Sierra Leone: Economic Outline

Economic Indicators

Sierra Leone's economic development has been hampered by its susceptibility to external shocks, which are frequently compounded by weak macroeconomic management. Over the last decade, growth has averaged 4%, a decline from the 8% seen in the previous decade. This period has been marked by high volatility, characterized by episodes of both boom and bust. The country's economic structure, heavily reliant on low-value-added agriculture, mining, and a sizable informal services sector, contributes to this volatility. In 2023, economic activity decelerated due to subdued aggregate demand and socio-political instability, with GDP growth estimated at 3.1% by the World Bank, marking the second consecutive year of a slowdown. High and persistent inflation, compounded by a recent coup attempt, has diminished households’ purchasing power, constraining private consumption and investment. Despite these challenges, the mining sector performed well, supported by robust iron ore production and exports, alongside promising agricultural output. Growth is anticipated to gradually recover to 3.5% in 2024 amidst high inflation and ongoing fiscal consolidation, before converging to its medium-term average of 4-4.5%.

Concerning public finances, in 2023, the fiscal position showed a marginal improvement but fell short of the year's targets. The fiscal deficit narrowed to 8%, down by 1.3 percentage points from 2022 but 2.2pp higher than the budgeted target. Expenditures were reduced by 2.6pp compared to 2022, attributed to cuts in wages and salaries (1pp), subsidies (1pp), and capital expenditure (0.6pp). Although domestic revenue performance was 1pp below target, it improved by 0.4pp due to the partial implementation of policy measures introduced in 2023 and enhanced tax compliance. Public debt decreased to 87% of GDP from 93% in 2022, yet liquidity and solvency risks to debt sustainability remain high. External debt, primarily owed to multilateral organizations, constitutes two-thirds of the total, with the remainder in short-term domestic debt. Upholding fiscal and monetary policy tightening is crucial for maintaining macroeconomic stability. The fiscal outlook hinges on revenue measures identified in the Medium-Term Revenue Strategy and immediate expenditure consolidation, particularly on wages and subsidies. Inflationary pressures intensified throughout 2023, with some tentative signs of moderation in the last quarter. Headline inflation averaged 47.6% during the year, the second highest in Africa after Sudan. This surge was driven by a combination of supply-side factors such as high food and fuel inflation, a depreciated currency, and continued fiscal dominance. Food inflation averaged 57%. In response, the central bank raised rates by a cumulative 525 basis points in 2023, reaching 22.25% by year-end. However, the effectiveness of monetary policy is constrained by shallow financial markets and fiscal dominance. Although inflation peaked at 54.6% year-on-year in October, it moderated to 47% by January 2024 (data World Bank). In April 2024, an IMF delegation visited Sierra Leone to engage in discussions with the country's authorities regarding their request for financial assistance under a new arrangement under the Extended Credit Facility (ECF). This request follows the conclusion of the previous arrangement on November 20, 2023.

Unemployment (3.2% of the workforce in 2023 according to the World Bank, modeled ILO estimate), high poverty levels (especially in rural areas) and lack of infrastructure, corruption as well as social unrest continue to hamper the country’s economic development. The pace of poverty reduction decelerated in 2023. The extreme poverty rate, defined as living on PPP USD 2.15 per day, was estimated at 25.3% in 2023, a slight decrease from 25.7% in the previous year. The pace of poverty reduction is projected to accelerate as inflation subsides in the medium term. The international poverty rate is expected to decrease to 22.7% by 2026. This decline will be supported by recovering growth and moderating inflation (World Bank). The same institution estimated the GDP per capita (PPP) at USD 1,931 in 2022.

Monetary Indicators	2015	2016	2018	2019	2020
Leone (SLL) - Average Annual Exchange Rate For 1 GBP	7,762.25	8,373.09	10,582.12	11,262.75	12,601.29

Source: World Bank - Latest available data.

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Latest Update: May 2024