Freetown, SIERRA LEONE – Credit to the private sector saw a decline in 2023Q2 compared to the previous quarter, attributed to increased government borrowing, which led to the crowding-out of private sector investments. The findings were revealed by the Central Bank’s Monetary Policy Committee (MPC), which also highlighted a notable concentration of credit towards specific sectors like commerce, finance, business services, and construction, while key productive sectors, particularly agriculture, were relatively neglected despite their growth potential.
In response to this trend, the MPC has called upon the financial sector, with a particular emphasis on commercial banks, to embrace innovative financing mechanisms aimed at extending credit to the productive sectors of the economy. This approach aligns with the government’s Big Five Initiative, which seeks to drive growth and development.
Furthermore, the MPC recognized that the predominance of the informal sector poses a significant challenge to the effectiveness of monetary policy and the development of the banking system. Acting Bank Governor Ibrahim Stevens urged commercial banks and other financial institutions to intensify efforts to enhance financial inclusion, broaden access to finance, and bolster the formal economy.
In terms of monetary indicators, both Reserve Money (RM) and Broad Money (M2) experienced growth in 2023Q2 compared to the previous quarter. The increase in RM was primarily driven by the growth in Net Domestic Assets (NDA) of the Bank of Sierra Leone (BSL), while the expansion of M2 was mainly attributed to the NDA of the Banking System.
When examined on an annual basis and adjusted for inflation, M2 exhibited a gradual increase, while RM remained relatively stable compared to the previous year. Liquidity conditions within the banking system remained tight in 2023Q2, prompting the Bank of Sierra Leone’s intervention in the secondary market to bolster liquidity.
The 364-day Treasury Bills (T-Bills) garnered oversubscription with yields averaging 28 per cent in 2023Q2. However, the 91-day and 182-day T-bill markets continued to face challenges. The interbank market rate also experienced an upward trajectory in 2023Q2, moving closer to the monetary policy rate (MPR), indicative of liquidity constraints.
In addition, the Acting Bank Governor pointed out that key Financial Soundness Indicators (FSIs) remained above the Bank’s prudential thresholds, indicating relative stability in the banking sector in 2023Q2. However, the MPC expressed concerns regarding inherent risks, including limited intermediation to support growth, a rise in foreign currency deposits, a high level of Non-Performing Loans, and growing threats from cybersecurity and related information technology risks. ZIJ/9/10/2023