Sierra Leone: Staff Report for the 2016 Article IV Consultation and Fifth Review Under the Extended Credit Facility and Financing Assurances Review and Request for an Extension of the Extended Credit Facility—Informational Annex

This 2016 Article IV Consultation highlights that economic outcomes in Sierra Leone have deteriorated sharply over the past two years. Growth declined dramatically from 20.7 percent in 2013, to 4.6 percent in 2014, and further to -21.1 percent in 2015. The budget is under severe pressure. Between mid-2014 and end-2015, the Leone depreciated 22 percent against the U.S. dollar. Banking sector vulnerabilities have increased. Living standards have also deteriorated significantly since late 2014. The medium-term outlook is somewhat positive, with growth projected to recover to 4.3 percent in 2016, increasing gradually to about 6.5 percent by 2020.

Abstract

This 2016 Article IV Consultation highlights that economic outcomes in Sierra Leone have deteriorated sharply over the past two years. Growth declined dramatically from 20.7 percent in 2013, to 4.6 percent in 2014, and further to -21.1 percent in 2015. The budget is under severe pressure. Between mid-2014 and end-2015, the Leone depreciated 22 percent against the U.S. dollar. Banking sector vulnerabilities have increased. Living standards have also deteriorated significantly since late 2014. The medium-term outlook is somewhat positive, with growth projected to recover to 4.3 percent in 2016, increasing gradually to about 6.5 percent by 2020.

Relations with the Fund

(As of April 30, 2016)

Membership Status: Joined 9/10/62; Article VIII

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Latest Financial Arrangements:

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Projected Payments to Fund 2

(SDR million; based on existing use of resources and present holdings of SDRs):

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Implementation of HIPC Initiative:

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Implementation of Multilateral Debt Relief Initiative (MDRI):

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Implementation of Catastrophe Containment and Relief (CCR):

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As of February 4, 2015, the Post-Catastrophe Debt Relief Trust has been transformed to the Catastrophe Containment and Relief (CCR) Trust.

Safeguards Assessment:

The 2015 safeguards assessment found that despite the Ebola epidemic, the Bank of Sierra Leone (BSL) has maintained essential operations and related controls. Governance bodies were reconstituted without delay, following the expiration of the previous terms, and the Audit Committee continued its oversight of BSL operations. However, the modernization of the internal audit function, recommended by an independent external quality assessment, has not been fully completed. While financial statements continue to be prepared and audited in accordance with international standards, audits are not completed within the statutory deadline.

Exchange Rate Arrangement:

For customs valuation purposes and for official transactions, the Bank of Sierra Leone (BSL) calculates an official exchange rate every Friday morning as the weighted average of the auction rate, the commercial bank mid-rate, and the bureau mid-rate in the previous week. Commercial banks may buy foreign exchange from and sell it to individual customers and may trade among themselves or with the BSL on a freely negotiable basis. As of December 31, 2015, the BSL mid rate was Le 5,639.1=US$1, which is also the new Program exchange rate. As of September 30, 2015, the BSL mid rate was Le 5,292.6=US$1.

Sierra Leone’s de jure exchange rate regime is classified as floating, with the value of the leone determined by the market. Furthermore, effective November 1, 2008, the de facto exchange rate arrangement has been reclassified to ‘floating’ from a ‘stabilized arrangement’.

With effect December 14, 1995, Sierra Leone has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions. Sierra Leone maintains one multiple currency practice subject to Fund jurisdiction arising from the applied multiple-price Dutch auction system, as there is no formal mechanism in place to prevent spreads of effective rates between winning bids from exceeding 2 percent.

Article IV Consultation:

The Executive Board concluded the last Article IV consultation on October 21, 2013.

Technical Assistance:

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Resident Representative:

Ms. Iyabo Masha assumed responsibility for the Fund office in Freetown on February 1, 2015.

Joint World Bank-IMF Work Program, 2016–17

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Statistical Issues

(As of June 16, 2016)

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Sierra Leone: Table of Common Indicators Required for Surveillance

June 2016

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Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

1

Formerly PRGF.

2

When a member has overdue financial obligations outstanding for more than three months, the amount will be shown in this section.

3

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

4

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim.

5

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of 2004 that remains outstanding at the time the member qualifies for debt relief.

Sierra Leone: 2016 Article IV Consultation and Fifth Review Under the Extended Credit Facility and Financing Assurances Review and Request for an Extension of the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Sierra Leone
Author: International Monetary Fund. African Dept.