In International Monetary Fund (IMF) mission led by Mr. John Wakeman-Linn visited Freetown from September 1–15, 2015 to conduct discussions on the joint third and fourth reviews under the Extended Credit Facility (ECF) Arrangement approved by IMF Management in October 2013 (see Press Release No. 13/410).
At the conclusion of the visit, Mr. Wakeman-Linn issued the following statement:
“Sierra Leone continues to battle the adverse impact of two severe exogenous shocks: the Ebola epidemic and the crisis in the mining sector that began with the collapse of iron ore prices and culminated in the cessation of production in April 2015. Though good progress has been made in containing Ebola, real GDP is expected to decline by 21.5 percent in 2015, following 4.6 percent growth in 2014. Inflation, which moderated in the first quarter of 2015, is now projected to be 9.9 percent in 2015. Revenue shortfalls, including due to loss of revenue from iron-ore mining, and higher than budgeted spending related to the Ebola epidemic, contributed to deterioration in the fiscal balance, with the deficit projected to be 4.8 percent of GDP in 2015. Both the current account balance and foreign reserve accumulation benefited from increased inflows related to Ebola transfers, with the current account deficit narrowing to 13.8 percent of GDP, notwithstanding the loss of iron ore export receipts. Sierra Leone faces a challenging near and medium-term outlook, and GDP growth for 2016 is expected to remain relatively unchanged.
“Notwithstanding the difficult economic environment, the authorities have forged ahead with their reform program. Following weak performance in 2014, largely due to the challenges caused by Ebola, all program quantitative targets were met as of end-June, despite the shock to revenues. Implementation of structural reform measures, which were delayed due to the impact of Ebola, have now resumed. Importantly, the Public Finance Management Bill was submitted to Parliament in August. New timelines have been established for implementation of measures on revenue mobilization, expenditure management, and others. These reforms will require time and persistent efforts before their beneficial impact is felt on the economy.
“Looking ahead, strong policy commitment is necessary to maintain macroeconomic stability and achieve long lasting growth. The very difficult fiscal situation calls for enhanced revenue mobilization and expenditure restraint, while safeguarding social programs, especially on post-Ebola recovery. The mission commends recent attempts to improve revenue collection and administration—it will be particularly important to reconsider the large number and value of waivers and exemptions from the Goods and Services Tax and customs duties, which cost the budget significant revenue. On the banking system, the mission welcomes Bank of Sierra Leone’s (BSL) efforts to introduce policies to deepen the financial market and enhance monetary policy transmission, and its steps to strengthen supervision.
“The implementation of the Government’s post-Ebola Recovery Strategy could boost growth in the non-iron sectors. The strategy could benefit from the support of development partners, whose financial support was crucial in containing the Ebola epidemic. Considering the financing constraints, a commitment to a prudent borrowing policy, with priority being given to grants and concessional borrowing to finance investment projects, will be essential. The IMF mission has, ad referendum, considered the request for an increase in access under the current program by SDR46.7 million (about $66 million). If approved, the new resources will be distributed in three tranches starting from this review.
“The mission met with President Koroma, the Honorable Minister of Finance Kaifala Marah; the Governor of BSL, Momodu Kargbo; senior government and BSL officials, representatives of the financial sector, private sector, civil society, and development partners.
“The IMF mission wishes to express its gratitude to the Sierra Leonean authorities for the constructive discussions and hospitality during its visit to Freetown. The mission will prepare a program review report which is tentatively scheduled to be discussed by the IMF’s Executive Board in November.”