IMF Executive Board Completes the Sixth and Seventh Reviews Under the Extended Credit Facility Arrangement for Sierra Leone
IMF News, June 5, 2023
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- Published: June 5, 2023
Executive Board action and financing
- The Executive Board completed the Sixth and Seventh Reviews of Sierra Leone’s Extended Credit Facility (ECF) arrangement.
- The Board approved the authorities’ request for a rephasing and extension of the ECF Arrangement by five months to November 29, 2023.
- The completion of the reviews enables the immediate disbursement of SDR 15.555 million (about US$20.7 million).
- Total disbursements under the ECF Arrangement to date: SDR 108.89 million (about US$144.6 million).
- Original ECF approval: SDR 124.44 million (about US$172.1 million at that time) for 43 months; program was further extended by 12 months on July 27, 2021.
Program implementation, waivers, and fiscal framework
- In completing the sixth and seventh reviews, the Executive Board approved waivers for nonobservance of:
- the end-June 2022 performance criterion on the ceiling on the net domestic bank credit to the central government;
- the end-December 2022 performance criteria on the ceiling on the net domestic bank credit to the central government;
- the ceiling on the net domestic assets of the BSL; and
- the floor on the gross international reserves of the BSL;
- waivers were granted based on corrective actions taken by the authorities.
- Program objectives: reduce inflation, mobilize revenue to allow for necessary spending consistent with debt sustainability, safeguard financial stability, and maintain external resilience to shock.
- The macro framework reflects a scenario in which the authorities take the necessary measures to ensure a credible medium term fiscal framework.
Economic situation, shocks, and risks
- Recent shocks and drivers of deterioration:
- Economic recovery interrupted amid high energy and food prices in the context of Russia’s war in Ukraine; reduced household purchasing power; lower than expected mining output.
- Inflation continued to rise, currency depreciated sharply, and debt related risks increased.
- Soaring cost of living contributed to rising levels of food insecurity.
- Foreign exchange reserves remain adequate but have declined; rebuilding reserve buffers is a priority.
- Sierra Leone remains at high risk of debt distress; risks have risen given recent large fiscal deficits and the currency depreciation.
- Key near-term risks to program success:
- Larger-than-programmed domestic financing need and further deposit dollarization could intensify rollover risks.
- Larger-than-programmed BSL purchases of government paper could spur an inflation-depreciation spiral and reignite deposit dollarization.
- An abrupt global slowdown, tighter global financial conditions, a more protracted Russia’s war in Ukraine, geographical fragmentation, a worse-than-anticipated terms of trade shock, and higher inflation could deteriorate fiscal and external accounts.
Outlook and key macroeconomic projections (selected)
- Growth:
- 2022: 3.6 percent
- 2023: 2.7 percent (expected deceleration from 3.6 percent in 2022)
- 2024: 4.7 percent (expected recovery)
- Inflation and prices:
- Consumer prices (end-of-period): 2021: 22.1; 2022: 37.1; 2023: 19.6; 2024: 36.4; 2025: 21.7; 2026: 16.8; 2027: 12.3; 2028: 9.8
- Consumer prices (average): 2021: 11.9; 2022: 27.2; 2023: 21.0; 2024: 41.9; 2025: 29.1; 2026: 19.3; 2027: 14.6; 2028: 11.1
- External sector and reserves:
- Gross international reserves (excl. swaps) (months of next year's imports): 2021: 5.5; 2022: 4.0; 2023: 3.5; 2024: 3.1
- Gross international reserves (excl. swaps) (US$ millions): 2021: 932; 2022: 689; 2023: 610; 2024: 600; 2025: 521; 2026: 490; 2027: 485; 2028: 512
- Net international reserves (excl. swaps) (US$ millions): 2021: 355; 2022: 120; 2023: 82; 2024: 71; 2025: -4; 2026: 25; 2027: 86; 2028: 183
- Public debt (selected):
- Public debt (percent of GDP): 2021: 79.8; 2022: 80.8; 2023: 98.9; 2024: 80.4; 2025: 92.2; 2026: 84.3; 2027: 79.6; 2028: 72.9
- External public debt (including IMF) (percent of GDP): 2021: 51.1; 2022: 57.9; 2023: 67.7; 2024: 58.2; 2025: 67.0; 2026: 60.3; 2027: 56.0; 2028: 50.1
- Current account balance (including official grants) (percent of GDP): 2021: -8.7; 2022: -13.6; 2023: -9.2; 2024: -10.9; 2025: -7.3; 2026: -5.8; 2027: -3.1; 2028: -2.7
Policy guidance and recommendations (from Mr. Bo Li, Deputy Managing Director and Acting Chair)
- Fiscal policy:
- A decisive and frontloaded tightening of macroeconomic policies is required to restore stability and contain increasing risks to debt sustainability.
- Recent efforts to bolster tax revenues represent important steps towards tightening the fiscal stance while creating space for priority social spending.
- Implementation of the new Medium-Term Revenue Strategy will further strengthen revenue mobilization.
- Efforts to raise revenues and curtail spending need to be backed by contingency measures given the large adjustment need.
- Strengthening budget preparation and execution will be crucial in achieving a durable fiscal adjustment.
- High risks to debt sustainability imply efforts are needed to bring down the debt service burden, while mobilizing additional grant support.
- Monetary and exchange rate policy:
- To bring down inflation and arrest the currency depreciation, monetary conditions need to tighten, including through reduced central bank purchases of government securities.
- Exchange rate policy should focus on rebuilding foreign exchange reserves.
- Reinforcing transparency in the currency redenomination will boost confidence in the currency.
- Financial sector and governance:
- Ensuring financial sector stability will require building on recent progress in improving bank supervision and regulation, while strengthening the financial sector safety net and crisis management frameworks.
- Timebound action vis-à-vis banks in breach of regulatory requirements is key.
- Further efforts to strengthen the AML/CFT framework are needed.
- Structural reforms are essential to reduce vulnerabilities to corruption and foster private sector development.
- Efforts to improve the business climate and strengthen the governance of key institutions need to continue, including to support the public accountability framework, anti-corruption efforts and the effective rule of law.
- Climate and sustainability:
- Efforts to enhance climate resilience and foster sustainable green growth would be important.
Source: IMF Press Release No. 23/196, IMF Communications Department, June 5, 2023.