Economic studies
Sierra Leone

Sierra Leone

Population 8.0 million
GDP per capita 527 US$
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 5.3 -2.7 4.0 5.0
Inflation (yearly average, %) 14.8 13.5 10.5 10.0
Budget balance (% GDP) -2.7 -5.8 -4.0 -3.0
Current account balance (% GDP) -20.0 -16.0 -14.5 -13.5
Public debt (% GDP) 70.0 73.7 73.0 72.5

(e): Estimate (f): Forecast

STRENGTHS

  • Significant mining resources (diamonds, rutile, bauxite, gold, iron ore, limonite, platinum, chromite, coltan, tantalite, columbite and zircon)
  • 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 in response to the COVID-19 pandemic and its impact on the country's mining sector (around 60% of exports), the rebound that began in 2021 will continue in 2022. As in 2021, growth will be driven in particular by the resumption of investment in mining activities (gold, diamonds, rutile, and iron ore). 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 spending, the public share of infrastructure spending is expected to increase under the National Development Plan (NDP). Private consumption will also be an engine of growth in 2022, 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 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 ore 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. Although still at the mercy of COVID-19-related travel restrictions, tourism revenues (5.5% of exports) are also expected to grow. 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, narrowed in 2021. It is expected to shrink further in 2022 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 continued IMF support under the USD 172 million ECF programme, provided it meets its commitments in terms of delivering on targets. For the final year of the 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. Due to the cost of domestic debt (26% 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.

 
Although it will narrow in 2022, the current account deficit is set to remain very large. The country's dependence on imports, particularly of food (80% of consumption has to be imported), will continue to fuel a large trade deficit, which will, however, continue to shrink thanks to the recovery of exports (33% increase in 2021), mainly of mining products. The deficits in the services account (4.9% of GDP in 2020) and income (2% of GDP), both linked to the presence of foreign investors, will also have an impact. The current account deficit will be financed chiefly by FDI, mainly in the mining and agricultural sectors, and by aid from international organisations. The country maintains foreign exchange reserves equivalent to six months of imports, thanks to the IMF’s allocation of special drawing rights in 2021. The level of reserves and additional export earnings should help to slow leone depreciation. Following an announcement by the central bank in 2021, a currency redenomination is expected this year: 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 could send 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. Claims of fraud during the Koinadugu district elections in October 2021 are an indication of frictions. Furthermore, in one of the poorest countries in the world, persistent socio-economic challenges, amplified by the pandemic, are fuelling social unrest. 

 

Last updated: February 2022

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