IMF is optimistic about prospects for Sierra Leone’s economy

Sierra Leone Telegraph: 2 October 2018:

After months of uncertainty about discussions between the newly elected government in Sierra Leone and the International Monetary Fund (IMF), today there is good news from the IMF about its latest review of the country’s economic performance.

An IMF team led by Brian Aitken visited Freetown from 18th of September 2018 to 2nd October 2018,  to initiate discussions on a possible Extended Credit Facility arrangement that could be supported by the IMF.

At the end of the visit, Mr. Aitken issued the following statement:

“The economic environment remains challenging, with output growth still recovering from the recent loss in iron ore mining and reduced activity in the non-mining sectors.

Output growth is likely to remain below 4 percent this year, and inflation remains elevated at 18 percent, reflecting a combination of factors including food and fuel price developments and pass-through from modest exchange rate depreciation.

“At the same time, the corrective actions the authorities have taken in recent months to shore up public finances in response to the cash shortfall have led to an increase in revenue and helped arrest the rise in public spending arrears.

“This is expected to result in some improvement in the 2018 budget performance this year.

“Against this backdrop, the authorities’ policy focus is to safeguard macroeconomic stability and institute a package of structural reforms that place the country on a sustained path toward economic diversification and growth, employment creation, and improved social conditions, consistent with the objectives of the government’s medium-term plan, Education for Development.

“The IMF team welcomes the authorities’ efforts to further mobilize domestic revenue, improve expenditure management and control, address the outstanding stock of budget arrears, stabilize public debt and reduce it to sustainable levelsand prioritize public investment aimed at reducing social and infrastructure gaps.

“The Bank of Sierra Leone’s (BSL) objectives of bringing inflation to single digits, increasing foreign exchange reserves to boost resilience to economic shocks, and maintaining financial stability through enhanced bank regulation and supervision are essential for sustainable growth.

“We support efforts to increase the efficiency, effectiveness, transparency and accountability in the use of public resources, while strengthening social protection for the most vulnerable.

“Reflecting the progress in this week’s discussions, the authorities and the mission reached a broad understanding on economic policies and reforms that could be supported by the IMF in the context of a new ECF arrangement.

“Discussions will continue in the coming weeks with a view to presenting the program request to the IMF Executive Board before the end of this year.”

The IMF team met with Vice President Jalloh, Finance Minister Jacob Saffa, Deputy Finance Minister Patricia Lavaley; BSL Deputy Governor Dr. Ibrahim Stevens, senior government and BSL officials, and development partners.

It is now expected that once negotiations between the IMF and the government are concluded by the end of this year, IMF funding could then be made available to support the government’s drive to diversify the economy, widen its taxation base and end its over-reliance on the volatile mining industry.

It is uncertain as to whether the IMF will resume its $240 million financing agreement signed in 2016 with the Koroma led government, which was suspended due to serious financial mismanagement and corruption.

But what is clear is that with the Bio led government’s drive to establish a new culture of public financial discipline and prudence, it is likely that a new Extended Credit Finance (ECF) agreement will be signed by both parties.

The government is making tough spending decisions, and is increasing its efforts to raise and collect taxation, which is then used to pay for the running of vital services.

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