IMF Executive Board Completes Sixth Review Under Sierra-Leone’s ECF, and Approves a New three-year ECF

Press Release No. 10/228
June 4, 2010

The Executive Board of the International Monetary Fund (IMF) today approved the sixth review of Sierra Leone’s performance under the Extended Credit Facility (ECF) arrangement. The approval will enable a final disbursement of SDR 7 million (about US$10.2 million), bringing total disbursements under the program to SDR 51.88 million (US$75.8 million). In completing the review, the Executive Board granted a waiver for the non-observance of the quantitative performance criterion on the domestic primary fiscal balance of the central government.

The Board has also approved a new three-year successor arrangement under the ECF in a total amount equivalent to SDR 31.11 million (US$45.4 million), which will take effect on July 1st, 2010, and will enable the first disbursement of an amount equivalent to SDR 4.44 million (US$ 6.5 million). The new arrangement is designed to support the authorities’ program to raise economic growth by increasing investment in infrastructure and developing an accessible financial sector. The program will help create fiscal space for accelerated capital and social spending by broadening the tax base, containing non-priority spending, and raising public sector efficiency, especially in project selection and implementation.

The Executive Board originally approved a three-year Poverty Reduction and Growth Facility (PRGF) arrangement in 2006 (see Press Release No.06/94) which was later extended by one year and recently converted to an ECF.

At the conclusion of the Executive Board discussion on Sierra Leone, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“After being adversely affected by falling global demand last year, economic activity is expected to pick up in 2010 due to a recovery in export demand and continued investment in infrastructure. Inflation rose sharply in early 2010, reflecting a jump in the price level related to the implementation of the new goods and services tax and a depreciation of the leone against the U.S. dollar in the second half of 2009. Gross international reserves remain at comfortable levels.

“The policies supported by a new three-year Extended Credit Facility arrangement will raise economic growth by increasing investment in infrastructure and developing an accessible financial sector. For 2010 and in the medium-term, fiscal space for higher capital and social spending will be created by broadening the tax base, containing non-priority spending, and raising public sector efficiency, especially in project selection and implementation. The introduction of the goods and services tax, implementation of the new Mines and Minerals Act, and strengthening of tax administration will improve revenue collection. The establishment of an automatic pricing framework for petroleum products to ensure full pass-through of prices will reduce the fiscal risk from high international fuel prices.

“The government recently launched a new free healthcare initiative for children and pregnant women with the aim of reducing the high infant and maternal mortality rates. This is a welcome initiative but its fiscal implications need to be assessed continuously to ensure sustainability of the policy. To this end, sustained efforts to improve revenue performance and to implement a pay reform covering the entire public sector will be important.

“Monetary policy will seek to maintain low and stable inflation. The authorities are also committed to maintaining the flexible exchange rate regime to facilitate adjustment to external shocks,” Mr. Portugal noted.


Recent Economic Developments

Economic activity in Sierra Leone continued to decline in the first half of 2009 due to falling global demand and declining foreign inflows from remittances. Despite a pickup in exports of diamonds and agricultural products in the second half of 2009 and an increase in domestic food production, real GDP growth for the year as a whole slowed to 4 percent in 2009 compared with 5.5 percent in 2008. Although inflation subsided in the first half of 2009, the depreciation of the leone in the second half of the year combined with higher domestic fuel prices contributed to a pickup in end-2009 inflation rate. In February 2010, inflation jumped to 17 percent from 10.8 percent in December, reflecting largely the difficulties in implementing the new Goods and Services Tax in January and higher domestic fuel prices.

The external current account deficit is estimated to have declined to 8.4 percent of GDP in 2009 from 11.7 percent in 2008, reflecting an increase in official transfers and weak imports. Exports increased by about 4 percent while imports decreased by about 2.5 percent. Gross international reserves corresponded to 6.4 months of imports.

Program Summary

Under the new ECF-supported program, the government aims to raise economic growth in the medium term by accelerating investments in infrastructure and developing an accessible financial sector. The program is designed to:

• create fiscal space to improve basic infrastructure and social services while maintaining macroeconomic stability;

• strengthen tax performance and improve public financial management (PFM) systems; and

• deepen the financial sector to promote private-sector led growth.

The macroeconomic objectives of the government program are to:

• Raise real GDP growth to 6 percent by 2012;

• Increase domestic revenues to at least 13.5 percent of GDP by 2012;

• Bring inflation down to 8 percent by end 2012;

• Maintain the overall budget deficit below 4–5 percent of GDP annually through 2012.

Structural reforms will complement the macroeconomic program. The focus will be on:

• Improving tax administration by making revenue collections more efficient and effective to achieve domestic revenue targets;

• Strengthening PFM to raise efficiency in public spending, particularly for capital spending, by improving the Medium-Term Expenditure Framework process;

• Strengthening monetary operations and deepening the financial sector to enhance financial stability and increase intermediation;

• Implementing policies to ensure full pass-through of international market prices on fuel to the domestic market price to safeguard budget resources.

Sierra Leone: Selected Economic Indicators

  2008 2009 2010 2011 2012
      Proj Proj Proj
  (Annual percentage change, unless otherwise indicated)

National account and prices


GDP at constant prices

5.5 4.0 4.8 5.5 6.0    

GDP deflator

11.2 5.7 13.3 9.7 7.6    

GDP at market prices

5,828 6,407 7,605 8,798 10,030    

(in billions of local currency)


Consumer prices (end-of-period)

12.2 10.8 12.5 9.5 8.0    

Consumer prices (average)

14.8 9.2 15.6 7.6 8.7    

External sector


Terms of trade (deterioration -)

-2.5 -8.3 5.7 4.3 2.8    

Exports of goods (US$)

-5.2 3.9 25.9 12.5 11.5    

Imports of goods (US$)

24.8 -2.6 14.7 11.9 10.7    

Average exchange rate

2,985 3,410    

(local currency per U.S. dollar)


Nominal exchange rate change (depreciation -)

-2.2 -26.7    

Real effective exchange rate (depreciation -)

-11.6 -3.2    

Gross international reserves, months of imports

4.4 6.4 5.7 5.4 5.1    

Money and credit


Domestic credit to the private sector

56.8 45.4 32.2 18.3 21.2    

Base money

10.2 20.6 8.0 15.8 14.0    


29.7 29.6 15.2 4.9 14.0    

91-day treasury bill rate (in percent)

9.1 14.0 ... ... ...    
  (Percent of GDP, unless otherwise indicated)

National accounts


Gross capital formation

14.8 19.8 21.6 22.5 23.5    


6.2 7.1 8.1 8.5 9.0    


8.6 12.7 13.5 14.0 14.5    

National savings

3.1 11.3 12.7 13.5 14.4    

External sector


Current account balance


(including official grants)

-11.7 -8.4 -9.0 -9.0 -9.1    

(excluding official grants)

-15.6 -13.4 -12.7 -11.6 -11.4    

External public debt (including IMF)

31.2 29.7 33.8 33.6 33.1    

Central government budget


Overall balance

-4.7 -3.2 -3.9 -4.7 -3.4    

(excluding grants)

-9.2 -11.0 -10.8 -10.6 -10.3    


11.5 11.7 12.4 13.0 13.7    


4.5 7.8 7.0 5.9 6.9    

Total expenditure and net lending

20.7 22.7 23.3 23.6 24.0    

Sources: Sierra Leonean authorities; and IMF staff estimates and projections.



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