Sierra Leone’s public debt has sharply increased, says World Bank

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June 27, 2018

By Hassan Gbassay Koroma

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Minister of Finance JJ Saffa (second from left) attended the launch alongside World Bank Officials

The first edition of the World Bank’s Sierra Leone Economic Update  (SLEU), launched on Tuesday, 21st June at the Radisson Blu Mammy Yoko Hotel, titled ‘Reviving Urban Development,’ says that Sierra Leone’s public debt has sharply increased.

According to the report, worsening fiscal position of the government and the underperformance of domestic revenue mobilisation have led to a sharp rise in the stock of public debt from 44.3 percent of GDP in 2015 to 55.9 percent in 2016 and further to 60.8 percent of GDP in 2017.

The Sierra Leone Economic Update (SLEU) report analyses recent economic developments and policies within medium-term, regional, and global contexts as well as the implications of these developments and policies on the outlook of the economy.

The report includes a special feature article analysing more deeply the relevance of promoting inclusive growth and poverty reduction, with the target audience for the report being policy makers, business leaders and organisations, analysts interested in Sierra Leone’s economy, and representatives of civil society.

The World Bank report notes that the overall surge in debt accumulation can be explained by rapid depreciation of the exchange rate between 2015 and 2016 (27.5 percent) and new borrowings (both domestic and external) to finance the high fiscal deficits.

It further states that the most recent Debt Sustainability Analysis (DSA) in June 2017 indicates that Sierra Leone remains at a moderate risk of debt distress and the stress tests nonetheless highlighted distinct vulnerabilities in both domestic and international conditions, with substantial breaches of the threshold occurring for most debt indicators.

“About 71 percent of the total public debt stock is external and amortized in foreign currencies, indicating high vulnerability to exchange risks. The external debt reached 43.0 percent of GDP (US$1.51 billion) in 2017 from 41.3 percent (US$1.34 billion) in the previous year, reflecting new borrowings from bilateral and multilateral creditors, with 75.2 percent of external debt being owed to multilateral creditors, such as the World Bank (WB), IMF, and the African Development Bank (AfDB),” the report says.

It also highlights that 11.8 percent of the debts is owed to bilateral creditors (China Exim Bank, Kuwait Fund, Saudi Fund for Development (SFD), while 13.0 percent is owed to commercial creditors.

The report further notes that domestic debt constitutes a smaller share (29 percent) of the total debt portfolio, with the portfolio concentrated in treasury securities with maturities of one year or less plus significant rollover or liquidity risks.

“In 2016, total domestic debt rose to 17.8 percent of GDP (US$0.65 billion) from 14.6 percent (US$0.56 billion) due to increased government borrowing from the banking system to finance the fiscal deficit.”

The World Bank report further notes that a large amount, 61 percent of all domestic debt, was held by commercial banks, with the Central Bank and nonbank entities accounting for the rest.

It adds that interest payments on domestic debt rose sharply to 1.9 percent of GDP in 2017 from 0.9 percent in 2016, due mainly to rollover of short-term debt at higher interest rates as well as to the accumulation of new short-term debt.