SIERRA LEONE, Freetown – The Government and the International Monetary Fund (IMF) team have agreed on a medium-term fiscal framework that continues to strike a balance between reducing debt vulnerabilities and supporting post-crisis recovery.
This is anchored around increasing domestic revenue mobilization, securing more budget support grants, and strengthening expenditure management and commitment controls.
The team conducted a mission to Sierra Leone and in Washington DC from March 31 to May 18 to discuss progress on reforms and the authorities’ policy priorities in the context of the fifth review of Sierra Leone’s Extended Credit Facility (ECF) supported program.
In addition, a medium-term revenue strategy (MTRS) is under development to identify a properly sequenced and coherent set of tax policy and administrative measures to widen the tax base.
The Fund Staff stated that, given limited resources, improved expenditure control and spending efficiency are essential in creating fiscal space for priority spending such as the school feeding program and health spending. The use of additional Special Drawing Rights (SDR) resources will also support priority spending.
“The fiscal situation in Sierra Leone is extremely tight in part due to large spillovers from the war in Ukraine on top of the painful impact of COVID-19, but also other emerging spending pressures” said Sukhwinder Singh who led the IMF Staff team.
He added that, rapidly growing subsidy costs in the face of limited fiscal space and urgent social/development spending needs have necessitated bold action on fuel and energy prices, with the government raising fuel prices by a cumulative 50 percent in March this year, while targeting transfers to the poorest.
“The 2022 budget resumes fiscal adjustment towards a consolidation path despite the challenging environment. Given the high risk of debt distress, additional crisis needs call for additional grant financing and limiting external borrowing” he said.
According to Singh, the banking sector he said appears to have remained well capitalized, profitable, and liquid due to investments in sovereign securities. Private sector credit is showing signs of recovery, although the pandemic has contributed to some increase in non-performing loans (NPLs).
The authorities he said are working to strengthen regulation of the banking sector, including efforts focused, with World Bank assistance, on improving governance of the two state-owned banks.
The Bank of Sierra Leone (BSL), Singh said, has responded appropriately to rising inflationary pressure by gradually tightening policy and is making progress in strengthening its monetary policy framework. ZIJ/10/6/2022