Public domestic debt is estimated to have declined somewhat in 2020, on the back of domestic arrears clearance and domestic borrowing targets under the Extended Credit Facility (ECF) supported program.
It is estimated to have declined from around 28 percent of GDP at end-2019 to around 26 percent of GDP at end-2020. Around three-quarters of domestic debt is owed to commercial banks mainly in the form of 364-day T-bills.
Less than a tenth of obligations are to the non-bank sector, while the Bank of Sierra Leone holds less than 15 percent of public debt. Commercial banks see T-Bills as a crucial asset in an otherwise less developed market, limiting roll-over risks.
The authorities started to clear some domestic arrears balances in the first half of the year (under their new arrears clearance strategy), while significant exceptional external financing in mid-2020 (IMF RCF; World Bank budget support, and front-loaded EU budget support) helped contain net issuances of relatively more costly T-bills.
These disbursements also eased the financing situation, and interest on T-bills declined significantly (to about 10 percent, from near 25 percent earlier in the year). Sierra Leone has a shallow credit market and domestic banks have limited alternative investment options, attenuating the rollover risk on T-bills.
However, with continued high financing needs, domestic borrowing costs are expected to increase over the medium term.
Public and publicly guaranteed (PPG) external debt was around 44 percent of GDP at end-2019 and is projected to increase to around 46 percent at end-2020. This reflects additional loans incurred in 2020, including an RCF disbursement from the IMF in June 2020 (SDR 103.7 million or 50 percent of quota).
About 76 percent of Sierra Leone’s external PPG debt at end-2019 comprised non-restructurable obligations to multilateral creditors (Text Figure 1). The IMF and World Bank account for about 22 percent and 21 percent of total PPG external debt, respectively.2 Official bilateral creditors account for around 13 percent of total PPG external debt.
Sierra Leone also has pre-HIPC debt (arrears) to commercial creditors (about 11 percent of total PPG external debt or around US$187 million at end-2019).
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