Freetown, SIERRA LEONE – Sierra Leone’s fiscal landscape faced a widening overall fiscal deficit in the second quarter of 2023, reaching NLe2.4 billion, compared to NLe1.6 billion in the first quarter, as per provisional data disclosed in the September 2023 Monetary Policy Report by the Central Bank. The expanded deficit is attributed to heightened expenditures and a contraction in revenue, resulting in a primary balance deficit of NLe1.01 billion in Q2-2023, up from NLe0.82 billion in Q1-2023.
The report highlights that the fiscal deficit was primarily financed from domestic sources, with domestic deficit financing totalling NLe1.33 billion, representing 57% of the total financing. Foreign financing amounted to NLe490 million, while other sources contributed NLe50 million.
According to the Central Bank, the country’s fiscal policy in Q2-2023 was marginally expansionary compared to Q1-2023. This expansion was driven by significant discretionary government spending, particularly in the security sector ahead of the elections, increased goods and services expenditure, and overruns on capital expenditure.
The total public debt for Sierra Leone reached NLe53.9 billion, equivalent to 72.2% of GDP, in June 2023, marking a 4.3% increase compared to December 2022. This growth is attributed to a 13.4% increase in domestic borrowing, reaching NLe18.2 billion in June 2023.
While domestic revenue is expected to improve in the fourth quarter of 2023 following the full implementation of the Finance Act, the restoration of the full pass-through petroleum pricing formula, and other reform measures, the government is anticipated to exercise tighter control over expenditure in line with the IMF-ECF program. This involves compensating for lower revenue by reducing spending on goods and services and gradually phasing out energy subsidies.
Despite these expectations, the report underscores various external and local risk factors that challenge the fiscal outlook. These include the creation of new MDAs, geopolitical conflicts, sub-regional tensions, declining international donor support, weaker-than-expected domestic demand, a faster-than-expected depreciation of the exchange rate, debt service payments, and intensifying inflationary pressures. These factors may complicate the execution of the supplementary budget in the next two quarters, the report concludes. ZIJ/20/11/2023