IMF Executive Board Completes Third and Fourth Reviews of Sierra Leone’s Extended Credit Facility
IMF News, July 27, 2021
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- Published: July 27, 2021
Reviews, approvals, and financing actions
- The Executive Board completed the third and fourth reviews of Sierra Leone’s program under the Extended Credit Facility (ECF).
- IMF approved disbursement of US$ 44.2 million (SDR 31.11 million) to Sierra Leone to support the government’s policy and reform efforts.
- Total disbursements under the arrangement are SDR 77.775 million (about US$ 111 million).
- The Executive Board approved the authorities’ request for a waiver of non-observance of two performance criteria.
- The Board approved the rephasing and extension of the ECF arrangement by 12 months.
- The Board had approved Sierra Leone’s 43-month ECF arrangement for SDR124.44 million (about US$172.1 million) on November 30, 2018.
Economic developments and outlook
- There are early signs of economic recovery, but Sierra Leone continues to face COVID risks and a tight financing situation amidst substantial development and priority expenditure needs.
- Economic activity dipped sharply in the second and third quarter of 2020 with inter-district lockdowns and disruptions to international trade and travel.
- Depressed activity saw inflation trending downwards, though food price inflation remains elevated.
- Higher frequency indicators suggest a moderate pick-up of activity began in the fourth quarter of 2020.
- Mining is expected to drive the recovery in 2021 (growth of 3.2 percent) and 2022 on the back of normalization of production at existing mines and favorable prices.
- Over the medium term, non-mining growth is projected to average around 4.5 percent.
- The external position would remain vulnerable as international reserve coverage is expected to decline.
Risks to the outlook
- Significant risks include:
- unexpected global shifts in the COVID-19 pandemic or an intensification of the third wave;
- difficulties in vaccine rollout delaying a return to pre-crisis growth;
- uncertainties in the mining sector;
- lower-than-expected support from development partners;
- slower-than-expected reform implementation.
Policy findings and authorities’ response (from Mr. Tao Zhang’s statement)
- The COVID-19 pandemic has strained Sierra Leone’s effort to address its large development needs and exacerbated a difficult financing situation.
- Authorities’ strong economic and health responses, and exceptional external support (including from the Fund), helped mitigate the immediate impact of the crisis.
- The 2021 budget continues to prioritize health and other priority spending under the National Development Plan while allowing for a significant improvement in the primary balance.
- Authorities remain committed to securing fiscal and debt sustainability through:
- enhanced domestic revenue mobilization;
- improved expenditure efficiency and controls;
- reliance on external grants and concessional financing.
- Governance measures being strengthened include progress with the fraud prevention policy and the internal audit function at the Bank of Sierra Leone, and transparent reporting of COVID-19 related spending.
- The Extended Credit Facility arrangement is described as a critical policy anchor to help meet external and fiscal financing needs and support the reform agenda.
- Monetary and exchange rate policy guidance:
- Remain flexible to support the recovery while rebuilding external buffers and monitoring closely financial stability risks.
- With a high risk of debt distress, continued strong policy efforts are needed to help the recovery while safeguarding macroeconomic stability.
Press Release No. 21/231 — July 27, 2021, IMF Communications Department