Sierra Leone

Recovery driven by the mining and agricultural sectors

After a year 2022 already burdened by the inflationary consequences of the Russian-Ukrainian conflict and heavy flooding, Sierra Leone’s growth should just about hold steady in 2023 before rebounding in 2024. Export revenues will contribute to this recovery, thanks to high prices for iron ore, titanium and aluminium, which together account for 70% of the country’s exports. The continued recovery of the mining sector, with the ramp-up of iron ore production at the Marampa and Tonkolili mines, and the agricultural sector, with the government’s distribution of rice seed and tools, will be buoyant in both 2023 and 2024. Nevertheless, the agricultural sector (accounting for 57% of GDP and two-thirds of jobs in 2021, thus providing a livelihood for a large part of the population) is likely to continue to suffer in 2023 from the consequences of the devastating floods of 2022. In addition, inflation will rise further in 2023, having already trended high in 2022 due to the sharp depreciation of the leone (67.3% year on year at the end of 2022). The larger-than-expected rise in public spending on food and energy subsidies has also helped to boost inflation by stimulating demand. Inflation will continue to be fuelled in 2023 by imported food and fuel prices. In addition, the El Niño phenomenon is likely to have a negative impact on harvests in Asian countries, from which Sierra Leone mainly imports rice, which will push up food prices even further. However, with the elections over, inflationary pressures are expected to ease slightly in 2024 as a result of the measures taken by the new government to tighten fiscal policy, which should curb household consumption. At the same time, tighter monetary conditions will also help to ease inflationary pressures. The central bank is likely to continue the rise in its key rate that began in early 2022 (19.25% in July 2023 compared with 14% in January 2022) in order to combat rising prices and the depreciation of its currency. In addition, the "new leone", put into circulation in March 2023, will replace the current currency at a rate of 1 for 1000 during 2023, restoring the population's confidence in its currency.

Twin deficits are improving, but remain a source of vulnerability

Sierra Leone's fiscal position deteriorated further in 2022, due in particular to an increase in the interest burden and spending on road infrastructure construction. Increases in food and electricity subsidies, linked to the depreciation of the leone and high global prices, have also played a role in eroding the country's fiscal position. Nevertheless, in 2023 and 2024, the budget deficit should narrow thanks to increased tax revenues, particularly from mining (5% of total revenues), which has been buoyed by the economic recovery, and the rationalisation of public spending. The government is expected to extend measures aimed at containing current expenditure, including a freeze on public-sector recruitment, and to reduce the budget allocated to road construction. The digitisation of tax collection and a reduction in tax breaks will also help boost revenue. In addition, the final disbursement scheduled in October 2023 of the ECF (Extended Credit Facility) granted in 2018 by the IMF will help improve the budget. The disbursement will occur after the last one in June as part of the $172.1 million loaned by the organisation over 55 months.

In addition, the current account deficit continued to widen in 2022 due to insufficient export earnings to offset the rise in imported food prices (80% of food has to be imported) and energy. In 2023 and 2024, the deficit should narrow thanks to increased export revenues from iron ore. FDI in the mining sector and aid from international donors will also help improve Sierra Leone's external financial position. Nevertheless, foreign exchange reserves, which fell to 4 months of imports at the end of 2022 as a result of government measures to ensure the supply of food and fuel to local markets, should continue to decline in 2023 and 2024, stabilising at around 3 months of imports. The public debt burden, after reaching 98.9% of GDP at the end of 2022, is expected to fall in 2023 and 2024. Its external share (68% of total public debt), 80% of which is held by multilateral creditors and 20% by bilateral creditors, is deemed sustainable by the IMF. However, Sierra Leone’s exposure to the risk of debt distress is high and rising due to the sharp depreciation of the leone and a larger-than-expected deficit in 2022. Fiscal consolidation, recourse to concessional financing and growth will be key to ensuring debt sustainability.

A fragile political and social climate

The incumbent president, Julius Maada Bio, leader of the Sierra Leone People’s Party (SLPP), was re-elected for a second five-year term in the first round with 56% of the vote amid the controversial presidential elections of June 2023. His main opponent, Samura Kamara, denounced the elections as “rigged” and refused to take his seat in the National Assembly, where the SLPP won a majority (81 out of 135 MPs were elected by proportional representation), while observers from the European Union highlighted the lack of transparency in the elections. Despite a mixed record due to record inflation and severe police repression during demonstrations in August 2022, Julius Maada Bio was widely tipped to win the elections ahead of his main rival, Samura Kamara, and beating by far the other 11 candidates in the running. While the country has enjoyed relative peace since 2022 with the end of eleven years of civil war, the political situation could exacerbate social tensions owing to record inflation. Against this backdrop, the Sierra Leone police have arrested several people, including senior army officers, accusing them of preparing violent demonstrations for early August, a sign of potential latent social unrest. At the same time, food insecurity, which affected 78% of households in February 2023, is expected to continue to worsen and is fuelled in particular by the price of rice and palm oil. In addition, a new synthetic drug, "kush", is spreading across the country, particularly affecting young people, 70% of whom are unemployed or in insecure employment.

Last updated: August 2023