Sierra Leone

Country Summary

Macroeconomic performance: Real GDP growth slowed to an estimated 3.5% in 2018 from 5.8% in 2017. The decline reflects lower than pro- jected iron ore mining due to the decline of prices since 2014 and the 2017 closure of the main mining company, Shandong Iron and Steel Company.
The fiscal deficit continued to worsen to an estimated 7.7% of GDP in 2018 from 6.8% in 2017, due largely to a shortfall in revenue mobilization and overspending related to elections. The deteriorating fiscal position led to a sharp increase in public debt from 55.9% of GDP in 2016 to 60.8% in 2017. New measures, such as adopt- ing the treasury single account and reducing waivers and exemptions from customs duties, could improve the government’s position.
The Bank of Sierra Leone has proactively imple- mented a tight monetary policy and reduced the accommodation of government financing needs. But internal control weaknesses at the central bank con- tinue to threaten reserve accumulation and macro- economic stability. The exchange rate has depreciated by more than 30% since 2016, and inflation remained high at an estimated 13.9% in 2018.
The current account deficit worsened to an esti- mated 16.9% of GDP in 2018 from 13% in 2017, due to increased imports of consumption goods and weak export performance. Most of the country’s exports are unprocessed commodities such as gold, diamonds, iron ore, and cashew nuts, while the bulk of imports are rice, petroleum, and machinery. Real GDP growth is projected to increase to 5.6% in 2019 and 5.8% in 2020. The main drivers of economic growth will be increased private agricultural and mining investment amid business climate reforms.

Tailwinds and headwinds: The positive growth outlook is not without macro- economic imbalances. The fiscal deficit financed partly by the buildup of payment arrears is expected to persist and could pose substantial risks to economic growth by squeezing liquidity and increasing the cost of cap- ital projects. The government envisions adopting more prudent fiscal and monetary policies and has demon- strated strong political will to change for the better.
The deficit is due in part to increased public invest- ments in infrastructure, such as roads and energy, which are expected to boost economic activity in the medium to long term.
Headwinds include macroeconomic imbalances, which are expected to persist, especially the fiscal and current account deficits, which could pose some risks to economic growth. The current account deficit is pro- jected to widen to 18.4% of GDP in 2019 and 20.8% in 2020 due to a sluggish increase in agriculture and mineral exports. Other risks include the increasing debt and commodity price shocks. Dependence on primary commodity exports makes the country extremely vul- nerable to external shocks.
The government has initiated several reforms, includ- ing the Extractive Industry Revenue Bill, which seeks to improve on the fiscal regime for mining companies, allow- ing for better government oversight and increased reve- nue. Two policies for financial sustainability in the energy sector and universal access to electricity and increasing the energy mix were launched in 2018. The country’s Roadmap for the National Agricultural Transformation (2018) identifies four enablers to increase rice self-suffi- ciency, livestock development, and crop diversification: improving the policy environment, promoting women and youth in agriculture, setting up private sector–led mecha- nization, and sustainably managing biodiversity.

Source: African Economic Outlook 2019

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 Agency Current rating Outlook
Moody’s No rating No outlook
Fitch No rating No outlook
Standard and Poor’s No rating No 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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