By zainab.joaque@awokonewspaper.sl
Freetown, SIERRA LEONE – Sierra Leone’s foreign exchange reserve cover has experienced a notable decline, standing at 2.3 months at the close of September 2023, compared to 2.8 months at the end of June 2023, as reported by the Bank of Sierra Leone (BSL).
The import cover, a crucial indicator of reserve adequacy, saw a decrease primarily due to excessive outflows surpassing inflows, according to the Central Bank’s announcement.
In a concerning trend, the country’s trade deficit marked its third consecutive increase this year. Although the growth was modest in the first two quarters (US$159.53), it took a substantial leap in the third quarter, reaching its peak for 2023 at US$240.44 million—an increase of 40.43 percent from the previous two quarters, as outlined in the Central Bank’s fourth-quarter Monetary Policy Statement.
Bank Governor Ibrahim Stevens attributed this widening to a reduction in export receipts, which outweighed the decline in the import bill. He highlighted that the depreciation of the Leone had moderated, reflecting the positive impact of policy actions by the BSL aimed at removing bottlenecks in the foreign exchange markets, including the elimination of administrative barriers.
Additionally, the BSL amended the BSL Act 2019, allowing the use of currencies other than the Leone in selected transactions within Sierra Leone. The decision to permit lending in foreign currency by commercial banks on a case-by-case basis also had a notable impact.
Governor Stevens explained, “The pressure on the gross foreign exchange reserves is explained by the lower-than-expected inflows from key foreign exchange-earning sectors, debt service payments, and payments for essential goods and services.”
However, the Monetary Policy Committee (MPC) remains optimistic, expressing the belief that anticipated official inflows, private transfers, and government policy measures aimed at supporting productive economic sectors will help strengthen the gross external reserve position in the coming year.
In their December 14, 2023 meeting, Chairman Stevens revealed that, following an extensive review of recent global and domestic macroeconomic and financial market developments, the MPC decided to raise the monetary policy rate by 1.0 percentage point to 22.25 percent, effective December 18, 2023.
The MPC also highlighted an increase in the overall fiscal deficit compared to 2023Q2, emphasizing the expansionary nature of fiscal policy in 2023Q3. This was attributed to a rise in government expenditure, outweighing the increase in revenue. Despite these challenges, the MPC acknowledged the government’s commitment to implementing a combination of revenue enhancement and expenditure containment measures to achieve a budget deficit of 5.8 percent of GDP in 2023, in line with agreements with the International Monetary Fund (IMF). ZIJ/21/12/2023
