Sierra Leone

Country Summary

Economic performance and outlook: With the discovery of iron ore in 2011, mining became the main growth driver, resulting in an unprecedented growth rate of 21% in 2013. However, following the downward trend in the international price of iron ore and the outbreak of the Ebola virus in 2014—the economy contracted 20.6% in 2015. Resumption of operation by one of the two iron ore companies led to a rebound of the economy, with a growth rate of 6.3% in 2016 and an estimated 5.7% in 2017. The outlook for 2018 and beyond will continue to be challenging, due to the uncertainty surrounding the international prices of iron ore. GDP growth is expected to be 6.1% in 2018 and 6.5% in 2019. 

Macroeconomic evolution: Lower revenue and substantial expenditure needs, coupled with the impact of the twin shocks, led to deterioration of the fiscal situation. The budget deficit stood at 6.5% of GDP in 2016 and is estimated at 5.8% in 2017. Lower export receipts created a shortage of forex, leading to a sharp depreciation of the leone against the U.S. dollar by an average of 20% in 2016. The pass-through effect of this depreciation set in motion an inflationary trend, 11.5% in 2016 and an estimated 18.4% in 2017, far above the single-digit targets set by the authorities. This development challenged the monetary policy operation throughout the review period. To contain the pressure, the monetary authorities adopted a tight monetary policy stance by increasing the monetary policy rate from 11% in 2015 to 12% in 2016 to 13% in 2017. According to the latest debt sustainability analysis by the authorities, the country remains at moderate risk of debt distress. Contracting nonconcessional finance needs to be avoided. 

Tailwinds: The success, albeit limited, in closing the infrastructure gap in roads, energy, and telecommunications will help boost economic growth and reduce poverty through private-sector development and attraction of foreign direct investment. It also has the potential to support the economic diversification drive currently advocated by the government and development partners. In 2018, Sierra Leone will hold its sixth democratic elections since the end of conflict and is ranked 39 out of 163 countries on the 2017 Global Peace Index. This relative peace may, however, be put to a real test in the months leading to and following the March 2018 presidential and parliamentary elections, based on the current situation and expectations. 

Headwinds: The historically low fiscal revenue was exacerbated by the fall in international iron ore prices and subsequent closure of the iron ore sector. Revenue fell from 13% of non–iron ore GDP in 2013 to 10% in 2015. Higher domestic borrowing is an issue, and government finance costs could rise substantially. Expenditure adjustment will be difficult in an election year, which may derail compliance with the International Monetary Fund’s Extended Credit Facility (ECF) program. There are indications that the first review under the ECF will not be completed on the grounds that the government has not curtailed the fiscal deficit enough. These developments could worsen the inflation rate, which is trending upward. The dependence on primary commodity exports makes the country extremely vulnerable to external shocks. All these challenges are compounded by the lack of good governance practices as the fragile country continues to do poorly in most international assessments on the fight against corruption.

Source: African Economic Outlook 2018

Fixed Income

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. 

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

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