By Tanu Jalloh
Following is a letter written to the International Monetary Fund by Sierra Leone's Finance Minister and the Governor of the central bank. I will attempt to do an analysis of it next week which can only make sense to you if you grasp this letter. Read on:
Letter of Intent
October 1, 2013
Madame Christine Lagarde
Managing Director
International Monetary Fund
Washington, D.C. 20431
USA
Dear Madame Lagarde:
1. On behalf of the government of Sierra Leone, I am pleased to submit herewith a Memorandum of Economic and Financial Policies (MEFP) for which Sierra Leone is requesting a three-year arrangement with the International Monetary Fund (IMF) under the Extended Credit Facility (ECF) for the period 2013–16. The objectives of the program and measures envisaged for achieving them are described in the memorandum. Reflecting the government’s poverty reduction and growth objectives, the program focuses on (i) consolidating the gains from the previous ECF-supported program, including macroeconomic stability supported by prudent fiscal and monetary policies; (ii) strengthening revenue performance and improving public financial management to efficiently channel adequate resources to infrastructure and poverty-reducing spending; and (iii) stepping up financial sector reforms to support financial deepening and economic growth.
2. The government requests that the MEFP be supported under a three-year arrangement under the ECF in an amount equivalent to SDR 62.22 million (or 60 percent of quota). We also request that the first disbursement, in an amount equivalent to SDR 8.89 million, be made available after approval of the ECF arrangement by the Executive Board of the IMF. To monitor progress in implementing our reform agenda, the program includes a set of quantitative criteria, indicative targets, and structural benchmarks outlined in the MEFP and the Technical Memorandum of Understanding (TMU).
3. Sierra Leone’s new poverty reduction strategy for 2013–18 (PRSP III) launched in July this year—The Agenda for Prosperity—focuses on addressing the infrastructure deficit and growing the private sector to support inclusive growth, enhancing the efficiency and access to social services to support human development, and improving governance and transparency to support effective public service delivery. Development partners, in accordance with the Busan principles of aid effectiveness, have pledged to assist the government to attain these broad objectives.
4. To help achieve the objectives of the Agenda for Prosperity, the government plans to implement a number of transformational investment projects, including a new airport on the mainland, hydroelectric dams, and agriculture irrigation projects. The government will seek concessional borrowing for these transformational projects. The government believes, in particular, that the construction of a new airport will support private sector development and economic growth, increase tourism, and generate new sources of revenue for the government budget. The government will pursue the project if it is economically viable. It will work closely with Sierra Leone’s development partners, notably the World Bank on the project’s feasibility and with IMF staff on its macroeconomic and program implications.
5. The government of Sierra Leone has made substantial progress during 2001–13 in laying the foundations for macroeconomic stability, sustained economic growth, and financial sector expansion in the context of three previous programs. The previous ECF-supported program for 2010–13 had to be cancelled to enable the newly elected government to take stock of progress in strengthening institutions, including procedures for public financial management, and to transition to a new economic program that would support the Agenda for Prosperity. Nonetheless, reform measures and policies put in place have helped improve macroeconomic stability, advance social policies, and enhance prospects for broad-based and inclusive economic growth. This progress demonstrates the government's commitment to meet performance criteria and structural benchmarks set for 2013–14 (MEFP, Tables 1–2).
6. The economic outlook for the rest of this year and over the medium term remains favorable. We expect to use prudent fiscal and monetary policies to dampen inflationary pressures—consumer price inflation fell to 9.5 percent (year-on-year) at end-July, the first time since the onset of the global financial crisis, and interest rates on government securities declined considerably, from 19–26 percent at end-2012 to 3–9 percent in late August, reflecting tight expenditure management in the first half of the year, with limited issuance of short-term securities. As a result, the Monetary Policy Committee of the Bank of Sierra Leone (BoSL) reduced the monetary policy interest rate.
Going forward, any further declines in the monetary policy rate (MPR) would be carefully calibrated in line with the use of other monetary instruments to support the single-digit inflation target while encouraging financial intermediation. We expect a careful execution of government spending, in the context of the cash management committee and envisaged further improvements in public financial management, to help alleviate infrastructure bottlenecks, enhance the business environment for job creation, and maintain macroeconomic stability. Nonetheless, the global economic outlook presents risks to the economic outlook that call for vigilance in policy implementation. We stand ready to take corrective measures should adverse shocks materialize and compromise the attainment of programmed objectives.
7. Sierra Leone believes that the policies set forth in the attached Memorandum of Economic and Financial Policies are adequate to achieve the objectives of the program, but will take any further measures that may become appropriate for this purpose. Sierra Leone will consult with the IMF on the adoption of these measures in advance to the revisions to the policies contained in the Memorandum of Economic and Financial Policies in accordance with IMF policies in such consultation. Further, and in line with its commitment to transparency and accountability, the government authorizes the IMF to publish this letter, its attachments, and related staff report, including placement of these on the IMF website in accordance with Fund procedures, following the IMF Executive Board’s approval of the request.
Very truly yours,
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Kaifala Marah Sheku S. Sesay
Minister of Finance and Economic Development Governor of Bank of Sierra Leone
(C) Politico 26/11/13
