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Real GDP growth slowed to an estimated 3.5% in 2018 from 5.8% in 2017. The decline reflects lower than projected iron ore mining due to the decline of prices since 2014 and the 2017 closure of the main mining company, Shandong Iron and Steel Company.
The fiscal deficit continued to worsen to an estimated 7.7% of GDP in 2018 from 6.8% in 2017, due largely to a shortfall in revenue mobilization and overspending related to elections. The deteriorating fiscal position led to a sharp increase in public debt from 55.9% of GDP in 2016 to 60.8% in 2017. New measures, such as adopting the treasury single account and reducing waivers and exemptions from customs duties, could improve the government’s position.
The Bank of Sierra Leone has proactively implemented a tight monetary policy and reduced the accommodation of government financing needs. But internal control weaknesses at the central bank continue to threaten reserve accumulation and macroeconomic stability. The exchange rate has depreciated by more than 30% since 2016, and inflation remained high at an estimated 13.9% in 2018.
The current account deficit worsened to an estimated 16.9% of GDP in 2018 from 13% in 2017, due to increased imports of consumption goods and weak export performance. Most of the country’s exports are unprocessed commodities such as gold, diamonds, iron ore, and cashew nuts, while the bulk of imports are rice, petroleum, and machinery. Real GDP growth is projected to increase to 5.6% in 2019 and 5.8% in 2020. The main drivers of economic growth will be increased private agricultural and mining investment amid business climate reforms.
The positive growth outlook is not without macroeconomic imbalances. The fiscal deficit financed partly by the buildup of payment arrears is expected to persist and could pose substantial risks to economic growth by squeezing liquidity and increasing the cost of capital projects. The government envisions adopting more prudent fiscal and monetary policies and has demonstrated strong political will to change for the better.
The deficit is due in part to increased public investments in infrastructure, such as roads and energy, which are expected to boost economic activity in the medium to long term.
Headwinds include macroeconomic imbalances, which are expected to persist, especially the fiscal and current account deficits, which could pose some risks to economic growth. The current account deficit is projected to widen to 18.4% of GDP in 2019 and 20.8% in 2020 due to a sluggish increase in agriculture and mineral exports. Other risks include the increasing debt and commodity price shocks. Dependence on primary commodity exports makes the country extremely vulnerable to external shocks.
The government has initiated several reforms, including the Extractive Industry Revenue Bill, which seeks to improve on the fiscal regime for mining companies, allowing for better government oversight and increased revenue. Two policies for financial sustainability in the energy sector and universal access to electricity and increasing the energy mix were launched in 2018. The country’s Roadmap for the National Agricultural Transformation (2018) identifies four enablers to increase rice self-sufficiency, livestock development, and crop diversification: improving the policy environment, promoting women and youth in agriculture, setting up private sector–led mechanization, and sustainably managing biodiversity.