- June 8, 2022
- Posted by: Charles Yeboah Nixon
- Categories: Banking and Finance, Economics, Finance
Sierra Leone will receive US$20.8 million, about SDR 15.555 million from the International Monetary Fund as part of the extended Credit Facility (ECF)-supported programme, upon completion of the Executive Board review in the coming weeks.
This will bring the total IMF financial support under the arrangement to SDR 93.33 million, about US$125.0 million.
It is coming after a staff team from the International Monetary Fund (IMF) led by Sukhwinder Singh, conducted a mission to Sierra Leone and in Washington DC from March 31 – May 18 to discuss progress on reforms and the authorities’ policy priorities in the context of the fifth review of Sierra Leone’s Extended Credit Facility (ECF)-supported programme.
At the conclusion of the mission, Mr. Singh said the impact of COVID-19 pandemic, coupled with the surge in international fuel and food prices on the Sierra Leonean economy has set back a nascent recovery and projected growth in 2022, with economic growth revised downwards to 3.6%, from 5.9% at the time of the 3rd/4th review in July 2021.
“Sierra Leone’s economy was severely impacted by COVID-19 in 2020 and the first half of 2021. Fiscal slippages, the war in Ukraine, and concerns about global growth pose renewed challenges. The surge in international fuel and food prices has set back a nascent recovery and projected growth in 2022 has been revised down to 3.6%, from 5.9% at the time of the 3rd/4th review in July 2021.”
He added that “the shock has added pressure in several areas, such as poverty and other key development indicators, inflation, exchange rate, foreign exchange reserves, as well as an already highly constrained fiscal position. Inflation has been revised up to 22.1% (end-of-period, 2022) from 12%, given higher import prices and exchange rate depreciation.”
Mr. Singh further pointed out that the medium-term outlook remains challenging on account of the deteriorating terms of trade, more uncertain global prospects, and remaining COVID-19 risks, adding “a global supply shock resulting from the war in Ukraine is negatively impacting global growth and accentuating inflation, with spillovers to Sierra Leone.”
“Further increases in already high global fuel and food prices could deteriorate budget and external balances, as well as development outcomes”, it added.
“The fiscal situation in Sierra Leone is extremely tight in part due to large spillovers from the war in Ukraine on top of the painful impact of COVID-19, but also other emerging spending pressures. Rapidly growing subsidy costs in the face of limited fiscal space and urgent social/development spending needs have necessitated bold action on fuel and energy prices, with the government raising fuel prices by a cumulative 50% in March this year, while targeting transfers to the poorest. The 2022 budget resumes fiscal adjustment towards a consolidation path despite the challenging environment. Given the high risk of debt distress, additional crisis needs call for additional grant financing and limiting external borrowing”, it stressed.
The authorities and IMF team agreed on a medium-term fiscal framework that continues to strike a balance between reducing debt vulnerabilities and supporting post-crisis recovery.
This is anchored around increasing domestic revenue mobilization, securing more budget support grants, and strengthening expenditure management and commitment controls.
A medium-term revenue strategy (MTRS) is under development to identify a properly sequenced and coherent set of tax policy and administrative measures to widen the tax base.
Given limited resources, the IMF said improved expenditure control and spending efficiency are essential in creating fiscal space for priority spending such as the school feeding programme and health spending. The use of additional SDR resources will also support priority spending.
Banking sector remains capitalised
The IMF also said the banking sector appears to have remained well capitalised, profitable, and liquid due to investments in sovereign securities.
Private sector credit is showing signs of recovery, although the pandemic has contributed to some increase in NPLs.