By zainab.joaque@awokonewspaper.sl
Freetown, SIERRA LEONE – Sierra Leone finds itself facing economic headwinds as its foreign exchange reserves remain below the threshold required by the Central Bank, according to a statement issued by the Monetary Policy Committee (MPC) of the Bank of Sierra Leone (BSL).
Despite a slight increase in the gross foreign exchange reserves of the Central Bank, which now cover 2.7 months of imports compared to 2.3 months recorded in the third quarter of 2023, the reserves still fall short of the required three months of import coverage.
Import cover, measuring the number of months reserves can sustain imports, is a critical indicator, especially for countries with a closed capital account, with the benchmark set at three months of coverage.
The Central Bank attributed the boost in reserve position to inflows from development partners during the reviewed period. However, the MPC expressed concern that despite the improvement, reserves remained below the indicative threshold of at least three months of imports cover.
In 2023, the gross international reserves saw a decline from 3.3 to 2.8 months of import cover between the first and second quarters, despite the International Monetary Fund (IMF) projecting a rebound to 3.4 months of import cover for the year, based on improved current account performance.
There was a notable reduction in the trade deficit by 50.9 percent to US$111.3 million in the fourth quarter of 2023 from US$226.6 million in the third quarter, attributed to increased export receipts and reduced import bills.
Governor Ibrahim Stevens, who chaired the MPC meeting, highlighted that over the past nine months, the exchange rate has been relatively stable due to policy measures implemented by the BSL to address foreign exchange market challenges. He also noted a decline in speculative behaviour and currency substitution, indicating growing confidence in the BSL’s policies.
Looking ahead, the MPC expressed optimism that government initiatives to boost agriculture, mining, and services sectors, supported by the BSL’s Agricultural Credit Facility (ACF) and inflows from development partners and private transfers, will increase gross reserves in the near-to-medium term.
Negotiations with the IMF for a new Extended Credit Facility (ECF) program are underway, with hopes that a successful conclusion will enhance confidence in the economy, provide balance of payments support, and catalyse financial disbursements from other development partners.
Despite recording a surplus of NLe0.4 billion in fiscal operations in the fourth quarter of 2023, from a deficit of NLe2.4bn in 2023Q3 and NLe2.6bn in 2023Q2, fiscal pressures persist due to the government’s mounting priority spending needs. The primary balance recorded a surplus of NLe0.3bn in 2023Q4 compared to a deficit of NLe1.3bn in 2023Q3. Increased foreign grants, improved revenue collection, and reduced expenditure contributed to the fiscal improvement noted by the MPC. ZIJ/8/4/2024