IMF approves extended credit facility for Sierra Leone amid ongoing economic challenges

Economics
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Mr. Bo LI assumed the role of Deputy Managing Director at the IMF. | https://www.imf.org/en/About/senior-officials/Bios/bo-li

The International Monetary Fund (IMF) Executive Board has concluded the 2024 Article IV consultation with Sierra Leone and approved a new 38-month arrangement under the Extended Credit Facility (ECF). This arrangement amounts to SDR 186.663 million, equivalent to approximately US$248.5 million, enabling an immediate disbursement of SDR 34.999 million or about US$46.6 million.

The new ECF arrangement is designed to support Sierra Leone's National Development Plan for 2024-30. It aims to stabilize the economy by improving debt sustainability, reducing inflation, and rebuilding reserves. Additionally, it seeks to promote inclusive growth through structural reforms and social spending while addressing corruption and strengthening governance.

The IMF's consultation with Sierra Leone focused on several key areas including climate vulnerabilities, gender gaps, social policies, mining revenue mobilization, inflation drivers, and trade facilitation.

Sierra Leone has made efforts to address its macroeconomic imbalances by tightening fiscal and monetary policies over the past year. The domestic primary deficit was reduced by 2.8 percentage points of GDP in 2023 with further reductions expected this year. Monetary conditions were tightened significantly as well, with base money growth dropping from a peak of 63.4 percent in June 2023 to 8.8 percent in June 2024.

These measures helped arrest exchange rate depreciation observed previously and brought down inflation from a high of 55 percent year-on-year in October 2023 to 25 percent in August 2024. Despite these improvements, challenges remain as debt is still at high risk of distress and international reserves are low.

Deputy Managing Director and Acting Chair Mr. Bo Li commented on the situation: “Despite Sierra Leone’s abundant natural resources...the years since the Ebola outbreak did not deliver sufficient improvements in standards of living.”

He noted that while recent reform efforts have been commendable, challenges such as high debt risk and inadequate international reserves persist: “Addressing Sierra Leone’s macroeconomic imbalances...will require a sustained commitment to reform.”

Mr. Li emphasized that protecting vulnerable populations during adjustments will be challenging but necessary for achieving higher growth: “The new ECF arrangement integrates well with the National Development Plan...in addressing these challenges.”

Sierra Leone's economic outlook shows real GDP growth projected at around four percent annually over the next few years with continued efforts needed for fiscal policy tightening and enhancing revenue mobilization.