“Sierra Leone’s economic reforms over the last three years have been largely successful. The economy proved resilient in the face of two major exogenous shocks: the Ebola epidemic and collapse of iron ore prices and associated loss of production in 2014-2015. Sound macroeconomic policies, together with generous support from development partners helped ensure fiscal and external sustainability, while providing sufficient resources to begin implementing the post-Ebola Recovery Strategy. Since the last quarter of 2015, economic growth has resumed, and it remains on an upward trend, supported by new investments in mining, agriculture and fisheries. The recovery underway is projected to remain sustainable over the medium term.
“Prudent fiscal policy throughout the program contributed to the achievement of a relatively low fiscal deficit. Credible monetary policy contributed to price stability, bringing inflation down from over 20 percent at the beginning of the program to single digits, although in recent months it has begun to increase somewhat. The current account balance has strengthened. International reserves have risen to more than $500 million.
“Implementation of the structural reform agenda contributed to improvement in the transmission of economic policies. Reforms of revenue mobilization and administration, expenditure control and public finance management have contributed to fiscal sustainability, while providing a framework for transparency and accountability in the use of public resources. Reforms of the monetary policy operating framework were instrumental to proactive monetary policy.
“While these reforms have enabled the economy to grow and weather unanticipated shocks, challenges persist. Looking ahead, policy should focus on continuing to anchor economic stability through sound fiscal, monetary, and debt policies while making faster progress on structural reforms. Diversifying growth, making it more inclusive and distributing its benefits more widely should be the overriding focus of economic policy.
“Fiscal policy should focus on increasing revenues, while raising the efficiency and quality of public spending. This would increase the fiscal space for pro-poor social expenditure. In particular, the practice of keeping the price of retail fuel constant by reducing the excise on retail fuel whenever oil prices rise or the exchange rate depreciates is no longer sustainable since the excise on retail fuel has now reached zero. The mission therefore recommended that the government should now take steps to adjust retail fuel prices as needed to ensure that this does not become an increasing burden on the budget.
“On the monetary policy front, continued emphasis should be put on price stability, while remaining attentive to second round pressures on prices. Exchange rate and market policies should be transparently implemented.
“In addition, the country’s borrowing plans should be anchored on debt sustainability. Priority should be given to grants and concessional loans for financing investment projects.
“Faster progress on the unfinished structural reform agenda would also help to enhance revenue, make public spending more efficient and transparent, the banking system more resilient, and the business environment more supportive of inclusive growth and private sector development. In particular, implementing the Treasury Single Account, establishing the Natural Resource Revenue Fund and adopting the Wage and Pay Reform strategy would improve fiscal outcomes.
“The mission confirms that all quantitative performance criteria for end-June 2016 were met. Therefore, the sixth and final program review under the ECF arrangement is tentatively scheduled for consideration by the IMF Executive Board in November 2016. Upon approval, the last tranche of the loan for an amount of about US$34.20 million would become available, bringing total disbursements under the arrangement to SDR186.66 million (about US$261.12 million).
“The mission met with President Koroma, Minister of Finance, Momodu Kargbo, and Minister of State for Finance Patrick Conteh; the Governor of BSL, Dr. Kaifalah Marah, senior government and BSL officials, representatives of the financial sector, private sector, civil society, and development partners. The mission team will remain in touch with the authorities in the period ahead with a view to discussing options for future engagement.
“The IMF mission wishes to express its gratitude to the Sierra Leonean authorities for the constructive discussions during its visit to Freetown.”
Source: IMF, Washington.