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Monday, July 4, 2022

World Bank says Sierra Leone’s economic recovery faces uncertainty

By Alfred Koroma

 With contributions from mining, agriculture and a partial recovery in tourism and manufacturing, Sierra Leone’s GDP will grow to average 4.4 percent during 2022 to 2024, but the growth faces uncertainties, World Bank says.

According to the Bank, headline inflation is expected to remain elevated in 2022 due to ongoing global supply-chain disruption uncertainties. World Bank made the projection in its annual Sierra Leone Economic Update (SLEU) launched in Freetown on Tuesday June 21, 2022.

“Sierra Leone economy at the moment is doing badly as rising inflation and cost of living hits the country the hardest. Since the ruinous rebel war, the economy of the diamond rich country has remained turbulent, unable to fully recharge largely due to outbreak of the Ebola virus disease and the global Covid19 pandemic that disrupted the global economy. COVID-19 shock disrupted the fiscal consolidation momentum of previous years, prompting authorities to provide support through fiscal stimulus, including social transfers,” the Bank says, adding that pre-COVID fiscal gains have been since reversed with emerging expenditure needs and revenue shortfalls.

“Sierra Leone’s economy is recovering from the COVID Shock, but the growth outlook faces significant downside risks and uncertainties due to the war in Ukraine, global inflationary pressures, and the continued threat of COVID outbreaks,” World Bank notes.  

According to the Economic Update, the country’s  fiscal deficit has since increased by 2.6 percentage points of GDP (to 5.8 percent) in 2020 and 5.9 percent in 2021 and that  while total expenditures have increased, revenue collections have registered some gains in 2021 in part due to one-time mining revenues and stricter enforcement of tax laws.  But the Bank says  public debt has continued to rise and approached 79 percent of GDP in 2021, reflecting persistent fiscal deficits, currency depreciation, and limited access to concessional sources of financing.

The 2022 World Bank Sierra Leone Economic Update which  dedicated a special section to examine one of the main constraints faced by Small and Medium Enterprises (SMEs) in Sierra Leone, notes access to finance as one of the serious constraints faced by SMEs .

 According to the update, SMEs (along with micro-enterprises) provide livelihoods to approximately 70 percent of the population and represent over 90 percent of the domestic private sector.

World Bank considered the provision of financial products and services through digital channels an essential enabler to reduce the SME financing gap but says the state of digitization of financial services – both in terms of infrastructure and adoption in the country is still at its nascent stages.

The SLEU report notes Sierra Leone lags behind its counterparts in Sub-Saharan Africa in overall ICT performance, saying access to electricity also remains a challenge both in terms of reliability and affordability.

The report recommends that prudent fiscal management will be crucial to strike a balance between the emerging expenditure needs and limited fiscal space. The World Bank also highlight the need for the government to access only concessional sources of borrowing and financing to address its debt vulnerabilities and manage its risk of debt distress.

 “Sustained fiscal adjustment and active debt management can support debt sustainability and reduce vulnerabilities. Reduction in domestic borrowing needs will also free up more credit for the private sector,” said Abdu Muwonge, World Bank Country Manager for Sierra Leone. “However, it is a welcome development that Sierra Leone’s economy is slowly recovering and is projected to average 4.4 percent growth in the medium-term. Improving and sustaining these growth prospects will require further attention to policies that deal with the COVID crisis and lessen its impact on people’s livelihoods.”

 “To improve on the current outlook, policy responses should focus on cushioning the impact of recent shocks and implementing reforms to safeguard and strengthen economic recovery over the medium-term,”  Kemoh Mansaray, World Bank Senior Country Economist and a lead author of the report is quoted in the Bank’s press statement.

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