IMF says Sierra Leone's economy recovering from shocks
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.