Front Matter Page
IMF Country Report No. 16/378
SIERRA LEONE
SIXTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, FINANCING ASSURANCES REVIEW AND REQUEST FOR WAIVER FOR NONOBSERVANCE OF PERFORMANCE CRITERIA—PRESS RELEASE; AND STAFF REPORT
December 2016
In the context of the Sixth Review under the Extended Credit Facility Arrangement, Financing Assurances Review and Request for Waiver for Nonobservance of Performance Criteria, the following documents have been released and are included in this package:
A Press Release.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on lapse of time basis following discussions that ended September 27, 2016, with the officials of Sierra Leone on economic developments and policies underpinning the IMF arrangement under the Extended Fund Facility. Based on information available at the time of these discussions, the staff report was completed on November 17, 2016.
A Staff Supplement updating information on recent developments.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Sierra Leone*
Technical Memorandum of Understanding*
*Also included in Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2016 International Monetary Fund
Front Matter Page
SIERRA LEONE
SIXTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, FINANCING ASSURANCES REVIEW AND REQUEST FOR WAIVER FOR NONOBSERVANCE OF PERFORMANCE CRITERIA
November 17, 2016
Executive Summary
Background. Recovery from the twin shocks of Ebola and the collapse of the iron ore sector continues. Non-iron ore sector growth is projected to be 3.7 percent in 2016, led by manufacturing and trade. Iron ore growth is also recovering, with the main company now operating with moderate profitability. Overall growth is projected to be 4.9 percent. Inflation was 10.9 percent at end-September, while the exchange rate has depreciated 19 percent over the last year. The budget is under severe pressure, in part because the rapid depreciation has stripped the government of all excise revenue from retail fuel, and led to explicit subsidies from the budget to keep retail fuel prices fixed. All end-June performance criteria were met while some structural benchmarks were missed. However, the ceiling on net domestic financing was met in part through the accumulation of arrears. There was also a minor non-observance of the continuous ceiling on external debt and a temporary multiple currency practice was introduced in recent months. This is the last review under this ECF arrangement, which expires on December 21, 2016. The authorities have expressed interest in negotiating a successor program in early 2017.
Policy discussions. Discussions focused on fuel subsidy reform, and interim measures to stop ongoing losses from the budget; closing the 2017 budget gap, which staff urged be done through revenue measures; tightening monetary policy to contain inflation; and ending a recently introduced multiple currency practice (MCP).
Outlook and risks. Growth is expected to reach 6.5 percent in the medium term. However, risks to the outlook are firmly to the downside. Revenues are too low to finance key infrastructure projects. Iron ore production has become moderately profitable, but there is downside risk to iron ore prices. Higher oil prices on top of further depreciation would put more pressure on fuel prices, and could increase subsidies markedly if fuel subsidy reform is not passed. Further inflation and depreciation could result in social unrest, jeopardizing the post-Ebola recovery trajectory.
Staff supports the authorities’ request for completion of the sixth (last) review of the ECF arrangement, as well as the request for a waiver for the non-observance of the continuous PC on the non-introduction of multiple currency practices, as the authorities have taken corrective action to eliminate this MCP, and the request for a waiver of the non-observance of the continuous PC on external debt as the non-observance is minor.
Approved By
David Owen (AFR) and Andrea Richter Hume (SPR)
The discussions took place during September 13–27, 2016 in Freetown, Sierra Leone. The staff team comprised Mr. Wakeman-Linn (head); Messrs. Mu and Cangul, and Ms. Glaser (all AFR), Mr. Endegnanew (FAD), Ms. Masha (Resident Representative) and Mr. Sandy (Resident Economist). Mr. Yamuremye (OED) participated in policy discussions. Staff met with President Koroma, Mr. Momodu L. Kargbo, Minister of Finance and Economic Development, Dr. Kaifala Marah, Governor of the Bank of Sierra Leone, Mr. Sesay, Clerk of Parliament, Ms. Sawyer, Ebola Recovery Delivery Team Lead, and other senior officials; representatives of the private sector, development partners, and civil society organizations.
Contents
PROGRAM PERFORMANCE, RECENT DEVELOPMENTS AND OUTLOOK
A. ECF Arrangement: Successes and Lessons in Retrospect
B. Recent Developments and Program Performance
C. Outlook and Risks
POLICY DISCUSSIONS
A. Closing the 2017 Fiscal Gap
B. Fuel Subsidy Reform
C. Monetary and Exchange Rate Policy
PROGRAM FINANCING AND RISKS
STAFF APPRAISAL
FIGURES
1. Real and External Sectors, 2011–16
2. Fiscal Sector, 2011–16
3. Monetary and Financial Indicators, 2011–16
TABLES
1. Selected Economic Indicators, 2013–21
2a. Fiscal Operations of the Central Government, 2013–21 (Billions Le)
2b. Fiscal Operations of the Central Government, 2013–21 (Percent of Non-Iron Ore GDP)
2c. Fiscal Operations of the Central Government in 2016
3. Monetary Accounts, 2013–17
4. Balance of Payments, 2013–21
5. Financial Soundness Indicators of the Banking System, 2011–16
6. Indicators of Capacity to Repay the Fund, 2012–27
7. Actual and Proposed Disbursements Under the ECF Arrangement, 2013–16
ANNEXES
I. Fuel Prices: The Current Bottleneck and Options Going Forward
II. Iron Ore Sector: Background, Current Situation and Prospects
III. Ebola Recovery Strategy (ERS): Status and Implementation Going Forward
APPENDIX
I. Letter of Intent
Attachment I. Technical Memorandum of Understanding
Front Matter Page
SIERRA LEONE
SIXTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, FINANCING ASSURANCES REVIEW AND REQUEST FOR WAIVER FOR NONOBSERVANCE OF PERFORMANCE CRITERIA—SUPPLEMENTARY INFORMATION
November 23, 2016
Approved By
David Owen and Andrea Richter Hume
Prepared by
The African Department
Front Matter Page
Press Release No. 16/545
FOR IMMEDIATE RELEASE
December 6, 2016
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
