Sierra Leone

Sierra Leone initially continued to fix its currency to sterling, then switched to the SDR. From 1983 it tried various exchange rate arrangements, but central bank funding of large fiscal deficits, which was problematic throughout the period, rendered policy incoherent and ineffective. From 1990 there were repeated attempts to create a more rational monetary framework, with some success, but fiscal dominance continued to impede the development and effectiveness of both financial system and monetary policy framework.

YearsTargets and attainmentClassification
1974-82currency fixed to GBP; small open economy with rich mining resources; initially limited banking system, partly foreign-affiliated, partly state-owned; central bank lends to government within weak and repeatedly adjusted limits, relies on liquidity ratio and moral suasion, interest rates rarely varied; fiscal control poor, attempts to tighten it fail; late 1978 peg switched to SDR, with small depreciation; credit ceilings from late 1979, often undershot; exchange controls tightened, rise of parallel forex market; continued central bank funding of large fiscal deficitsaugmented exchange rate fix AERF
1983-89late 1982 dual exchange rate system tried, official rate plus commercial market with auctions, then mid-1983 rates unified at new, substantially depreciated, peg to USD and return to revised foreign exchange budgeting; premium in active parallel market remains and problem of diamond smuggling becomes more acute; some fiscal and monetary stabilisation measures 1983-84 including interest rate rises, but credit growth still driven by high fiscal deficits funded by central bank; 1984 back to dual exchange rates, early 1985 rates reunified, large devaluation and switch of peg to SDR; mid-1986 currency floated and depreciates, exchange controls partly liberalised; bi-weekly treasury bill auctions, interest rates largely liberalised, but negative in real terms; gradual but large depreciation under float leads to 1987 decision to abolish inactive interbank forex market and officially manage exchange rate, with gradual revaluation mid-1987; repeated slippages in stabilisation programmes; accumulation of government domestic and foreign arrears; increased demand for cash leads to acute shortages; ‘economic emergency’ late 1987 to mid-1989unstructured discretion UD
1990-2017late 1989 payment of arrears to IMF resumed, exchange and trade liberalisation; some structural reforms; from 1990 more serious fiscal and monetary stabilisation efforts including full liberalisation of and large rises in interest rates, rises in cash and liquidity ratios, rationalisation of reserve requirements, further liberalisation of exchange and trade, new market-determined system for exchange rates; 1991 armed opposition incursion and start of civil war in countryside, military coup in capital; 1992 cash shortage reduced by fall in currency/deposit ratio and arrival of new notes, ongoing treasury bill reforms including weekly auctions and unification of bank and nonbank markets; by end-1993 exchange rate has largely stabilised and parallel premium has almost disappeared; 1994 forex bureaux licensed; 1995-6 bank restructuring, as required to allow continued use of indirect monetary instruments; 1995-6 heavy economic losses from rebel attacks on mines and elsewhere; early 1996 democratic elections under new constitution; late 1996 peace agreement soon unravels, civil war resumed; rebel-allied military coup May 1997; 1997-2001 intense fighting with foreign intervention, government driven out by ECOWAS intervention early 1998, elected president returns, but rebels retake capital early 1999, bitter fighting followed by peace agreement mid-1999 which also unravels, rebels finally defeated with help of UN forces in 2001; return of displaced people and disarmament plus strong economic recovery 2001-2; as of 1997 main monetary instrument was OMOs via auctions of treasury bills and bonds, liquidity and cash ratios less used; central bank and other institutions kept operating through civil war, albeit with difficulty and with high central bank financing of budget deficits; forex auction from early 2000 helps to reduce parallel market premium; banking system (including commercial banks) remains key source of financing for budget deficits; periodic tendency for exchange rate to be managed rather than floating; 2006 measures to bolster undercapitalised and ineffective banking system, which lends little to private sector; as of 2008 central bank uses primary treasury bill auctions as main instrument to pursue price stability via reserve money, but de facto need to finance deficits still often dominates; persistent liquidity management problems; 2010 efforts to limit central bank financing of deficits; 2012 reverse repo rate becomes benchmark interest rate while Monetary Policy Rate acts mainly as signal; ongoing attempts to deepen money and government securities markets; 2014 commodity price slump; 2014 Ebola outbreak, largely over by end-2015 but small outbreaks up to early 2016, major economic impact; 2015 some banks (especially large state-owned banks) in difficulties; central bank financing of deficits, weak monetary transmission and low credit to private sector persist; statistical database long poor, worsened by security situation in 1990s, subsequently improved but remains in need of further reformloosely structured discretion LSD

Selected IMF references: RED 1972 pp42-3; RED January 1975 pp46, 48; RED December  1975 pp22-3; RED 1980 pp43-5, 69; RED 1982 p46; SR 1982 pp2-10; RED 1983 pp30-1, 34-6, 45-51; SR 1983 pp16-17, 20-1; RED 1984 pp26-7, 41-3; SR 1984 pp19-20; RED 1985 pp26, 37-8; RED 1986 pp27, 35-6; SR 1986 pp28-9; RED 1988 pp29, 35; RED 1989 pp7-9; SR 1989 pp6-12; SR 1991 pp2-18; SR 1992 pp7-8; RED 1994 pp16-17, 21-2; SR 1994 pp2-4, 22a; RED 1997 pp20-4; REDSI 2001 pp5-18; SR 2001 pp6-12; SR 2002 pp10-11; SISA 2004 pp8-9, 11; SR 2006 pp13-14, 17-18; SISA 2008 p5; SR 2008 p12; MEFP 2010 ¶¶14, 20, 29;  SR 2013 pp6, 14; MEFP 2013 ¶40; SR 2016 pp7, 14-17; SI 2020 pp31-8; SR 2020 pp20-3.

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