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Sierra Leone’s Economic Challenges Intensified by External Shocks and Loosened Policies

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FREETOWN, Sierra Leone - The International Monetary Fund (IMF) has issued a warning that Sierra Leone’s economic challenges have intensified due to external shocks and loosened policies.

Macroeconomic Imbalances Grow Significantly

According to the IMF’s latest report, macroeconomic imbalances and vulnerabilities have grown significantly in recent months. The country’s economy decelerated to 3.6% growth in 2022, largely due to:

  • High energy and food prices
  • Decline in household purchasing power
  • Lower-than-expected mining output
  • Severe flooding in August

Inflation Rate Reaches 41.5%

The country’s inflation rate has risen sharply, reaching 41.5% year-on-year in March 2023.

Current Account Deficit Remains High

Despite a significant depreciation of the leone against the US dollar, the current account deficit remained at around 9% of GDP in 2022. International reserves have declined, but remain adequate to cover four months of imports.

Banking System Faces Vulnerabilities

The banking system faces vulnerabilities, including:

  • Sovereign-bank nexus
  • Capital adequacy ratio: 41%
  • Non-performing loan (NPL) ratio: 13%
  • Deposit dollarization is increasing, with FX deposits rising from 36 to 53% between end-2021 and March 2023

IMF Urges Bold Measures

The IMF has urged the authorities to take bold measures to stabilize the economy, including:

  • Tightening fiscal policy
  • Improving revenue collection
  • Strengthening financial sector resilience

“The macroeconomic policy stance was too loose in 2022 and 2023Q1,” said the IMF report. “The fiscal deficit exceeded the 5th review target by 6.8% of GDP due to under-budgeting, policy discretion, and rising costs.”

Government Promises Action

The Sierra Leone government has promised to address these challenges, but the country’s economy remains vulnerable to external shocks and domestic policy mistakes.

Key Statistics

  • GDP growth: 3.6% (2022)
  • Inflation rate: 41.5% year-on-year (March 2023)
  • Current account deficit: 9% of GDP (2022)
  • International reserves: adequate to cover four months of imports
  • Capital adequacy ratio: 41%
  • NPL ratio: 13%
  • FX deposits: 53% of total deposits (March 2023)

Sources

  • IMF
  • Statistics Sierra Leone
  • Bank of Sierra Leone