Press Release: IMF Approves US$21 Million in Emergency Post-Conflict Assistance for Sierra Leone
IMF News, December 17, 1999
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- Published: December 17, 1999
Executive decision and financing
- The IMF approved SDR 15.56 million (about US$21 million) in emergency post-conflict assistance for Sierra Leone; the amount will be available immediately.
- Sierra Leone joined the IMF on September 10, 1962 and its quota is SDR 103.7 million (about US$142 million).
- Sierra Leone's outstanding use of IMF financing totals SDR 132.5 million (about US$182 million).
Executive Board discussion — directors' main points
- Welcomed the signing of the Lomé peace agreement and steps to consolidate peace.
- Urged expeditious implementation of:
- the disarmament, demobilization and reintegration program (DDR) for ex-combatants, and
- the reintegration, rehabilitation and reconstruction program (RRR) for ex-combatants and displaced civilians.
- Encouraged authorities to rebuild institutional capacity and restore core government functions rapidly.
- Considered the macroeconomic framework for 2000 to strike an appropriate balance between support for rehabilitation and reconstruction programs, provision of basic social services, poverty reduction, and lowering internal and external imbalances.
- Noted risks to the fiscal program for 2000 due to difficulty collecting government revenue and containing expenditure in a delicate security situation; urged close monitoring of budgetary execution.
- Strongly emphasized the importance of transparent management of public finances.
- Emphasized the need to maintain a tight monetary policy to contain inflation and the need to strengthen the banking system.
- Welcomed steps to achieve a more flexible and realistic exchange rate.
- Stressed the importance of generous financial and technical support from the international community for rehabilitation and reconstruction programs.
- Urged the development of a comprehensive medium-term program that could be supported under the Fund's Poverty Reduction and Growth Facility (PRGF).
- Noted Sierra Leone's high level of debt in relation to its resources and recommended further exploration of eligibility for assistance under the HIPC Initiative.
Program strategy and objectives (Annex: Program Summary)
- Rationale:
- Support under the emergency post-conflict assistance policy to rebuild administrative and institutional capacity disrupted by the civil war.
- Provide time for authorities to rebuild capacity, reestablish adequate security, and pave the way for a comprehensive reform program under the PRGF.
- Main macroeconomic objectives:
- Promote resumption of economic growth.
- Reduce financial imbalances.
- Begin regularizing relations with external creditors.
- Links between security and growth:
- Satisfactory implementation of the DDR program would help real GDP to rebound to a growth of 4% in 2000 from a decline of 8% in 1999.
- Fiscal policy:
- Central objective for 2000 is targeted reduction in the domestic primary budget deficit to about 4.2% of GDP in 2000 from an estimated 7.4% in 1999.
- Achieve through concerted efforts to improve tax collection and strict control on government outlays.
- Monetary and external policies:
- Monetary policy geared toward reducing inflation while reconstituting external reserves.
- Rate of inflation targeted to fall to 15% by end-December 2000 from the 30% projected for end-December 1999.
- External current account deficit, before official transfers, projected to rise to 19% of GDP in 2000 from 9% in 1999, owing to destruction of export capacity and large programmed increase in humanitarian assistance and reconstruction imports.
- Introduce a foreign exchange auction effective January 2000 to improve efficiency in the foreign exchange market and reduce market segmentation.
- Structural and public finance measures:
- Regularize financial relations between the government and public enterprises.
- Reduce tax and duty exemptions.
- Review the civil service and pensioners to remove "ghost" workers and pensioners.
- Strengthen the regulatory and supervisory framework for commercial banks.
- Social and reconstruction spending:
- DDR outlays amounting to 4.6% of GDP and costing US$29 million in 2000 are almost entirely externally financed.
- DDR program will provide ex-combatants with transitional social safety nets.
- Consolidated budget aims to provide minimum social and economic services and includes capital outlay for schools, health care, and other social services.
Economic and social context (Annex)
- Civil war impacts:
- Caused tremendous damage to economic and social infrastructure.
- More than 2 million people, nearly half of the population, were displaced.
- Modest recovery after restoration of democratically elected government in March 1998 was sharply reversed by the rebel invasion of Freetown in January 1999.
- Economic activity shrank, contributing to collapse in fiscal revenue base, significant increases in the budget deficit, bank financing, and external payments arrears; inflation surged and exchange rate depreciated sharply.
- Political developments:
- Peace agreement signed in July 1999 in Lomé, Togo, generally followed by cessation of fighting in most areas.
- Ex-rebel leaders returned to Freetown in October 1999; government of national unity formed on October 20, 1999; launch of DDR program.
Key selected economic and financial indicators (1996–2000)
- Real GDP (annual percentage change):
- 1996: 5.0
- 1997: -17.6
- 1998: -0.8
- 1999 (Est.): -8.1
- 2000 (Prog.): 4.2
- GDP deflator:
- 1996: 26.3
- 1997: 16.8
- 1998: 27.0
- 1999 (Est.): 25.0
- 2000 (Prog.): 15.0
- Consumer prices (end of period):
- 1996: 6.4
- 1997: 66.9
- 1998: -5.7
- 1999 (Est.): 29.6
- 2000 (Prog.): (not listed in table)
- Broad money (including foreign currency deposits) (annual percentage change):
- 1996: 28.3
- 1997: 47.1
- 1998: 11.3
- 1999 (Est.): 40.7
- 2000 (Prog.): 23.2
- Domestic primary fiscal balance 4/ 5/:
- 2000 (Prog.): -4.2
- External current account balance, excluding official transfers (memorandum, in millions of U.S. dollars):
- 1996: -161.6
- 1997: -27.5
- 1998: -60.8
- 1999 (Est.): -62.4
- 2000 (Prog.): -122.4
- Gross international reserves (in millions of U.S. dollars):
- 1996: 26.8
- 1997: 38.5
- 1998: 43.5
- 1999 (Est.): 49.0
- 2000 (Prog.): 40.0
- GDP (millions of leones):
- 1996: 867,073
- 1997: 834,499
- 1998: 1,051,335
- 1999 (Est.): 1,207,721
- 2000 (Prog.): 1,447,212
- Exchange rate (leones per U.S. dollar):
- 1996: 920.7
- 1997: 981.9
- 1998: 1,565.4
- 1999 (Est.): 1,800.0
Source: IMF Press Release No. 99/62, December 17, 1999.