According to the fund, Sierra Leone could see a return to 4.3% growth this year after a 21.5% contraction in 2015. But it warned the budget is under “severe pressure”, that living standards have deteriorated substantially, and that the outlook is subject to a number of risks.
It cautioned against “various uncertainties”, such as slowing Chinese growth, and the possible cessation of iron ore production if companies like its biggest iron ore producer, African Minerals, continue to operate at a loss.
The fund’s executive board, which is based in Washington, stressed that sustained fiscal reforms were needed to generate growth and reduce poverty.
Directors urged the government to increase domestic revenues by, for example, broadening the tax base, removing tax exemptions and improving tax administration.
They called for the speedy implementation of a new Public Financial Management Act, which should enhance the transparency and efficiency of expenditures, and encouraged a “prudent” wage policy and the elimination of fuel subsidies.
“Directors noted that although Sierra Leone’s risk of debt distress is moderate, the economy remains vulnerable to further shocks,” according to the statement, which also called for prudent borrowing policies to be adopted.
“Financing needs, particularly for large-scale investment projects, should continue to be covered mostly with grants and concessional loans,” it stated.
In the past, Sierra Leone had relied heavily on foreign aid, which accounted for almost half of its budget. But by 2014, the ability to mine iron ore was giving the country the chance to build some independence.
However, the Ebola outbreak and collapse of iron ore prices have dented Sierra Leone’s economic progress. It was one of three countries worst hit by the Ebola crisis, which killed thousands and destroyed communities, infrastructure and public services, while reversing years of development gains.
The IMF emphasised that Sierra Leone should look to broaden its economy and reduce its reliance on iron. It called on the government to accelerate efforts to improve the business environment, increase the role of the private sector and address infrastructure bottlenecks.
While recommending changes to monetary policy and strengthening the banking sector, the fund called for the country’s post-Ebola economic recovery plan, backed by the IMF and others in the international community, to be decisively implemented.
The fund noted that performance under the programme to date had been “relatively good”, despite some delays and missed targets.
The World Health Organisation declared Sierra Leone Ebola-free for the second time in March of this year, but small “flare-ups” of the disease remain likely.
