Sierra Leone: Staff Report for the 2022 Article IV Consultation, Fifth Review Under the Extended Credit Facility Arrangement, Requests for Waivers of Nonobservance of Performance Criteria, Modifications of Performance Criteria, and Financing Assurances Review—Informational Annex

SIERRA LEONE

Abstract

SIERRA LEONE

Title Page

SIERRA LEONE

STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA, MODIFICATIONS OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—INFORMATIONAL ANNEX

June 13, 2022

Prepared By

The African Department

(In consultation with other departments)

Contents

  • RELATIONS WITH THE FUND

  • RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS

  • STATISTICAL ISSUES

Relations with the Fund

(As of April 30, 2022)

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

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Latest Financial Arrangements :

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Outright Loans

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Projected Payments to Fund2

(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 2017 safeguards assessment found that the safeguards framework at the Bank of Sierra Leone (BSL) had deteriorated and that concerted efforts were needed to mitigate safeguards risks. Continuous capacity constraints and lack of coordination among departments had negatively impacted the control environment. The risks were further exacerbated by weak oversight and audit mechanisms. A subsequent safeguard monitoring visit in 2018 found that while the BSL was taking steps to implement safeguards recommendations, greater efforts were needed to address control weaknesses. A forensic audit of foreign currency transactions between the BSL and government agencies was recommended to establish the magnitude of past misappropriations. A remedial action plan to address findings has since been implemented, albeit with delays. In recent years, the BSL has implement all but one of the outstanding safeguards recommendations, including (i) amending the BSL Act to strengthen governance, (ii) undergoing joint external audits, (iii) establishing a fraud prevention and whistleblower policy, and (iv) completing an external quality assessment of the internal audit function. Further efforts are needed to ensure annual external audits are completed within the statutory deadline.

Exchange Rate Arrangement:

With effect December 14, 1995, Sierra Leone has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Articles of Agreement. Sierra Leone’s de jure exchange rate regime is classified as floating, with the value of the Leone determined by the market. The de facto exchange rate arrangement is reclassified as ‘’other managed’.

For customs valuation purposes and for official transactions, the Bank of Sierra Leone (BSL) calculates an official exchange rate every Thursday based on the weighted average of the auction rate, the commercial bank mid-rate, and the bureau mid-rate in the previous five business days. 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 end-December 2021, the BSL mid-rate was Le 11,255.72=US$1, which is also the new Program exchange rate.

Sierra Leone maintains two multiple currency practices, subject to IMF approval under Article VIII, Section 3 of the IMF’s Articles of Agreement, due to (i) the use of the BSL Rate, which is not considered a prevailing market rate, due to the manner of its computation (it is calculated weekly and computed based on transactions over the previous five business days), and the BSL Rate has exceeded the prevailing market rate by more than 2 percent at certain points in time, and (ii) the use of an exchange rate for transactions under certain facilities, which is not considered a prevailing market exchange rate, as it is calculated based on commercial banks’ weighted average exchange rates on the previous day, and there is no mechanism in place to ensure that the spread between this rate and the prevailing market rate at the time of the transactions does not exceed 2 percent.

Sierra Leone maintains an exchange restriction, subject to IMF approval under Article VIII, Section 2(a) of the IMF’s Articles of Agreement, arising from the prioritization of foreign exchange through various BSL facilities, which results in a limitation on the availability of foreign exchange for payments of current international transactions, where there is a shortage of FX in the market.

Article IV Consultation:

The Executive Board concluded the last Article IV consultation on April 3, 2020.

Technical Assistance:

See Staff Report, Annex VIII.

Resident Representative:

Ms. Monique Newiak assumed responsibility for the Fund office in Freetown on September 3, 2019.

Relations with other International Financial Institutions

World Bank Group:

African Development Bank:

Statistical Issues

(As of May 18, 2022)

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Sierra Leone: Table of Common Indicators Required for Surveillance

(As of End-May 2022)

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

Although the Leone:US$ rate is currently set weekly, exchange rate data is published on a daily basis (including exchange rates with other currencies)

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

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.

2

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.

3

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: 2022 Article IV Consultation and Fifth Review under the Extended Credit Facility Arrangement, Requests for Waivers of Nonobservance of Performance Criteria, Modifications of Performance Criteria, and Financing Assurance Review-Press Release; Staff Report; and Statement by the Executive Director for Sierra Leone
Author: International Monetary Fund. African Dept.