In the second half of 2014 during the outbreak of Ebola, the Sierra Leone economy contracted at an estimated annualized rate of 2.8%. Before then, the economy had grown at an estimated annualized rate of 11.3%, and 2014 growth was projected at 4%, largely based on export earnings from iron ore. The 2015 growth forecast has been, however, adjusted downward to a 2% contraction from the World Bank’s earlier forecast of an expansion of 7.7%, as 2015 growth will be hit by the base-year effect (given growth in early 2014) as well as important second round effects of the prolongation of the Ebola crisis. Much foreign direct investment, previously deferred, is likely to be canceled. Domestic activity will shift towards government consumption as the recovery effort focuses on Ebola containment. Gross domestic product (GDP) in 2014 was estimated to be over $400 million lower than under the projection before Ebola. For 2015 the loss in GDP is projected to be over $900 million.
It is estimated that Sierra Leone’s fiscal deficit, as a share of GDP, increased from 3.9% in 2014 to 4.8% in 2015, owing mainly to three developments within this period: high expenditure on tackling Ebola, a remarkable slowdown of economic activities due to Ebola, and a significant lowering of mining revenue due to suspension of iron ore mining. This deficit situation is, however, expected to ease to 4.2% in 2016 as the effects of Ebola and of the suspension of mining activities in the country continue towards the end of 2015 until the recovery from Ebola gains grounds. In this regard, a 5.5% fiscal rebound for 2016 is expected as investment picks up.
Before the outbreak of Ebola, GDP growth in 2014 remained linked to iron ore export, as international iron ore price (of about $100/ton) started to fall. This indicated that without greater domestic revenue mobilization, revenue in 2015 would dwindle against targets for expected GDP growth. This challenge still remains in 2015.
Tax incentives to several mining companies and declining capabilities of the national revenue authority are also hindering revenue boosting prospects. As a result, revenue as a percentage of GDP is expected to average around 14% in 2016, a low rate by all standards.
The government aims to boost the contribution of the natural resources sector, mainly by introducing a resource rent tax, although the impact will be marginal, as the new rules are unlikely to apply to existing deals. The government has said that it wants to review existing agreements with mining companies but any changes are likely to be gradual, as it is eager not to scare off investors. Overseas grants will continue to contribute around one-quarter of total revenue, although they are likely to fall short of budget projections.
Lax spending control, growing popular expectations of improved public-service delivery and a rising public-sector wage bill (due in part to the introduction of a minimum wage for public-sector workers in 2014) will weigh on fiscal discipline.
Servicing the domestic debt—which mainly consists of relatively expensive short-term Treasury bills—will continue to consume around 10% of total spending. This, together with efforts to clear arrears and unsettled payment obligations accumulated in previous years, will limit investment budget execution. Institutional capacity constraints also make execution of the full range of public investment unlikely.
Overall, it is expected that the fiscal deficit as a percentage of GDP will widen from an estimated 2.1% in 2015 to 3.2% in 2016, as improvements in revenue collection are offset by rising capital spending and increases in the public-sector wage bill. External loans from donors—principally project linked - will support the financing of the fiscal deficit at concessional rates.
On September 17, 2007, Ernest Bai Koroma of the All People's Congress (APC) was sworn in as President of Sierra Leone. The second set of local council elections took place in July 2008, with the APC winning 10 out of 19 local councils and the SLPP wining nine.
In the past 52 years since Sierra Leone’s independence in 1961, the SLPP has ruled for a total of 16 years, from 1961 to 1967 and again from 1996 to 2007; while the APC has ruled for 32 years, from 1967 to 1992 and again from 2007 to 2015. Although various military regimes have ruled Sierra Leone for a total of five years, civilian rule, under either the APC or SLPP accounts for over 90% of the country’s post-independence time span as of 2014. Since 1991, the country has been governed under a multi-party constitution which now under review as the Supreme Court presides over the constitutionality of the recent sack of the Vice President.
Until the outbreak of Ebola in May 2014, Sierra Leone was seeking to become a transformed nation with middle-income status through key reforms in infrastructure, energy, private sector development and job creation. But the country still carries its post-conflict attributes of high youth unemployment, corruption and weak national cohesion. Under successive past and present leaders, Sierra Leone continues to face the daunting challenge of enhancing transparency in managing the country’s vast natural resource endowments and fiscal policy. Problems of poor infrastructure, including roads and energy, and widespread rural and urban impoverishment still persist in spite of remarkable strides and reforms.
Last Updated: May 20, 2015