Press Release No. 24/432

IMF Executive Board Concludes 2024 Article IV Consultation with Sierra Leone and Approves Request for a 38-Month Arrangement under the Extended Credit Facility

November 21, 2024

• 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: On October 31, 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.

Executive Board Assessment^[2]

Directors agreed with the thrust of the staff appraisal. They noted that external shocks, paired with suboptimal policies and weak governance, have contributed to low growth, high inflation, a high risk of debt distress, and low reserves. While the recent policy tightening helped to reduce inflation and stabilize the currency, Directors emphasized that strong program ownership and steadfast implementation under the new ECF, including contingency measures as needed, are crucial for restoring macroeconomic stability, safeguarding debt sustainability, and fostering higher and inclusive growth. They noted the importance of CD support for successful program implementation.

Given the high risk of debt distress, Directors underscored the need for sustained fiscal consolidation to keep debt on a sustainable path. They welcomed the authorities Medium Term Revenue Strategy, the focus on enhancing implementation, compliance, and tax administration, as well as efforts to enhance mining revenues. They also called for expenditure restraint, while protecting social spending amid the high level of food insecurity. Directors emphasized the need to further strengthen debt management and public financial management.

Directors concurred that monetary policy should be sufficiently tight to reduce inflation to single digits. They welcomed plans to strengthen the monetary policy framework to provide more effective policy tools, limit monetary financing, and enhance liquidity management. They highlighted the need to allow the exchange rate to adjust flexibly to shocks while rebuilding international reserves. They encouraged effective implementation of safeguards assessment recommendations to improve the governance, accountability, and transparency of the central bank.

Directors noted that the elevated sovereign‑bank nexus, high deposit dollarization, and solvency and prudential challenges require continued vigilance and enhanced regulation and oversight to safeguard financial sector stability. They positively noted commitments to establish a macroprudential framework, the Deposit Protection Fund, and an Emergency Liquidity Assistance framework, as well as efforts to finalize the crisis management plan and to prepare measures to bolster bank solvency. Strengthening the AML/CFT framework is essential.

Directors noted that the objectives of the ECF arrangement are aligned with the National Development Plan 2024‑30. They emphasized the importance of addressing weaknesses in governance and corruption, narrowing gender gaps, bolstering customs administration, building a strong social safety net, and proactively dealing with climate related risks. They looked forward to the governance and corruption diagnostic to guide robust governance reforms. A few Directors noted the authorities’ interest in an RSF arrangement to help address climate challenges.

[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.

[2] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.