IMF maintains strong confidence in the government of Sierra Leone

Sierra Leone Telegraph: 25 September 2019

An International Monetary Fund (IMF) Mission led by Karen Ongley, concluded its discussions of recent economic developments and progress toward structural reforms with the government of Sierra Leone in Freetown yesterday, 24 September 2019.

Speaking about the discussions, Ms. Ongley said: “Today, we concluded a week of useful technical discussions in Freetown. Our discussions with stakeholders included an update on economic developments and engagement on the structural reform agenda ahead of the next visit to discuss the second review under the Enhanced Credit Facility (ECF) slated for later this year.”

Expressing confidence in the government’s handling of the economy, she said: “Economic performance in the first half of 2019 has been broadly in line with projections at the time of the first review under the ECF, according to preliminary data.

“Budget developments and credit to the government appear to have been within target, thanks to robust revenue collection and continued, although easing, under‑spending.

“Gross international reserves increased to almost US $517 million at end‑June (about 3½ months of imports).

“Discussions centred around the government’s progress in developing a strategy to clear a stock of domestic arrears. The government is finalizing the reconciliation of domestic payment arrears and discussed with IMF staff possible options to clear arrears consistent with debt sustainability and supported by reforms to strengthen public financial management.

“A joint two-day workshop facilitated technical exchange. During this workshop with staff from the Ministry of Finance, Ministry of Planning and Economic Development, Bank of Sierra Leone, National Revenue Authority, Statistics Sierra Leone, and the IMF discussed empirical modelling techniques for ongoing economic research projects.

“The team also held productive discussions with senior government officials, including from the Ministry of Finance, the Bank of Sierra Leone, Audit Service Sierra Leone, as well as banking sector representatives and development partners. The team thanks all counterparts for the productive discussions, excellent cooperation, and warm hospitality.”

The last time IMF officials met with the Bio-led government was in June 2019, when the IMF completed its first review of the new government’s economic performance. As a result of that review, the IMF agreed to disburse $21.62 million to the government.

Expressing confidence in the Bio-led government, the IMF said that “the government’s reform agenda will secure fiscal sustainability, create space for priority spending, and lay the foundation for inclusive growth and poverty reduction”.

At the end of that first review in Freetown in June 2019, the Deputy Managing Director and Acting Chair of the IMF Executive Board – Mr. Tao Zhang, said: “Performance under the ECF supported program has been satisfactory in the face of a challenging economic environment. Although progress on structural measures has been slower than anticipated, the government remains firmly committed to their reform agenda.

“Securing fiscal sustainability and creating space for priority spending will be crucial for tackling Sierra Leone’s development needs. The authorities have made commendable progress since the start of the program, both in mobilizing revenue and taking a cautious approach to expenditure.

“Going forward, durably higher revenue will be essential to boosting social spending and investing in infrastructure – key goals of the government’s new National Development Plan.

“The authorities’ more cautious medium-term fiscal approach is appropriate given fiscal risks. Managing fiscal risks expeditiously will provide more certainty about the space available for priority spending. In this regard, quick actions to complete the arrears stocktaking and the diagnostic of state owned banks will be particularly important.

“Structural reforms are a central component of the authorities’ fiscal strategy. Achieving the program’s revenue mobilization goals will entail continued tax policy and administration reforms. Improving public financial management will help control expenditure and avoid the emergence of new arrears, while reorienting spending to priorities with clear economic or social returns.

“Efforts to develop a Medium-Term Debt Management Strategy will help to better manage fiscal risks. Monetary policy remains appropriately focused on reducing inflation to single digits over the medium-term. Progress toward developing indirect instruments will, over time, improve policy effectiveness. Enhancing exchange rate flexibility and reserve buffers will be vital to boost the economy’s resilience to external shocks.

“Continued reforms to strengthen the Bank of Sierra Leone’s governance will be critical for the institution’s accountability and operational effectiveness. In this spirit, finalizing the new central bank law and the recently completed forensic audit were important milestones. Quickly acting on both will help advance the BSL’s reform efforts.”

That first review of the Bio-led government’s performance by the IMF in June 2019, and its decision to approve $21.6 million to boost government’s spending, was significant. It signalled a strong show of confidence in the government’s handling of the difficult economic circumstances inherited from the Koroma APC government.

And yesterday, 24 September 2019, after meeting government and central bank officials, the IMF expressed satisfaction with the government’s general handling of the economy. It said: “Economic performance in the first half of 2019 has been broadly in line with projections at the time of the first review under the ECF, according to preliminary data.”

The next visit of the IMF to discuss the second review under the Enhanced Credit Facility (ECF) will take place later this year.

Sierra Leone’s ECF arrangement for SDR124.44 million (about US$172.1 million or 60 percent of the country’s quota at the time of approval of the arrangement) was approved on November 30, 2018 (see Press Release No. 18/446).