Press Release No. 11/450

Press Release: IMF Executive Board Completes Second and Third Reviews Under ECF with Sierra Leone and Approves $US 13.8 Million Disbursement

December 7, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the second and third review of Sierra Leone’s economic performance under a program supported by the Extended Credit Facility (ECF). The Board’s decision enables the immediate disbursement of an amount equivalent to SDR 8.88 million (about US$13.8 million), bringing total disbursements under the arrangement to an amount equal to SDR 17.76million (about US$27.6 million).

In completing the reviews, the Executive Board approved waivers for nonobservance of performance criteria on net domestic bank credit to the central government and net domestic assets of the central bank, both for end-December 2010, and for the continuous performance criterion on the ceiling on new nonconcessional external debt. The Board also approved a modification of three performance criteria for end-December 2011 related to the net domestic bank credit to the central government, net domestic assets of the central bank, and gross foreign exchange reserves of the central bank to reflect envisaged changes in fiscal and monetary policy.

The three-year ECF arrangement for Sierra Leone was approved on June 4, 2010 in an amount equivalent to SDR 31.11 million (see Press Release No. 10/228).

Following the Executive Board’s discussion of Sierra Leone, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:

“The economy is continuing to recover, reflecting steady growth in mining, manufacturing, and construction. Inflation, however, remains high due to exogenous shocks and loose monetary policy at the end of 2010. Given tighter policies and more favorable external conditions, inflation is expected to decline in the near term. Gross international reserves remain at comfortable levels.

“Notwithstanding progress with respect to macroeconomic and structural policies, recent performance under the authorities’ program, supported by the three-year Extended Credit Facility, has been mixed. Despite improved revenue performance in the second half of 2010, an acceleration of infrastructure investment under the government’s Agenda for Change led to a surge in unbudgeted spending and commensurate liquidity expansion. As monetary policy accommodated the fiscal easing, key fiscal and monetary targets for December 2010 were not met. The government took action in early 2011 to tighten policies, resorting to both revenue and expenditure measures, resulting in improved program performance. It is also taking action to impose a statutory limit on central bank credit to the government. Continued fiscal restraint will be critical to maintaining macroeconomic stability in the period ahead.

“The medium-term outlook is favorable. Full operation of an iron ore megaproject in 2012 is expected to boost GDP and exports substantially. The fiscal space for infrastructure investment and social spending is, however, constrained in the near term, as government revenue is expected to increase only gradually in the first years of new mining activity. Financing the upcoming elections, as well as the government’s decision to reduce excises on fuel, puts additional burdens on the 2012 budget.

“Monetary policy will seek to contain inflationary pressures, bringing inflation down to single digits by 2013, while improving policy implementation and communication. Exchange rate flexibility should be maintained to facilitate adjustment to external shocks.

“Administrative reforms must also underpin policy efforts with a focus on improving tax administration, strengthening public financial management, and deepening the financial sector. These reforms will help create fiscal space for capital and social spending, while encouraging private sector investment and activity in support of inclusive and broad-based growth”, Mr. Shinohara added.