By Alusine Sesay
Headline inflation in Sierra Leone decreased from 40.69 percent in March 2024 to 38,06 percent in April 2024 and further to 35.84 percent in May 2024, according to the policy statement of the Monetary Policy Committee (MPC) of the Bank of Sierra Leone (BSL).
The Committee which met on June 24, 2024, was chaired by the Governor of the central bank, Dr. Ibrahim L. Stevens.
The MPC noted that the decline in headline inflation was broad-based as there were reductions in the prices of both food and non-food items of the consumer basket.
“This decline was attributed to a combination of factors, including the sustained tight monetary policy stance characterized by successive well-calibrated increases in the monetary policy rate, the stability of the exchange rate which has restored confidence in the domestic currency, increased domestic food production due to the harvest season, expenditure rationalisation by the fiscal authorities, and decline in international food and energy prices,” the Committee noted.
The Committee welcomed the downward trajectory in headline inflation, which has recorded 18.75 percentage points reduction since its recent peak in October 2023.
The MPC acknowledged with cautious optimism the downward trend in headline inflation from
Novermber 2023 to May 2024, reflecting the tight monetary policy stance of the BSL, policy
measures to remove bottlenecks in the foreign exchange market and the government’s fiscal
consolidation efforts. However, the MPC noted that at 35.84 percent in May 2024, inflation
remains high and a cause for concern, given that it is still well above the medium-term target within the current macroeconomic framework.
It underscored the upside risks to the inflation outlook, including crude oil production cuts, geopolitical tensions, and potential spikes in global commodity prices.
External Sector Developments
Sierra Leone’s trade deficit with the rest of the world widened to USSI42.4 million in 2024Q1
from US$1 l1.3 million in 2023Q4 [Quarter 4], according to the MPC. It noted that the gross foreign exchange reserves of the BSL was equivalent to 2.3 months of import cover in 2024Q1 compared with 2.7 months cover in 2023Q4.
The decline was mainly on account of debt service payments and payments for goods and services, according to MPC.
“The exchange rate has exhibited sustained stability due to policy measures implemented by the BSL to remove bottlenecks in foreign currency transactions. This, coupled with the demonstrably smooth transition to the New Leone, has restored confidence in the domestic currency and limited speculative activities by market participants.”
The MPC welcomed the fact that as export earnings rise due to priority investment in the
agriculture and mining sectors, and inflows from development partners, including the IMF and
World Bank, materialise, the reserves position of the BSL will be strengthened. The Committee
however noted that tight financial conditions, macroeconomic uncertainties and low productivity may adversely affect the external sector.
Fiscal Developments
Fiscal policy remained tight as the government sought to pursue fiscal consolidation to address
challenges with public finances. However, the overall fiscal balance registered a deficit of NLel.21 billion in 2024Q1 compared to a surplus of NLe0.39 billion recorded in 2023Q4, driven mostly by debt service payments, the MPC noted. “In spite of improvements in domestic revenue mobilization, the significant
reduction in foreign grants resulted in a decline in total revenue. The primary balance recorded a surplus of NLe 0.03 billion in 2024Q1, compared to the surplus of NLeO.28 billion recorded in 2023Q4, on account of increased discretionary spending.
The MPC acknowledges the government’s fiscal consolidation drive but noted that the increasing debt service payments is a challenge to reduction of the fiscal deficit. It is, however, of the view that continued stability in the exchange rate and the declining inflation will prove essential in reducing uncertainties in budget execution.