Abstract
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.
1. This supplement provides an update on the authorities’ fuel subsidy reform since the staff report was issued to the Board on November 17, 2016. The additional information does not alter the thrust of the staff appraisal.
2. In his 2017 budget speech to the Parliament, the Minister of Finance, Mr. Kargbo, announced that fuel subsidies have ended. The plan that had been discussed with staff was to implement a one-time increase of retail fuel prices to 5,500 leones per liter from their current level of 3,750, and that commercial and retail prices would be unified and float with market prices from July 1, 2017 onward. However, following the budget speech, the authorities issued new prices, with retail fuel set at 6,000 leones. The authorities explained that the additional 500 leones per liter would help finance an infrastructure fund that is currently being established.
3. Staff understands that this fund will help finance priority infrastructure projects. Details of how the fund will operate are reportedly being developed, and staff will urge that all operations of the fund be reflected in the budget.