IMF says Sierra Leone's econ­omy re­cov­er­ing from shocks

The Pak Banker - - COMPANIES/BOSS -

An In­ter­na­tional Mone­tary Fund (IMF) mis­sion led by John Wake­manLinn vis­ited Free­town dur­ing March 1529, 2016 to con­duct the fifth re­view un­der the Ex­tended Credit Fa­cil­ity (ECF) and hold the 2016 Ar­ti­cle IV con­sul­ta­tion dis­cus­sions. At the con­clu­sion of the visit, Mr. Wake­man-Linn said Sierra Leone's econ­omy is re­cov­er­ing from the twin shocks of the Ebola virus epi­demic and the halt in iron-ore min­ing. Eco­nomic mo­men­tum is build­ing again, and GDP is ex­pected to grow by 4.3 per­cent this year from a con­trac­tion of 21 per­cent in 2015. The im­prove­ment re­flects the pick-up in eco­nomic ac­tiv­i­ties fol­low­ing the end of Ebola, and the re­sump­tion of iron ore min­ing early this year. In­fla­tion re­mained sta­ble at 8.5 per­cent in 2015, but a small uptick is ex­pected in 2016 due to the de­pre­ci­a­tion of the Leone.

The gov­ern­ment bud­get is un­der pres­sure, re­flect­ing a likely short­fall in donor re­ceipts, higher-than bud­geted spend­ing on cer­tain cat­e­gories of ex­pen­di­tures, and a short­fall in do­mes­tic fi­nanc­ing. Notwith­stand­ing the re­sump­tion of iron ex­ports, the cur­rent ac­count bal­ance is pro- jected to widen rel­a­tive to 2015, as of­fi­cial trans­fers slow down. De­spite pres­sure in the for­eign ex­change mar­ket, gross in­ter­na­tional re­serves of the Bank of Sierra Leone (BSL) are pro­jected to re­main un­changed.

Over the medium term (2017-19), growth could av­er­age 5 per­cent ow­ing to ex­pected im­prove­ments in the ex­ter­nal en­vi­ron­ment and im­ple­men­ta­tion of a wide range of post-Ebola re­cov­ery ini­tia­tives in key sec­tors. But there are im­por­tant down­side risks. Ebola virus could resur­face, damp­en­ing eco­nomic ac­tiv­i­ties. De­pen­dence on ex­ter­nal flows, es­pe­cially from iron ore ex­ports and donor sup­port, leaves the econ­omy ex­posed to ex­ter­nal shocks. Fur­ther global eco­nomic slow­down, par­tic­u­larly lower de­mand from China, a ma­jor trad­ing part­ner, could stall the mo­men­tum. Fis­cal pol­icy im­ple­men­ta­tion could suf­fer from lack of fi­nanc­ing, un­der­min­ing growth prospects fur­ther. Bank­ing sys­tem re­forms, if not im­ple­mented, could cre­ate fi­nan­cial sec­tor risks. De­lay in the im­ple­men­ta­tion of busi­ness en­vi­ron­ment re­forms could im­pact on the trans­mis­sion of eco­nomic poli­cies, re­duc­ing growth im­pact. To en­sure the econ­omy is pre­pared to ad­dress these risks, pol­icy mak­ers will need to be pre­pared to ad­just poli­cies as nec­es­sary should the eco­nomic en­vi­ron­ment change.

Progress has been made to­wards com­plet­ing the fifth re­view. All end-De­cem­ber 2015 quan­ti­ta­tive per­for­mance cri­te­ria and all in­dica­tive targets were met. All but two struc­tural bench­marks were also met. The Pub­lic Fi­nan­cial Man­age­ment (PFM) Bill has stalled in Par­lia­ment, as a re­sult of which struc­tural bench­marks on the es­tab­lish­ment of the Trea­sury Sin­gle Ac­count and the Nat­u­ral Re­source Rev­enue Fund were missed. De­spite the over­all progress, dis­cus­sions aimed at com­plet­ing the re­view con­tinue. The mis­sion and au­thor­i­ties reached a com­mon un­der­stand­ing of the chal­lenges and risks as­so­ci­ated with the 2016 bud­get, and have made some progress in dis­cus­sions on how to ad­dress those chal­lenges. These dis­cus­sions will con­tinue in the com­ing weeks. There were agree­ments on some el­e­ments of near term poli­cies. Fis­cal pol­icy will fo­cus on manag­ing gov­ern­ment fi­nances to re­duce the im­mense stress it is un­der. Rev­enue poli­cies will ad­dress en­hanced mo­bi­liza­tion and elim­i­na­tion of im­port duty ex­emp­tions and waivers which cost the bud­get sig­nif­i­cant rev­enue.

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