Economic Studies
Sierra Leone

Sierra Leone

Population 8.0 million
GDP per capita 527 US$
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Synthesis

major macro economic indicators

  2020 2021 2022 (e) 2023 (f)
GDP growth (%) -2.0 3.2 3.2 4.1
Inflation (yearly average, %) 13.4 11.9 23.7 19.0
Budget balance (% GDP) -5.8 -6.9 -3.9 -3.2
Current account balance (% GDP) -6.8 -13.0 -17.2 -13.7
Public debt (% GDP) 76.3 76.2 75.0 73.1

(e): Estimate (f): Forecast

STRENGTHS

  • Significant mining resources (diamonds, gold, iron ore, aluminium, and tantalite)
  • Coffee, rice, cocoa and palm oil production
  • Financial support from international institutions (IMF, World Bank, African Development Bank)
  • Tourism potential
  • Significant port activity that is set to expand

WEAKNESSES

  • Vulnerable to weather conditions
  • Highly dependent on commodity prices
  • Corruption, inadequate protection of property rights
  • Hard for small and medium-sized enterprises to access credit
  • Inadequate infrastructure, failing health system
  • Risk of renewed Ebola outbreak
  • Extreme poverty and high unemployment

RISK ASSESSMENT

A recovery driven by the mining and agricultural sectors

After the economy contracted due to the COVID-19 pandemic and its impact on the country's mining sector (around 60% of exports), the rebound that began in 2021 has continued in 2022 and will gain momentum in 2023. Despite inflationary headwinds, exports are being supported by strong demand for basic commodities. However, a hard landing of the Chinese economy is a significant downside risk. Growth will be driven in particular by the resumption of investment in mining activities. The settlement of disputes with Kingho and Gerald Group, which operate the Tonkolili and Marampa iron mines respectively, will improve the country's image as an investment destination for mining companies. Policies to promote private investment in agriculture should also support gross fixed capital formation. While fiscal consolidation efforts will limit government expenses, infrastructure outlay will remain resilient and is expected to increase as a share of all spending under the National Development Plan (NDP). Private consumption will also be an engine of growth in 2022 and 2023, thanks to the recovery of agriculture (61% of GDP and two-thirds of jobs in 2020) and to expatriate remittances. Nevertheless, consumption will remain severely impacted by high global food prices, which, along with the depreciation of the leone, will keep inflation high. Stronger domestic demand will result in a higher import bill, limiting the contribution of foreign trade to growth. It should nevertheless be positive thanks to the growth of mineral output and exports. The ramp-up of production at the Tonkolili and Marampa sites, which resumed in 2021 after being suspended in 2019, will support this growth. Furthermore, the opening of the country's first cocoa processing plant in November 2021 is expected to boost cocoa export earnings. Tourism revenues (5.5% of exports) are expected to recover as travel restrictions continue to ease. This sector and the recovery in trade will benefit the services sector (29% of GDP in 2020).

 

Twin deficits improve, but remain a source of vulnerability

The fiscal deficit, which widened during the pandemic, is on a narrowing path, thanks to higher mining revenues and the fiscal consolidation plan. The government's reform programme, which aims to create room to finance the priorities of the NDP, can count on foreign aid and continued IMF support under the USD 172 million ECF programme. The government is expected to adopt measures to contain current expenditure, including a freeze on public sector recruitment and pension reform. To increase revenue mobilisation, the government intends to fight tax evasion and limit tax breaks. Rising mineral royalties and excise duty receipts will also support revenue. Due to the cost of domestic debt (28% of public debt), concessional loans will be given priority to finance the deficit. They already make up 30% of the public debt and temper the significant risk of debt distress associated with level of the public debt.

The current account deficit will narrow, but remain large. The country's dependence on imports, particularly of food (80% of consumption has to be imported), machinery, and engineering, will continue to fuel a large trade deficit, which will, however, continue to shrink thanks to the recovery in exports, mainly of mining products. FDI will be the main source of financing, mainly in the mining and agricultural sectors, and aid from international organisations. The country maintains foreign exchange reserves equivalent to five months of imports as of mid-2022, thanks to the IMF’s allocation of special drawing rights in 2021. Following an announcement by the central bank in 2021, a currency redenomination is expected before the end of 2022: the "new leone" will replace the current currency in circulation at a rate of 1:1,000.

 

2023 elections loom in a fragile political and social climate

Julius Maada Bio of the Sierra Leone People's Party (SLPP) was elected president in the March 2018 elections. The main opposition party, the All People's Congress (APC), won the most seats in the parliamentary elections held on the same day, but lost its majority when ten APC MPs were impeached by the High Court in 2019 and replaced by SLPP members. While the SLPP does not have an absolute majority, the government can rely on the support of the 14 independent MPs to carry out its reforms, including implementation of the NDP. Another focus is the fight against corruption. Moreover, the settlement of the Tonkolili and Marampa mining disputes are a positive signal on the business environment. However, with the 2023 presidential and parliamentary elections approaching, tensions between SLPP and APC supporters could become increasingly acute. In the 2018 elections, the SLPP won only by a narrow margin, suggesting that the APC already had a sizable base of support. Claims of fraud during the Koinadugu district elections in October 2021 are an indication of frictions. The public's dissatisfaction with high rates of inflation, unemployment, corruption, and government debt are a few reasons that affect the SLPP's popularity. These problems have been at the core of deadly protests in august 2022; meaning the path to the elections will be turbulent.

 

Last updated: September 2022

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