News Brief No. 02/19

News Brief: IMF Completes Review Under Sierra Leone's PRGF Arrangement and Approves US$12 Million Disbursement

March 12, 2002

The Executive Board of the International Monetary Fund (IMF) completed the first review of Sierra Leone's performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement.¹ As a result, Sierra Leone will be able to draw up to SDR 9.33 million (about US$12 million) immediately.

Sierra Leone's arrangement was approved on September 26, 2001 (see Press Release No. 01/39), for SDR 130.84 million (about US$164 million). So far, Sierra Leone has drawn SDR 46.84 million (about US$59 million) under the arrangement.

After the Executive Board's discussion on Sierra Leone, Eduardo Aninat, Deputy Managing Director and Acting chairman, stated:

"Sierra Leone has made remarkable progress in advancing the peace process during 2001. As a result, the demobilization of ex-combatants was completed in early January 2002. The improved security situation has permitted greater freedom of movement around the country, allowed displaced persons to return to their communities and also increased confidence and supported the resurgence in economic activity. Real GDP is estimated to have risen by 5.4 percent in 2001, reflecting a broad-based recovery across many sectors. The average annual rate of inflation was sharply reduced to about 3 percent.

"Performance under the program supported under the PRGF (July 2001-June 2002) remains broadly on track. All quantitative and structural performance criteria relating to end-September 2001 were observed, except for the one relating to the limit on net bank credit to the government, which was not met- but for which a waiver was granted. Failure to meet that performance criterion was due to a delay in the disbursement of external budgetary aid, which caused the authorities to resort to increased domestic financing. Progress in implementing structural reforms was mixed; some measures were only partially carried out, while implementation of some key reforms, notably in the civil service, experienced significant delays.

"For 2002, the program aims at a growth rate of 6-7 percent, an average inflation rate under 5 percent and gross external reserves of the Bank of Sierra Leone equivalent to about 1.9 months of import cover. The budget for 2002 reflects the projected satisfactory growth in domestic revenue together with a significant increase in expenditures, particularly capital and reconstruction, and rehabilitation and poverty reduction outlays financed by external aid. Fiscal discipline will need to be strengthened during 2002, in light of the strong pressures to spend in the context of the government resumption of services in, and full control over, former rebel-held areas; the requirements for resettling displaced persons; pressure for increased security expenditures; and potential demands for extra-budgetary expenditure in the run-up to the elections.

"Structural reforms have been strengthened in 2002 by the creation of road maps for reform in the fiscal and financial sectors, and by intensifying other reforms, including in the civil service, public expenditure management, and public enterprise sector.

"The final decision on Sierra Leone's debt relief under the HIPC Initiative will be taken by the Executive Boards of the World Bank Group's International Development Association (IDA) and the Fund following IDA's deliberations later this month," Mr. Aninat said.

¹ 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 (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. In the case of Sierra Leone, a full PRSP, prepared through an extensive participatory approach, is expected to be completed in 2003. 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.