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SIERRA LEONE Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waivers of Nonobservance of Performance Criteria, Modification of Performance Criteria, Augmentation of Access, and Financing Assurances Review

Author(s):
International Monetary Fund
Published Date:
July 2009
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Information about Sub-Saharan Africa África subsahariana
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I. Relations with the Fund

(As of March 31, 2009)

I. Membership Status: Joined 9/10/62; Article VIII

II. General Resources Account:

SDR Million% Quota
Quota103.70100.00
Fund holdings of currency103.6999.99
Reserve position0.020.02

III. SDR Department:

SDR Million% Allocation
Net cumulative allocation17.46100.00
Holdings19.78113.32

IV. Outstanding Purchases and Loans:

SDR Million% Quota
PRGF Arrangements34.5133.28

V. Latest Financial Arrangements:

TypeApproval

Date
Expiration

Date
Amount

Approved

(SDR Million)
Amount

Drawn

(SDR Million)
PRGF5/10/065/9/1041.5120.51
PRGF9/26/016/25/05130.84130.84
PRGF3/28/945/04/98101.9096.85

VI. Projected Payments to Fund1 (SDR million; based on current use of resources and present holdings of SDRs):

Forthcoming
20092010201120122013
Principal1.43.274.624.62
Charges/interest0.170.170.160.140.12
Total0.171.573.434.774.74

VII. Implementation of HIPC Initiative

Enhanced

Framework
Commitment of HIPC Initiative assistance
Decision point dateMarch 2002
Assistance committed (NPV terms)
By all creditors (US$ million)2675.20
Of which: IMF assistance (US$ million)125.21
(SDR equivalent in millions)100.00
Completion point dateDecember 2006
Disbursement of IMF assistance (SDR million)
Amount disbursed100.00
Interim assistance66.03
Completion point balance33.97
Additional disbursement of interest income36.58
Total disbursements106.58

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

I. MDRI-eligible debt (SDR Million)4117.34
Financed by: MDRI Trust76.75
Remaining HIPC resources40.59
II. Debt Relief by facility (SDR Million)
Eligible Debt
Delivery DateGRAPRGFTotal
December 2006N/A117.34117.34

IX. Safeguards Assessment

Pursuant to IMF policy, the Bank of Sierra Leone was subject to a safeguards assessment with respect to the PRGF arrangement approved on May 10, 2006. The assessment, which was completed on June 12, 2006, proposed recommendations to address new and continuing vulnerabilities in financial reporting, internal audits, and internal controls. IMF staff are monitoring implementation of these measures.

X. Exchange Rate Arrangement

For customs valuation purposes and for official transactions the Bank of Sierra Leone (BSL) calculates an official exchange rate every Friday morning as the weighted average of the auction rate, the commercial bank mid-rate, and the bureau mid-rate in the previous week. Commercial banks may buy foreign exchange from and sell it to individual customers and may trade among themselves or with the BSL on a freely negotiable basis. As of May 7, 2009, the BSL mid-rate was Le 3,204.10=US$1. In March 2008 the exchange rate regime was reclassified as “a conventional peg” to reflect the nominal stability of exchange rate developments under de facto management through the auction by the BSL as the only seller of foreign exchange. Effective February 2, 2009, the de facto exchange rate arrangement was reclassified from a conventional pegged arrangement to “stabilized” retroactively to April 30, 2008, due to revision of the classification methodology.

With effect December 14, 1995, Sierra Leone has accepted the obligations of Article VIII, Sections 2, 3, and 4. On June 29, 2001, Sierra Leone removed the remaining exchange restriction, in the form of a tax clearance certificate required for payments and transfers of certain types of current international transactions. Sierra Leone continues to maintain an exchange system free of restrictions on the making of payments and transfers for current international transactions.

XI. Article IV Consultation

The Executive Board concluded the 2008 Article IV consultation on December 22, 2008. The next Article IV consultation will be held in accordance with the decision on consultation cycles approved on July 15, 2002.

XII. Technical Assistance

DepartmentPurposeDate
FADEvaluation of progress in PFM reformsMarch 2009
Assist in designing a simplified regime for small taxpayersJanuary 2009
Evaluation of progress on tax administration reform and VAT preparationSeptember 2008
Evaluation of progress on PFM reformsJuly 2008
Implementation of public financial management reformsMarch 2008
Tax administration reforms for successful VAT implementationFebruary 2008
Evaluation of progress of revenue administration modernizationNovember 2007
Assist the authorities in developing a comprehensive revenue administration reform strategyFebruary 2006
Review the system of fiscal incentives, especially the special tax regimes applied to the mining and petroleum sectorsMarch/April 2004
Review the tariff and indirect tax system, National Revenue Authority, and tax and customs administrationFebruary 2004
LEGTA on a legal review of the Bank of Sierra Leone Act of 2000March/April 2007
MCMFollow-up assessment of banking supervision processes at BSLMarch 2009
Follow-up assessment on progress in strengthening central bank internal auditingMarch 2009
BSL: Internal audit and management of the central bankOctober 2008
Monetary policy, banking supervision, and recapitalization of the BSLApril/May 2008
Recapitalization of the BSLFebruary 2008
Assist the BSL in bringing its accounting practices up to international best practiceNovember/December 2007
Foreign exchange, monetary operations, and central bank recapitalizationNovember 2007
Assist the BSL in setting up an action plan for implementing FSAP recommendations/financial sector reformsJune 2007
Foreign exchange, monetary operations, and central bank recapitalizationJanuary/February 2007
MFDMultitopic technical assistanceNovember 2005
Multitopic technical assistanceNovember 2004
STAMonetary and financial statistics mission to assist the authorities in implementing the international standards recommended in the Monetary and Financial Statistics Manual (MFSM)April 2009
GDDS mission on national accounts statisticsMarch 2009
GDDS mission on national accounts statisticsSeptember/October 2008
GDDS mission to review the methodological basis for compiling national accounts aggregatesJanuary 2008
GDDS project on implementation of a Standardized Report Form (SRF)June 2007
GDDS project on reconciling monetary and fiscal accountsAugust 2006
GDDS project on national accountsJanuary 2006
GDDS project on national accountsFebruary 2005
GDDS project on reconciling monetary and fiscal accountsFebruary 2005
GDDS project on reconciling monetary and fiscal accounts.October 2004
GDDS project on balance of payments issuesSeptember/October 2004
GDDS project on national accountsSeptember 2004
GDDS project study tour for Sierra Leonean officials to Kenya on strategic planningAugust 2004
GDDS project on national accountsApril 2004
GDDS project on strategic planningMarch 2004

XII. Resident Representative

Mr. Alvin Hilaire assumed responsibility for the Fund office in November 2006. Mr. Hilaire’ term expired in May 2009. He was in charge of both Guinea and Sierra Leone and was stationed in Conakry. A new resident representative has not yet been nominated.

II. Joint World Bank-IMF Work Program, 2009–10

(As of May 20, 2009)

TitleActivitiesProvisional Timing of MissionExpected Delivery Date
A. Mutual Information on Relevant Work Programs
World Bank work programPublic Expenditure ReviewMarch 2009August 2009
Country Assistance Strategyongoing dialogue.October 2009
IPFMRP (PFM Project)March 2009June 2009
Decentralized Service Delivery IJune 2009 (appraisal)September 2009
Third Governance Reform and Growth Credit (GRGC 3)June 2009October 2009
Mineral Sector TAMay 2009October 2009
Financial Sector Development Plann.a.December 2009
IMF work programMacroeconomic policy analysis and adviceSeptember 2009 (PRGF-5th review)December 2009 (Staff Report)
February 2010 (PRGF 6th review)April 2010 (Staff Report)
Technical assistance
• Revenue administration and tax reform- September 09 (peripatetic visit)October 2010
- February 2010 (GST implementation)March 2010
• Public financial managementJuly 2009 (Restructuring the MTEF process)– regional advisor)August 2009
August 2009 (Streamlining budget execution – regional advisor)September 2009
• Bank supervision and monetary operationsJune 2009July 2009
• Central bank auditOctober 2009November 2009
• Bank supervisionFourth quarter 2009Fourth quarter 2009
• Multi-topic (bank supervision, monetary operations, audit)March 2010April 2010
• Monetary and financial statisticsFirst quarter 2010First quarter 2010
B. Requests for Work Program Inputs
Fund request to BankPublic expenditure reviewMarch 2009August 2009
Bank request to FundMedium-term macroeconomic frameworkContinuous
C. Agreement on Joint Products and Missions
Joint products in FY 2010JSAN for PRSP IISeptember 2009
DSASeptember 2009
Assisting the authorities with the implementation of their financial sector reform strategyContinuous
Assess risks from contingent liabilities and propose regulatory reforms.TBD

III. Statistical Issues

1. Data provided to the Fund are affected by serious shortcomings that significantly hamper surveillance. The prolonged civil war resulted in a virtual collapse of statistical systems in the late 1990s. Serious deficiencies still affect balance of payments statistics, national accounts, and social indicators. The authorities are cooperating fully in providing data to the Fund and regularly disseminating economic and financial data to the public. The country participates in the GDDS, but its metadata need to be updated.

2. A major and sustained improvement in the coverage and timeliness of economic data will require greater interagency coordination and restructuring the institutional framework. Statistics Sierra Leone (SSL) continues to face a shortage of budgetary resources which adversely affects compilation of national accounts and price statistics. Since March 2004, and with support from the GDDS Anglophone Africa Project, fourteen national accounts TA missions visited Freetown, the most recent in March 2009. These missions reviewed source data, methodologies, compilation, and dissemination issues and assisted with data development and improvements in methodology.

National accounts

3. The coverage of private sector activities in the national accounts is hampered by an outdated business directory and low response rates to surveys. In particular, small businesses, which represent a very high proportion of business activity, are not adequately captured in national account statistics. The consumer price index (CPI) is used extensively to derive estimates of GDP at constant prices. AFR missions continue to make their own estimates and projections of key national accounts aggregates, as well as making adjustments to historical data using new information.

4. Efforts to reconstruct the national accounts estimates commenced during 2003/04, with the main effort being to prepare new estimates for the period starting in 2001. Because resource constraints significantly the production of final estimates, only preliminary data for 2001-04 were made available. Efforts are underway to prepare revised national accounts based on a 2005 benchmark and using 2005 prices to compile constant price estimates. However, shortages of resources and staff continue to pose major constraints to the statistical development undertaken by SSL.

Prices

5. The SSL compiles the CPI monthly and publishes it with a lag of about three weeks. It has been rebased to 2003 using the 2003 Sierra Leone integrated household survey and continues to cover the capital city and three towns. While a national CPI is being compiled, the authorities continue to publish the old CPI (1992=100). To avoid confusion, the authorities should be encouraged to cease publication of the old series, although they may wish to publish a separate report on the changes between base periods. The production of producer price indices remains a medium-term goal planned to start in 2009.

Government finance statistics

6. The budget reporting system was established with assistance from the Fund/UNDP technical assistance project. Monthly data on central government revenue, current expenditure, and financing are provided with appropriate detail. The European Commission is providing technical assistance to the Accountant General’s Office to improve the timeliness and quality of fiscal data. Fiscal data are reported to AFR but annual data for publication in the GFS Yearbook are no longer being submitted (the most recent data refer to 2004). Fiscal data only cover the central government, not extrabudgetary agencies and local governments.

7. There is an urgent need for more timely and accurate data on foreign-financed development projects. Reports on implementation of the development budget and its financing are currently not produced in a format that is suitable for budget analysis because the necessary data are not available. There is also need for quality control of the final data. The authorities are currently considering introduction of a flash reporting system for government expenditure in general and for foreign aid-financed projects. As part of the GDDS regional project for Anglophone African countries, work has been undertaken to reconcile fiscal and monetary data and to improve the coverage and classification of the two data sets.

Monetary statistics

8. The main components of the central bank balance sheet are available daily and weekly; this system provides an early warning system on key financial targets. The full monetary survey is compiled by the BSL with a lag of about six weeks; it has comprehensive coverage of commercial banks.

9. There has been some progress in the compilation of data in line with the 2000 Monetary and Financial Statistics Manual. The BSL, with assistance from STA, has completed the preparation of a standardized report form (SRF) for the central bank, but it has not yet started regular reporting to the IMF. Work on preparation of the SRF for other depository corporations continues.

10. Reconciliation of fiscal and monetary statistics remains a challenge. In the past, compilation of fiscal data solely on a cash basis and differences in the coverage of the central government explained most of the discrepancies between the datasets. In 2007, a TA mission found limited progress on previous recommendations on the fiscal reporting system for extrabudgetary agencies and projects. The coverage of reporting agencies had improved, but there were many obvious errors and omissions in the data and in the BSL database. However, in June 2008 the authorities notified the IMF that the fiscal data have been reconciled with the expanded BSL monetary data.

Balance of payments

11. The BSL is responsible for compiling balance of payments (BOP) statistics. It obtains source data from the SSL, government ministries, the Customs and Excise Department (Customs), and the “Financial Survey of Major Limited Companies,” for data on foreign direct investment. Imports and exports of goods estimates are based on data compiled by Customs and are adjusted for coverage, valuation, and timing to accord with BOP definitions. The BSL does not adjust BOP data using supplementary information to take account of unreported data.

12. External transactions are characterized by a large volume of activity in the informal sector, principally diamond smuggling. A considerable portion of imports is financed by these unrecorded exports. As a result, official BOP statistics tend to substantially understate transactions. Staff has been addressing this problem through the use of third-country (principally EU member) import data. STA has been providing technical assistance on BOP issues through the GDDS project to help the authorities implement the Balance of Payments Manual, Fifth Edition (BPM5).

13. Data problems also exist for trade in services, income statistics, current transfers, and the capital and financial accounts. Regarding the last, there are substantial difficulties in tracking financial transactions of the public and private sectors that are routed through commercial banks. While the authorities are producing data on the international investment position, improvements are required in coverage and in valuation adjustments. These difficulties are manifested in reconciling flow data in the BOP and stocks in the international investment position. Estimates of smuggled imports and exports, in particular diamonds, are also not available.

14. Information on official grant and loan receipts is relatively good and is prepared by AFR on the basis of contact with the authorities and donor agencies, but data on private capital flows are very poor. Some information on private banking flows can be derived from the monetary survey. Other private flows, especially those linked to the informal diamond trade, are implicitly included in “errors and omissions.”

Sierra Leone: Table of Common Indicators Required for Surveillance May 2009
Date of latest observationDate receivedFrequency of Data4Frequency of Reporting4Frequency of publication4
Exchange Rates04/30/0905/15/09DWW
International Reserve Assets and Reserve Liabilities of the Monetary Authorities104/17/0905/09MMM
Reserve/Base Money03/0905/15/09MMM
Broad Money03/0905/15/09MMM
Central Bank Balance Sheet03/0905/15/09MMM
Consolidated Balance Sheet of the Banking System03/0905/15/09MMM
Interest Rates203/0903/09WMW
Consumer Price Index03/0904/15/09MMM
Revenue, Expenditure, Balance and Composition of Financing – Central Government03/0904/30/09MMN/A
Revenue, Expenditure, Balance and Composition of Financing – Central Government03/0904/30/09MMN/A
Stocks of Central Government and Central Government-Guaranteed Debt12/0803/09QQN/A
External Current Account Balance12/0803/09AAA
Exports and Imports of Goods and Services12/0803/09AAA
GDP/GNP12/0803/09AAA
Gross External Debt12/0803/09AAA
International Investment Position312/0803/09AAA

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

1When a member has financial obligations overdue for more than three months, the amount will be shown in this section.
2Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.
3Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim.
4The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of 2004 that remains outstanding at the time the member qualifies for debt relief.

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