Sierra Leone's financial and economic program supported by the Extended Credit Facility (ECF), which was approved on November 30, 2018, has undergone its sixth and seventh reviews by an International Monetary Fund (IMF) team led by Christian Saborowski. The IMF has approved the disbursement of SDR 15.5 million (about US$ 20.8 million) to Sierra Leone, subject to approval by IMF Management and the Executive Board in the coming weeks, bringing the total IMF financial support under the arrangement to SDR 108.8 million (about US$147.0 million).
According to Saborowski, Sierra Leone has faced external shocks that have intensified economic challenges, coupled with looser-than-warranted macroeconomic policies. Although growth in 2022 is estimated at 3.6 percent, inflation has continued to rise, the currency has depreciated sharply, and debt-related risks have increased, leading to worsened food insecurity due to the high cost of living.
Saborowski stated that weak program performance in 2022 resulted in the delay of the sixth review. However, program performance has improved considerably since, and the authorities have requested an extension of the program to November 2023 to accommodate an eighth and final review to continue building on recent reforms and achieve program objectives.
The IMF team and Sierra Leone authorities agreed on the need to tighten fiscal and monetary policies to restore macro stability and contain increasing risks to debt sustainability. Fiscal policy will focus on domestic revenue mobilization and expenditure containment, while social spending, including on the school feeding program, will be protected. The central bank will tighten monetary conditions to bring down inflation and contain currency depreciation, while further strengthening monetary policy communication to help anchor inflation expectations. It also plans to take steps to revive the interbank foreign exchange market. Maintaining a flexible exchange rate system and continuing to build foreign exchange reserves will boost resilience to economic shock.
According to Saborowski, macroeconomic conditions are expected to stabilize over the medium term, but the risks to the outlook are high. He added that growth is expected to decelerate in 2023 to 2.7 percent before recovering in 2024. Inflation is projected to gradually decline to single digits over the medium term amid the contractionary policy stance, while foreign exchange reserves would stabilize. However, risks to this outlook are high due to slower global growth, tighter global financial conditions, and geographical fragmentation, which could weigh on external demand and deteriorate fiscal and external accounts. Policy implementation risks are also high amid the large adjustment need, capacity constraints, and the soaring cost of living.
The IMF staff team is grateful to the authorities for the open and productive discussions to ensure the success of their economic program supported by the IMF. The team met with President Maada Bio, Finance Minister Bangura, Acting Governor Stevens, Deputy Governor Sesay, and other senior government officials, as well as stakeholders from civil society, the private sector, and development partners.