Freetown, SIERRA LEONE – Sierra Leone is grappling with a growing economic challenge as the Ministry of Finance reveals a significant spike in public debt servicing. A staggering NLe2.19 billion was expended in the first half of 2023 to manage public debt, reflecting an 86.1% surge from the NLe1.18 billion recorded during the same period in 2022.
Debt servicing encompasses principal repayment, interest, and various charges, including commitment and commission fees imposed by creditors. This stark increase in the debt service burden raises concerns about its implications for the nation’s fiscal health.
The Ministry’s released debt statistics disclose that the Debt Service to Domestic Budget Revenue ratio climbed to 47.39% in the first half of 2023, compared to 35.28% in the corresponding period of 2022. This surpasses the recommended threshold of 20%, underscoring the severity of the situation.
Public debt in Sierra Leone includes all financial claims on the government, obligating the payment of interest and principal repayment to both domestic and external creditors in the future. The total debt comprises public and publicly guaranteed liabilities, both disbursed and outstanding, owed to residents and non-residents.
Domestic debt, whether denominated in local or foreign currency, encompasses treasury bills, bonds, verified domestic suppliers’ arrears, and Ways and Means Advances owed to the Bank of Sierra Leone. On the other hand, external debt is defined as disbursed and outstanding debt owed to non-residents.
In the fiscal landscape, projections indicate that total grants are expected to reach NLe3.7 billion (4.7% of GDP) in 2023. For the first half of the year, net lending and total expenditures amounted to NLe9.7 billion (12.3% of GDP), aligning with the budgeted amounts.
Likewise, projections for total expenditures and net lending by the end of the year are set at NLe18.3 billion (23.3% of GDP). As of June 2023, the overall budget deficit, excluding and including grants, was estimated at 6.4% and 5.1% of GDP, respectively. Notably, the deficit was predominantly financed by borrowing from the domestic banking system.
Sierra Leone faces a critical juncture as it grapples with the economic repercussions of surging public debt servicing, prompting a closer examination of fiscal policies and strategies to ensure sustainable financial stability. ZIJ/29/1/2024