Freetown, SIERRA LEONE – In its assessment of global economic developments, the Central Bank has identified that despite the apparent easing of global inflationary pressures, the recent surge in crude oil prices and the collapse of the Black Sea grain deal represents significant upside risks to global inflation. These developments could potentially impact global growth by leading to tighter monetary policy and financial conditions.
In the September 2023 Monetary Policy Statement, the Monetary Policy Committee (MPC) expressed concerns that such elevated global uncertainties could pose higher risks for growth and inflation in Sierra Leone. The MPC highlighted the potential implications for the nation, including a possible slowdown in global trade that could adversely affect the country’s exports and, consequently, its economic growth. Additionally, the committee expressed worries about the potential impact of slower growth in major trading partners and development economies on foreign direct investment inflows.
Furthermore, Sierra Leone’s terms of trade may be negatively affected by global commodity price fluctuations, especially the rising prices of imported food and essential commodities. Referencing the International Monetary Fund’s (IMF) July 2023 edition of the World Economic Outlook (WEO), which revised the 2023 global growth projection upward by 0.2 percentage points to 3.0 per cent, the MPC noted that growth is expected to remain stable in 2024.
However, the committee underlined that risks to global growth still tilt downward due to factors such as subdued economic activity in the United States and the Euro Area, the ongoing Russia-Ukraine conflict, tight global credit supply, elevated global debt levels, and other geopolitical tensions.
In terms of Sierra Leone’s own economic outlook, real GDP growth was revised downward to 2.7 per cent in 2023, compared to 3.6 per cent in 2022, following the IMF’s review of the Extended Credit Facility (ECF) for Sierra Leone in June 2023. The MPC attributed this revision to weak domestic demand, limited fiscal space, and spillover effects from the Russia-Ukraine conflict. However, the committee noted a slight improvement in economic activity in 2023Q2, as indicated by the Central Bank’s high-frequency Composite Index of Economic Activity (CIEA).
Looking ahead, GDP growth is expected to rebound to 4.7 per cent in 2024, primarily driven by improvements in the mining and agriculture sectors, along with other policy reform measures in productive sectors.
The MPC cautioned that higher global interest rates could increase Sierra Leone’s external borrowing costs, potentially posing challenges for external debt management and reducing investment. Nevertheless, a gradual decline in global inflation could have a positive impact on the domestic economy by reducing the prices of imported goods.
Persistent inflationary pressures have persisted since the previous MPC meeting in July 2023 due to both demand and supply-side factors. Headline inflation rose from 44.43 per cent in May 2023 to 44.81 per cent in June 2023 and surged further to 50.94 per cent in August 2023. Food and non-food inflation have been the key drivers of headline inflation, with factors such as higher imported food prices, energy costs, and exchange rate depreciation contributing to the inflationary situation. The MPC anticipates that inflation will remain elevated until the end of 2023.
Consequently, the Central Bank is closely monitoring global and domestic developments, recognizing that external factors may influence Sierra Leone’s economic trajectory while emphasizing the need for policy adjustments and reform measures to navigate potential challenges. ZIJ/9/10/2023