Sierra Leone’s high debt burden could hamper economic growth – says African Development Bank

Sierra Leone Telegraph: 28 July 2021:

Figures published by the African Development Bank, show that Sierra Leone’s economy has been seriously hurt by the COVID–19 pandemic, with real GDP estimated to contract by 2.7% in 2020 after growing by 5.4% in 2019. The decline is attributable to weak external demand for major exports, particularly diamonds, and to decline in the mining, transport, trade, and tourism sectors.

Inflation was estimated to pick up to 17% in 2020 from 14.8% in 2019, because of supply chain disruptions and transportation restrictions.

The budget deficit was expected to widen to 5.7% of GDP from 2.9% in 2019, because of a revenue shortfall arising from lower economic activity. The decline in exports caused the current account deficit to widen to 15.6% of GDP from 13.5% in 2019.

At the end of September 2020, foreign exchange reserves were $565 million (4.2 months of import cover), compared with $506 million (3.5 months of import cover) in 2019.

The exchange rate remained stable at SLLs 9,845 to the US dollar at the end of 2020. The stock of public debt increased to 77% of GDP as of 30 November 2020 from 70% in 2019 a year earlier.

Sierra Leone’s debt is classified as being at high risk of debt distress, largely due to heightened solvency and liquidity risks arising from the COVID–19 pandemic.

The country is implementing an Extended Credit Facility (ECF) arrangement with the International Monetary Fund. The ECF plans to support the government’s reform agenda of creating fiscal space to finance policy priorities of the National Development Plan (NDP).

Outlook and risks

Upside risks to the outlook are predicated on the assumption that the economy would fully reopen, the ongoing policy and structural reforms supported by the NDP be implemented, the economic stimulus program continue, and external financial assistance in grants, concessional loans, debt service suspension, and restructuring be secured. In that scenario, growth is projected to accelerate to 3.1% in 2021 and 4.3% in 2022.

Inflation is projected to ease to 13.6% in 2021 and to 11.3% in 2022; the fiscal deficit will narrow to 4.1% of GDP in 2021 and 3.6% in 2022; and the current account deficit will be reduced to 14.4% of GDP in 2021 and 13.5% in 2022.

Downside risks to the outlook emanate from delays in the full reopening of the economy, a potential slowdown in global demand, and weak international assistance to supplement growth recovery efforts.

Financing issues and options

The high debt burden coupled with limited fiscal and monetary policy space could constrain Sierra Leone’s effort to increase growth to its pre-crisis level in the near term.

The IMF ECF program, which was introduced prior to the pandemic, continues to guide policy and budgeting in Sierra Leone. In particular, the 2020 budget was anchored on the NDP.

Despite credits and grants from international financial institutions in 2020 to help the country meet urgent balance of payments and fiscal needs from the pandemic, the country needs increased external financial assistance to support a resilient recovery.

External assistance could aim to create fiscal space through debt relief, restructuring, suspension of debt service payments, and concessional lending.

In the medium to longer-term, the country should also complement ongoing domestic revenue mobilization efforts by deepening ongoing financial sector reforms to support domestic credit market growth.

SOURCE: African Development Bank

 

3 Comments

  1. Covid19 pandemic have ravaged economies around the world. Especially in developing countries like ours that have weak industrial base output, and over reliance on export of natural resources, and tourism.Apart from the human cost, perhaps this two sectors are the ones that bore the greatest effects of the pandemic. Covid19 pandemic, was the very unpredictable perfect storm to hit countries no government was prepared for. And once the virus made a land fall, governments have to scrambled for answers and making it up as they go along.There was no road map or guide book, how to fight this invincible enemy.1917 /1918 was the last time the world experienced the Spanish flu. Coming in the dying days of first World war. One can help but wonder at some of our corrupt politicians that carried on with buiness as usual. Whilst other governments that are accountable to their peoples, were looking for answers, Bio, and some of his corrupt ministers were busy milking our international donor partners for all its worth, with the promise of tackling the virus

    Yes the early measures the president took were commendable. But as always, Bios commitments and acts are laced with doubts, U-Turns and last minute dictas that leaves everyone confused and scratching their heads. Flip Flopping is part of Bio’s way of doing things, since he assumed the presidency. Suddenly we are told the boggyman that we should pin the blame for our economic woes is the dreadful Covid19 pandemic. That is just the added problem not main problems facing our country. We know corruption in Sierra Leone has always been and remains the main driver back and front for underdevelopment in our country. And With countries closing their borders, and confining their populations to strict mandatory lockdowns to stop the spread of the Corona virus amongst its people’s, any early recovery for such prudent measures, is bond to impact people’s lives and livihood.

    Now if you factor unchecked corruption, any future economic recovery on the pipe line, becomes a near impossible task to achieve. That is why we need the government to look at the issues with hard headed approach and commitment to invest in people like education and training, roads, electricity, health and agriculture that will at least kick start our anemic economy.

    • Yes, It is a shame. I know an American group that went to the State House in Sierra Leone and was simply redirected away to go speak to ministers instead of meeting with the president. The American group came in to turn the country around and was going to offer Billions to restructure the country . New Port, Automotive plant, Power Plant, Increase Agriculture growth for exporting, An assortment of new businesses for the public to create jobs, New Roads, Schools, Hospital, Oil Refinery, Mining, new Airport, new Bridge, etc. They were going to offer a one for all investment opportunity to truly help turn the country around. Instead they were turned away. Now the group has been contacted to go to other countries to help.

      Sierra Leone just doesn’t get it. The corruption is still there, The white envelops to government people, Covid money used for things that it shouldn’t be, the criminals in the mining sector stealing from investors. The criminals in the police department are setting up investors with their partnerships with the criminal’s of the streets. So Sad. Investors beware of Sierra Leone corruption is still strong there.

  2. Gentlemen – All my warnings on this glorious forum to Prezos inept SLPP government about the devastating long term effects of loans with high interests were ignored; Time has proven me right once again – The chickens have come home to roost; Yup, the reckless stupidities of our past has now come back to bite and haunt us. Please do not try and disguise the failures of this incompetent government by blaming it solely on Covid 19; That’s a BIG FAT LIE. Again, if things are as bad as the ADB claims they are why is this President flushing away our money on expensive trips with his family and cronies abroad? Why doesn’t the Opposition speak out and subject this old soldier, in the interests of the state and its people to accountability?

    Why are they dragging their feet? Are these people also stuck in yucky,murky mud of corruption? Of course they are APC and NGC both now wedded as brides to unbridled corruption; All hope for progress is now lost in the midst of brazen SLPP thieves brandishing weapons of terror,intimidations and fear. Oh Mercy,mercy me! Sierra Leone – We have a big Problem in our hands to solve.(lol)

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