Press Release No. 08/341

Press Release: IMF Executive Board Completes Third Review under PRGF Arrangement for Sierra Leone, Increases Financial Assistance to Mitigate Food and Fuel Price Impact, and Approves US$10.8 Million Disbursement

December 22, 2008

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Sierra Leone's performance under a four-year arrangement under the Poverty Reduction and Growth Facility (PRGF). The Board also approved an SDR 10.4 million (about US$16.1 million) augmentation to help strengthen Sierra Leone's foreign reserve position to cope with the external shocks from world food and fuel price increases and the unfolding global financial crisis. The completion of the review enables the disbursement of SDR 7.0 million (about US$10.8 million), which would bring total disbursements under the arrangement to SDR 20.51 million (about US$31.7 million), including a portion of the augmented amount.

The Executive Board also granted waivers for the non-observance of two performance criteria related to domestic government revenue and the primary fiscal balance, on the basis of remedial actions taken. The Board also completed the country's financing assurances review under the arrangement.

The three-year PRGF arrangement for Sierra Leone was originally approved by the Executive Board on May 10, 2006 (see Press Release No 06/94) in an amount equivalent to SDR 31.11 million (about US$48.1 million). The period of the arrangement was extended to four years to 2010 on July 7, 2008 (see Press Release No 08/166). With the Board's approval of the augmentation today, the total amount of the arrangement will be equivalent to SDR 41.51 million (about US$64.1 million).

Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

"Economic growth continued to be robust and broad-based in 2008, but downside risks have increased with the global economic downturn. Sierra Leone's output growth has exceeded the average of sub-Saharan African countries for the past five years, and the external reserve position has been relatively strong. However, the country's social indicators lag well behind those of other fragile states, and inflation remained in double digits in 2008 against the backdrop of global food and fuel price increases.

"The main challenges for Sierra Leone in the medium term include making macroeconomic policies more effective, promoting private sector-led growth to make progress toward the Millennium Development Goals, and maintaining external stability and competitiveness.

"Fiscal policy in 2009 will aim at enhancing domestic revenue mobilization and addressing weaknesses in budget procedures and execution. The authorities need to remain steadfast in the implementation of the modernization plan of the National Revenue Authority and the introduction of the Goods and Services Tax, planned for the first half of 2009. Budget discipline will be key to avoid expenditure overruns and extrabudgetary spending.

"Bringing inflation back to single digits is the main objective of monetary policy for 2009. The Bank of Sierra Leone (BSL) will need to apply the appropriate mix of treasury bill and foreign exchange sales to help sterilize liquidity injections from budgetary support and the use of resources freed under the Multilateral Debt Reduction Initiative (MDRI). Greater nominal exchange rate flexibility would facilitate achieving the monetary targets and responding to external shocks.

"Structural reforms need to be accelerated. Not least in light of the global financial crisis, it is important that the BSL strengthen its supervisory capacity and monitor developments closely to detect early signs of financial sector vulnerabilities. Improving the financial viability of public utilities, particularly the National Power Authority, and promoting good governance will be critical to promoting a high level of economic growth," Mr. Portugal said.