Sierra Leone
Ex Post Assessment of Longer-Term Program Engagement
Author: International Monetary Fund
Publication Date:
10 Jun 2005
eISBN:
9781451834512
Language:
English
Keywords:
ISCR; CR; private sector; exchange rate; balance of payments; debt relief; central bank; financial support; PRGF program; structural adjustment
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This paper presents an Ex Post Assessment of Longer-Term Program Engagement for Sierra Leone. Sierra Leone has had almost continuous involvement with IMF programs since 1994 under a variety of arrangements. All the IMF-supported programs in Sierra Leone during 1994–2004 had the same overarching aim of raising long-term growth and reducing poverty. Their near-term objectives, however, varied with existing circumstances. Each of the programs emphasized disciplined macroeconomic policies and structural reforms. Performance relative to program objectives improved over time and was the strongest under the Poverty Reduction and Growth Facility.

Abstract

This paper presents an Ex Post Assessment of Longer-Term Program Engagement for Sierra Leone. Sierra Leone has had almost continuous involvement with IMF programs since 1994 under a variety of arrangements. All the IMF-supported programs in Sierra Leone during 1994–2004 had the same overarching aim of raising long-term growth and reducing poverty. Their near-term objectives, however, varied with existing circumstances. Each of the programs emphasized disciplined macroeconomic policies and structural reforms. Performance relative to program objectives improved over time and was the strongest under the Poverty Reduction and Growth Facility.

I. Background

1. Sierra Leone has a rich resource base but it remains a poor country. It has substantial mineral endowments, including diamonds and rutile, and a diversified agricultural sector that includes coffee and cocoa as key export crops. However, among the 177 countries in the United Nations’ 2004 human development index Sierra Leone is ranked last; three-quarters of the population lives on less than US$1 per day; and per capita income is less than a quarter of the average in the rest of sub-Saharan Africa.2 Life expectancy is short and mortality rates are high in Sierra Leone compared with the average for Africa (Table 1). Economic development has been stunted by a combination of civil conflict during 1991–2001 and economic mismanagement during previous decades.

Table 1.

Sierra Leone: Selected Social and Demographic Indicator

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Source: World Bank, World Development Indicators, 2004

Data as of 1990.

Data not available.

Data as of 2000.

Data as of 1999.

Data as of 2001.

Data as of 1996.

2. After economic policies during the 1970s and 1980s had weakened the foundations for development, the government initiated a corrective program in late 1989. As a result of political interference, corruption, and eroding real salaries, public institutions and services deteriorated sharply during the 1970s and 1980s. Economic mismanagement was accompanied by weak social outcomes, including endemic poverty. By the mid-1980s, pervasive government intervention had undermined the structure of incentives, and expansionary macroeconomic policies had contributed to triple-digit inflation and substantial balance of payments deficits that led to an accumulation of external arrears, including arrears vis-à-vis the Fund. An economic program was initiated in 1989, and gained momentum in 1992 as a Fund-monitored rights accumulation program, that sought to reduce poverty by strengthening economic growth, basic social services, and economic efficiency.

3. Economic stabilization and structural reforms moved ahead under the rights program, but progress was interrupted by civil conflict (Box 1). A violent rebellion by the Revolutionary United Front broke out in 1991 that damaged the economic infrastructure, hurt business confidence, and strained the government budget. After the violence escalated in 1994, efforts were made to restore the peace in 1995 and peace accords were signed in 1996 and 1999 but all proved fruitless. Intermittent periods of stability, during which economic initiatives were attempted on the assumption that peace had been restored, turned out to be short lived. Although its course was impossible to predict at the outset, the rebellion was to mark the beginning of a decade-long civil conflict that caused significant economic disruption and humanitarian tragedy before it ended in 2001 (Boxes 2 and 3).

Sierra Leone: Chronology of the Civil Conflict1

Post-independence instability, 1961–91

  • April 1961: Sierra Leone gains independence from Britain.

  • 1967: Military coup overthrows Premier Siaka Stevens’ government; Stevens later returns to power as head of a civilian government following another military coup.

  • 1971: Sierra Leone declared a republic, Stevens becomes executive president.

  • 1985: Stevens retires and former army general Joseph Saidu Momoh becomes president.

  • 1987: President Momoh declares state of economic emergency.

Civil war and coups, 1991–2001

  • March 1991: Start of civil war in Sierra Leone. It begins as an insurgency by a small group of radical youths and diamond diggers who call themselves the Revolutionary United Front (RUF).

  • 1992: President Momoh ousted in military coup led by Captain Valentine Strasser. The public initially welcomes the new military regime, the National Provisional Ruling Council (NPRC). But order soon collapses in the diamond districts and Strasser loses ground to the RUF.

  • 1995: RUF rebels widen their attacks to almost the whole country, including Freetown.

  • 1996: In January, Strasser ousted in military coup led by his deputy, Julius Maada Bio, who bows to national and international pressure for elections. In February, Ahmad Tejan Kabbah, a former civil servant and UN technocrat, is elected as president of a coalition government led by the Sierra Leone People’s Party (SLPP). In November, Kabbah signs peace accord with RUF in Abidjan.

  • 1997: The most violent period in Sierra Leone’s history begins. Abidjan peace deal unravels. President Kabbah overthrown in May by coalition of army officers led by Major-General Paul Koroma who is installed as head of a ruling Armed Forces Revolutionary Council (AFRC) military junta that shares power with the RUF. Kabbah flees to Guinea to mobilize international support. The Commonwealth suspends Sierra Leone in July. The UN Security Council imposes sanctions in October.

  • 1998: Fearing that the peace timetable is slipping, a Nigerian-led military intervention force, the Economic Community of West African States Ceasefire Monitoring Group (ECOMOG), invades Freetown in February and drives out rebels. ECOMOG reinstates President Kabbah in March and constitutional authority is restored. But it does not provide a sound peacekeeping force, and remnants of the AFRC-RUF retake the Kono diamond fields and re-enter Freetown in December.

  • 1999: By early January, AFRC-RUF rebels hold large parts of Freetown, which they loot and destroy. In May, the rebels are driven out and a new ceasefire is agreed. In July, a new peace agreement is signed in Lomé under which the rebels receive government posts and immunity from prosecutions for war crimes.

  • 1999: A UN peacekeeping mission for Sierra Leone, UNAMSIL, reinforces ECOMOG in November. In October, the UN-sponsored disarmament, demobilization, and reintegration (DDR) program is launched.

  • 2000: By mid-2000 the Lomé agreement is unraveling. UN forces are attacked and, with rebels approaching Freetown, UNAMSIL is reinforced and British troops arrive to help secure the airport and evacuate European citizens. In November, an informal ceasefire is agreed in Abuja, Nigeria.

United Nations interventions and disarmament of rebels, 2001–04

  • 2001: UN troops for the first time begin to deploy peacefully in rebel-held territory.

  • 2002: President Kabbah declares that the war with the RUF is over at a ceremony on January 18. UN Secretary-General, Kofi Annan, authorizes the establishment of a special court for war crimes.

  • 2004: The disarmament and rehabilitation of more than 70,000 war combatants is officially completed. In May, the first local elections are held in more than three decades. War crimes trials begin in June.

1 Sources: The Economist Intelligence Unit and British Broadcasting Corporation

Sierra Leone: Evolution of Key Economic Indicators During 1991–2004

This box discusses the evolution of key economic indicators during and after the civil conflict.

Real GDP contracted by 5 percent annually, on average, during the conflict years 1991–2001. The breakdown in law and order, destruction of key economic installations, and rebel occupation of the mining and agricultural areas dampened business confidence and production. With the signing of the Lomé peace accord in July 1999, and the deployment of UN troops in rebel-held territory in 2001, the economy began to recover. Real GDP rose by 14½ percent annually, on average, during the post-conflict period 2002–2004 mainly as a result of the reestablishment of government control and authority and the extensive rehabilitation and humanitarian activities in liberated areas. (The recent growth rates are based on a revised GDP series that captures informal activity more extensively.)

Inflation fluctuated sharply during the conflict period and remained high at 30 percent, on average. Loose policies as well as cost-push pressures emanating from exchange rate depreciation and an increase in imported rice prices contributed to the high inflation. The monetization of the fiscal deficit, through the transmission of money supply, fueled year-on-year rates of inflation of more than 100 percent in 1991. Relatively tight fiscal and monetary stances during 1993–1996 kept inflation rates at lower levels. After the signing of the peace accord, inflation fell sharply from 34 percent in December 1999 to -1 percent in December 2000, as macroeconomic policies were tightened, the supply situation improved, and the exchange rate appreciated. Inflation remained low in 2001 and 2002 (with annual average rates of 2.6 and -3.7 percent, respectively) owing to further improvements in the supply situation, increased trade competition, and relatively stable exchange rates. However, it rose in 2003 and 2004 as a result of higher fuel prices, monetary expansion, and exchange rate depreciation.

The overall fiscal deficit (excluding grants) as a percent of GDP increased during the conflict period, from 9 percent in 1991 to about 17 percent in 2001. Budgetary management came under pressure because of the need for increased military outlays, government losses on petroleum import operations, and civil service pay increases. Furthermore, domestic interest payments rose substantially during the conflict, driven by the large funding requirements of the government that pushed up interest rates. During the post-conflict period, the overall deficit (excluding grants) remained relatively high, reflecting substantial expenditure needs as well as revenue weakness.

The external current account deficit (excluding grants) widened during the conflict period, from 5 percent of GDP in 1991 to 22 percent in 2001. The deficit reflected growing domestic imbalances. On the trade side, exports were limited while imports fell sharply due to a trade embargo and curtailment of official assistance. The deficit has remained significant since the end of the conflict, averaging about 15 percent during 2002–2004, reflecting the sharp increase in commercial and humanitarian relief imports, as well as the country’s limited export capacity.

Sierra Leone: Socioeconomic Impact of the Conflict

The civil conflict in Sierra Leone during 1991–2001 worsened an already severe humanitarian situation and significantly set back economic development.

Humanitarian conditions

The humanitarian situation in Sierra Leone is very grim. Sierra Leone, still recovering from the aftermath of the devastating civil war, ranks last in the 2004 UNDP human development index. Its infant mortality and maternal mortality rates are the highest in the world. Life expectancy at birth was only 34 years in 2002 compared to an average of 46 years for sub-Saharan Africa and 65 years for all developing countries. The high levels of sexual violence associated with the war may have laid the basis for an HIV/AIDS epidemic.

Conflict-related poverty

Poverty increased over the past decade. According to the World Development Indicators database of the World Bank, the proportion of people living in extreme poverty (expenditures of less than US$1 a day) increased from 57 percent in 1990 to 70 percent in 2003. Three out of four people in the urban zones outside Freetown do not get the minimum nutritional requirement consistent with the food poverty line. The UNDP estimates that only about 43 percent of the population has access to clean drinking water.

Health and education

The war had a major negative impact on health and education. The large-scale devastation of education and health infrastructure during the civil war virtually stopped key social services outside Freetown. War-related closure or destruction of many provincial schools and colleges left much of the rural population without access to education. Sierra Leone’s literacy rate, at 36 percent, is among the lowest in the world, and much lower than the average for sub-Saharan Africa (63 percent). However, the school enrolment ratio has increased in recent years, and is now even slightly higher than the one for sub-Saharan Africa. The displacement of more than 2 million civilians during the conflict (half of the country’s population) overwhelmed an already weak health care system.

Human Development Indicators for Selected Countries

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Source: UNDP Human Development Report (2004).

Economic growth

All major activities were disrupted by the conflict, which led to a collapse of agriculture, manufacturing, and mining production. Real GDP during the conflict years 1991–2001 fell, on average, by 5 percent annually. The renewed violence in January 1999 put an end to the modest economic recovery that started in late 1998. More recently growth has started to recover, but real per capita GDP (US$130 in 2003) is still well below the average for sub-Saharan African countries (US$590) and that in other post-conflict countries (Rwanda, US$337, and the Republic of Congo, US$1,123).1 War-related disruption of the rural economy exacerbated the impact on the poor, since almost two-thirds of employment is in agriculture. In terms of the macroeconomic costs of the conflict, per capita GDP in 2001 was less than half of what it would have been if its growth rate had been similar to that in other African or HIPC countries during the previous decade (Figure 1).

Figure 1.
Figure 1.

Sierra Leone: An Estimate of the Output Loss due to Conflict

(Real per capita GDP; in U.S. dollars, at 1990 prices and exchange rates)

Citation: IMF Staff Country Reports 2005, 192; 10.5089/9781451834512.002.A001

Source: IMF staff estimates.
1 Source: IMF,Sub-Saharan Africa Regional Economic Outlook, October 2004.

4. Against this background, Sierra Leone has had almost continuous involvement with Fund programs since 1994 under a variety of arrangements (Table 2). After the clearance of the country’s arrears to the Fund in March 1994, a program supported by assistance under the Structural Adjustment Facility (SAF, 1994–95) and Enhanced Structural Adjustment Facility (ESAF, 1994–98) was approved by the Fund. The ESAF program was interrupted by the resumption of civil war and a coup in mid-1997. Emergency post-conflict assistance (EPCA) was provided during 1998–2001, and support under the Poverty Reduction and Growth Facility (PRGF) during September 2001–June 2005.

Table 2.

Sierra Leone: History of Lending Arrangements Since 1994

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Source: IMF, FIN Department and Fund documents.

5. Progress under the programs was frequently interrupted by renewed violence, but has resumed after peace was established in 2002. Gains were made during 1994–early 1997 in attaining macroeconomic stability and implementing structural reforms, but the resumption of violence in 1997 represented a major reversal. The violence caused both humanitarian distress and set back future development by destroying capacity and infrastructure. Since 2001, renewed progress has been made through policies under the PRGF program to rebuild the economy and lay the basis for long-run growth. However, Sierra Leone continues to face daunting longer-run challenges.

II. Assessment of Fund Involvement

A. Program Objectives in Sierra Leone, 1994–2004

6. Although both conflict and nonconflict countries share the same overall challenge of raising growth and reducing poverty, the policy priorities often differ between them. There is overwhelming evidence across developing countries that macroeconomic stability is essential for sustaining higher growth and poverty reduction in the longer term. In the near term, however, conflict countries face a particularly difficult tradeoff between measures to cement the peace, which usually entail higher spending on social services and infrastructure, and measures to achieve long-term fiscal sustainability.3 The availability of external financing can be critical in such situations.

7. Against this background, several considerations are relevant in assessing the economic programs in Sierra Leone. The key considerations are the appropriateness of program objectives and design; economic performance in relation to program objectives; and compliance with program conditionality. In Sierra Leone, the general pattern emerges of an improvement over time in economic outcomes and capacity, as external support in the form of international troops and financing increased significantly.

8. All the Fund-supported programs in Sierra Leone during 1994–2004 had the same overarching aim of raising long-run growth and reducing poverty. Their near-term objectives, however, varied with existing circumstances. The ESAF-supported program sought to build on the gains made under the rights program in stabilizing and restructuring the economy; the EPCA program gave priority to consolidating the peace and rebuilding administrative and institutional capacity; and the PRGF program focused, first, on dealing with the immediate aftermath of the conflict by restoring law and order, infrastructure, institutional capacity, and macroeconomic stability, and, in a second phase, on strengthening the long-term basis for poverty reduction and development by improving public services, maintaining macroeconomic stability, and implementing structural reforms.

9. Each of the programs emphasized disciplined macroeconomic policies and structural reforms. A cornerstone of the ESAF and EPCA programs was fiscal policy tightening through both revenue increases and expenditure cuts, including military spending reductions based on the expectation that the security situation would normalize. The PRGF program—attempting to address effectively the dilemmas the nation was facing, and thus generate ownership—tried to strike a balance between expenditures on peace-keeping activities and rapidly achieving long-term fiscal sustainability. It envisaged a short-term fiscal expansion to facilitate post-conflict rehabilitation and reconstruction. It also envisaged military spending reductions against the firm background of a stronger external military presence that was eventually pivotal in restoring security.

B. Program Performance Relative to Objectives

10. Performance relative to program objectives improved over time and was strongest under the PRGF (Table 3). Growth performance was worse than programmed under the ESAF and EPCA, and slightly better than programmed under the PRGF. The external position, as measured by international reserves and the external current account balance, was stronger than programmed through most of the review period (although in 2003 reserves in months of imports fell below programmed levels). The strength of the current account balance relative to the program, however, reflected lower investment rather than higher saving. Fiscal performance as measured by the budget balance was weaker than programmed under the ESAF and EPCA, and stronger than programmed under the PRGF.4 Structural reforms received increasing emphasis over the review period and performance relative to targets improved over time.

Table 3.

Sierra Leone: Performance Under the Fund-Supported Programs, 1994-2000

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Table 3.

Sierra Leone: Performance Under the PRGF, 2001-2004 (concluded)

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Sources: Sierra Leonean authorities, and staff estimates and projections.

ESAF/SAF were approved in parallel on March 28, 1994.

Fiscal year end in June (changes to calendar year in 1996).

Ratios as percent of GDP reflect revised gross domestic product data.

Assumes unconditional delivery of enhanced HIPC assistance in 2000.

Changes as a percentage of beginning-of-period broad money stock.

O.P. = Original Program.

R.P. = Revised Program.

Fiscal year end in June (changes to calendar year in 1996).

Ratios as percent of GDP reflect revised gross domestic product data.

Assumes unconditional delivery of enhanced HIPC assistance in 2000.

Changes as a percentage of beginning-of-period broad money stock.

O.P. = Original Program.

R.P. = Revised Program.

11. Compliance with program conditionality was generally good in the years when the conflict was quiescent. Compliance was better under the PRGF than previous programs, in part reflecting the success of the post-conflict political transition (Table 4). However, noncompliance tended to recur in a few areas, notably with regard to domestic financing of the budget and the civil service wage bill. Domestic budget financing exceeded program objectives as external budget support frequently fell short of program projections. The civil service wage bill remained high as the recurrence of conflict tended to distort policy priorities toward immediate rather than longer-term needs and to reduce the political feasibility of reforms that were socially costly in the near term.

Table 4.

Sierra Leone: Compliance with Quantitative Program Targets Under the SAF/ESAF Arrangements, 1994—97 1/2/

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IND=indicative, BM=benchmark, and PC=performance criteria

M=met, NM=not met, W=waiver was granted, and NR=not relevant.

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IND=indicative, BM=benchmark, and PC=performance criteria

M=met, NM=not met, W=waiver was granted, and NR=not relevant.

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IND=indicative, BM=benchmark, and PC=performance criteria.

M=met, NM=not met, W=waiver was granted, and NR=not relevant.

12. The stronger performance under the PRGF reflected a number of factors. A more secure social situation, which owed in part to a stronger external military presence; better external conditions; the existence of a unified central government that enjoyed broad public support; and the relatively high degree of conditionality built into the program all helped to strengthen policy implementation. The relatively stronger fiscal performance under the PRGF reflected both greater external support and the authorities’ continued commitment to program implementation. Fiscal expenditure was lower than programmed throughout the period (albeit due to lower development expenditure). Under the PRGF, external grants and domestic revenue collection were more closely in line with program projections as a result of stronger external support, better projections of the revenue base, and a greater revenue collection effort.

Macroeconomic objectives

13. Real GDP growth objectives were achieved under the PRGF program, but were generally not achieved under the ESAF and the EPCA. Growth fell substantially below program objectives in 1995 and 1997 (ESAF) and in 1999 (EPCA) as the recurrence of the conflict invalidated program assumptions about social stability and disrupted economic activity. During 2001–2003, growth was roughly in line with program objectives.5 For 1994–2003 as a whole, average GDP growth in Sierra Leone was stronger than its level during the preceding decade (0.7 percent compared with -1.1 percent) but weaker than growth in comparator countries (Table 5 and Figure 1).

Figure 1.
Figure 1.

Sierra Leone: Real GDP Growth, 1990–2004

(In percent)

Citation: IMF Staff Country Reports 2005, 192; 10.5089/9781451834512.002.A001

Table 5.

Sierra Leone: Growth in the Region and in Other Post-Conflict Countries, 1984—2004

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Sources: World Economic Outlook; and other IMF databases.

In U.S. dollars at 1990 prices and exchange rates.

Aggregated private investment data on sub-Saharan Africa not available for 1984—87.