## 1. The Wage Bill—Recent Developments and Reforms

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### Economic developments and program performance
- Output expansion: 20 percent in 2013, up from 15 percent in 2012, driven by iron ore production and non-iron ore economy growth of 5.5 percent.
- Inflation: end-December inflation rate 8.5 percent (y/y) in 2013, down from 12 percent in 2012.
- External position:
  - Trade balance turned to a surplus due to surge in iron ore export volume and decline in machinery and equipment imports for iron ore mining.
  - Balance of payments surplus increased further; reserve accumulation exceeded the program target by US$42 million.
- Fiscal outcome:
  - Total revenue: 12.7 percent of non-iron ore GDP in 2013 (12.2 percent in 2012).
  - Overall fiscal deficit (excluding grants): declined from 9.7 percent of non-iron ore GDP in 2012 to 4.9 percent in 2013.
  - Domestic primary balance: better-than-programmed (indicative target); lower government borrowing from domestic bank and nonbank financial institutions; significant decline in yields on government securities.
- Monetary and financial sector:
  - Broad money growth: decelerated to 21 percent in 2013 from 23 percent in 2012.
  - Private sector credit: expanded by almost 12 percent in 2013.
  - Financial soundness: banks generally well-capitalized, profitable, and in compliance with prudential regulations.
  - Nonperforming loans: rising, partly due to new guidelines increasing recognition of impaired assets.
- Program performance:
  - All performance criteria met with comfortable margins; all indicative targets met except poverty-related spending target (missed due to enhanced monitoring and delayed budget support).
- Structural reforms implemented (selected):
  - Submission to parliament of the Extractive Industries Revenue Bill, including a resource rent tax.
  - Set up a resource revenue unit at the National Revenue Authority (NRA).
  - Established a Public Investment Program (PIP) Unit.
  - Put in place a small taxpayer regime.
  - Adopted a medium-term debt management strategy.
  - Prepared a report on PIP execution and a quarterly report on external debt.

### Medium-term macroeconomic outlook and risks
- Outlook and drivers:
  - Continued strong growth, declining inflation, and improving external position driven by expansion in iron ore mining, agriculture, and services.
  - Supporting factors: expected recovery in electricity supply; planned investment scaling-up under Agenda for Prosperity (AfP).
  - Structural reforms to strengthen prospects: financial sector development, improved business environment, civil service reforms.
- External current account: expected to narrow further as export volume growth is projected to remain high.
- Risks (balance tilted to the downside):
  - Domestic risks: fragile fiscal position due to low tax base and expenditure pressures (higher salaries, increased infrastructure investment).
  - External risks: volatility in global commodity prices given growing dependence on iron ore exports.
  - Price assumption: projected decline of about 20 percent in iron ore prices in the medium-term (impact muted by projected higher iron ore export volume).
  - Financing risk: shortfall in external budget support due to stringent financing constraints.
- Authorities’ stance: agreed with assessment and stand ready to take mitigating measures if risks materialize.

### Fiscal policy and reforms
- Medium-term fiscal objective:
  - Contain domestic debt; primary deficit to narrow and domestic debt ratio marginally decline from 11 percent of non-iron ore GDP in 2014 to 10.7 percent by 2016.
  - Financing ceiling: continue anchoring performance on a ceiling of 2 percent of non-iron ore GDP for financing from domestic bank and nonbank financial institutions.
- Revenue strategy:
  - Target to raise revenue from 12.7 percent of non-iron ore GDP in 2013 to 13.7 percent by 2016 via administrative efficiency, reduced exemptions, and anti-fraud measures.
  - Planned 2014 administrative measures:
    - (i) better enforcement of documentation for taxes on goods and services;
    - (ii) improved IT systems at NRA;
    - (iii) strengthened tax statements audit capacity;
    - (iv) enhanced monitoring of mineral revenue by the specialized NRA Unit.
- Expenditure profile:
  - Total expenditure projected to rise from 17.6 percent of non-iron ore GDP in 2013 to 20.4 percent in 2016, driven by scaled-up capital outlays and decelerating current spending.
  - Wage bill target: contain to 6.5 percent of non-iron ore GDP over the medium-term; authorities to prepare a medium-term wage strategy.
  - Preliminary study on salary harmonization completed to provide core elements for the wage strategy; to be developed in consultation with development partners and aligned with ECF-supported program targets for the wage bill.
  - PIP Unit role: improve selection, scrutiny, and monitoring of investment projects.
- 2014 revisions and financing:
  - Authorities revised 2014 expenditure upward but contained impact through reallocation of appropriations: higher spending on salaries, goods and services, and domestic investment; transfers and domestic debt interest below program levels.
  - Drop in yields on government securities: short-term securities average yield fell from 22 percent in 2012 to 8 percent in 2013.
  - Result: total expenditure and net lending projected at 20.7 percent of non-iron ore GDP (up from 20 percent in the program).
  - Revised program fully financed for 2014; good prospects for adequate financing for 2015–16.
  - Main financing sources: external budget support and government securities.
  - Domestic primary deficit for 2014 projected at 2.5 percent of non-iron ore GDP (2.3 percent in the program).
  - Supplementary budget to be presented in parliament in July with: higher revenue projections, budget aid windfall from release of the 2013 World Bank grant, and savings from lower domestic debt costs.
  - Authorities indicated need for additional resources to address pressing public administration and infrastructure needs, while committing to scale down non-priority spending if revenue shortfalls occur.
- Public Financial Management (PFM) challenges and key 2014 measures:
  - Remaining weaknesses: forecasting capacity in line ministries, broader roll-out of IFMIS to improve budget coverage, expenditure commitment controls, and transparency.
  - Adopted ambitious PFM reform strategy; staff urged realistic action plan including implementation costs.
  - Key PFM measures for 2014:
    - Presentation to parliament of the new PFM law (with IMF technical support) including clarification on supplementary budgets and contingency funds, and provisions for a Natural Resource Revenue Fund.
    - Preparation of a three-year PIP fully integrated with the budget process and the revised Medium-term Expenditure Framework for 2015–18; PIP expected to be presented to parliament with the 2015 budget.
    - Publication of a calendar for government securities issuance, in collaboration with the BoSL.

### The wage bill: recent developments and reforms
- Background:
  - Significant wage erosion during 1991–2002 civil war and aftermath; wage bill has been a growing budget burden despite historically low public pay.
- Trend in the wage bill:
  - Increased from 5.2 percent of non-iron ore GDP in 2010 to 5.9 percent in 2013.
  - Projected to reach 6.7 percent in 2014.
  - About 32,000 teachers represent half of the public sector workforce and one-third of the wage bill.
  - January 2014 official minimum wage increases:
    - Teachers: raised by 114 percent to US$111.
    - Police and military: raised by 71 percent to US$138.
  - Government plan: raise the minimum wage in steps to reach a living wage of about US$173 per month by 2017.
- Civil service reforms:
  - Multi-year pay reform strategy adopted in February 2011 with aims to:
    - (i) improve remuneration and reduce inequities;
    - (ii) eliminate inefficiency;
    - (iii) increase productivity and performance;
    - (iv) rationalize the public service.
  - Remuneration increases to be accompanied by reforms to enhance productivity, efficiency, and accountability.
  - Cost-saving measures include re-grading, rightsizing, and payroll cleaning; biometric verification of teachers undertaken.
  - Further actions remain under the multi-year reform program.

### Monetary and exchange rate policies
- Monetary policy objective: continue to aim for price stability.
- Reserve money growth: projected to decelerate from 17.6 percent in 2013 to 15 percent in 2014.
- Market for government securities:
  - Recent conversion of 91-day Treasury Bills into 3-year bonds increases scope for BoSL participation in the secondary market to manage liquidity.
  - Staff recommendation: further adjustments to the Monetary Policy Rate (MPR) should consider market liquidity conditions to reinforce the MPR’s signaling role (post-2013 MPR reduction).
- Exchange rate policy:
  - BoSL maintains a flexible exchange rate; Leone/USD has been stable and is market-determined.
  - BoSL interventions: limited to smoothing short-term volatility and marginal relative to market size.
  - Staff recommendation (structural benchmark): support development of the interbank foreign exchange market and adopt a wholesale auction system to replace the current retail auction format to prepare for increased foreign currency inflows from the mining sector.

### Foreign exchange market: developments and assessment
- BoSL Circular and market response:
  - In December 2013, the BoSL issued a Circular to commercial banks reinforcing legislative provisions setting limits on US Dollar cash withdrawals (except in selected cases).
  - In the following two months, the Leone depreciated by 7 percent in the parallel market relative to the US Dollar, while the official rate remained broadly stable.
  - The parallel market premium has since narrowed to about 3 percent.
- Staff view:
  - The foreign exchange measure put in place was not supported by strong evidence given market stability over the past two years.
  - On a preliminary basis, the measure was not inconsistent with Sierra Leone’s obligations under Article VIII, Section 2(a).
  - The spread between the parallel market and the official rate does not give rise to a multiple currency practice inconsistent with Article VIII, Section 3.
  - Staff encouraged the BoSL to make progress on the ongoing preparation of a new Foreign Exchange Bill with IMF technical assistance.
- Notes:
  - The measure pertains to cash withdrawals and does not restrict non-cash outward transfers or access to the foreign exchange market for current international payments.
  - The parallel market is illegal but tolerated.

### Borrowing policy: risks, projects, and limits
- Overall guidance:
  - Prudent borrowing policies remain critical for long-term fiscal and debt sustainability.
  - Staff advised authorities to continue seeking mostly grants and concessional loans to cover financing needs (MEFP ¶21, 22).
- Debt sustainability context:
  - The last debt sustainability analysis indicated that Sierra Leone’s risk of debt distress is moderate.
- Large-scale investment projects:
  - Staff cautioned on financial implications of large-scale investment projects in the AfP (MEFP ¶18); urged economic viability studies, soft financing terms, and prioritization given financing constraints.
- New airport project specifics:
  - Project cost estimated at US$198 million.
  - Financing terms currently offered are nonconcessional; staff view these terms and the project cost as not consistent with the performance criterion (PC) on nonconcessional debt.
  - The PC sets a ceiling of US$30 million per year during the program period for nonconcessional debt.
  - Staff urged authorities to consider less costly transportation options and to seek concessional financing and complete economic appraisal prior to final loan commitments.
  - Financing terms footnote for the airport loan offered: Annual interest rate of 2 percent, a maturity period of 20 years, and a grace period of 5 years.

### Advancing the monetary policy framework: findings and planned actions (Box 2)
- Current framework and challenges:
  - BoSL's primary target is price stability; reserve money used as an intermediate target.
  - Monetary Policy Committee meets every other month to review the MPR.
  - Policy rate has limited signaling effectiveness due to uncertainties in money demand estimates and low interest elasticity.
  - Reserve money growth exceeded program targets in 2012–13, reflecting changes in net foreign assets.
  - MPR reductions in 2013 did not fully transmit to money market rates; reverse repo and standing credit facilities were dormant while liquidity soared.
- Planned measures to strengthen BoSL operations:
  - Supplement reserve money targeting with repo and reverse repo operations aligned with liquidity management objectives.
  - Use auction rates from these operations to yield a price for liquidity (interest rate).
  - Prepare operational guidelines for repo and reverse repo operations with IMF Monetary and Capital Markets Department technical assistance.
  - Capacity building to enhance BoSL liquidity forecasting procedures.
- BoSL balance sheet and instrument steps taken in early 2014:
  - Government issued a bond to the central bank against past realized losses.
  - Government agreed to convert non-interest bearing short-term securities held by the central bank to marketable securities to be used for open market operations.
  - These steps intended to strengthen the BoSL's balance sheet and expand monetary policy instruments.

### Capacity to repay the Fund, monitoring, and arrears
- Capacity to repay:
  - Sierra Leone has adequate capacity to repay the Fund and has a good record on timely payment of external obligations.
  - Debt service to the Fund projected at 0.4 percent of exports of goods and services in 2014, and 0.5 percent in 2016.
- Program monitoring and conditionality:
  - Program performance assessed through semi-annual reviews based on PCs and structural benchmarks for June and December 2014, and quantitative indicative targets for September 2014.
  - Staff proposed modification of PCs for June and December 2014 reflecting updated fiscal and balance of payments outlook and BoSL’s commitment to actively manage liquidity through open market operations.
- Safeguards assessment progress:
  - Authorities made good progress implementing recommendations from the January 2014 safeguard assessment of the BoSL.
  - Memorandum of understanding signed between the Ministry of Finance and BoSL on issuance of a long-term bond to recapitalize the BoSL.
  - New non-Executive Board members in process of appointment; Deputy Governor position remains vacant.
- Arrears and debt buy-back:
  - Arrears to private creditors accumulated before and during the civil conflict estimated at US$213.7 million at end-2013.
  - Authorities working on a debt buy-back operation to clear these arrears.
  - In January 2014, the World Bank approved a grant of US$1.0 million to cover financial and legal fees for preparation of the buy-back operation.
  - Authorities continue to make goodwill payments to prevent litigation.

### Staff appraisal: outcomes, vulnerabilities, and policy recommendations
- Recent outcomes:
  - Program performance strong; macroeconomic policy supportive of stability and growth.
  - Consumer price inflation declined to the single digits.
  - External current account narrowed.
  - International reserves increased.
  - Fiscal position improved.
  - All performance criteria and quantitative targets under the program, but one, were met; and all structural reform measures programmed for end-December 2013 were taken.
- Staff encouragement:
  - Maintain momentum of reforms to support medium-term growth prospects and poverty reduction.
- Fiscal policy recommendations:
  - Enhance revenue mobilization, especially from the non-mining economy, to increase fiscal space and contain the domestic debt burden.
  - Broaden the tax base by reducing duty waivers, curbing fraud and tax evasion, and improving audit capacity.
  - Expedite preparation of a medium-term wage strategy supporting civil service reforms and ensuring future wage bill growth is consistent with medium-term fiscal sustainability.
  - Continue improving public investment management to ensure scaling-up of public investment supports long-term debt sustainability.
  - For large-scale infrastructure projects under AfP, continue seeking concessional financing and assess economic viability before completing financing arrangements.
- PFM and monetary recommendations:
  - Rapid completion of the PFM bill and the setting up of the Treasury Single Account.
  - Monetary policy should remain focused on price stability.
  - BoSL should maintain a tight monetary policy stance to entrench inflation expectations and participate more actively in the government securities secondary market to enhance liquidity management.

### Recommendation: completion of the first review under the ECF arrangement
- Staff recommends completion of the first review under the ECF arrangement based on Sierra Leone’s strong program performance, and the authorities’ policy commitments under the program.

*Source: IMF staff report content titled "1. The Wage Bill—Recent Developments and Reforms" from the provided PDF.*

### 1. The Wage Bill—Recent Developments and Reforms ____________________________________________  8

### 1. The Wage Bill—Recent Developments and Reforms

### Economic developments and program performance
- Output expansion: 20 percent in 2013, up from 15 percent in 2012, driven by iron ore production and non-iron ore economy growth of 5.5 percent.
- Inflation: end-December inflation rate 8.5 percent (y/y) in 2013, down from 12 percent in 2012.
- External position:
  - Trade balance turned to a surplus due to surge in iron ore export volume and decline in machinery and equipment imports for iron ore mining.
  - Balance of payments surplus increased further; reserve accumulation exceeded the program target by US$42 million.
- Fiscal outcome:
  - Total revenue: 12.7 percent of non-iron ore GDP in 2013 (12.2 percent in 2012).
  - Overall fiscal deficit (excluding grants): declined from 9.7 percent of non-iron ore GDP in 2012 to 4.9 percent in 2013.
  - Domestic primary balance: better-than-programmed (indicative target); lower government borrowing from domestic bank and nonbank financial institutions; significant decline in yields on government securities.
- Monetary and financial sector:
  - Broad money growth: decelerated to 21 percent in 2013 from 23 percent in 2012.
  - Private sector credit: expanded by almost 12 percent in 2013.
  - Financial soundness: banks generally well-capitalized, profitable, and in compliance with prudential regulations.
  - Nonperforming loans: rising, partly due to new guidelines increasing recognition of impaired assets.
- Program performance: All performance criteria met with comfortable margins; all indicative targets met except poverty-related spending target (missed due to enhanced monitoring and delayed budget support).
- Structural reforms implemented (selected):
  - Submission to parliament of the Extractive Industries Revenue Bill, including a resource rent tax.
  - Set up a resource revenue unit at the National Revenue Authority (NRA).
  - Established a Public Investment Program (PIP) Unit.
  - Put in place a small taxpayer regime.
  - Adopted a medium-term debt management strategy.
  - Prepared a report on PIP execution and a quarterly report on external debt.

### Medium-term macroeconomic outlook and risks
- Outlook: Continued strong growth, declining inflation, and improving external position (expansion in iron ore mining, agriculture, and services as key drivers).
- Supporting factors: expected recovery in electricity supply; planned investment scaling-up under Agenda for Prosperity (AfP).
- Structural reforms to strengthen prospects: financial sector development, improved business environment, civil service reforms.
- External current account: expected to narrow further as export volume growth is projected to remain high.
- Risks (balance tilted to the downside; Table 9 referenced):
  - Domestic risks: fragile fiscal position due to low tax base and expenditure pressures (higher salaries, increased infrastructure investment).
  - External risks: volatility in global commodity prices given growing dependence on iron ore exports.
  - Price assumption: projected decline of about 20 percent in iron ore prices in the medium-term (impact muted by projected higher iron ore export volume).
  - Financing risk: shortfall in external budget support due to stringent financing constraints.
- Authorities’ stance: agreed with assessment and stand ready to take mitigating measures if risks materialize.

### Fiscal policy and reforms
- Medium-term fiscal objective: contain domestic debt; primary deficit to narrow and domestic debt ratio marginally decline from 11 percent of non-iron ore GDP in 2014 to 10.7 percent by 2016.
- Financing ceiling: continue anchoring performance on a ceiling of 2 percent of non-iron ore GDP for financing from domestic bank and nonbank financial institutions.
- Revenue strategy:
  - Target to raise revenue from 12.7 percent of non-iron ore GDP in 2013 to 13.7 percent by 2016 via administrative efficiency, reduced exemptions, and anti-fraud measures.
  - Planned 2014 administrative measures: (i) better enforcement of documentation for taxes on goods and services; (ii) improved IT systems at NRA; (iii) strengthened tax statements audit capacity; (iv) enhanced monitoring of mineral revenue by the specialized NRA Unit.
- Expenditure profile:
  - Total expenditure projected to rise from 17.6 percent of non-iron ore GDP in 2013 to 20.4 percent in 2016, driven by scaled-up capital outlays and decelerating current spending.
  - Wage bill target: contain to 6.5 percent of non-iron ore GDP over the medium-term; authorities to prepare a medium-term wage strategy.
  - Preliminary study on salary harmonization completed to provide core elements for the wage strategy; to be developed in consultation with development partners and aligned with ECF-supported program targets for the wage bill.
  - PIP Unit role: improve selection, scrutiny, and monitoring of investment projects.
- 2014 revisions:
  - Authorities revised 2014 expenditure upward but contained impact through reallocation of appropriations: higher spending on salaries, goods and services, and domestic investment; transfers and domestic debt interest below program levels.
  - Drop in yields on government securities: short-term securities average yield fell from 22 percent in 2012 to 8 percent in 2013.
  - Result: total expenditure and net lending projected at 20.7 percent of non-iron ore GDP (up from 20 percent in the program).
- Financing for 2014 and 2015–16:
  - Revised program fully financed for 2014; good prospects for adequate financing for 2015–16.
  - Main financing sources: external budget support and government securities.
  - Domestic primary deficit for 2014 projected at 2.5 percent of non-iron ore GDP (2.3 percent in the program).
  - Supplementary budget to be presented in parliament in July with: higher revenue projections, budget aid windfall from release of the 2013 World Bank grant, and savings from lower domestic debt costs.
  - Authorities indicated need for additional resources to address pressing public administration and infrastructure needs, while committing to scale down non-priority spending if revenue shortfalls occur.
- Public Financial Management (PFM) challenges and key 2014 measures:
  - Remaining weaknesses: forecasting capacity in line ministries, broader roll-out of IFMIS to improve budget coverage, expenditure commitment controls, and transparency.
  - Adopted ambitious PFM reform strategy; staff urged realistic action plan including implementation costs.
  - Key PFM measures for 2014:
    - Presentation to parliament of the new PFM law (with IMF technical support) including clarification on supplementary budgets and contingency funds, and provisions for a Natural Resource Revenue Fund.
    - Preparation of a three-year PIP fully integrated with the budget process and the revised Medium-term Expenditure Framework for 2015–18; PIP expected to be presented to parliament with the 2015 budget.
    - Publication of a calendar for government securities issuance, in collaboration with the BoSL.

### The wage bill: recent developments and reforms (Box 1)
- Background: Significant wage erosion during 1991–2002 civil war and aftermath; wage bill has been a growing budget burden despite historically low public pay.
- Trend in the wage bill:
  - Increased from 5.2 percent of non-iron ore GDP in 2010 to 5.9 percent in 2013.
  - Projected to reach 6.7 percent in 2014.
  - About 32,000 teachers represent half of the public sector workforce and one-third of the wage bill.
  - January 2014 official minimum wage increases:
    - Teachers: raised by 114 percent to US$111.
    - Police and military: raised by 71 percent to US$138.
  - Government plan: raise the minimum wage in steps to reach a living wage of about US$173 per month by 2017.
- Civil service reforms:
  - Multi-year pay reform strategy adopted in February 2011 with aims to: (i) improve remuneration and reduce inequities; (ii) eliminate inefficiency; (iii) increase productivity and performance; (iv) rationalize the public service.
  - Remuneration increases to be accompanied by reforms to enhance productivity, efficiency, and accountability.
  - Cost-saving measures include re-grading, rightsizing, and payroll cleaning; biometric verification of teachers undertaken.
  - Further actions remain under the multi-year reform program.

### Monetary and exchange rate policies
- Monetary policy objective: continue to aim for price stability.
- Reserve money growth: projected to decelerate from 17.6 percent in 2013 to 15 percent in 2014.
- Market for government securities:
  - Recent conversion of 91-day Treasury Bills into 3-year bonds increases scope for BoSL participation in the secondary market to manage liquidity.
  - Staff recommendation: further adjustments to the Monetary Policy Rate (MPR) should consider market liquidity conditions to reinforce the MPR’s signaling role (post-2013 MPR reduction).
- Exchange rate policy:
  - BoSL maintains a flexible exchange rate; Leone/USD has been stable and is market-determined.
  - BoSL interventions: limited to smoothing short-term volatility and marginal relative to market size.
  - Staff recommendation (structural benchmark): support development of the interbank foreign exchange market and adopt a wholesale auction system to replace the current retail auction format to prepare for increased foreign currency inflows from the mining sector.

*Source: IMF staff report content titled "1. The Wage Bill—Recent Developments and Reforms" from the provided PDF.*

### 17.      The foreign exchange market has been stable, although the BoSL has been concerned

### 17.      The foreign exchange market has been stable, although the BoSL has been concerned

### Foreign exchange market: developments and staff assessment
- In December 2013, the BoSL issued a Circular to commercial banks reinforcing legislative provisions setting limits on US Dollar cash withdrawals (except in selected cases), out of concerns for the use of foreign currency in domestic transactions.
- In the following two months, the Leone depreciated by 7 percent in the parallel market relative to the US Dollar, while the official rate remained broadly stable.
- The parallel market premium has since narrowed to about 3 percent, consistent with past trends.
- Staff view:
  - The foreign exchange measure put in place was not supported by strong evidence given market stability over the past two years.
  - On a preliminary basis, the measure was not inconsistent with Sierra Leone’s obligations under Article VIII, Section 2(a) of the IMF’s Articles of Agreement as it does not give rise to restrictions on the making of payments and transfers for current international transactions.
  - The spread between the parallel market and the official rate does not give rise to a multiple currency practice inconsistent with Sierra Leone’s obligations under Article VIII, Section 3 as there is no evidence of any official action channeling transactions to the parallel market.
  - Staff encouraged the BoSL to make progress on the ongoing preparation of a new Foreign Exchange Bill with IMF technical assistance.
- Notes from the source:
  - The measure pertains to cash withdrawals and does not restrict non-cash outward transfers of the balances in the accounts, or access to the foreign exchange market for the making of current international payments or transfers.
  - The parallel market is illegal but tolerated.

### D. Borrowing policy: risks, projects, and limits
- Overall guidance:
  - Prudent borrowing policies remain critical for long-term fiscal and debt sustainability.
  - Given an undiversified and narrow export base that increases vulnerability to terms of trade and other exogenous shocks, staff advised the authorities to continue seeking mostly grants and concessional loans to cover financing needs (MEFP ¶21, 22).
- Debt sustainability context:
  - The last debt sustainability analysis indicated that Sierra Leone’s risk of debt distress is moderate.
- Large-scale investment projects:
  - Staff cautioned on financial implications of large-scale investment projects in the AfP (MEFP ¶18).
  - Staff reiterated the need to carry out economic viability studies, secure soft financing terms, and establish priorities taking into account financing constraints.
- New airport project specifics:
  - Project cost is estimated at US$198 million.
  - Financing terms currently offered are nonconcessional; staff view these terms and the project cost as not consistent with the performance criterion (PC) on nonconcessional debt.
  - The PC sets a ceiling of US$30 million per year during the program period for nonconcessional debt.
  - For 2014, the limit on nonconcessional debt targeted projects in the energy sector.
  - Staff urged the authorities to consider less costly transportation options in consultation with the World Bank.
  - Staff recommended that, if the authorities decide to proceed, they should continue to seek concessional financing and complete its economic appraisal prior to entering into final loan commitments.
  - Authorities emphasized the economic and social importance of the airport project and difficulties in securing concessional financing, and requested flexibility if all avenues for concessional financing were exhausted.
  - Staff position: absent a sound economic viability study, it would not be possible to make a case for nonconcessional borrowing; any such case would need to be based on a debt sustainability analysis showing the new nonconcessional debt would not increase Sierra Leone’s risk of debt distress.
  - Further discussions to take place at the time of the second ECF review; staff does not propose to modify the PC at this time.
- Financing terms footnote for the airport loan offered:
  - Annual interest rate of 2 percent, a maturity period of 20 years, and a grace period of 5 years.

### Box 2 — Advancing the monetary policy framework: findings and planned actions
- Background on current framework:
  - BoSL's primary target is price stability; reserve money is used as an intermediate target to guide liquidity management.
  - Monetary Policy Committee meets every other month to review the Monetary Policy Rate (MPR).
  - The policy rate has not been effective in signaling intended monetary policy stance due to uncertainties in demand for money estimates and low interest elasticity.
- Recent challenges (2012–13):
  - Reserve money growth exceeded program targets, largely reflecting changes in net foreign assets of the central bank.
  - The signaling value of the MPR remains limited; the policy rate appears to follow rather than lead money market rates.
  - Despite successive rate cuts in 2013, the MPR remained well-above money market interest rates that are mainly driven by short-term T-bill interest rates.
  - Reverse repo and standing credit facilities (tied to the MPR and fixed respectively at 50 and 100 basis points above it) were dormant, while liquidity soared in the banking system.
- Strengthening BoSL monetary policy (planned measures):
  - Reserve money would remain the operational target, but could be supplemented more effectively with repo and reverse repo operations aligned with liquidity management objectives.
  - Auction rate from these operations would yield a price for liquidity in the form of an interest rate.
  - Expected benefits: encourage more active liquidity management by banks and help develop the short end of the yield curve.
  - With IMF Monetary and Capital Markets Department technical assistance, BoSL is preparing operational guidelines for repo and reverse repo operations to be shared with market participants.
  - Capacity building will accompany the rollout to enhance BoSL liquidity forecasting procedures.
- BoSL balance sheet and instruments:
  - BoSL would need a sound balance sheet and a positive income position to actively manage liquidity and sterilize inflows to prevent disorderly appreciation.
  - Steps taken in early 2014:
    - Government issued a bond to the central bank against past realized losses.
    - Government agreed to convert non-interest bearing short-term securities held by the central bank to marketable securities to be used for open market operations.
  - These steps are intended to strengthen the BoSL's balance sheet and expand monetary policy instruments.

### Other program issues: capacity to repay, monitoring, and arrears
- Capacity to repay the Fund:
  - Sierra Leone has adequate capacity to repay the Fund and has established a good record on timely payment on external obligations.
  - Debt service to the Fund is projected at 0.4 percent of exports of goods and services in 2014, and 0.5 percent in 2016.
- Program monitoring and conditionality:
  - Program performance assessed through semi-annual reviews based on PCs and structural benchmarks for June and December 2014, and quantitative indicative targets for September 2014.
  - Staff proposed modification of PCs:
    - For June 2014: the ceiling on net domestic bank credit to the central government and on net domestic assets of the central bank; and the floor on gross foreign exchange reserves of the central bank.
    - For December 2014: the ceiling on net domestic assets of the central bank.
  - Revised PCs reflect updated fiscal and balance of payments outlook and BoSL’s commitment to actively manage liquidity through open market operations.
- Safeguards assessment progress:
  - Authorities made good progress implementing recommendations from the January 2014 safeguard assessment of the BoSL.
  - Memorandum of understanding signed between the Ministry of Finance and BoSL on the issuance of a long-term bond to recapitalize the BoSL.
  - New non-Executive Board members are in the process of being appointed; Deputy Governor position remains vacant.
- Financing assurances review and arrears:
  - Fund financing under the ECF-supported program is expected to improve reserve coverage and catalyze programmed donor funding.
  - Expected disbursement following completion of the first review under the ECF arrangement is essential for implementation of Sierra Leone’s 2014 economic program.
  - Arrears to private creditors accumulated before and during the civil conflict are estimated at US$213.7 million at end-2013.
  - Authorities working on a debt buy-back operation to clear these arrears.
  - In January 2014, the World Bank approved a grant of US$1.0 million to cover financial and legal fees for preparation of the buy-back operation.
  - In the meantime, authorities continue to make goodwill payments to prevent litigation.

### Staff appraisal: outcomes, vulnerabilities, and policy recommendations
- Recent outcomes:
  - Program performance has been strong; economic policy implementation remained supportive of macroeconomic stability and growth.
  - Consumer price inflation declined to the single digits.
  - External current account narrowed.
  - International reserves increased.
  - Fiscal position improved.
  - All performance criteria and quantitative targets under the program, but one, were met; and all structural reform measures programmed for end-December 2013 were taken.
- Staff encouragement:
  - Maintain momentum of reforms to support medium-term growth prospects and poverty reduction.
- Fiscal position and revenue mobilization:
  - Despite encouraging 2013 outcomes, the fiscal position remains fragile because of the low revenue base and underlying expenditure pressures.
  - Staff encourages continued enhancement of revenue mobilization, especially from the non-mining economy, to increase fiscal space and contain the domestic debt burden.
  - Policy focus recommended:
    - Broaden the tax base, notably by reducing duty waivers, curbing fraud and tax evasion, and improving audit capacity in tax administration.
    - Expedite preparation of a medium-term wage strategy supporting civil service reforms and ensuring future wage bill growth is consistent with medium-term fiscal sustainability.
    - Continue improving public investment management to ensure scaling-up of public investment supports long-term debt sustainability.
    - For large-scale infrastructure projects under the new poverty reduction strategy, continue seeking concessional financing and assess economic viability before completing financing arrangements.
- Public financial management (PFM) reforms:
  - Advancing PFM reforms is critical to strengthen the fiscal position.
  - Timely implementation of programmed PFM reforms would enhance transparency and accountability and strengthen credibility of fiscal policy.
  - Staff calls for rapid completion of the PFM bill and the setting up of the Treasury Single Account.
- Monetary policy stance:
  - Monetary policy should remain focused on price stability.
  - The decline in inflation to the single digits is encouraging.
  - BoSL should maintain a tight monetary policy stance to entrench inflation expectations and participate more actively in the government securities secondary market to enhance liquidity management.

*Source: IMF staff report text (selected sections).*

### 28.      Staff recommends completion of the first review under the ECF arrangement based on

### 28.      Staff recommends completion of the first review under the ECF arrangement based on

### Recommendation
- Staff recommends completion of the first review under the ECF arrangement based on Sierra Leone’s strong program performance, and the authorities’ policy commitments under the program.

### Real and external sector developments (2008–13)
- "Growth has been robust due to iron ore, and non-iron ore growth is in line with SSA average."
- Real non-iron ore GDP Growth (Percent) — charted for 2008–2013 (figure caption: "Real non-iron ore GDP Growth (Percent)").
- "Inflation has moderated since 2011 thanks to falling food prices and a stable exchange rate." — Inflation, Jun. 2008-Dec. 2013 (Year-on-year percent change).
- "Pressure on the current account has eased with FDI-related imports unwinding and iron ore exports rising." — Trade and Current Account Balance (Millions of U.S. dollars).
- "As a result, gross reserves have risen to record levels since 2008." — Gross Official Reserves (Millions of U.S. dollars).
- Exchange rate stability: "The exchange rate was stable in 2012–13... Leones/US$ , Jan. 2008-Dec. 2013 ('000 of Leones)."
- "Nominal and Real Effective Exchange Rates Dec. 2008-Dec. 2013 (Index 2005=100)" — NEER and REER charted; caption: "... as were the nominal and real effective exchange rates, reflecting favorable current account developments."

### Fiscal developments and public finances (2008–13 and projections)
- Figure caption: "Figure 2. Sierra Leone: Fiscal Developments, 2008–13 (Percent of Non-Iron Ore GDP)"
- "Revenue collection has strengthened, although the base remains narrow..."
- "Expenditure declined in 2013 owing to better monitoring and the unwinding of 2012 elections-related spending..."
- Key indicators from Table 1 (as presented):
  - "GDP at constant prices6.015.213.320.114.011.38.98.2"
  - "Excluding Iron ore5.85.36.05.56.36.06.36.6"
  - "GDP deflator17.412.09.18.16.56.74.54.9"
  - "Consumer prices (end-of-period)16.912.09.08.57.57.56.05.4"
  - "Consumer prices (average)18.513.810.39.87.77.86.75.7"
  - "Gross international reserves, months of imports 1/1.82.22.12.12.22.22.22.4"
  - "Excluding iron ore related imports, months of imports 2/2.43.23.23.43.43.63.74.0"
  - "Domestic credit to the private sector21.8-6.910.811.711.012.114.313.5"
  - "Current account balance (including official grants)-45.0-30.9-19.1-12.4-10.5-11.1-9.4-8.7"
  - "External public debt (including IMF)32.627.827.325.127.425.825.325.9"
  - "Revenue11.512.212.412.712.412.813.613.7" (Percent of non-iron ore GDP)
  - "Total expenditure and net lending21.621.919.117.620.020.720.420.4" (Percent of non-iron ore GDP)
- Central government fiscal operations (Table 2a highlights, in Billions of leone):
  - "Total revenue and grants 2,1712,5062,8272,8283,2203,3534,0224,557"
  - "Total expenditure and net lending 2,7523,3583,3683,1694,1514,2214,9875,607"
  - "Overall balance including grants -581-852-541-342-931-868-965-1,050"
  - "Overall balance excluding grants -1,290-1,484-1,172-889-1,571-1,608-1,665-1,848"
  - "Public domestic debt 1,4821,7562,2411,9612,5522,2722,5892,936"

### Monetary and financial sector indicators (2008–13)
- Figure caption: "Figure 3. Sierra Leone: Monetary and Financial Sector Indicators, 2008–13"
- "Broad money growth decelerate in 2013." — Broad Money and reserve money (Year-on-year percent change).
- "Financial intermediation is shallow, as in other fragile countries..." — Broad money (M3) (Percent of GDP).
- "Deposit growth has slowed relative to economic expansion." — Deposits and credit (Percent of GDP).
- "Non-performing loans have risen and remain elevated by regional standards." — Nonperforming loans (Percent of gross loans).
- Interest rate and monetary transmission:
  - "Despite the declining policy rate, transmission to lending rates is weak."
  - Key interest rates (Percent): Treasury bills rate, Prime lending rate, Deposit interest rate, Key policy interest rate (time series plotted).
- From Table 3 (Monetary Accounts, in Billions of leone):
  - "Net foreign assets2,0532,4852,8313,071"
  - "Net domestic assets9051,1381,3931,759"
  - "Domestic credit2,1902,5052,9113,277"
  - "Money and quasi-money (M3)2,9583,6234,2244,830"
  - "Reserve money8601,0191,1981,378"
  - Memorandum items: "Base money13.018.517.615.0" and "M3 22.622.516.614.4" (annual percent change entries as shown).

### Debt sustainability and external vulnerabilities
- "Figure 4. Sierra Leone: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2014–34" — baseline, historical scenario, most extreme shock (notes on most extreme stress tests listed).
- Selected indicators from Table 4 (Balance of Payments, Millions of U.S. dollars):
  - "Current account -1,315.4   -1,091.1-764.9-511.8-510.7-502.8-505.5"
  - "Exports, f.o.b. 385.61,164.51,496.41,932.62,531.62,598.33,214.4"
  - "Of which: iron ore 0.0357.0854.61,064.41,478.81,409.71,635.7"
  - "Imports, f.o.b -1,631.1   -1,960.6-1,865.0   -1,570.3-1,732.5   -1,849.4   -1,995.7"
  - "Gross International Reserves US$ millions 382420452473527587669"
  - Memorandum: "Current account-45.0-30.9-19.1-12.4-11.1-9.4-8.7" (Percent of non-iron ore GDP unless otherwise indicated).

### Capacity to repay the Fund (2010–24)
- Table 5 snapshots (selected lines as presented):
  - "Fund obligations based on existing credit (in millions of SDRs) Principal 1.4 1.9 2.3 4.6 7.7 9.9 11.7 12.1 13.0 11.3 8.1 4.4 2.7 1.8 0.0"
  - "Total obligations based on existing and prospective credit In millions of SDRs 1.4 1.9 2.3 4.6 7.7 10.1 11.9 12.4 13.2 12.4 12.7 12.6 13.4 12.5 9.8"
  - "In millions of US$ 2.1 3.0 3.5 7.0 11.8 15.7 18.7 19.6 21.1 19.7 20.3 20.0 21.4 19.9 15.7"
  - "Outstanding Fund credit In millions of SDRs 73.4 79.0 78.8 83.1 92.7 100.6 106.7 94.6 81.6 69.5 56.9 44.4 31.1 18.7 8.9"
  - Memorandum items: "Exports of goods and services (in millions of US$) 423 546 1,347 2,156 2,791 2,884 3,529 3,774 3,893 4,092 4,198 4,442 4,698 4,968 5,268"

### ECF disbursement schedule and conditions
- Table 6: Actual and Proposed Disbursements Under the ECF Arrangement, 2013–16
  - Availability / Disbursements (in millions of SDRs and percent of quota):
    - "October 21, 2013    8.89    8.57    Effectiveness of the three-year ECF arrangement"
    - "June 15, 2014       8.89    8.57    Board completion of the first review based on observance of performance criteria for December 31, 2013"
    - "December 15, 2014  8.89    8.57    Board completion of the second review based on observance of performance criteria for June 30, 2014"
    - "June 15, 2015       8.89    8.57    Board completion of the third review based on observance of performance criteria for December 31, 2014"
    - "December 15, 2015  8.89    8.57    Board completion of the fourth review based on observance of performance criteria for June 30, 2015"
    - "June 15, 2016       8.89    8.57    Board completion of the fifth review based on observance of performance criteria for December 31, 2015"
    - "September 10, 2016  8.88    8.56    Board completion of the sixth review based on observance of performance criteria for June 30, 2016"
  - "Total disbursements 62.22 60.00"

### Policy recommendations and program conditionality (as reflected in text/figures)
- Complete the first review of the ECF arrangement based on the authorities’ observance of performance criteria for December 31, 2013 (condition for the June 15, 2014 disbursement).
- Risk mitigation and policy responses (Risk Assessment Matrix, Table 9):
  - Sustained decline in commodity prices — Relative Likelihood: Medium; Impact and Policy Response: "Delay scaling up of public investment and strengthen efficiency in non-resource revenue mobilization."
  - Aid shortfall — Relative Likelihood: Medium; Impact and Policy Response: "Ensure strong implementation of donors’ disbursement conditions for committed aid, and scale back domestically financed investment in case of aid shortfall."
  - Weak fiscal policy implementation — Relative Likelihood: Low; Impact and Policy Response: "Continue close monitoring of budget execution, and stop nonwage expenditure commitments two months prior to the end of the fiscal year."

*Source: Sierra Leonean authorities; and IMF staff estimates and projections (contents as presented).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Program context and commitments
- The Extended Credit Facility (ECF) Arrangement was approved by the IMF Executive Board on October 21, 2013 and supports Sierra Leone’s medium-term program and the Poverty Reduction Strategy, the Agenda for Prosperity (AfP).
- The attached Memorandum of Economic and Financial Policies (MEFP) updates the MEFP dated October 1, 2013 and its supplement of October 17, 2013, and outlines policies and structural reforms for 2014.
- The government requests completion of the first review of Sierra Leone’s ECF-supported program and disbursement of the second tranche in the amount of SDR 8.89 million.

### Recent economic developments (2013)
- Real GDP growth:
  - 2013: estimated at 20 percent (MEFP later reports 20.1 percent)
  - 2012: 15 percent (MEFP later reports 15.2 percent)
  - Non-iron ore GDP growth in 2013: 5.5 percent (5.2 percent in 2012)
- Inflation:
  - End-December 2013 CPI (Freetown): 8.5 percent, down from 12 percent at end-2012
  - Program projection for end-2013: 9.0 percent
- External sector:
  - External current account deficit narrowed from almost 31 percent of non-iron ore GDP in 2012 (reported elsewhere as 30.9 percent) to 12.4 percent in 2013.
  - Overall balance of payments recorded a surplus of about US$46.6 million.
  - International reserve accumulation stood at 3.4 months of imports (excluding iron ore-related imports) at end-2013.
- Monetary and financial:
  - Credit to the economy rose by 11.7 percent in 2013.
  - Monetary Policy Rate (MPR) reduced from 20 percent in 2012 to 10 percent by end-2013.
  - Commercial bank lending rates range:
    - End-2012: 21–29 percent
    - End-2013: 19.7–25.3 percent
  - Interest rates on government securities:
    - 2012 average: 22.4 percent
    - 2013: 8 percent
- Fiscal outcomes and execution:
  - Domestic primary deficit declined from Le 586 billion in 2012 to Le 125 billion in 2013.
  - Total revenue in 2013: Le 2,280 billion (programmed Le 2,197 billion).
  - Float transactions totaled Le 30 billion; domestic payments arrears of Le 14 billion accumulated due to technical delays.
  - End-December 2013 monetary survey: increase in net foreign assets.

### Program performance in 2013
- Quantitative targets and benchmarks:
  - All quantitative performance criteria were met, including the ceiling on net domestic bank credit to the central government, the ceiling on net domestic assets of the central bank, and the floor on gross foreign reserves.
  - External borrowing on nonconcessional terms was consistent with program limits.
  - All indicative quantitative targets except the floor on poverty-related expenditure were met.
    - Poverty-related expenditure floor: Le 884 billion (program target Le 1,063 billion) — shortfall due mainly to low execution of domestically-financed investment.
- Structural benchmarks observed for end-December 2013:
  - Submission to parliament of the Extractive Industries Revenue Act (includes resource rent tax).
  - Resource revenue unit established in the National Revenue Administration (NRA).
  - Small taxpayer regime implemented.
  - Medium-term Debt Management Strategy completed and adopted by Cabinet.
  - Public Investment Unit established in the Ministry of Finance and Economic Development and became operational in early 2014.
- Revenue administration measures:
  - Strengthened collection system for taxes on petroleum products via NRA dedicated accounts in commercial banks.
  - Memorandum of understanding between government and commercial banks on transfer of balances in NRA transit accounts to the Treasury account at the BoSL was strictly enforced.

### Exchange rate and foreign exchange measures
- BoSL December 2013 Circular limited over-the-counter U.S. Dollar withdrawals except for:
  - diamonds transactions by licensed diamond exporters who brought in foreign exchange through the banking system up to the exporting value;
  - payment for travel/per diem up to US$10,000;
  - salaries and other emoluments to staff of international organizations.
- Outcome and adjustments:
  - Initial depreciation of the leone in the parallel market; the leone/U.S. Dollar rate stabilized and the parallel market premium narrowed.
  - BoSL raised the cap on foreign currency withdrawals for foreign exchange account holders from zero (December 2013 Circular) to ten thousand U.S. dollars (US$10,000) per transaction, pending completion of the new Foreign Exchange Act and guidelines.
  - BoSL enforces the 2011 AML/CFT Act.

### Economic outlook and macroeconomic policies for 2014
- Growth and inflation forecasts:
  - Real GDP growth expected at 11.3 percent in 2014 (double-digits), driven by higher iron ore and other mining production, agriculture, services, construction, and recovery in manufacturing as energy supply improves.
  - Consumer price inflation expected to continue trending downward.
- External position:
  - External current account deficit projected to narrow from 12.4 percent of non-iron ore GDP in 2013 to 11.1 percent in 2014.
  - Gross international reserves forecast to increase from 3.4 months of imports in 2013 to 3.6 months in 2014 (excluding iron-ore related imports).

### Fiscal policy and budget for 2014
- Overall budget and financing:
  - Updated overall budget deficit for 2014: Le 868 billion (lower than projected due to higher mining royalties and grant inflows, including a 2013 World Bank loan to be released as a grant in 2014).
  - Government plans to present a supplementary budget to parliament in July 2014 to appropriate additional resources.
- Revenue:
  - Projected revenue in 2014: Le 2,613 billion, equivalent to 12.8 percent of non-iron ore GDP.
  - Upward revisions reflect: stronger 2013 outturn; administrative measures to curb fraud and duty waivers; anticipated growth in personal and corporate income tax from mining and non-resources sectors; revised excises on petroleum products to reflect decision to maintain petroleum retail prices for non-commercial consumers; royalties revised upward with iron ore production and price projections.
- Expenditure:
  - Projected total expenditure in 2014: Le 4,272 billion (20.9 percent of non-iron ore GDP), higher than originally programmed due to new grant-financed spending and savings from lower interest rates.
  - Savings from decline in interest rates on government securities in 2013 estimated at Le 109 billion.
- Current spending and wage measures:
  - Projected current expenditures in 2014: Le 2,551 billion (original program Le 2,514 billion).
  - New wage and salary measures introduced in the 2014 budget:
    - Introduction of a minimum wage of Le 480,000 in the public sector.
    - Increase of the entry level salary for teachers, police, and military to Le 600,000.
    - Salary increase for members of parliament.
    - Addition of the salaries of Paramount Chiefs to the government payroll.
  - Wage bill projected to rise from 5.9 percent of non-iron ore GDP in 2013 to 6.7 percent in 2014.
  - Government commitments to contain the wage bill:
    - Freeze on salary increases for all subvented agencies.
    - No salary increase for Ministers, Deputy Ministers and civil servants in Grades 10 and above.
    - Containment to the budgeted wage-bill level while implementing donor-funded civil service and pay reforms.
- Interest payments and investment:
  - Revised interest payments on domestic debt account for issuance of a five-year bond totaling Le 75 billion for BoSL recapitalization.
  - Interest expenses projected to drop from 1.5 percent of non-iron ore GDP in 2013 to 0.9 percent in 2014.
  - Public investment is set to reach 3.2 percent of non-iron ore GDP in 2014, up from 2.3 percent in 2013, consistent with AfP implementation.

### Public investment and debt management
- Government policy:
  - Prudent borrowing policies to ensure financing of AfP investment projects supports long-term debt sustainability.
  - Financing commitments and execution of large-scale investment projects will be based on economic viability studies and, to the extent possible, concessional terms consistent with the external debt criterion.
  - For the new Airport, a consultancy firm will be hired to carry out an economic viability study prior to completion of financing discussions with the bank financing the project.
- Institutional measures:
  - Medium-term Debt Management Strategy completed and adopted by Cabinet.
  - Public Investment Unit established and operational in early 2014.

### Policy implementation and IMF cooperation
- The government considers the MEFP commitments adequate to achieve program objectives and stands ready to take additional measures if necessary.
- Government will continue policy dialogue with the IMF and seek technical assistance as needed, and will consult the IMF on adoption of additional measures or revisions to MEFP policies.
- The government authorizes publication of the letter, its attachments, and the related staff report, including placement on the IMF website in accordance with IMF procedures.

*Source: Letter of Intent and attached Memorandum of Economic and Financial Policies, Freetown, June 4, 2014.*

### 18. Although externally-financed investment is forecast to increase from 4.1 percent of non-iron

### _cr14171 - 18. Although externally-financed investment is forecast to increase from 4.1 percent of non-iron

### Externally-financed investment and AfP projects
- Externally-financed investment is forecast to increase from 4.1 percent of non-iron ore GDP in 2013 to 5.2 percent in 2014.
- This forecast does not assume the execution of large-scale investment projects under the AfP.
- Government commitment: implement AfP projects only if:
  - they are economically viable;
  - they are supportive of medium to long-term fiscal and debt sustainability goals;
  - they are consistent with the external nonconcessional debt performance criterion under the ECF-supported program.
- Specific project action: for the new airport at Mamamah, the government will seek to recruit a consulting firm to prepare a study on the economic viability of the project; conclusions will inform the final decision on execution and completion of financing arrangements with the creditor.

### Fiscal position, budget financing, and expenditure management
- Overall budget deficit: 4.2 percent of non-iron ore GDP; financed with external budget support and borrowing from the domestic securities market.
- Fiscal contingency measures:
  - Government stands ready to scale back expenditure in non-priority areas and domestically-financed investment if budgetary resources fall short, to avoid accumulation of domestic payment arrears and contain domestic debt burden.
  - Maintain tight cash flow management and monitor expenditure execution to ensure spending commitments and issuance of payment orders are completed by end-October and end-November 2014 respectively; and are consistent with available resources.

### Monetary and exchange rate policies (BoSL)
- Monetary stance: BoSL will maintain an appropriately tight monetary policy stance consistent with the projected decline in inflation.
- Reserve money growth target: 15.0 percent (a decline compared with 2013: 17.6 percent).
- Liquidity management:
  - BoSL will enhance interventions in the government securities market as needed to manage liquidity and contribute to secondary market development.
  - The stock of Non-Negotiable, Non-Interest Bearing securities totaling Le 81 billion converted to 91-day Treasury Bills in 2013 was restructured in early April, extending its maturity to 3 years—providing BoSL instruments for active liquidity management.
- Policy rate adjustments: following the reduction in the MPR in 2013, further adjustments will be aligned with liquidity conditions to enhance signaling and support monetary policy operations.

### Borrowing policies and debt management
- External financing approach:
  - Continue to ensure financing needs are covered with grants and concessional loans to the extent possible.
  - Nonconcessional borrowing to be consistent with the external nonconcessional debt performance criterion under the ECF-supported program to safeguard long-term debt sustainability.
  - Investment scaling up under the AfP will be guided by the above objective.
  - Government plans to organize a donors’ conference in Freetown before the end of the year to engage development partners on AfP financing.
- Domestic debt strategy:
  - Aim to lengthen maturities for new securities, consistent with the Medium-Term Debt Management Strategy to limit refinancing risks.
  - Ratio of public domestic debt to non-iron ore GDP is set to decline over the medium term as the government fiscal position improves.

### Structural reforms (priorities and specific measures)
- Reform focus areas:
  - (i) enhancing revenue mobilization;
  - (ii) improving expenditure management, particularly for public investment;
  - (iii) supporting private sector development;
  - (iv) deepening financial intermediation;
  - (v) improving public debt management.
- PFM reforms:
  - PFM strategy for 2014–17 prepared, building on 2010 PEFA and IMF Fiscal Affairs Department TA recommendations.
  - Strategy aims: enhance fiscal discipline, strategic allocation of scarce resources, improve public service delivery.
- Market and treasury actions:
  - Government will complete and publish, by December 2014, a calendar for the issuance of securities to increase visibility in the government securities market and support BoSL liquidity forecasting.
- Civil service reforms (2014–15) centered on two donor-funded projects with key actions:
  - Upgrade the Human Resource Management Information System (HRMIS) to facilitate improved records keeping, complete the validation of personnel records, and maintain up to date records of decisions related to the Human Resource Management Plan.
  - Right-size the civil service and increase recruitment of mid-level managers.
  - Increase administrative and logistical support for management in the civil service.
  - Strengthen the link between the Human Resource Management Office (HRMO), the Accountant’s General Department (AGD), and the Budget Bureau in Payroll and Budget Management.
  - Review policy to mainstream donor-funded Local Technical Assistants (LTAs) into the civil service to minimize payroll distortions.
- Wage policy:
  - Prepare a medium-term wage strategy to align compensation ambitions with fiscal sustainability objectives.
  - Strategy will build on preliminary study on salary harmonization completed in May 2014 and contributions from IMF, World Bank, and European Union.
  - Under the IMF-supported program, the wage bill is projected at 6.5 percent of non-iron ore GDP for the medium-term.
- Financial sector reforms (2014–15 measures):
  - Roll out a new platform for real time reporting of deposit money bank balances (December 2014).
  - Finalize and submit to parliament the revised Foreign Exchange Act to align legislation with ECOWAS and WAMZ partners (December 2014).
  - Expand the existing credit reference database to include deposit-taking microfinance and community banks (December 2015).
  - Establish a collateral registry to support use of moveable property as collateral (December 2015).
  - Complete the Financial Inclusion Strategy, with donors’ support, to improve financial literacy and business practices (December 2015).
  - BoSL intends to enhance banking supervision with TA support from the IMF.

### Program monitoring, targets, and reviews
- Monitoring frequency: program will be monitored on a semi-annual basis through quantitative targets and structural benchmarks.
- Target classification:
  - Quantitative targets for end-June and end-December 2014 are performance criteria.
  - Quantitative targets for end-March 2014 and end-September 2014 are indicative targets.
- Review schedule:
  - Second review under the program to be completed by December 15, 2014.
  - Third review under the program to be completed by June 15, 2015.
- Selected quantitative targets and memorandum items (as specified in Table 2, cumulative change from beginning of calendar year; Le billions unless otherwise indicated):
  - Net domestic bank credit to the central government (ceiling): Dec. 2013 stock 1,665; end-Mar prog. 71; rev. 93; end-Jun prog. 145; rev. 184; end-Sep prog. 105; rev. 194; end-Dec prog. 245; rev. 245.
  - Net domestic assets of the central bank (ceiling): Dec. 2013 stock -295; end-Mar prog. -18; rev. 20; end-Jun prog. -32; rev. 21; end-Sep prog. -50; rev. -57; end-Dec prog. 32; rev. 10.
  - Gross foreign exchange reserves of the central bank, US$ millions (floor): Dec. 2013 stock 474; end-Mar prog. 13; rev. 10; end-Jun prog. 34; rev. 31; end-Sep prog. 39; rev. 35; end-Dec prog. 53; rev. 53.
  - Ceiling on new nonconcessional external debt (in $ million): sequence shown in Table 2 as ...3030303030303030 (applies on a continuous basis).
  - Total domestic government revenue (floor): cumulative targets: end-Mar 598; end-Jun 1,262; end-Sep 1,884; end-Dec 2,581 (with revisions and intermediate figures as shown in Table 2).
  - Poverty-related expenditures (floor): cumulative targets: end-Mar 262; end-Jun 559; end-Sep 815; end-Dec 1,155 (with revisions and intermediate figures as shown in Table 2).
  - Domestic primary balance (floor): cumulative targets: end-Mar -128; end-Jun -255; end-Sep -325; end-Dec -476 (with revisions and intermediate figures as shown in Table 2).
  - Memorandum items include External budgetary assistance (US$ million) and Net credit to government by nonbank sector with specific cumulative figures in Table 2.
  - Exchange rate for program purposes: Le 4,334/US$ (consistent across table entries).

### Technical Memorandum highlights (definitions and adjustments)
- Program exchange rate:
  - For program purposes, foreign currency denominated values for 2013 converted to leone using program exchange rate of Le 4334/US$ and cross rates as of end December 2012.
- Gross foreign exchange reserves (BoSL) definition: reserve assets of the BoSL as defined in the 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; excludes foreign assets not readily available to or controlled by monetary authorities.
- Adjustment clauses for the floor on change in gross foreign exchange reserves:
  - Adjusted (a) downward (upward) by the amount in U.S. dollars of the shortfall (excess) in programmed external budgetary assistance—the downward adjustment capped at the equivalent of US$20 million;
  - (b) downward (upward) for any shortfall (excess) in the U.S. dollar value of disbursements from the IMF under the ECF arrangement;
  - (c) upward (downward) for any increase (decrease) in BSL short-term (one year or less in original maturity) foreign currency-denominated liabilities.
- Net domestic assets (NDA) of the BoSL definition:
  - NDA = end-period stock of reserve money less end-period stock of net foreign assets calculated at program exchange rates.
  - Reserve money includes currency issued (currency outside banks plus cash in vaults), deposits of commercial banks with the BoSL and BoSL liabilities to other private sector.
  - Net foreign assets of the BoSL = gross foreign exchange reserves minus foreign liabilities (foreign currency-denominated liabilities to nonresidents excluding a foreign liability to China of Le 35 billion relating to a legacy clearing account, and outstanding use of Fund credit).
  - For program purposes, foreign liabilities exclude SDR allocation.
- Adjustment clause for NDA:
  - Ceiling on changes in NDA of the BoSL will be adjusted upward (downward) by the leone value of the shortfall (excess) in external budgetary assistance—the upward adjustment capped at the equivalent of US$20 million.

*Source: IMF Staff Report (Technical Memorandum of Understanding and MEFP excerpts) contained in the provided PDF content.*

### 7.      Definition. NCG refers to the net banking system’s claims on the central government as

### _cr14171 - 7.      Definition. NCG refers to the net banking system’s claims on the central government as

### Definition of NCG
- NCG refers to the net banking system’s claims on the central government as calculated by the BSL.
- Components of NCG:
  - Net position of the government with commercial banks, including:
    - (a) treasury bills;
    - (b) treasury bearer bonds; and
    - (c) loan and advances of commercial banks to the government;
    - less government deposits in commercial banks.
  - Net position of the government with the BoSL, including:
    - (a) treasury bills and bonds, excluding holdings of special bonds provided by government to cover BoSL losses (Le 357.5 billion) and to increase its capital (Le 75 billion);
    - (b) the stock of non-negotiable non-interest bearing securities (NNNIBS);
    - (c) ways and means; and
    - (d) any other type of direct credit from the BoSL to the government;
    - less (a) central government deposits; and (b) any debt relief received, notably HIPC and MDRI relief deposits.

### Adjustment clauses for the NCG ceiling
- Ceiling adjustments:
  - Upward (downward) by up to the leone value of the shortfall (excess) in external budgetary assistance — the upward adjustment will be capped at the equivalent of US$20 million.
  - Downward (upward) by the excess (shortfall) in the leone value of net issues of government securities to the nonbank private sector vis-à-vis the program assumption (as specified in the memorandum items in Table 3 of the MEFP).

### Data source and reporting
- Data source: series “Claims on Government (net)”, submitted to IMF staff and reconciled with the monthly monetary survey prepared by the BSL.

### Definition of Central Government (for this memorandum)
- Central government comprises the central government and those special accounts classified as central government in the BSL statement of accounts.
- Exclusions: The National Social Security and Insurance Trust and public enterprises are excluded.

### External Payment Arrears of the Public Sector (PC)
- Definition:
  - Include all debt-service obligations (interest and principal) arising from loans contracted or guaranteed by the public sector.
  - Public sector comprises central government, regional government, all public enterprises and the BoSL.
  - External arrears are obligations not paid on due dates (taking into account contractual grace periods, if any).
  - Exclusions: debts subject to rescheduling or restructuring, or under litigation.
- Status: Non-accumulation of external arrears is a continuous performance criterion during the program period; this PC applies on a continuous basis.

### New Nonconcessional External Debt Contracted or Guaranteed by the Public Sector (PC)
- Definition:
  - All forms of new debt with original maturity of one year or more contracted or guaranteed by the public sector based on residency of the creditor.
  - Applies to debt as defined in the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274 (00/85), August 24, 2000, Point 9, as revised on August 31, 2009, (Decision No. 14416-(09/91))) and to commitments contracted or guaranteed for which value has not been received.
  - Exclusions: disbursements from the IMF and debts subject to rescheduling.
  - Applies on a continuous basis.
- Concessionality threshold:
  - Any external debt with net present value greater than 65 percent of the nominal value (grant element of less than 35 percent) is considered nonconcessional, with the exception of IMF lending.
  - Discount rate used for calculating concessionality is 5 percent.
  - Government will report any new external borrowing and its terms to Fund staff before contracting or guaranteeing.

### External Short-Term Debt Contracted or Guaranteed by the Public Sector (PC)
- Definition:
  - External short-term debt is external debt stock with maturity of less than one year contracted or guaranteed by the public sector.
  - Debt defined in Annex I of the TMU.
  - Excludes normal trade credit for imports.
  - Applies on a continuous basis.

### Quantitative Indicative Targets — Definitions
- Domestic Primary Balance:
  - Defined as Central Government Revenue less expenditures and net lending adjusted for interest payments and foreign financed capital spending.
- Domestic Revenue of Central Government:
  - Floor on total domestic central government revenue defined as total central government revenue presented in the central government financial operations table, excluding external grants.
- Poverty-Related Expenditures:
  - Defined as the total of current and capital expenditures of specified ministries and institutions: Education, Health, Social Welfare, Agriculture, Transport and Communications, Energy, Water, Police, Prisons Department, National Fire Authority; and capital expenditure for Ministry of Works, Energy, Water, Health and Sanitation, Agriculture, Police, Prisons, Local Councils, Commission for Social Action, Anti-Corruption Commission, and Statistics Sierra Leone.
  - Current expenditures: goods and services, transfers, and other current spending.
  - Capital expenditures: domestically-financed investment.

### Program monitoring arrangements
- A program-monitoring committee to be maintained, composed of senior officials from the MoFED, the BSL, and other relevant agencies.
- Responsibilities:
  - Monitor performance under the program.
  - Recommend policy responses.
  - Inform the IMF regularly about program progress.
  - Transmit supporting materials necessary for evaluation of PCs and benchmarks.
- Reporting: Committee will provide monthly reports to the IMF on progress in implementing quantitative targets and structural benchmarks.

### Annex — Implementation of the Revised Guidelines on Performance Criteria with Respect to Foreign Debt
- Definition of “debt” per point No. 9 of the Guidelines (August 24, 2000):
  - (a) Debt understood as a current liability created under a contractual arrangement through provision of value (assets or services) requiring future payments 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 (present value at inception of lease payments expected to be made, excluding payments covering operation, repair, or maintenance).
  - (b) Arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligation that constitutes debt are debt.
  - (c) Exclusions from this PC: normal import-related credits, disbursements from the IMF, and debts subject to rescheduling arrangements.

### Data reporting requirements (selected items and deadlines)
- Real sector:
  - National accounts: Annual — End of year + 9 months.
  - Revisions of national accounts: Variable — End of revision + 2 months.
  - Disaggregated consumer price index: Monthly — End of month + 2 weeks.
- Public finance:
  - Net government position and details of nonbank financing, including stock of the float, treasury bills, and bonds, as well as privatization receipts: Monthly — End of month + 6 weeks.
  - Government flow-of-funds table (Government Financial Operations Table) with supporting documentation (final) and presented on commitment and cash bases: Monthly — End of month + 6 weeks.
  - Petroleum product prices and tax receipts by categories of petroleum products: Monthly — End of month + 6 weeks.
  - Stock of outstanding payment commitments with breakdown current and capital expenditures: Monthly — End of month + 6 weeks.
  - Import duty exemptions by end-users and tariff regimes and estimates of corresponding revenue losses: Quarterly — End of quarter + 6 weeks.
- Monetary and financial data:
  - 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: Monthly — End of month + 6 weeks.
  - BSL monitoring sheet of treasury bills and bonds holdings: Monthly — End of month + 6 weeks.
  - Borrowing and lending interest rates: Monthly — End of month + 6 weeks.
  - Results of foreign exchange and Treasury Bills auctions: Weekly — End of week + 3 days.
  - Stocks of government securities: Monthly — End of month + 6 weeks.
  - Banking supervision ratios: Quarterly — End of quarter + 8 weeks.
  - Gross official foreign reserves: Weekly — End of week + 1 week.
  - Foreign exchange cash flow table: Monthly — End of month + 3 weeks.
  - Exports and imports of goods (including volume of key minerals and fuels): Monthly — End of month + 3 months.
- External debt:
  - Outstanding external arrears and repayments (if applicable): Monthly — End of month + 4 weeks.
  - Details of all new external borrowing and guarantees provided by government on new borrowing, including the associated concessionality calculation (percentage) for each new loan: Monthly — End of month + 4 weeks.
  - External debt service payments (separately on principal and interest payment) to each creditor, including and excluding new disbursements in the debt recording system. Also, including and excluding HIPC relief: Monthly — End of month + 4 weeks.
  - Report on stock of debt outstanding, and loan agreements under discussion: Quarterly — End of month + 3 months.
- HIPC initiative and MDRI monitoring:
  - Statement of special account at the BSL that receives resources generated by the HIPC Initiative and tracks their use: Monthly — End of month + 4 weeks.
  - Statement of special MDRI account at the BSL and the corresponding poverty-reducing spending financed: Monthly — End of month + 4 weeks.
- Other:
  - Minutes of the meeting of the Monetary Policy Committee: Monthly — Date of meeting + 2 weeks.

### Selected institutional and financial statistics (as reported)
- Membership Status: Joined 9/10/62; Article VIII.
- Quota and holdings:
  - Quota 103.70 (SDR Million) — 100.00 percent of quota.
  - Fund holdings of currency 103.69 (SDR Million) — 99.99 percent of quota.
  - Reserve position 0.02 (SDR Million) — 0.02 percent of quota.
- SDR Department:
  - Net cumulative allocation 99.51 (SDR Million) — 100.00 percent allocation.
  - Holdings 106.75 (SDR Million) — 107.28 percent.
- Outstanding Purchases and Loans:
  - ECF Arrangements 82.62 (SDR Million) — 79.67 percent of quota.
- Latest Financial Arrangements (selected entries show dates and amounts as presented):
  - ECF: Oct 21, 2013 — Oct 20, 2016 — Amount Approved (SDR Million) 62.22 — Amount Drawn (SDR Million) 31.11.
  - ECF (earlier): May 10, 2006 — June 22, 2010 — Amount Approved (SDR Million) 51.88 — Amount Drawn (SDR Million) 51.88.
- Projected Payments to Fund (SDR million; based on current use of resources and present holdings of SDRs):
  - Forthcoming 2014 2015 2016 2017 2018
  - Principal 7.68 9.86 11.68 12.11 12.99
  - Charges/Interest 0.00 0.18 0.15 0.12 0.09
  - Total 7.68 10.04 11.83 12.23 13.08
- HIPC Initiative implementation:
  - Decision point date March 2002.
  - Assistance committed (NPV terms) by all creditors (US$ million) 675.20.
  - Of which: IMF assistance (US$ million) 125.21 (SDR equivalent in millions) 100.00.
  - Completion point date December 2006.
  - Disbursement of IMF assistance (SDR million): Amount disbursed 100.00; Interim assistance 66.03; Completion point balance 33.97; Additional disbursement of interest income 6.58; Total disbursements 106.58.
- MDRI:
  - I. MDRI-eligible debt (SDR Million) 117.34 — Financed by: MDRI Trust 76.75 — Remaining HIPC resources 40.59.
  - II. Debt Relief by facility (SDR Million) Delivery Date December 2006 — GRA N/A — PRGT 117.34 — Total 117.34.
- Safeguards assessment (2014) of the Bank of Sierra Leone:
  - Found improvements in legal framework and internal audit function.
  - Financial statements prepared and audited in accordance with international standards and published in a timely manner on the BSL website.
  - Concerns: continuance in oversight due to Deputy Governor position vacancy for an extended period and expiration of a majority of Board members’ non-renewable terms.

*Source: IMF staff report content as provided in the supplied document.*

### 2014. External audit oversight also needed strengthening and there were delays in the expected

### 2014. External audit oversight also needed strengthening and there were delays in the expected recapitalization of the BSL.

### Exchange rate arrangement and foreign exchange operations
- For customs valuation purposes and for official transactions, the Bank of Sierra Leone (BSL) calculates an official exchange rate every Friday morning as the weighted average of the auction rate, the commercial bank mid-rate, and the bureau mid-rate in the previous week.
- Commercial banks may buy and sell foreign exchange with individual customers and may trade among themselves or with the BSL on a freely negotiable basis.
- As of May 29, 2014, the BSL mid rate was Le 4,366.87=US$1.
- De jure exchange rate regime: classified as floating; de facto reclassified to ‘floating’ effective November 1, 2008 (from ‘stabilized arrangement’).
- Article VIII obligations accepted with effect December 14, 1995 (Sections 2, 3, and 4); one multiple currency practice noted arising from the applied multiple-price Dutch auction system (no formal mechanism to prevent spreads of effective rates between winning bids from exceeding 2 percent).

### Article IV consultation and resident representation
- Executive Board concluded the 2013 Article IV consultation on October 21, 2013.
- Next Article IV consultation to be held in accordance with the 2010 decision on consultation cycles.
- Resident Representative: Mr. Francis Kumah assumed responsibility for the Fund office in Freetown in November 2010.

### Technical assistance (selected missions and purposes)
- FAD: Tax Policy under Module 1 of the Managing Natural Resource Wealth (MNRW) project — June, October 2013; January 2014.
- EI Revenue Administration — December 2013; August 2012; January, July 2012 (Draft EI Revenue Act).
- EI Macro-Fiscal, PFM, and Expenditure Policy — April 2013; Feb, September 2012.
- MCM Monetary and Forex Operations — February 2014.
- Financial Stability Analysis — October 2013.
- Medium-term Debt management Strategy — January 2013.
- Liquidity Forecasting and Development of Interbank Foreign Exchange Market — July 2012; January 2013.
- STA Price Statistics — April 2014.
- Annual National Accounts Statistics Module Mission within the Enhanced Data Dissemination Initiative Project for Africa — July, August 2013.
- National Accounts under Module 5 within the MNRW project — April, May 2013.
- Consumer Price Index — August 2012.
- Monetary and Financial Statistics Mission under the EDDI Project for Africa — August 2012.

### Joint World Bank–IMF work program, 2014–15 (selected items)
- World Bank: IPFMRP (PFM Project) Supervision — Provisional missions Feb, Jun 2014; Expected delivery Aug 2014.
- World Bank: PFMICP (New PFM Project) Preparation — Provisional missions Aug, Nov 2014; Mar, Jun, Sep 2015; Expected delivery Aug 2019.
- World Bank: Sixth Governance Reform and Growth Credit (GRGC-6) — Feb 2014; Expected delivery Apr 2014.
- IMF work program: First Review of the ECF Arrangement — May 2014; Expected delivery May 2014.
- IMF technical assistance (MCM): Accounting and Auditing — July 2014.
- IMF technical assistance (MCM): Medium-term Debt Management Strategy Formulation — July 2014.
- IMF technical assistance (STA): Open Data Initiative — May 2014; Accounts for Natural Resources — June 2014.
- Joint product in 2014: Assisting the authorities with the implementation of their financial sector reform strategy — Continuous.

### Statistical issues — data adequacy and key shortcomings (as of May 1, 2014)
- General: Data provision broadly adequate for surveillance with key shortcomings in national accounts, fiscal, monetary, and external sector statistics; improvement requires greater interagency coordination and institutional restructuring.
- National Accounts:
  - SSL produces GDP estimates by activity in value and constant prices of 2006, according to the 1993 SNA.
  - Improvements under DFID-funded project: construction compilation, informal sector estimation, government services measurement, agricultural production, household final consumption, and constant price GDP.
  - Remaining issues: better data sources for agricultural and mineral production; continued improvement of informal sector measurement.
  - Shortages of resources and staff constrain statistical development.
- Price Statistics:
  - SSL compiles CPI monthly and publishes with a lag of about three weeks.
  - CPI rebased to 2007 using the 2007 Sierra Leone integrated household survey; continues to cover the capital city and three main districts.
  - Authorities continue to publish the old CPI (1992=100) while a national CPI is being compiled; technical assistance requested for a single index.
  - Technical assistance missions last visited Freetown in April 2014 to review the CPI and advise on PPI development.
  - For new PPI: index weights developed, representative sample of establishments selected, representative products and transactions selected; Project Framework Summary drafted and agreed.
- Government Finance Statistics:
  - Budget reporting system established with Fund/UNDP technical assistance.
  - Monthly cash flow data on central government budgetary revenue, current expenditure, and financing are provided.
  - Transaction coverage of central government budgetary cash flow is incomplete.
  - Urgent need for more timely and accurate data on foreign-financed development projects; reports on implementation of development budget and financing are not produced in a format suitable for budget analysis.
  - Authorities considering flash reporting system for government expenditure and foreign aid-financed projects.
  - Need to compile and monitor consolidated general government operations and financial balance sheet data given decentralization.
- Financial sector surveillance:
  - Sierra Leone does not participate in CDIS, CPIS, and FSI databases.
- Monetary and Financial Statistics:
  - Main components of central bank balance sheet available daily and weekly under early warning system.
  - Full monetary survey compiled by BSL with a lag of about six weeks; comprehensive coverage of commercial banks.
  - Migration to standardized report forms (SRFs) completed for central bank and ODCs; need to expand coverage to include other financial institutions.
- External sector statistics:
  - BSL compiles BOP and IIP annually; primary data sources: BSL records, line ministries, Customs and Excise Department records, partner-country and international organizations data, and annual survey of major companies.
  - External transactions have large informal sector activity.
  - Trade data include estimates for unrecorded diamond exports by deducting official diamonds export figures from trading partners’ official diamonds imports from Sierra Leone.
  - Coverage issues exist for services, primary and secondary income, and capital and financial accounts.
  - Official grant and loan receipt information generally good; prepared by IMF AFR staff based on contacts with authorities and donors.
  - Private financial flow data need improvement; bank financial transactions entries estimated as differences in outstanding foreign assets and liabilities and may include valuation and other changes.
  - IIP data production underway but coverage and consistency with BOP should be improved.

### Data standards and reporting
- Sierra Leone participates in the General Data Dissemination System (GDDS) since 2003.
- No data ROSC is available.
- Data reported for Government Finance Statistics Yearbook with most recent data referring to 2012; no sub-annual data reported for inclusion in International Financial Statistics.
- BSL started reporting monetary data in SRF-format to the IMF in April 2010.

### Table of Common Indicators Required for Surveillance (May 2014 — selected observations)
- Exchange Rates: Date of Latest Observation 5/30/2014; Date Received 05/30/2014; Frequency of Data W; Frequency of Reporting W; Frequency of Publication W.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 03/31/2014; Date Received 04/24/2014; Frequency M M M.
- Reserve/Base Money: Date of Latest Observation 03/31/2014; Date Received 04/24/2014; Frequency M M M.
- Broad Money: Date of Latest Observation 03/31/2014; Date Received 04/24/2014; Frequency M M M.
- Central Bank Balance Sheet: Date of Latest Observation 03/31/2014; Date Received 04/24/2014; Frequency M M M.
- Consolidated Balance Sheet of the Banking System: Date of Latest Observation 03/31/2014; Date Received 04/24/2014; Frequency M M M.
- Interest Rates: Date of Latest Observation 10/04/2014; Date Received 05/5/2014; Frequency M M M.
- Consumer Price Index: Date of Latest Observation 03/31/2013; Date Received 04/30/2014; Frequency M M M.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of Latest Observation 12/31/2013; Date Received 3/31/2014; Frequency M M M.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 12/31/2013; Date Received 3/31/2014; Frequency Q Q Q.
- External Current Account Balance: Date of Latest Observation 12/31/2013; Date Received 3/31/2014; Frequency A A A.
- Exports and Imports of Goods and Services: Date of Latest Observation 12/31/2013; Date Received 3/31/2014; Frequency A A A.
- GDP/GNP: Date of Latest Observation 12/31/2013; Date Received 3/31/2014; Frequency A A A.
- Gross External Debt: Date of Latest Observation 12/31/2013; Date Received 3/31/2014; Frequency A A A.
- International Investment Position: Date of Latest Observation 31/12/2012; Date Received 05/08/2013; Frequency A A A.

### IMF Executive Board — First review under the ECF arrangement (Press Release No. 14/292, June 19, 2014)
- The Executive Board completed the first review of Sierra Leone’s program under a three-year arrangement under the Extended Credit Facility (ECF).
- The completion of the review enables the disbursement of an amount equivalent to SDR 8.89 million (about US$13.69 million), bringing total disbursements under the arrangement to SDR 17.78 million (about US$27.39 million).
- The Executive Board approved the ECF arrangement for Sierra Leone on October 21, 2013 for the equivalent of SDR 62.22 million (about US$95.84 million).
- 2013 economic performance:
  - Output expanded by 20 percent on account of new iron ore production coming on stream, and strong growth in agriculture and services.
  - Inflation declined to single digits, mainly reflecting increased food supply.
  - Surge in iron ore exports contributed to improvement in external and fiscal positions.
- 2014 projections and outlook:
  - Real GDP growth is projected to remain in double-digits at 11.3 percent in 2014, driven by higher iron ore and other mining production, continued strong output expansion in agriculture, services, and construction, and recovery in manufacturing as energy supply improves.
  - Consumer price inflation expected to continue trending downward as food supply benefits from government-sponsored agricultural programs; non-food inflation expected to remain moderate with continued prudent monetary policy.
  - Improving trade balance and expected capital inflows will help strengthen the external position and gross international reserves buildup.
- Fiscal policy priorities for 2014:
  - Reduce duty waivers and increase audit capacity in tax administration to support revenue mobilization.
  - Contain non-priority spending to create space for public investment.
  - Strengthen budget execution and controls through public financial management reforms.
  - Maintain prudent borrowing policies to support growth-enhancing investment while maintaining debt sustainability.
- Structural and program performance:
  - Program performance described as strong.
  - Authorities met all six quantitative performance criteria for the first program review, and two out of three indicative targets.
  - All structural benchmarks programmed for end-December 2013 were met.

*International Monetary Fund — content as provided in the source document.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14171.pdf_