IMF Okays 38-Month Credit Deal for Sierra Leone

• The IMF Executive Board today approved a 38-month arrangement under the Extended Credit Facility, with requested access of SDR 186.663 million (around US$248.5 million).
• The ECF-supported program will help Sierra Leone restore stability by bolstering debt sustainability, addressing fiscal dominance, bringing down inflation and rebuilding reserves; support inclusive growth through reforms and targeted social spending; confront corruption, and strengthen governance, institutions, and the rule of law.
• The Executive Board also completed the 2024 Article IV consultation, which focused on climate vulnerabilities, gender gaps, social policies, mining revenue mobilization, drivers of inflation, and trade facilitation.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) today concluded the 2024 Article IV consultation [1] with Sierra Leone and approved a 38-month arrangement under the Extended Credit Facility (ECF), in the amount of SDR 186.663 million (about US$248.5 million). The Executive Board's decision enables an immediate disbursement of SDR 34.999 million (about US$46.6 million).

The new arrangement supports the authorities' National Development Plan 2024-30. It aims to restore stability by bolstering debt sustainability addressing fiscal dominance, bringing down inflation and rebuilding reserves; support inclusive growth through structural reforms and targeted social spending; and confront corruption, and strengthen governance, institutions, and the rule of law.

The Executive Board also completed the 2024 Article IV consultation, which focused on climate vulnerabilities, gender gaps, social policies, mining revenue mobilization, drivers of inflation, and trade facilitation.

The authorities began to tackle Sierra Leone's macroeconomic imbalances last year by notably tightening fiscal and monetary policies. They reduced the domestic primary deficit by 2.8 percentage points of GDP in 2023 and are on track towards reducing it by another 2.1 percentage points this year. They also tightened monetary conditions sharply by reducing year-on-year base money growth from a peak of 63.4 percent in June 2023 to 8.8 percent in June 2024, and raised the policy rate by 7.75 percentage points since end-2022.

The policy tightening arrested the sharp exchange rate depreciation observed in 2022 and early 2023, and inflation declined from 55 percent y-o-y in October 2023 to 25 percent in August 2024. Growth reached more than 5 percent in 2022 and 2023 on the back of strong mining sector activity and is expected to stabilize at 4.6 percent over the medium term. Nonetheless, debt remains at high risk of distress, international reserves have fallen to less than two months of imports, inflation and borrowing costs remain elevated, and the electricity distribution company continues to make losses, resulting in significant fiscal pressures.

At the conclusion of the Executive Board's discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:

"Despite Sierra Leone's abundant natural resources, its young population, and favorable geography, the years since the Ebola outbreak did not deliver sufficient improvements in standards of living.

"The previous ECF arrangement served as a critical policy anchor, supported stability, promoted reforms, catalyzed financing, and integrated well with capacity development efforts, but program performance was mixed. A series of exogenous shocks, paired with suboptimal policies and governance challenges contributed to low growth, elevated inflation, and heightened debt-related risks.

"The authorities' recent ambitious reform efforts are commendable. Tighter macroeconomic policies contributed to a substantial decline in inflation, helped stabilize the exchange rate, and built policy credibility. However, debt remains at high risk of distress, inflation is still too high, and international reserves are at inadequate levels.

"Addressing Sierra Leone's macroeconomic imbalances while making durable progress in fighting poverty, and raising standards of living, will require a sustained commitment to reform. The macroeconomic policy tightening required to keep debt on a sustainable path, bring down inflation, and rebuild international reserves is significant. Protecting the most vulnerable from the adjustment will be a challenge, and achieving higher, and more inclusive growth will require ambitious structural reform efforts.

"The new ECF arrangement integrates well with the National Development Plan 2024-30 in addressing these challenges. It aims to tighten fiscal policy by enhancing revenue mobilization, boosting spending efficiency, and strengthening public financial management and debt management. Monetary policy will remain appropriately tight, while maintaining a flexible exchange rate, and strengthening financial sector oversight and regulation, and building a strong financial safety net.

"The ECF arrangement will also support inclusive growth through targeted social spending and structural reforms, including by promoting gender equality, strengthening customs administration, building a strong social safety net, and bolstering governance, institutions, and the rule of law."

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.