Sierra Leone’s high debt burden is limiting the government’s ability to ease a cost-of-living crisis that spurred deadly protests last month, according to the nation’s deputy finance minister.

“We are currently constrained” with public debt standing at 76% of gross domestic product, Bockarie Kalokoh said in a Sept. 8 interview in Cairo. “If we don’t address social issues, the multiplier effect will be serious.”

At least 20 people died in demonstrations against surging prices in the West African nation. Annual inflation accelerated to 29.5% in July from 28% in June, driven by the cost of food, according to the national statistics agency.

The Covid-19 pandemic and the war in Ukraine have stoked inflation and worsened Sierra Leone’s fiscal woes. The $4 billion economy is facing a high risk of debt distress, limiting authorities’ room to maneuver, the International Monetary Fund said in July.

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“There is a conscious effort to see how we can come together and address those inflationary pressures” and an economic team has been set up to come up with a strategy, said Kalokoh.

Strengthening the country’s currency may be one answer. The leone has depreciated 21.7% against the dollar this year, according to Bloomberg data, making it the world’s ninth-worst performer.
In July, Sierra Leone slashed three zeros from its banknotes in a bid to restore confidence in the currency even though the move had no direct bearing on its value. The country earns most of its foreign exchange from agriculture and mining minerals including iron ore and diamonds.

A new mining licensing round is expected to bolster state revenue and its ability to support the population, according to Kalokoh. The government is also reconsidering tax waivers and cutting expenditure after taking the “politically risky” step of spending 22% of its budget on education and the development of human capital, he said.

“When you look at the debt burden, it’s tough for most of us,” said Kalokoh. “It’s our obligation to ensure we put safety nets in place to take care of some of our people and we are looking forward to our donors too supporting us.”

Credit: Bloomberg L.P.