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Sierra Leone

Author(s):
International Monetary Fund
Published Date:
July 2009
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I. Background and Program Performance

1. The global economic downturn slowed economic activity and export demand toward the end of 2008, but inflation pressures subsided (Figure 1 and Table 3).

Figure 1.Sierra Leone: Selected Macroeconomic Indicators, 2004-08

(Percent of GDP, unless indicated otherwise)

Sources: Sierra Leonean authorities; and IMF staff estimates.

  • Despite the economic slowdown in the last quarter, particularly in mining, real GDP grew at an estimated 5.5 percent in 2008. This reflected solid agricultural production and a buoyant service sector.
  • Inflationary pressures subsided toward the end of the year as prices on import (mainly fuel) plunged. Annual inflation fell to 12.2 percent at year-end, compared to 13.8 percent in 2007 and a 15.7 percent program target. By end-April, driven mostly by lower food prices, inflation had fallen to 8 percent.
  • The external current account deficit, including official transfers, worsened compared to the program on account of the rise in food and fuel prices in the first half of 2008 and lower diamond exports in the second half. International reserves declined, but by less than programmed, to US$209 million at end-2008. However, reserve coverage increased to 5.2 months of next year’s imports because of the projected decline in imports in 2009. By mid-May 2009, reserves had declined to US$193 million (4.8 months of imports).
  • After a long period of stability, the leone depreciated by about 3 percent against the US dollar late in 2008, and by another 4 percent through April 2009. However, the REER appreciated in the last quarter of 2008 because of weakening currency values and price compression among major European trading partners.

2. Fiscal policy was challenged by shortfalls in domestic revenue and delays in disbursement of external assistance. The revenue shortfall reached Le 30.6 billion (0.5 percent of GDP), mainly due to lower collection of import duties, excises, mining taxes, and nontax revenues (Table 4). About half of the shortfall relates to a failure to fully implement two revenue-enhancing measures—the transfer of all off-budget revenue collected by ministries, departments, and agencies (MDAs) to the Consolidated Revenue Fund (CRF) and reinstatement of a vehicle license fee that was suspended early in 2008. The remaining shortfall can be attributed to a decline in commodity prices that negatively affected customs and mining revenues. As for external budgetary support, only about 60 percent of the programmed amount was disbursed in 2008 due to delays in meeting structural conditions, but most of the shortfall was received in early 2009. The revenue shortfalls prompted the authorities to cut current expenditures by 0.6 percent of GDP. However, domestic financing still exceeded the programmed amount by 0.9 percent of GDP.

3. Monetary policy was kept tight in 2008. Reserve money growth was lower than programmed because the BSL actively conducted open market operations by selling from the new holding of treasury bills obtained by converting noninterest-bearing, nonmarketable government securities. Commercial bank credit to the economy continued to grow, primarily in the telecommunications, commerce, and construction sectors. The entry of three new banks in mid-2008 supported the increase in bank credit and the demand for government securities. This and a decline in inflation helped push down the average interest rate on treasury bills from 21.3 percent at end-2007 to about 9 percent at end-2008.

4. Program implementation in the second half of 2008 was mixed. All end-December quantitative PCs were met, except the one on domestic government revenue (Table 1). The indicative target for poverty-reducing spending was also met. On the structural targets, the continuous structural PC on the monthly meeting of the Monetary Policy Committee was met (Table 2).1 However, the PC on adoption of an implementation decree for the GST was missed due to delays in parliament to approve the GST law. Also, the structural benchmark on the adoption of a comprehensive tariff policy for the electricity sector was missed because a supporting study on generation and distribution costs has not yet been completed (see paragraph 18).

Table 1.Sierra Leone: Quantitative Performance Criteria and Indicative Targets for 2008

(Cumulative change from beginning of calendar year to end of month indicated; Le millions, unless otherwise indicated)1

2008
MarchJuneSeptemberDecember
Act.Performance

Criteria
Adjusted

Targets
Act.Met or

Not Met
Indicative

Targets
Adjusted

Targets
Act.Met or

Not met
Performance

Criteria
Adjusted

Targets
Act.Met or

Not met
Performance criteria
Net domestic bank credit to the central government (ceiling)45,861116,820127,531101,489Met85,039174,229160,897Met127,200218,709217,687Met
Unadjusted target (ceiling)116,82085,039127,200
Adjustment for the shortfall (excess) in external budget support32,23057,63864,460
Adjustment for the issuance of treasury securities to the private sector-21,51931,55227,049
Net domestic assets of the central bank (ceiling)21,81090,080122,31066,137Met58,043115,68169,918Met179,209243,669100,038Met
Unadjusted target (ceiling)90,08058,043179,209
Adjustment for the shortfall (excess) in external budget support32,23057,63864,460
Domestic primary fiscal balance of the central government (floor)-31,787-81,355-81,355-104,590Not met-107,265-107,265-141,117Not met-165,720-165,720-140,650Met
Subsidies to National Power Authority (ceiling)30000Met000Met000Met
Gross foreign exchange reserves of the central bank, US$ millions (floor)-9.04.45-25.82-17.44Met-9.75-27.32-3.20Met-23.2-39.04-5.63Met
Unadjusted target (floor)4.45-9.75-23.22
Adjustment for the shortfall (excess) in external budget support4-30.6-17.88-20.00
Adjustment for the shortfall in the US$ value of IMF disbursement0.320.324.18
Adjustment for the increase (decrease) in BSL short-term foreign currency liabilities0.000.000.00
Contracting or guaranteeing of new nonconcessional external debt by the public sector with maturities of one year or more (ceiling)30000Met000Met000Met
Outstanding stock of external debt owed or guaranteed by the public sector with maturities of less than one year (ceiling)30000Met000Met000Met
External payment arrears of the public sector (ceiling)30000Met000Met000Met
Total domestic government revenue (floor)150,955326,874326,874318,077Not met508,354508,354492,625Not met692,697692,697662,134Not met
Indicative target
Poverty-related expenditures (floor)67,619157,680157,680210,422Met243,362243,362305,143Met326,700326,700330,400Met
Memorandum items:
External budgetary assistance5032,23032,2300143,043143,04385,405211,200211,200115,380
Net credit to government by nonbank private sector620,64610,57410,57432,09314,25814,258-17,294-6,909-6,909-33,958
Disbursements under the PRGF (US$ millions)06.926.927.246.926.927.2413.8413.8418.02
Sources: Sierra Leonean authorities; and IMF staff calculations.

The performance criteria and indicative targets shown in this table are defined in the Technical Memorandum of Understanding (TMU).

IMF Country Report No. 09/2 (January 12, 2009)

These apply on a continuous basis.

The reserve accumulation target, unlike the monetary targets, was calculated to include foreign aid disbursements that did materialize in the period.

Including program grants and program loans.

Comprises treasury bills purchased by the National Social Security and Insurance Trust (NASSIT) and the nonfinancial private sector.

Sources: Sierra Leonean authorities; and IMF staff calculations.

The performance criteria and indicative targets shown in this table are defined in the Technical Memorandum of Understanding (TMU).

IMF Country Report No. 09/2 (January 12, 2009)

These apply on a continuous basis.

The reserve accumulation target, unlike the monetary targets, was calculated to include foreign aid disbursements that did materialize in the period.

Including program grants and program loans.

Comprises treasury bills purchased by the National Social Security and Insurance Trust (NASSIT) and the nonfinancial private sector.

Table 2.Sierra Leone: Status of Implementation of Structural Conditionality for 2008-09
MeasuresTimingStatus
Structural performance criteria
Provide to Fund staff the Monetary and Policy Committee (MPC) monthly minutes that include the monthly projections for government revenue and expenditures made available by the Ministry of Finance to the Bank of Sierra Leone to produce a monthly liquidity forecastOn a continuous basis, starting in June 2008.Met
Promulgate the interest rate and penalties for under/late payment of tax and make them effective starting October 1, 2008End-September 2008Met
Adoption by the cabinet of the implementation decree for the Goods and Services Tax (GST).End-December 2008Not met
Structural benchmarks
Adoption by the cabinet and submission to parliament of the legislation for the introduction of the GST.End-June 2008Met
Introduce a Tax Identification Number (TIN) system and make it effectiveEnd-September 2008Met
Adopt a comprehensive tariff policy for the electricity sector that will strengthen the financial position of the National Power AuthorityEnd-December 2008Not met

II. Program discussions

5. The global economic downturn has weakened economic prospects in 2009 and is putting pressure on the fiscal position. Mission discussions therefore focused on: (i) the implications of the global crisis on Sierra Leone’s economic outlook, (ii) macroeconomic policy responses to the crisis; and (iii) the structural reform agenda. The authorities recognized the need for continued prudent economic policies and the importance of mobilizing domestic revenue to ensure long-term fiscal sustainability. These elements have been incorporated into the second generation PRSP that was launched in May 2009.2

A. Objectives and Policies

6. As in many other sub-Saharan African countries, Sierra Leone’s economic conditions and prospects are being profoundly affected by the global economic downturn. The mining sector is particularly hit hard as the value of exports has fallen, production is being scaled back, and investment projects are being delayed. Other sectors are also affected, notably services, tourism, and construction. On the positive side, output growth should benefit from an improved supply of electricity, initiatives to increase agriculture productivity, and increased public investment in basic infrastructure.

7. The macroeconomic framework has been revised to reflect the impact of the external shocks on the economy. Real GDP growth is projected to slow to 4 percent in 2009–10, from 5.5 percent in 2008, and to gradually recover to 6 percent in 2012. Lower commodity prices and healthy domestic food production should continue to ease inflation pressure. Annual inflation is projected to decline from 12.2 percent in 2008 to 9 percent in 2009 and 8 percent in 2010. The balance of payments position is expected to be challenged further in 2009, as export receipts continue to decline steeply, but the trend should reverse in 2010 as the global environment improves.

Sierra Leone: Medium-Term Macroeconomic Indicators, 2008–12(Percent of GDP, unless otherwise indicated)
20082009201020112012
Prog.1Est.Prog.1Rev. Prog.Proj.
Real GDP (annual percentage change)5.55.55.54.04.05.56.0
Consumer prices (percentage change; end of period)15.712.29.89.08.07.57.0
Consumer prices (percentage change; annual average)15.614.812.710.68.57.87.3
Gross domestic investment15.714.816.714.815.315.916.1
External current account balance, including official transfers-7.1-9.0-5.2-8.5-8.5-7.6-6.8
External current account balance, excluding official transfers-10.6-11.5-8.1-12.3-11.4-10.7-10.1
Gross official reserves (months of imports)3.95.24.25.04.74.44.3
Sources: Sierra Leonean authorities, and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

Sources: Sierra Leonean authorities, and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

Fiscal policy

8. Fiscal policy will aim to maintain capital and poverty-reducing spending while safeguarding macroeconomic stability (MEFP, ¶13). Domestic revenue is projected to decline by 0.4 percentage points of GDP to 11 percent in 2009, falling short of the program target by 1.5 percent of GDP (Table 5). While the shortfall reflects a downward revision of imports, declining mining activity, and weaker corporate income, about 0.3 percent of GDP is explained by policy slippages—including delays in mandating all government agencies to transfer collected revenue to the CRF and temporary replacement of the ad valorem import duty by a presumptive per-container tax—and about 0.2 percent of GDP is due to the postponement of installation of the ASYCUDA customs computer system. The expected revenue shortfall will be accommodated by (i) identified additional external budgetary support (0.7 percent of GDP); (ii) a reduction in current spending, including domestic interest payments due to a steep decline in interest rates on treasury bills (0.4 percent of GDP);3 and (iii) additional domestic financing (0.4 percent of GDP).4 As a result, the overall fiscal deficit is projected to increase to 4 percent of GDP, against 3.5 percent of GDP previously projected and 4.8 percent in 2008, and domestic financing will increase to 1.7 percent of GDP—still below the levels in the last two years.

Table 3.Sierra Leone: Selected Economic and Financial Indicators, 2007–12
200720082009201020112012
Act.Prog.1Est.Prog.1Rev. Prog.Proj.
(Annual percentage change, unless otherwise indicated)
Income and prices
Real GDP6.45.55.55.54.04.05.56.0
GDP deflator10.812.011.28.38.87.66.25.9
Nominal GDP17.918.217.314.313.112.012.112.3
Consumer prices (end of period)13.815.712.29.89.08.07.57.0
Consumer prices (annual average)11.715.614.812.710.68.57.87.3
Money and credit
Broad money25.920.926.414.116.913.711.210.3
Velocity (level)4.44.34.14.34.03.93.94.0
Domestic credit227.241.965.520.826.222.613.911.6
Government217.649.171.921.935.519.6
Private sector39.434.656.820.015.528.0
Reserve money26.018.210.213.613.212.09.58.6
Interest rate321.39.1
External sector
Exports (US$)2.90.0-12.912.0-26.618.417.416.5
Imports (US$)2.217.413.4-1.8-10.910.48.78.9
Export volumes-5.9-27.3-8.67.413.313.1
Import volumes0.2-4.83.63.84.86.1
Terms of trade (– = deterioration)-2.1-3.2-4.14.20.20.6
Real effective exchange rate (– = depreciation; eop)0.68.0
(Percent of GDP)
Saving and Investment
Gross national saving9.78.65.711.66.26.88.39.3
Gross domestic saving6.15.13.48.93.24.15.36.1
Government0.3-0.9-0.60.0-1.60.20.71.4
Private5.86.04.08.84.83.84.54.7
Gross domestic investment13.215.714.816.714.815.315.916.1
Government3.56.06.27.37.47.67.88.0
Private9.79.78.69.57.47.88.18.1
External sector
Current account balance, including official transfers-3.4-7.1-9.0-5.2-8.5-8.5-7.6-6.8
Current account balance, excluding official transfers-7.0-10.6-11.5-8.1-12.3-11.4-10.7-10.1
Overall balance of payments1.9-2.7-1.20.8-1.4-0.20.40.7
Central government
Government domestic revenue10.811.811.412.311.011.712.212.5
Total expenditure and net lending17.721.220.722.222.221.621.721.6
Of which: current expenditure13.315.214.614.914.814.013.913.7
Overall fiscal balance
(excluding grants and MDRI)-6.8-9.4-9.4-9.9-11.2-9.9-9.5-9.2
(including grants and MDRI)425.2-3.2-4.8-3.5-4.0-3.4-3.3-2.7
Domestic primary fiscal balance5-1.9-2.8-2.4-1.7-3.3-1.9-1.7-1.0
Domestic financing2.21.82.71.31.71.61.51.0
(Percent of exports of goods and nonfactor services, unless otherwise indicated)
Debt service due after debt relief, incl. to IMF64.24.12.33.63.96.78.08.0
Net present value of debt-to-exports ratio29.749.945.756.282.284.082.080.4
Net present value of debt-to-GDP ratio6.27.29.210.310.811.3
(US$ millions, unless otherwise indicated)
External current account balance, excluding
official transfers-115.9-209.4-223.7-173.0-257.0-255.8-257.0-259.5
Gross international reserves215.5180.1209.5219.3218.0223.0228.0238.0
(months of imports)74.93.95.24.25.04.74.44.3
GDP1,663.71,968.91,952.82,130.72,091.12,235.62,396.72,578.4
GDP (Le billions)4,966.55,873.45,823.86,711.86,586.97,377.48,268.79,282.1
Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009)

The numbers reflect the impact of the MDRI.

91-day treasury bill rate (end of period).

For 2007, MDRI relief from IDA and AfDF (both as stock of debt relief).

Domestic revenue minus total expenditure and net lending, excluding interest payments, and externally financed capital expenditure.

Percent of exports of goods and services; after Naples (2001) and Cologne flow reschedulings (2002-04) and delivery of full HIPC Initiative and MDRI assistance.

Months of imports of goods and services of subsequent year.

Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009)

The numbers reflect the impact of the MDRI.

91-day treasury bill rate (end of period).

For 2007, MDRI relief from IDA and AfDF (both as stock of debt relief).

Domestic revenue minus total expenditure and net lending, excluding interest payments, and externally financed capital expenditure.

Percent of exports of goods and services; after Naples (2001) and Cologne flow reschedulings (2002-04) and delivery of full HIPC Initiative and MDRI assistance.

Months of imports of goods and services of subsequent year.

Table 4.Sierra Leone: Central Government Financial Operations, 2008-09(Cumulative; Le billions, unless otherwise indicated)
20082009
MarchJuneSept.Dec.MarchJuneSept.Dec.
Prog.1Act.EstProj.
Total revenue and grants211.6400.4687.01,060.9926.7288.8574.1832.01,199.4
Domestic revenue152.0318.1492.6692.7662.1155.2343.0533.2724.7
Income Tax Department45.096.0149.6196.5195.646.2101.0158.7215.3
Customs and Excise Department82.4174.5267.3370.9363.189.4190.6295.9398.3
Mines Department3.65.815.326.218.51.96.812.118.8
Other departments9.018.326.245.338.75.717.625.236.2
Road user charges12.123.534.253.846.212.126.941.356.1
Grants59.582.3194.3368.2264.6133.5231.1298.8474.7
Program0.41.792.7209.3143.874.9119.3132.9249.8
Of which: HIPC assistance0.41.77.310.713.40.73.45.212.8
Peace Building Fund0.00.00.00.015.00.00.011.811.8
Projects59.180.6101.6159.0120.858.7111.7166.0224.9
Total expenditure and net lending310.7626.1958.31,246.61,207.3313.8722.11,097.91,462.7
Current expenditure195.2443.1661.2894.6848.3191.0477.5730.4977.1
Wages and salaries78.7161.9248.1340.2334.480.1191.9299.9400.2
Current noninterest, nonwage expenditure85.5217.7320.0433.6393.590.5238.8356.0461.1
Goods and services61.2144.9223.0302.7284.661.6167.3246.5312.3
Of which: Emergency Power Project19.445.368.698.283.520.841.641.641.6
Transfers to local councils5.132.135.441.527.18.628.944.260.1
Grants to educational institutions6.013.422.527.229.28.015.423.531.9
Transfers to Road Fund12.123.534.253.846.212.126.941.356.1
Elections1.13.85.07.56.30.10.20.30.4
Interest payments31.063.593.2120.9120.520.546.974.6115.8
Domestic29.158.284.1109.6108.719.641.968.0104.0
Foreign1.95.39.011.211.70.94.96.511.8
Capital expenditure and net lending115.5183.0297.1351.9359.1122.8244.5367.5485.6
Capital expenditure115.5183.0297.1353.8359.1122.8244.9368.3486.8
Externally financed86.9139.9231.4267.3284.1113.0211.3310.9406.0
Loans27.859.3129.7108.3163.312.625.337.912.6
Grants59.180.6101.6159.0120.821.743.565.221.7
Domestically financed28.643.165.786.675.09.833.657.580.8
Net lending0.00.00.0-1.90.00.0-0.4-0.8-1.2
Overall balance (commitment basis)
Excluding grants-158.7-308.0-465.6-553.9-545.2-158.6-379.1-564.7-738.0
Including grants and MDRI assistance from IDA and AfDF-99.1-225.8-271.3-185.6-280.6-25.0-148.0-265.9-263.3
Total financing99.1225.8271.3185.6280.625.0148.0265.9263.3
Foreign23.752.5120.077.4143.353.389.7132.8154.6
Borrowing27.859.3129.7108.3163.354.399.6144.9181.1
Project27.859.3129.7108.3163.354.399.6144.9181.1
Program0.00.00.00.00.00.00.00.00.0
Amortization-4.1-6.9-9.7-30.9-20.0-1.0-10.0-12.1-26.6
Domestic90.6172.4168.5108.2158.0-15.970.7142.7108.7
Bank financing45.9101.5160.9127.3217.7-12.371.3136.5122.5
Of which: change in MDRI-related deposits57.280.3115.698.3118.517.763.599.899.8
Nonbank financing44.871.07.6-19.1-59.6-3.6-0.56.2-13.8
Claims on gov. by nonbank sector20.632.1-17.3-6.9-34.0-16.1-5.03.27.3
Privatization and other receipts0.00.00.013.94.16.011.917.923.9
Change in arrears-1.5-2.2-13.8-41.9-45.6-15.8-29.7-37.1-45.0
Float (checks payable and outstanding commitments)25.641.038.815.815.822.322.322.30.0
Unaccounted (- = overfinancing of the budget)-15.30.9-17.30.0-20.8-12.3-12.4-9.70.0
Financing gap0.00.00.00.00.00.00.00.00.0
Memorandum items:
Nominal GDP (Le billions)5,8245,8245,8245,8735,8246,5876,5876,5876,587
Total HIPC assistance (percent of GDP)0.00.00.10.20.20.00.10.10.2
Total poverty expenditures (percent of GDP)1.33.61.67.15.70.92.74.15.1
(Le billions)75.1210.494.7415.3330.461.4178.7267.2337.5
(Percent of GDP, unless otherwise indicated)
Domestic revenue2.65.58.511.811.42.45.28.111.0
Total expenditure and net lending5.310.816.521.220.74.811.016.722.2
Of which: current expenditure3.47.611.415.214.62.97.211.114.8
capital expenditure2.03.15.16.06.21.93.75.67.4
Overall fiscal balance
Including grants and MDRI-1.7-3.9-4.7-3.2-4.8-0.4-2.2-4.0-4.0
Excluding grants-2.7-5.3-8.0-9.4-9.4-2.4-5.8-8.6-11.2
Domestic primary balance2-0.7-1.8-2.4-2.8-2.4-0.4-1.8-2.7-3.3
(Le billions)-40.8-104.6-141.1-165.7-140.7-25.1-120.9-179.3-216.2
Domestic financing1.63.02.91.82.7-0.21.12.21.7
Total wages and salaries1.42.81.55.85.71.22.94.66.1
Total wages and salaries (percent of domestic revenue)51.750.950.949.150.551.655.956.255.2
Sources: Sierra Leonean authorities, and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009)

Domestic revenue minus total expenditure and net lending, excluding interest payments and externally financed capital expenditures

Sources: Sierra Leonean authorities, and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009)

Domestic revenue minus total expenditure and net lending, excluding interest payments and externally financed capital expenditures

Table 5.Sierra Leone: Central Government Financial Operations, 2007–12(Le Billions, unless otherwise indicated)
200720082009201020112012
ActualProg.1Act.Prog.1Rev. Prog.Proj.
Total revenue and grants2,129.31,060.9926.71,249.91,199.41,337.21,522.31,755.3
Domestic revenue536.9692.7662.1824.0724.7862.41,006.61,157.6
Income Tax Department146.2196.5195.6230.8215.3265.0300.5345.6
Customs and Excise Department308.4370.9363.1458.8398.3470.6565.2650.0
Mines Department18.626.218.529.218.826.936.842.3
Other departments29.445.338.749.036.242.645.452.2
Road user charges34.453.846.256.256.157.358.767.5
Grants1,592.5368.2264.6425.9474.7474.8515.7597.7
Program168.7209.3143.8201.0249.8219.3230.6259.9
Of which: HIPC assistance35.010.713.412.812.811.411.90.0
Peace Building Fund8.015.011.8
Projects70.6159.0120.8224.9224.9255.5285.1337.8
MDRI assistance from IDA and AfDF1,353.2
Total expenditure and net lending876.61,246.61,207.31,486.71,462.71,591.71,794.62,007.8
Current expenditure660.9894.6848.31,000.9977.11,034.11,151.91,268.6
Wages and salaries296.5340.2334.4400.2400.2455.0508.1567.2
Of which: social security payments14.018.120.421.721.721.721.721.7
Current noninterest, nonwage expenditure252.3433.6393.5460.2461.1435.6488.8520.4
Goods and services2157.3302.7284.6304.4312.3262.0302.2310.0
Of which: Emergency Power Project98.283.541.651.7
Transfers to local councils19.341.527.160.160.169.977.086.4
Grants to educational institutions227.427.229.238.931.945.550.156.2
Transfers to Road Fund34.453.846.256.256.157.358.767.5
Elections13.87.56.30.40.40.60.60.0
Interest payments112.1120.9120.5140.5115.8143.5155.0181.0
Domestic96.3109.6108.7127.6104.0129.9140.7162.1
Foreign15.911.211.712.911.813.614.318.9
Capital expenditure and net lending176.7351.9359.1485.8485.6557.6642.7739.2
Capital expenditure173.8353.8359.1486.8486.8557.6642.7739.2
Externally financed132.4267.3284.1406.0406.0444.8494.7573.0
Domestically financed41.486.675.080.880.8112.7148.0166.1
Net lending2.9-1.90.0-1.0-1.20.00.00.0
Contingency spending related to MDRI39.00.00.00.00.00.00.00.0
Overall balance (commitment basis)
Excluding grants-339.7-553.9-545.2-662.7-738.0-729.3-788.0-850.2
Including grants1,252.7-185.6-280.6-236.8-263.3-254.5-272.3-252.5
Total financing-1,252.7185.6280.6236.8263.3254.5272.3252.5
Foreign-1,333.877.4143.3150.3154.6139.4144.6163.7
Borrowing61.8108.3163.3181.1181.1189.3209.6235.3
Project61.8108.3163.3181.1181.1189.3209.6235.3
Program0.00.00.00.00.00.00.00.0
Amortization3-1,395.6-30.9-20.0-30.8-26.6-49.9-65.0-71.5
Domestic110.2108.2158.086.4108.7115.1127.788.8
Bank financing54.8127.3217.7100.2122.5146.3155.393.7
Central bank56.898.3119.988.299.881.7116.368.0
Of which: change in MDRI-related deposits39.098.3118.588.299.881.7116.368.0
Commercial banks-2.029.097.812.022.764.639.025.7
Nonbank financing55.4-19.1-59.6-13.8-13.8-31.3-27.6-4.9
Claims on gov. by nonbank sector11.3-6.9-34.07.37.3-19.2-5.0-4.9
Privatization and other receipts5.213.94.112.023.90.00.00.0
Change in arrears39.0-41.9-45.6-33.1-45.0-12.0-22.60.0
Of which: arrears to local councils0.0-15.3-15.30.00.00.00.00.0
Float (checks payable and outstanding commitments)0.015.815.80.00.00.00.00.0
Unaccounted (- = overfinancing of the budget)-29.10.0-20.80.00.00.00.00.0
Financing gap0.00.00.00.00.00.00.00.0
Memorandum items
Nominal GDP4,966.55,873.45,823.86,711.86,586.97,377.48,268.79,282.1
Total HIPC assistance (percent of GDP)0.70.20.20.20.20.20.10.0
Total poverty expenditures (percent of GDP)3.07.15.74.95.15.35.55.7
(Le billions)147.8415.3330.4330.6337.5394.0456.2524.6
(Percent of GDP, unless otherwise indicated)
Domestic revenue10.811.811.412.311.011.712.212.5
Total expenditure and net lending17.721.220.722.222.221.621.721.6
Of which: current expenditure13.315.214.614.914.814.013.913.7
capital expenditure3.56.06.27.37.47.67.88.0
Overall fiscal balance (commitment basis)
Including grants25.2-3.2-4.8-3.5-4.0-3.4-3.3-2.7
Excluding grants-6.8-9.4-9.4-9.9-11.2-9.9-9.5-9.2
Domestic primary balance4-1.9-2.8-2.4-1.7-3.3-1.9-1.7-1.0
(Le billions)-95.2-165.7-140.7-116.2-216.2-141.0-138.3-96.2
Domestic financing2.21.82.71.31.71.61.51.0
Domestic debt stock, at end-period25.623.324.521.522.922.021.219.8
Total wages and salaries6.05.85.76.06.16.26.16.1
Total wages and salaries (percent of domestic revenue)55.249.150.548.655.252.850.549.0
Sources: Sierra Leonean authorities, and IMF staff estimates.

IMF Country Report No. 09/2 (January 12, 2009).

In the revised program for 2009, Le 7 billion of grants to educational institutions have been reclassified in current expenditure on goods and services.

The amount for 2007 includes MDRI relief from IDA and AfDF (as stock of debt relief).

Domestic revenue minus total expenditure and net lending, excluding interest payments and externally financed capital expenditure.

Sources: Sierra Leonean authorities, and IMF staff estimates.

IMF Country Report No. 09/2 (January 12, 2009).

In the revised program for 2009, Le 7 billion of grants to educational institutions have been reclassified in current expenditure on goods and services.

The amount for 2007 includes MDRI relief from IDA and AfDF (as stock of debt relief).

Domestic revenue minus total expenditure and net lending, excluding interest payments and externally financed capital expenditure.

Sierra Leone: External Budget Support in 2008-09(US$ millions)
20082009
Prog.ActualProg.Rev. Prog.
United Kingdom (DfID)25.118.425.121.9
European Union22.47.616.632.4
World Bank10.013.110.010.0
AfDB8.00.08.08.0
Peace Building Fund10.05.00.03.8
Total budget support65.544.159.776.1
Source: Sierra Leonean authorities.

Support to the Emergency Power Project

Source: Sierra Leonean authorities.

Support to the Emergency Power Project

Sierra Leone: Fiscal Indicators, 2008–12(Percent of GDP, unless otherwise indicated)
20082009201020112012
Prog.1Act.Prog.1Rev. Prog.Proj.
Revenue and grants18.115.918.418.218.118.418.9
Domestic revenue11.811.412.311.011.712.212.5
Total expenditure and net lending21.220.722.222.221.621.721.6
Of which: current expenditure15.214.614.914.814.013.913.7
capital expenditure6.06.27.37.47.67.88.0
Domestic primary fiscal balance-2.8-2.4-1.7-3.3-1.9-1.7-1.0
Overall fiscal balance, commitment basis
Excluding grants-9.4-9.4-9.9-11.2-9.9-9.5-9.2
Including grants-3.2-4.8-3.5-4.0-3.4-3.3-2.7
Domestic financing1.82.71.31.71.61.51.0
Domestic debt (end-period)21.524.521.522.922.021.219.8
Poverty-reducing expenditures5.65.74.95.15.35.55.7
Sources: Sierra Leonean authorities, and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

Sources: Sierra Leonean authorities, and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

9. The authorities recognize the need to step up efforts to improve tax administration and broaden the tax base (MEFP, ¶14). At 11 percent of GDP in 2009, domestic revenue is among the lowest among in sub-Saharan Africa. Measures to make the National Revenue Authority more efficient include (i) strengthening of the Large Taxpayer Office; (ii) modernizing customs operations, particularly by upgrading the IT system; and (iii) establishing a Domestic Taxation Department for all domestic tax administration operations. In parallel, the NRA has undertaken to intensify field audits and enforce the payment of tax arrears. Parliament enacted legislation introducing the GST in early June and the implementation regulations have been adopted by Cabinet. The GST launch was delayed to September 2009 to finalize all preparatory work.5 The authorities have also undertaken actions to simplify the tax regime for small taxpayers whose turnover does not exceed the GST threshold.

10. There is a need to deepen public financial management (PFM) reforms and build capacity for effective delivery of basic public services. A new integrated PFM reform program, supported by several development partners, is under preparation to consolidate the progress made so far in public expenditure management (MEFP, ¶15).

Monetary and exchange rate policies

11. Monetary policy will aim at maintaining single-digit inflation. Reserve money is targeted to grow by about 13 percent, which, given the government’s domestic financing requirement, would allow for adequate expansion in credit to the private sector (Tables 6 and 7). To support the conduct of monetary policy, the government will complete conversion of Le 60 billion of noninterest-bearing liabilities into marketable securities. Further, to enhance the independence of the BSL, the authorities are exploring ways to give it the authority to change the reserve requirement ratio without parliamentary approval (MEFP, ¶17).

Table 6.Sierra Leone: Monetary Survey, 2007–10(Le billions; at actual exchange rates unless otherwise indicated)
2007200820092010
Dec.Dec.Mar.JuneSept.Dec.Dec.
Act.Prog.1Act.Prog.1Proj.Prog.1Rev. Prog.Prog.1Rev. Prog.Prog.1Rev. Prog.Proj.
Monetary survey
Net foreign assets882.6741.5832.2788.9814.5939.5741.9913.4654.8919.4725.2645.5
Net domestic assets245.8617.2593.7607.9530.6524.1654.0625.0853.7630.9845.71,119.6
Domestic credit579.5822.0958.9851.5896.4877.21,020.4996.41,219.4993.41,210.31,484.1
Net credit to government307.3458.4528.2490.5567.5491.8649.0545.7777.3558.6715.6855.6
Narrow definition2-228.8-54.2-3.3-27.126.2-45.877.7-5.8120.846.0119.4184.0
Claims on nonfinancial public enterprises8.48.617.38.717.38.717.38.717.38.717.317.3
Claims on private sector263.7355.0413.4352.3311.6376.8354.1442.0424.8426.2477.4611.2
Other items (net)-333.6-204.8-365.2-243.6-365.7-353.2-366.4-371.4-365.7-362.5-364.5-364.5
Broad money1,128.51,358.71,426.01,396.81,372.31,463.61,450.91,538.41,564.61,550.31,667.61,896.5
Money549.6474.0666.7446.8704.2425.7759.0402.9818.5522.2872.4954.2
Quasi money578.9884.7759.3950.0668.11,037.9691.91,135.6746.11,028.0795.2942.3
Memorandum items:(Annual percentage change)
Broad money25.920.426.419.819.017.017.415.318.314.116.913.7
Reserve money26.016.810.215.614.914.213.412.014.313.613.212.0
Net credit to the government17.649.171.936.557.918.656.516.465.821.935.519.6
Claims on private sector39.434.656.818.54.818.911.718.914.320.015.528.0
Velocity (GDP/M2)4.44.34.14.84.85.14.55.44.24.34.03.9
Money multiplier (M2/base money)2.72.73.12.92.93.03.03.02.92.83.23.2
Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

Excluding non interest-bearing government securities, government securities held for monetary operations, recapitalization bonds, and deposits in the sterilization account.

Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

Excluding non interest-bearing government securities, government securities held for monetary operations, recapitalization bonds, and deposits in the sterilization account.

Table 7.Sierra Leone: Summary Accounts of Central Bank and Deposit Money Banks, 2007–10(Le billions; at actual exchange rates unless otherwise indicated)
2007200820092010
DecDec.Mar.JuneSept.Dec.Dec.
Act.Prog.1Act.Prog.1Proj.Prog.1Rev. Prog.Prog.1Rev. Prog.Prog.1Rev. Prog.Proj.
Bank of Sierra Leone
Net foreign assets536.2422.8479.2396.7467.7504.6407.7480.9327.2559.6384.3372.1
Foreign assets647.2533.8643.3511.9631.8620.1571.8611.8576.7670.6670.3687.1
Foreign liabilities-111.0-111.0-164.1-115.2-164.1-115.5-164.1-130.9-249.6-111.0-285.9-315.0
Net domestic assets-112.472.1-12.479.76.0-12.281.339.0203.42.6144.3219.7
Net credit to government75.0158.0136.4189.2164.0210.0240.0241.2361.4246.2301.1376.6
Narrow definition-448.1-341.6-320.3-310.4-302.5-289.6-256.7-258.4-220.3-253.4-220.3-220.3
Claims on non financial public enterprises0.00.00.00.00.00.00.00.00.00.00.00.0
Claims on private sector2.92.97.02.97.02.97.02.97.02.97.07.0
Claims on deposit money banks0.80.83.90.83.90.83.90.83.90.83.93.9
Other items (net)-191.2-89.6-159.8-113.2-169.0-225.9-169.7-205.9-169.0-247.3-167.8-167.8
Reserve money423.8494.9466.8476.4473.7492.4489.0519.9530.6562.3528.6591.8
Currency outside banks309.8428.2340.4411.1357.9421.9334.5443.4331.4488.6415.6464.4
Reserves of deposit money banks92.741.1101.940.987.047.292.037.999.244.5105.8170.4
Other deposits21.225.624.624.528.723.362.538.799.929.27.2-43.0
Deposit money banks
Net foreign assets346.4318.7353.0392.2346.8434.9334.1432.5327.7359.7340.9273.4
Net domestic assets451.0586.2708.0569.1611.7583.5664.7623.9749.5672.7807.21,070.3
Net credit to government232.3300.4391.8301.3403.4281.8409.0304.5415.9312.4414.5479.1
Claims on nonfinancial public enterprises8.48.617.38.617.38.717.38.717.38.717.317.3
Claims on private sector260.8352.1406.4349.4304.6373.8347.1439.0417.8423.2470.4604.1
Reserves65.541.193.240.987.047.292.037.999.244.5105.8170.4
Other items (net)-116.0-116.0-200.7-131.1-200.7-128.0-200.7-166.3-200.7-116.0-200.7-200.7
Total deposits797.4904.91,061.0961.2958.51,018.4998.91,056.41,077.21,032.51,148.11,343.6
Local currency deposits523.9575.6753.6582.2725.2578.8766.7549.7826.8638.2881.31002.3
Foreign currency deposits273.5329.3307.4379.0233.3439.6232.1506.7250.3394.3266.8341.4
Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

IMF Country Report No. 09/2 (January 12, 2009).

12. The banking sector so far has withstood the global financial crisis, but it will be necessary to remain vigilant against the risks. All 13 banks met the minimum capital requirement of Le 12 billion as of March 2009 and the requirement will increase it to Le 15 billion by year-end. However, despite recent declines, nonperforming loans (NPLs) remain large at about 23 percent of gross loans at end-2008 (Table 12). While banks are moving to increase provisioning and recover large bad loans, the rapid credit expansion in recent years may expose further vulnerabilities. Moreover, although Sierra Leone’s banks have limited exposure to international markets, the financial crisis could cause problems if banks lose some of their deposits with troubled foreign correspondent banks. Mindful of these risks, the BSL is monitoring developments closely, especially bank open positions in foreign currencies and compliance with prudential indicators.

13. The authorities reiterated their commitment to keep the exchange rate flexible to allow for an appropriate market response to external shocks. BSL interventions in the foreign exchange market will be dictated by the need to meet its foreign reserve target and it will continue to balance treasury bill sales and foreign exchange auctions to achieve an appropriate monetary policy mix.

Table 8.Sierra Leone: Balance of Payments, 2007–13(US$ millions, unless otherwise indicated)
2007200820092010201120122013
Est.Prog.Est.Prog.Rev. Prog.Proj.
Current account balance-57.3-139.3-176.5-109.8-178.3-189.3-182.0-175.5-179.4
Balance on goods-94.2-167.4-181.0-125.0-199.9-205.9-205.4-204.7-211.4
Exports, f.o.b.282.4285.4246.1319.5180.7214.0251.2292.6323.0
Of which: rutile39.437.339.238.628.727.042.044.250.0
bauxite32.733.428.145.417.910.111.817.919.2
diamonds1168.6152.9117.6159.570.5112.5128.4158.4178.6
Of which: kimberlite17.115.711.916.57.111.713.516.418.6
Imports, f.o.b.-376.6-452.8-427.1-444.5-380.6-420.0-456.6-497.3-534.4
Of which: petroleum-105.7-166.8-155.3-130.7-92.4-104.0-118.5-137.3-152.2
rice-20.9-40.1-53.4-32.1-48.0-47.1-46.1-45.2-44.3
Balance on services-22.6-41.9-41.9-42.5-42.1-45.7-49.2-53.7-58.1
Credit63.162.862.867.757.861.365.068.973.0
Debit-85.7-104.7-104.7-110.3-99.9-107.0-114.2-122.6-131.1
Income-34.6-39.5-39.1-41.6-40.0-41.2-42.4-44.1-45.3
Credit7.87.68.27.78.58.99.39.710.2
Debit-42.5-47.2-47.3-49.3-48.5-50.1-51.7-53.8-55.4
Interest payments due before debt relief2-5.3-3.8-3.9-4.1-3.7-4.1-4.1-5.3-5.7
Current transfers94.2109.485.599.3103.7103.4114.9127.0135.3
Public (net)358.670.047.263.278.766.575.084.088.3
Of which: HIPC grants12.03.53.53.53.53.53.53.54.0
Private (net)435.639.438.336.124.937.039.943.147.0
Current account balance, excl. public transfers-115.9-209.4-223.7-173.0-257.0-255.8-257.0-259.5-267.7
Capital and financial account88.585.5152.5126.3149.8185.7191.9192.4198.3
Capital account472.156.643.875.075.081.487.098.7105.8
Project grants23.353.340.571.471.477.482.693.8100.5
Debt forgiveness (MDRI relief from IDA and AfDB)445.90.00.00.00.00.00.00.00.0
Private capital transfers3.03.33.33.63.64.04.44.85.3
Financial account-383.628.9108.651.374.8104.3104.893.792.5
Direct investment and portfolio investment69.129.629.629.622.126.228.129.226.3
Other investment-452.7-0.679.121.752.778.176.764.566.3
Public sector loans (net)-447.125.948.147.749.142.241.945.548.7
Of which: disbursements20.336.354.757.557.557.460.865.469.5
program loans0.00.00.00.00.00.00.00.00.0
project loans20.336.354.757.557.557.460.865.469.5
amortization due-467.5-10.4-6.7-9.8-8.4-15.1-18.8-19.9-20.8
Private sector loans (net)0.0-15.00.0-15.00.00.00.00.00.0
Change in net foreign assets of commercial banks-45.89.3-2.2-13.03.920.515.32.12.0
Other, including errors and omissions40.2-20.933.22.0-0.315.419.517.015.6
Overall balance31.3-53.8-24.016.5-28.5-3.69.816.818.9
Change in net foreign assets of the central bank (- = increase)-31.353.824.0-16.512.73.6-9.8-16.8-18.9
Change in reserve assets (- = increase)-31.335.46.0-39.3-8.6-5.0-5.0-10.0-12.0
Net Fund credit0.018.418.022.721.38.6-4.8-6.8-6.9
Fund PRGF disbursement0.018.418.022.721.310.70.00.00.0
Repayments0.00.00.00.00.0-2.1-4.8-6.8-6.9
Financing gap0.00.00.00.015.80.00.00.00.0
Augmentation of PRGF access0.00.00.00.015.80.00.00.00.0
Remaining gap0.00.00.00.00.00.00.00.00.0
Memorandum items:(Percent of GDP unless otherwise indicated)
Current account-3.4-7.1-9.0-5.2-8.5-8.5-7.6-6.8-6.5
Current account, excluding public transfers-7.0-10.6-11.5-8.1-12.3-11.4-10.7-10.1-9.8
Overall balance of payments1.9-2.7-1.20.8-1.4-0.20.40.70.7
MDRI debt service savings (US$ millions)21.329.229.233.133.139.139.426.118.0
Of which: IMF16.224.124.128.028.033.933.718.910.1
AfDF1.81.91.91.91.91.92.22.52.7
IDA3.23.23.23.23.23.33.54.75.2
Gross official reserves (US$ millions)215.5180.1209.5219.3218.0223.0228.0238.0250.0
Gross official reserves (months of imports) 54.93.95.24.25.04.74.44.34.1
GDP (US$ millions)1663.71968.91952.82130.72091.12235.62396.72578.42740.8
Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

Includes unrecorded diamond exports estimated from partner-country data.

Official interest payments due, including Fund charges.

Includes mostly program grants.

Includes worker remittances and transfers to NGOs

Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

Includes unrecorded diamond exports estimated from partner-country data.

Official interest payments due, including Fund charges.

Includes mostly program grants.

Includes worker remittances and transfers to NGOs

Table 9.Sierra Leone: Indicators of Capacity to Repay the Fund, 2007–16(US$ millions, unless otherwise indicated)
2007200820092010201120122013201420152016
Proj.
Fund credit outstanding (end of period)
SDR millions23.1134.5158.9164.5661.4156.9552.4945.8338.5233.01
US$ millions35.3854.5689.4798.3893.8687.4380.9670.9659.6451.11
Percent of quota22.2933.2856.8162.2659.2254.9250.6244.2037.1531.84
Fund obligations based on existing and prospective credit10.120.130.202.295.027.057.0510.4511.428.60
Charges and interests0.120.130.200.230.210.200.170.140.100.07
Principal0.000.000.002.064.816.856.8810.3111.328.53
Fund credit outstanding as percent of:
Exports of goods and services10.217.737.535.729.724.220.416.513.110.6
Total external debt3.55.48.48.88.17.36.65.64.63.8
Gross official reserves16.426.041.044.141.236.732.426.321.317.5
Fund obligations as percent of:
Exports of goods and services0.00.00.10.81.61.91.82.42.51.8
Gross international reserves0.10.10.11.02.23.02.83.94.12.9
Memorandum items:
Exports of goods and services (US$ millions)345.5308.9238.5275.4316.2361.5396.0430.7456.4483.7
Gross international reserves (in months of imports)4.95.25.04.74.44.34.14.04.04.0
Debt service due after debt relief, incl. to IMF4.22.33.96.78.08.07.58.18.47.9
GDP (US$ millions)1,663.71,952.82,091.12,235.62,396.72,578.42,740.82,937.93,147.13,313.0
Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

The proposed augmentation is included in the calculations

Sources: Sierra Leonean authorities; and IMF staff estimates and projections.

The proposed augmentation is included in the calculations

Table 10.Sierra Leone: Proposed Schedule of Disbursements Under the PRGF Arrangement, 2006–10(SDR millions)
Disbursements
DateCurrentProposed1Subject to
May 20064.714.71Approval of arrangement
December 20064.404.40First review and performance criteria (PCs) for end-June 2006
July 20084.404.40Completion of the second review and waivers for the nonobservance of end-December 2006 PCs
December 20087.007.00Third review and quantitative PCs for end-June 2008, and structural PC for end-September 2008, as described in the June 5, 2008 MEFP, Tables 1 and 2
June 20097.0012.185Fourth review and quantitative PCs for end-December 2008 and structural PC as described in the June 5, 2008 MEFP, Table 2
November 20097.0012.185Fifth review and quantitative PCs for end-June 2009
April 20107.007.00Sixth review and quantitative PCs for end-December 2009
Total disbursements41.5151.88

Assuming an augmentation of SDR 10.37 million (10 percent of quota) upon completion of the fourth review.

Assuming an augmentation of SDR 10.37 million (10 percent of quota) upon completion of the fourth review.

Table 11.Sierra Leone: Millennium Development Goals, 1990–2007
1990199520002007
Goal 1: Eradicate extreme poverty and hunger
Employment to population ratio, 15+, total (%)64666868
Employment to population ratio, ages 15–24, total (%)51556060
Income share held by lowest 20%1.1
Malnutrition prevalence, weight for age (% of children under 5)24.7
Poverty headcount ratio at national poverty line (% of population)82.8
Prevalence of undernourishment (% of population)4644
Vulnerable employment, total (% of total employment)
Goal 2: Achieve universal primary education
Literacy rate, youth female (% of females ages 15–24)
Literacy rate, youth male (% of males ages 15–24)
Persistence to last grade of primary, total (% of cohort)
Primary completion rate, total (% of relevant age group)81
Total enrollment, primary (% net)
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliament (%)6913
Ratio of female to male enrollments in tertiary education40
Ratio of female to male primary enrollment707190
Ratio of female to male secondary enrollment577169
Ratio of young literate females to males (% ages 15–24)
Share of women employed in the nonagricultural sector (% of total nonagricultural employment)
Goal 4: Reduce child mortality
Immunization, measles (% of children ages 12–23 months)3767
Mortality rate, infant (per 1,000 live births)169165162159
Mortality rate, under-5 (per 1,000)290282277270
Goal 5: Improve maternal health
Adolescent fertility rate (births per 1,000 women ages 15–19)192192166
Births attended by skilled health staff (% of total)4243
Contraceptive prevalence (% of women ages 15–49)45
Maternal mortality ratio (modeled estimate, per 100,000 live births)2,100
Pregnant women receiving prenatal care (%)6881
Unmet need for contraception (% of married women ages 15–49)
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Children with fever receiving antimalarial drugs (% of children under age 5 with fever)6152
Condom use, population ages 15–24, female (% of females ages 15–24)
Condom use, population ages 15–24, male (% of males ages 15–24)
Incidence of tuberculosis (per 100,000 people)214282371517
Prevalence of HIV, female (% ages 15–24)1.3
Prevalence of HIV, total (% of population ages 15–49)1.31.7
Tuberculosis cases detected under DOTS (%)283335
Goal 7: Ensure environmental sustainability
Annual freshwater withdrawals, total (% of internal resources)0.2
CO2 emissions (kg per PPP $ of GDP)0.20.30.3
CO2 emissions (metric tons per capita)0.10.10.1
Forest area (% of land area)434038
Improved sanitation facilities (% of population with access)121211
Improved water source (% of population with access)575753
Marine protected areas, (% of surface area)
Nationally protected areas (% of total land area)
Goal 8: Develop a global partnership for development
Aid per capita (current US$)15504063
Debt service (PPG and IMF only, % of exports, excl. workers’ remittances)10.163.245.95.7
Internet users (per 100 people)0.00.00.10.2
Mobile phone subscribers (per 100 people)0.00.00.313.3
Telephone mainlines (per 100 people)0.30.40.4
Other
Fertility rate, total (births per woman)6.56.56.56.5
GNI per capita, Atlas method (current US$)200190140260
GNI, Atlas method (current US$) (billions)0.80.80.61.5
Gross capital formation (% of GDP)10.05.66.913.2
Life expectancy at birth, total (years)39394142
Literacy rate, adult total (% of people ages 15 and above)
Population, total (millions)4.14.14.55.8
Source: World Development Indicators database, 2007.
Source: World Development Indicators database, 2007.
Table 12.Sierra Leone: Financial Soundness Indicators of the Banking System, 2004-08
20042005200620072008
JuneDec.
(Percent, end of period, unless otherwise indicated)
Capital adequacy
Regulatory capital ratio138.135.733.335.041.143.5
Regulatory tier1 capital ratio212.710.317.016.718.618.7
Asset quality
Nonperforming loans to total gross loans16.526.827.831.732.223.3
Nonperforming loans (net of provisions) to regulatory capital13.426.824.137.834.925.4
Loan loss provisions to NPLs (net of accrued interest)43.110.359.744.540.354.4
Earnings and profitability
Return on assets9.98.15.83.11.82.2
Return on equity32.928.017.010.37.07.2
Interest spread312.213.413.415.215.2
Liquidity
Ratio of net loans to total deposits36.327.526.527.730.033.9
Liquidity ratio452.953.058.953.357.544.6
Statutory minimum liquidity ratio4533.434.028.525.725.629.3
Share of foreign exchange deposits in total deposits28.230.732.436.534.432.2
(Number of banks not complying)
Prudential ratios at year-end
Capital adequacy000000
Minimum liquidity ratio000000
Minimum capital001111
Limit of single large exposure6002112
Memorandum Item:
Number of banks778101013
Source: Bank of Sierra Leone.

Capital requirement over risk-weighted assets (solvency ratio).

Core capital (Tier I) over total assets.

Average lending rate minus average saving deposit rate.

Calculated taking into account both domestic currency and foreign currency deposits. Liquid assets include domestic currency cash in vault, claims on the BSL, claims on discount houses, and government securities.

Effective November 2007, minimum liquidity includes 40 percent of demand deposits and 20 percent of quasi money to be held in either cash or treasury bills.

A single large exposure of an institution is any exposure that is 2 percent or more of its capital base.

Source: Bank of Sierra Leone.

Capital requirement over risk-weighted assets (solvency ratio).

Core capital (Tier I) over total assets.

Average lending rate minus average saving deposit rate.

Calculated taking into account both domestic currency and foreign currency deposits. Liquid assets include domestic currency cash in vault, claims on the BSL, claims on discount houses, and government securities.

Effective November 2007, minimum liquidity includes 40 percent of demand deposits and 20 percent of quasi money to be held in either cash or treasury bills.

A single large exposure of an institution is any exposure that is 2 percent or more of its capital base.

External sector

14. Sierra Leone’s balance of payments outlook has worsened significantly due to deteriorating mining exports (Table 8). The value of exports is projected to fall by about 27 percent in 2009, reflecting a decline in average world prices and export volumes of the main minerals—diamonds, rutile, and bauxite. A major bauxite mine has been shut down and diamond mining has been cut back due to low demand and prices. On the import side, the value of fuel imports is projected to decline with falling world market prices and less domestic demand as hydro-generated electricity replaces diesel-generated. Relative to the program, the current account deficit (including official transfers) is projected to widen by 3.2 percentage points of GDP to 8.5 percent. The earlier program objective of accumulating US$39 million in international reserves in 2009 is now beyond reach. Instead, the program will target an increase of about US$9 million which would bring reserves to 5 months of next year’s imports at end-2009. This increase in reserve coverage compared to the original program target reflects a projected decline in imports for 2010. The Sierra Leonean authorities stressed the need to target at least a moderate increase in the dollar value of reserves to buttress market confidence in the leone and be better prepared to withstand any unexpected market pressures, such as more fallout from the global crisis. Also, the precipitous fall in export receipts and high export concentration in a few minerals call for a relatively high reserve cover to foster confidence among market participants. Furthermore, the authorities are conscious that coverage will decline when import demand returns to normal levels in the coming years—reserves are projected to fall to about 4 months of imports in the medium term.

15. To achieve the targeted increase in reserves, the external financing gap is projected at $15.8 million. The authorities are requesting an augmentation of access under the PRGF arrangement equivalent to 10 percent of quota to close this gap (about 0.3 months of imports). This would bring Sierra Leone’s total access to SDR 51.88 million, equivalent to about 50 percent of quota (Table 10). Given the fiscal adjustment already made through spending cuts and identified additional external financing amounting to about US$16 million (see paragraph 8), the augmentation would be appropriate to support maintenance of international reserves. Moreover, the authorities are prepared to keep the exchange rate flexible, which will be important for adjustment if there are additional external shocks. Without the augmentation, reserves would likely decline in 2009. Sierra Leone’s capacity to repay the Fund remains favorable. Total debt service obligations to the Fund are projected to peak in 2015 at 2.5 percent of exports of goods and services and to decline thereafter (Table 9).

Sierra Leone: Impact of a 10 Percent Augmentation of Access on the NPV of Debt-to-Exports Ratio

16. The DSA completed in June 2008 found that Sierra Leone was at a moderate risk of debt distress. While debt indicators relative to exports have weakened following the drop in exports, all indicators remain below the DSA thresholds for Sierra Leone.6 The NPV of debt-to-export ratio is estimated to increase to 77 percent in 2009 and gradually decline to about 70 percent thereafter. The NPV of debt-to-GDP ratio will increase slightly to about 9 percent in 2009 and remain well below the 30 percent threshold thereafter. The proposed augmentation of the PRGF arrangement will increase the NPV of debt-to-export ratio by an additional 5 percentage points in 2009, but the effect will gradually disappear.

17. The government is making good faith efforts to resolve external arrears to commercial creditors. The authorities continue to engage these creditors, they have made goodwill payments to some of them, and a debt buy-back operation on external commercial debt is being prepared, with World Bank assistance.7 The status of Sierra Leone’s relations with its external creditors provides sufficient financing assurances for the Fund-supported program.

Other structural reforms

18. Structural reforms will continue to focus on macrocritical areas to raise economic growth and improve public services. Efforts in 2009 will emphasize

  • Implementing the comprehensive strategy for reform of the financial sector that was adopted in June 2008. The plan calls for strengthening bank supervision, enhancing competition in the sector, increasing access to commercial bank credit, and improving the payment system (MEFP, ¶20). Regulations are also being prepared to ensure that the AML/CFT provisions comply with international standards.
  • Restructuring the National Power Authority (NPA) and improving its finances. The authorities are preparing a study to inform a comprehensive electricity tariff policy to be adopted by December 2009 (MEFP, ¶21). Measures will also be put in place to better oversee the financial and technical operations of the NPA, in consultation with several donors active in the sector.
  • Tackling corruption and enhancing transparency in the use of public resources. Following the launch in 2008 of the national Anti-Corruption Strategy, an anti-corruption act was passed to strengthen the power of the Anti-Corruption Commission (ACC). The ACC will intensify education and outreach activities to enhance public awareness of corruption (MEFP ¶22).

B. Monitoring

19. The program will be monitored semiannually. Quantitative performance criteria for June and December 2009 and indicative targets for September have been modified to make them consistent with the revised macroeconomic framework (MEFP, Table 1). Structural performance criteria for 2009 have been converted into structural benchmarks (MEFP, Table 2). The structural program conditionality focuses on strengthening tax administration, enhancing bank supervisions, and improving the financial viability of the public electricity utility. Reviews of structural policies will be based on assessment of progress on the authorities’ reform program, particularly where benchmarks have been set.

C. Risks

20. There are risks to the program. First, there are downside risks to projected economic growth in 2009–10 and the strength of the subsequent recovery. The global recession may affect the Sierra Leonean economy more severely or it may deepen further, suppressing revenues more and further slowing domestic activity. Revenue shortfalls will require additional fiscal adjustment or external financing. Second, the financial crisis could impact negatively on the balance sheet of commercial banks, constraining the availability of bank credit. Although the risks may be limited due to the local banks’ low integration with global financial markets, the BSL is closely monitoring developments in the financial sector against a set of early warning indicators.

III. Staff Appraisal

21. After a period of robust growth, the global economic downturn is slowing economic activity in Sierra Leone. The mining industry, the country’s main export sector, is being hard hit by declining prices and sluggish demand. Services and construction sectors are also negatively affected. On the positive side, agricultural production remains robust, electricity capacity is expected to rise, and the country is benefiting from the decline in world fuel prices.

22. Shortfalls in domestic revenue are challenging fiscal policy. The authorities are responding appropriately by safeguarding the budgeted expansion in investment and poverty-reducing expenditures and minimizing the impact on the domestic financing requirement by cutting current, nonpriority spending and seeking additional external financing. Because revenue collection is low by regional standards, it will be critical to step up the efforts to strengthen tax administration, broaden the tax base, and deepen PFM reforms to improve delivery of basic public services. In this respect, the GST launch planned for September 2009 is an important step.

23. Monetary policy should aim at keeping inflation in single digits in 2009. Conversion of the noninterest-bearing, nonmarketable government liabilities on the balance sheet of the BSL into marketable securities should strengthen the conduct of monetary policy.

24. Vigilance against financial sector risks is crucial. Although the banking sector has coped well thus far with the effects of the global financial crisis, the BSL should carefully monitor banks open positions in foreign currencies and compliance with prudential regulations. Notwithstanding they have declined recently, NPLs as a percent of total gross loans remain a cause of concern, particularly after a period of very strong growth in bank credit to the private sector.

25. Staff supports the authorities commitment to maintain exchange rate flexibility. Flexibility would provide an important buffer against fluctuations in commodity prices and other external shocks.

26. There is a need to step up structural reforms to raise economic growth and improve delivery of public services. The focus is appropriately on deepening the financial sector, reforming the electricity sector to provide reliable and cost-efficient service throughout the country, and promoting good governance and enhancing transparency in the use of public resources.

27. Staff recommends the completion of the fourth PRGF review and the financing assurances review. Staff further recommends that the authorities’ request for waivers for the nonobservance of one quantitative and one structural performance criteria be granted in view of the corrective actions taken, the external shocks the country has experienced, and the authorities’ continued commitment to sound macroeconomic policies.

28. Staff also recommends that the requested augmentation of access under the PRGF arrangement be granted. This would help ease adjustment to the external shock and keep international reserves at a level that would sustain confidence in the domestic currency. The augmentation is justified by significant external vulnerabilities, a moderate external debt burden, and demonstrable capacity to repay the Fund.

Notes

1The continuous PC was also met through May 2009.
2A Consultative Group meeting for Sierra Leone is scheduled to take place in London later this year to mobilize additional funding for the implementation of the new PRSP.
3The revised program also incorporates provisions for the cost of fuel to continue the Emergency Power Project for another three months. The supply of electricity from the Bumbuna hydroelectric project was expected to start by June 2009, but a few months delay is likely.
4The authorities are also in discussion with the EU of additional budget support grants for 2009. If they become available the need for the additional domestic financing would correspondingly be reduced.
5The GST is expected to be revenue-neutral in 2009, but to generate at least 0.4 percent of GDP in additional annual revenue subsequently.
6This calculation is based on a preliminary update of the 2008 DSA, with new borrowing based on the authorities’ latest medium-term fiscal framework through 2012 and thereafter assumed to be roughly constant as a percent of GDP. A DSA update prepared with the World Bank will be presented together with the staff report for the fifth PRGF review.
7In February 2009, the World Bank approved a grant to fund the preparatory work for the operation, including financing for legal and financial advisors, documentation, and audits. Unreconciled records suggest that the stock of external debt to commercial creditors could be as high as US$246 million. The cost to finance a buy-back of all remaining eligible commercial external debt is currently estimated at US$7–15 million.
Appendix I—Letter of Intent: Sierra Leone

June 4, 2009

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Washington, D.C. 20431

U.S.A.

Dear Mr. Strauss-Kahn:

The attached Memorandum of Economic and Financial Policies (MEFP) supplements the one attached to my letter to you dated December 5, 2008. It describes recent economic developments and progress in the implementation of the PRGF-supported program during the second half of 2008 as well as the policies planned for the remainder of 2009.

Program implementation during 2008 was uneven. All end-December quantitative performance criteria (PCs) were met, except the one on domestic government revenue. Shortfalls in domestic revenue resulted from the impact of the global economic downturn on mining and customs revenues towards the end of the year and difficulties in implementing two of the corrective measures described in our December 2008 MEFP. Also on the structural front, the end-December PC on the adoption of an implementation decree for the Goods and Services Tax (GST) was not observed. This was caused by delays by parliament in approving the legislation for the introduction of the GST due to a congested calendar.

Since then, we have taken corrective actions. The President has signed a clearance memorandum for the transfer of all off-budget revenue collected by ministries, departments, and agencies (MDAs) to the Consolidated Revenue Fund and Cabinet approval is expected next week. The Parliament approved the legislation on the GST in June and the implementing regulations were adopted by the Cabinet. Also, the vehicle registration fee was reinstated in early 2009.

In light of the above, the Government of Sierra Leone (GoSL) requests waivers for the non-observance of the PCs related to domestic revenue and the adoption of an implementation decree for the GST, and that the fifth disbursement be made available upon completion of the fourth review under the PRGF arrangement.

Since the third review of the PRGF arrangement was approved by the IMF Executive Board in December 2008, the Sierra Leonean economy has been more severely affected by the global economic downturn than anticipated. This is manifested mostly by a precipitous decline in demand for export and lower economic growth. As a result, prospects for 2009 have changed. To help Sierra Leone to adjust to the external shocks it is experiencing and to maintain a level of foreign reserves that would foster market confidence, the GoSL requests an augmentation of access under the PRGF arrangement of 10 percent of quota, bringing total access to 50 percent of quota.

The GoSL believes that the policies set forth in the attached MEFP and Technical Memorandum of Understanding (TMU) are adequate to achieve the objectives of its program for 2009, but stands ready to take any further measures that become necessary for this purpose, in close consultation with the Fund. The GoSL will also continue to provide the staff of the IMF the information required to accurately assess Sierra Leone’s progress in executing the policies contained in the attached MEFP. The fifth and sixth reviews shall take place in November 2009 and April 2010, respectively. Furthermore, the GoSL will continue to consult with the IMF on its economic and financial policies, in accordance with the IMF’s policies on such consultations.

The GoSL agrees, in line with its commitment to transparency and accountability, to the publication of this letter, its attachments, and the related staff report.

Very truly yours,

_________________________

/s/

Samura M. W. Kamara

Minister of Finance and Economic Development

Attachments

Attachment I. Sierra Leone: Memorandum of Economic and Financial Policies

I. Introduction

1. This memorandum updates the policies presented in our Memorandum of Economic and Financial Policies (MEFP) of December 5, 2008 (IMF Country Report N° 09/2). It reviews recent performance under the program through 2008 and outlines the macroeconomic policies and structural reforms that the Government of Sierra Leone (GoSL) will pursue during the remainder of 2009.

II. Recent Economic Developments

2. Economic growth in 2008 was lower than projected but inflation decelerated. During the last quarter of 2008, the economy came under pressure from slowing global demand and falling export prices, particularly for diamond and bauxite. Real GDP is estimated to have reached 5.5 percent in 2008, compared to a projection of 6.4 percent. On the positive side, growth was solid in agriculture and the service sector. Inflation remained in the double digits with average CPI inflation reaching 14.8 percent in 2008, fueled notably by higher international food and fuel prices. However, inflationary pressures subsided toward the end of the year due to the steep decline in import prices (mainly for oil), leading to a fall in end-period inflation to 12.2 percent, compared with 15.7 percent programmed.

3. Budget execution during 2008 suffered from shortfalls in domestic revenue and delays in the disbursement of external budgetary assistance. The revenue shortfall reached Le 30.6 billion (0.5 percent of GDP) for the year cutting across all main revenue categories except on income tax. Two main factors contributed to the shortfalls. First, two revenue-enhancing measures, namely the transfer of all off-budget revenue collected by ministries, departments, and agencies (MDAs) to the Consolidated Revenue Fund (CRF) and the reinstatement of a vehicle license fee that had been suspended in early 2008, were not implemented as planned. Second, the global economic slowdown, which led to a fall in commodity prices and lower exports and imports, impacted negatively on customs and mining revenues. External budgetary support fell short of the programmed assistance by about 40 percent. Delays in disbursements resulted from fiduciary concerns by some donors and difficulties in meeting some performance-related benchmarks.

4. Monetary policy continued to be guided by the broad objective of containing inflation and maintaining financial stability. The realization of this objective was challenged by fiscal imbalances, higher world food and oil prices, and the global economic downturn. Nonetheless, reserve money growth was contained below the program level. The issuance of Le 47.5 billions of treasury bills, which were converted from BSL’s holding of noninterest-bearing government securities, contributed to slower reserve money growth.

5. Rising food and fuel imports combined with lower exports contributed to a deterioration in the external current account deficit. However, with higher than anticipated private financing inflows, gross international reserves reached US$209 million at end-2008, well above the US$180 million program target. After remaining fairly stable over the past three years, the leone has been gradually depreciating since the beginning of the fourth quarter of 2008. By the end of the first quarter of 2009, it had depreciated against the U.S. dollar by about 6 percent, reflecting a drop in the availability of foreign exchange as export receipts and remittances continued to decline. In response, the BSL gradually increased its offer in the weekly auction from $0.5 million in August 2008 to $1.2 million in November 2008.

6. Bank credit to the private sector continued to grow strongly. The entry of three new banks in mid-2008, increased competition among banks, and the accompanying fall in lending rates are the main reasons for this growth. The new banks also increased the demand for already oversubscribed government securities, which helped push interest rates down. The average effective yield on Treasury bills fell from 21.3 percent at end-2007 to about 9 percent at end-2008.

7. The quality of the loan portfolio remains a problem. While nonperforming loans (NPLs) relative to gross loans declined by 8.4 percentage points in 2008 to 23.3 percent, the nominal value of NPLs increased by 16 percent. The BSL pursued the strengthening of its banking supervision capacity, notably by transferring staff to the Banking Supervision Department and providing training to all staff of the department. Banks continued to maintain adequate provisions for bad loans.

8. Program implementation in the second half of 2008 was mixed. All quantitative performance criteria (PCs) were met, except the one on domestic government revenue. On the structural targets, the continuous structural PC on the monthly meeting of the newly constituted Monetary Policy Committee was observed. However, the structural PC on adoption of an implementation decree for the goods and services tax (GST) and the structural benchmark on adoption of a comprehensive tariff policy for the electricity sector were missed, the former due to a congested parliamentary calendar.

III. Medium-Term Strategy

9. Our medium-term policy agenda will focus on reducing poverty by stimulating economic growth while preserving macroeconomic stability. The policies to achieve these objectives are elaborated in the second-generation Poverty Reduction Strategy Paper (PRSP), which was finalized and endorsed by Parliament in May this year. While maintaining macroeconomic stability, including through improving domestic revenue mobilization and avoiding unsustainable domestic and external debt burden, the strategy outlines policies to:

  • Ensure energy security by providing a reliable power supply, which will be met through expanding electric generating capacity and the distribution network, improving management and regulation of the sector, and strengthening revenue collection.
  • Develop the national transportation network to enable the movement of goods and people and thereby encourage investment and economic activity.
  • Enhance productivity in agriculture by promoting commercial agriculture, through private sector participation, and subsistence farming by providing inputs to encourage intensified production, and improved extension delivery and resource management systems.
  • Improve human development through enhanced investment in public services such as health and education.
  • Consolidate governance by enforcing the implementation of the anti-corruption agenda and expanding access to justice.

10. The medium-term macroeconomic framework has been updated to reflect the impact of the global recession. Weaker global demand is expected to slow growth in the mining and service sectors as the drop in export prices, worker remittances, and foreign direct investment feeds into domestic economic activity. However, output growth should continue to benefit from improved supply of energy, ongoing public initiatives to increase agriculture productivity and intensification, and higher public investment in basic infrastructure. Real GDP growth is projected to decline to 4 percent during 2009–10 and then gradually increase to 6 percent in 2012. Lower commodities prices should continue to ease inflation pressure. Inflation is projected to decline from 12.2 percent during 2008 to 9 percent during 2009 and remain in single digits thereafter. The external current account deficit, excluding transfers, is projected to rise to 12.3 percent of GDP in 2009, reflecting a decline in exports. The external position is expected to improve beyond 2010 in line with the projected improvement in the global environment and a rebound in mining production following the expected reopening of the Koidu diamond mine.

11. Steadfast implementation of the poverty reducing strategy, coupled with improved transparency and accountability in the use of public funds, will help in securing additional financing. The new PRSP was presented to the donor community in May 2009. The government plans to organize sector roundtables and Consultative Group meetings during the second half of 2009 to mobilize additional external financing for its poverty reduction strategy and to broaden the donor base.

IV. Policies for the Remainder of 2009

12. The government is determined to strengthen the macroeconomic framework and implement its structural reform agenda to place the economy on a path of strong and sustainable growth. To this end, the government will pursue efforts underway to coordinate fiscal and monetary policies, improve the delivery of public services, reduce the cost of doing business, and raise productivity and employment throughout the economy.

Fiscal policy

13. Notwithstanding a narrower fiscal space, fiscal policy will aim to raise capital spending while safeguarding macroeconomic stability. The revised revenue projection presents a shortfall of about Le 99 billion or 1.5 percent of GDP, mainly due to the negative impact of the global economic downturn on domestic economic activity and external trade. It takes into account several revenue-enhancing measures, including a transfer of all off-budget revenue collected by MDAs to the CRF, a raise in excises on petroleum products in April 2009 (with an estimated revenue impact of 0.5 percent of GDP), and a reversal of the presumptive import duty on a per-container basis that was adopted in early 2009 in lieu of applying the tariff code. An increase in projected budget grants (0.7 percent of GDP) compared to the program will contribute to covering the shortfall in tax revenue. Moreover, on the expenditure side, savings have been identified amounting to about 0.4 percent of GDP. These include cuts in nonpriority expenditures on goods and services and lower domestic interest payments due to a decline in interest rates. As result, the overall fiscal deficit, including grants, is now projected to widen to 4 percent of GDP from 3.5 percent of GDP in the program, with domestic financing increasing by a similar magnitude. However, compared to 2008, the overall fiscal deficit, including grants, is still expected to decline by 0.8 percentage point of GDP.

14. The government will step up efforts to improve tax administration and broaden the tax base. Measures include (i) accelerating the introduction of the taxpayer identification number and establishment of the domestic tax department; (ii) enforcing the provisions in the existing tax legislation with the aim of eliminating tax evasion and ad-hoc tax exemptions; (iii) intensifying field audits and enforcement of the payment of tax arrears (with interest and penalties on under/late payment of tax); and (iv) adopting a new, modern customs act and associated customs regulations. Moreover, the introduction of the GST is scheduled for September 1, 2009 following Cabinet adoption of the implementing regulations.

15. Public financial management (PFM) reforms will continue to ensure greater transparency, accountability and efficiency in the use of public resources. A new PFM reform program is under negotiation with support from our development partners to consolidate the progress made in the first phase. This program seeks to deepen reforms and strengthen capacity for effective and efficient delivery of basic public services. Key activities that will be undertaken this year include (i) a review of the legal and regulatory framework for PFM; (ii) improving budget planning and budget execution to ensure that funds are directed to national poverty reduction priorities and that the budget process is participatory, transparent, and accountable; (iii) extending coverage of the integrated financial management system, and (iv) strengthening public procurement.

Monetary and exchange rate policies

16. Money growth will continue to be restrained to further reduce inflation. The aim is to reach single-digit inflation in 2009. To achieve this, reserve money is targeted to grow by about 15 percent, which, given the government’s domestic financing requirement, would allow for adequate expansion in private sector credit and a small buildup of international reserves. To enhance the BSL’s ability to conduct open market operations (OMOs) the government will convert an additional Le 60 billion of noninterest-bearing, nonmarketable government securities into marketable ones in 2009. The BSL has already converted Le 10 billion during the first quarter of the year. The Monetary Policy Committee (MPC) will continue to meet on a monthly basis.

17. The Government will examine the need to extend the monetary policy instruments available to the BSL. It will explore the possibility of providing the BSL with the authority to change the reserve requirement ratio at its discretion and introducing central bank bills for OMOs. Currently, any change to the reserve requirement ratio requires parliamentary approval. The BSL will continue to focus on developing the interbank market, and will introduce a new monetary operations framework during the second quarter of 2009. This will include the closing of the existing rediscount window. The commercial banks and discount houses will have to use the interbank market as their primary source of short-term liquidity needs. Those who cannot meet their liquidity needs through the interbank market will be able to access, as a last resort, the BSL’s new Lombard window. The Lombard window will be an overnight collateralized loan that carries a penalty of 200 basis points over the average yield of the most recent 91-day treasury bills auction. The Government is actively considering the introduction of long term government securities to support medium to long term infrastructure investment.

18. Exchange rate flexibility will be maintained. The BSL will continue to seek to balance treasury bill sales and foreign exchange auctions for an optimal monetary policy mix. Its offers on the foreign exchange market will also be dictated by the need to meet its foreign exchange reserves target.

Other structural reforms

19. The structural reform program complements the medium-term macroeconomic framework. The program will continue to focus on strengthening the financial sector, restoring the financial viability of the power and water public utility companies, and improving governance and accountability in the use of public resources. The support of our development partners remains critical to implementing the structural reforms envisaged in each of these areas.

20. Reforms in the financial sector will be actively pursued to deepen financial intermediation and ensure strong and competitive financial sector. The BSL has undertaken actions to strengthen banking supervision, particularly by increasing and training staff in the Banking Supervision Department. New off-site surveillance guidelines for banks, consistent with the requirements of the revised Banking Act and Other Financial Services Act are being prepared and will be adopted by end-September 2009. Preparations are advancing for establishing a credit reference bureau (CRB) as well as an efficient payments system, including a Real Time Gross Settlement System (RTGS). To reduce the vulnerability from NPLs, the BSL will enforce the minimum capital requirement for all banks of Le 15 billion by end-2009. The Anti-Money Laundering (AML) Act 2005 will be revised to include provisions for combating the financing of terrorism (CFT) and regulations in line with international standards will be developed to enhance the AML/CFT compliance program. The BSL Act of 2000 is under review with the intention of providing greater flexibility for monetary policy operations.

21. Steps are being taken to accelerate the restructuring of the National Power Authority (NPA) and improve its finances. The National Commission for Privatization is supervising preparation of a comprehensive tariff study, which will be completed by end June. This study will provide inputs for a comprehensive electricity tariff policy, which will be adopted by end-December 2009. To improve oversight of the finances and technical operations of the NPA, a financial controller, a billing/commercial manager, and a supervisory engineer will be recruited in 2009. Under the Emergency Power Project (EPP) partly funded by the World Bank and the GoSL using MDRI resources, the NPA was to be making a monthly payment of Le 2 billion starting April 2008 and reimbursing Le 1.9 billion in respect to a soft loan extended by the government to NPA in 2006. Up to March 2009, NPA had paid only Le 7 billion, out of Le 25.9 billion due. However, the government also owes NPA Le 11.8 billion of unpaid electricity bills in 2008. A memorandum between the Ministry of Finance and Economic Development and NPA for the settlement of cross debt has been signed by the two parties and its implementation will be strictly observed.

22. Tackling corruption will remain a top priorities for the government. In 2008, the government launched the national Anti-Corruption Strategy (ACS) for 2008–13 and enacted into law a revised Anti-Corruption Act that strengthens the powers of the Anti-Corruption Commission (ACC). To date, several cases have been brought before the court and prosecuted by the ACC. Workshops on the ACS were conducted nationwide for the media and civil society. The ACC will intensify public education and outreach activities to enhance public awareness of corruption. It will also conduct semi-annual assessments of the national ACS to monitor progress in its implementation and take remedial actions as needed.

23. The Government will continue to implement reforms to improve the investment climate in order to foster sustainable economic growth. Going forward, the focus will be on increasing access to finance, and improving business regulatory environment especially in areas where the country is ranked poorly in the Doing Business Report as well as improving physical infrastructure.

24. There are risks that may affect implementation of the 2009 program. First, the global recession may deepen further, leading to higher revenue shortfall and deeper slowdown of domestic activity, linked particularly to falling remittances and export receipts. Second, the ongoing financial crisis could impact negatively on the profitability and balance sheet of commercial banks, thus constraining credit availability. The BSL will monitor closely developments in the financial sector using a set of early warning indicators, and will take necessary measures to prevent a credit crunch in the economy. Finally, the Government will ensure that the 2009 budget is shielded from potential liabilities of the contract with the second independent power provider.

V. Program Monitoring

25. The program will be monitored based on quantitative PCs for end-June 2009 and end-December 2009 and quantitative indicative targets for end-September 2009 (Tables 1). The program will also be monitored based on structural benchmarks for 2009 (Table 2).

Table 1.Sierra Leone: Quantitative Performance Criteria and Indicative Targets for 2009

(Cumulative change from beginning of calendar year to end of month indicated; Le millions, unless otherwise indicated)1

2009
MarchJuneSeptemberDecember
Est.Performance criteriaIndicative targetsPerformance criteria
Prog.2Rev. prog.Prog.2Rev. prog.Prog.2Rev. prog.
Performance criteria
Net domestic bank credit to the central government (ceiling)29,4828,40980,90648,396124,104100,212122,664
Net domestic assets of the central bank (ceiling)18,366-84,44593,701-33,238215,847-69,583156,678
Domestic primary fiscal balance of the central government (floor) Subsidies to National Power Authority (ceiling)3-25,077-71,596-120,887-96,924-179,290-116,142-216,213
Gross foreign exchange reserves of the central bank, US$ millions (floor)-3.326.6-22.224.2-20.239.38.6
Contracting or guaranteeing of new nonconcessional external debt by the public sector with maturities of one year or more (ceiling)30000000
Outstanding stock of external debt owed or guaranteed by the public sector with maturities of less than one year (ceiling)30000000
External payment arrears of the public sector (ceiling)30000000
Total domestic government revenue (floor)155,242386,640342,992602,667533,177824,030724,664
Indicative target
Poverty-related expenditures (floor)61,389180,993178,715256,398267,155330,623337,474
Memorandum items:
External budgetary assistance474,194121,275115,900121,275115,900188,201225,211
Net credit to government by nonbank private sector5-16,110-272-4,9817,0563,2237,3287,300
PRGF disbursements (US$ millions)0.0011.340.0011.3426.4222.6837.05
Sources: IMF staff projections.

The performance criteria and indicative targets shown in this table are defined in the Technical Memorandum of Understanding (TMU).

IMF Country Report No. 09/2 (January 12, 2009)

These apply on a continuous basis.

Including program grants and program loans.

Comprises treasury bills purchased by the National Social Security and Insurance Trust (NASSIT) and the nonfinancial private sector.

Sources: IMF staff projections.

The performance criteria and indicative targets shown in this table are defined in the Technical Memorandum of Understanding (TMU).

IMF Country Report No. 09/2 (January 12, 2009)

These apply on a continuous basis.

Including program grants and program loans.

Comprises treasury bills purchased by the National Social Security and Insurance Trust (NASSIT) and the nonfinancial private sector.

Table 2.Sierra Leone: Structural Conditionality for 2009
MeasuresTimingMacro Rationale
Prior Actions
  • Adoption by the cabinet of a decision to transfer all off-budget revenue collected by ministries, departments, and agencies to the Consolidated Revenue Fund.
Expected to be met by June 10
  • Adoption by the cabinet of the implementation decree for the Goods and Services Tax (GST).
Met
Structural Benchmarks
Macroeconomic policy coordination
  • Provide to Fund staff the Monetary and Policy Committee (MPC) monthly minutes that include the monthly projections for government revenue and expenditures made available by the Ministry of Finance to the Bank of Sierra Leone to produce a monthly liquidity forecast.
On a continuous basisTo strengthen liquidity management and enhance monetary and fiscal policy coordination.
Tax administration and policy
  • Adoption by the Cabinet of the implementation decree for new and modernized customs law and regulations that reflects the WTO agreement and protects government customs revenue.
End-JuneTo enhance the collection of import duties and thus create more fiscal space to preserve priority spending.
  • Adoption by the Cabinet of a simplified and fully designed small taxpayer regime with supporting draft legislation.
End-SeptemberTo improve revenue collection by extending the tax base.
  • Establish a Domestic Tax Department (DTD) as the vehicle for achieving integration of domestic tax collection and make it functional.
End-DecemberTo improve efficiency of revenue collection efforts.
  • Integrate the Goods and Services Tax (GST) administration within the Large Taxpayer Office (LTO).
End-DecemberTo ensure full and efficient implementation of the GST to achieve domestic revenue target.
Public financial management
  • Recruit and assign budget officers to MDAs that have IFMIS ‘rolled out’ and ensure their budget committees are fully operational.
End-SeptemberImprove spending efficiency by enhancing public financial management and budget execution.
Financial supervision
  • Adoption by the BSL of new off-site surveillance guidelines for banks consistent with the requirements of the revised Banking and Other Financial Services Act, and introduction of new reporting requirements based on these guidelines.
End-SeptemberFinancial deepening which is vital to achieve the growth objective of the program.
Public enterprise reform
  • Adopt a comprehensive tariff policy for the electricity sector that will strengthen the financial position of the National Power Authority.
End-DecemberTo improve financial viability of the public electricity. This will ensure an efficient and sustainable power supply, critical for the growth objectives of the program.
Attachment II. Sierra Leone: Technical Memorandum of Understanding

June 4, 2009

I. Introduction

1. This memorandum sets out the understandings between the Sierra Leonean authorities and the International Monetary Fund (IMF) regarding the definitions of the quantitative and structural performance criteria (PCs) and benchmarks for the reminder of the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement, as well as the related reporting requirements. Unless otherwise specified, all quantitative PCs and indicative targets will be evaluated in terms of cumulative flows from the beginning of the period, as specified in Table 2 of the Memorandum of Economic and Financial Policies (MEFP) of the Government of Sierra Leone (GoSL) for 2009.

2. Program exchange rates. For the purpose of this TMU, foreign currency denominated transactions will be converted into Sierra Leonean currency (leones) using the program exchange rates shown in the box below and the market exchange rate against the US$ in effect on March 31, 2009 (as published in International Financial Statistics) for transactions in currencies other than the U.S. dollar, the euro, the pound sterling, and the Special Drawing Rights (SDR).

Leone/US$3,150
US$/euro1.33
US$/pound sterling1.43
US$/SDR1.49

II. Quantitative Performance Criteria

A. Gross Foreign Exchange Reserves of the Bank of Sierra Leone (BSL)

3. Definition. Unless otherwise noted, gross foreign exchange reserves of the Bank of Sierra Leone (BSL) are defined as reserve assets of the BSL. Reserve assets are defined in the IMF’s Balance of Payments Manual (5th ed.) and elaborated in the reserve template of the Fund’s International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template. They exclude foreign assets not readily available to, or controlled by, the monetary authorities.

Adjustment clauses.

4. The floor on gross foreign exchange reserves will be adjusted (a) downward (or upward) by the amount in U.S. dollars of the shortfall (excess) in programmed external budgetary assistance—the downward adjustment will be capped at the equivalent of US$20 million while the upward adjustment will be equal to the amount—if any, exceeding US$20 million;1 (b) downward (upward) for any shortfall (excess) in the U.S. dollar value of disbursements from the IMF under the PRGF arrangement; and (c) upward (or downward) for any increase (or decrease) in BSL short-term (one year or less in original maturity) foreign currency-denominated liabilities (to residents and nonresidents)

5. In case that Sierra Leone participates in any SDR allocation(s) between June 30, 2009 and the test date, this target will be adjusted upwards by 100 percent of the equivalent of the amount of the cumulative additional SDR allocation (s) up to the test date, measured at program exchange rate.

B. Net Domestic Assets of the BSL

6. Definition. Net domestic assets (NDA) of the BSL are defined as the end-period (based on daily data) stocks, during the month of the test dates, of the reserve money less net foreign assets calculated at the program exchange rates. Reserve money includes currency in circulation and deposits of commercial banks with the BSL. Net foreign assets of the BSL are defined as gross foreign exchange reserves (defined above) minus foreign liabilities. Foreign liabilities are defined as foreign currency-denominated liabilities of the BSL to nonresidents and the outstanding use of Fund credit.

7. Adjustment clauses. The ceiling on the NDA of the BSL will be adjusted upward by the amount of the shortfall in the external budgetary assistance at the test dates, up to a maximum of US$20 million. In the event of an excess in the external budgetary assistance greater than US$20 million, the NDA ceiling will be adjusted downward by the amount exceeding US$20 million. The leone value of the cumulative shortfall or excess in external budgetary assistance will be converted at the program exchange rates.

8. In case that Sierra Leone participates in any SDR allocation(s) between June 30, 2009 and the test date, this target will be adjusted downwards by 100 percent of the equivalent of the amount of the cumulative additional SDR allocation (s) up to the test date, measured at program exchange rate.

C. Net Domestic Bank Credit to the Central Government (NCG)

9. Definition. NCG refers to the net banking system’s claims on the central government as calculated by the BSL. It is defined as follows:

  • the net position of the government with commercial banks, including: (a) treasury bills, excluding holdings of treasury bills for monetary operations; (b) treasury bearer bonds; and (c) loan and advances of commercial banks to the government; less government deposits in commercial banks;
  • the net position of the government with the BSL, including: (a) treasury bills, excluding holdings of treasury bills for monetary operations; (b) treasury bearer bonds; and (c) ways and means; less (a) central government deposits; and (b) HIPC and MDRI relief deposits.

10. Adjustment clauses. The ceiling on the increase in NCG will be adjusted upward (downward) by up to the amount of the shortfall (excess) in external budgetary assistance. The upward adjustment will be capped at the equivalent of US$20 million while the downward adjustment will be equal to the amount—if any, exceeding US$20 million. The leone value of the cumulative shortfall or excess in external budgetary assistance will be converted at the program exchange rates. The ceiling will also be adjusted downward (upward) by the excess (shortfall) in the leone value of net issues of government securities to the nonbank private sector vis-à-vis the program target (specified in the memorandum items in Table 2 of the MEFP).

11. Data source. The data source for the above will be the series “Claims on Government (Net)” submitted to the IMF staff and reconciled with the monthly monetary survey prepared by the BSL. These data will be reconciled with monthly reports with the monetary data (Treasury bill transactions, ways-and-means account, and Treasury bearer bond transactions).

12. Definition of Central government. Central government is defined for the purposes of this memorandum to comprise the central government and those special accounts that are classified as central government in the BSL statement of accounts. The National Social Security and Insurance Trust and public enterprises are excluded from this definition of central government.

D. Domestic Revenue of Central Government

13. Definition. The floor on total domestic central government revenue is defined as total central government revenue, as presented in the central government financial operations table, excluding external grants.

E. Domestic Primary Fiscal Balance of Central Government

14. The floor on the domestic primary fiscal balance of the central government is defined as domestic revenue minus total expenditure and net lending, excluding interest payments, and externally-financed capital expenditure.

F. Subsidies to the National Power Authority (NPA)

15. Definition. The term “subsidy” refers to any government financial support (i.e., unrequited transfers) to the NPA. It does not include the government’s on-lending of external loans for capital expenditure of the enterprise. The subsidy is to be reduced by the amount of arrears accumulating in regard to the charges for government’s electricity consumption. This PC will apply on a continuous basis.

G. External Payment Arrears of the Public Sector

16. Definition. External payment arrears of the public sector are defined as the stock of new external overdue debt-service payments by the public sector. For the purposes of this PC, the public sector comprises the central government, regional government, all public enterprises and the BSL. The nonaccumulation of external arrears is a performance criterion during the program period. Excluded from this PC are those debts subject to rescheduling. This PC will apply on a continuous basis.

H. New Nonconcessional External Debt Contracted or Guaranteed by the Public Sector with an Original Maturity of One Year or More

17. Definition. Those are defined as all forms of new debt with original maturity of one year or more contracted or guaranteed by the public sector.2 This PC applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274 (00/85), August 24, 2000) but also to commitments contracted or guaranteed for which value has not been received. Excluded from this PC are disbursements from the IMF and those debts subject to rescheduling. For the purposes of this PC, the “public sector” is as defined in ¶ 14 above. This PC will apply on a continuous basis.

I. External Short-Term Debt Contracted or Guaranteed by the Public Sector

18. Definition. External short-term debt is defined as external debt stock with a maturity of less than one year contracted or guaranteed by the public sector. Debt is defined in Annex I of this TMU. For this purpose, short-term debt will exclude normal trade credit for imports. For the purposes of this PC, the public sector is as defined in ¶ 14 above. This PC will apply on a continuous basis.

III. Quantitative Indicative Target

Poverty-Related Expenditures

19. Definition. Poverty-related expenditures refer to those expenditures in the areas identified in Table 2 of the Sierra Leone HIPC Decision Point Document. These budgetary expenditures include but are not limited to those sub-components that are financed by drawdown from the MDRI Relief Account at the BSL.

IV. Program Monitoring

20. The Sierra Leonean authorities shall maintain a program-monitoring committee composed of senior officials from the MoFED, the BSL, and other relevant agencies. The committee shall be responsible for monitoring performance under the program, recommending policy responses, informing the IMF regularly about the progress of the program, and transmitting the supporting materials necessary for the evaluation of PCs and benchmarks. In addition, the Net Domestic Financing Technical Committee shall provide the IMF with weekly minutes of its meetings complemented with the minutes of the monthly meetings of the Inter-Agency Committee for National Statistics progress report on the program on a monthly basis within four weeks of the end of each month, using the latest available data.

ANNEX I: Implementation of the Revised Guidelines on Performance Criteria with Respect to Foreign Debt

The term “debt” has the meaning set forth in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted on August 24, 2000, which reads as follows: “(a) For the purpose of this guideline, the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property. (b) Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt”. (c) Excluded from this performance criterion are normal import-related credits, disbursements from the IMF, and those debts subject to rescheduling arrangements.”

Sierra Leone: Summary of Data to be Reported to IMF Staff
Type of DataTablesFrequencyReporting Deadline
Real sectorNational accountsAnnualEnd of year + 9 months
Revisions of national accountsVariableEnd of revision + 2 months
Disaggregated consumer price indexMonthlyEnd of month + 2 weeks
Public financeNet government position and details of nonbank financing, including the stock of the float, treasury bills, and bonds, as well as privatization receiptsMonthlyEnd of month + 6 weeks
Government flow-of-funds table (Government Financial Operations Table) with supporting documentation (final) and presented on commitment and cash basisMonthlyEnd of month + 6 weeks
Petroleum product pricing formula, tax receipts by categories of petroleum productsMonthlyEnd of month + 6 weeks
Stock of outstanding payment commitments with a breakdown between current and capital expendituresMonthlyEnd of month + 6 weeks
Import duty exemptions by end-users and tariff regimes and estimates of corresponding revenue lossesQuarterlyEnd of quarter + 6 weeks
Monetary and financial dataMonetary surveyMonthlyEnd of month + 6 weeks
Balance sheet of the BSLMonthlyEnd of month + 6 weeks
Consolidated balance sheets of commercial banksMonthlyEnd of month + 6 weeks
BSL monitoring sheet of net financing of the financial sector to the governmentMonthlyEnd of month + 6 weeks
BSL monitoring sheet of treasury bills and bonds holdingsMonthlyEnd of month + 6 weeks
Borrowing and lending interest ratesMonthlyEnd of month + 6 weeks
Results of foreign exchange and Treasury Bills auctionsWeeklyEnd of week + 3 days
Stocks of government securitiesMonthlyEnd of month + 6 weeks
Banking supervision ratiosQuarterlyEnd of quarter + 8 weeks
Monetary and financial data
Gross official foreign reservesWeeklyEnd of week + 3 days
Foreign exchange cashflow tableQuarterlyEnd of quarter + 4 weeks
Revised balance of payments dataVariableWhen revisions occur
Exports and imports of goods (including the volume of key minerals and fuels)MonthlyEnd of month + 3 months
External debtOutstanding external arrears and repayments (if applicable)MonthlyEnd of month + 4 weeks
Details of all new external borrowing and guarantees provided by government on new borrowingMonthlyEnd of month + 4 weeks
External debt service payments (separately on principal and interest payment) to each creditorMonthlyEnd of month + 4 weeks
HIPC initiative and MDRI monitoringStatement of special account at the BSL, that receives resources generated by the HIPC Initiative and tracks their useMonthlyEnd of month + 4 weeks
Statement of special MDRI account at the BSL and the corresponding poverty-reducing spending financedMonthlyEnd of month + 4 weeks
Minutes of the meeting of the Net Domestic Financing (NDF) Technical CommitteeWeeklyEnd of meeting + 2 weeks
Minutes of the meeting of the Monetary Policy CommitteeMonthlyDate of meeting + 2 weeks
1External budgetary assistance is defined as program grants and program loans, excluding HIPC assistance.
2Debt is considered concessional if it has a grant element equivalent to 35 percent or more. Calculation of the degree of concessionality of new external borrowing is based on the last 10-year average commercial interest reference rate (CIRR) of the Organization for Economic Cooperation and Development (OECD) for loans with maturities of at least 15 years and on the last six-month average CIRR for loans maturing in less than 15 years.

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