Sierra Leone

Country Summary

Macroeconomic performance and outlook

Real GDP growth was weak in 2018 at 3.5% but improved slightly to an estimated 5.0% in 2019, driven by agriculture and services, and in the first half of 2019 by extractives. Growth in demand is driven by consumption and investment. Average inflation was 16.9% in 2018 and an estimated 15.6% in 2019. The exchange rate depreciated by 47% between 2016 and 2019. Rapid depreciation in 2019 reflected expectations about economic fundamentals and foreign exchange fueled by suspending the licenses of the two major mining companies in mid-2019.

The 2019 budget included the elimination of fuel subsidies. The overall fiscal deficit is estimated to have improved to 3.5% of GDP in 2019 from 5.8% of GDP in 2018, a healthy sign.

The current account deficit, 13.8% of GDP in 2018, improved to an estimated 11.7% in 2019 and is projected to decline steadily to 10.3% of GDP in 2020 and 9.7% in 2021. This reflects a more restrictive trade regime that started in 2017 with selective tariffs on imports and the launch of the Made in Sierra Leone initiative.

Tailwinds and headwinds

Fairly weak GDP growth was in conjunction with fall- ing inflation, which is projected to subside from 12.3% in 2020 to 11.4% in 2021, reflecting the tight monetary policy of the Bank of Sierra Leone. In February 2019, the government launched the National Development Plan (2019–23) to guide development over the next five years, supported by sectoral plans. For instance, the National Agricultural Transformation program 2019–23 seeks to double agricultural production by attracting and retaining large investments and helping smallhold- ers transition from subsistence farming.

Introduction of the planned ECOWAS common currency—the eco—will promote economic integration

and reduce transaction costs. In 2018, in a similar vein, Sierra Leone ratified the African Continental Free Trade Agreement, which will create the world’s largest free trade area since the World Trade Organization was formed. Sierra Leone can leverage the new currency and use the agreement to trade more as it embarks on diversification.

Agriculture, with an average contribution exceeding half of GDP in recent years, remains the main driver of growth, along with demand driven by consumption and investment.

The limited fiscal space constrains investment in physical and human capital. Underspending of the budget reduces development spending. The fiscal defi- cit is financed partly by accumulating arrears, which currently stand at 10% of GDP. If arrears persist, they could impede economic growth by squeezing liquidity and increasing the already-high cost of capital.

Debt has been increasing in recent years. Sierra Leone was classified at risk of high debt distress in the last debt sustainability analysis in 2018. Public debt rose from 42.1% of GDP in 2015 to an estimated 72.6% in 2019 and is projected at 75.1% in 2020, reflecting increases in both domestic and external debt. Youth unemployment at 60%, poverty at 56.8% in 2018, and increasing inequality are pressing problems.

If the suspension of the licenses of the two major mining companies is protracted, the economy will suffer. Sierra Leone’s dependence on primary com- modity exports makes it vulnerable to external shocks. The international iron ore price is projected to drop from $77.70 per dry metric ton in 2019 to $72.40 in 2022, further clouding the prospects for growth generated by the mining sector. Nonmining activities remain con- strained by inadequate infrastructure, such as power and roads. Underdeveloped human capital, coupled with a skill mismatch, will continue to deter investment, including foreign investment.

Health sector preparedness

Sierra Leone ranked 92 among 195 countries on the 2019 Global Health Security Index and 8 among 54 in Africa. The index measures the health security capacities and capabilities needed to prevent, detect, and respond to sig- nificant infectious disease outbreaks. Sierra Leone has an acute shortage of medical doctors, nurses, and midwives with only about 12 medical professionals per 100,000 population. The country’s restrictions on physical contact and targeted quarantining were effective in containing the Ebola epidemic and have been implemented to limit spread of the pandemic.

Policy responses

The government declared a 12-month Health State of Emergency and restricted international flights to and from the country. It launched the COVID–19 Quick Action Eco- nomic Response Program on 25 March to build and main- tain an adequate stock of essential commodities at stable prices, provide support to hardest-hit businesses to enable them to continue operations, avert layoffs of employees, reduce nonperforming loans, provide safety nets to vul- nerable groups, support labor-intensive public works, and provide assistance for local production and processing of staple food items.

The program’s financing needs range from $231.4 mil- lion to $379.5 million with financing gaps of $161.3 million. The IMF has provided $21.1 million and the World Bank $7.5 million in emergency support under an extended credit facility, and the African Development Bank is prepar- ing emergency budget support.

The government should enhance COVID-19 contain- ment measures, bail out small businesses to save jobs, and cushion livelihoods through expanded but properly targeted social protection program given the limited fiscal space.

Source: African Economic Outlook 2020

Fixed Income

Issuance strategy 

Reducing debt is a key priority of  the 2018-2021 Public Debt Management strategy.

The total stock of public debt (external plus domestic) is equivalent to 62.8 percent of GDP as at end June 2019, making Sierra Leone one of the highlyindebted countries in Sub-Saharan Africa .Public debt is projected to average 64.5 percent of GDP over the medium term rising only from 62.5 percent of GDP in 2019 to 63.9 percent of GDP in 2020 and further to 64.5 percent of GDP in 2022.[source: 2020 buget].

In line with the Medium-Term Debt Strategy, Government will introduce medium to long-term bonds for long-term financing needs such as infrastructure while utilizing short-term treasury bills for cash management and short-term budget financing needs. This will also help lower refinancing and foreign currency risks.

Yield curve

#NA

 

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.

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