii) operationalize the revenue court; (iii) strengthen stakeholder engagement (MEFP ¶14). - MTRS customs reforms: establish a revenue taskforce to strengthen collections of customs duties and taxes (MEFP ¶15). ### Budget and medium‑term fiscal projections (percent of non-iron ore GDP) - Total revenue and grants: 2023: 13.6; 2024: 13.0; 2025: 14.4; 2026: 14.4; 2027: 15.0; 2028: 15.6; 2029: 15.0 - Revenue: 2023: 7.9; 2024: 8.9; 2025: 9.8; 2026: 10.1; 2027: 10.7; 2028: 11.3; 2029: 11.6 - Tax revenue: 2023: 6.8; 2024: 7.5; 2025: 8.5; 2026: 8.8; 2027: 9.4; 2028: 9.9; 2029: 10.2 - Non-tax: 2023: 1.1; 2024: 1.4; 2025: 1.3; 2026: 1.3; 2027: 1.3; 2028: 1.3; 2029: 1.3 - Grants: 2023: 5.6; 2024: 4.1; 2025: 4.6; 2026: 4.4; 2027: 4.3; 2028: 4.3; 2029: 3.4 - Expenditures and net lending: 2023: 18.9; 2024: 16.1; 2025: 18.3; 2026: 16.2; 2027: 15.9; 2028: 16.1; 2029: 16.6 - Current expenditures: 2023: 11.3; 2024: 11.1; 2025: 11.4; 2026: 9.8; 2027: 9.6; 2028: 9.4; 2029: 9.2 - Wages and salaries: 2023: 4.2; 2024: 3.9; 2025: 3.9; 2026: 3.9; 2027: 4.0; 2028: 4.1; 2029: 4.1 - Interest: 2023: 2.5; 2024: 2.8; 2025: 3.8; 2026: 2.2; 2027: 1.7; 2028: 1.4; 2029: 1.1 - Capital Expenditure: 2023: 7.2; 2024: 4.9; 2025: 6.7; 2026: 6.2; 2027: 6.2; 2028: 6.6; 2029: 7.3 - Foreign financed capital expenditure: 2023: 5.6; 2024: 3.6; 2025: 4.9; 2026: 4.8; 2027: 5.1; 2028: 5.1; 2029: 5.5 - Domestic financed capital expenditure: 2023: 1.6; 2024: 1.3; 2025: 1.1; 2026: 1.0; 2027: 1.2; 2028: 1.5; 2029: 1.8 - Arrears paydown (cash): 2023: 0.3; 2024: 0.1; 2025: 0.1; 2026: 0.1; 2027: 0.1; 2028: 0.1; 2029: 0.1 - Domestic primary balance: 2023: -2.9; 2024: -0.8; 2025: 0.3; 2026: 0.8; 2027: 1.5; 2028: 1.7; 2029: 1.7 - Overall primary balance: 2023: -2.8; 2024: -0.3; 2025: 0.0; 2026: 0.4; 2027: 0.7; 2028: 0.9; 2029: -0.4 - Overall balance including grants: 2023: -5.3; 2024: -3.2; 2025: -3.9; 2026: -1.8; 2027: -1.0; 2028: -0.5; 2029: -1.6 - Financing: 2023: 5.3; 2024: 3.2; 2025: 3.9; 2026: 1.8; 2027: 1.0; 2028: 0.5; 2029: 1.6 - External financing (net): 2023: -0.3; 2024: -0.4; 2025: 0.4; 2026: 0.4; 2027: 0.7; 2028: 0.8; 2029: 1.5 - Domestic financing (net): 2023: 5.7; 2024: 3.6; 2025: 3.5; 2026: 1.4; 2027: 0.3; 2028: -0.3; 2029: 0.1 ### Mining revenue mobilization (priorities and measures) - Authorities committed to ensuring that Extractive Industries Revenue Act (EIRA) terms are implemented for all new mining projects. - Establishing a safe harbor pricing framework for iron ore (end-December 2024 SB) that could be replicated for other sectors. - Strengthening cooperation between the National Minerals Agency (NMA) and NRA; NRA remains in charge of assessing and collecting mineral royalties (MEFP ¶13). - Sierra Leone Mines and Mineral Development and Management Corporation (SLMMDMC) and Mineral Wealth Fund (MWF) were established to support increased state participation in greenfield projects. - Authorities committed to reviewing oversight and accountability frameworks of SLMMDMC and MWF in close cooperation with IMF and WB staff (MEFP¶40; end-August 2025 SB). - Applying EIRA’s fiscal terms could increase revenue by 40 percent over a project’s life cycle relative to recent practice (simulation on a hypothetical project). - For first year of operation, the corporation was financed through a 50 million new leones allocation from the budget. - Authorities committed to maintain full transparency on the operations of both entities and to refine accountability and oversight standards consistent with international best practice (MEFP ¶40). ### Additional medium‑term tax measures - Authorities intend to submit to Parliament a 2026 Finance bill with measures delivering at least 1 percent of GDP in additional annual tax revenues (MEFP¶12; end-November 2025 SB). - Possible measures include residual MTRS measures—harmonizing CIT rates at 20 percent and transitioning to a global income tax—and rationalizing tax expenditures. - Combined with tax policy measures in the Finance Acts 2023/24 (estimated yield of 1.8 percent of GDP), these would more than account for the projected tax revenue increase of 2.6 ppts of GDP between 2023 and 2027. - Additional gains from tax administration and compliance—including the safe harbor for iron ore—represent an upside to this projection. - Text Table 4 totals: Finance Act measures and other items sum to 2.8 percentage points; projected Changes in Tax Revenue 2024-2027: 2.6 ### Spending restraint and arrears management - Spending projected to decline by 3 ppts of GDP between 2023 and 2027 (Text Table 3). - Authorities committed to strengthen the medium-term expenditure framework and to submit to Parliament a 2025 budget consistent with program parameters (end-November 2024 SB). - Planned measures include: - maintain an unchanged ratio of wages and salaries to GDP; - contain goods and services outlays by containing administrative and operational expenses of governance institutions and subvented agencies; - reduce domestically financed capital expenditure; - account for the expected need for capital transfers; - maintain arrears clearance consistent with the strategy; - reduce energy subsidies and the accumulation of new arrears through measures to strengthen the Electricity Distribution and Supply Authority’s (EDSA’s) performance and exploit low cost energy sources. - Clearance of EDSA’s outstanding arrears will follow the parameters set in the negotiated payment plans with the key IPPs (Box 3 and MEFP¶16). *Source: Chapter 13 of the provided IMF PDF content.* ### Box 3. Sierra Leone: Electricity Subsidies and Reforms ### Box 3. Sierra Leone: Electricity Subsidies and Reforms ### Key findings on EDSA performance and fiscal risks - Inefficiencies continue to cause financial losses at the state-owned EDSA; fiscal risks from EDSA and expected transfers from the budget are expected to remain large. - Electricity supply is limited, costly, and unreliable, with a rudimentary grid in need of updating. - High cost of energy combined with substantial technical, commercial, and collection losses have led EDSA to accumulate arrears and the state to provide support. ### Arrears clearance and financial transparency - Information on EDSA’s financial and operational performance is of low quality and subject to frequent revisions. - An audit of EDSA's financials with support of the WB is ongoing; reliable information should be available by end-2024. - Arrears to IPPs: - Stock increased in the first quarter of 2024 from US$59 million to US$68 million. - Since April 2024 authorities revised the governance framework and agreed payment plans with main IPPs. - In 2024: - The government will pay US$56 million in arrears and additional invoices. - EDSA is expected to pay at least US$42 million. - Available data indicates EDSA continues to accumulate new arrears to IPPs, albeit at a slower pace than in 2023 and early 2024. - By end-August 2024, the arrears stock remained significant at US$56 million. ### Short-term measures implemented or underway - Metering and commercial loss reduction: - 1,250 Advanced Metering Infrastructure (AMI) meters installed in recent months, primarily for high value customers and at secondary substations. - Commitment to install an additional 3,000 meters for high-value customers with WB support by mid-2025. - Adherence to recently signed payment plans could increase availability of energy from some lower-cost IPPs. ### Medium-term structural reforms and investments - Regulatory and market reforms: - Plan to modernize the regulatory framework and allow for cost-reflective tariff adjustments. - Cabinet approved a plan to grant a concession to the private sector; authorities are working with the WB to identify partners. - Public sector and infrastructure actions: - Authorities intend to clear all MDA arrears to EDSA and install smart meters in government facilities. - As part of the US$480 million MCC grant, plan to upgrade and expand the national grid to allow for increased low-cost energy imports. - US$412 million in DFC financing and insurance will help upgrade a power plant. ### Fiscal implications and projected government support - Extent of additional budget transfers in 2025, 2026 and beyond will depend on speed of structural reforms at EDSA. - Staff estimates that net fiscal transfers will have to remain large in the near term at 0.5 percent of GDP in 2025, and 0.4 percent of GDP in 2026. *Source: Box 3. Sierra Leone: Electricity Subsidies and Reforms (content unit).* ### 39. Bolstering the financial safety net is critical. This includes (i) launching the deposit ### Bolstering the financial safety net; governance, institutions, and program modalities ### Financial safety net and financial sector stability - Key measures recommended: - Launch the deposit protection fund once solvency challenges in commercial banks have been dealt with. - Establish a macroprudential policy framework and crisis management plan. - Enhance the BSL’s operational capacity to implement the resolution framework. - Operationalize the emergency liquidity assistance framework (MEFP¶27/30; end-July 2025 SB). - Authorities’ stance: - Assign a high priority to financial sector stability. - Committed to strengthening existing financial safety net provisions and improving financial sector regulation with requested TA. - Agreed on need to decisively address prudential issues in the banking sector. ### Governance, anti-corruption, and institutional reforms - Governance and Corruption Diagnostic (GCD): - Will provide a holistic analysis of corruption challenges and concrete recommendations. - Expected to feature in program conditionality and capacity development. - Authorities committed to publishing the GCD (end-May 2025 SB). - PFM strengthening (Box 6 highlights): - Cabinet to approve a ministerial directive to: - Direct budgetary units to refrain from commitments and payments that exceed approved annual and multiannual ceilings. - Reinforce sanctions for failures to limit commitments to approved ceilings as established in the PFM Act and Regulations (2016). - Publish the directive on the Ministry of Finance’s website (MEFP¶31; Prior Action). - Implement the National PIM Policy (MEFP¶16) and submit to Parliament a 2025 budget that includes a comprehensive roads budget (MEFP¶31; end-November 2024 SB). - PFM Reform Strategy 2023-2027 objectives include measures to: - Increase transparency and effectiveness of PIM processes. - Rationalize the payroll. - Leverage IFMIS to improve financial controls and comprehensiveness of government financial statements. - Improve cash and debt management. - Strengthen capacity for medium-term planning. - Improve assessment of fiscal risks. - Implement gender-responsive budgeting. - A review of the PFM Act could support harmonization, role clarification, stronger top-down budgeting, reporting, expenditure controls, auditing, and more effective sanctions. - Authorities’ view: - Agree with staff’s assessment; looking forward to the GCD and ongoing work to strengthen PFM and SOE governance. ### State-owned enterprises (SOEs) - Authorities committed actions: - Publish detailed information on SOE government transfers and contingent liabilities starting with the 2025 budget. - Ensure SOE support is consistent with budget priorities and contingent upon pre-assessment of fiscal risks. - Publish implicit transfers through NRA’s annual reports on tax arrears owed by SOEs; enforce sanctions in case of non-payment. - Approve and implement the SOE Ownership and Governance bill by end-2024. - Publish a code of conduct for the board and senior officers by July 2025. - Develop a systematic in-year reporting mechanism for SOEs by end-2024 with IMF TA (MEFP¶18). ### AML/CFT reforms - Status and priorities: - Effective implementation of AML/CFT reforms should be a priority, focusing on convicting launderers and confiscating proceeds. - Progress made in AML/CFT risk-based supervision of NBFIs. - Remaining challenges in regulating high-risk real estate sector and dealers in precious metals and stones. - Enforcement actions remain insufficient, including: - Implementing sanctions against banks for compliance failures related to measures for politically exposed persons’ beneficial ownership. - Implementing United Nations Security Council Resolutions related to terrorism and terrorism financing. - Amendments to the 2009 Companies Act to improve beneficial ownership transparency are ongoing but progress has been slow. ### Inclusive growth, trade, gender, and climate - Business environment and agriculture: - Plans to establish an online business registration system, support SME ecosystem via incubators/accelerators and financial support through the MUNAFA Fund (MEFP¶38). - Feed Salone initiative to provide fertilizer, seeds, chemicals, and support for land preparation through an electronic voucher system; work with development partners on value chains and e-vouchers (MEFP¶41). - Trade facilitation: - High trade costs relative to peers; model simulations indicate sizable revenue and activity gains from strengthening trade facilitation. - Framework elements: WTO trade facilitation agreement, AfCFTA provisions, and the MTRS. - Plan to establish a revenue taskforce to implement MTRS reforms at customs (MEFP ¶15; Selected Issues Paper 5). - Gender equality: - Reforms passed between October 2022 and July 2024: Gender Equality and Women’s Empowerment Act 2022; Public Elections Act 2022; Employment Act 2023; Prohibition of Child Marriage Act 2024. - National Policy on Radical Inclusion and BSL’s National Strategy for Financial Inclusion (2022-2026) support underserved segments. - Remaining gaps: child marriage, GBV, female secondary completion rates. - Potential GDP gains from closing gender gaps in the labor market (Box Text Figure 1): reported values 1.4, 2.1, 3.7, 7.2 (Percent of GDP) across categories "Equal Employment Rate", "Equal Hours Worked", "Equal Earnings", "Total". - Further measures: cash-plus initiatives, alternative education pathways, women’s access to digital and financial services, GBV prevention/reporting/support infrastructure, enforcement of the Child Marriage Act, continued gender budgeting. - Climate-related actions: - Sierra Leone is among the most vulnerable countries to climate change. - Integration of climate strategies with social protection recommended. - Ongoing initiatives: implement National Adaptation Implementation Plan; bolster National Disaster Management Agency and Climate Finance Unit capacities; implement Disaster Risk Financing Strategy. - Authorities to press ahead with implementing recommendations from the C-PIMA, the CCDR, and the CPD (MEFP¶44). ### Data adequacy and capacity development (CD) - Data status: - Data provided to IMF has shortcomings but is broadly adequate for surveillance (Annex IX). - Authorities committed to improving timely provision of data on inflation, the monetary sector, international reserves, and government net domestic financing. - National accounts rebased with IMF support but still have shortcomings that hamper surveillance. - Sierra Leone is an eGDDS country with room for improvement. - IMF CD priorities: - Assist in implementing the MTRS, strengthen BSL’s monetary policy operations, improve financial sector regulation and supervision, and advance timely data compilation and dissemination. - Plan to adopt GFSM 2014 standards for compiling fiscal accounts during the program period. - Further CD actions include: developing the PPI with TA planned for FY25; finalizing national accounts rebasing (compiling government capital formation data, completing a sand mining survey, back casting rebased GDP to 2001-2017); improving quality of financial soundness indicators; improving external sector statistics including FDI estimates. - Authorities’ view: - Appreciate IMF efforts; request continued TA and resident advisors; ask future TA missions include training components. ### Program modalities, financing, and repayment capacity - Proposed arrangement: - 38-month arrangement under the ECF with access of SDR 186.663 million (approximately 90 percent of quota; about US$253 million) to address protracted BOP problems. - Access would be frontloaded; all disbursements provided as budget support. - Financing shares and commitments: - IMF financing would represent 45.6 percent of the total projected budget support during the program period. - The program is fully financed; significant financing assurances provided by the World Bank and the EU to complement scheduled disbursements under the proposed ECF arrangement. - Firm financing commitments for the first 12-month period; good prospects financing will be adequate for remaining program period. - Key macro-numeric projections and risks: - Current account deficit projected to remain at an average of 3.8 percent of non-iron ore GDP over 2024-2029. - Public debt amortization projected to average US$137 million (1.9 percent of GDP) over the period. - Outstanding IMF credit projected to peak at end-2025 at 172.1 percent of quota, 91.4 percent of gross reserves. - Annual gross repayments to the IMF projected to peak in 2026 at 4.8 percent of exports, 0.9 percent of GDP, and 6.6 percent of government revenues and grants. - Budget support burden sharing (USD Million and Percent): - Total Projected Budget Support: 544.8; 100.0 - IMF ECF: 248.3; 45.6 - World Bank DPO: 225.0; 41.3 - EU Poverty Reduction Budget Support: 71.5; 13.1 - (Sources: IMF staff projections) - Program monitoring: - Program to be monitored through semi-annual and continuous performance criteria (PCs) and reviews, and quarterly indicative targets (ITs) (MEFP Table 1). - Semi-annual PCs include: ceiling on net domestic credit to the government (NCG); ceiling on net domestic assets of the BSL (NDA); floor on net international reserves (NIR). - Proposed ITs include: floor on revenue collection; floor on social spending; floor on domestic primary spending; ceiling on net domestic arrears accumulation. - Institutional modality: - A Memorandum of Understanding will be established between the BSL and MoF on respective roles and responsibilities for servicing Sierra Leone’s obligations to the IMF. ### Staff appraisal: diagnosis and priorities - Key messages: - Progress in raising standards of living has been limited despite natural resource endowments, young population, and favorable geography. - Social fragility persists amid allegations of electoral fraud in 2023 and the November 2023 coup attempt. - Previous ECF arrangement provided a policy anchor and catalyzed financing and CD but had mixed performance. - Causes of recent macroeconomic weakness include a series of shocks, suboptimal policies, and weak governance leading to low growth, high inflation, increasing debt risks, and a robust sovereign-bank nexus that crowded out private finance. - Governance and corruption challenges diverted resources from productive investment, undermined business climate via pervasive arrears and poor revenue mobilization, and limited benefits from the mining sector. - Tighter policies and stronger governance are essential to stabilize the economy and lay foundations for inclusive growth, guided by the National Development Plan 2024-30. *Source: IMF staff report content extracted from the provided PDF chapter/section.* ### 61. The recent reform momentum needs to be sustained, and increased efforts are needed ### 61. The recent reform momentum needs to be sustained, and increased efforts are needed ### Major challenges and required adjustments - The remaining adjustment needed to: - keep debt on a sustainable path, - bring down inflation, - rebuild international reserves, and - address fiscal dominance is large. - Making durable progress in fighting poverty and raising standards of living will require: - a strong commitment to reform, - sustained political and social consensus, and - well targeted social policies that cover larger shares of the vulnerable population. - Sierra Leone’s 2023 external position is assessed as "broadly consistent with the level implied by fundamentals and desirable policies." - Maintaining price competitiveness going forward will be important to facilitate external rebalancing and rebuilding international reserves. ### Role of the new ECF arrangement and the National Development Plan 2024-30 - The program aims to bolster stability by: - tightening the macroeconomic policy stance, - rebuilding international reserves, - maintaining financial stability, - strengthening debt and public financial management, and - mobilizing grant resources. - The program will support inclusive growth through targeted social spending and structural reforms. - An indicative target will ensure that social spending as a percentage of GDP does not decline despite the significant spending consolidation over the program period. - A new Governance and Corruption Diagnostic will guide reform efforts to strengthen governance and address corruption vulnerabilities. ### Risks to program implementation - Program implementation risks are elevated. - Downside risks include: - a global economic slowdown, - tighter external financial conditions, - terms of trade shocks, and - shocks related to climate change. - Geopolitical tensions can have serious implications for the Sierra Leonean economy via impacts on energy subsidies, food inflation and security spending. - There is a risk of reform fatigue given the large adjustment need and the country’s fragile social and political backdrop. - In this context, contingency plans are critical. ### Staff recommendations and support - Staff recommends the Executive Board’s conclusion of the 2024 Article IV Consultation. - Staff supports the authorities’ request for a 38-month extended arrangement under the ECF with access of SDR 186.663 million (approximately 90 percent of quota; about US$253 million). - Staff also supports the authorities’ request to use disbursements under the arrangement as budget support. *Source: 1sleea2024001-print-pdf - 61. The recent reform momentum needs to be sustained, and increased efforts are needed* ### 65. Staff recommends that the next Article IV consultation for Sierra Leone be held on the ### Staff recommendation and country overview: Sierra Leone ### Article IV consultation timing - Staff recommends that the next Article IV consultation for Sierra Leone be held on the 24-month cycle per the decision on Article IV consultations cycles for members with IMF arrangements. ### Real and external sectors (2014–23) — key findings - Non-iron ore growth remained below potential in 2023 amid the decisive fiscal tightening. - Both food and non-food inflation are coming down. - 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 have since dropped sharply. - The steep currency depreciation in 2022 and early 2023 has been arrested, leading to substantial REER appreciation. ### Fiscal sector (2010–24) — key findings - The fiscal policy stance tightened in 2023. - This resulted in a drop in domestic borrowing despite net negative external borrowing. - Revenue collection increased in 2023. - Expenditures contracted in 2023. ### Monetary and financial indicators (2014–24) — key findings - Base money growth has come down significantly. - Private credit growth remains too low. - Commercial banks’ business models remain focused on government securities. - NPL ratios have edged down over the past two years. - Banks are holding large volumes of excess reserves. - Interest rates edged up alongside the policy rate, but real rates remain negative. ### Projections and key macro indicators (Table 1, 2023–29) - GDP at constant prices: 2023 5.7; 2024 4.0; 2025 4.5; 2026 4.7; 2027 4.7; 2028 4.7; 2029 4.6 - GDP excluding Iron ore: 2023 3.0; 2024 3.9; 2025 4.6; 2026 4.6; 2027 4.7; 2028 4.7; 2029 4.5 - GDP excluding mining: 2023 3.5; 2024 3.7; 2025 4.3; 2026 4.7; 2027 4.8; 2028 4.9; 2029 4.7 - GDP deflator: 2023 29.2; 2024 24.5; 2025 12.0; 2026 8.0; 2027 7.1; 2028 6.2; 2029 5.9 - Consumer prices (end-of-period): 2023 52.2; 2024 21.0; 2025 14.9; 2026 11.4; 2027 9.0; 2028 8.0; 2029 7.0 - Consumer prices (average): 2023 47.7; 2024 36.6; 2025 18.0; 2026 13.2; 2027 10.2; 2028 8.5; 2029 7.5 - Terms of trade (deterioration -): 2023 5.7; 2024 -3.4; 2025 -2.2; 2026 -1.3; 2027 -0.4; 2028 1.0; 2029 0.8 - Exports of goods: 2023 8.9; 2024 8.7; 2025 0.5; 2026 4.8; 2027 2.7; 2028 3.7; 2029 5.5 - Imports of goods: 2023 -3.3; 2024 7.2; 2025 3.6; 2026 1.1; 2027 1.5; 2028 5.2; 2029 2.4 - Gross international reserves (excl. swaps) (months of next year's imports): 2023 2.6; 2024 2.4; 2025 2.7; 2026 2.9; 2027 3.0; 2028 3.0; 2029 3.0 - Domestic credit to the private sector: 2023 25.0; 2024 21.0; 2025 20.4; 2026 21.0; 2027 21.2; 2028 21.2; 2029 20.9 - Base money: 2023 44.0; 2024 16.5; 2025 14.5; 2026 13.6; 2027 13.4; 2028 12.9; 2029 10.6 - Public debt: 2023 53.4; 2024 46.5; 2025 46.6; 2026 46.4; 2027 44.1; 2028 41.5; 2029 40.2 - External public debt (including IMF): 2023 36.5; 2024 30.2; 2025 29.7; 2026 29.0; 2027 28.4; 2028 27.3; 2029 27.2 - Current account balance (including official grants): 2023 -5.3; 2024 -4.0; 2025 -4.5; 2026 -3.7; 2027 -3.4; 2028 -3.8; 2029 -3.7 - Domestic primary balance: 2023 -2.9; 2024 -0.8; 2025 0.3; 2026 0.8; 2027 1.5; 2028 1.7; 2029 1.7 - Overall balance: 2023 -5.3; 2024 -3.2; 2025 -3.9; 2026 -1.8; 2027 -1.0; 2028 -0.5; 2029 -1.6 - Revenue (excluding grants): 2023 7.9; 2024 8.9; 2025 8.9; 2026 10.1; 2027 10.7; 2028 11.3; 2029 11.6 - Grants: 2023 5.6; 2024 4.1; 2025 4.6; 2026 4.4; 2027 4.3; 2028 4.3; 2029 3.4 - GDP at market prices (Leone millions) (Memorandum): 2023 136,604; 2024 176,871; 2025 207,012; 2026 234,075; 2027 262,455; 2028 291,843; 2029 323,254 - Excluding iron ore (US$ millions) (Memorandum): 2023 5,976; 2024 6,915; 2025 7,291; 2026 7,422; 2027 7,701; 2028 8,051; 2029 8,444 - Per capita GDP (US): 2023 754; 2024 857; 2025 884; 2026 882; 2027 896; 2028 917; 2029 943 ### Fiscal operations (Tables 2a–2c) — selected magnitudes (Millions of Leone; Percent of non-iron ore GDP) - Total revenue and grants (Leone millions, 2023 prelim.): 135,411; 2024 prelim.: 170,321; 2025 proj.: 193,278; 2026 proj.: 223,149; 2027 proj.: 236,700; 2028 proj.: 242,454; 2029 proj.: 245,242 - Revenue (Leone millions): 2023 70,461; 2024 101,001; 2025 146,901; 2026 189,092; 2027 198,026; 2028 221,302; 2029 130,776 (table presents values; maintain exact figures) - Total revenue and grants (percent of non-iron ore GDP): 2023 13.8; 2024 13.6; 2025 13.0; 2026 14.4; 2027 14.4; 2028 15.0; 2029 15.6 - Expenditures and net lending (percent of non-iron ore GDP): 2023 19.9; 2024 18.9; 2025 16.1; 2026 18.3; 2027 16.2; 2028 15.9; 2029 16.1 - Domestic primary balance (percent of non-iron ore GDP): 2023 -5.7; 2024 -2.9; 2025 -0.8; 2026 0.3; 2027 0.8; 2028 1.5; 2029 1.7 - Overall balance including grants (percent of non-iron ore GDP): 2023 -6.1; 2024 -5.3; 2025 -3.2; 2026 -3.9; 2027 -1.8; 2028 -1.0; 2029 -0.5 - Total Stock of Arrears (memo, index): 2023 3.0; 2024 1.6; 2025 1.1; 2026 0.8; 2027 0.6; 2028 0.4; 2029 0.3; 2030 0.1 ### Balance of payments and external sector (Tables 4–5) — selected magnitudes (US$ millions) - Current account: 2022 -424.3; 2023 -319.4; 2024 -279.4; 2025 -329.1; 2026 -278.0; 2027 -262.3; 2028 -304.6; 2029 -311.7 - Trade balance: 2022 -594.5; 2023 -433.2; 2024 -446.0; 2025 -505.3; 2026 -459.8; 2027 -448.2; 2028 -492.2; 2029 -455.6 - Exports, f.o.b.: 2022 1,154.4; 2023 1,257.3; 2024 1,366.4; 2025 1,372.7; 2026 1,438.3; 2027 1,477.5; 2028 1,532.8; 2029 1,617.1 - Iron ore: 2022 452.4; 2023 528.6; 2024 537.4; 2025 494.9; 2026 509.5; 2027 512.8; 2028 526.7; 2029 572.1 - Imports, f.o.b.: 2022 -1,748.8; 2023 -1,690.4; 2024 -1,812.4; 2025 -1,877.9; 2026 -1,898.0; 2027 -1,925.7; 2028 -2,025.0; 2029 -2,072.7 - Gross international reserves (excluding swaps): 2022 610; 2023 468; 2024 449; 2025 514; 2026 558; 2027 605; 2028 620; 2029 642 - Current account (percent of non-iron ore GDP): 2022 -6.1; 2023 -5.3; 2024 -4.0; 2025 -4.5; 2026 -3.7; 2027 -3.4; 2028 -3.8; 2029 -3.7 ### External financing requirements and sources (Table 5) - Financing needs (US$ millions): 2022 -387; 2023 -339; 2024 -487; 2025 -631; 2026 -562; 2027 -538; 2028 -547; 2029 -513 - Identified financing sources (US$ millions): 2022 506; 2023 480; 2024 373; 2025 476; 2026 428; 2027 408; 2028 456; 2029 461 - Financing gap (US$ millions): 2022 122; 2023 103; 2024 114; 2025 155; 2026 135; 2027 130; 2028 91; 2029 52 - Disbursements from IMF (ECF) (US$ millions) (Table 5, financing sources list): 2023 214; 2024 246; 2025 77; 2026 62; 2027 62; 2028 0; 2029 0 ### Fund obligations and access (Table 6 and Table 7) - Schedule of disbursements under the ECF arrangement (Table 7): - October 31, 2024: 34.999 million (In percent of SDR quota: 16.88) — The approval of the ECF arrangement. - May 15, 2025: 34.999 million (16.88) — Board completion of the first review based on observance of continuous and December 31, 2024 performance criteria. - November 15, 2025: 23.333 million (11.25) — Board completion of the second review based on observance of continuous and June 30, 2025 performance criteria. - May 15, 2026: 23.333 million (11.25) — Board completion of the third review based on observance of continuous and December 31, 2025 performance criteria. - November 15, 2026: 23.333 million (11.25) — Board completion of the fourth review based on observance of continuous and June 30, 2026 performance criteria. - May 15, 2027: 23.333 million (11.25) — Board completion of the fifth review based on observance of continuous and December 31, 2026 performance criteria. - November 15, 2027: 23.333 million (11.25) — Board completion of the six review based on observance of continuous and June 30, 2027 performance criteria. - Total disbursements: 186.663 million (90.00 percent of quota). - Indicators of capacity to repay the Fund (selected lines, Table 6): - Fund obligations based on existing credit (Principal, millions of SDRs): 2024 45.6; 2025 48.5; 2026 51.2; 2027 48.8; 2028 48.0; 2029 49.6 - Fund obligations based on existing and prospective credit (Principal, millions of SDRs): 2024 45.6; 2025 48.5; 2026 51.2; 2027 48.8; 2028 48.0; 2029 49.6; 2030 45.0; 2031 40.1; 2032 38.1; 2033 42.0; 2034 37.3 - Outstanding Fund credit based on existing and prospective credit (millions of SDRs): 2024 347.2; 2025 357.0; 2026 352.5; 2027 350.3; 2028 302.3; 2029 252.7; 2030 207.7; 2031 167.6; 2032 129.5; 2033 87.5; 2034 50.2 ### Financial soundness and public debt (Tables 8–9) — selected indicators - Regulatory capital ratio: (various years) 2013 30.1; 2022 41.7; 2023 40.1; 2024 June 35.2; 45.4 (table lists multiple periodic values). - Nonperforming loans to total gross loans: 2013 23.7; 2022 15.5; 2023 15.0; 2024 June 13.0; recent values include 12.7; 15.2; 12.1; 9.1; 7.8. - Return on assets: 2013 2.2; 2022 6.1; 2023 6.0; 2024 June 8.4; 9.6 (table lists multiple periodic values). - Number of banks (memo): 2013 13.0; 2024 June 15.0 - Public debt (Table 9, aggregate): Total public debt (In mil. US$) 2,988 (Percent total debt 100.0; Percent GDP 49.9) - External: 2,044 (68.4 percent of total debt; 34.1 percent of GDP) - Domestic: 945 (31.6 percent of total debt; 15.8 percent of GDP) - Debt service flows (selected): 2022 debt service (In mil. US$): 727; 2023 626; 2024 574 (Percent GDP: 13.7; 10.4; 8.1 respectively) - Multilateral creditors (2024, In mil. US$): 1,651 (55.2 percent total debt; 27.6 percent GDP) - IMF: 480 (16.1 percent total debt; 8.0 percent GDP) - World Bank: 479 (16.0 percent total debt; 8.0 percent GDP) ### External sector specifics (Table 4) - Exports (f.o.b.) composition highlights: - Diamonds: 2022 189.8; 2023 145.2; 2024 238.7; 2025 279.3; 2026 288.2; 2027 297.4; 2028 306.9; 2029 316.7 - Rutile and ilmenite: 2022 217.7; 2023 148.0; 2024 126.4; 2025 131.5; 2026 136.8; 2027 142.4; 2028 148.1; 2029 154.1 - Services (net): 2022 -265.0; 2023 -305.0; 2024 -331.0; 2025 -344.9; 2026 -349.5; 2027 -357.3; 2028 -374.8; 2029 -387.2 - Income (net): 2022 -67.0; 2023 -53.8; 2024 -61.4; 2025 -64.6; 2026 -68.5; 2027 -71.7; 2028 -74.6; 2029 -79.2 - Transfers: 2022 502.1; 2023 472.5; 2024 559.0; 2025 585.6; 2026 599.8; 2027 614.9; 2028 637.1; 2029 610.2 ### Gender gaps — selected indicators (Table 10) - Female Human Capital Index (HCI): 2023 0.37 - Gender Development Index (GDI): 2018–2022 ~0.89; 2023 latest 0.88 - Gender Inequality Index (GII): 2018–2022 0.62; 2023 0.61 - Global Gender Gap Index: 2023 0.66 - Women in national parliaments: 2018–2022 12.3; 2023 28.2 - Maternal Mortality Ratio per 100,000 Live Births (modeled, 15–49 yrs): 2018 460; 2019 435; 2020 443; 2021 (dots); 2022 (dots); 2023 487; 2025 303 (table lists values) - Total Fertility Rate (Births Per Woman): 2018 4.3; 2019 4.2; 2020 4.1; 2021 4.0; 2022 3.9; 2023 3.5 *Sources: Sierra Leonean authorities; and IMF staff estimates and projections.* ### Annex I. Ex-Post Peer Reviewed Assessment (PRA) ### Annex I. Ex-Post Peer Reviewed Assessment (PRA) ### Overview - Sierra Leone has had a total of 19 arrangements and facilities since 1962, including seven under the ECF, two under the Rapid Credit Facility (RCF), two under the Structural Adjustment Facility (SAF), one under the Extended Fund Facility (EFF), and seven Standby Arrangements (SBA). - Of the available access of SDR 1.294 billion, 0.92 billion was disbursed, three quarters of which since the 1991-2001 civil war. - This is the second PRA for Sierra Leone. - The PRA reviews two Fund arrangements: - ECF1: approved June 2017 with access of SDR 161.772 million (78 percent of quota); about 24.2 percent was disbursed. ECF1 went off track shortly after approval and was cancelled ahead of its first review. - ECF2: approved November 2018 with access of SDR 124.440 million (60 percent of quota). The 8th and final review was completed on November 20, 2023, and the committed access was fully disbursed. - Note: Analysis uses GDP data with base year 2006, not the rebased (base year 2018) GDP. ### Program Objectives - ECF1 objectives: - Restore macroeconomic stability and strengthen resilience. - Reduce inflation, mobilize revenue to support infrastructure and social protection, safeguard financial stability, and strengthen resilience to external shocks. - ECF2 objectives: - Broadly similar to ECF1 but recalibrated macroeconomic framework and structural agenda to address fiscal slippages and the new circumstances that resulted from ECF1’s disruptions. ### Program Design - Facility choice: - The ECF was appropriate given protracted balance of payments needs, substantial structural reform requirements, high risk of debt distress, and weak implementation capacity. - Extensions and rephasing: - ECF2 was extended twice to allow sufficient time to achieve objectives and cope with external shocks; a new test date and an additional review were added as part of the second extension. - Rephasing of test dates and availability dates was done to address delays caused by the Covid shock. - For the second extension, disbursements under the sixth and seventh reviews were reduced by half and the remaining access was made available under the added eighth review. - Access and phasing: - Access under both ECF1 and ECF2 was below the ECF access norm. - Intermittent RCF access: additional access of 67 percent of quota was provided under the RCF as Covid-19 hit. - Conditionality: - QPCs and ITs focused on constraining macroeconomic policies, limiting external debt accumulation, and protecting reserve adequacy. - SBs largely aligned with program objectives; in ECF2 more than two thirds of SBs focused on general government or central bank operations. - Implementation challenges: - Complexity of some SBs required staff to modify and break up several SBs into steps. - Some SBs were ambiguously worded (e.g., continuous SB on adherence to the fuel price mechanism). - The number of PAs and SBs increased substantially after the pandemic, stressing implementation capacity. - Governance conditionality: three SBs and several MEFP commitments were added around the time of the fifth review; the commitment to adequately remunerate Audit Service Sierra Leone (ASSL) management proved difficult to monitor. - Key assumptions, risks, and contingency planning: - Key assumptions and contingencies were generally adequate, but Covid-19 and Russia’s war in Ukraine materially altered the macroeconomic framework. - Contingency planning was updated at each review but proved insufficient for the scale of shocks and policy slippages; risk assessments may not have fully reflected implementation capacity, political/social tensions, and fragile institutions. ### Program Performance - ECF1: - Went off track shortly after approval due to weaker-than-expected growth, lackluster revenue performance, and expenditure overruns leading to a growing stock of arrears; subsequently cancelled and replaced by ECF2. - ECF2 environment and outcomes: - External shocks: Covid-19 pandemic, severe flooding, significant drop in mining output, and Russia’s war in Ukraine weakened the economy and fiscal accounts. - Social tensions: August 2022 protests resulted in at least 21 protesters and 6 police officers killed; electoral changes and allegations of fraud surrounding the June 2023 elections created obstacles to reform implementation and completion of the eighth review. - Performance: initial progress weakened with Covid-19; policy response became more expansionary than warranted, leading to sharp exchange rate depreciation, significant inflation increases, and surging debt ratios. - Food insecurity: proportion of households facing food insecurity rose to 78 percent in 2023 from 54 percent in 2019. - Currency redenomination was rushed and added to macroeconomic challenges. - QPCs, PAs, and SBs performance (ECF2): - QPC performance weakened with the pandemic; large and repeated target misses, especially for Net Domestic Bank Credit to the Central Government (NCG) and Net Domestic Assets of the BSL (NDA). - To address misses, corrective measures included improved budget execution monitoring, arrears paydown, strengthened cash management, and a revised 2022 budget. - For the sixth and seventh reviews, commitments included: - Implementing 2.2 percent of GDP in additional revenue measures. - Reducing spending by 5.6 ppts of GDP in 2023 relative to 2022. - Bolstering expenditure transparency and accountability. - Strengthening budget execution and cash management to prevent arrears. - Reinforcing an existing FX repatriation requirement. - Structural benchmarks and prior actions: - Total of 46 SBs and PAs in ECF2; 83 percent were met or completed with a delay. - Four key reasons for missed SBs: i. Complexity and dependence on external expert advice (e.g., forensic audit of the BSL, strategic plan for two state-owned banks, strategy for clearing domestic arrears). ii. Covid-19 exigencies forced reprioritization and delayed some SBs (e.g., long-term business strategy for state-owned banks). iii. Pandemic tightened capacity constraints, slowing reforms; in the combined sixth and seventh reviews authorities met only five of the fifteen SBs. iv. Depleted buffers and post-Covid volatility caused conflicts (e.g., continuous SB on flexible fuel mechanism met only twice). - Waivers and modifications: - Twelve waivers and four modifications were granted, including two waivers for the introduction of multiple currency practices and exchange restrictions during the fifth review; modifications included a new SDR allocation adjustor for the GIR and NDA, and increases in the ceiling for new concessional external debt. ### Corrective Actions and Completion - Leadership change and corrective measures: - New Minister and new (Acting) Governor installed in early 2023 ahead of the combined sixth and seventh reviews. - New leadership implemented bold corrective actions to stabilize the economy and keep ECF2 on track. - Authorities legislated some three percent of GDP in tax policy measures over a period of six months surrounding the elections. ### Lessons Learnt - Three main lessons identified: - Conditionality should be unequivocally defined, parsimonious, and cognizant of ownership and implementation capacity. - Structural reform success benefits from well-aligned technical assistance. - Robust contingency measures are particularly critical when PFM practices are weak. *Source: Annex I. Ex-Post Peer Reviewed Assessment (PRA), 1sleea2024001-print-pdf.* ### 16. ECF2 was an important policy anchor amid a fragile socio-economic and political ### 16. ECF2 was an important policy anchor amid a fragile socio-economic and political environment. ### Overview - The arrangement (ECF2) supported: (i) macroeconomic and financial stability; (ii) adoption of key structural reforms, including institutional building; (iii) catalyzing additional financial and other support from development partners to support reform efforts; and (iv) provision of critical technical assistance for capacity building.7 ### Key lessons from the assessment - Program design and conditionality - Program conditionality should be unequivocally defined, parsimonious, and cognizant of ownership and implementation capacity. - Trying to do too many reforms at the same time may lead to delays in priority reforms. - Programs can be rescued despite significant slippages when authorities’ commitment is strong and corrective actions are well-designed and prioritized (illustrated by successful corrective actions under the sixth, seventh and eighth reviews). - Technical assistance and structural reform - Structural reform success benefits from well-aligned technical assistance. - Good-practice examples included revisions to the National Revenue Authority Act and the adoption of the medium-term-revenue strategy. - Contingency measures and PFM - Robust contingency measures are particularly critical when PFM practices are weak. - Contingency measures that compensate for spending overruns or revenue shortfalls arising from weak budget planning and controls can help achieve fiscal targets and reduce incidences of fiscal dominance. ### Priorities for a successor program - The successor program should reflect the following priorities: - (i) a continued decisive macroeconomic adjustment to contain debt-related risks, bring down inflation and address fiscal dominance; - (ii) strong PFM, including in budget planning and execution, to limit budgetary overruns; - (iii) a strong and independent monetary policy framework focused on decisively bringing down inflation; - (iv) a credible strategy to develop the domestic bond market and lengthen maturities, supported by strong financial market communication, consistent with the MTDS; - (v) financial stability through strong regulation and supervision, decisive action on insolvent banks and careful management of the sovereign-bank-nexus; - (vi) a strong social safety net to address poverty and high levels of food insecurity; and - (vii) a structured approach to governance reforms. ### Identified risks for a successor program - (i) capacity constraints, lack of ownership, and implementation risks, given the plethora of reform needs and the size of the adjustment need; - (ii) fiscal financing pressures, and the high risk of debt distress; - (iii) an uncontrollable surge in inflation and renewed exchange rate pressures owing to continued fiscal dominance; - (iv) a tense/fragile social and political environment amid an ongoing cost-of-living-crisis; - (v) high exposure to external shocks, including commodity price volatility and climate change induced shocks; - (vi) donor disengagement leading to a reduction of financial and technical support; and - (vii) adjustment fatigue leading to weak program ownership by the political class. ### Authorities’ response and priorities - Authorities and stakeholders broadly agreed with the assessment findings and noted lessons from the recently completed ECF: - (i) structural reforms were most successful when supported by well-aligned TA (e.g., MTRS); - (ii) buffers and contingency planning are key when shocks are frequent, and PFM practices weak; - (iii) adjusting to declining donor support and the temporary nature of RCF disbursements is challenging; - (iv) deep tax reforms require time for consultations and to reconfigure IT systems. - Authorities emphasized that a potential successor ECF should aim to restore stability and strengthen inclusive growth, including bringing down debt-related risks and inflation, and strengthen governance and climate resilience. ### Selected structural targets and commitments (2018–23) — illustrative items preserved exactly as stated - "Parliament to approved a new 2023 Finance Act implementing tax measures estimated to yield additional annual tax revenues of 1.6 percent of GDP" - "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" - "Adopt a plan for dealing with the outstanding stock of unpaid obligations to domestic suppliers containing: (1) a comprehensive stock-taking, transparent verification, and prioritization of arrears; (2) measures to prevent new arrears; (3) making allocations for clearance of arrears in the medium-term budget framework; and (4) plans to rationalize the balance sheet of the BSL." (MOD-SB) - "Complete the stocktaking of payment arrears to domestic suppliers to determine a comprehensive arrears figure, drawing on IMF technical assistance recommendations." (MD) - "Adopt and publish on the MoF website a new arrears clearance strategy that includes all outstanding domestic arrears as of end June 2023, including unpaid checks, with view to fully budgeting for their clearance starting with the 2024 budget." (M) - "MoF has reactivated the Expanded Cash and Debt Management Committee and held at least four meetings between April 15 to June 15 in line with the committee’s terms of references. Submit to the IMF a note with a list of actions to improve the functioning of the cash management committee." (M) - Central Bank and financial sector commitments include (selected): - "Move to daily calculation and publication of an exchange rate that is based on a one-day lag, in consultation with AFRITAC West II." (M) - "Publish the final report of the forensic audit of foreign exchange transactions between the BSL and MDAs during July 2015 -June 2018 and adopt a remedial action plan to address findings." (MOD-SB) - "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." (MOD-DATE MD) - "Develop a Medium-Term Revenue Strategy (MTRS) approved by Cabinet." (MOD-DATE) - "A draft Medium-Term Revenue Strategy (MTRS), developed with stakeholder inputs, submitted to Cabinet for approval." (MD) *Source: Monitoring of Fund Arrangements (MONA); and IMF staff calculations.* ### Annex II. Status of Key Recommendations from 2022 Article IV ### Annex II. Status of Key Recommendations from 2022 Article IV Consultation ### Inclusive and Resilient Recovery - Recommendations: - Integrate climate risks into debt sustainability analysis. - Calibrate climate costs and adaptation benefits and mainstream adaptation into fiscal policies. - Tap into international (grant) funding and explore the possibility of issuing carbon credits to finance priority projects. - Adapt the existing PFM framework to integrate climate targets and prioritize investment projects that meet both development and adaptation purposes. - Status of implementation: - A Climate Finance Unit was established at the MoF in 2023 with the mandate to strengthen coordination and support the mobilization of climate finance. - The Fiscal Risks Statement addresses climate change, but only qualitatively. - The recent C-PIMA report laid out recommendations to increase the climate sensitivity of public investment. ### Fiscal Consolidation, Debt Sustainability, and Fiscal Governance - Recommendations and status: - Priority attention should be paid to developing and implementing a medium-term wage bill management strategy. - A medium-term wage bill strategy is being developed with the help of FAD. - Adhere to the automatic fuel pricing mechanism and use some of the savings to scale up targeted cash transfers. - The automatic fuel pricing formula was irregularly implemented. As of end-February, retail prices were consistent with the parameters of the formula. - Building on the Medium-Term Debt Strategy (MTDS), seek TA on domestic market development to lengthen maturities, reduce rollover risk, diversify financing, increase issuance at shorter maturities (3-month and 6-month), bring in more non-bank participants (long-term pension, insurance funds), facilitate a more actively traded secondary market, review regulatory and investment guidelines for pension funds and insurance companies, and clarify tax treatment on sovereign bonds. - An updated MTDS has been adopted. Reforms to support bond market development have to be stepped up. - Strengthen the ASSL audit process. - Parliament amended the Audit Service Act 2014 and implemented regulations, including: - (i) detailed provision obliging auditees to provide justification or explanation, issue a timeline, assign staff, and agree to an ongoing engagement process with the ASSL (Section 93 Audit Service Act). - (ii) extending the power to withhold salaries of vote controllers for non-submission of financial statements to the verification and explanation stage (Sections 11 & 12 Audit Service Act 2014). - Enhance ASSL’s institutional and financial independence, including powers to enforce audit recommendations; strengthen governance of key fiscal, monetary and financial institutions. - The MoF and the ASSL jointly published a roadmap aiming to enhance the budgetary autonomy of the ASSL, with statutory amendment proposals setting and approving the ASSL budget, timely and complete disbursement of the budget for mandatory spending of the ASSL, and processing of the audit fees. ### Promoting External Stability and Diversification - Recommendations and status: - BSL should not renew the two temporary facilities (US$50 million each), the Special Facility for Food (SFF) for rice, sugar and flour and the Reserve Fuel Facility (RFF) respectively once the US$100 million is disbursed. - The special facilities have expired. - Continue supply side reforms to strengthen competitiveness; exploit natural endowments—agriculture, fisheries, mining—and the young population’s productivity potential. - The authorities have launched five strategic interventions (The Big Five game changers) in their National Development Plan 2024-30 to support growth and development. ### Monetary and Financial Sector Policies: Tackling Inflation, Maintaining Stability and Expanding Financial Development - Recommendations and status: - Increase FX buffers beyond the 3-month coverage of imports to manage spillovers from the war in Ukraine, pandemic related uncertainty, and macroeconomic vulnerabilities. - FX buffers have fallen below three months of imports. - Continue to raise the monetary policy rate (MPR) to combat rising inflation. - The MPR has been increased significantly. - BSL should limit secondary market purchases to support government issuance and consider introducing its own short-term liquidity management operation with standardized tenor, and strengthen coordination with the MoF on cash management. - The BSL has reduced secondary market purchases of government securities. - Improve monetary and exchange rate policy communication (publish and explain BSL’s inflation goal; timely publication of statistics, economic reviews, and monetary policy statements on the BSL’s website). - Monetary policy statements are now published on the BSL's website, as well as dates for future MPC meetings. - BSL should complete and consult on prudential guidelines. - BSL has updated and issued prudential guidelines for banks in line with the 2019 Act, to strengthen capital adequacy, loan classification and provisioning, and for credit, market, and operational risks. - Set out a systemwide strategy to bring down NPLs to the 10 percent prudential limit. - The BSL has prepared a document setting out the supervisory strategy and approach to address high system-wide NPLs and gradually realize compliance on a bank-by-bank basis to reach the 10 percent prudential limit. - National Risk Assessment (AML/CFT) and related strategy should prioritize monitoring, supervisory, and enforcement actions with necessary resources. - The National Risk Assessment was completed in 2023 but has not yet been published. - Extend preparation phase of currency redenomination; agree responsibilities and accountability; independent audit to boost confidence (conversion cost equivalent to about 9 percent of GDP). - The preparation phase of the redenomination was extended. An internal audit was undertaken which uncovered governance lapses and high costs. ### Capacity to Pay - Recommendation and status: - Continue to pursue highly concessional external support, fiscal adjustment, and active liability management to ensure adequate capacity to repay. - Under the 2018 ECF, there was a PC that prevented contracting new non-concessional external debt. This PC was always observed. ### Statistics - Recommendation and status: - Prioritize rebasing the national accounts and reducing delays in publication of the national accounts. - The rebased national accounts were published in July 2024. *Source: Annex II. Status of Key Recommendations from 2022 Article IV Consultation — 1sleea2024001-print-pdf* ### Annex III. External Sector Assessment ### Assessment and potential policy responses - Assessment: - Sierra Leone’s external position in 2023 was broadly in line with the level implied by fundamentals and desirable policies. - The assessment is subject to wide uncertainties given low quality of official data and sensitivity to parameter choices. - The current account deficit as a percentage of GDP is projected to moderate over the medium-term as export growth in key sectors picks up while the tightening fiscal stance holds back imports. - Potential policy responses: - (i) persevere on the fiscal adjustment path. - (ii) rely on highly concessional financing—largely grants—to contain external liabilities. - (iii) allow the exchange rate to flexibly adjust to shocks, while being mindful of the pass-through to inflation. - (iv) enhance productivity and improve competitiveness; recognize that sustained external financial support and foreign direct investment (FDI) cannot necessarily be relied upon indefinitely. - These policies are key to rebuilding adequate reserves over the medium term. ### Foreign Assets and Liabilities: Position and Trajectory - Background and assessment: - NIIP at end-2023 is estimated at around -53.1 percent of GDP, with gross foreign assets of around 23.0 percent of GDP and gross foreign liabilities of around 76.1 percent. - Foreign assets of deposit-taking corporations constitute about half of foreign assets, remainder includes the BSL’s gross official reserves and foreign assets of other non-official sectors. - About two-thirds of foreign liabilities are FDI liabilities; remainder mainly public sector other investment liabilities. - NIIP has worsened over the last five years but is projected to moderate in the medium term. - While the NIIP deficit is large, external stability is bolstered by its composition, including the large share of FDI liabilities in total foreign liabilities. - Recommendation: publish more recent official IIP data, as the latest data point is from 2017. - Key statistics (2023, percent GDP): - NIIP: -53.1 - Gross Assets: 23.0 - Gross Liabilities.: 76.1 ### Current Account - Background: - Over the past five years, current account deficits were large amid looser macroeconomic policies and weak terms of trade. - Preliminary data: current account deficit declined from 6.0 percent of GDP in 2022 to 5.0 percent of GDP in 2023 amid a significant real depreciation the year before and the tightening fiscal policy stance. - Trade balance improved as imports—including food and fuel—declined, while iron-ore and agricultural exports strengthened. - Current account deficit projected to moderate over the medium term as export growth picks up and tightening fiscal stance holds back import growth. - Assessment (EBA-lite CA model): - Indicates an undervaluation of 6.6 percent. - CA gap of 0.9 percent of GDP. - Cyclically adjusted CA balance of -4 .7 percent of GDP against a norm of -5.5 percent of GDP. ### Real Exchange Rate - Background and assessment: - NEER has been on a depreciating trend over a long period; pace accelerated in 2022 and early 2023, but the leone has since been broadly stable. - REER depreciated sharply over 2022 and early 2023 but recovered almost in full by end-2023 on the back of the tightening macroeconomic policy stance. - REER has continued appreciating in 2024, raising concerns it may prevent more rapid external rebalancing and reserve accumulation. - EBA-lite REER model indicates an undervaluation of 5.9 percent, implying a CA gap of 0.8 percent of GDP. - Staff judgment: results of the CA and REER models are consistent; reliance on the CA model for bottom-line assessment. The appreciation of the REER in 2024 suggests any undervaluation is likely to have been reversed in 2024 thus far. ### Capital and Financial Accounts: Flows and Policy Measures - Background and assessment: - Capital account strengthened in 2023 despite a decline in project grants. - FDI and other investment are main components of the financial account. - Data weaknesses and large estimation errors; net inflows weakened in 2023 due to increased debt amortization and increased financial asset accumulation by deposit-taking corporations, except the central bank. - Financial account projected to recover as FDI inflows increase amid strong mining and resumed timber activity over the medium term. - Recommendation: limit debt-creating flows by relying on grants and concessional loans; enhance productivity and competitiveness. ### FX Intervention and Reserves Level - Background and assessment: - Gross international reserves excluding swaps dropped to 7.3 percent of GDP in 2023. - Contributing factors to reserve drop: - (i) significant external debt obligations. - (ii) US$23.1 million in foreign exchange sales in 2023—down from US$93.7 million in 2022—to provide FX to private companies through commercial banks. - (iii) reduced export proceeds due to the timber export ban. - (iv) higher-than-expected security expenditures in context of two alleged coup attempts. - (v) higher-than-expected expenditures for currency imports in the context of the currency redenomination. - (vi) higher-than-expected payments for official sector goods and services. - Reserve coverage in 2023 fell to 2.6 months of next year’s imports but is projected to converge to 3 months of imports over the medium term. - Recommendation: limit intervention to addressing excess volatility in very large temporary shocks; undertake reforms to support FX market development; paired with tighter macroeconomic policy stance, these measures would aid rebuilding reserve buffers. *Source: Annex III. External Sector Assessment — 1sleea2024001-print-pdf* ### Annex IV. Macro-Financial Linkages: The Sovereign-Bank Nexus in Sierra Leone ### Introduction and key channels - Purpose: - Discusses the sovereign-bank nexus and illustrates three key channels creating macro-financial linkages. - Three channels that give rise to the nexus: - (i) Sovereign exposure channel — banks’ holdings of sovereign debt. - (ii) Safety net channel — banks’ protection through government guarantees (implicit and explicit). - (iii) Macroeconomic channel — governments and banks affect economic activity and are affected by it. - Policy direction: - Reduce severity of the sovereign-bank nexus by continued macroeconomic policy tightening to reduce public borrowing, enhancing sovereign debt management, increasing capital and liquidity buffers for banks, and strengthening the financial safety net. ### The sovereign-bank nexus in Sierra Leone: key facts and risks - Financial sector structure and size (end-2023): - 14 banks operating in the country: two domestic state-owned banks in which the government is the majority shareholder, two domestic privately-owned banks and ten foreign banks (most separately capitalized subsidiaries of large Nigerian banks). - Total assets of the banking system amounted to NLe 23 billion or about 48 percent of GDP, accounting for more than 90 percent of total financial assets in the country. - Other financial corporations include the National Security and Insurance Trust (NASSIT), insurance companies, community banks, and microfinance institutions (MFIs), among others. - Sovereign exposure channel: - Financial institutions' assets are heavily concentrated in government securities, even by already high regional standards. - Non-banks account for only a small proportion of total holdings. - Macro-financial risk: - A strong sovereign-bank nexus can multiply and accelerate vulnerabilities and create adverse feedback loops that may precipitate twin crises. - A deterioration in the government’s fiscal position and creditworthiness would weaken banks’ capital positions via the sovereign exposure channel, undermining credit provision and further weakening government and banks through the macroeconomic channel. *Source: Annex IV. Macro-Financial Linkages: The Sovereign-Bank Nexus in Sierra Leone — 1sleea2024001-print-pdf* ### 5. The sovereign is banks’ largest exposure. As the major investor in sovereign debt, banks’ ### 5. The sovereign is banks’ largest exposure. As the major investor in sovereign debt, banks’ ### Sovereign exposures and bank holdings - Banks’ holding of government securities (mainly 365-day T-bills) peaked at 46 percent of total assets in 2021 during the Covid-19 pandemic. - While the ratio edged down over the last two years, it remains higher than in most other sub-Saharan African countries. - More than 70 percent of sovereign debt holdings are 365-day T-bills, creating repeated rollover pressure on sovereign debt. - Government securities remain attractive to banks because of: - the perceived riskiness of the private sector; - zero risk weight for government securities in capital computations; - the absence of alternative investment opportunities; - the treatment of government securities of 365 days or less as liquid assets in the computation of liquidity requirements. - The absence of an active secondary market gives rise to liquidity risks from uncertainty over banks’ ability to liquidate securities under stress. ### Financial safety net channel - The financial safety net typically comprises prudential regulation and supervision, resolution, deposit insurance and lender of last resort, usually supported by sovereigns and central banks. - Sierra Leone status: - Prudential regulation and supervisory framework is fully functional for both on-site and off-site supervision of banks. - Resolution framework is not fully operationalized despite resolution powers in the Bank of Sierra Leone Act, increasing strain on state resources during bank failures. - Lender of Last Resort function is not fully operationalized although the Bank of Sierra Leone has powers to lend to illiquid but solvent banks. - The Deposit Protection Fund (deposit insurer) is yet to be fully operationalized; policies and procedures for periodic premium collection from banks are not in place, increasing government fiscal burden to compensate depositors in outright liquidations. - Implication: absence or weak operationalization of these backstops increases the sovereign–bank nexus and potential fiscal contingent liabilities. ### Macroeconomic channel and external pressures - Banks and governments are interlinked through effects on economic activity; fiscal consolidation can impede bank profitability, while banking crises can disrupt credit supply and economic activity. - External factors contributing to Sierra Leone’s challenging macroeconomic situation include: - lingering effects of the Covid-19 pandemic; - higher food and energy prices amid Russia’s war in Ukraine; - higher interest rates and tighter global financing conditions; - a stronger US$; - general economic uncertainty. - These factors contributed to large macroeconomic imbalances: weak economic growth, higher inflationary pressures, limited fiscal space, and heightened debt vulnerabilities, prompting significant fiscal consolidation that could pressure bank balance sheets further. ### Conclusion and policy implications Findings: - The sovereign–bank nexus in Sierra Leone constitutes a financial stability risk, evidenced by large direct exposure of banks to the sovereign, absence of a fully functional financial safety net, and a challenging macroeconomic environment. Policy recommendations — sovereign side: - Build larger fiscal buffers and improve public debt management to improve debt sustainability and reduce risk of sovereign-related bank distress. - Steadfast implementation of the planned fiscal adjustment and the recent Medium-Term Debt Strategy is critical. - Prudent fiscal policy to reduce high reliance on financing from the domestic banking sector; reduced supply of sovereign paper could lower yields and attenuate crowding out of the private sector, catalyzing private sector-led economic growth and additional fiscal revenue. Policy recommendations — banking side: - Increase capital buffers and strengthen prudential frameworks to reduce risk of bank-induced sovereign distress. - Current prudential guidelines for commercial banks adopted Basel I; guidelines were updated in 2022 to be in line with the revised Banking Act 2019. - As of March 2024, preparatory work is underway to implement certain aspects of Basel II and Basel III focusing on pillar 1 minimum capital after a Quantitative Impact Study. - Adopt revised capital and liquidity requirements, especially for systemically important banks, to ensure cushions against shocks. - The ECF program will advocate for enhanced onsite supervision for the state-owned banks. Policy recommendations — safety net and crisis management: - Enhance institutional framework and operational capacity of the financial safety net. - The ECF program envisages technical assistance to enhance resolution of problem financial institutions and fully operationalize the Emergency Liquidity Assistance framework to facilitate orderly resolution and reduce fiscal support needs. ### Risk assessment highlights (selected banking-related items) - Banking sector vulnerabilities and “sovereign–bank” nexus - Relative Likelihood: High - Expected Impact if Realized: High. Further government borrowing from the banking sector could crowd out private credit, raise interest rates and rollover risks on government securities, possibly trigger central bank financing and fuel inflation; deterioration in asset quality could threaten bank solvency and impose indirect fiscal costs; government is exposed via ownership of the two largest banks. - Policies to Mitigate Risks: - Reduce the public sector borrowing requirement by tightening the fiscal policy stance. - Prioritize reform and further development of the domestic debt market. - Enhance supervision and regulation of the banking system. - Enhance the financial safety net including the bank resolution framework. *Source: IMF staff analysis contained in the chapter section provided.* ### Annex VII. Sierra Leone: Rebasing of the National Accounts ### Annex VII. Sierra Leone: Rebasing of the National Accounts ### Publication and scope - Stats SL published the rebased national accounts in July 2024. - Base year revised from 2006 to 2018 with AFRITAC West II support. - Rebasing included: implementation of the System of National Accounts 2008 (2008 SNA); new and updated production-side classifications; improved data collection on economic activity in the informal sector. - The rebased GDP series covers 2018-2023 and was extended to 2001 by applying the new weights to previous growth rates at the most granular level. ### Key quantitative revisions - Nominal GDP figures between 2018 and 2022 are 56 to 74 percent higher than before. - In 2022, sector shares of nominal GDP (2018 base): - Services: 42 percent of nominal GDP. - Agriculture: 34 percent of nominal GDP. - Industry: increased from 7 to 21 percent of nominal GDP (relative to the 2006 base year). - GDP per capita (USD) revised from US$492 to US$857. - Debt-to-GDP ratio revised from 94 to 54 percent of GDP. - Tax revenue ratio revised from 10 to 6 percent of GDP. - Trade-to-GDP ratio revised from 78 percent to 45 percent. ### Drivers of the revisions - Improved measurement and expanded coverage: - Agriculture now includes cashew nuts, sorghum, sesame, and agricultural services. - Services now include professional, scientific, admin and support services. - Increased coverage of informal activities across all sectors, notably boosting the ‘Wholesale and Retail trade, repair of motor vehicles and motorcycles’ category. - Structural change in the economy between 2006 and 2018 made the rebasing large but expected. ### Production-side and expenditure-side effects - Production-side: - Agriculture’s share of nominal GDP declined while industry and services shares increased. - The services sector became the largest sector in 2022 at 42 percent of nominal GDP. - Expenditure-side: - Exports and imports declined as a share of GDP (capital formation, exports and imports unaffected in levels by the base change, so their shares fell). - Gross fixed capital formation increased in absolute terms; the increase in nominal GDP on the expenditure side is attributed to an increase in private consumption. ### Real GDP and volatility - Trend real GDP growth is broadly unaffected by the rebasing. - Volatility of real GDP growth decreased after rebasing. - The decreased volatility is primarily due to the smaller weight of the mining sector, particularly iron-ore production. ### Implications for macro indicators and policy priorities - Fiscal and debt implications: - Debt-to-GDP ratio decline from 94 to 54 percent improves the headline debt metric, but ratios of debt service to revenues and to exports did not improve; staff’s assessment that debt is sustainable but at high risk of distress still stands. - Tax revenue-to-GDP falling from 10 to 6 percent places Sierra Leone below the 10th percentile in sub-Saharan Africa, underscoring the importance of improved revenue mobilization. - External sector and trade: - Trade-to-GDP decline from 78 percent to 45 percent places Sierra Leone below the 25th percentile in sub-Saharan Africa, indicating scope to strengthen trade facilitation. - Poverty/standard-of-living metric: - Revised GDP per capita lifts Sierra Leone from below the 10th percentile in sub-Saharan Africa to around the 25th percentile. ### Data and compilation considerations (implications for statistical capacity) - Continued support is needed to strengthen national accounts compilation, including: - Improving methodologies to derive sectoral estimates (agriculture and mineral production). - Better measurement of the informal sector. - Estimating GDP from both expenditure and income sides. - Compiling and releasing the producer price index (PPI). - External sector statistics improvements required in estimation methodologies for foreign direct investment inflows, remittances, and capturing unrecorded exports of minerals. - Net international position data has not been released since 2017; timely data compilation and dissemination (including quarterly GDP estimates and monthly financial stability indicators such as NPL ratios and the ratio of banks' liquid assets to total assets) remain priorities. *Source: Stats SL and IMF staff estimates.* ### 3. Several initiatives could help mitigate these risks. The placement of two resident advisors ### 1sleea2024001-print-pdf - 3. Several initiatives could help mitigate these risks. The placement of two resident advisors ### Capacity development initiatives and near-term actions - The placement of two resident advisors at the BSL in 2022, on banking supervision and monetary policy, and of a PFM resident advisor at the MoF in 2024 has helped support CD delivery in a fragile institutional setting. - The incorporation of Sierra Leone as a pilot country for FAD’s medium-term programmatic approach to CD planning and delivery should support implementation of TA recommendations and the integration and sequencing of CD priorities. - The authorities have requested that future TA should contain a training component to help build domestic capacity. - Staff plans to hold regular TA coordinating meetings with the authorities to plan and prioritize upcoming TA. ### Table VIII.1 — Capacity Development Priorities (sectoral objectives) - 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) advising on updates to the PFM legislation; (ii) developing capabilities on strategic and baseline budgeting; (iii) strengthening fiscal risk management, including SOEs; (iv) enhancing management of arrears; (v) enhancing cash forecasting and the cash management function. - Accelerate transparency and governance reforms, including on follow-up of audit recommendations. - Improve fiscal reporting by: (i) enhancing coverage of the whole of central government and gradually extending it 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. This support will be in close cooperation with other development partners to ensure each MTRS action is led by one cooperation partner (with that partner then coordinating inputs from others as needed). - Support on developing the iron ore safe harbor (led by Revenue Administration), linking closely with the fiscal regime (tax policy); modeling training on mining sector (financed under the Global Public Finance Partnership as the Managing Natural Resources Wealth Topical Fund is wound up). - Support is also needed to strengthen tax policy analysis at the Ministry of Finance. - Revenue Administration - Improve the efficiency of domestic resource mobilization by (i) increasing tax compliance and supporting the development of a compliance risk framework; (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 enhancing data integrity; and (vi) limiting and improving control and monitoring over tax exemptions. - Expenditure Policy - Sierra Leone is a pilot country for FADEP’s medium-term CD engagement that focuses on building government capacity to undertake evaluations of expenditure policies. - The 2023 mission on wage bill management supported authorities’ development of a medium-term wage bill management strategy. - Engagement on the assessments of energy subsidies and social policies is expected to continue in the coming months. - Financial Sector Supervision and Regulation - Increase financial system safety and soundness through strengthening prudential regulations as well as supervisory frameworks and processes. - Financial Stability - 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 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 the supervisory framework for financial market infrastructures. - Safeguards - (i) IFRS implementation and capacity building for the BSL’s accounting to achieve timeliness in financial reporting; (ii) a comprehensive review of the BSL’s balance sheet; and (iii) training for members of the BSL Board and the Audit and Risk Committee in their oversight roles. - 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. - Specific near-term needs include: (i) developing a system to estimate foreign direct investment flows; (ii) improving estimates of private remittances; and (iii) converting fiscal accounts to the GFSM 2014 standard. ### Data and statistics developments, gaps, and corrective actions - Changes since the last Article IV consultation: - The authorities are making some efforts to improve statistics, including the recent rebasing of the GDP to 2018. - In May 2024, a national accounts mission helped the authorities to finalize GDP from the production side, while a June 2024 mission started work on compiling GDP from the expenditure side. - TA support has continued on the external sector but progress has been very slow on addressing weaknesses identified in the previous Article IV consultation. - Other data gaps: - Labor market statistics (trends in employment, unemployment and wages). - Additional gaps include: Data related to climate change; income and gender inequality; social protection and social spending, and digitization. - Corrective actions and capacity development priorities: - To correct weaknesses in national accounts, the authorities are increasing the number of staff working in this area and is seeking a resident advisor to help train this co-hort. - The authorities confirmed their capacity development priorities as: 1) Developing the PPI. STA technical assistance (TA) is planned during FY25 to continue on this; 2) finalizing the rebasing of the GDP, including compiling government capital formation data, completing a sand mining survey, and back casting the new GDP series to 2001-2011; 3) Improving the quality and dissemination of compiled soundness indicators. STA remains ready to support the central bank of Sierra Leone in this area in line with international best practice; 4) Improving external sector statistics, including estimates of FDI and IIP. An STA mission on external sector statistics is scheduled for November, 18-29 2024; 5) Improving the reporting of fiscal statistics to be in line with 2014 GFSM standard. - Assessment of data adequacy: - Rationale: Data have some shortcomings but is broadly adequate for surveillance and program monitoring. The most affected areas are balance of payments, and national accounts statistics. Both national accounts and balance of payments are compiled on an annual basis, with long delivery delays. - Specific surveillance impacts: Weak estimates of services sectors, a large informal sector, and weaknesses in balance of payments components (FDI, private remittances, unrecorded mineral exports) make it challenging to identify drivers for foreign exchange flows, including potential FX pressures. *Source: 1sleea2024001-print-pdf (excerpt provided).* ### Annex X. Enhanced Safeguards for Sierra Leone ### Annex X. Enhanced Safeguards for Sierra Leone ### Debt composition and projections - Multilateral debt currently accounts for 80.8 percent of external debt, indicating a potentially narrow scope for external debt restructuring. - Debt ratios are projected to decline over the medium term: - IMF debt—including SDR retrocession—is projected to decline from 9.8 to 7.7 percent of GDP by 2026. - Debt held by all institutions with preferred creditor status (the IMF, the World Bank, and the African Development Bank) is expected to decline from 19.8 to 15.2 percent of GDP. - Debt held by all multilateral institutions is expected to decline from 25.8 to 18.8 percent of GDP. - Text Table 1. Sierra Leone: Debt Composition (selected levels and projections; units implied as in source) - Total debt: - Actual 2023: 2,988 - 2024: 3,012 - 2025: 3,001 - 2026: 2,873 - External debt: - 2023: 2,044 - 2024: 1,958 - 2025: 1,898 - 2026: 1,813 - Multilateral creditors: - 2023: 1,651 - 2024: 1,589 - 2025: 1,551 - 2026: 1,492 - o/w: IMF and WB: - 2023: 1,107 - 2024: 1,081 - 2025: 1,080 - 2026: 1,058 - o/w: IMF: - 2023: 627 - 2024: 613 - 2025: 624 - 2026: 616 - o/w: AfDB: - 2023: 162 - 2024: 159 - 2025: 156 - 2026: 152 - o/w: Other Multilaterals: - 2023: 382 - 2024: 349 - 2025: 315 - 2026: 282 - Bilateral creditors: - 2023: 217 - 2024: 203 - 2025: 189 - 2026: 173 - o/w: Paris Club: - 2023–2026: 51 (each year) - o/w: Non-Paris Club: - 2023: 166 - 2024: 152 - 2025: 138 - 2026: 122 - Private creditors: - 2023: 176 - 2024: 167 - 2025: 158 - 2026: 149 - Domestic debt: - 2023: 945 - 2024: 1,054 - 2025: 1,103 - 2026: 1,060 - Nominal GDP: - 2023: 6,397 - 2024: 7,413 - 2025: 7,807 - 2026: 7,952 - Multilateral debt shares and percent-of-GDP indicators (selected): - Multilateral debt (levels): 1,651 (2023); 1,589 (2024); 1,551 (2025); 1,492 (2026) - Percent of external debt (multilateral): 80.8 (2023); 81.1 (2024); 81.7 (2025); 82.3 (2026) - Percent of GDP (multilateral): 25.8 (2023); 21.4 (2024); 19.9 (2025); 18.8 (2026) - IMF and WB percent of external debt: 54.2 (2023); 55.2 (2024); 56.9 (2025); 58.3 (2026) - IMF and WB percent of GDP: 17.3 (2023); 14.6 (2024); 13.8 (2025); 13.3 (2026) - AfDB percent of external debt: 7.9 (2023); 8.1 (2024); 8.2 (2025); 8.4 (2026) - AfDB percent of GDP: 2.5 (2023); 2.1 (2024); 2.0 (2025); 1.9 (2026) - Other Multilaterals percent of external debt: 18.7 (2023); 17.8 (2024); 16.6 (2025); 15.6 (2026) - Other Multilaterals percent of GDP: 6.0 (2023); 4.7 (2024); 4.0 (2025); 3.5 (2026) - Notes from table: - 1/ As reported by Country authorities according to their classification of creditors, including by official and commercial. Debt coverage is the same as the DSA. - 2/ Multilateral creditors are simply institutions with more than one official shareholder and may not necessarily align with creditor classification under other IMF policies (e.g. Lending Into Arrears). - 3/ Includes SDR retrocession. - 4/ Some public debt is not shown in the table due to confidentiality clauses and data limitation. Total includes domestic arrears. - Other multilaterals include IFAD, OFID, IsDB, EEC/EIB, BADEA, and EBID. ### Capacity to repay the Fund and vulnerabilities - Under the baseline, the stock of debt to the Fund as a share of GDP remains elevated, peaking in 2025 at 6.1 percent of GDP. - This peak of 6.1 percent of GDP is above the 75th percentile of past PRGT arrangements and among the PRGT’s larger exposures in the last decade. - Debt service to the Fund as a share of external debt service increases after 2030 when repayments of disbursements under the proposed ECF will commence. - Key downside risks to Sierra Leone’s capacity to repay the Fund include: - reform delays, - natural disasters, - deterioration in the security situation. - Risk mitigants: - authorities’ strong track record of servicing their debt obligations to the Fund, - fiscal policy measures envisaged under the program, - measures to strengthen governance. ### Debt distress assessment and program role - Sierra Leone is assessed to be at high risk of debt distress. - The external debt service-to-revenue ratio exhibits a protracted threshold breach. - The total debt-service-to-revenue ratio remains above 100 percent until 2028. - Gross financing needs (GFNs) are above the 14 percent benchmark during 2025-26. - Nonetheless, the DSA projects all debt burden indicators to be on a declining trend over the course of the program, underpinned by: - ambitious and frontloaded fiscal adjustment, - continued reliance on concessional financing and grants, - moderately high growth rates. - The baseline external debt service-to-revenue remains above the DSA threshold until 2028, reflecting financing needs arising from Fund support during the Covid-19 and Ebola crises, and recent large commodity price shocks. ### Program request, objectives, and governance (Letter of Intent highlights) - Government requests an Extended Credit Facility (ECF) arrangement: - duration: thirty-eight-months, - amount requested: SDR 186.663 million (approximately 90 percent of quota). - Request that disbursements be made as budget support. - First disbursement requested after Executive Board approval: SDR 34.999 million. - Program monitoring: - includes periodic and continuous performance criteria, indicative targets, prior actions, and structural benchmarks as outlined in the MEFP and the TMU. - Program objectives: - (i) restore stability by bolstering debt sustainability, addressing fiscal dominance, bringing down inflation and rebuilding reserves; - (ii) support inclusive growth through reforms—including to narrow gender gaps—and targeted social spending; - (iii) confront corruption, and strengthen governance, institutions, and the rule of law. - The Government commits to consult with the Fund before adopting further measures or revising the MEFP policies and authorizes publication of the letter and attachments following IMF Executive Board approval. ### Recent macroeconomic developments - Shocks affecting Sierra Leone in recent years: 11 years of civil war, 2014 Ebola epidemic, 2015 commodity price slump, Covid-19 pandemic, spillovers from Russia’s war in Ukraine, mudslides, and episodes of domestic insecurity. - Policy tightening: - 2023: - domestic primary deficit narrowed by 2.8 ppts of non-iron-ore GDP relative to 2022. - base money growth declined to 44.0 percent y-o-y in December 2023 (from 63.4 percent in June 2023). - MPC raised the policy rate by 5.25 ppts in 2023 to 22.25 percent. - 2024: - on track towards achieving a domestic primary deficit of 0.8 percent of non-iron-ore GDP for the year as a whole. - base money growth declined to 13.5 percent y-o-y as of July 2024. - MPC raised the policy rate by another 2.5 ppts in 2024, to 24.75 percent as of October. - Growth and inflation: - Overall growth: 5.3 percent in 2022 and 5.7 percent in 2023 (driven by strong mining activity). - Non-iron-ore growth: 3.9 percent in 2022 and 3.0 percent in 2023. - Annual headline inflation declined from 54.6 percent y-o-y in October 2023 to 29.5 percent in July 2024. - Gross reserves decreased below 2 months of imports, with external debt service as the most important factor. - The leone has remained remarkably stable; however, the real effective exchange rate has appreciated, with implications for price competitiveness. - Treasury yields (T-bill rates) remain high despite policy tightening and falling inflation. ### Economic outlook and risks (authorities’ projections) - Growth projections: - Growth is expected to reach 4.0 percent in 2024 and 4.6 percent over the medium term. - Authorities consider the projection conservative and expect strong upside potential, especially from the mining sector. - Medium-term GDP growth expectation in the Letter of Intent: around 4.5 percent over the medium term. - Inflation is projected to ease to single digits over the medium term as macroeconomic policies tighten and global food and fuel prices decline. - Current account deficit is expected to narrow over the medium term, with plans to rebuild international reserves. - Downside risks highlighted: - deterioration of the security situation, - surging global food prices, - fiscal slippages, - spillovers from global fragmentation, - escalation of Russia’s war in Ukraine, - declining international donor support. ### Fiscal policy specifics and 2024 adjustments - Fiscal stance: - Fiscal policy tightening substantially in 2024 following larger tightening in 2023. - Target for 2024: domestic primary deficit of 0.8 percent of non-iron-ore GDP (down from 2.9 percent in 2023 and 5.7 percent in 2022). - Expenditure adjustments in 2024: - Expenditures expected to be NLe437 million higher than the original budget. - Main drivers of higher expenditures: - plan to clear a larger-than-expected portion of EDSA’s arrears to IPPs (NLe443.5 million), bringing total transfers to the energy sector to NLe1339 million; - higher transfers to NRA and TSA agencies reflecting expected gradual improvement in revenues; - increased security spending in H1-2024 causing an overrun for goods and services; - interest payments on public debt expected to exceed allocation by NLe462 million. - Partially offsetting adjustments: - savings on wages and salaries (NLe 76 million); - reduction in the domestic currency value of foreign financed capital expenditure (NLe 779 million). - Reallocation of some expenditure line items, including school feeding, from domestic capital spending to goods and services, and transfers and subsidies, with no impact on total spending. - Revenues in 2024: - Expected to perform broadly in line with the approved budget, supported by one-off receipts, tax policy measures in the finance act 2023 and 2024, and enhanced NRA compliance efforts. *Source: Annex X. Enhanced Safeguards for Sierra Leone (selected excerpts).* ### 10. The fiscal consolidation will need to continue over the program period to keep our ### 10. The fiscal consolidation will need to continue over the program period to keep our public debt on a sustainable path ### Fiscal consolidation targets - Target: domestic primary surplus of 1.5 percent of GDP by 2027. - Adjustment implied: an improvement of some 4.4 ppts of GDP relative to 2023 and 7.2 ppts relative to 2022. ### Revenue mobilization and MTRS implementation - Governance and reporting: - Implementation plan for the MTRS developed and published. - Reporting mechanisms established. - Commitment to conduct quarterly meetings of the MTRS High-Level Steering Committee. - Near-term deliverables and deadlines: - Address capacity challenges in configuring import excises for ASYCUDA by end-2024. - Implement the MAT before the April 2025 due date. - Commit to publishing pricing decisions on a monthly basis for the updated fuel price mechanism (with World Bank support). - Send to Parliament a 2026 Finance Act with tax measures expected to yield at least 1 percent of GDP in additional annual tax revenues (end-November 2025 SB). - Finalize a report on the scope and size of existing tax exemptions by end-April 2025. ### Tax policy measures and non-tax revenue - Implementation status: - Most measures in the FA 2023 and 2024 implemented, including changes in domestic excise rates and import duties, the fixed excise rates for fuel products, the vehicle circulation levy, the tourism levy, the education levy, and non-tax revenue measures. - Outstanding significant measures: - Excise rates for imports (due to ASYCUDA configuration constraints). - MAT (subject to April 2025 implementation). ### Extractive industries revenue measures - Legal and administrative commitments: - Full implementation of the Extractive Industries Revenue Act (EIRA) 2018 going forward. - Avoid negotiating new fiscal terms outside of EIRA parameters. - NRA will remain in charge of administering assessment and collection of mineral royalties for the entire period of the ECF arrangement; NMA will support NRA as it builds expertise. - Other actions and timelines: - Implement a safe harbor framework for establishing iron ore prices (end-December 2024 SB). - NRA to continue tax audits for high-risk taxpayers, including in extractive industries, manufacturing, and telecoms. ### Strengthening revenue administration and compliance - Reforms implemented and planned: - Implementation of product and fuel marking for excise collection. - Rollout of a new system for telecoms auditing. - Integration of the ECR and ASYCUDA systems with ITAS. - Establishment of a tax court (courtroom allocated and compendium of offenses developed). - Implement a Strategic Compliance Risk Management (CRM) Framework by end-2024 and allocate the CRM function to a senior member of staff. - Develop instruments to enforce the use of ECRs and to prosecute non-compliance to improve GST collection. - Monitoring and reporting: - Prepare and share with IMF staff compliance reports on a quarterly basis, including information on taxpayer registration, on-time filing, payment rates, and aggregate information on tax audits. ### MTRS reforms at customs and Port of Freetown taskforce - Establish a revenue taskforce with AFRITAC TA by end-December 2024, with short-term focus on increasing collection of customs duties and taxes. - Taskforce design and operations: - Focus on the Port of Freetown, led by a dedicated management team. - Include risk management and post clearance audit (PCA) units, a specialist team of customs officers for inspections and document checks, and a dedicated intelligence team. - Risk management unit responsible for data analysis, risk assessment, and targeting. - Taskforce to operate for a period of 12 months, after which results will be evaluated and key findings identified. - Scope to be extended to other selected points of entry after initial success. - Agree a set of key performance indicators and a supporting monitoring and evaluation framework. ### Medium-term expenditure framework (MTEF) — consolidation with protection of social programs - Wages and salaries: - Plan to maintain wages and salaries at around 4.0 percent of non-iron-ore GDP over the program period. - Supported by a new wage bill strategy and commitment to stricter controls on recruitment and compensation of consultants and sub-vented agencies while protecting essential services. - Wage bill strategy to introduce recruitment quotas and stricter controls over in-year requests. - Goods and services: - Plan to contain goods and services spending despite increases in social spending. - Commitment to remain current on obligations to school feeding providers to ensure program benefits at least 800,000 children. - Energy subsidies and EDSA reforms: - Commitment to substantially reduce energy subsidies and transfers by strengthening EDSA’s revenue effort. - Plan established to clear EDSA’s arrears to IPPs. - Continued work with the World Bank to reduce EDSA’s technical and commercial losses and strengthen operational performance. - Progress to end-September 2024: installed and commissioned 1,250 smart meters for high-value customers and at secondary substations. - By end-June 2025 plans to: (i) request World Bank support to procure and install at least 3,000 additional smart meters with high-value consumers; (ii) prepare and implement a settlement plan to clear all MDA arrears to EDSA; and (iii) install smart meters in government facilities by end-June 2025. - Submit to Parliament by end-June 2025 a revised National Electricity Act allowing price changes triggered by changes in underlying operational costs to support concessioning EDSA’s operations to the private sector. - EWRC will adjust electricity tariffs regularly to reflect changes in underlying operational costs. - Regulator plans to reintroduce the social tariff band targeted at poorest consumers by end-December 2024, restricting the social tariff to residential customers that consume up to 25 kWh a month. - Domestic capital spending and public investment management: - Commit to fully implement the National Public Investment Management Policy (NPIMP). - From the 2025 budget, capital projects to go through formal appraisal and selection procedures; inclusion in the budget decided by the Ministerial Investment Committee as established by the Pre-Investment Manual (2022). - Projects longstanding or with variations exceeding 25 percent of original cost require re-appraisal and re-selection. - Continue working with FAD to develop an electronic Public Investment Management Information System. - Commit to: (i) establish a technical budget working group to support reprioritization of existing projects; and (ii) publish annually detailed information on all government-funded capital projects in the budget, including funding allocated to them. - Submit to Parliament a 2025 budget consistent with program projections and including a comprehensive roads budget with total cost, variations, allocations in FY2025, and expected funding needs for FY2026 and FY2027 (end-November 2024 SB). - Arrears clearance: - Implement arrears clearance strategy and restrain net accumulation of arrears (verified or unverified) to zero (IT on domestic arrears accumulation). - Improve arrears recording systems by end-October 2025 to align outstanding arrears information with PFM Act (2016) definitions. - Deploy an arrears profiling system to capture transactions within IFMIS and outstanding invoices at the MDA level; include payments not made in line with PFM Act recommendations in the stock of unverified arrears within the financial year; classify audited items as verified arrears. - Social spending floor: - Commit to a floor on social spending (IT) covering: - education support programs (including school feeding and diet for boarding home schools; tuition fee subsidies and examination fees; subsidized school bus transportation), - cash transfers (including support for the aged), - other social assistance programs (including programs for disabled people), - free healthcare initiative (including procurement of free healthcare and drugs), - employment and active labor market policies (including youth in agriculture and support for youth in fisheries). - Transition to GFSM 2014: - Commitment to transition to GFSM 2014 for fiscal reporting, with IMF Statistics Department TA for the 2026 Budget. - New format to facilitate fiscal reporting under old and new formats to ensure consistency throughout the program period. ### Contingency planning - Prepared measures: - (i) Reprioritize spending while protecting social spending. - (ii) Strengthen revenues, including by frontloading revenue measures in the MTRS. - (iii) Implement short-term emergency measures (Text Table 1). - Goal: maintain readiness to deploy contingency measures expressed in percent of non-iron ore GDP (Text Table 1 referenced). ### Transparency on SOE transfers and contingent liabilities - Commitments and actions: - Continue to publish information on debt and guarantees of SOEs in the budget and associated fiscal risks in the SOE Financial Analysis report. - Starting with the 2025 budget, publish detailed information on SOE government transfers and contingent liabilities. - Condition any additional support to SOEs on an ex-ante review of fiscal risks. - Make information on implicit transfers public through NRA’s annual reports on tax arrears owed by SOEs; NRA to independently collect these arrears and enforce compliance with appropriate sanctions. - Improve coverage and timeline for financial reporting of SOEs. - Cabinet approved the SOE Ownership and Governance Commission bill; commitments that the bill will: (i) provide clear roles for the Minister of Finance in line with the PFM Act and regulations, (ii) be adopted by end-December 2024, and (iii) be rigorously implemented including by publishing a code of conduct for the board and senior officers by July 2025. - With FAD TA, develop a systematic in-year reporting mechanism for SOEs by end-December 2024. ### Debt and debt management - Assessment and policy stance: - Overall and external public debts assessed as sustainable, but at high risk of debt distress. - Commit to agreed fiscal adjustment under the program, redoubling grant-raising efforts, and extending average maturity of debt. - Discontinue costly use of domestic FX linked securities, including FX Swaps and zero-coupon bonds (existing instruments will not be rolled over), unless FX risk is borne by counterparties. - Medium-Term Debt Strategy (MTDS) actions: - Continue extending maturities and developing the domestic debt market as envisaged in the MTDS. - BSL and MoF have begun regular consultations with market participants on MTDS, annual borrowing plan, treasury auction calendars, and macro outlook. - Planned measures: (i) use securities with variable coupons to extend maturities; (ii) terminate private placement of treasury securities; (iii) review primary dealership roles with AfDB support; (iv) implement regulatory norms for institutional investors while ensuring ALM objectives; (v) allow T-bonds to be used as collateral for repo agreements with applicable haircuts. - Plan to update MTDS on an annual basis. ### Monetary policy, safeguards, and exchange rate policy - Monetary policy objectives and actions: - Medium-term inflation objective: reduce inflation to single digits. - Strengthen internal capacity and liquidity management to meet reserve money target and achieve single digit inflation rates by the end of the program. - Commitments include: - Achieve the NIR and NDA targets (PCs) consistent with reserve money target. - Continue actions to achieve positive real policy rates. - Reflect single digit medium-term inflation objective in monetary policy statements. - Develop and share with Fund staff a strategy to revise and recalibrate BSL’s monetary policy operational tools by end-February 2025 SB and implement the strategy over the remainder of the ECF arrangement. - Refrain from monetary financing over the program period, specifically to: (i) terminate securitization of the Ways and Means advances beginning with the outstanding stock at end-December 2024 (balances must be repaid in cash, in line with the BSL Act before additional credit can be extended); and (ii) contain the BSL’s gross claims on the central government. - Exchange rate flexibility and FX reserves: - Commit to reach gross reserves equivalent to at least 3 months of imports. - Keep FX intervention two-sided and limited to addressing excess volatility. - Implement TA recommendations for FX market development, including: (i) publishing the BSL FX reference rate on the day it is compiled; (ii) simplifying rules of the FX interbank market; (iii) identifying market makers; (iv) conducting regular FX auctions as and when market conditions permit. - Allow the leone to adjust flexibly to market conditions to permit needed external rebalancing. - Note: significant appreciation in the real exchange rate observed; recent stability attributed to prudent policymaking and successful transition to the new leone. ### BSL recapitalization and safeguards actions - Recapitalization: - Undertake balance sheet scenario analyses with IMF TA to determine appropriate level of BSL capital and prepare action plan to recapitalize BSL by end-April 2025 to that level. - Recapitalize the BSL by end-August 2025 SB. - Safeguards and audits: - Address key recommendations of the August 2024 safeguards assessment. - Published BSL’s audited 2023 financial statements. - Commit to publishing audited 2024 financial statements audited by two audit firms within the same global network (a local firm and an international firm with central banking and IFRS expertise) (End-July 2025 SB). The local firm will sign the audit opinion. - Review and reconcile difference between cash in vault and balance in the general ledger in time to be fully reflected on the BSL’s audited 2024 financial statements, and at the latest by April 2025. - Request Fund TA on IFRS implementation. ### Agricultural Credit Facility (ACF) - Reintroduced in April for a period of 24 months to address the food security crisis under Feed Salone. - Facility features: - Offers two-year loans in leones at subsidized interest rates through banks. - Size limited: Leone equivalent of US$10 million earmarked for the ACF. - BSL will not provide access to FX under the facility. - Commitment to renew the ACF beyond 24 months only in close consultation with IMF staff. _Italic: Source — IMF mission document content from the provided PDF chapter._ ### 26. We are addressing solvency challenges in commercial banks. The BSL will strictly enforce the ### We are addressing solvency challenges in commercial banks. ### Banking-sector solvency actions and diagnostics - The BSL will strictly enforce the Banking Act 2019, including requiring any bank in violation of the minimum CAR to submit a credible and implementable capital restoration plan. - A diagnostic review has been commissioned of any bank meeting the criteria prescribed in section 69 of the Banking Act 2019 as of end-December 2023, conducted by an independent, reputable international firm, to accurately determine the bank’s asset quality and capital position, and the authorities will share the final report with Fund staff (Prior action). - Resolution proceedings will be initiated for any such bank “in a way that safeguards the continuity of its important functions but contains fiscal costs” (end-February 2025 SB). ### Financial safety-net and resolution frameworks - The Deposit Protection Fund (DPF) Unit has been established in the BSL and a 2-year work plan for launching the DPF Act is underway. - Calculation of the required premiums and initial seed capital for the DPF have been finalized. - The DPF will be launched once solvency challenges in commercial banks have been dealt with and amendments to the DPF Act have been finalized. - The authorities are committed to operationalizing an Emergency Liquidity Assistance framework (end-July 2025 SB). - The government plans to fully operationalize the bank resolution framework by end-June 2025. ### Regulatory and supervisory strengthening - The BSL will continue regulatory and supervisory oversight using the risk-based supervision (RBS) approach. - New corporate governance guidelines for banks came into effect on January 1, 2024. - Gaps in RBS implementation will be addressed, including implementing TA recommendations for the adoption of certain elements of Pillar 1 Basel II/III capital frameworks by December 2025 and continuing with regular on-site supervision of SOBs. - Regular on-site supervision of state-owned banks will be enforced to ensure sector stability. ### Foreign-currency lending and FX supervision - The authorities began permitting lending in foreign exchange on a case-by-case basis since early 2024. - Guidelines on foreign currency lending were published in October 2024 “in line with best practice.” - Anticipated effects: the guidelines are expected to help contain financial stability risks associated with foreign currency lending. - FX regulation and supervision measures to be strengthened: - training of staff; - updating bank examination procedures; - prioritizing examination of banks’ FX controls; - reviewing banks’ risk controls on foreign currency placements abroad. ### Macroprudential and crisis management framework - The BSL has established a macroprudential policy framework and is finalizing a crisis management plan. - These actions align with recommendations of the FSSR and FSAP reports and the Charter of the FPC approved by the board. - The authorities are working towards finalizing the crisis management plan by December 2025. ### Public Financial Management (selected commitments) - Cabinet will approve a ministerial directive that: - (i) directs budgetary units to refrain from making commitments and payments that exceed approved annual and multiannual ceilings; - (ii) reinforces that those who fail to limit commitments to the approved ceilings will be subject to the sanctions established in the PFM Act and Regulations (2016); - (iii) is published on the Ministry of Finance’s website (Prior Action). - The ministerial directive will reference the cabinet minute authorizing it, and both the cabinet minute and the cabinet memorandum will be shared with Fund staff. - The Ministry of Finance directed all MDAs requesting additional expenditures to seek parliamentary approval during execution of the 2024 budget, and will reject spending requests beyond Parliament-approved allocations in accordance with the PFM Act. - The authorities will submit to Parliament a 2025 budget that includes a comprehensive roads budget (end-November 2024 SB). ### IFMIS, arrears, and cash management reforms - The updated web-based IFMIS application has been rolled out to 115 budgetary agencies and will be expanded to add 20 SVAs and MDAs, including the Medical Supplies Agency, by end-December 2024. - All transactions will be entered through IFMIS at the commitment stage; use of FS letters has been minimized. - The government will prepare and share quarterly IFMIS reports with IMF staff containing budget allocations, commitments made, completed payments, and outstanding payments, starting with the fourth quarter of 2024 (by end-January 2025). - The government will publish progress on reducing FS letters in quarterly budget reports, including number and value of FS letters by month, MDA, expenditure type, and purpose starting with the Q4 2024 report. - The Expanded Cash and Debt Management Committee (ECDMC) will prepare cash flow projections at weekly meetings, establish a monthly-rolling cash forecasting system, and share ECDMC reports with the Minister of Finance, the Financial Secretary, and the BSL Governor. - Quarterly budget allotments to MDAs will be based on ECDMC cash flow projections. - Paydown of existing arrears will be reported in quarterly budget reports and the annual debt bulletin, including flow and stock arrears for the most recent quarter and the previous three quarters; the authorities will work with FAD to establish a system to properly report all outstanding arrears starting with the Q4 2024 report. ### Governance, anti-corruption, and AML/CFT - A Governance and Corruption Diagnostic (GCD) will provide a holistic analysis and sequenced recommendations; the authorities commit to publishing the GCD, which is expected to include an action plan (end-May 2025 SB). - Commitments to transparency, rule of law, and independence of the Supreme Audit Institution remain emphasized. - AML/CFT reform measures to include: - (i) amending the 2009 Companies Act to make beneficial ownership of companies available with a focus on the mining sector; - (ii) strengthening AML/CFT risk-based supervision of NBFIs, including foreign exchange bureaus and dealers of precious metals and stones; - (iii) continuing to improve the targeted financial sanctions regime on counterterrorism and terrorism financing. ### Growth, mining-sector strategy, and social programs - Trade barriers will be addressed by strengthening customs administration and transparency in line with the MTRS; the World Bank is supporting an online business registration system. - Support for SMEs continues via SME ecosystems, incubators and accelerators, and the MUNAFA Fund providing credit to SMEs through financial intermediaries. - The government established the Sierra Leone Mines and Mineral Development and Management Corporation (SLMMDMC) and the Mineral Wealth Fund (MWF) to boost resource mobilization through direct state participation in greenfield projects and joint ventures abiding by EIRA Act fiscal terms. - Oversight and accountability frameworks for SLMMDMC and MWF will be reviewed to align with IMF fiscal Transparency Code and OECD Guidelines on Corporate Governance of State-Owned Enterprises; IMF and World Bank technical support will be requested and concerns addressed in consultation (end-August 2025 SB). - Transparency commitments for the two entities include: - (i) transparently reporting any transfers from the budget or financing in the form of government guarantees and on-lending; - (ii) publishing audited financial statements no later than 3 months after the end of the fiscal year; - (iii) promptly sharing with IMF staff detailed information on agreements with joint venture, management service or other partners; - (iv) submitting the companies to periodic reviews of efficacy and performance by the ASSL. - Feed Salone initiative measures include provision of fertilizer, seeds, and chemicals, support for land preparation through the electronic voucher system, reforms to product markets, strengthening rice, cocoa, and horticulture value chains, and reviewing e-vouchers and subsidies to district farm machinery rigs to incentivize private-sector participation. - The government is committed to scale up coverage of the school feeding program to over 800,000 pupils for 2024-2025 school year and to strengthen the program’s governance framework. ### Climate, capacity building, and statistics - Climate actions already taken include: National Adaptation Implementation Plan development, establishment of a National Disaster Management Agency, publication of a Disaster Risk Financing Strategy, and creation of a Climate Finance Unit within the Ministry of Finance. - Over the medium-term the authorities will press ahead with recommendations from the C-PIMA, the CCDR, and the Climate Policy Diagnostic (CPD). - Technical assistance priorities requested from the IMF, the WB, and other development partners include: - (i) improving domestic revenue mobilization; - (ii) strengthening public financial management; - (iii) implementation of IFRS; - (iv) governance and anti-corruption; - (v) arrears and public debt management and debt market development; - (vi) statistics, including balance of payments and government finance. - The authorities commit to improving external sector statistics by increasing staffing, improving capacity, and providing resources to the BSL BOP unit to improve BOP statistics compilation and commence IIP data compilation and inter-agency coordination. ### Program monitoring, quantitative targets, and benchmarks (high-level) - The program will be monitored through semi-annual and continuous performance criteria (PCs) and reviews and quarterly indicative targets (ITs). - Quantitative performance criteria were set for end-December 2024 and end-June 2025; indicative targets were set for end-March 2025 and end-September 2025. - The first review of performance under the ECF arrangement will take place on or after May 15, 2025; the second performance review will take place on or after November 15, 2025. - The Ministry of Finance will establish an MOU with the BSL on respective responsibilities to repay the portion of IMF loans used for budget support. - Selected numeric targets and items from Table 1 (within-year cumulative change – NLe millions, unless otherwise indicated): - Net domestic bank credit to the central government (ceiling) 1/: 522 520 853 745 5523 - Net domestic assets of the BSL (ceiling): 223 753 615 222 306 - Net international reserves of the BSL, US$ millions (floor) 2/: 2.3 1.7 -26.0 -34.3 - New concessional external debt with original maturity of one year or more contracted or guaranteed by the public sector, US $ millions (annual ceiling) 3/,4/: 100 100 100 100 - New non-concessional external debt contracted or guaranteed by the public sector, US$ million (annual ceiling) 3/: 0 0 0 0 - Outstanding stock of external debt with maturities of less than one year contracted or guaranteed by the public sector (annual ceiling) 3/: 0 0 0 0 - External payment arrears of the public sector (annual ceiling) 3/: 0 0 0 0 - Indicative targets: Total domestic government revenue (floor): 146 904 618 955 214 039 - Indicative targets: Social spending (floor) 5/: 129 436 873 611 04 - Indicative targets: Domestic primary balance (floor): -1243 -424 778 861 - Indicative targets: Domestic Arrears (ceiling): 180 417 271 650 1573 - Memorandum items: Programmed external budgetary support, US$ million: 72.1 0.0 0.0 0.0 - Memorandum items: Repayment of zero-coupon bonds related to CSE and Securiport LLC: 9.1 9.1 0.0 0.0 - Exchange rate (Leones/US$) Program: 23 23 23 23 - Footnotes and definitions are stated in the TMU (e.g., 1/ Includes IMF budget support-related SDR on-lending from the Central Bank to the Government; 2/ The new NIR definition will be finalized with the authorities during the upcoming mission; 3/ These apply on a continuous basis; 4/ The debt limit is formulated in nominal terms due to the authorities’ limited capacity to monitor and observe conditionality on aggregate debt levels (including in PV terms); 5/ Social spending is defined in paragraph [22] of the TMU). *Source: Excerpts from IMF program documentation provided in the content unit.* ### 1. This Technical Memorandum of Understanding (TMU) defines the quantitative ### 1. This Technical Memorandum of Understanding (TMU) defines the quantitative ### A. Purpose, scope, and evaluation conventions - The TMU defines the quantitative performance criteria (PCs) and indicative targets (ITs) to evaluate performance under the ECF arrangement; all quantitative PCs and ITs are evaluated in terms of cumulative flows from the beginning of the relevant period unless specified otherwise. - The definitions and adjustors described cover PCs for December 2024 and June 2025, and ITs for March 2025. - For any omitted variable relevant for program targets, the authorities shall consult with IMF staff to reach an understanding based on the Fund's standard statistical methodology. ### B. Program exchange rates (Sierra Leone Program Exchange Rate for ECF Arrangement — Cross Rates as of June 28, 2024) - Currency units per SDR / Leones per currency unit / US$ per currency unit: - US$: 1.315 / 22.507 / 1.000 - British Pound Sterling: 1.039 / 28.485 / 1.266 - Japanese Yen: 211.705 / 0.140 / 0.006 - Euro: 1.229 / 24.093 / 1.070 - SDR: 1.000 / 29.604 / 1.315 - Renminbi: 9.558 / 3.097 / 0.138 - All exchange rates except Leone/US$ are as reported in IMF’s International Financial Statistics. Leone/US$ is the Bank of Sierra Leone mid-rate. ### C. Quantitative program targets (overview) - Quantitative performance criteria proposed for December 31, 2024 and June 30, 2025 with respect to: - Net domestic bank credit to the central government (NCG) (ceiling); - Net domestic assets (NDA) of the Bank of Sierra Leone (BSL) (ceiling); - Net international reserves (NIR) of the BSL (floor); - New concessional external debt with original maturity one year or more contracted or guaranteed by the public sector, US$ millions (ceiling, cumulative from December 31, 2023); - 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 proposed for March 31, 2025 with respect to: - Total domestic government revenue (floor); - Domestic primary balance (floor); - Domestic arrears (ceiling); - Social spending (floor). - Continuous (non-quantitative) PCs include non-introduction/intensification of exchange restrictions and multiple currency practices, non-conclusion of bilateral payments agreements inconsistent with Article VIII, and non-imposition/intensification of import restrictions for balance of payments reasons. ### D. Net Domestic Bank Credit to the Central Government (NCG) - Definition: NCG = net banking system’s claims on the central government as calculated by the BSL, consisting of: - (a) net position of the government with commercial banks (ODC-2SR, line 656 – budget financing), including: treasury bills; treasury bonds; loans and advances of commercial banks to the government; less government deposits in commercial banks (ODC-2SR, line 667); - (b) net position of the government with the BSL: CB-1SR, line 758, budget financing: BSL holdings of treasury bills and bonds (including bonds issued in conversion/securitization of ways and means into debt), ways and means advances, and any other direct credit from the BSL to the government (including special lending arrangements relating to budget support). Excludes holdings of special bonds provided by government to cover BSL losses and/or to increase its capital (CB-1SR, line 771 – other financing); less (i) central government deposits with the BSL (CB-1SR, line 783); and (ii) any debt relief received, notably HIPC, MDRI and relief deposits, as well as debt relief under the Catastrophe Containment and Relief (CCR) Trust. - Adjustment clauses to the NCG ceiling: - (a) downward (upward) by the excess (shortfall) in external budgetary assistance — measured in leones at the official (not program) exchange rate — with the downward (upward) adjustment capped at the equivalent of US$50 million. The downward adjustment does not apply to excess external budgetary assistance explicitly for building buffers to retire domestic debt or repay EDSA’s arrears to IPPs. - (b) downward (upward) by the increase (decline) in the value of the cumulative net flow of electronic funds transfer (EFT) checks and other outstanding payments (relative to end-December 2023 value). - (c) downward (upward) by the excess (shortfall) in Leone value of net issues of government securities to the non-bank private sector. - (d) downward (upward) by the decrease (increase) in the cumulative net flow of non-tradeable securities issued to the non-bank sector for regularizing the stock of legacy arrears. - Data source: “Claims on Government (net)” series submitted to IMF staff and reconciled with the monthly monetary survey prepared by the BSL. - Central government definition: central government and special accounts classified as central government in the BSL statement of accounts; excludes the National Social Security and Insurance Trust and state-owned enterprises. ### E. Net Domestic Assets (NDA) of the BSL - Definition: NDA = end-period stock of reserve money minus the net foreign assets (NFA) of the BSL calculated at program exchange rates. - Reserve money = currency in circulation (currency outside banks plus cash in vaults) + deposits of commercial banks with the BSL + BSL liabilities to other private-sector entities. - Net foreign assets = BSL foreign assets (claims on nonresidents) minus BSL foreign liabilities (liabilities to nonresidents). - Note: In the July 2024 IMD shared by the authorities, NFA at the official exchange rate can be found in AD-CB, line 7. ### F. Net International Reserves (NIR) of the BSL - Definition: NIR = reserve assets minus short-term and other foreign liabilities at program exchange rates. - Reserve assets per IMF’s Balance of Payments Manual (5th ed.) and the reserve template of the Fund’s International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template. Reserve assets include: - (i) BSL’s holdings of monetary gold (excluding amounts pledged as collateral); - (ii) holdings of existing SDRs and any future allocation of SDRs by the IMF to its membership; - (iii) BSL’s holdings of foreign currencies in cash or in nonresident financial institutions (deposits, securities, or other financial instruments). - Reserve assets do not include: frozen/pledged/encumbered assets (including assets used as collateral or guarantees for third-party external liabilities), assets received as part of foreign exchange swap arrangements (including those with domestic commercial banks), foreign currency claims on residents, precious metals other than gold, assets in nonconvertible currencies, illiquid foreign assets. - Short-term and other foreign liabilities include: - (i) BSL’s foreign currency-denominated liabilities to residents and nonresidents with remaining maturity of one year or less, excluding the foreign liability to China of US$8.4 million relating to a legacy clearing account for a previous bilateral trade agreement (authorities confirmed this Bilateral Trade Agreement is no longer operational); - (ii) balance on all foreign currency denominated or -linked securities guaranteed by the BSL on behalf of the government with remaining maturity of one year or less, excluding zero-coupon bonds related to Compagnie Sahalienne D’enterprises (SCE) and Securiport LLC; - (iii) all credit outstanding from the IMF, excluding liabilities arising from existing and future allocation of SDRs by the IMF to its membership and debt relief from the CCR Trust granted in 2015; - (iv) commitments to sell foreign exchange arising from derivatives (futures, forwards, swaps, options); - (v) government’s foreign currency deposits with the BSL with original maturity of less than 360 days. - Adjustment clause: the floor on change in NIR will be adjusted downward (upward) by US dollars equivalent cumulative shortfall (excess) in programmed external budgetary assistance. The floor on change in NIR will be adjusted downward by the amount paid on maturity of zero-coupon bonds related to CSE and Securiport LLC. ### G. Assumptions on external budgetary assistance (for calculation of NCG, NDA, and NIR targets) - Programed cumulative calendar year external budgetary assistance by respective test dates: - December 31, 2024: US$ 72.1 million - June 30, 2025: US$ 0 million - External budgetary assistance is defined as budget grants and loans, excluding HIPC assistance. The amounts are specified in Section D. ### H. New concessional external debt (original maturity ≥ one year) - Definition: All forms of new external debt with original maturity of one year or more contracted or guaranteed by the public sector based on residency of the creditor; includes commitments contracted or guaranteed for which value has not been received. - For program purposes, debt is deemed contracted when signed by the government and ratified by Parliament. - Exclusions: disbursements from the IMF and debts subject to rescheduling. - Reporting requirement: government will report planned external borrowing and terms to Fund staff before contracting or guaranteeing debt. - Application: ceiling on new concessional external debt applies on a continuous basis and is evaluated in terms of cumulative changes within each calendar year. - Concessionality rule: a debt is concessional if it includes a grant element of at least 35 percent. Grant element = (NPV of debt subtracted from nominal value) / nominal value. NPV is calculated by discounting future debt-service payments at a discount rate of 5 percent, measured at the signing date of the underlying loan agreement. ### I. New non-concessional external debt - Definition: external debt on terms that do not meet the concessionality definition above. - External debt and its concessionality will be reported by the Debt Management Division of the Ministry of Finance and measured in US$ at current exchange rates. - This PC applies on a continuous basis. - Variable-rate loans: PV calculation uses a program reference rate plus the fixed spread specified in the loan contract. - Program reference rate for six-month USD SOFR: 3.23 percent (fixed for the remainder of the program). - Spreads: - six-month Euro ESTR over six-month USD SOFR: -50 basis points - six-month JPY TONAR over six-month USD SOFR: -300 basis points - six-month GBP SONIA over six-month USD SOFR: 50 basis points - For currencies other than Euro, JPY, and GBP, spread over six-month USD SOFR is zero basis points. - Where variable rate is linked to a benchmark other than six-month USD SOFR, add a spread reflecting the benchmark difference versus six-month USD SOFR (rounded to the nearest 50 basis points). ### J. Outstanding short-term external debt (maturities < one year) - Definition: external debt stock with maturity of less than one year contracted or guaranteed by the public sector. Short-term debt excludes trade credit with maturity of one year or less for imports. - Debt definition per Annex I of this TMU. - This PC applies on a continuous basis. ### K. External payment arrears of the public sector - Definition: all debt-service obligations (interest and principal) arising from loans contracted or guaranteed by the public sector that have not been paid on due dates (considering contractual grace periods, if any). - Public sector for this PC: central government, regional government, state-owned enterprises listed in Annex 9 of the 2023 budget documents, and the BSL. - Non-accumulation of external arrears is a continuous performance criterion. - Exclusions from this PC: - (i) external arrears accumulated before approval of this ECF arrangement; - (ii) debts subject to rescheduling or restructuring or under litigation. - This PC applies on a continuous basis. ### L. Quantitative indicative targets (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 (floor): Central Government Revenue less expenditures and net lending adjusted for interest payments, foreign financed capital expenditure, foreign financed elections and foreign financed energy spending, foreign financed cash paydown of domestic arrears and capital transfers used to recapitalize the BSL. - Social spending (floor): sum of all non-salary, non-interest recurrent expenditure and domestic capital expenditure as defined in Attachment B: (i) cash transfers; (ii) free health care initiative; (iii) education support programs, including school feeding program and diet for boarding home schools; (iv) other social assistance programs; and (v) employment/active labor market programs. - Domestic arrears (ceiling): defined as (i) stock of legacy (pre-April 2018) arrears determined for the authorities’ arrears clearance strategy; (ii) unverified arrears/stock of overdue invoices as recorded by the Accountant General at end of financial year; (iii) verified invoices/stock of overdue invoices that have gone through appropriate internal audit procedures. - Note: The stock of legacy arrears referenced equals Le 3.287 trillion as identified in the September 2019 stocktaking exercise; the Government updated its arrears clearance strategy in October 2023 and, to date, has not issued securities for clearing these arrears. ### M. Program monitoring and reporting - The authorities shall maintain a program-monitoring committee composed of senior officials from the MoF, the BSL, and other relevant agencies. - Responsibilities: - Monitor performance under the program; - Recommend policy responses; - Inform the IMF regularly about program progress; - Transmit supporting materials necessary for evaluation of PCs and benchmarks. - Reporting: the committee will provide monthly reports to the IMF on progress in implementing the program’s quantitative targets and structural benchmarks. *Source: 1sleea2024001-print-pdf - 1. This Technical Memorandum of Understanding (TMU) defines the quantitative* ### Annex I. Implementation of the Public Debt Limits in Fund ### Annex I. Implementation of the Public Debt Limits in Fund Supported Programs with Respect to External Debt ### Definition of "debt" - The term “debt” follows point No. 8a of the Guidelines on Public Debt Conditionality in Fund Arrangements (June 30, 2015): - Debt is a current (not contingent) liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, which requires the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) to discharge principal and/or interest. - Primary forms: (i) loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements); (ii) suppliers’ credits; (iii) leases (debt equals present value at lease inception of lease payments excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages from failure to make payments under contractual obligations that constitute debt are classified as debt. - Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. ### Data reporting requirements (Attachment A) - Real sector (annual): - National accounts: Annual, End of year + 9 months - GDP deflators by sector: Annual, End of year + 9 months - Mining production and exports: Annual, End of year + 9 months - Revisions of national accounts: Annual, End of revision + 2 months - Public finance: - Net government position and details of nonbank financing, including changes in stocks of arrears, stock of the float, treasury bills, and bonds: Monthly, End of month + 6 weeks - Government flow-of-funds table (Government Financial Operations Table): Monthly, End of month + 6 weeks - Structure of petroleum product prices by categories: Monthly, End of month + 6 weeks - Import duty and GST exemptions by end-users; estimates of corresponding revenue losses: Quarterly, End of quarter + 6 weeks - Details of all new external borrowing and guarantees provided by government, including concessionality calculation (percentage) for each new loan: Monthly, End of month + 4 weeks; the contracting or guaranteeing of external debt should be immediately reported to IMF staff - External debt service payments (separately on principal and interest) to each creditor, including and excluding new disbursements and including/excluding HIPC relief: Monthly, End of month + 4 weeks - Report on the stock of debt outstanding, and loan agreements under discussion: Quarterly, End of quarter + 3 weeks - Monetary and financial data: - Monetary survey: Monthly, End of month + 6 weeks - Balance sheet of the BSL: Monthly, End of month + 6 weeks - Consolidated balance sheets of commercial banks: Monthly, End of month + 6 weeks - BSL monitoring sheet of net financing of the financial sector to the government: Daily, COB + 2 days - BSL monitoring sheet of treasury bills and bond holdings: Weekly, COB + 1 day - Borrowing and lending interest rates: Monthly, End of month + 6 weeks - Results of foreign exchange and Treasury Bills Auctions: Weekly, End of week + 1 day - Stocks of government securities: Monthly, End of month - Banking supervision ratios: Quarterly, End of quarter + 4 weeks - External sector: - Net official foreign reserves: Weekly, End of week + 1 week - Foreign exchange cash flow table: Monthly, End of month + 3 weeks - Balance of payments data: Annual; updated data should be reported when revisions occur - Exports and imports of goods (including the volume of key minerals and fuels): Monthly, End of month + 3 weeks - Outstanding external arrears and repayments (if applicable): Monthly, End of month + 4 weeks; the occurrence of new external arrears should be immediately reported to IMF staff - FX transaction volumes: Monthly, End of month + 4 weeks ### Social spending definitions and 2024–2025 composition (Attachment B) - Presentation unit: In Thousands of Leones; percentages given as "Percent of GDP" and "Percent of non-iron-ore GDP" for 2024 and 2025 respectively in the table. - Selected program entries and totals (preserve table figures as presented): - [Unconditional] Cash Transfers: Non-salary, non-interest recurrent expenditure 256670; Domestic capital expenditure 256670; 2024 Percent of GDP 0.02; 2025 Non-salary, non-interest recurrent expenditure 315800; Domestic capital expenditure 315800; 2025 Percent of non-iron-ore GDP 0.02 - Free healthcare Initiative and related entries (multiple MDA codes listed with values): example composite line shows 277254.931000308254.90.19 and 266087.5183007.3449094.80.23 (entries preserved exactly as in source layout) - Education Support Programs aggregate lines: 3840274921328761590.53 and 4547114512239059340.47 (entries preserved exactly) - Other Social Assistance aggregate: 270794000310790.02 and 333193942372610.02 - Employment/Active labour market programs: 052800528000.03 and 048414484140.03 - Totals: 71402857993212939600.87 and 8569868658614722840.8 ### Debt sustainability assessment — key findings and risk ratings - Overall assessment: - "Sierra Leone’s public debt is sustainable, but risks of external and overall debt distress are high, unchanged from the previous DSA published in November 2023." - The assessment depends on: authorities’ commitment to program objectives; continued access to highly concessional external financing (including grants); medium debt carrying capacity. - Impact of national accounts rebasing: - As a result of the national accounts rebasing in May 2024, the PV of the public debt-to-GDP ratio no longer breaches its threshold. - The rebasing led to a 74 percent increase in nominal GDP for 2022. - Remaining breaches and elevated ratios: - The external debt service-to-revenue ratio continues to exhibit protracted breaches. - The overall debt-service-to-revenue ratio remains above 100 percent until 2027. - Policy implications: - Continued ambitious fiscal adjustment is required to ensure that debt remains sustainable. - Continued reliance on concessional financing and grants, and efforts to lengthen debt maturities, are critical as debt service ratios and gross financing needs remain elevated. - Domestic rollover risks are contained by limited alternative investment options for banks and authorities’ commitment to bringing down the domestic financing envelope. - Vulnerabilities: - Sierra Leone is highly susceptible to shocks to growth, exports, commodity prices, the exchange rate, and fiscal slippages. - Risk ratings (as stated): - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity in the risk rating: Sustainable - Application of judgment: No - Date shown: October 16, 2024 ### Public debt coverage and contingent liabilities - Public debt coverage: - Coverage remains the same as in the previous DSA: debt stock includes central government public and publicly guaranteed debts on a residency basis. The DSA includes the latest estimate of the consolidated stock of domestic payment arrears. - The DSA uses debt stock data as of end-2023. - Contingent liabilities stress test assumptions: - Total contingent liabilities used in the stress test: 10 percent of GDP. - Components: - Other elements of the general government not captured in primary coverage: 0.0 percent of GDP. - SOE debt (guaranteed and not guaranteed): Used value 5.0 percent of GDP (default 2 percent); reflects authorities’ estimate and rebased GDP. - PPP: 0.0 (35 percent of PPP stock default not used). - Financial market contingent liability: 5.0 percent of GDP (default minimum value). - Total (2+3+4+5) = 10.0 percent of GDP. - Note on SOE contingent liabilities composition and mitigation: - SOE contingent liabilities include on-lending of external loan proceeds (usually loans for 20 years, with rates ranging from 1.5 percent to 3 percent); domestic loans/overdrafts from local commercial banks (typically for 30 months at interest rates of 18 percent to 20 percent); letters of credit (typically for 36 months). These are government guaranteed and recorded as contingent liabilities. - Risk of materialization is mitigated by monitoring and reports of the fiscal risk unit in the MoF. ### Background on public debt dynamics and composition (end-2023 stock and developments) - Stock and ratio developments: - Total public debt declined to 49.2 percent of GDP (from 54.0 percent of GDP in 2022) due to strong nominal GDP growth, still negative real average interest rates, and stability in the nominal exchange rate. - Domestic debt was higher than projected in US dollar terms in 2023. - Composition: - Approximately 68 percent of total public and publicly guaranteed (PPG) debt is external debt. - About 82 percent of external debt comprises non-restructurable obligations to multilateral creditors, including: - IMF: 16.3 percent of total PPG debt stock - WB: 16.3 percent of total PPG debt stock - On the domestic side: - Around 56 percent of domestic debt is owed to commercial banks in the form of 364-day T-bills. - The remainder is held by the BSL and the non-bank sector. - External arrears: - In February 2024, authorities verified external arrears of US$ 23.4 million owed to two companies for road construction and penalty interest on delayed payment of civil war-related services. The arrears are added to the existing debt and debt service projections. - External borrowing plan summary for 2023 (Text Table 3 excerpts): - Sources of debt financing: 100 (concessional debt 100; non-concessional debt 0) - Use of debt financing: Project financing 100; Budget financing 0 - Concessional debt share: 50-65 (presented as ranges in table) - PV of new debt calculation: present value using individual loan terms applying the 5 percent program discount rate. ### Macroeconomic assumptions underpinning the DSA (selected figures and projections) - Growth: - Real GDP growth: 2023 = 5.7; 2024 = 4.0; 2025 = 4.5; 2026 = 4.7; 2027 = 4.7; 2028 = 4.7; 2029 = 4.6; 2030 = 4.5; 2031 = 4.5; 2032 = 4.5; 2033 = 4.6; LT ave. (2023–2033) = 4.6 - Previous DSA (November 2023) comparators shown in table: 2023–2033 LT ave. = 4.5 - Non-mining output growth: 4.2 percent in 2022; 3.5 percent in 2023 - Potential growth target converging toward 4.5 percent over the medium-term - Inflation (GDP deflator): - 2023 = 29.2 - 2024 = 24.5 - 2025 = 12.0 - 2026 = 8.0 - 2027 = 7.1 - 2028 = 6.2 - 2029 = 5.9 - 2030 = 5.6 - 2031 = 5.6 - 2032 = 5.6 - 2033 = 5.6 - LT ave. 2023–2033 = 10.5 - Previous DSA LT ave. 2023–2033 = 37.1; previous DSA 2023–2033 LT ave. = 6.4 and 12.1 in table context - Policy stance indicators: reserve money growth fell to 8.8 percent in June; the policy rate increased by another 2 percentage points so far in 2024. - Inflation is expected to reach single digits by 2026. - Fiscal: - Primary deficit (percent of GDP): 2023 = 2.6; 2024 = 0.3; 2025 = 0.0; 2026 = -0.4; 2027 = -0.7; 2028 = -0.8; 2029 = 0.4; 2030 = 0.7; 2031 = 1.1; 2032 = 0.4; 2033 = 0.4; LT ave. (2023–2033) = 0.4 - Previous DSA LT ave. (2023–2033) = 1.7; previous DSA 2023–2033 LT ave. = 1.0 and 0.5 shown in the table context - External/current account: - Non-interest current account deficit (percent of GDP): 2023 = 4.8; 2024 = 3.6; 2025 = 4.1; 2026 = 3.3; 2027 = 3.0; 2028 = 3.3; 2029 = 3.2; 2030 = 2.4; 2031 = 2.3; 2032 = 2.2; 2033 = 2.1; LT ave. (2023–2033) = 3.1 - Previous DSA LT ave. (2023–2033) = 5.6; previous DSA 2023–2033 LT ave. = 4.9 and 3.9 shown in the table context - Additional macro notes: - Growth in 2025 is expected to accelerate due to sustained strong performance of the mining sector, increased agricultural output supported through the Feed Salone initiative, and continued macroeconomic stabilization. - Structural reforms to lift productivity growth are emphasized as critical. *Prepared by the staffs of the International Monetary Fund and the International Development Association; approved by Montfort Mlachila and Jarkko Turunen (IMF) and Manuela Francisco and Abebe Adugna (IDA).* ### 5.3 percent in 2023. Revenues are expected to grow at a slower pace than envisaged at the ### 1sleea2024001-print-pdf - 5.3 percent in 2023. ### Fiscal outlook: revenues and expenditures - Revenues expected to grow at a slower pace than envisaged at the eighth review of the last ECF, largely owing to initial delays in the implementation of tax policy measures included in the 2023 and 2024 Finance Acts, which are expected to raise annual tax revenues by some 1.8 percent of GDP over time. - Revenues expected to rise gradually over the medium term due to: - measures in the 2026 Finance Act expected to raise 1 percent of GDP in additional annual tax revenues; - improvements in compliance and tax administration; - efficiency gains from digitalization; - a gradual recovery in tax buoyancy; and - implementation of the newly revised automatic fuel pricing formula. - Expenditures are projected broadly in line with the 2024 budget for this year. Measures to contain spending include: - maintaining the ratio of wages and salaries to GDP constant after 2024, supported by a new wage bill strategy and stricter controls on recruitment and compensation of consultants and SVA staff; - keeping goods and services spending constant as a ratio to GDP, despite increased outlays for school feeding; - strengthening EDSA’s financial position to contain the need for energy transfers; - prioritizing domestically financed capex projects while reducing the overall spending envelope; - maintaining arrears clearance consistent with the arrears clearance strategy. - Fiscal framework assumes capital transfers for 2025-2026 to address bank solvency challenges (0.1 percent of GDP) and recapitalize the BSL (0.9 percent of GDP). - Stock of domestic legacy arrears amounted to Le 2,581.3 billion (or 4.8 percent of GDP) by end 2022; authorities have an arrears clearance strategy with annual budgeted amortizations. ### External sector and current account - Current account deficit projected to shrink in 2024 to 3.8 percent of GDP from 5.0 percent of GDP in 2023 amid continued fiscal consolidation. - Current account projected to modestly improve over the medium term, supported by strengthening mining production and slow import growth as fiscal policy consolidates further. ### Financing assumptions and IMF/IDA/SDR treatment - IDA financing assumption changed: firm grant commitments until 2028, a zero-interest 50-year loan in 2029, and 100 percent regular IDA credits after 2029. - No additional use of the 2021 IMF SDR allocation is expected. Approximately Le 1,233 billion (1.2 percent of GDP) and Le 1,866 billion (1.4 percent of GDP) were used in 2022 and 2023, respectively; these amounts were used via a retrocession transaction and resulted in SDR liabilities counted as additional long-term external debt in the DSA. - DSA also reflects: - actual and projected future disbursements under the requested ECF; - the SDR allocation in August 2021; - debt relief under the CCRT; and - debt deferment under the DSSI. - Post-program financing gap (PPFG) of $20 and $30 million in 2028 and 2029 respectively assumed to have 0.5 percent interest rate, 5-year grace period, 15-year maturity, and overall grant element of 35.5 percent. - IMF financing under the ECF: 5.5-year grace period, 10-year maturity, and currently carries zero interest. - Loans from other multilateral creditors (other than the World Bank) assumed to have overall grant element of 35 percent. - Domestic financing assumptions in this DSA: - 20 percent of new domestic debts financed by 1-3 years bonds in 2024; - 30 percent of new domestic debts financed by 1-3 years bonds between 2025-28. - Revision from previous DSA (which assumed 25 percent financed by 1-3 year bonds and 5 percent by 4-7 years bonds) reflects limited progress issuing longer tenors. ### Policy measures to bolster revenue administration and containment - Tax policy measures enacted or planned (details summarized in footnote text): - 2023 Finance Act measures include adoption of a minimum alternative tax, removal of exemptions on GST, harmonization of excise tax rates for local and imported excisable products. - 2024 Finance Act measures include broadening the GST base, adopting a specific excise tax on plastics, restoring duties on rice imports, introducing an education levy, and harmonizing final withholding tax rates for capital income (excluding capital gains and rental income tax). - Implementation delays due to reconfiguration of revenue IT systems and conversion from ad valorem to specific taxes requiring engagements with software vendors. - Compliance and administration actions planned: - implement a compliance risk management framework; - bolster tax audit capacity and carry out tax audits for high-risk taxpayers; - integrate National Revenue Authority (NRA) revenue systems; - operationalize the revenue court; - strengthen stakeholder engagement; - implement MTRS reforms at customs and establish a revenue taskforce to strengthen collections of customs duties and taxes. - Expenditure control actions highlighted: - medium-term wage bill management strategy; - reduce energy subsidies by applying the fuel price formula; - implement critical reforms in the electricity sector; - reprioritize spending while protecting social spending and curb domestically financed capex if needed. ### Risks, realism assessment, and contingency measures - Downside risks to the outlook are high: political tensions and food insecurity could fuel social unrest, undermine investor confidence, and stymie the policy agenda. - Upside risks include better terms of trade and efforts to address post-election grievances via the tripartite committee. - Failure to achieve programmed adjustment could lead to difficulties financing the deficit, reinvigorate deposit dollarization, and intensify debt-related risks. - Realism tools indicate required fiscal consolidation is large: the 3-year average primary balance adjustment is 3.0 ppts of GDP, close to the 81st percentile of the historical distribution for Sierra Leone’s peers; staff considers the adjustment achievable given 1.8 ppts of GDP in legislated tax policy measures pending full implementation and additional compliance/admin measures. - Authorities identified contingency measures: frontload additional revenue measures based on MTRS or short-term emergency measures; reprioritize spending while protecting social spending; remain committed to concessional debt ceiling and zero non-concessional borrowing policy; seek additional budget support grants for priority and social spending. ### Debt-carrying capacity, DSA classification, and stress tests - Sierra Leone’s debt-carrying capacity: medium. Composite Indicator (CI) score is 2.70 based on latest data including the April 2024 WEO and the 2022 CPIA. - Text Table 6: Applicable thresholds for debt indicators: - PV of PPG external debt in percent of GDP 40% - PV of PPG external debt in percent of exports 180% - PPG external debt service in percent of exports 15% - PPG external debt service in percent of revenue 18% - PV of total public debt in percent of GDP 55% - Stress tests include standardized settings plus two tailored tests for contingent liabilities and commodity price shocks; commodity price shock magnitudes based on IMF Research Department outlook. ### External DSA findings - Sierra Leone assessed to be at high risk of external debt distress; PPG external debt assessed as sustainable, predicated on ambitious fiscal adjustment and continued reliance on concessional financing and grants and moderately high growth rates. - Recent stronger-than-expected nominal exchange rate performance and national accounts rebasing improved PV of external debt-to-GDP and external debt service-to-revenue paths relative to last DSA. - Under baseline: - PV of PPG external debt-to-GDP and PV of PPG external debt-to-exports decline over the medium term. - PPG external debt service-to-revenue ratio declines below threshold of 18 percent by 2028. - PPG external debt service-to-exports ratio remains significantly below threshold of 15 percent over medium term. - Stress tests show external debt indicators sensitive to multiple shocks, particularly exports and a one-time depreciation; several shocks cause external-debt-service-to-revenue ratio to breach threshold over medium term. - Because PPG external debt service-to-revenue ratio breaches threshold under baseline, country assessed at high risk of external debt distress, despite declines in external debt indicators over medium to long term. ### Overall public debt risk and dynamics - Sierra Leone assessed at high overall risk of public debt distress; public debt assessed to be sustainable. - Domestic debt-to-GDP ratio projected to increase from about 15.8 percent of GDP in 2023 to 16.1 percent of in 2025, before falling steadily thereafter. - Domestic debt service-to-revenues (including grants) ratio is high at 85.5 percent in 2023, reflecting short tenor and rollover needs; expected to fall steadily after 2025 driven by fiscal consolidation and enhanced debt management (including issuing longer term debt as inflation falls to single digits). - Under baseline: - PV of public debt-to-GDP ratio significantly below threshold of 55 percent of GDP over entire horizon and gradually declines over medium term. - Overall debt service-to-revenue ratio projected to fall below 100 percent by 2028, but remains relatively high throughout projection horizon, indicating tight liquidity. - Stress tests: commodity price shock and combined contingent liabilities shock are most extreme; even under most extreme shock, PV of debt-to-GDP remains significantly below threshold for entire projection period. - Policy priorities: sustained and significant fiscal adjustment and continued reliance on highly concessional external financing (ideally grants), particularly from IFIs. ### Debt service, gross financing needs, and rollover risks - Need to roll over T-bills issued in previous year accounts for around 55 percent of gross financing needs in 2024. - T-bills largely held by domestic public banks and domestic subsidiaries of foreign banks; rollover risk is high but somewhat mitigated by domestic market characteristics where commercial banks rely heavily on T-Bills and limited secondary market trading between commercial banks. - Banking system capitalization: Tier 1 regulatory capital adequacy ratio of 45.6 percent as of June 2024; bank holdings of government paper account for over a third of total banking system assets. - Going forward, rollover risks expected to decline with reduction in government domestic financing need and tighter macroeconomic policies to contain inflation and ensure relative stability of the leone. - If significant negative shocks materialize, burden on banks to absorb short-term government debt will rise, increasing rollover risk and gross financing needs if authorities cannot roll over at reasonable costs. - Recommended policy actions: lengthen maturity structure, pursue strong fiscal consolidation, and secure more grant financing. *Source: 1sleea2024001-print-pdf - 5.3 percent in 2023.* ### 14. Climate change is an important additional source of risk. To this end the authorities ### Climate change is an important additional source of risk. To this end the authorities ### Climate risk and RST request - Authorities seek access to the RST facility to support adaptation and mitigation efforts. - Plan: be proactive by making upfront adaption of investment with the aim to reduce GDP losses if a future climate shock occurs, and to allow for a faster recovery. - Ongoing analytical work that could inform climate shock scenarios for the DSA at the time of the RST request: - The World Bank is currently working on a CCDR. - The IMF is preparing a Climate Policy Diagnostic. - "The findings of these studies could form the basis for the development of climate shock scenarios for the DSA at the time of the RST request." ### Risk rating and vulnerabilities - Sierra Leone debt is assessed to be sustainable but at high risk of external and overall public debt distress. - Key downside risk: Failure to achieve the programmed fiscal adjustment constitutes a significant downside risk. - High overall public and external debt-service-to-revenue ratios over the medium term suggest high liquidity-related vulnerabilities. - Stress tests show debt indicators are sensitive to shocks to: - exports, - commodity prices, - depreciation, - combined contingent liabilities shocks. ### Debt-service to revenue and grants — presented series (as in source) - Text Table / Figure rows (preserve exact source strings): - "Debt service-to-revenue and grants ratio 1/103.3108.2109.5116.9102.290.584.177.376.168.961.457.622.9" - "of which: T-bills amortization68.671.763.762.956.045.844.841.341.041.034.030.38.1" - "of which: others34.636.545.854.046.244.739.336.035.127.927.427.314.8" - "Gross financing need 2/15.713.414.815.313.612.412.211.411.49.99.08.43.8" - "of which: T-bills amortization8.78.78.68.57.86.76.35.75.65.64.74.21.2" - "of which: others7.04.76.26.95.85.75.95.75.94.24.24.22.6" - Notes from source: - "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." - "Baseline" - "of which: excluding rollover" - "Most extreme shock 1/" - "Historical scenario" - "1/ The most extreme stress test is the test that yields the highest ratio in or before 2031. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented." - Chart label: "Most extreme shock is Combined contingent liabilities" ### Policy implications and recommended actions (from DSA) - Sustain fiscal consolidation and implement structural reforms, supported by technical assistance and prudent financing choices. - Priorities to maintain debt sustainability: - Sustained fiscal adjustment underpinned by domestic revenue mobilization and strengthened public financial management. - Rely on highly concessional financing and grants to achieve a pace of fiscal adjustment that does not imperil the post-pandemic recovery and that protects critical social and health spending and development needs. - Maintain a zero ceiling on non-concessional external debt in line with limits imposed under the requested ECF-supported program and WB SDFP and performance and policy actions (PPAs). - Mitigate risks through: - Steadfast implementation of fiscal consolidation. - Development of a deeper domestic debt market, including issuance of medium- to long-term paper to extend the yield curve and reduce rollover risks on bonds held by domestic banks. - Limiting future domestic borrowing and lengthening tenors through the MTDS. - Drawing on recent IMF technical assistance on debt recording, joint World Bank/IMF and AfDB technical assistance on the MTDS, and FY2024 Performance and Policy Actions under Sustainable Development Finance Policy supported by World Bank. - Risks that could worsen debt indicators if not addressed: - Inability to issue medium-maturity domestic debt at a reasonable cost. - Fiscal adjustment falling short of the programmed path. - T-bill rates failing to come down as expected. - BSL being called upon to finance additional residual borrowing needs or provide much larger market support if banks do not roll over short-term securities, potentially reigniting exchange rate depreciation pressures and deposit dollarization and constraining banks’ domestic currency liquidity. ### Authorities’ views - Section heading present in source: "AUTHORITIES’ VIEWS" *Source: IMF staff report text from the provided content unit.* ### 18. The authorities agreed with staff’s views on the DSA. They concurred with the ### The authorities agreed with staff’s views on the DSA ### Authorities’ fiscal and debt policy commitments - Agreed with staff’s views on the DSA and the urgency of ensuring a sustained and credible fiscal adjustment in 2024 and onward. - Indicated steps taken, including a recently submitted 2025 budget. - Committed to: - Continuing to prioritize grant resources. - Seeking only highly concessional financing. - Ratifying only loans within the agreed annual ceiling to safeguard debt sustainability. - Clearing domestic arrears. ### Debt management and market development actions - Recognized high T-Bill rollover risks and committed to addressing these by: - Issuing medium-to-long-term bonds. - Supporting development of the domestic market through swift implementation of the medium-term debt strategy. - Conducting regular public outreach to market participants. ### DSA quantitative indicators and projections (selected figures as presented) - External debt (nominal) (Percent of GDP): 2023: 34.1; 2024: 28.2; 2025: 27.7; 2026: 27.1; 2027: 26.5; 2028: 25.5; 2029: 25.4; 2030: 24.4; 2034: 25.7; 2044: 25.8. - PV of PPG external debt-to-GDP ratio: 2023: 20.9; 2024: 17.8; 2025: 17.4; 2026: 17.3; 2027: 17.1; 2028: 16.6; 2029: 16.5; 2030: 15.7; 2034: 16.8. - PV of PPG external debt-to-exports ratio: 2023: 103.0; 2024: 93.3; 2025: 95.3; 2026: 95.1; 2027: 92.0; 2028: 92.2; 2029: 90.1; 2030: 88.7; 2034: 76.7. - PPG debt service-to-exports ratio: 2023: 11.1; 2024: 10.1; 2025: 10.5; 2026: 10.8; 2027: 10.3; 2028: 9.8; 2029: 8.8; 2030: 8.7; 2034: 6.2. - PPG debt service-to-revenue ratio: 2023: 30.4; 2024: 23.3; 2025: 21.0; 2026: 21.6; 2027: 19.1; 2028: 17.2; 2029: 15.2; 2030: 12.5; 2034: 10.9. - Gross external financing need (Million of U.S. dollars): 2023: 250.9; 2024: 322.4; 2025: 363.2; 2026: 353.8; 2027: 377.3; 2028: 386.7; 2029: 437.6; 2030: 463.0; 2034: 900.0. - Real GDP growth (in percent): 2023: 5.7; 2024: 4.0; 2025: 4.5; 2026: 4.7; 2027: 4.7; 2028: 4.7; 2029: 4.6; 2030: 4.6; 2034: 2.9; 2044: 4.5. - Government revenues (excluding grants, in percent of GDP): 2023: 7.4; 2024: 8.3; 2025: 9.1; 2026: 9.4; 2027: 10.0; 2028: 10.5; 2029: 10.8; 2030: 11.7; 2034: 12.4; 2044: 8.1. - Aid flows (in Million of US dollars): 2023: 337.3; 2024: 290.9; 2025: 342.6; 2026: 326.1; 2027: 329.2; 2028: 364.5; 2029: 376.7; 2030: 361.8; 2034: 558.8. - Grant-equivalent financing (in percent of GDP): 2024: 4.2; 2025: 5.1; 2026: 4.8; 2027: 4.8; 2028: 4.6; 2029: 4.3; 2030: 3.2; 2034: 3.3. - Grant-equivalent financing (in percent of external financing): 2024: 84.2; 2025: 77.1; 2026: 77.3; 2027: 75.4; 2028: 79.1; 2029: 74.7; 2030: 70.8; 2034: 68.1. - Nominal GDP (Million of US dollars): 2023: 6,397; 2024: 7,413; 2025: 7,807; 2026: 7,952; 2027: 8,245; 2028: 8,610; 2029: 9,041; 2030: 11,609; 2034: 19,221. - PV of PPG external debt (in Million of US dollars): 2023: 1,338.5; 2024: 1,321.0; 2025: 1,355.1; 2026: 1,372.6; 2027: 1,412.1; 2028: 1,431.8; 2029: 1,488.2; 2030: 1,818.4; 2034: 2,320.0. - Public sector debt (Percent of GDP): 2023: 49.9; 2024: 43.4; 2025: 43.5; 2026: 43.3; 2027: 41.2; 2028: 38.8; 2029: 37.5; 2030: 36.7; 2035: 33.3; 2044: 27.8; 2044 (alternate): 38.6. - PV of public debt-to-GDP ratio: 2023: 38.1; 2024: 33.8; 2025: 34.2; 2026: 34.2; 2027: 32.4; 2028: 30.4; 2029: 29.0; 2030: 28.2; 2034: 25.0; 2044: 19.5. - Gross financing need: 2023: 15.7; 2024: 13.4; 2025: 14.8; 2026: 15.3; 2027: 13.6; 2028: 12.4; 2029: 12.2; 2030: 11.4; 2034: 3.8. ### DSA stress tests and sensitivity results (high-level) - Figures and tables present alternative scenarios, bound tests, and tailored tests for 2024–34 including: - Most extreme shocks identified include one-time depreciation, exports shock, commodity price shock, combined contingent liabilities. - Thresholds highlighted for indicators: PV of debt-to-exports ratio threshold 40; PV of debt-to-GDP threshold 180; debt service-to-exports threshold 15; debt service-to-revenue threshold 18. - Selected sensitivity outcomes (examples preserved as in source): - PV of debt-to-exports baseline (2024–34): 93.3; 95.1; 92.0; 88.7; 86.6; 84.3; 83.0; 81.3; 79.7. - PV of debt-to-GDP baseline (2024–34): 17.8; 17.4; 17.3; 17.1; 16.6; 16.5; 16.3; 16.0; 16.0; 15.8; 15.7. - Debt service-to-exports baseline (2024–34): 10.1; 10.5; 10.8; 10.3; 9.8; 8.8; 8.8; 8.0; 8.3; 7.4; 7.4. - Debt service-to-revenue baseline (2024–34): 23.3; 21.0; 21.6; 19.1; 17.2; 15.2; 13.9; 14.8; 12.6; 12.7; 12.5. ### Realism tools and drivers of debt dynamics - Figure summaries indicate decomposition of debt dynamics into: - Debt-creating flows and unexpected changes (residuals). - Contributions from real GDP growth, nominal interest rate, price and exchange rate changes, primary deficit, real exchange rate depreciation, and other debt-creating flows. - Fiscal adjustment realism analysis: - Charts show 3-year adjustments in primary balance and possible real GDP growth paths under multipliers: Multiplier = 0.2, 0.4, 0.6, 0.8. - Distributional context: A 3-year PBadjustment greater than 2.5 percentage points of GDP is approximately in the top quartile of Fund-supported LIC programs since 1990. ### Institutional and Fund relations (selected items) - Safeguards assessment of the Bank of Sierra Leone concluded in August 2024: risk profile remains high; governance structures present but independent oversight needs strengthening; financial reporting departs from IFRS; substantial delays in audited accounts; negative equity position; steps initiated for recapitalization; currency redenomination project elevated internal control risks. - Exchange rate: De jure regime classified as floating; de facto arrangement described as "stabilized". As of end-June 2024, the BSL mid-rate was NLe 22.507=US$1 (also the new program exchange rate). - Membership and Fund resources (as of August 31, 2024): - Quota: 207.40 (SDR Million) 100.00 percent of quota. - SDR net cumulative allocation: 298.29 (SDR Million) 100.00 percent. - Outstanding purchases and loans: RCF Loans 138.96 (SDR Million) 67.00 percent of quota; ECF Arrangements 193.12 (SDR Million) 93.12 percent of quota. - Overdue obligations and projected payments to Fund (SDR Million): Principal forthcoming 2024: 19.92; 2025: 48.50; 2026: 51.21; 2027: 48.82; 2028: 48.01. Charges/Interest forthcoming 2024: 0.49; 2025: 1.93; 2026: 1.93; 2027: 1.93; 2028: 1.93. Total forthcoming 2024: 20.40; 2025: 50.42; 2026: 53.14; 2027: 50.75; 2028: 49.94. - HIPC and MDRI implementation details (selected figures): - Assistance committed by all creditors (US$ Million): 675.20. - IMF assistance (US$ million): 125.21 (SDR equivalent 100.00). - Completion point date: Dec 2006. - MDRI-eligible debt (SDR Million): 117.34. *Source: 1sleea2024001-print-pdf (IMF staff report material provided).* ### 1. The prior action for cabinet to publish a ministerial directive on adhering to budgetary ### Statement by Willie Nakunyada, Executive Director for Sierra Leone, and Paul Mansaray, Senior Advisor to Executive Director October 31, 2024 ### Prior actions - The prior action for cabinet to publish a ministerial directive on adhering to budgetary expenditure ceilings was completed. - The directive was published on the Ministry of Finance’s website on October 22. - The authorities shared the cabinet minute and the cabinet memorandum with staff on the same day. - The prior action for the BSL to share a diagnostic review of banks meeting the criteria prescribed in section 69 of the Banking Act 2019 was completed. - One domestic bank met the criteria, and the diagnostic, conducted by Ernst and Young Ghana, was shared with IMF staff on October 21. ### Introduction: authorities’ request and context - Authorities view a successor Extended Credit Facility (ECF) arrangement as critical to catalyze additional donor financing required to sustain reform efforts. - The economy continues to recover from multiple shocks: the COVID-19 pandemic, conflict spillovers, geoeconomic fragmentation, global financial uncertainties, floods, mudslides, and domestic insecurity following the June 2023 multi-tier elections. - Authorities are determined to advance reforms under the successor ECF as an important policy anchor for the Medium-Term National Development Plan (NDP 2024- 2030). - Key domestic and external imbalances include depletion of reserve buffers, a high interest rate environment, high energy and debt service costs, limited fiscal space, and sizable financing gaps. - Authorities request support under the ECF to address macroeconomic imbalances created by domestic and external shocks. - Policy objectives include sustaining fiscal consolidation to ensure debt sustainability, addressing fiscal dominance alongside appropriate monetary tightening to reduce inflation to single digits, anchor expectations, and rebuild reserve buffers. - Structural reform focus: narrow gender gaps, better target social spending, strengthen governance and institutional capacity, and advance the rule of law to promote a durable, green, and resilient economy. ### Recent Economic Development and Outlook - Real GDP growth: 5.7 percent in 2023 and 4.0 percent in 2024. - Real GDP growth projected to firm up to 4.5 percent in 2025 due to government support to agriculture (inputs, mechanization, irrigation, e-voucher system), mining sector performance, and planned energy sector investments with development partner support. - Inflation: declined from 54.2 percent in November 2023 to 25.5 percent in August 2024 and further to 20.2 percent in September 2024. - Medium-term inflation projection: decline further to single digits as authorities sustain policy tightening. - Current account deficit: improved from 5.3 percent of GDP in 2023 to 4.0 percent in 2024 due to improved exports and subdued imports. - International reserves: declined from 2.6 to 2.4 months of imports between 2023 and 2024, amid elevated external debt service costs and depleted donor support. - Authorities are taking steps to rebuild external reserves over the medium-term. ### Fiscal policy and debt management - Authorities committed to prudent fiscal management via medium-term revenue mobilization and expenditure containment to meet domestic primary surplus target. - Revenue measures implemented: stepped up implementation of measures in the 2023 and 2024 Finance Acts; strengthened compliance tracking and enforcement of tax collection; introduced N-Soft technology to audit telecoms reporting and GST collection; operationalized the SICPA product marking system for domestic excise collection; use of mobile app for vehicle circulation levy and income taxes from commercial vehicles; continuous implementation of revised full pass-through petroleum pricing formula; implemented fuel marking. - Additional revenue administrative measures: establishment and operationalization of a tax court, implementation of the safe harbor scheme for iron ore, registering businesses across districts to expand the tax base. - Integration of national revenue systems: ITAS, ASYCUDA and Electronic Cash Register (ECR). - Commitment to apply the Extractive Industry Revenue Administration Act 2018 to all new mining agreements. - Expenditure containment measures: terminate in-year payroll changes; adopt monthly monitoring of payroll; enforce workforce quotas; streamline tax exemptions; rationalize domestic capital spending including capital transfers for recapitalization of the Bank of Sierra Leone (BSL); reduce domestic and overseas travel; limit international subscriptions to critical institutions only; terminate extra budgetary spending; ensure budget execution consistent with weekly cash management forecasts. - Developed a wage bill strategy in consultation with stakeholders; progress being made to incorporate feedback prior to finalization. - Energy sector actions: installed 1,250 AMI meters for high value customers with World Bank support and plan to install an additional 3,000 meters by mid-2025; revised governance framework; agreed payment plan with independent power producers (IPPs) to reduce government support; arrangements to pay outstanding electricity bills to the Energy Distribution and Supply Authority (EDSA); installing prepaid meters to all Ministries, Departments, and Agencies (MDAs); EDSA to settle its tax obligations with the National Revenue Authority per agreed plan. - Social spending: prioritize support to vulnerable households and expand school feeding program; developed a social protection policy and established a social protection secretariat to coordinate programs across MDAs. - Debt management: reaffirm continued reliance on concessional financing, extend average maturities, and develop the domestic debt market. - On October 1, 2024, the Ministry of Finance engaged financial institutions, including the Bank of Sierra Leone, on implementing the updated Medium-Term Debt Strategy (MTDS) 2023-2027. - Authorities published the MTDS and continue stakeholder engagement to reduce cost and risks of debt portfolios and support bond market development, openness, and transparency in public debt management. ### Monetary, exchange rate, and financial sector policies - Monetary tightening by the Bank of Sierra Leone (BSL) alongside fiscal consolidation helped tame inflation and safeguard financial stability. - Monetary policy rate raised by 0.50 percentage points to 24.75 percent in October 2024. - Future monetary policy decisions to be driven by price stability objective; authorities stand ready to make appropriate adjustments if inflation surprises emerge. - Authorities committed to achieving positive real policy rates and eliminating monetary financing of the budget, including termination of the securitization of ways and means advances over the program period. - Authorities engaging banks and non-bank financial institutions to deepen the secondary market and maintain a flexible exchange rate regime while stepping up efforts to replenish foreign exchange reserves. - Financial sector stability priorities: established a macroprudential policy framework; working to finalize a crisis management plan consistent with the Banking Act 2019; integrating Fund TA recommendations to implement elements of Pillar I of the Basel II/III capital frameworks. - Central bank upgrades: enhanced policy toolkit for risk-based supervision and financial stability. - Financial safety nets: strengthening legal framework, submitted to Parliament an amendment to the Deposit Protection Fund Act 2023, established the DPF unit, and finalized calculation of required premium and initial seed capital for the fund. - Authorities issued directives to raise minimum capital requirements for banks. - Commitment to implement key recommendations of the 2024 Safeguards Assessment, including efforts to recapitalize the BSL and operationalize the resolution framework and emergency liquidity assistance framework for banks. ### Structural reforms - Ongoing reforms to improve governance, strengthen fight against corruption, enhance transparency and accountability, and promote private sector-led growth. - Public Financial Management (PFM) priorities: leverage IFMIS functionalities to strengthen commitment and payment controls and improve arrears reporting; strengthen cash and budget management; expand IFMIS rollout; manage fiscal risks from state-owned enterprises. - Adopted a ministerial directive to enforce commitment to annual ceilings of MDAs consistent with the PFM Act. - Strengthening Public Investment Management policy by integrating climate-related factors into project selection; plan to submit to Parliament a comprehensive budget for all roads and infrastructure projects in November 2024 as part of the 2025 budget. - AML/CFT/PF: enacted the Anti-Money Laundering and Combating of Financing of Terrorism and Financing the Proliferation of Weapons of Mass Destruction Act in May 2024; committed to implementation measures to strengthen the AML/CFT framework, improve risk-based supervision of banks and non-bank financial institutions, and improve beneficial ownership. - Governance and corruption diagnostics ongoing; authorities seek recommendations to bolster anti-corruption efforts and address system weaknesses. - Extractive sector reforms: established the Sierra Leone Mines and Mineral Development and Management Corporation (SLMMDMC) and the Mineral Wealth Fund (MWF) via Acts of Parliament to allow state participation while allowing private sector participation. - MWF incorporated under the Companies Act 2009 as a project company entirely owned by SLMMDMC and responsible to manage commercial interests, including source funding, exploration, development, production, and joint venture participation. - Authorities request Fund and World Bank support to strengthen governance arrangements of SLMMDMC and MWF consistent with best practice. - Energy sector reforms: submitted to Parliament a bill to amend the Electricity and Water Regulatory Commission Act to improve EDSA performance and establish a single collection account; plan to modernize regulatory framework to allow private sector participation to reduce losses and enhance efficiency. ### Conclusion - Authorities reaffirm resolve to implement reform measures in the Memorandum of Economic and Financial Policies and the Letter of Intent. - Reforms under the successor ECF arrangement are seen as essential to consolidate gains from previous ECF arrangements, strengthen macroeconomic stability, and promote inclusive green growth. - Authorities see merit in continued Fund engagement and consider Fund technical assistance alongside the World Bank and other partners indispensable to strengthen program implementation capacity. - Authorities also commence initial steps to potential support under the RSF given vulnerability to extreme climate-related events. - Authorities look forward to Executive Directors’ support in approval of their request under a successor ECF arrangement. *Source: Statement by Willie Nakunyada and Paul Mansaray, October 31, 2024.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1sleea2024001-print-pdf.pdf_