Freetown, SIERRA LEONE – A recent disclosure in the International Monetary Fund’s (IMF) Staff Country Report No. 23/377 sheds light on concerning trends regarding the country’s financial stability. The report highlights persistent breaches in the country’s external debt service-to-revenue ratio and the present value (PV) of the public debt-to-GDP ratio.
The report underscores that the total debt service-to-revenue ratio is projected to remain above 100 percent until 2028, while Gross Financing Needs (GFNs) are expected to exceed the 14 percent benchmark from 2023 to 2033. GFNs encompass the cumulative new borrowing requirement and maturing debt within a fiscal year.
Despite anticipated declines in various debt indicators over the medium to long term, the IMF Staff noted that this trajectory hinges on an ambitious fiscal adjustment plan and continued dependence on grants and concessional financing.
Assurances have been provided by the authorities regarding their commitment to operate within specified external borrowing limits post the conclusion of the Fund-supported program. They aim to intensify efforts to secure grant resources and concessional financing to achieve these targets.
Sierra Leone’s overall and external public debts are evaluated as sustainable but carry a high risk of debt distress, maintaining a status unchanged from the previous Debt Sustainability Analysis (DSA) released in June 2023. The DSA anticipates an increase in the share of T-bonds in domestic debt securities to 30 percent by 2025 from the 14 percent recorded in December 2022. Meeting the 40 per cent goal outlined in the new Medium-Term Debt Strategy (MTDS) is expected to expedite the reduction of elevated debt service levels.
The country’s debt-carrying capacity retains a “medium” rating, standing at a composite indicator value of 2.73 based on the April 2023 IMF’s World Economic Outlook (WEO) and the 2022 World Bank’s Country Policy and Institutional Assessment (CPIA).
Authorities have implemented an updated Medium-Term Debt Strategy (MTDS) that capitalizes on progress made in extending the average maturity of domestic debt. Enhancing demand for longer-term securities in the domestic market necessitates stringent macroeconomic policies to mitigate inflation. The MTDS incorporates strategies to bolster the development of the domestic bond market.
The Fund Staff acknowledges strides taken under the country’s 2022-25 MTDS in elongating the maturity structure of domestic debt, with the share of T-bonds in total debt securities escalating from 10 per cent in January 2022 to around 18 per cent by July 2023.
Additionally, an updated 2023-27 MTDS was adopted in October 2023, emphasizing the elongation of debt maturity. Addressing the significant reliance on T-bills is identified as crucial in reducing Sierra Leone’s elevated debt service levels.
“The MTDS aligns with the macroeconomic framework for the 8th ECF review and maintains identical parameters on annual external borrowing, assumptions on future concessional loan disbursements, and the division between external and domestic borrowing.” ZIJ/11/12/2023