Press Release No. 15/86

Press Release: IMF Executive Board Approves US$114.63 Million in Financing and Debt Relief for Sierra Leone

March 2, 2015

The Executive Board of the International Monetary Fund (IMF) today approved a disbursement of SDR 60.74 million (about US$85.45 million) under the Extended Credit Facility (ECF) ¹ arrangement, as well as an augmentation of access under the ECF arrangement of 50 percent of Sierra Leone’s quota, equivalent to SDR 51.85 million (about US$72.94 million). The Executive Board approved also a request for SDR 20.74 million (about US$29.18 million or 20 percent of the country’s quota) in immediate debt relief under the catastrophe containment window of the Catastrophe Containment and Relief (CCR) Trust².

The additional IMF financing follows the completion by the IMF Executive Board, of the second review of Sierra Leone’s financial program supported by the IMF through the Extended Credit Facility arrangement. The ECF funds will support the authorities fight against the Ebola outbreak by covering urgent budgetary and balance of payments needs and strengthening international reserves. This additional IMF financing should help catalyze further financial assistance from the international community, preferably through grants. The CCR funds will be applied to immediately repay debt service obligations due to the IMF, up to the equivalent of 20 percent of Sierra Leone’s quota.

The Executive Board approved the ECF arrangement for Sierra Leone on October 21, 2013 for the equivalent of SDR 62.22 million (about US$95.84 million) (see Press Release No. 13/410).

At the conclusion of the Executive Board’s discussion, Mr. Min Zhu, Chair and Deputy Managing Director issued the following statement:

“Implementation of the Fund-supported program has been satisfactory despite a challenging environment. The Sierra Leonean economy is battling two severe exogenous shocks with dramatic social and economic repercussions. The Ebola epidemic and the sharp decline in iron ore prices are weighing heavily on the economy and have the potential for significant output contraction, continued price pressures, and increased fiscal and balance of payments deficits in 2015. Debt relief under the Catastrophe Containment and Relief Trust combined with augmented IMF financing under the Fund-supported program will help cover balance of payments and fiscal financing needs, and catalyze further support from the international community.

“The economic impact of the dual shock has made the 2015 fiscal objectives more challenging. Therefore, it will be critical for the authorities to continue enhancing efficiency in tax administration and to broaden the tax base to support the revenue target. On the expenditure side, policy priorities include improving capital expenditure management, maintaining a prudent wage policy, making further progress in public financial management reforms, and strengthening budget execution to avoid accumulation of arrears. In this regard, full resumption of Cash Management Committee meetings, which were interrupted because of the Ebola outbreak, will be essential.

“Sierra Leone’s risk of debt distress remains moderate. Therefore, continued prudent borrowing policies are critical in view of the economy’s vulnerability to exogenous shocks and the fragile fiscal position. Financing needs, particularly for large-scale investment projects, should continue to be covered with grants and concessional loans to the extent possible.

“Some easing of monetary policy will help the Bank of Sierra Leone (BoSL) in supporting the economy, as long as inflationary pressures continue to be driven by supply shocks and second-round inflationary pressures remain contained. Being more active in the secondary market for government securities and continuing to improve liquidity forecasting will increase the BoSL’s ability to modify its policy stance when needed. Preserving foreign exchange reserves and ensuring that the exchange rate continues to be market-determined is also essential.”

¹ The ECF is a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems.

² The Catastrophe Containment and Relief (CCR) Trust provides grant assistance to be used as debt relief for eligible countries confronting major natural disasters, including public health disasters.