September 16, 2015 By Alusine Sesay
“Though good progress has been made in containing Ebola, [Sierra Leone’s] real GDP is expected to decline by 21.5 percent in 2015 following 4.6 percent growth in 2014. Revenue shortfalls, including due to loss of revenue from iron-ore mining and higher than budgeted spending related to the Ebola epidemic, contributed to deterioration in the fiscal balance, with the deficit projected to be 4.8 percent of GDP in 2015,” says IMF’s African Department Advisor, John Wakeman-Linn.
Mr. Wakeman-Linn led an International Monetary Fund (IMF) mission that visited Freetown from September 1-15 to conduct discussions on the joint third and fourth reviews under the Extended Credit Facility (ECF) Arrangement approved by IMF management in October 2013.
As he briefed newsmen yesterday at the IMF office in Freetown, he observed that Sierra Leone continues to battle the adverse impact of two severe exogenous shocks, including the Ebola epidemic and the crisis in the mining sector that began with the collapse of iron ore prices and culminated in the cessation of production in April 2015.
He said inflation, which moderated in the first quarter of 2015, is now projected to be 9.9 percent in 2015, and that both the current account balance and foreign reserve accumulation benefited from increased inflows related to Ebola transfers, with the current account deficit narrowing to 13.8 percent of GDP, notwithstanding the loss of iron ore export receipts.
He noted that the country faces a challenging near and medium-term outlook, and that GDP for 2016 is expected to remain relatively unchanged.
“Looking ahead, strong policy commitment is necessary to maintain macroeconomic stability and achieve long-lasting growth,” noted Mr. Wakeman-Linn. “The very difficult fiscal situation calls for enhanced revenue mobilization and expenditure restraint, while safeguarding social programs, especially on post-Ebola recovery.”
He said the mission commended recent attempts to improve revenue collection and administration, noting that it will be particularly important to reconsider the large number and value of waivers and exemptions from the Goods and Services Tax and customs duties, which cost the budget significant revenue.
On the banking system, he said the mission welcomed the Bank of Sierra Leone’s efforts to introduce policies to deepen the financial market and enhance monetary policy transmission, and its steps to strengthen supervision.
“Notwithstanding the difficult economic environment, the authorities have forged ahead with their reform program. Following weak performance in 2014, largely due to the challenges caused by Ebola, all program quantitative targets were met as of end-June, despite the shock to revenues,” he maintained. “Implementation of structural reform measures, which were delayed due to the impact of Ebola, has now resumed. Importantly, the Public Finance Management Bill was submitted to Parliament in August. New timelines have been established for implementation of measures on revenue mobilization, expenditure management, and others. These reforms will require time and persistent efforts before their beneficial impact is felt on the economy.”
The IMF African Department Advisor further observed that the implementation of the government’s post-Ebola Recovery Strategy could boost growth in the non-iron sectors, and that the strategy could benefit from the support of development partners, whose financial support was crucial in containing the Ebola epidemic.
Considering the financing constraints, he said a commitment to a prudent borrowing policy, with priority being given to grants and concessional borrowing to finance investment projects, would be essential.
He disclosed that the IMF mission would consider request for an increase in access under the current program by SDR46.7 million (about $66 million) and that if approved, the new resources would be distributed in three tranches starting from the just concluded review.
He expressed gratitude to the Sierra Leonean authorities for what he referred to as the constructive discussions and hospitality during their visit to Freetown, and that the mission would prepare a program review report that was tentatively scheduled to be discussed by the IMF’s Executive Board in November this year.