Sierra Leone

Overview

Policy Watch

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Debt vs GDP / Bonds vs bills

All Data - Sierra Leone

Year 2011 2012 2013 2014 2015 2016
GDP (billions US$) 2.93 3.79 4.91 5.69 - -
Total Outstanding Amount (Billion US$) - 0.01 0.00 - - -
Bonds - - - - - -
Bills - 0.01 0.00 - - -
Outstanding Amount/GDP (%) 0.00% 0.19% 0.08% 0.00% - -

News

Country Summary

The authorities in Sierra Leone have made reasonable progress since the end of the civil conflict in 2002, albeit under challenging economic and social conditions. The economy continues to record impressive growth rates; domestic revenue is gradually improving despite the historically low revenue effort; the deficit has been falling as a share of GDP; inflationary pressures are trending down, following a surge that had been reinforced by the global crises. Despite increased external borrowing to finance infrastructure projects, Sierra Leone’s risk of debt distress remains moderate, amidst recent fiscal consolidation. The external position is also (marginally) improving following a surge in export of minerals and a growing volume of cash crops. The exchange rate is market determined and has remained relatively stable over the past few years. The socio-political situation continues to remain peaceful and social indicators are steadily improving, as poverty headcount and inequality generally declined. The outlook for the economy in the medium term is favourable with sustained economic growth, low inflation, and improved fiscal and external positions. Real GDP growth is projected in the double digits for 2014 at 13.8% and it is estimated at 16.3% for 2013. This will follow from continued increases in irono reproduction and export, increased productivity in non-mineral sectors, especially agriculture and construction, and continued public investment.

Going forward, the authorities will face some economic and social challenges mainly in the governance area. They need to sustain economic growth and entrench macroeconomic stability, create jobs and improve social indicators, support private sector development, develop social policies and enhance programmes designed to protect the most vulnerable segments of society, and above all, continue the fight against corruption.

The banking sector is restored after being annihilated during the war. As of end of 2014, we counted 13 commercial banks in Sierra Leone. The banking sector recorded total assets higher than  Le 6 trillion in 2014. The banking sector is sound.

Sierra Leone created a stock exchange in 2007, housed inside the Sierra Leone’s Central Bank, but it remains small. There is only one traded stock, the Rokel Commercial Bank.

The Governement of Sierra Leone is driving the process of reform in the financial sector. The African Development Bank (AfDB) supports these reform by providing a grant of USD 1,2 million and a technical assistance and training to staff of the Bank of Sierra Leone. 

There is no issuance strategy in Sierra Leone. The Ministry of Finance establishes a budget with projected financing requirements. The funding sources are mainly from abroad. Very few government securities are issued.

The Central Bank of Sierra Leone issues mostly short-term instruments to implement its monetary policy.

Source: African Economic Outlook

Monetary policy & Public debt

The primary objective of monetary policy in 2012 was to achieve and maintain price stability conducive to high and sustainable economic growth. The Bank of Sierra Leone (BSL) also seeks to enhance financial sector stability and growth through strengthened supervision and robust regulatory framework. In pursuit of the goal of price stability, the BSL continued to conduct Monetary Policy within the context of a monetary targeting framework. Monetary policy operations were conducted mainly through Open Market Operations (OMO), in the secondary market using repurchase and reverse repurchase transactions to deepen the inter-bank market and maintain interest rates at levels consistent with low and stable inflation. Since its introduction in February 2011, the Monetary Policy Rate (MPR) signals the Bank’s Monetary Policy stance. The MPR serves as an anchor for inflation expectation and a benchmark for all the other market rates. The Monetary Policy Committee (MPC) sets the MPR based on its assessment of the monetary and economic conditions, as well as its outlook for inflation. 

As most of the funding is coming from abroad, there seems to be no coordination of actions between the Ministry of Finance and the Central Bank. 

Market Structure

Instruments issued and Market participants

Instruments issued

Treasury Bills (T-Bills): Maturities available are 91-days, 182-days and 364-days. T-Bills were introduced in 1964 with a maturity of 91 days. Tenders shall be submitted for a minimum of LE 50 000 and by multiples of LE 50 000.

Treasury Bonds (T-Bonds): Maturity available 12-month. T-Bonds were introduced for the first time in 1993.

Market participants

Bank of Sierra Leone (BSL) is the Central Bank and issue debt instruments on behalf of the Ministry of Finance. The BSL is responsible of the Monetary Policy.

Commercial banks and discount houses act in the primary market as Primary Dealers through which clients can participate in auctions. Commercial Banks holdings of governments securities represents nearly 69% of the total debt stock. The bond market is primarily intended for commercial banks.

The National Social Security and Insurance Trust (NASSIT) is a pension fund. The BSL has dissolved its pension Fund and made alternative arrangements for the migration of all staff to the NASSIT.

Primary and Secondary Market

Primary market

The domestic borrowing for 2012 reached Le 313,34 billion. It breached by 88,63% the budgeted amount of Le 188,64 billion. The average annual yield on the 91-days T-Bills decreased from 22.69% in 2011 to 19,13% in 2012, the 182-days declined from 28,9% in 2011 to 25,56% in 2012 and the 364-days T-Bills declined from 28,39% to 25,85%. The average annual yield of T-Bonds remained the same at 20%.

At end of 2012, the total outstanding of domestic debt instruments reached Le 1268,64 billion, an increase of 32,8% compared to 2011. The T-Bills represent 91,3% of the total domestic debt stock.

Secondary Market

The secondary market is relatively illiquid. The tax penalties on the instruments sold before maturity make of this market a “buy & hold” market. However, the BSL acts as a buyer at last resort, but at a lower price. The BSL sold for Le 338,82 billion via the reverse repo standing facility during 2012, to support active monetary operations. The volume of repo transactions reached Le 386,89 billion, a decrease of 8% compared to 2011. All the repo transactions are done at the Monetary Policy Rate (MPR).

Clearing, Settlement and Custody

Settlement of securities is done manually. Central Bank credits the securities account and debits the account held in his breast.

Protection of investors

The regulator of financial institutions and financial markets is the Bank of Sierra Leone (BSL).

Guide to Buying Bonds

Procedures for market participation

Treasury bills are issued weekly by auction where the average annual returns are determined on the basis of the tenders submitted. They are issued as non-material, namely operations are reflected in book entries updated by the central bank. The instructions for the transfer of securities are generally made by the Central Bank. Treasury bills are sold at a lower price than their nominal value; however, the nominal value is repaid at maturity. The difference between the purchase price and the face value makes the interest payment.

Treasury bonds are issued on the primary market at par at monthly auctions. Interest payments are paid quarterly, four interest coupons attached to bonds that are presented to the deadline for commercial banks to pay interest. 

A week before the weekly auction, the details are published on the website of the Central Bank.

Potential investors can buy or sell treasury bills directly from other individuals or institutions based on the terms of their bilateral negotiations without limitation of purchase or sale. It is an OTC market. However, with regard to transactions on the secondary market with the Central Bank, the participants must have an account with the Bank. 

Treasury bonds are not registered; they can be transferred to secondary market transactions only by bilateral negotiations. It is also an OTC market. 

Settlement cycle

It seems that there is no appropriate establish settlement date. The cycle is complete once the customer receives payment confirmation, either explicitly or implicitly.

Taxation

Interest income at maturity are taxable at the current rate of 15%, while the sale of securities prior to maturity are subject to the same taxation embellished with a sanction of an additional 5%. 

Rating

Rating AgencyCurrent ratingOutlook
Moody’sNo ratingNo outlook
FitchNo ratingNo outlook
Standard and Poor’sNo ratingNo outlook

Primary Dealers

Market operators designated, as Primary dealers must have a depository account with the Central Bank for their approval.

Market restrictions

Openness to international investors

Foreign investors can access the debt market under the same terms of the nationals. There is no rules in order to discriminate foreign participations.

Capital control

The state of Sierra Leone did not set up rules which brakes the circulation of capital. There is no brake on foreign control or ownership.

Restrictions on FX and profit repatriation

There are no restrictions on obtaining foreign exchange.

The Investment Code guarantees foreign investors the right to repatriate earnings and the benefits of sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including on remittances of investment capital, earnings, loan repayments, and lease payments.

Documents & Resources

Documents - Ministry of Finance

Documents - Central Bank