In their Letter of Intent, the Minister of Finance and Bank Governor informed Kristalina Georgieva, Managing Director International Monetary fund (IMF) that they have continued to make progress in addressing the IMF’s safeguards recommendations.
The letter dated 25th February, 2021 stated that, in July 2020, the President appointed and Parliament confirmed a second Deputy Governor, responsible for financial stability, in line with the 2019 Bank of Sierra Leone (BSL) Act.
According to Jacob Jusu Saffa and Kelfala Kallon, there were challenges in implementing the IFRS-9 accounting standards, but assured that they have been able to finalized the 2018 audited financial statements of the BSL and published them in January 2021.
They further informed the Fund that, to expedite subsequent audits and bring them in line with the BSL’s statutory requirements, Audit Service Sierra Leone has appointed an auditor to concurrently conduct the 2019 and 2020 audits of financial statements.
“To ensure that the audit shall be in line with international standards, we have engaged an international audit firm as a concurring international partner. We expect arrangements for its engagement to be finalized in February.”
In further developments Ita Mary Mannathoko, Executive Director for Sierra Leone and Mr. James Garang, Advisor to the Executive Director wrote that, the business model fashioned on the IFRS-9, which benefitted from expert support, has been developed. “Relatedly, the authorities will continue to leverage Fund TA to improve key economic statistics in support of timely and prudent policymaking. This includes Technical Assistance support to rebase GDP, conduct the Nationwide Economic Prospects Survey, and build a Data Warehouse for analysis.”
Regarding the activities of the Central Bank, the IMF staff wrote in the IMF Country Report No. 21/58 that ample liquidity saw interest rates on domestic government securities fall in the second half of 2020.
“Substantially larger than usual inflows from development partners fueled a monetary expansion in 2020, with interest rates on government debt falling sharply. With high levels of excess liquidity midyear from the bunching of external disbursements and slowdown in private sector credit, the BSL used a mix of repos and FX sales to partially mop up domestic currency liquid balances from the system.”
However, high levels of liquidity persisted and yields on government securities remained negative in real terms through end-2020. “There are initial signs that this trend may be reversing, with excess reserves declining in December and real interest rates on government securities moving up to marginally positive levels in January.”
They indicated further that, interest rates for private sector credit have not shifted, reflecting the current higher risk premium in lending to the private sector and the underdeveloped transmission mechanism. Banks remain adequately capitalized, but non-performing loans (NPLs) remain high (18.5 percent of gross loans in September 2020 compared to 16.8 percent at end-2019).
They referenced the acute shortages of domestic currency which emerged in late December 2020 but that they say have since been resolved. “Cash withdrawals progressed at a faster pace than typical seasonal patterns would have predicted, while re-deposits of cash in the banking system did not occur at their usual rate as the year progressed. This led to shortages of local currency at both commercial banks and the BSL.”
The BSL allowed some foreign exchange restrictions to lapse ahead of time to allow for some of this demand to be met in foreign currency. A new shipment of local currency was received in mid-January and the authorities report that the problem has now been resolved. The BSL is investigating the potential causes of large growth in currency outside the banking system to better inform their forecast of cash demand, particularly in the context of COVID-19-related uncertainty.
These restrictions were put into place in 2019, and, among other things, restricted individuals, businesses and organizations in Sierra Leone from holding more than US$10,000 or its equivalent in foreign currency outside of the banking system.
By [email protected]