IMF Executive Board Approves US$224.2 Million Under the ECF Arrangement for Sierra Leone

IMF News, June 5, 2017

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Executive Board approved a three-year arrangement under the Extended Credit Facility (ECF) for SDR 161.778 million (about US$224.2 million, or 78 percent of Sierra Leone’s quota).
The Executive Board’s decision enables a first immediate disbursement of SDR39.166 million (about US$54.3 million).
Remaining amounts will be phased over the duration of the program, subject to semi-annual reviews.
The ECF carries a zero-interest rate, with a grace period of 5½ years, and a final maturity of 10 years.

Program aims:
- Support policies targeted at reducing inflation and significantly increasing domestic revenues.
- Increase infrastructure spending and bolster the social safety net.
- Play a catalytic role to maintain external support.
- Provide a framework for structural progress on revenue mobilization, public financial management (PFM), and financial sector reforms, as well as increased reserves.
Short-run focus:
- Provide financing space to fund critical spending, scale up infrastructure and social spending to support higher and inclusive growth.
- Create fiscal space consistent with a moderate risk of debt distress rating.
Medium-term focus:
- Forceful revenue mobilization supported by a medium-term Revenue Mobilization Strategy (RMS).
- Finalize regulatory framework for the recently passed PFM Act to enhance spending efficiency, support medium-term budget planning, and consolidate cash resources under the Treasury Single Account (TSA).
- Structural reforms to enhance governance, improve the business environment, and promote economic diversification and private sector participation.

Growth and inflation:
- Growth is expected to reach 7 percent in the medium-term.
- Inflation is expected to fall to 12 percent by end-2017, further declining to 9.5 percent in 2018 and narrowing by about 0.5 percent each year thereafter.
- Monetary policy in the medium-term will aim at containing the inflation below 10 percent.
Fiscal and external metrics:
- Program proposes front-loaded financing to help improve the current account deficit in the medium-term to 18 percent by 2021 from the projected 21.8 percent in 2017.
- Fiscal stance envisions gradual tightening to 2.4 percent domestic primary balance by the end of the program, from a projected 4 percent.
- Financing needs for large-scale investment projects should be covered mostly with grants and concessional loans; non-debt generating options should be considered for the proposed new airport.

Revenue mobilization:
- Eliminate numerous tax and duty exemptions to significantly increase domestic revenues.
- Authorities to design and implement a medium-term Revenue Mobilization Strategy (RMS).
Expenditure and social protection:
- Scale up infrastructure and social spending; expand the social safety net to provide relief to vulnerable segments of society.
Subsidy and resource measures:
- Authorities committed to implement a fuel subsidy reform no later than the second ECF review.
- Interim alternative actions include elimination of all import duty and GST exemptions and collection of royalties from mining companies based on published market prices.
Financial sector and monetary policy:
- Bank of Sierra Leone (BSL) to seek to build reserves, allow further exchange rate flexibility, and limit interventions to smooth exchange rate volatility.
- BSL should take firm action to strengthen the financial system based on diagnostics for the two state-owned banks.
- Establishment of a civil registry and move toward risk-based supervision to help increase credit to private sector.
Public financial management:
- Implement PFM Act regulatory framework; consolidate cash resources under the TSA; strengthen budget preparation and execution.

Debt and financing risks:
- Sierra Leone’s risk of debt distress remains moderate.
- Large-scale investment financing should rely mostly on grants and concessional loans.
Structural and governance risks:
- Structural reforms aimed at enhancing governance and improving the business environment are critical to attract private sector participation and diversification.
Implementation recommendations:
- Consider non-debt generating financing options for major projects.
- Continue efforts to broaden the tax base and remove exemptions to secure sustainable domestic revenue increases.
- Strengthen financial sector oversight and PFM institutions to support medium-term stability.

Recovery and growth:
- Growth recovered to 6.1 percent in 2016 with resumption of iron ore production; non-iron ore growth at 4.3 percent in 2016.
Inflation and monetary developments:
- Reserve money grew nearly 24 percent in 2016; inflation exceeded 17 percent by the end of 2016.
Fiscal and external performance:
- Fiscal deficit was higher than anticipated at 8.3 percent of GDP in 2016.
- Current account widened by 1.6 percent of GDP in 2016.
Selected projected indicators (excerpted):
- GDP at constant prices: 2016 Prel. 4.9; 2016 actual 6.1; 2017 Proj. 5.4; medium-term projections include 6.0 (2019), 6.8 (2020), 7.1 (2021).
- Consumer prices (end-of-period): 2016 11.5; 2017 17.4; 2018 10.5; 2019 9.5; 2020 8.0.
- Current account balance (including official grants): 2016 -17.7; 2017 -21.8; 2021 -17.9.
- External public debt (including IMF): 2016 37.2; 2017 34.2; 2018 44.8; 2021 59.6.
- Central government domestic primary balance: 2016 -6.7; 2017 -2.6; end-of-program target 2.4 percent (medium-term objective).
- Revenue: 2016 12.2; 2017 13.1; 2018 14.2; 2019 15.1; 2021 15.8.
- Gross international reserves (months of imports): 2016 3.5; 2017 2.7; 2018 2.9.

IMF Press Release No. 17/208, June 5, 2017 — IMF Communications Department