WASHINGTON, Nov 19 (NNN-PANA) — Sierra Leone faces substantial fiscal challenges in 2016 as the year would be critical for the country’s authorities to ensure sufficient revenues and financing to cover priority spending, especially for the post-Ebola Economic Recovery Strategy (ERS), according to the International Monetary Fund (IMF).

This will require strong moves on tax policies and continued efforts on tax administration, said IMF Deputy Managing Director and Acting Chair Min Zhu.

He said that containing the wage bill would also be critical to increase the resources available for the ERS, which would be strengthened by enhancing the transparency and efficiency of expenditures.

In a statement after the IMF Executive Board completed the third and fourth reviews of the country’s performance under a three-year arrangement under the Extended Credit Facility (ECF), Zhu said: “With the World Health Organization declaring Sierra Leone Ebola free on Nov 7, the country now faces the difficult challenge of economic recovery.”

In the Board’s view, the Bank of Sierra Leone (BSL) should continue targeting price stability in support of economic recovery.

But Zhu pointed out that the task was complicated by the decline in iron ore prices, which had led to the shutdown of the main iron ore mines, with consequent sharp declines in GDP and exports, and reduced fiscal revenues.

“With depreciation pressures stemming from the lost iron ore exports, the BSL should enhance monetary policy instruments and liquidity forecasting to increase its ability to respond to any second round inflationary pressures,” he suggested. “BSL should also enhance supervision of the financial sector, and seek to understand and resolve any underlying stress through a timely diagnostic of key troubled banks.”

According to the IMF, the updated debt sustainability analysis shows that, while Sierra Leone’s risk of debt distress was moderate, the economy was increasingly vulnerable to further shocks.

For that reason, Zhu emphasized that borrowing policies should remain prudent in view of the narrow export base and fragile fiscal position.

“Financing needs, particularly for investment projects, should continue to be covered mostly with grants and concessional loans,” he said.

In completing the reviews of Sierra Leone’s performance, the IMF Executive Board approved an augmentation of access of 45 percent of quota, equivalent to about US$64.59 million, to be distributed in three tranches, with the immediate disbursement of US$46.14 million.

This amount includes the first tranche of the augmentation in an amount of SDR 15.555 million (about US$21.53 million).

The Executive Board also approved the authorities’ request for rephasing of the fifth and sixth disbursements under the arrangement. — NNN-PANA

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