Sierra Leone continues to grapple with the serious and persistent economic and social effects of the pandemic. Containment measures and trade disruptions in 2020 weakened domestic demand and exports and caused domestic revenues to fall. Moreover, food insecurity has risen from its already-high pre-COVID-19 level. 2021 is set to be another challenging year, with the ‘second wave’ of infections and vaccine-related uncertainties posing further risks to the recovery. As import growth picks up and development partner support returns to pre-2020 levels, Sierra Leone faces urgent external and fiscal financing needs (both around about 2 percent of GDP). Uncertainty about the outlook and larger near-term financing gaps have impeded the immediate resumption of the program under the Extended Credit Facility (ECF). The authorities are therefore requesting a disbursement under the Rapid Credit Facility (RCF) of 17 percent of quota (SDR 35.26 million). This follows the June 2020 RCF (50 percent of quota or SDR 103.7 million) and would bring total access for the past 12-month period to 82 percent of quota (or 5½ percent of GDP), well within the 150 percent of quota annual PRGT access limit. The authorities also received debt relief under the Catastrophe Containment and Response Trust (CCRT) and are participating in the Debt Service Suspension Initiative (DSSI).
This paper discusses Sierra Leone’s Request for Disbursement Under the Rapid Credit Facility (RCF). The coronavirus disease 2019 (COVID-19) pandemic puts Sierra Leone’s population at risk and is a serious blow to the economy, which has just started to recover. The number of COVID-19 cases is increasing rapidly, threatening the fragile health system. The drop in external demand and essential measures to contain the spread of the virus are sharply curtailing economic activity. The authorities are taking decisive actions to mitigate the health and socio-economic impact of the pandemic. In collaboration with development partners, they are scaling up urgent health spending and introducing measures, including boosting social safety nets and ensuring access to credit for affected businesses. The shock has generated a large balance of payments need. Emergency financing under the RCF will help meet this financing gap and create room for pandemic-related spending. With significant downside risks and a tight financing situation threatening to reverse Sierra Leone’s progress toward the Sustainable Development Goals, additional grant support from the international community is urgently needed.
This paper discusses Sierra Leone’s 2019 Article IV Consultation, Second Review Under the Extended Credit Facility Arrangement, Request for a Waiver of Nonobservance of Performance Criterion. Sierra Leone continued to make good progress under the IMF-supported program. While the program’s medium-term goals remain appropriate to enable future growth and development, the dramatic onset of the global coronavirus disease 2019 pandemic poses significant near-term risks. Combating the economic fallout of the crisis and protecting the health of Sierra Leoneans should be the immediate priority. The authorities’ cautious fiscal policy has been important. They have made commendable progress in mobilizing domestic revenue and prudent execution of budgeted expenditures. This has stabilized domestic borrowing needs and allowed inflation pressures to ease. Managing fiscal risks and securing debt sustainability remain the medium-term priority. Continued revenue mobilization will require both tax administration and policy reforms. Deeper public financial management reforms will further improve budget planning and execution, including preventing new arrears. A strategic plan for the two state-owned banks will be instrumental in addressing underlying fiscal risks.
This paper proposes that the Executive Board determine that the global COVID-19 pandemic constitutes a Qualifying Public Health Disaster (QPHD) under the Catastrophe Containment (CC) Window of the Catastrophe Containment and Relief Trust (CCRT), in line with the new QPHD test approved by the Board on March 26. The CCRT has sufficient financial resources for an initial tranche of grant assistance for debt service relief covering eligible debt falling due from all CCRT-eligible members through October 13, 2020. Fundraising efforts continue to secure the financial resources needed to commit future such tranches for CCRT debt service relief, up to a cap of two years. Staff considers that the 25 members requesting CCRT assistance qualify for immediate CCRT relief.
In direct response to the COVID-19 crisis the International Monetary Fund (IMF) Executive Board has adopted some immediate enhancements to its Catastrophe Containment and Relief Trust (CCRT) to enable the Fund to provide debt service relief for its poorest and most vulnerable members. The CCRT enables the IMF to deliver grants for debt relief benefiting eligible low-income countries in the wake of catastrophic natural disasters and major, fast-spreading public health emergencies.
The Fund’s existing facilities for low-income countries (LICs) provide a vehicle for the speedy provision of financial assistance to member countries hit by natural disasters, either through the Rapid Credit Facility (RCF) or through augmentation of the funding already being provided through other facilities such as the Standby or Extended Credit Facilities. The quick disbursement of funds strengthens national financial capacity, including external payments capacity, to tackle relief and recovery challenges. To address catastrophic disasters, the Fund created a mechanism in 2010 to provide additional relief to its poorest and most vulnerable member countries to help meet their exceptional balance of payments needs. Under this mechanism, the Fund can provide grants from a trust fund—the Post Catastrophe Debt Relief (PCDR) trust—that are used to pay off debt service falling due to the Fund. These grants ease pressures on the member’s balance of payments and create financial space by reducing its debt service burden. This paper proposes reforms to this mechanism to cover situations where the member is experiencing an epidemic of an infectious disease that constitutes a significant threat to lives, economic activity, and international commerce across countries.