Macroeconomic Context
Sierra Leone’s post-pandemic recovery was disrupted by concurrent domestic and external shocks, exacerbating existing macro-fiscal vulnerabilities. Inflation and exchange rate depreciation reached record levels, depressing economic activity, and triggering a severe cost-of-living crisis. Fiscal accounts have deteriorated due to macroeconomic headwinds and policy slippages, and risks to debt sustainability have intensified.
Recent Developments: Estimated GDP growth for 2022 has been revised downwards to nearly 3%, marking a reversal of the encouraging rebound observed in 2021, when GDP grew by 4.1% following a 2% contraction in 2020. Headline inflation averaged 27% in 2022 compared to 12% the previous year. Despite a decrease in global food and fuel prices, inflation worsened due to the depreciation of the Leone (60% during 2022) and loose fiscal policies. Over the year, the Bank of Sierra Leone tightened its monetary policy stance. However, monetary policy effectiveness was limited by underdeveloped financial markets and fiscal dominance, and further complicated by the redenomination of the Leone. Fiscal weaknesses and risks to debt sustainability have intensified. External accounts also deteriorated, and reserves fell to around 3 months of imports by end-2022 (from close to 4 months in Q3), reflecting Central Bank interventions in the Forex market.
Outlook: The economy is projected to grow at 3.8% on average during 2023–25, below its long-term average, supported by: (i) the government’s efforts to restore macro stability through fiscal discipline and prudent monetary policy; (ii) continued expansion of iron-ore mining operations; and (iii) some modest easing of inflationary pressures. Fiscal discipline will be crucial to restoring macroeconomic stability; the fiscal deficit is projected to decline below 3% of GDP by 2025. However, this is vulnerable to several downside risks especially given recent fiscal slippages and expenditure overruns, which have raised concerns about the credibility of the budget process. The international poverty rate ($2.15 per person/day at 2017 PPP) is projected to decline slowly, from 26.1 % in 2018 to 24.6% by 2025.
Risks and Challenges
Sierra Leone’s economic development has been constrained by concurrent global and domestic shocks. Macroeconomic management remains weak. Fiscal pressures have progressively intensified, the debt burden has worsened, and inflation has soared, driven by global supply shocks, exchange rate depreciation, and a deterioration in the terms of trade – in addition to internal imbalances. The rise in the cost-of-living combined with weak growth and a decline in macroeconomic fundamentals threatens to increase the level of poverty within a context of inadequate social safety nets. The outlook for the economy is intertwined with both external and domestic developments. Elevated or higher inflation from fluctuations in energy and food prices and less accommodative monetary policy in advanced economies could further affect the global economy and weigh on domestic growth. Political stability, and the reform appetite and effectiveness of the government’s economic agenda will contribute to domestic macroeconomic stability and resilience in the face of global uncertainties.
Political Context
Sierra Leone holds Presidential, Parliamentary, and Local Council elections on June 24, 2023. The elections, save the Presidential, will be conducted under the District Block Proportional Representation System as opposed to the Constituency-based First-Past-the-Post System used since 2007. The election of Paramount Chief Members of Parliament takes place on May 20. The two leading parties – the ruling SLPP and the main opposition APC – have fielded the same candidates (presidential and running-mate) as in 2018. 3,374,258 eligible voters were registered in the voters’ registry – up by 195,595 more than in 2018. Official campaigning will run from May 23 - June 22. The Political Parties Regulation Commission (PPRC) has banned street rallies which most times degenerate into violence, but the main opposition opposes the ban, saying it infringes on the right to freedom of movement. It threatens to challenge the decision in the Supreme Court. Local Councils were dissolved on March 1 amidst remonstrations from the opposition that it was done outside the constitutional provision. The current Parliament ends on April 25, exactly five years when its first sitting. Meanwhile, only three out of 17 registered political parties have so far fulfilled the PPRC’s criteria to contest in the June polls.
Development Challenges
Until the outbreak of Ebola in 2014, Sierra Leone was seeking to attain middle-income status by 2035, but the country still carries its post-conflict attributes of high youth unemployment, corruption, and weak governance. Sierra Leone continues to face the daunting challenge of enhancing transparency in managing its natural resources and creating fiscal space for development. Problems of weak infrastructure, and widespread rural and urban impoverishment persist despite remarkable strides and reforms.
Last Updated: Mar 30, 2023
