Despite Series Of Adverse Shocks… Inappropriate Fiscal & Monetary Polices Worsing Things In Salone- World Bank
The World Bank Country Economic Memorandum report on Sierra Leone states that though Sierra Leone has been buffeted by a series of adverse shocks–both external and domestic–in recent years, inappropriate fiscal and monetary policies have generally made things worse.
The report maintained that even though GDP growth
has averaged 5.5 percent since 2019, macroeconomic stability remains elusive. “Fiscal policy has been expansionary since the onset of COVID-19 in 2020 due to both high expenditures (including COVID-related spending) and a fall in revenue collection (reflecting slower economic activity and tax deferments),” the report stated.
That in 2022, spillovers from the Ukraine war and fiscal and monetary policy slippages contributed to weak fiscal and external accounts, very high inflationary pressure, and heightened debt vulnerabilities.
The report also stated that the fiscal deficit widened to nearly 6 percent of GDP in 2022 on the back of significant spending overruns while monetary policy remained broadly loose to finance the wider deficit, allowing inflation to soar to a peak of 54 percent in October 2023.
That public debt had risen to over 50 percent of GDP by end of 2022, more than reversing debt relief from the Heavily Indebted Poor Country initiative in the early 2000s, and that the risk of a debt crisis became high.
Although monetary policy has sought to respond to inflationary pressures by raising rates from 14.3 percent at the start of 2022 to 22.75 percent by end-2024, transmission to the real sector has been weakened by fiscal dominance and the shallowness of the financial sector, the report highlighted.
