Press Release No. 03/56

Press Release: IMF Completes Review Under Sierra Leone's PRGF Arrangement and Approves US$19 Million Disbursement

April 21, 2003

The Executive Board of the International Monetary Fund (IMF) has completed the third review of Sierra Leone's performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. The Board also granted a waiver of performance criteria. As a result, Sierra Leone would be able to draw up to SDR 14 million (about US$19 million) from the arrangement immediately.

Sierra Leone's PRGF arrangement was approved on September 26, 2001 (see Press Release No. 01/39), for SDR 130.84 million (about US$179 million). So far, Sierra Leone has drawn SDR 74.84 million (about US$102 million) under the arrangement.

The PRGF is the IMF's most concessional facility for low income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

Following the Executive board's discussion on Sierra Leone, Eduardo Aninat, Deputy Managing Director and Acting Chair, stated:

"Despite the growing insecurity and political instability in the region, peace has been sustained in Sierra Leone, reinforced by the resettlement of the displaced population and the continuing assistance to ex-combatants and war victims.

"Increasing confidence has helped to reinforce the economic recovery. Real GDP growth has accelerated while inflation has been contained. Performance in regard to the program targets was broadly satisfactory during 2002, and especially given the difficult postwar social situation and the significant delays in the disbursement of external budgetary aid, the authorities are to be commended for maintaining macroeconomic stability. However, despite the improvement in macroeconomic conditions, the social situation has remained particularly difficult. Unemployment remains very high, especially among the youth and ex-combatants.

"The authorities' objectives for 2003 are considered appropriate, and aim at maintaining macroeconomic stability while enhancing revenue growth and increasing the effectiveness of public expenditures and systems, in order to ensure poverty reduction and accountability. This requires the strengthening of fiscal discipline, the alleviation of capacity constraints of government ministries, and a deepening and acceleration of structural reforms.

"Enhanced budgetary discipline will be essential to avoid a repeat of budgetary overruns, including overspending on the wage bill. The management and accountability problems in the school system should also be firmly addressed. The government also needs to strengthen its capacity to implement the large budgetary increases in capital outlays and HIPC-financed pro-poor spending.

"In the structural area, the reforms associated with the establishment of the National Revenue Authority need to be vigorously pursued to enhance government revenue and reduce overdependence on external budgetary aid. The pace of reform of the civil service and restructuring or privatization of public enterprises needs to advance in order to strengthen competitiveness and to improve the efficiency of public service delivery. Measures to improve governance and the legal and judicial systems are also important to improve the climate for private investment.

"Despite some initial delay, and taking into account Sierra Leone's post-conflict status and capacity constraints, the government is making satisfactory progress in the preparation of the full PRSP that is expected by end-2003. However, enhanced technical assistance is required to complete the full PRSP by that date.

"In line with the improving economic situation in Sierra Leone, the program monitoring will be shifted to six-monthly reviews, the standard practice for PRGF-supported programs," Mr. Aninat stated.