A World Bank study on Sierra Leone projected that by 2022, headline inflation is expected to moderate to 10.5 percent, supported by tight monetary policy, recovery of domestic food production, and exchange rate stability.
But, the Minister of Finance, Jacob Jusu Saffa is strongly confident that inflation will likely reach single digit by 2023. In his analysis of the macroeconomic indicators, economic growth is now projected to contract by 3.0 percent compared to earlier estimates of 4.2 percent growth for 2020. “Inflation, which was earlier projected to decline to 15 percent, is now projected at 17.5 percent by end December 2020” said Minister Saffa at the opening of the 2021 Budget Hearings.
The World Bank based their estimations on the premise that, strong domestic food production in 2021–22 will help dampen domestic inflationary pressures and sustain the downward path of headline inflation. The Bank of Sierra Leone (BSL) is also expected to return to a tight monetary policy, which if complemented by fiscal consolidation could further reduce inflation. According to the Minister’s statement in the 2020 Supplementary Budget, inflationary pressures increased during the first half of the year largely due to disruptions in the supply of basic food items emanating from restrictions on inter-district travel, partial lockdowns and the COVID-19 induced panic buying to stock up food and non-food items.
Consequently, inflation, which had declined to 13.9 percent at end 2019 rose to 15.6 percent in March before moderating to 14.4 percent in June 2020. Monetary policy during the first half of 2020 continues to focus on containing inflationary pressures while mindful of the impact of COVID-19 on the economy. Accordingly, the BSL reduced the Monetary Policy rate to 15.0 percent in March 2020 from 16.5 per cent in February 2020 to stimulate economic activities.
Prior to the outbreak of the COVID-19 pandemic, the economic outlook was bright. The pre-COVID-19 projections indicated that the economy would grow by an average of 4.5 percent over the medium term (2020-2022). Agriculture and services were expected to be the primary drivers of growth. Inflation was projected to return to single digits by 2022, reflecting the projected increase in domestic food production.
The primary budget deficit, the key indicator of fiscal sustainability was projected to improve from a deficit of 0.6 percent of GDP to a surplus of 0.3 percent of GDP. The current account deficit, including grants, was projected to narrow down from 13.8 percent of GDP in 2019 to 11.3 percent of GDP in 2020.
“As a result of this proactive response to the pandemic, our economy is projected to recover during 2021 by 3.1 percent in 2021 and grow by an average of 4.5 percent over the medium term” the Minister said. Minister Saffa went on to explain that domestic revenue is projected to recover to 13.2 percent of GDP by 2021 and continue to increase while Government expenditure will reduce to 24.4 percent of GDP. “The current account deficit will narrow to 11.7 percent of GDP in 2021 and then average around 11.5 percent over the medium term.”
By Zainab Iyamide Joaque