Macroeconomic Context
Recent Developments: Growth surprised on the upside in 2023 reaching 5.7%, up from 5.3% in 2022, driven by strong industrial performance, mostly in iron ore production, which more than compensated for a slowdown in agriculture and services. Investment and exports supported growth on the demand side while private consumption remained weak, adversely affected by high inflation’s impact on household purchasing power.
Despite improvements in the primary deficit in 2023, domestic revenue stood at 7.4% of GDP, one of the lowest in the world. The overall deficit decreased only slightly –from 5.3% in 2022 to 4.9% – due to higher-than-budgeted expenditures on security, clearance of arrears and interest payments. The deficit was mainly financed domestically as revenues, despite improvement, remained low. The debt-to-GDP ratio declined from 53.5% to 46.2%, as high inflation reduced the real value of debt.
Monetary policy has been tightened to tackle inflation, which remains elevated despite moderating to 25.5% by August 2024. Banks remain heavily exposed to sovereign risk, as government securities account for about 40% of bank financial assets.
Driven by strong iron ore exports and moderated import growth, the current account deficit (CAD) slightly narrowed from 5.4% in 2022 to 5% of GDP in 2023. The CAD was primarily financed by FDI, but the CAD’s financing overall was partial, causing international reserves to decline from 2.6 months of imports in 2023 to 1.8 months of imports by July 2024.
Top of Form
Outlook: Growth is projected to slow to 4.3% in 2024, primarily due to declining global iron ore prices impacting the mining sector, the main driver of growth. Over the medium term, growth is expected to converge to its long-run potential of 4.7% over 2025-2026, underpinned by a resurgence in the service sector and improved agricultural productivity. The recovery in services will be supported by easing inflation, which is expected to boost household consumption and enhance retail trade. The agricultural sector will be bolstered by the government's flagship 'Feed Salone' initiative to attain food self-sufficiency.
Risks and Challenges: This outlook is subject to several downside risks. Deviation from the current consolidation efforts would undermine fiscal and debt sustainability. External risks stem from global commodity prices, global demand, and higher imported inflation. Weather shocks may constrain agricultural growth and poverty reduction.
Political Context
Sierra Leone's recent history has been marred by a devastating civil war that ended in 2002. Despite significant economic growth in the years following, the country still grapples with the lingering impacts of the war, recurrent pandemics, and polarized politics that hinder its progress. The majority of Sierra Leoneans are engaged in subsistence agriculture, yet the nation boasts abundant natural resources, including iron ore, diamonds, gold, bauxite, and rutile. Post-war governments have faced the formidable challenge of reconstructing the nation's physical and social infrastructure and promoting reconciliation.
On June 24, 2023, Sierra Leone conducted its sixth general election since the end of the civil war. The incumbent, President Julius Maada Bio of the Sierra Leone People’s Party (SLPP), secured re-election with 56% of the vote. The ruling party also gained a majority in Parliament with 81 seats, surpassing the opposition All People’s Congress (APC), which won 54 seats. The current Parliament, unlike its predecessor which was comprised of four political parties and independents, is now a two-party legislature. Post-election tensions between the ruling and opposition parties posed a risk to national stability. However, intervention by regional organizations such as the African Union and ECOWAS, with support from the Commonwealth, led to the signing of the 'Agreement for National Unity' in October 2023. This accord has been pivotal in maintaining peace.
The government has recently unveiled the new Medium-Term National Development Plan (MTNDP) for 2024-2030 that outlines the administration's short-term and long-term objectives for Sierra Leone's development.
Development Challenges
Until the outbreak of Ebola in 2014, Sierra Leone was seeking to attain middle-income status by 2035, but the country still bears its post-conflict attributes of high youth unemployment, corruption, and weak governanceProblems of weak infrastructure, and widespread rural and urban poverty persist despite remarkable strides and reforms.
Last Updated: Oct 21, 2024
