International Monetary Fund Says Sierra Leone’s Capacity to Repay Debt is Constrained

Sierra Leone’s capacity to repay the International Monetary Fund (IMF) is constrained and full program implementation is key to improve it.

This the Fund says is due to an increase in debt service over the medium term, financing will remain challenging and debt servicing capacity may become strained, according to the August 2021, IMF Country Report No. 21/183 -Third and Fourth Reviews Under the Extended Credit Facility Arrangement (ECF).

“Outstanding IMF credit at end-2021—when exposure to the Fund reaches its peak—is projected at 192 percent of quota, 88 percent of gross reserves, 74 percent of exports, and is equivalent to 13 percent of GDP given Sierra Leone’s large quota relative to its economic size” the Fund said. “Gross repayments to the Fund remain significant over the near and medium term around 1½ percent of GDP annually.”

This the Fund says largely represents repayment of Ebola-era support and the start of repayments for RCF disbursements during the COVID-19 pandemic.

On program modalities and risks, the government is requesting a rephasing and extension of the arrangement by 12 months, through the April 2023 elections, given the significant delay in completing the third and fourth reviews.

Whilst cautioning that “risks to the program are elevated, due to the ongoing COVID-19 pandemic, overstretched capacity, fiscal financing pressures, and fragile institutions” the IMF Staff wrote also that the government’s commitment to the program and ready availability of technical assistance to support program implementation are important mitigating factors.

Staff therefore supports the completion of the third and fourth reviews and financing assurances review, waivers of nonobservance of performance criteria and requests for rephasing and extension of the arrangement, and the resulting disbursement of SDR 31.11 million (US$44.4 million).

In conclusion, the Fund said that, as the country’s participation in the CCRT and DSSI helps to contain near-term repayments, Sierra Leone should continue to rely on highly concessional external support (largely grants) and pursue fiscal adjustment to ensure adequate capacity to repay.

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