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Sierra Leone Bussiness: IMF approves US$172.1m arrangement under ECF

The Executive Board of the International Monetary Fund (IMF) has on Friday 30 November 2018, approved a new 43 months arrangement for Sierra Leone under the Extended Credit Facility (ECF) for SDR124.44 million (about US$172.1 million), equivalent to 60 percent of Sierra Leone’s quota in the IMF, to support the country’s economic and financial reforms. Sierra Leone, which became a member of the IMF on September 10, 1962, has an IMF quota of SDR207.4 million. The Executive Board’s decision enables an immediate disbursement of SDR15.555 million (about US$21.5 million). The remaining amount will be phased over the duration of the program, subject to semi-annual reviews. According to the statement issued by the IMF, the country’s ECF-supported program aims at tackling new challenges that have arisen since June 2017 while at the same time, improving the prospects for long term growth.  In addition, it is required to ensure forceful implementation of the program, especially on revenue mobilization and expenditure control, which they say will be essential to achieve fiscal sustainability and medium-term growth objectives.  The IMF suspended Sierra Leone’s ECF due to low revenue collection driven by discretionary tax and duty exemptions and high extra budgetary expenditures. As a result this led development partners providing budgetary support to withhold funding to Sierra Leone.  The corner stone of the ECF agreed by the previous government in June 2017 was fiscal consolidation. The Fund agreed to a financing package of US$224.4 million to offset balance-of-payments shortfalls, control inflation and build foreign reserves. Also, it included the elimination of numerous tax and duty exemptions, while increasing infrastructure spending and bolstering the social safety net. The government in their response at the time made commitment to implement a fuel subsidy reform no later than the second ECF review which is important for a sustainable budget. The removal of such subsidies on rice, fuel by allowing petroleum products to be taxed at real market values. The implementation of both subsidies were and still is potentially politically explosive. With the change in power, speculation were rife that the country’s ECF suspension with the Fund may be renegotiated, which they say will eventually unlock other resources from other development partners. The new government however initiated its readiness to reactivate the process of re-launching the Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF), at the World Bank Spring Meetings. Therefore, the statement by the former Finance Minister in his 2018 Budget Speech that as at December 2017, domestic revenue as a percent of GDP is 12.1 percent, which is said to be below the Sub Saharan Africa average of 17 percent of GDP. Research by the Fiscal Affairs Department of the International Monetary Fund concluded that the country needs to ensure that its revenue is at least 20 percent of its GDP in order to effectively fund its programs. In President Julius Maada Bio’s address to the IMF recently, he said that the revenue mobilization measure through his Executive Orders will broaden revenue enhancing measures towards achieving a target of at least 20 percent GDP. The IMF fielded in a mission in early June and late September 2018 to follow up on discussions on economic recovery programme.

Thursday December 03, 2018.

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