Front Matter Page
IMF Country Report No. 17/154
SIERRA LEONE
REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SIERRA LEONE
June 2017
In the context of the Request for a Three-Year Arrangement Under the Extended Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 5, 2017, following discussions that ended on April 21, 2017, with the officials of Sierra Leone on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on May 18, 2017.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
A Statement by the Executive Director for Sierra Leone.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Sierra Leone*
Memorandum of Economic and Financial Policies 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
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© 2017 International Monetary Fund
Front Matter Page
SIERRA LEONE
REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY
May 18, 2017
Key Issues
Context. Sierra Leone has shown remarkable resilience in overcoming the twin shocks of the iron ore export collapse and the Ebola Virus Disease (EVD) epidemic. However, significant medium-term challenges remain amidst persistent economic fragilities. There is a severe infrastructure gap with deficiencies in transportation, housing for the poor, sanitation and health facilities, as well as food security and energy supply. Despite these problems, the economy holds tremendous potential. Sierra Leone boasts one of the largest natural ports in the region, it receives abundant rainfall with a fertile soil and a sea front with promise in agriculture, fishing and tourism. Meanwhile, the mineral sector can be a basis for higher value added processing. But weaknesses, especially on fiscal policy and in the financial sector, remain impediments for unlocking this potential. The key structural macroeconomic problem is low fiscal revenues—despite significant efforts to enhance revenues in recent years. Since late 2016, high inflation and falling foreign exchange reserves have emerged as new macroeconomic challenges. Both are a direct result of a spending surge in late 2016.
Policy Framework. The immediate policy challenge is to re-establish fiscal discipline, arrest the decline in foreign exchange reserves, and bring the economy back to its pre-twin shock path: high levels of growth, social progress and macroeconomic stability. In the medium-term, the anchor for economic development remains the authorities’ Agenda for Prosperity (A4P). To finance the A4P, however, the government needs to increase domestic revenue mobilization. This is especially critical in the context of volatile mineral revenues and dwindling financing from donors following the end of Ebola. Revenue mobilization is also crucial to maintain macroeconomic stability and fiscal sustainability in the near-term. There is little room for expenditure adjustment, with mounting pressures to sustain the recovery from Ebola and the costs of financing the approaching elections. In addition, tight monetary policy will be necessary to reduce inflation. To support rebuilding foreign exchange reserves, central bank intervention needs to be limited to smoothing volatility.
Request. Following the successful completion of their last Extended Credit Facility (ECF) in 2016, the authorities are requesting a new three-year arrangement under the ECF in the amount of SDR 161.8 million (78 percent of quota). In the near-term, this ECF is expected to support important but difficult policies: ending routine foreign exchange auctions, and eliminating numerous tax and duty exemptions, while increasing infrastructure spending and bolstering the social safety net. The ECF will also play a catalytic role to maintain external support. In the medium-term, the proposed arrangement will provide the framework for structural progress on revenue mobilization, PFM and financial sector reforms, as well as increased reserves.
Staff conducted an Ex-Post Peer Reviewed Assessment (PRA) with feedback from the authorities. The PRA draws relevant lessons from the experience of the last two arrangements, and incorporates them to the elements of this proposed arrangement. The most important lesson can be summarized as forceful revenue mobilization to finance critical expenditures, including the expansion of the social safety net to reduce poverty, and to replace dwindling donor financing.
Staff supports the authorities’ request for a new ECF. Forceful implementation of the program, especially on revenue mobilization and expenditure control, will be essential to achieve fiscal sustainability and medium-term growth objectives.
Approved By
Dominique Desruelle and Andrea Richter Hume
Discussions took place in Freetown (March 16–28) and in Washington (April 17–21). The staff team comprised John Wakeman-Linn (head), Yibin Mu, Mehmet Cangul and Paolo Cavallino (all AFR), Fei Liu (SPR), Iyabo Masha (Resident Representative) and Mathew Sandy (Resident Economist). Mr. Yamuremye (OED) participated in the discussions. Staff met with Mr. Momodu L. Kargbo, Minister of Finance and Economic Development, Dr. Ibrahim Stevens (Deputy Governor of the Bank of Sierra Leone), and other senior officials, representatives of the private sector, development partners, and civil society organizations.
Contents
BACKGROUND AND RECENT DEVELOPMENTS
A. Background
B. Recent Developments
PROPOSED PROGRAM
A. Immediate and Near-Term Challenges
B. Medium-Term Objectives and Macroeconomic Framework
C. Proposed Financing and Justification
PROGRAM MODALITIES, FINANCING AND MITIGATING RISKS
STAFF APPRAISAL
FIGURES
1. Real and External Sectors, 2011–17
2. Fiscal Sectors, 2011–17
3. Monetary and Financial Indicators, 2011–17
TABLES
1. Selected Economic Indicators, 2013–21
2a. Fiscal Operations of the Central Government, 2013–21 (Billions of Leone)
2b. Fiscal Operations of the Central Government, 2013–21 (Percent of Non-Iron Ore GDP)
2c. Fiscal Operations of the Central Government in 2017
3. Monetary Accounts, 2013–17
4. Balance of Payments, 2013–21
5. Indicators of Capacity to Repay the Fund, 2017–31
6. Actual and Proposed Disbursements Under the ECF Arrangement, 2017–20
7. Risk Assessment Matrix (RAM)
8. Financial Soundness Indicators of the Banking System, 2011–16
ANNEXES
I. Ex-Post Peer Reviewed Assessment (PRA)
II. External Sector Assessment
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
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SIERRA LEONE
REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—DEBT SUSTAINABILITY ANALYSIS
May 18, 2017
Approved By
Dominique Desruelle and Andrea Richter Hume (IMF) and Paloma Anos-Casero (IDA)
Prepared by the International Monetary Fund and the World Bank.
Sierra Leone remains at a moderate risk of debt distress. The resumption of iron ore production with related export receipts, the recovery of non-iron ore growth, and an improved fiscal revenue profile have strengthened economic performance. Under the baseline, none of the debt sustainability framework solvency or liquidity ratios breach their respective thresholds on a protracted basis throughout the projection period (2016–36).1 At the same time, stress tests highlight distinct vulnerabilities to simulated adverse developments in both domestic and international conditions, with substantial breaches in evidence for most debt indicators—these underpinning the assessment of moderate risk. In addition, there remains a substantial down-side risk to the macroeconomic framework underlying this DSA, particularly the revenue and growth projections. The authorities should continue to remain prudent about their borrowing plans and step up efforts to improve revenue mobilization and public financial management.
Front Matter Page
Press Release No. 17/208
FOR IMMEDIATE RELEASE
June 6, 2017
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
