Sierra Leone Needs Tighter Fiscal Policies to Achieve Deficit Target

Freetown, Sierra Leone - The International Monetary Fund (IMF) has urged the government of Sierra Leone to adopt tighter fiscal policies to achieve its revised deficit target of 5.8 percent of GDP for 2023.

IMF’s Recommendation

The IMF made this recommendation during its latest review of the country’s economic performance. According to the fund, the revised deficit target was increased from 5.6 percent of GDP due to revenue shortfalls arising from difficulties in implementing recent tax measures.

Measures to Achieve Revised Target

To attain the revised target, the authorities have designed a package of measures aimed at improving revenue collection and curbing spending. These measures include:

• Resolving technical issues in implementing remaining revenue measures under the 2023 Finance Act by end- November
• Launching a program to improve tax compliance expected to yield an additional 0.2 percent of GDP in revenues

Expenditure Side Measures

On the expenditure side, the authorities have committed to:

• Saving a buffer of 0.2 percentage points of GDP in goods and services spending by canceling allocations to ministries, departments, and agencies (MDAs) in Q4-2023
• Saving 0.5 percentage points of GDP in subsidies following an increase in electricity prices
• Postponing transfers to local councils to next year

Capital Expenditure Freeze

Furthermore, the authorities have agreed to freeze domestically financed capital expenditure in Q4 to contain overruns on it at 0.3 percent of GDP. Any spending shifted from 2023 to 2024 will be fully reflected in the 2024 budget.

Financing Needs

The IMF also projected that financing needs in H2-2023 will be met by banks, non-banks, and the use of the 2021 SDR allocation. The revised projections assume cumulative net financing from commercial banks and non-banks of 1.8 percent of GDP, consistent with historical trends.

Repayment of Bridge Loan

The authorities have committed to repaying a bridge loan needed due to delays in the World Bank’s Development Policy Operation (DPO) by the end of the year. These measures are expected to help correct for IT target misses at the end of June 2023.

Benefits of Tighter Fiscal Policies

According to the IMF, these fiscal policies will also help in improving tax compliance and correcting for revenue shortfalls. The fund is confident that the authorities’ commitment to tightening fiscal policies will help achieve the revised deficit target and ensure a more sustainable economic outlook for Sierra Leone.