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TABLE OF CONTENTS Acronyms ................................................................................................................................................................................................................................................................................ i Acknowledgements.......................................................................................................................................................................................................................................................... ii Executive Summary........................................................................................................................................................................................................................................................... iii Part 1: Recent Economic Development and Outlook................................................................................................................................................... 1 Global and Regional Trends..................................................................................................................................................................................................................................... 2 Recent Developments in Sierra Leone............................................................................................................................................................................................................. 3 Real sector ..................................................................................................................................................................................................................................................................... 3 Fiscal sector .................................................................................................................................................................................................................................................................. 5 Debt .................................................................................................................................................................................................................................................................................. 8 Monetary sector.......................................................................................................................................................................................................................................................... 13 Financial sector............................................................................................................................................................................................................................................................ 15 Outlook, Risks, and Policies...................................................................................................................................................................................................................................... 17 Near and medium-term economic outlook.............................................................................................................................................................................................. 17 Risks to the outlook.................................................................................................................................................................................................................................................. 20 Policy priorities............................................................................................................................................................................................................................................................. 21 Part 2: Unlocking the Potential of Sierra Leone’s Power Sector — Breaking the Energy Crisis Circle.......................................................... 23 Introduction ...................................................................................................................................................................................................................................................................... 24 Electricity Sector Performance................................................................................................................................................................................................................................ 24 Generation .................................................................................................................................................................................................................................................................... 24 Transmission and distribution............................................................................................................................................................................................................................ 26 Fiscal Risk ........................................................................................................................................................................................................................................................................ 28 Sector Turnaround - Setting the Sector on a Financially Sustainable Path................................................................................................................................. 29 Action Plan 2030 for Recovery in the Electricity Sector .................................................................................................................................................................... 29 Pillar 1. Green energy transition........................................................................................................................................................................................................................ 30 Pillar 2. Improving EDSA performance.......................................................................................................................................................................................................... 31 Pillar 3. Enabling the policy and regulatory framework..................................................................................................................................................................... 32 Projecting Action Plan Outcomes: Increased Access and Reduced Fiscal Dependency .................................................................................................. 32 LIST OF FIGURES Figure 1: Global and regional GDP growth (in %), 2021-2026f ........................................................................................................................................................ 2 Figure 2: Commodity prices, crude oil and iron ore, 2018-2024 ................................................................................................................................................... 2 Figure 3: Contribution to GDP growth, from production accounts (percentage points), 2018-2023...................................................................... 4 Figure 4: Contribution to GDP growth, from expenditure accounts (percentage points), 2018-2023.................................................................... 5 Figure 5: Overall budget and primary balances (in % of GDP), 2018-2023e............................................................................................................................ 6 Figure 6: Total revenue and expenditures (in % of GDP), 2018-2023............................................................................................................................................ 6 Figure 7: Expenditures by type (in % of GDP), 2018-2023e................................................................................................................................................................. 6 Figure 8: Total revenue by source (in % of GDP), 2018-2023e........................................................................................................................................................... 6 Figure 9: Expenditure performance, 2023 actual vs. target (% of non-iron ore GDP)......................................................................................................... 7 Figure 10: Expenditure performance, 2023 vs. 2022 (% of non-iron ore GDP) ......................................................................................................................... 7 Figure 11: Revenue and grants performance, 2023 actual vs. target (% of GDP)..................................................................................................................... 7 Figure 12: Revenue and grants performance, 2023 vs. 2022 (% of GDP) ..................................................................................................................................... 7 Figure 13: Global and regional GDP growth (in %), 2021-2026f ....................................................................................................................................................... 10 Figure 14: Composition of public debt (in %), 2023.................................................................................................................................................................................. 10 Figure 15: Domestic debt by holders (NLe billions), 2022-2023........................................................................................................................................................ 10 Figure 16: Treasury bill yields, inflation, and real interest rates (in %), January 2018 to April 2024.............................................................................. 10 Figure 17: Merchandise export receipts (US$ millions), 2018-2023................................................................................................................................................. 12 Figure 18: Import bills (US$ millions), 2018-2023........................................................................................................................................................................................ 12 Figure 19: Current account and source of financing (US$ millions), 2019-2023e................................................................................................................... 13 Figure 20: Reserve coverage (US$ millions and months of imports), 2019-2023................................................................................................................... 13 Figure 21: Global price trends for wheat, rice, and oil (US$ per metric ton and US$ per barrel), January 2018- December 202 3......... 14 Figure 22: Domestic inflation trends, headline, food, and non-food (in % year-over-year), December 2018-April 2024.............................. 14 Figure 23: Key monetary aggregates (% change year-over-year), December 2018-July 2024....................................................................................... 14 Figure 24: Key market interest rates (in %), January 2020-July 2024............................................................................................................................................... 14 Figure 25: Exchange rate developments (% change in US$/NLe), January 2018-July 2023............................................................................................. 15 Figure 26: Monetary policy rate, Inflation, and exchange rates (in % and NLe/US$), January 2018-August 2024............................................. 15 Figure 27: Asset base of the banking system (NLe millions), 2018-2023...................................................................................................................................... 16 Figure 28: Other financial institutions asset base (NLe millions), 2018-2023............................................................................................................................. 16 Figure 29: Composition of private credit by economic sector (NLe millions), 2018-2023................................................................................................ 17 Figure 30: Composition of commercial bank non-performing loans by economic sector (shares in %), 2018-2023...................................... 17 Figure 31: Access to electricity, grid and off-grid, by region (% of households)...................................................................................................................... 24 Figure 32: Contribution of power supply sources (shares in %)........................................................................................................................................................ 26 Figure 33: Tariff and average power purchase costs by supply source (US$/kWh) .............................................................................................................. 26 Figure 34: Interruptions to electricity provision (indices and number in ‘000), 2019-2022............................................................................................... 26 Figure 35: Inefficiencies across the power sector value chain............................................................................................................................................................ 27 Figure 36: EDSA’s projected cash flow, status quo scenario (US$ millions), 2024-2030...................................................................................................... 29 Figure 37: Action Plan 2030 schematic of pillars and timeline........................................................................................................................................................... 30 Figure 38: Financial impact of implementing Action Plan 2030........................................................................................................................................................ 33 LIST OF BOXES Box 1: Sierra Leone Medium-Term National Development Plan, 2024-2030................................................................................................................... 3 Box 2: Sierra Leone’s GDP Rebasing........................................................................................................................................................................................................... 5 Box 3: Bold reforms needed to strengthen public financial management and restore budget credibility................................................. 9 Box 4: Medium Term Debt Strategy (2023-27)..................................................................................................................................................................................... 11 Box 5: Sierra Leone’s mini-grid and off-grid programs .................................................................................................................................................................. 25 LIST OF TABLES Table 1: Risk indicators of Sierra Leone’s debt (% of GDP unless otherwise indicated), by strategy, 2022 and 2027 ................................. 11 Table 2: Economic outlook for Sierra Leone.............................................................................................................................................................................................. 18 Table 3: EDSA trade payables, 2019-2023................................................................................................................................................................................................... 28 Table 4: EDSA trade receivables, 2019-2023.............................................................................................................................................................................................. 28 Table 5: Government subsidies to EDSA, 2019-2023........................................................................................................................................................................... 28 Table 6: Detailed Sierra Leone Power Sector Action Plan 2030..................................................................................................................................................... 34 ACRONYMS BSL Bank of Sierra Leone CLSG Côte d'Ivoire, Liberia, Sierra Leone and Guinea COVID-19 Coronavirus Disease of 2019 EGTC Electricity Generation and Transmission Company EDSA Electricity Distribution and Supply Authority EWRC Electricity and Water Regulatory Commission GDP Gross Domestic Product HFO Heavy Fuel Oils IFMIS Integrated Financial Management Information System IMF International Monetary Fund IPP Independent Power Producer MDAs Ministries, Departments, and Agencies MOE Ministry of Energy MOF Ministry of Finance MW Megawatts NLe New Leones NPA National Power Authority PPA Power Purchase Agreement PPP Purchasing Power Parity RESPITE Regional Emergency Solar Power Intervention Project SSA Sub-Saharan Africa Stats SL Statistics Sierra Leone US$ United States Dollars i Sierra Leone Economic Update • October 2024 ACKNOWLEDGEMENTS The Sierra Leone Economic Update 2023 was prepared by a joint World Bank team from the Macroeconomics, Trade & Investment Global Practice and the Energy & Extractives Global Practice. The first part of the report was prepared by Michael Saffa (Senior Economic, EAWM2), Smriti Seth (Senior Economist, EAWM2) and Cedric Deguenonvo (Economist, EAWM2). Excellent research assistance was provided by Hussein Sesay (Consultant, EAWM2). The second part was prepared by Kagaba Paul Mukiibi (Senior Energy Specialist, IAWE4), Anshul Rana (Senior Energy Specialist, IAWE4), Ibrahim Jalloh (Energy Specialist, IAWE4). Mohamed Adama Jalloh (ET Consultant, EAWG2) provided valuable input on public financial management reform issues. The report benefitted from extensive comments and inputs from Stefano Curto (Lead Economist, EAWDR) Philip English (Consultant, EAWM2) and Erika Jorgensen (Consultant, EAWM2). The Update was prepared under the overall guidance of Robert R. Taliercio (Country Director, AFCW1), Abdu Muwonge (Country Manager, AWMSL), Sandeep Mahajan (Practice Manager, EAWM2) and Ashish Khanna (Practice Manager, IAWE4). It benefited from constructive comments from the following peer reviewers: Miguel A.S. Noel (Senior Economist, EAEM2), Anna Twum (Economist, EAWM2) and Jan Friedrich Kappen (Lead Energy Specialist, IAWE4). Sierra Leone Economic Update • October 2024 ii EXECUTIVE SUMMARY Recent Economic Developments and Outlook lockdown for several days. Revenue outturn for the first S ierra Leone’s economic growth in 2023 surprised on half of 2024 was higher than target due to improved the upside, reaching 5.7 percent, but the economy compliance and progress on implementation of revenue is projected to slow in 2024. Robust performance in the measures in the 2024 and 2023 Finance Acts. Expenditure mining sector, particularly iron ore, was the key driver of pressures persisted during 2023 due to the clearance of growth. However, the economy is projected to slow to unbudgeted arrears and security and elections spending, 4.3 percent in 2024 on the back of continued decline in leading to an overrun in the budget. As a result, the fiscal iron ore prices and relatively weak performance of the deficit narrowed only modestly to 4.9 percent of GDP, mining sector. In the medium term, growth is expected to slightly better than the previous year (5.3 percent of recover to its long run average of 4.7 percent supported GDP) but still falling short of budget targets. During the by resurgence in the service sector as inflation eases and first half of 2024, expenditures outturns were higher than boosts household consumption and enhances trade, target due to overruns on goods and services and energy by improved agricultural productivity buoyed by the subsidies. The energy sector presents the biggest risk to government’s ‘Feed Salone’ program, by improvements in the fiscal due to the poor performance of the sector. The the mining sector, and by ongoing fiscal efforts to restore government has provided over US$100 million to support macroeconomic stability. While the growth outlook is the sector during 2019-2022, placing strains on the budget contingent on external and domestic developments, and reducing public spending on important social sectors the binding constraint to growth has been low access to such as education and health. In 2023, the government power with only 36 percent of the population with access transferred US$38 million (0.6 percent of GDP) in subsidies to electricity, limiting opportunities for health, education, for the sector. Despite this, by August 2024, the cumulative communication, and economic empowerment. There arrears from independent power producers (IPPs), and are large geographic and income disparities in access electricity imports had reached US$75.7 million. Subsidies to electricity with 8 out of 10 people living in rural areas to the sector in 2024 have increased to 1 percent of GDP. If having no access compared to 6 in 10 in urban areas. the situation does not improve, the sector will need nearly Firms report that inadequate electricity is one of their US$100 million annually from the government to support most important constraints, leading to increased costs, power purchases. disrupted production, and reduced profitability There is an urgent need to improve Electricity While repeated spending overruns have cast doubt on Distribution and Supply Authority (EDSA) operational fiscal sustainability, the energy sector poses a significant and commercial performance and transition away fiscal risk. There has been a marginal improvement in from expensive liquid fuel-based power generation to fiscal management following the significant slippages of reduce the negative fiscal impact The dependence on 2022, but the gains are tenuous, especially in an election liquid fuel-based power generation, means the costs of year marked by heightened social instability. The situation power purchase are relatively high, making it difficult for underscores the critical need for decisive measures to EDSA’s revenue to cover its power purchase given that stabilize the fiscal outlook and rebuild trust in budgetary EDSA earns revenue on only four out of every ten units processes. Domestic revenue remains among the lowest in purchased due to excessive losses caused by low revenue the world at 7.4 percent of GDP, improving only modestly collection, power pilferage, poor billing cycles, and network in 2023 compared to 2022, affected by the delay in the constraints. The government adopted a Sector Recovery implementation of tax policies in the 2023 Finance Act Plan in 2020, but implementation has been slow. Sierra and a large compliance gap. Revenue performance was Leone needs to move away from liquid fuel-based energy also held back by the impasse on the tax regime between generation towards solar and other renewable sources the government and the mining company, Sierra Rutile, as well as cheaper imported electricity. Negotiations are and by the coup attempt that led to the declaration of underway to increase power imports from neighboring iii Sierra Leone Economic Update • October 2024 Executive Summary countries, and a new development-aid-funded gas-to- the contraction of base money growth, its effectiveness power IPP has achieved financial closure. While this will is often limited by the dominant role of government help reduce cost of supply, the central piece of the puzzle borrowing in the financial sector and the underdeveloped remains improving EDSA’s performance. Taking no-regret, state of the financial system. The Leone depreciated by 18 low-cost actions can help improve EDSAs performance percent in 2023 compared to 40 percent in 2022 and has by lowering losses and improving collections. The showed relative stability since the latter half of 2023 into government’s plans to bring in a private operator for the 2024. BSL’s negative capital position has worsened and operation and maintenance of EDSA’s network should poses significant challenges for effective monetary policy improve the situation, provided they have the mandate operation. The government will need to follow through to make operational decisions. In addition, strong reforms on announced plans to recapitalize BSL to maintain on creating an independent regulatory framework with confidence in the national currency. a transparent tariff-setting mechanism and accounting mechanism for sector performance parameters will play The reserves position has deteriorated despite a key role in improving the financial health of the sector improvements in the current account. Reserves have that will attract more private sector investments across declined to 1.8 months of import cover as of August 2024 the value chain. on the back of high external debt servicing needs and external obligations. However, the current account deficit Sierra Leone remains at high risk of debt distress has improved slightly, narrowing to 5 percent of GDP in while the cost of domestic financing has increased 2023 from 5.4 percent in 2022, driven by stronger export significantly. Public debt as a share of GDP declined from performance, particularly iron ore, and subdued import 53.5 percent in 2022 to 46.2 percent in 2023, primarily demand. due to stability in the exchange rate and higher nominal GDP growth. Despite this, risks to debt sustainability The financial sector in Sierra Leone appears stable remain high due to significant and rising debt service but is characterized by a significant sovereign-bank obligations. As financing conditions remain tight and nexus. The banking system remains well-capitalized and mostly from domestic sources, the strong government liquid, but a large share of banks' assets is concentrated borrowing appetite has elevated the one-year treasury bill in government securities, which presents a financial rate to 41 percent during 2024 and could lead to a debt stability risk and crowds out private sector lending. While spiral, increasing the debt service burden. This expensive commercial bank performance indicators improved in borrowing crowds out productive public expenditures, 2023, the high concentration of sovereign debt on their reducing the fiscal space available for essential services balance sheets poses a risk. Non-bank financial institutions, such as healthcare, education, infrastructure and social including microfinance institutions and financial service welfare. The government will need to reduce its reliance on associations, play a crucial role in financial inclusion and domestic borrowing, which is expensive and inflationary intermediation, particularly for micro, small, and medium and reduces the private sector’s access to credit. enterprises. However, these institutions often face higher costs of funds and interest rates. Inflationary pressures intensified in 2023 and remain elevated despite easing to 25 percent by August 2024. Growth in Sierra Leone is projected to average 4.7 Headline inflation peaked at 54.6 percent (year-on-year) in percent in the medium term, supported by mining, October before moderating to 25 percent by August 2024. agriculture and a recovery in services. Inflation is Food and energy inflation were the primary drivers of expected to ease but remain in double digits as global price increases in 2023. Exchange rate stability, declining prices moderate and the Leone shows relative strength. food and energy prices, and monetary tightening were Fiscal consolidation efforts will be crucial for maintaining credited for the decline in inflation. Monetary policy macroeconomic stability, with a focus on improved was continuously tightened to address inflation, with revenue mobilization and expenditure controls. The the central bank--the Bank of Sierra Leone (BSL)--raising external position is projected to improve but will remain policy rates by a cumulative 525 basis points in 2023 negative in the near and medium term due to ongoing and further by 250 basis points by September 2024 to global economic uncertainties. 24.75 percent. While monetary tightening has supported Sierra Leone Economic Update • October 2024 iv Executive Summary The outlook for Sierra Leone’s economy is shaped by The government has signaled its commitment to make both external and domestic developments. Geopolitical bold reforms in the energy sector, and all stakeholders uncertainties, particularly around the war in Gaza and are aligned on the steps necessary to improve the the economic slowdown in China, pose significant risks. sector’s performance. The Government of Sierra Leone Domestically, political stability following the attempted has made significant progress on access to electricity, coup in 2023 will influence the effectiveness of economic which has risen from 13.5 percent in 2013 to 36 percent policy reforms. Climatic and health risks, including in 2023 and has also rationalized tariffs in October 2023 to extreme weather events and a fragile health system, also reduce the fiscal impact of the sector. However, there is present significant threats to the economy. a need to implement specific actions and steps in a time bound manner to help make the sector financially viable. Key policy priorities for Sierra Leone include All stakeholders are aligned around the reform steps restoring macroeconomic stability, protecting needed. The European Union and the United Kingdom’s vulnerable households, and improving fiscal and debt Foreign, Commonwealth and Development Office are sustainability. Strengthening the agricultural sector, focused on improving off-grid access with their mini enhancing infrastructure, particularly in energy, and grid programs, the United States’ Millennium Challenge maintaining a focus on social spending in education and Corporation is preparing a comprehensive compact healthcare are essential for sustained economic growth that will improve the transmission network significantly and development. Fiscal consolidation efforts should while the Japan International Cooperation Agency is continue with a focus on effective expenditure controls working to improve the distribution network in the and improved budget processes to ensure fiscal and Freetown peninsula region. The World Bank is supporting debt sustainability. To achieve the targeted deficit, the the government in improving EDSA’s performance by authorities need to implement outstanding revenue strengthening the distribution network and supporting measures in the 2024 Finance Act and enhance tax governance changes including bringing in private sector compliance while rationalizing spending in line with the in EDSA. approved budget. Based on the discussion with various stakeholders Bold reforms are needed to strengthen public financial and the current sector crisis, an Action Plan 2030 is management and restore budget credibility. The proposed with an aim to make the sector financially availability of funds is often unpredictable, posing a risk sustainable. The action plan has three main pillars- to budget credibility and leading to non-implementation Pillar 1- Green Energy Transition focusing on action to of government expenditure programs. Only 22 percent transition away from expensive liquid fuel-based (heavy of ministries, departments, and agencies (MDAs) have fuel oil and diesel) generation to bring down costs and strategic plans aligned with expenditure policy proposals help meet power demand over the long term; Pillar and budget estimates. Budgets lack consistency with 2- Improving EDSA Performance through a low-cost, prior year estimates. MDAs commit expenditures based no regret approach to reduce fiscal stress by improving on ceilings from the Ministry of Finance, but actual cash is EDSA’s billing and collections, incorporating global best not released in time, leading to high arrears to suppliers. practices for corporate governance, and enhancing Less than one-third of the 251 audit recommendations energy and commercial management; Pillar 3- Policy and from the 2021 Auditor General’s Rreport were fully Regulatory Framework to provide a clear, transparent, implemented. and comprehensive policy and regulatory framework to enhance sector viability especially as the government attempts to attract private investment in distribution. v Sierra Leone Economic Update • October 2024 PART ONE RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK Sierra Leone Economic Update • October 2024 1 Recent Economic Developments and Outlook Global and Regional Trends consumption as inflation moderates, and policy measures to restore macroeconomic stability (Figure 1). G lobal growth slowed in 2023 with weaker prospects for 2024. Global growth slowed to 2.6 percent in 2023 from 3.0 percent in 2022, reflecting the ongoing effects Global commodity prices are declining significantly from the peaks observed during 2022. Despite some of tight monetary policies, restrictive financial conditions, fluctuations, global commodity prices have fallen as and sluggish global trade and investment. Growth is global supply chains normalize, although they remain forecast to stabilize at 2.6 percent in 2024, the first time elevated compared to pre-pandemic levels. Crude oil in three years that global growth is not expected to prices moderated in 2023, despite some volatility in the decelerate but at a level insufficient for making significant progress on key development goals. Although global wake of the conflict in Gaza, averaging US$83 per barrel, inflation has begun to moderate, ongoing geopolitical down from US$100 per barrel in 2022 (Figure 2). Average tensions, softening labor markets, the delayed effects oil prices in 2024 are projected to edge down to US$81 of monetary tightening, reduced demand for services, per barrel as global growth weakens and oil production and fiscal consolidation continue to be drag on growth increases. Metal prices fell by 10 percent in 2023 due (Figure 1). to sluggish demand from China, which accounts for 60 percent of global metal consumption, amidst protracted The outlook is promising for emerging markets and weakness in the country’s property sector. Metal prices Sub-Saharan Africa. In emerging markets and developing are set to decline again as the slower growth in China economies (excluding China), growth is projected to further weighs on demand. Prices of iron ore, Sierra improve slightly from 3.4 percent in 2023 to 3.5 percent Leone’s main export, have declined by 27 percent since in 2024, driven by trade improvements and a recovery in December 2023 as the downturn in the Chinese property domestic demand as inflation and interest rates fall. Sub- market continue to affect demand (Figure 2). Food prices Saharan Africa (SSA) experienced growth of 3 percent in declined by 9 percent in 2023, reflecting ample supplies 2023, marking a second consecutive year of slowdown of major crops, particularly grains. However, rice prices due to weakened economic activities and domestic policy rose by 27 percent following India’s export restrictions. tightening. However, SSA’s growth is expected to rebound Food prices are expected to soften further this year amid to 3.5 percent in 2024, supported by a recovery in global ample supplies for major crops but will remain elevated trade, easing financial conditions, improved private by historical standards. As global growth slows, emerging markets and Sub-Saharan Africa Iron ore prices are falling in 2024 as the downturn in the Chinese continue to expand. property market continues to affect demand. FIGURE 1: Global and regional GDP growth (in %), 2021 – 2026f FIGURE 2: Commodity prices, crude oil and iron ore, 2018-2024 8 250 200 6 150 100 4 50 2 0 2018M01 2018M06 2018M11 2019M04 2019M09 2020M02 2020M07 2020M12 2021M05 2021M10 2022M03 2022M08 2023M01 2023M06 2023M11 2024M04 0 2021 2022 2023e 2024f 2025f 2026f Crude oil, average ($/bbl) CRUDE_PETRO Advanced economies EMDEs excluding China Iron ore, cfr spot ($/dmtu) IRON_ORE Sub-Saharan Africa World Notes; AE: advanced economies, EMDE: emerging markets and developing economies, Notes: $/bbl is US$ per barrel of oil; cfr spot ($/dmtu) is US$ per dry metric ton unit current SSA: Sub-Saharan Africa, e=estimates, f=forecast. Growth rates for country groups are market price, including the cost of freight to the port of destination. calculated as weighted averages using GDP shares consistent with purchasing power parity as weights. Sources: June 2024 Global Economic Prospects database. 2 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook Recent Developments in Sierra Leone Growth in 2023 surprised on the upside due to robust iron ore mining, despite a challenging macroeconomic Real sector context. The economy grew by 5.7 percent in 2023 Sierra Leone’s economic growth in 2023 exceeded compared to 5.3 percent in 2022, buoyed by strong expectations due to robust iron ore performance and despite a challenging macroeconomic and social industry performance, mostly in iron ore production, which environment. more than compensated for a slowdown in agriculture and services (Figure 3) (based on revised GDP data as Growth in Sierra Leone averaged 4.3 percent during the of July 2024, Box 2). 2023 marks the third consecutive last decade, with high volatility marked by episodes of year of strong growth since the COVID-19 outbreak. On boom and bust. The country’s concentrated economic the demand side, growth was driven by stronger than structure--heavily reliant on low-value agriculture and expected exports. Improvements in the terms of trade and mining and with a sizable informal services sector--lends modest private investment growth (both domestic and itself to volatility. Macroeconomic management has foreign) partly offset the slack in consumption spending amplified, instead of mitigating, the impact of external due to fiscal consolidation and inflationary pressures shocks. In addition to lower potential growth, this situation which eroded household purchasing power (Figure 4). increased the risk of debt crisis and elevated headline inflation to a two-decade high in 2023. Economic growth Agricultural sector performance slowed despite has also been held back by structural factors such as low positive crop yields. The sector, which had the second private sector participation and investment, inadequate highest share of growth, grew by an estimated 2.4 percent human capital, poor infrastructure, and weak institutions. in 2023, compared to 3.0 percent in the previous year. The Urgent and robust reforms are needed if the country is slowdown reflects weaker growth of the overall livestock, to achieve its target of lower-middle income status by forestry and fishing sector despite improved crop outputs 2039, as set out in the Sierra Leone Medium Term National (especially rice). Expansion in farmed hectares, availability Development Plan, 2024-2030 (Box 1). of fertilizer, and favorable planting and harvest seasons Box 1 Sierra Leone Medium-Term National Development Plan, 2024-2030 Sierra Leone has launched its Medium-Term National Development Plan for 2024-2030, titled “A Transformative Acceleration Agenda for Food Security, Human Capital Development, and Job Creation.” This plan aims for the country to achieve lower- middle-income status by 2039 and focuses on food self-sufficiency, a skilled workforce, youth employment, economic growth, and an efficient public service. It outlines five key national goals: i. “Feed Salone” Program: Achieve food self-sufficiency by 2030 through enhanced agricultural productivity and commercialization, sustainable fisheries management, and access to nutritious foods. ii. Human capital development: Develop a skilled, healthy, and inclusive workforce by providing free quality education, strengthening tertiary education, improving healthcare, and enhancing sanitation and hygiene. iii. Youth employment: Create 500,000 youth jobs by 2030 across various sectors, including agriculture, tourism, mining, transport, small and medium enterprises, and digital services. iv. Infrastructure, technology, and innovation: Expand energy production, improve transport systems, and enhance access to affordable communication and technology services. v. Public service infrastructure: Cultivate an efficient, professional civil service by conducting employee audits and digitizing public services by 2026. The Plan emphasizes economic diversification, governance enhancement, climate resilience, environmental action, and gender mainstreaming. Addressing the US$2.56 billion financing gap out of the estimated US$12.05 billion budget will require innovative financing and strong partnerships. The Ministry of Planning and Economic Development will coordinate implementation across all government levels. Sierra Leone Economic Update • October 2024 3 Recent Economic Developments and Outlook In 2023, mining remained the largest contributor to growth, with Access to electricity is a significant bottleneck to agricultural performance also boosting output. FIGURE 3: Contribution to GDP growth, from production accounts enhancing private sector growth, and the sector has (percentage points), 2018–2023 suffered from inefficiency, frequent outages, and high 8.0 costs. Not only does it take 16 days for a firm to obtain an electricity connection, but also 66 percent of firms in 6.0 Sierra Leone experience power outages. These outages 4.0 impose high costs as firms are forced to turn to heavy fuel 2.0 oil generators to power their factories or suffer disruption of production.1 Buildups of arrears to independent power 0.0 2018 2019 2020 2021 2022 2023 producers (IPPs), especially Kapowership, have typically -2.0 resulted in the IPPs’ cutting power to the electricity -4.0 distributor (the Electricity Distribution and Supply Agriculture Mining Wholesale & retail trade Agency, EDSA), causing widespread power outages that Other industry Other services GDP at factor cost affect both households and businesses. The special focus Notes: Gaps between total GDP growth rate and the sum of sectoral contributions of this economic update, presented in Part II, is on Sierra is equivalent to the contribution from “taxes less subsidies of products” per national Leone’s power sector. accounting standards. July 2024 revised GDP data (Box 2). Source: Stats SL and World Bank staff estimates. together contributed to marginally increased output of Growth in services slowed by 0.7 percentage points most crops. Improved mechanization and agricultural during 2023. The services contribution to overall growth support services following government efforts to is yet to reach levels attained during the rebound in promote private sector participation in the sector have 2021 when it outpaced other sectors of the economy. also contributed to improvements in crop yields. Rice Both wholesale and retail trade and other services are production grew by 4 percent during 2023, recording the yet to reach the levels attained in 2021 (Figure 3). After highest output since before COVID-19. rebounding in 2021, the sector slowed in 2022 and again in 2023 due to difficult global economic conditions, Industrial activity remained robust and an important elevated prices and domestic socio-economic instability, driver of growth, thanks to improved iron ore production which limited trade-related services and tourism. and manufacturing. OOverall industry activity is estimated to have grown by 14.4 percent after 9.9 percent On the demand side, investment was the biggest growth in 2022, due to the resumption of mining activities contributor to growth while the contribution from in 2021. Mining activity, which makes up more than half household consumption slowed amid elevated prices of the industry sector, is estimated to have grown by 48.3 during 2023. FFollowing the resumption of mining percent during 2023, compared to 33.9 percent in 2022. exploration and production expansions as well as Iron ore production improved by 130 percent due largely expansion of beneficiation capacity (to separate minerals to expansions at the two large iron-ore mining operations from waste) in the two large-scale iron-ore mines, at Tonkolili and Marampa, which more than outweighed investment was the higher contributor to growth with the contraction in diamond and other minerals (including 2.1 percent. Meanwhile, private consumption slowed to rutile, bauxite, and gold). A fall in rutile prices and delayed 1.6 percent compared to 6.8 percent in 2022 amid high negotiations of a rutile agreement with the government inflationary pressure. High and stubborn inflation eroded affected rutile production while major underground purchasing power, muted household spending and flooding at Koidu Holdings affected diamond production. worsened food insecurity. Despite marginal improvement Manufacturing grew by 2 percent during 2023 and was in credit growth, financial conditions remained tight due to supported by improved production of cement, paint, high lending rates and fiscal dominance which continued and palm oil while construction activities improved, to limit the availability of credit to households. Net exports registering growth of 2.7 percent during 2023 compared showed improvements due to the slowdown in imports to 2.4 percent in 2022. and improved performance of exports (Figure 4). 1 World Bank Enterprise Survey 2023. 4 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook In 2023, investment was the highest contributor to growth while Fiscal sector household consumption slowed. FIGURE 4: Contribution to GDP growth, from expenditure accounts Public finances remain severely strained, with only (percentage points), 2018–2023 minimal and insufficient improvements seen in 2023. 20.0 The fiscal position saw only a slight improvement in 15.0 10.0 2023, following three consecutive years of deterioration, 5.0 yet fell short of budgeted targets. The overall fiscal deficit 0.0 narrowed to 4.9 percent of GDP (5.3 percent in 2022) while 2018 2019 2020 2021 2022 2023 -5.0 the primary deficit shrank to 2.2 percent from 5.2 percent -10.0 in 2022 (Figure 5). The impetus for the slight improvement -15.0 was the marginal moderation in expenditures, which fell -20.0 from 16.1 percent of GDP in 2022 to 15.2 percent in 2023 -25.0 Private consumption Public consumption and the slight improvement in domestic revenue from Gross xed capital formation Net exports Real GDP growth 7.0 percent in 2022 to 7.4 percent (Figure 6). While these outcomes represented slight improvements over 2022, Notes: July 2024 revised GDP data (Box 2). Source: Stats SL and World Bank staff estimates. they were worse than the original budgeted targets set in November 2022 and the revised targets agreed in October Box 2 Sierra Leone’s GDP Rebasing The government has revised the National Accounts, using 2018 as the new base year As of July 2024, the government has revised the National Accounts, using 2018 as the new base year. As well as rebasing GDP, the government has updated its GDP measurement methodology to the System of National Accounts, 2008. Statistics Sierra Leone (Stats SL), the national statistical office, included comprehensive statistical information from census data, surveys, and administrative records, specifically designed for this rebasing. Both the demand and supply side national accounts have been released in June 2024. As a result, the economy’s size and structure have significantly changed. Newly-rebased nominal GDP for 2018 was around NLe50.7 billion (US$6.4 billion), a 56.4 percent increase from NLe32.4 billion (US$4.1 billion) calculated under the old base. The new accounts show a decrease in the agricultural sector’s share from 50.5 percent to 35.0 percent, while industry and services expanded to 17.5 percent (from 8.7 percent) and 44.0 percent (from 37.0 percent), respectively. These changes are due to broader coverage of economic activities, including new mining, entertainment, research and development, patents, copyrights, financial intermediation services, and informal activities. Information and communications technology- related activities, previously dispersed, are now grouped together. The rebasing affects key macroeconomic indicators. For 2023, public debt as a share of GDP fell from 78.7 percent to 46.2 percent, and per capita GDP increased from US$440 to US$743. However, domestic revenue as a share of GDP decreased from 12.5 percent to 7.4 percent. Percent of GDP (Post-rebasing) Percent of GDP (Pre-rebasing) 2020 2021 2022 2023 2020 2021 2022 2023 Domestic revenue 8.4 9.2 7.0 7.4 13.8 16.1 12.3 12.5 Expenditure 15.0 16.1 16.0 15.2 25.3 28.3 28.1 25.7 Deficit -3.4 -3.9 -5.3 -4.9 -5.8 -6.9 -9.2 -8.2 Current account balance -4.0 -5.0 -5.3 -5.1 -6.8 -8.7 -9.3 -7.8 Public debt 46.2 48.2 53.1 46.2 75.8 80.7 89.9 78.7 Source: World Bank staff estimates, Sierra Leonean authorities as of September 2024 Sierra Leone Economic Update • October 2024 5 Recent Economic Developments and Outlook Tightened expenditures improved budget balances in 2023. FIGURE 5: Overall budget and primary balances (in % of GDP), 2018-2023e FIGURE 6: Total revenue and expenditures (in % of GDP), 2018-2023 2018 2019 2020 2021 2022 2023 18 - 16 (1.00) 14 (2.00) 12 (3.00) 10 (4.00) 8 (5.00) 6 4 (6.00) 2018 2019 2020 2021 2022 2023 Overall balance incl.grants Domestic primary balance Total revenue and grant Total expenditure Source: Ministry of Finance (MOF) and World Bank staff estimates. Spending on goods and services and wages as well as capital expenditures dampened expenditure growth, while goods and services tax collection bolstered revenue. FIGURE 7: Expenditures by type (in % of GDP), 2018-2023e FIGURE 8: Total revenue by source (in % of GDP), 2018-2023e 20 10 15 Percent 10 5 5 0 0 2018 2019 2020 2021 2022 2023e 2018 2019 2020 2021 2022 2023e Goods & services and wages Subsidies and transfers Grants Other departments revenue Mines revenue Customs and excise Interest payment Capital expenditure Total expenditures Goods and services tax Income tax revenue Total revenue & grants Source: MOF and World Bank staff estimates. 2023 (Figure 9, Figure 11). This performance comes on and services and wages, interest payments, and domestic the back of significant slippages observed in 2022 due to capital expenditures as a share of GDP were broadly expenditure overruns that resulted in an overall deficit of within target. Foreign capital expenditure explains the 5.2 percent of GDP. overruns on the capital budget due to higher capital project disbursements (Figure 9). Expenditures remained elevated and were higher than budgeted in 2023, but outturns improved modestly Domestic revenue collection saw a modest boost from compared to the previous year. Total expenditures for tax policy measures introduced in 2023 and is among 2023 are estimated to have reached 15.2 percent of GDP, 0.9 the lowest in sub-Saharan Africa. RRevenues (excluding percentage points lower than in 2022 but 1.8 percentage grants) improved slightly in 2023 to 7.4 percent of GDP, points above the October 2023 revised target (Figure 7, 0.4 percentage points above 2022 but 0.1 percentage Figure 9, Figure 10). Expenditure overruns compared to points below target (Figure 11, Figure 12). While this budget were due to higher defense security spending performance showed a modest improvement, domestic (to restore stability following the failed attempted coup revenue is among the lowest in SSA region. Tax revenue in November 2023), unbudgeted clearance of arrears,2 accounted for 78 percent of the total or 6.2 percent of GDP. and higher election expenditures, along with overruns on During 2023, the domestic revenue target was revised contingency spending. Nevertheless, spending on goods upwards to reflect tax measures in the Finance Act 2023, including a 2 percent tourism levy; a 15 percent goods 2 The stock of domestic arrears stood at NLe211.5 at end-2023, declining by 31 percent compared to 2022. 6 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook Actual expenditures in 2023 exceeded budget targets but showed improvement relative to 2022. FIGURE 9: Expenditure performance, 2023 actual vs. target (% of FIGURE 10: Expenditure performance, 2023 vs. 2022 (% of non-iron non-iron ore GDP) ore GDP) 16 2 18.0 0.6 14 1.8 16.0 0.4 1.6 12 14.0 0.2 1.4 10 1.2 12.0 - 8 1 10.0 (0.2) 0.8 8.0 6 (0.4) 0.6 6.0 4 (0.6) 0.4 4.0 2 0.2 2.0 (0.8) 0 0 - (1.0) ag d en es t en es t en es t re l itu tal ag d en es t nt st en es t re l itu ita re r re r itu tal itu ita w s an itu the itu he w s an Do yme ere re es ts ts ts s re es ts s ts s ym ter ym ter ym ter nd To s nd ap s ym er ym er nd To nd ap t nd O nd O nd od t t t pe C pa In p a l in pa n nd d pe C pa In p a in p a in i o s a Go tic sa o a al tic pe rn G pe rn es es pe pe te ex te m ex ex m ex ex Ex ex Ex ice Do ice rv rv se se Target 2023 Actual minus target (rhs) 2022 2023e Change (rhs) Notes: Targets are from the revised budget agreed in October 2023. Source: MOF and World Bank staff estimates. and sales tax on digital services; and the reintroduction revert to the original tax regime. The petroleum excise of taxes on fee-based financial services and a 2 percent tax performed better relative to 2022 due to the full minimum alternate tax, among others. However, revenue passthrough of the petroleum formula with a restoration collection was hampered by technical challenges in of the excise rate in the formula. implementation, socio-political instability resulting from the failed coup attempt, a compliance gap, and failure The fiscal deficit was largely financed by domestic to reach an agreement with the mining company, Sierra borrowing, including from Sierra Leone’s central bank— Rutile, on its tax regime. Nevertheless, sales tax (goods the Bank of Sierra Leone (BSL). The fiscal deficit in 2023 and services tax) revenues improved by 0.2 percent of (4.9 percent of GDP) was largely financed by BSL (1.9 GDP in 2023 relative to 2022 mainly due to increased percent of GDP) and commercial banks (2.4 percent rollout of the Electronic Cash Register system, removal of of GDP). External financing showed net foreign exemptions for telecommunications and airline tickets, repayment due to external debt amortization (1.4 and enforcement of compliance actions (including percent of GDP), despite high foreign-financed project penalties). Mining revenues improved due to increased disbursements. Over the years, government has collection of license fees and of iron ore royalties. Other upheld its commitment to eschew non-concessional mining royalties underperformed, especially because financing as debt service obligations continue to pose a of lower production by Sierra Rutile and their failure to huge strain on the budget. Domestic revenue rose slightly in 2023 and came in just below budget targets. FIGURE 11: Revenue and grants performance, 2023 actual vs. target FIGURE 12: Revenue and grants performance, 2023 vs. 2022 (% of GDP) (% of GDP) 12 0.4 12.0 0.6 10 0.3 0.4 10.0 0.2 8 0.2 8.0 - 6 0.1 6.0 (0.2) 4 - 4.0 (0.4) (0.6) 2 (0.1) 2.0 (0.8) 0 (0.2) - (1.0) Total Domestic Tax Nontax Grants Total Domestic Tax Nontax Grants Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue and and Grants Grants Target 2023 Actual minus target (rhs) 2022 2023 Change (rhs) Notes: Targets are from the revised budget agreed in October 2023. Source: MOF and World Bank staff estimates. Sierra Leone Economic Update • October 2024 7 Recent Economic Developments and Outlook Following substantial slippages in 2022, there has been The energy sector continues to pose a substantial fiscal marginal improvement in fiscal management, thwarted risk. While state-owned enterprises in Sierra Leone are by an election year with heightened social instability. broadly underperforming and pose significant contingent Fiscal pressure during 2023 mounted partly due to the liability risk to the government, the energy sector poses general elections expenditures and security spending to the largest fiscal risk and continues to be the only sector restore stability following a failed attempted coup. Yet the receiving direct subsidy from the government. Direct government was able to take difficult policy actions to subsidies to the Electricity Distribution and Supply restrain spending. For example, subsidies to EDSA were Authority (EDSA) rose from 0.1 percent of GDP in 2018 limited following the review of the pricing formula and to 0.8 percent of GDP in 2022 before slightly declining to allowance of full passthrough of petroleum prices, leading 0.6 percent of GDP in 2023 following a near 100 percent to an increase in pump prices of 40 percent and electricity increase in electricity tariffs in September 2023. While the tariffs of 100 percent. Moreover, a range of corrective tariff increase has improved revenue collection by about actions around expenditure management have been 60 percent, revenue remains insufficient to meet the cost put in place, including strengthening the cash and debt of buying power from independent power producers management committee; expanding and regularizing (IPPs). Arrears continue to accumulate, driven by technical cash management meetings; a public sector recruitment and commercial losses that average over 60 percent. As freeze until July 2023; a freeze on new procurement of October 2023, the outstanding arrears to IPPs owed by of furniture and fittings; and activating the contract the government amounted to US$56.9 million with over management committee to investigate the frequent 60 percent owed to Karpowership (KPS). However, the variations in contract prices of goods, works, and services. reliance on KPS during the dry season drove further arrears accumulation, and total arrears to IPPs is estimated at Preliminary data for the first half of 2024 showed mixed US$73.0 million as of June 2024. This level already reflects results as both revenues and expenditures were above the payment plan agreed with KPS in April following target. Domestic revenue was 0.2 percentage point weeks of power outages that led to a down payment of of GDP above the first semester target of 3.8 percent US$17.5 million and monthly payment of US$1 million of GDP, boosted by improved tax collection partly due to clear outstanding arrears. EDSA continues to explore to implementation of tax policy measures in the 2024 several options to improve performance and meet Finance Act3 and revenue from oil and gas exploration obligations by connecting more mining companies5 to licenses.4 Total expenditures were at 6.3 percent of GDP the grid and rolling out advanced metering infrastructure or 0.3 percentage points above budgeted spending, to large industrial customers (discussed in detail in Part II). mainly due to energy subsidies and increased transfers to government Treasury Single Account agencies and Debt the National Revenue Authority following improved Risks to debt sustainability remain elevated despite revenue performance in the first half of 2024. To achieve marginal decline in overall public debt to GDP. the targeted deficit for the year, the authorities need to implement all revenue measures in the 2024 Finance Public debt as a share of GDP declined in 2023, but risks Act and outstanding measures in the 2023 Finance Act, to debt sustainability remain high. The public debt-to- enhance tax compliance, rationalize spending in line with GDP ratio is estimated to have declined from 53.1 percent the approved budget, and strengthen public financial in 2022 to 46.2 percent at the end of 2023 due to stability management to make spending more effective (Box 3). in the exchange rate and higher nominal GDP growth 3 The Finance Act 2024 includes new tax policy measures that include; (i) revised (Figure 13). According to the latest joint World Bank- minimum alternate tax of 2 percent, (ii) increased withholding tax from 10 percent to 15 percent, (iii) increased goods and services tax threshold from International Monetary Fund (IMF) Debt Sustainability NLe100 to NLE500; (iv) multiple import duty rates were increased: import duty Analysis, Sierra Leone remains at high risk of debt distress. on rice from 0 percent to 5 percent, cement: 10 percent to 20 percent, iron rods: 5 percent to 10 percent, cooking gas: 0 percent to 5 percent; among other The country’s debt is assessed as sustainable predicated policy measures on excises, telecommunication surcharges, extractives taxes, stamp duty, and 1 percent education levy. on strong fiscal adjustment and macroeconomic stability. 4 Sierra Leone is set to harness its oil and gas potential, with 63,000 square As the debt stock and associated debt payments rise, kilometers on offer. In 2023, the country launched its fifth licensing round to kickstart new exploration with strong interest from international oil companies. An evaluation conducted in 2023 by a Nigerian company indicated gas prospects, which could support transition to lower carbon fuels from the 5 Octea Mining company has been connected to the grid, and payment is in country’s current reliance on heavy fuel oil. foreign exchange. 8 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook Box 3 Bold reforms needed to strengthen public financial management and restore budget credibility Over the past five to ten years, budget credibility and expenditure execution have been among the poorest performing aspects of public financial management. Several factors contribute to this issue. Unpredictability of resources: The availability of funds is often unpredictable, posing a risk to budget credibility and leading to non-implementation of government expenditure programs. This unpredictability, symptomatic of fund diversion, significantly affected expenditure forecasts, particularly in wages, goods and services, and domestic capital spending, accounting for over 50 percent of the variation in 2021. Expenditure ceilings are determined separately for different categories, often misaligned with the available resource envelope, and Cabinet approval of these ceilings occurs late in the budget process. Additionally, Parliament does not approve adjustments within budget appropriations. The Ministry of Finance approves budget virement (adjustments to shift funds within a budgetary unit) requests, but there is no record or analysis of these changes, including reallocations from contingency funds. Lack of multi-year costed sector strategies: Only 22 percent of Ministries, Departments, and Agencies (MDAs) have strategic plans aligned with expenditure policy proposals and budget estimates. Budgets lack consistency with prior year estimates, and budget documents do not explain changes between medium-term budget estimates. Assessing the reliability and horizon of periodic in-year information to MDAs on expenditure commitment ceilings is crucial. Weak internal controls/commitment controls: Weak internal controls lead to significant leakages, irregularities, and inefficient use of public funds. Expenditure commitment issues are highlighted by high arrears, which were 67 percent of total expenditures in FY2018, 60 percent in FY2019, and 30 percent in FY2020, caused by inadequate cash availability to meet commitments. MDAs commit expenditures based on ceilings from the Ministry of Finance, but actual cash is not released in time. The Integrated Financial Management Information System (IFMIS) limits commitments to quarterly expenditure limits but not to approved cash availability. Priority expenses are often processed outside IFMIS. Lack of implementation of audit recommendations: Despite efforts to address this problem, such as developing a Standard Operating Procedure for Follow-Up on Audit Recommendations and an audit follow-up tracking system, implementation remains a challenge. A 2023 report showed that less than one-third of the 251 audit recommendations from the 2021 Auditor General’s Report were fully implemented. This neglect undermines internal controls, reduces audit effectiveness, and weakens the audit process. liquidity risk has risen, with the most significant risk (80.3 percent of external debt), with IMF and World Bank stemming from large debt service obligation.6 Deviation obligations accounting for 64 percent of multilateral from the current fiscal consolidation path and possible debt (35 percent of total public debt) (Figure 13, Figure exchange rate depreciation pose significant risk to overall 14). Official bilateral creditors accounted for around 12 and external debt. percent of external debt, of which the largest creditors are the Kuwait Fund, China, and South Korea.7 The share of Total debt is composed primarily of external domestic debt in total public debt rose from 31 percent multilateral debt, which is mostly concessional, but the in 2022 (US$848 million) to 33 percent in 2023 (US$907 contribution from expensive domestic debt is rising. million) and indicates government’s increasing reliance External debt (US$1.87 billion) accounted for 67.4 percent on domestic financing sources. Domestic public debt of total public debt (29.3 percent of GDP) at end-2023 and held by the BSL jumped by more than 27 percent in local comprised mostly of obligations to multilateral creditors currency terms to NLe6,061 billion in 2023 and holdings by commercial banks by 28 percent to NLe12,203 billion. 6 This analysis is based on the World Bank-IMF Low-Income Country Debt As of June 2024, the total stock of domestic debt rose by Sustainability Framework of April 2024. This framework analyzes four public and publicly-guaranteed external debt ratios against empirically estimated 17 percent due to new domestic borrowing to finance thresholds. If any one of the indicators breach their thresholds under baseline the budget. assumptions, then the country is assessed to be at high risk of debt distress. In the case of Sierra Leone, since one of the external debt indicators (debt service to revenue) breaches its threshold under the baseline, the country is assessed 7 Sierra Leone also has legacy pre-HIPC (Heavily Indebted Poor Countries to be at high risk of external debt distress. However, since all the external debt Initiative) arrears to external commercial creditors, which accounted for around indicators are on a declining trend over the medium- to long-term, debt is 8 percent of public and publicly-guaranteed external debt or approximately assessed to be sustainable. US$152 million by the end of 2023. Sierra Leone Economic Update • October 2024 9 Recent Economic Developments and Outlook Public debt, mostly multilateral external debt, is declining, but interest payments are rising. FIGURE 13: Global and regional GDP growth (in %), 2021 – 2026f FIGURE 14: Composition of public debt (in %), 2023 60.0 2.5 50.0 2.0 40.0 1.5 30.0 1.0 20.0 0.5 10.0 0.0 0.0 2018 2019 2020 2021 2022 2023 Domestic debt External debt Domestic: Bills Domestic: Bonds Domestic: Arrears Total public debt Interest Payment (RHS) External: Multilateral External: Bilateral External: Commercial Source: Sierra Leonean authorities and World Bank staff estimates. The cost of domestic borrowing has increased Debt service payment remains a significant burden significantly, and rollover risk remains high. Domestic on government budgetary resources, partly because debt is predominantly short-term, held by commercial domestic debt markets remain underdeveloped. Debt banks (58 percent of domestic debt) primarily in the service obligations, including interest and amortization, form of 364-day treasury bills and by the Bank of Sierra increased from 3.1 percent of GDP in 2022 to 3.6 percent Leone. Small and declining amounts are held by non-bank of GDP in 2023. Total debt service as a share of domestic entities or are domestic legacy debt from arrears owed revenue rose from 45 percent in 2022 to 52 percent in to suppliers (Figure 15). With 80 percent of domestic 2023. This ongoing financial burden diverts resources debt held as short-term securities, rollover risk remains away from critical investments in infrastructure, education, high. However, banks have limited investment options, healthcare, and social programs that are crucial for long- remaining heavily reliant on government securities even term development. In addition, amortization payments on in the face of negative real interest rates. That situation foreign public debt places a strain on the country’s foreign has recently changed--as inflation has cooled, real returns exchange reserves. Given that the cost of domestic debt is on 1-year treasury bills turned positive early in 2024 higher because the domestic debt market in Sierra Leone as nominal yields rose to 41 percent since March 2024 is underdeveloped, with a low average time to maturity (Figure 16), translating to substantial real financing costs and high interest costs, the government has published a for government. new Medium Term Debt Strategy, 2023-2027, aimed at lengthening maturities of domestic debt and reducing interest costs (Box 4). Domestic debt stocks continue to pile up and real borrowing costs turn positive as inflation cools. FIGURE 15: Domestic debt by holders (NLe billions), FIGURE 16: Treasury bill yields, inflation, and real interest rates (in 2022-2023 %), January 2018 to August 2024 14,000 60 27.6% 12,000 50 10,000 40 8,000 30 Percent 27.1% 6,000 20 4,000 10 5% 26% 2,000 0 May-18 May-19 May-20 May-21 May-22 May-23 May-24 Sep-18 Sep-19 Sep-20 Sep-21 Sep-22 Sep-23 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 0 -10 Bank of Commercial Non-Banks Domestic Sierra Leone Banks Arrears -20 2022 2023 In ation(y/y) T-Bills Yield T-bills real interest rates Source: Sierra Leonean authorities and World Bank staff estimates. 10 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook Box 4 Medium Term Debt Strategy (2023-27) A new Medium Term Debt Strategy, 2023-27, approved in October 2023 aims to lengthen maturities and address debt- related risk. With domestic debt composed largely of one-year treasury securities (over 80 percent), the Strategy seeks to increase the share of treasury bonds to 40 percent by 2027 by stimulating demand through: (i) limiting the primary dealership role to a few commercial banks while moving other banks to the secondary market; (ii) raising limits on T-bond yields to allow appropriate price discovery; and (iii) improving communication with market participants. The Strategy explored different policy scenarios (strategies) underpinned by a strong macroeconomic framework agreed with the IMF, including limits on annual external borrowing and concessional financing. To evaluate the cost and risk implications of the proposed strategies, three crucial debt and cost indicators are employed- (i) interest payment to GDP ratio; (ii) interest payment to budget revenue; and (iii) present value of debt to GDP ratio. These indicators provide a comprehensive assessment of the financial burden, and potential vulnerabilities associated with the strategies. Among the four strategies explored, the Strategy recommend Strategy 3 which has a focus on issuing medium to long term bonds and emphasis on increased domestic financing to support domestic debt market development especially on the longer end. The objective is to increase average time to maturity and reduce interest rate cost and rollover risk (Table 1). Table 1: Risk indicators of Sierra Leone’s debt (% of GDP unless otherwise indicated), by strategy, 2022 and 2027 Risk Indicators 2022 As at end 2027 Current S1 S2 S3 S4 Nominal debt as percent of GDP 92.9 61.7 61.3 61.8 61.3 Present value debt as percent of GDP 75.8 48.8 48.1 50.2 46.9 Interest payments as percent of GDP 6.2 4.0 3.7 4.3 3.7 Implied interest rate (percent) 6.6 6.4 6.0 7.6 5.8 Debt maturing in 1yr (percent of total) 20.9 23.1 20.1 21.1 21.4 Debt maturing in 1yr (% of GDP) 28.2 14.3 12.3 13.0 13.1 Refinancing risk ATM External Portfolio (years) 10.6 11.6 11.7 11.4 12.7 ATM Domestic Portfolio (years) 1.1 0.9 1.14 1.47 0.9 ATM Total Portfolio (years) 8.5 8.5 8.8 7.8 9.6 ATR (years) 7.7 8.2 8.5 7.5 9.3 Debt refixing in 1yr (percent of total) 27.7 27.0 24.0 24.9 25.3 Interest rate risk Fixed rate debt incl T-bills (percent of total) 93.0 95.9 95.9 95.9 95.9 T-bills (percent of total) 15.8 12.1 7.9 10.4 11.0 FX debt as % of total 67.8 71 73 64 73 FX risk ST FX debt as % of reserves 21.3 20.7 20.7 20.7 20.7 Source: World Bank staff estimates Sierra Leone Economic Update • October 2024 11 Recent Economic Developments and Outlook External sector growth outpaced imports. Goods shipments grew by 18 The current account balance improved slightly due percent (year-over-year) driven largely by iron ore exports primarily to higher iron ore exports. (61 percent of total export volume) whereas the goods The trade and current account deficits narrowed import bill grew by 9 percent during the same period somewhat in response to stronger merchandise export due to lower import demand for food and vegetable oil. performance and subdued import demand. The current Import substitution industrialization has played a big part account deficit is estimated to have narrowed to 5 percent in the decline of vegetable oil which is largely produced of GDP in 2023, from 5.4 percent in 2022 due to stronger locally using palm oil. export performance (US$1.3 billion compared to US$1.1 billion in 2022). Earnings from merchandise exports However, official reserves continued to decline in 2023 due to weak inflows and high repayments. Capital increased by 25 percent relative to the previous year- inflows improved marginally on account of higher -mainly on account of strong iron ore exports totaling project grants and investments in the mining sector more than half of export receipts (Figure 17). There was but not enough to offset the slowdown in foreign direct also a slowdown in imports due to election uncertainties, investment (Figure 19). Foreign currency reserves, which declining global commodity prices, modest improvement are essential to serve as a buffer in the event of shocks, in domestic production, and consumer demand declined by 23 percent to US$468 million (2.6 months dampened by high domestic inflation. Merchandise of import cover) by end-2023, and further by 17 percent imports declined marginally by 3 percent (from around by August 2024 to US$370 million (1.8 months of import US$2.0 billion in 2022 to US$1.9 billion in 2023) due to cover) (Figure 20). The continued decline of reserves a small decline in food and fuel imports, which account is primarily due to the heavy burden of external debt for over 50 percent of the overall imports bill (Figure 18). service and foreign currency obligations. In a bid to boost The trade deficit slightly narrowed to US$248 million (3.6 reserves, the authorities have instituted a 30 percent percent of GDP) in the first half of 2024 compared to repatriation rule for all export proceeds through the US$287 million (4 percent of GDP) during 2023H1 as export banking system in 2024. In recent years, export growth has been driven by iron ore while the import bill is largely driven by food and fuel. FIGURE 17: Merchandise export receipts (US$ millions), 2018-2023 FIGURE 18: Import bills (US$ millions), 2018-2023 1,400 2,500 1,200 2,000 1,000 800 1,500 600 1,000 400 200 500 - 2018 2019 2020 2021 2022 2023 - Iron Ore Diamond Rutile 2018 2019 2020 2021 2022 2023 Other minerals Cocoa Palm oil Other exports Food Fuel Manu. goods Machinery Other Imports Source: Sierra Leonean authorities and World Bank staff estimates. 12 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook The current account deficit has narrowed, but a slowdown in capital inflows has elevated financing needs and driven down reserve coverage. FIGURE 19: Current account and source of financing (US$ millions), FIGURE 20: Reserve coverage (US$ millions and months of imports), 2019-2023e 2019-2023 1,000 1,000 7 6 500 800 5 Months of imports Million US$ 600 4 0 3 400 -500 2 200 -1,000 1 2019 2020 2021 2022 2023e. - 0 Current account FDI & porfolio ows Capital account 2018 2019 2020 2021 2022 2023 Other investment Disbursement Amortization Overall balance Gross external reserves Import coverage Source: Sierra Leone authorities, IMF and World Bank staff estimates. Monetary sector population (2.2 million people) experienced insufficient Very high Inflation is finally moderating in the wake of ever food consumption. Meanwhile, poverty (measured at tighter monetary policy. US$2.15 per person per day in 2017 purchasing power parity (PPP)) slowed its decline in 2023, with 23.2 percent Headline inflation peaked at 54.6 percent (year-over- of population living in extreme poverty rate compared to year) in October 2023, among the worst in Sub-Saharan 24.1 in the previous year.8 Africa, before moderating to 25.5 percent by August 2024. Headline inflation averaged 47 percent during Inflationary pressures continued to weaken from 2023, compared to an average of 27 percent during 2022. November 2023 into 2024. While inflation remains Price pressures from supply chain disruptions, currency elevated, it has moderated from its peak in October 2023 depreciation, and domestic policy slippages intensified to 25.5 percent in August 2024, the tenth consecutive during 2023, pushing Sierra Leone’s inflation to the month of decline. Food and non-food inflation have second highest in Africa after Sudan. A primary driver was moderated to 22.8 percent and 27.5 percent, respectively, food inflation, rising continuously since April 2022 and as of August 2024, mirroring the easing of international peaking at 64 percent (year-over-year) in September 2023, food and energy prices (Figure 22). The beginning of kept high by the price of rice, the country’s main staple, the slowdown coincided with encouraging rice harvests as India banned rice exports. The other primary driver of and a marginal decline in global food and energy prices Sierra Leone’s inflation was energy, pushing up non-food (Figure 21). Food inflation in Sierra Leone slowed from 64.7 inflation by 8 percentage points in August 2023 following percent in September 2023 to 22.8 percent in August 2024 the government’s liberalization of fuel prices to allow a while non-food inflation went down by 19.7 percentage full passthrough of global prices, resulting in a 40 percent points to 35.3 percent (year-over-year) over the same rise in pump prices. Then, in October, authorities raised period. The continued slowdown has been supported by electricity tariffs by nearly 100 percent to help contain stability in the exchange rate, slowdown in the growth government subsidies to the electricity distribution of monetary aggregates, and a decline in pump prices company, further spurring non-food inflation. by 7 percent from NLe30 per liter to NLe28 per liter as of August, following the review of the fuel pricing formula9 High food inflation eroded households’ purchasing and the global slowdown in energy prices. power, worsening poverty and food insecurity. High 8 World Bank, Macro Poverty Outlook 2024, forthcoming. food inflation disproportionately affects the pooHigh 9 The Sierra Leone Petroleum Regulatory Agency reviewed the petroleum pricing food inflation disproportionately affects the poor, as food formula in June 2024 following technical assistance from the World Bank through the GTP fund. The formula, which was originally developed with support from typically accounts for a significant share of their overall the World Bank, was reviewed with input from key stakeholders and reflected spending. According to the World Food Program’s Hunger global best practice. The new formula eliminated uniform prices and introduced price variation prices between fuel types, utilized the West African benchmark Map Live, as of March 2024, 55 percent of Sierra Leone’s price, introduced import premium and price correction levy while reducing the ‘other charges’ components from $13.6 to $7.3 per metric ton. Sierra Leone Economic Update • October 2024 13 Recent Economic Developments and Outlook Headline inflation remains elevated despite moderation since 2023, partly because of domestic policy choices. FIGURE 21: Global price trends for wheat, rice, and oil (US$ per FIGURE 22: Domestic inflation trends, headline, food, and non-food metric ton and US$ per barrel), January 2018- December 2023 (in % year-over-year), December 2018-April 2024 700 140 70.0 600 120 60.0 500 100 50.0 400 80 40.0 300 60 200 40 30.0 100 20 20.0 0 0 10.0 May-20 Feb-22 Aug-18 Mar-19 Dec-20 Sep-22 Apr-23 Jan-18 Oct-19 Nov-23 Jun-24 Jul-21 0.0 Dec-18 Mar-19 Sep-19 Dec-19 Mar-20 Sep-20 Dec-20 Mar-21 Sep-21 Dec-21 Mar-22 Sep-22 Dec-22 Mar-23 Mar-24 Jun-19 Sep-23 Dec-23 Jun-20 Jun-21 Jun-22 Jun-23 Crude oil, average (RHS) ($/bbl) Rice average Wheat, US HRW ($/mt) Food Nonfood Headline Source: World Bank (Pink sheet). Source: Stats SL and World Bank staff estimates. Monetary policy was continuously tightened during private sector credit growth improved during 2023 (by 25 2023 to rein in stubbornly high inflation, but loose percent) and continues to expand, with a growth rate of fiscal policy and limited monetary policy transmission 35 percent (year-over-year) in July 2024 as asset quality in weakened its impact. The BSL raised the monetary policy the banking system improves and permission to lend in rate by a cumulative 525 basis points in 2023 to 22.25 foreign currency on a case by case basis supports access percent by year-end and further by 250 basis point to to credit by the private sector (Figure 23). 24.75 percent by September 2024 (Figure 24). However, the impact of higher policy rates was limited due to weak While the government has announced plans to response of lending and deposit rates in a fragmented recapitalize the BSL, its current capital deficiency poses banking sector where bank credit largely serves the public significant challenges for the effective implementation sector. Base money growth expanded to 43 percent (year- of monetary policy. A well-capitalized central bank over-year) in December 2023, compared to 32 percent is crucial for maintaining confidence in the domestic the previous year, but has moderated to 14 percent by currency, managing foreign exchange reserves, and July 2024 as the BSL unwound purchases of government executing monetary policy operations effectively. The securities in the secondary market, decelerating net BSL’s negative capital position worsened considerably domestic assets of the banking system. Meanwhile, throughout 2023, reflecting a confluence of factors: (i) With limited transmission of tight monetary policy to market interest rates, credit growth continues. FIGURE 23: Key monetary aggregates (% change year-over-year), FIGURE 24: Key market interest rates (in %), January 2020-July 2024 December 2018-July 2024 60.0 50 50.0 40 40.0 30 30.0 20 20.0 10 10.0 0 0.0 Jan - 20 May - 20 Sep - 20 Jan - 21 May - 21 Sep - 21 Jan - 22 May - 22 Sep - 22 Jan - 23 May - 23 Sep - 23 Jan - 24 May - 24 Feb -23 Sep -22 Oct -19 Nov -21 Jun -21 Jul -23 May -19 May -24 Dec -18 Mar -20 Aug -20 Apr -22 Dec -23 Jan -21 365 days Tbill rate Interbank rate Monetary policy rate Credit to the private sector Net credit to government Broad money 12 month savings rate Maximum lending rate Source: Bank of Sierra Leone 14 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook the costs associated with the redenomination of the Financial sector currency in July 2022; (ii) a notable decrease in foreign The financial sector appears stable but with significant currency inflows but higher outflows, which reduced the risks. BSL’s foreign exchange reserves; and (iii) the BSL’s foreign currency-indexed obligations that further strained its The financial sector is dominated by commercial banks, financial position. but other financial institutions play a crucial role in financial intermediation. The asset base of the banking Currency depreciation slowed during 2023 and showed system expanded by 33 percent during 2023, to reach relative stability since the second half of the year. The 23 percent of GDP, with commercial banks accounting New Leone depreciated by 18 percent in 2023, compared for 95 percent of the total assets of the banking system to 40 percent in 2022, stabilizing at NLe22 per US$ since (or 22 percent of GDP) (Figure 27). The increase in the September 2023 (Figure 26). The sharp depreciation of the asset base came largely from customer deposits and Leone coincided with the redenomination announcement shareholder funds (due to an increase in paid-up capital in August 2021. This stronger performance was due to and retained profits). Commercial bank assets are highly reduced import demand, increased remittance inflows, concentrated in government securities, which are and tighter fiscal and monetary policies. In 2023, the considered zero risk and do not require provisioning BSL took steps to stabilize the currency by removing even if the investments are rolled over upon maturity, administrative barriers in the foreign exchange market, while loans to the private sector are considered high amending the BSL Act to allow the use of other currencies risk. The limited development of the financial system for specific transactions, permitting foreign currency in Sierra Leone makes government securities very lending by commercial banks, and restricting offshore attractive, but private sector lending is crowded out. In brokers from using non-BSL reference rates. Additionally, such an environment, other financial institutions play dollarization slowed, with foreign currency deposits a key role despite their insignificant share of the total growing by 40 percent in 2023 compared to 105 percent banking assets (at 1 percent of GDP).10 They provide in 2022, indicating renewed confidence in the Leone. critical financial intermediation in the form of loans to However, the spread between official and parallel micro, small and medium enterprises, although often at exchange rates widened to 3.9 percent from 0.5 percent higher lending rates because of their high cost of funds in 2022, although volatility decreased due to the BSL’s (Figure 28). stabilizing actions, enhancing predictability and reducing speculative behavior (Figure 26). The pace of depreciation against the US dollar slowed in 2023, but the spread between the parallel and official exchange rates widened slightly. FIGURE 25: Exchange rate developments (% change in US$/NLe), FIGURE 26: Monetary policy rate, Inflation, and exchange rates (in % January 2018-July 2023 and NLe/US$), January 2018-August 2024 5 65 30 0 -5 55 25 -10 45 -15 20 Percent -20 35 -25 15 25 -30 -35 15 10 BSL -40 redenomination announcement 5 5 -45 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22 Jul-23 Jul-24 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 -50 May -18 May -19 May -20 May -21 May -22 May -23 May -24 Sep -18 Sep -19 Sep -20 Sep -21 Sep -22 Sep -23 Jan -18 Jan -19 Jan -20 Jan -21 Jan -22 Jan -23 Jan -24 In ation rate Leone/USD (o cial), rhs Leone/USD(Parallel) rhs Source: Bank of Sierra Leone and World Bank staff estimates. 10 Other financial institutions include community banks, discount houses, credit- only microfinance institutions, and deposit-taking microfinance institutions. Sierra Leone Economic Update • October 2024 15 Recent Economic Developments and Outlook Commercial banks dominate assets of the banking system. FIGURE 27: Asset base of the banking system (NLe millions), FIGURE 28: Other financial institutions asset base (NLe millions), 2018-2023 2018-2023 35,000,000 1,800,000 1,600,000 30,000,000 1,400,000 25,000,000 1,200,000 20,000,000 1,000,000 15,000,000 800,000 600,000 10,000,000 400,000 5,000,000 200,000 0 0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Other nancial institutions Commercial banks Total resource base DH Community banks DTMFI COMFI OFI resource base Notes: Other financial institutions include community banks, discount houses, credit-only microfinance institutions, and deposit-taking microfinance institutions. Source: Bank of Sierra Leone and World Bank staff estimates Banks are assessed to be generally well-capitalized (compared to 12.1 percent in 2022) and below the and liquid, except for a single domestic bank that regulatory limit of 10 percent, with non-performing loans faces persistent solvency challenges. Banking sector concentrated in the commerce and finance sector (Figure performance improved during 2023 as capital, liquidity, 30). On the other hand, for other financial institutions, non- asset quality and profitability indicators improved. The performing loans improved from 13.5 percent in 2022 to banking system remains well-capitalized and liquid as 11.6 percent in 2023 but remained above the regulatory the capital adequacy ratio of 42 percent (35 percent in limit of 4.8 percent. These improvements in asset quality 2022) and liquidity ratio of 77 percent (78 percent in are supported by BSL directives to banks to write off non- 2022) stood above regulatory requirements of 15 percent performing loans and enhance corporate governance and 20 percent, respectively. However, these ratios are frameworks and reflect banks’ successful recoveries of bad largely supported by bank holdings of zero-risk-weighted debts and improvement in credit risk management. government securities which accounted for about 40 percent of bank financial assets compared to just 12 The strong performance in the banking sector percent for domestic credit to the private sector. Banks continued in 2024 but sovereign risk persists with are assessed to be profitable as both return on asset and modest improvement in private sector credit. As of return on equity improved markedly in 2023. However, June 2024, the capital adequacy and liquidity ratio of the one domestic private bank has continued to face solvency commercial banks were estimated at 45.4 percent, and challenges due to write-offs of high non-performing the liquidity ratio is estimated at 75 percent respectively assets and increased capital requirements, with a capital – both well-above the regulatory requirement of 15 adequacy ratio of negative 73.8 percent. and 20 percent. These ratios continue to be supported in large measure by the banks’ holdings of short-term An improvement in the credit portfolio followed an government T-bills which continue to pose a huge improvement in asset quality within the banking sovereign-bank risk to the sector. Credit to the private system. Total credit within the banking system grew by sector as a share of total asset improved during Q2 2024 28 percent (year-on-year) and is concentrated within and account for 15 percent of total assets, compared to the services and commerce and finance sectors (Figure 13 percent as of December 2023, and has improved by 35 29). Credit quality improved as commercial bank non- percent (year-on year) as of July 2024 as non-performing performing loans declined to single digits at 9 percent loans remain below the regulatory threshold (10 percent) of the loan portfolio for the first time in over a decade at 7.8 percent. 16 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook As global growth slows, emerging markets and Sub-Saharan Africa continue to expand. FIGURE 29: Composition of private credit by economic sector (NLe FIGURE 30: Composition of commercial bank non-performing loans millions), 2018-2023 by economic sector (shares in %), 2018-2023 4,500,000 120 4,000,000 3,500,000 100 3,000,000 80 2,500,000 60 2,000,000 1,500,000 40 1,000,000 20 500,000 0 0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Agriculture Manufacturing Construction Agriculture Manufacturing Construction Commerce & nance Services Others Commerce & nance Other services Others Source: Bank of Sierra Leone and World Bank staff estimates Outlook, Risks, and Policies Chinese property market.11 However, global fuel and food prices have been moderating in 2024 and should improve Near and medium-term economic outlook Sierra Leone’s terms of trade (Table 2). Growth is expected to recover amidst growing macroeconomic stability. Agriculture and mining will buoy economic recovery in the medium-term. Government’s prioritization of the Economic prospects are mixed and contingent on agricultural sector through the ‘Feed Salone’ program will ongoing reforms and external developments. Economic accelerate agriculture reforms, strengthen value chains, growth is projected to moderate to 4.3 percent in 2024 and enhance private sector participation in the sector. before gradually recovering and converging to its long- Agricultural GDP is expected to grow by 3 percent in 2024 run potential average of 4.7 percent in the medium term. and over the medium term as fertilizer prices moderate The slowdown in 2024 is due to falling iron ore prices further following a 35 percent decline in 2023. Plans to which may impact iron ore production and export. The improve irrigation across identified ecological zones, recovery in the medium term is expected to be supported improve access to markets, and connect farms to the by: (i) continued efforts to restore macroeconomic stability power grid will support agribusiness development across and contain inflation through fiscal and monetary policy the value chain and enhance private sector led investment. tightening; (ii) continued expansion of iron-ore mining The BSL’s Agricultural Credit Facility is expected to improve operations; and (iii) some modest easing of inflationary access to credit and support the purchase of farm inputs pressures and an improvement in purchasing power of and other services. The mining sector will continue to households; and (iv) improved agricultural productivity face muted global prices for metals and precious minerals supported by efforts on the government’s flagship ‘Feed until Chinese demand picks up. Mining output and Salone’ program. Private investments will slightly improve exports are expected to improve in the medium-term as global financial conditions continue to improve following expansions at both the Kingho and Marampa following the easing of a tighter monetary policy stance mines. The Marampa iron ore mines reopened in 2021 in advanced economies. However, public investments under a 15-year mining license and began an expansion are expected to be muted in 2024 (before recovering in project to boost output to 7 million tons per year by 2025. 2026) as part of ongoing fiscal consolidation. The external Additionally, the deep underground diamond mining position remains uncertain, especially given the ongoing at both Koidu Holdings and Meya Mines will ramp up slump in China’s economy and low growth forecasts diamond production and exports.12 for most advanced economies. Global prices for Sierra Leone’s dominant export (iron ore) has slumped during 11 World Bank, 2024 Commodity Markets Outlook. 2024, down by 23 percent by August 2024 as recovery 12 Meya Mines recently discovered a 391.45 carat Type II diamond, which was originally part of a larger rough stone weighing 514.99 carats, broken into three in steel demand is delayed following the slowdown in pieces during the mining process. This discovery is the second largest discovery at the mines following a 523.44-carat Type IIa diamond discovered during 2017. Sierra Leone Economic Update • October 2024 17 Recent Economic Developments and Outlook Domestic inflation will ease gradually as inflationary mobilization will be anchored around revenue and pressures moderate globally and the depreciation of the administrative measures identified from the Medium- Leone continues to slow. In the medium-term, inflation Term Revenue Strategy and implemented through will recede but will remain in double digits, as global subsequent Finance Acts. Implementing these measures prices moderate, and the Leone shows relative strength. and strengthening tax administration and compliance Trends in global commodity prices (especially for food will support revenue performance in the medium and energy) will remain a key factor influencing domestic term. Expenditure rationalization will be supported by: headline inflation which is projected to decelerate to 12.6 (i) a decline in wages as a share of GDP through the percent on average by 2026. implementation of the wage bill management strategy, (ii) implementation of the revised arrears clearance strategy Fiscal consolidation through improved revenue (2023-2026); (iii) limiting subsidy transfers to EDSA; and mobilization and spending rationalization would (iv) strengthening public financial management and support macro-stability in the medium-term. Following cash management to enhance budget execution. These spending slippages in recent years, fiscal consolidation corrective measures and others will be needed to reduce efforts will necessitate strong and intentional corrective the fiscal deficit by 3.6 percentage points to 1.3 percent measures on both revenue and expenditures. Revenue by 2026. Table 2: Economic outlook for Sierra Leone 2021 2022 2023 2024 e 2025 f 2026 f Real GDP growth, at constant market prices 5.9 5.3 5.7 4.3 4.7 4.7 Private consumption 5.8 7.4 1.8 4.4 4.7 4.9 Government consumption 3.2 -0.7 0.5 2.8 2.8 4.9 Gross fixed capital investment 2.4 22.2 12.8 15.3 16.8 17.8 Exports, goods and services 69.8 9.0 7.0 6.8 7.3 7.3 Imports, goods and services 24.0 15.8 9.3 12.5 13.5 14.9 Real GDP growth, at constant factor prices 5.9 5.3 5.7 4.3 4.7 4.7 Agriculture 2.2 3.0 2.4 2.4 3.0 3.0 Industry 8.0 9.9 14.4 7.0 7.1 7.1 Services 8.2 5.4 4.7 4.5 4.8 4.9 Inflation (consumer price index) 11.8 27.0 46.7 30.5 20.0 12.6 Current account balance (% of GDP) -5.0 -5.4 -5.1 -4.3 -4.1 -4.0 Net foreign direct investment inflow (% of GDP) 4.9 4.7 3.1 5.0 6.1 8.4 Fiscal balance (% of GDP) -3.9 -5.3 -4.9 -3.2 -2.2 -1.3 Revenues (% of GDP) 12.4 10.9 10.4 11.7 12.6 13.4 Debt (% of GDP) 48.6 53.5 46.2 43.1 41.5 38.3 Primary balance (% of GDP) -2.2 -3.5 -2.5 -0.9 -0.2 0.4 International poverty rate ($2.15 in 2017 PPP) a,b 25.1 24.2 23.2 22.7 22.0 21.3 Lower middle-income poverty rate ($3.65 in 2017 PPP) a,b 63.5 62.7 61.8 61.3 60.6 60.0 Upper middle-income poverty rate ($6.85 in 2017 PPP) a,b 89.6 89.2 88.8 88.6 88.3 88.0 GHG emissions growth (mtCO2e) 8.1 3.2 1.6 1.6 1.7 1.8 Energy related GHG emissions (% of total) 10.7 10.4 10.3 10.3 10.4 10.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty data are expressed in 2017 PPP, versus 2011 PPP in previous editions - resulting in major changes. See pip.worldbank.org (a) Calculations based on 2011-SLIHS and 2018-SLIHS. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. (b) Projection using point-to-point elasticity (2011-2018) with pass-through = 0.4 based on GDP per capita in constant LCU. 18 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook Risks to debt sustainability will remain elevated until the import of essential commodities. However, muted fiscal balances improve further and the reliance on growth in advanced economies and especially in China expensive and short-term domestic borrowings can will hamper export prospects for major commodities (iron, be addressed through the lengthening of maturities rutile, diamonds). The current account deficit is expected and greater access to concessional borrowings. During to contract to 4 percent of GDP by 2026 as external inflows 2023, public debt is estimated at 46.2 percent of GDP and like foreign direct investment pick up. External debt is expected to moderate further in the medium term as service will continue to elevate external financing needs, fiscal tightening continues and macroeconomic stability but foreign reserves are expected to improve to three is restored. The government’s new Medium Term Debt months of imports cover, although remaining below four Strategy 2023-2027 proposed lengthening maturities months of imports cover, leaving the external position at and developing the domestic debt market. The Medium- risk of unexpected shocks. Term Revenue Strategy targets improvement in revenue generation by 2027, which would reduce domestic The pace of poverty reduction is projected to accelerate borrowing, improve solvency indicators and reduce fiscal as inflation eases in the medium-term. Although dominance and government appetite for borrowing in persistent inflation has weakened consumers’ purchasing the domestic market. power, poverty estimates suggest a gradual decline as inflation moderates. The poverty rate, measured using The external position is projected to improve but the international poverty line of US$2.15 per person per will remain in deficit in the near and medium term. day (2017 PPP), is expected to fall to 21.3 percent by Strong export performance will be supported by 2026. Moderating inflationary pressures, driven by lower reforms in the mining sector and expansions at Kingho global food and energy prices and improved agricultural and Marampa and developments at the Sembehun productivity, should help alleviate food insecurity and rutile mine. Improvements in domestic production and restore household purchasing power. Strengthening manufacturing and the slowdown in food and energy linkages between the mining sector and others, prices are expected to suppress the import bill in the particularly services, will further enhance the positive medium term as domestic rice production improves and spillover effects on households. value addition across the agricultural value chain limits Sierra Leone Economic Update • October 2024 19 Recent Economic Developments and Outlook Risks to the outlook in the primary auction--would be inflationary. While Multiple external and internal factors pose risks to Sierra global conditions and currency depreciation continue Leone’s economy. to have significant influence on domestic prices, fiscal expansions have often been inflationary as the increase Risks to the outlook for the Sierra Leonean economy are in net credit to the government through the banking shaped by both external and domestic developments. system increases the amount of currency in circulation Geopolitical uncertainties around the war in Gaza and and crowds out private sector investment needed the ongoing war in Ukraine could reverse the slowdown to support growth. Instead, strengthened domestic in energy and agricultural prices if supply chains are revenue mobilization and additional grants resources disrupted, especially along the Red Sea. Developments can serve to reduce government’s reliance on external in emerging market and developing economies, notably and domestic debt. China, will continue to influence the prices of commodities such as iron ore. On the domestic front, the degree of Following the attempted coup in November 2023, the political stability following the attempted coup in 2023 risk of political and social instability remains high while will influence reform appetite and the effectiveness of a continued cost-of-living crisis may risk social unrest. the government’s economic policy programs to restore An unsuccessful coup plot following a highly contested macroeconomic stability and deliver on medium to election in June 2023 proved costly and worsened long term plans in the face of global uncertainties. socio-political instability across the country. The coup Any deviation from fiscal consolidation will jeopardize attempt led to overruns on the goods and services efforts to restore macroeconomic stability. To cushion budget with higher than budgeted security spending against external vulnerabilities and build resilience, the to restore stability and undermined efforts on domestic government would need to build up foreign reserves to revenue mobilization. Worsening food insecurity may protect against future shocks. lead to widespread social dissatisfaction, which could result in similar protests to those observed in August The energy sector presents a significant fiscal risk to 2022, which would negatively impact the business and the national budget, diverting critical resources away investment environment and most likely require increased from essential social spending. Delays in implementing contingency spending on security. key tax policy reforms, coupled with weak enforcement of existing tax measures and poor public financial Climatic and health risks will continue to pose a management practices, further threaten the fiscal outlook. significant threat to the economy. Sierra Leone In particular, the energy distribution sector, driven by the is increasingly vulnerable to climatic shocks from poor performance of EDSA, poses a substantial risk. The extreme and unpredictable weather conditions. Rising continued accumulation of arrears to IPPs is straining temperatures and erratic rainfall have proved challenging government finances, necessitating the diversion of for the agriculture sector through disruptions to planting resources towards sustaining energy provision, thereby and harvest seasons. Predominantly unplanned city undermining fiscal sustainability and social investment. expansions have led to the cutting down of trees and removal of mangroves across the Freetown peninsular, Monetary expansion through the central bank’s resulting in severe and deadly flooding and landslides. secondary market interventions to finance the In addition, the country’s health system remains fragile, deficit would scupper efforts to rein in inflation and with limited resources and infrastructure, making it ill- crowd out private sector investment. An expansion prepared to cope with large-scale disease outbreaks. The in base money growth--as a result of BSL’s purchase of recently established National Public Health Agency is government securities through the secondary market expected to support the country in its response to health to provide liquidity for commercial banks to participate emergencies. 20 Sierra Leone Economic Update • October 2024 Recent Economic Developments and Outlook Policy priorities Institution Action Description Timeline Impact Responsible Continue fiscal consolidation to Ministry of Medium- Restores macroeconomic support macroeconomic stability Finance term (1-3 stability, protects vulnerable Fiscal Consolidation while protecting social spending years) households, and supports on education, healthcare, and social long-term growth. safety nets. Enhance domestic revenue collection Ministry of Immediate Increases fiscal space, Improved by implementing outstanding Finance, to improves revenue Domestic Revenue measures in the 2023 and 2024 National medium- generation, and supports Mobilization Finance Acts and strengthening tax Revenue term public investments and compliance. Authority debt management. Strengthen expenditure controls, Ministry of Immediate Minimizes fiscal risks, Expenditure Controls improve budget preparation, and Finance, to improves budget credibility, & Budget Discipline ensure proper execution to prevent MDAs medium- and enhances fiscal budget overruns. term discipline across MDAs. Improve EDSA’s revenue collection, Ministry of Immediate Reduces energy sector address technical/commercial losses, Energy, EDSA to arrears and ensures financial Energy Sector and install Advanced Metering medium- sustainability, lessening the Reform InfrastructureAMI meters to reduce term fiscal burden. fiscal risks. Continue reliance on concessional Ministry of Medium- Reduces rollover risk, Debt Management financing and lengthen maturities Finance, term (1-3 manages debt service & Lengthening Maturities to reduce debt vulnerabilities and Central Bank years) burden, improves fiscal manage liquidity risks. sustainability. Implement a medium-term wage Ministry of Medium- Reduces wage pressure to Wage Bill bill management strategy and Finance term (1-3 target levels, creating fiscal Management operationalize the Wages and Salaries years) space for other priorities. Compensation Commission. Improve EDSA’s revenue collection, Ministry of Immediate Reduces energy sector Energy Sector address technical/commercial Energy, EDSA to arrears and ensures financial Reform losses, and install AMI meters to medium- sustainability, lessening the reduce fiscal risks. term fiscal burden. Adjust monetary policy rate to combat Central Bank Immediate Controls inflation, stabilizses Monetary Policy inflation and prevent a currency- to the exchange rate, and Tightening inflation spiral. medium- protects reserves. term Take immediate steps to rebuild Central Bank, Immediate Strengthens reserves, Improve Reserves international reserves, including Ministry of to mitigates external shocks, Position tightening monetary policy, reducing Trade medium- and improves the country’s imports, and promoting exports. term balance of payments. Improve PFM practices, including Ministry of Immediate Enhances budget Public Financial linking quarterly budget allocations to Finance, to credibility, improves cash Management (PFM) Reforms revenue performance and rolling out Accountant medium- management, and reduces IFMIS across all MDAs. General term arrears accumulation. Implement a credible arrears clearance Ministry of Immediate Restores budget credibility Arrears Clearance strategy and strengthen the Expanded Finance and reduces accumulation Strategy Cash and Debt Management of new arrears. Committee. Sierra Leone Economic Update • October 2024 21 Recent Economic Developments and Outlook Institution Action Description Timeline Impact Responsible Use wholesale currency auctions Central Bank Immediate Minimizes depletion of only in exceptional cases to support reserves, maintains currency Currency the currency, ensuring clear stability. Management communication to avoid excessive reserve use. Scale up safety nets linked to Ministry Immediate Protects vulnerable productive activities (farming, fishing) of Social to short- households, mitigates food Targeted Social and social programmes (school Welfare, term insecurity, and improves Safety Nets feeding, maternal health). Education education and healthcare access. Do a mapping of school feeding Ministry Immediate Reduces malnutrition intervention and expand school of Health, to short- and , maternal and infant School Feeding & feeding for primary schools. Enhance Ministry of term mortality, and improves Healthcare and enhance healthcare delivery by Education educational outcomes. strengthening health systems and governance. Implement reforestation programmes, Ministry of Immediate Mitigates climate-related restore mangrove ecosystems, and Environment, to long- risks, prevents severe Addressing enforce urban planning regulations Ministry term flooding and landslides, Climate Risk to reduce flooding, landslides, and of Lands & improves environmental environmental degradation. Housing sustainability. Reduce reliance on government Central Bank, Immediate Reduces sovereign-bank securities by encouraging banks to Ministry of to risk, mitigates rollover risk, diversify their portfolios and introduce Finance medium- lowers interest costs, and Address the regulatory limits on government term increases credit to the Sovereign-Bank security holdings. Facilitate measures private sector. Nexus & Improve Private Sector Credit to lower interest rates on government securities to reduce fiscal dominance and encourage lending to the private sector. Strengthen coordination between Central Bank, Medium- Improves monetary policy the Central Bank and the Ministry of Ministry of term (1-3 transmission, deepens Debt Market Finance for liquidity management and Finance years) financial markets, and Development develop a deeper financial market. enhances economic stability. Address structural constraints in Government Long-term Supports sustainable natural resource management, public of Sierra (3+ years) growth, attracts foreign Structural Reforms sector governance, and inclusiveness Leone direct investmentFDI, and to promote long-term development. improves governance and accountability. Improve the business investment Ministry Long-term Increases investment Foreign Direct landscape to attract FDI, enhancing of Trade, (3+ years) inflows, supports Investment (FDI) economic diversification and Ministry of diversification, and fosters Attraction resilience. Finance long-term economic growth. 22 Sierra Leone Economic Update • October 2024 PART TWO UNLOCKING THE POTENTIAL OF THE POWER SECTOR IN SIERRA LEONE BREAKING THE CRISIS CIRCLE Breaking the Crisis Circle Introduction Unbundling of Sierra Leone’s power sector was Most Sierra Leoneans lack access to electricity, despite launched in 2011 to improve its ability to provide unbundling of the sector to improve performance. electricity to the country. Prior to unbundling, the power sector had a single vertically integrated national utility, A pproximately one-third of the population in Sierra Leone has access to electricity, including both grid access and off-grid solutions. Just 21 percent of the Sierra the National Power Authority (NPA), that was established by the National Power Authority Act of 1982. The National Electricity Act of 2011 repealed the previous law and Leonean population has access to electricity through the unbundled the NPA into two state-owned enterprises grid, while about 15 percent access electricity through and allowed the private sector to generate electricity.14 off-grid solutions, predominantly through solar products The NPA was split into: (i) the Electricity Generation such as solar lanterns, solar home systems, and solar and Transmission Company (EGTC) responsible for lighting systems (Figure 31, Box 5).13 Geographic location power generation and transmission at high voltage and economic well-being are found to be significant levels at 66 kilovolts and above; and (ii) the Electricity determinants of access with 44.7 percent of the urban Distribution and Supply Authority (EDSA) to oversee the population connected to the grid while 81.3 percent distribution network at lower voltages and responsible of the rural population have no access to any form of for sale of electricity to end users. The transition from electricity. The main grid covers the urban centers of NPA took a long time, and the two utilities became Freetown, Makeni, Magburaka, Kono, Kenema, and Bo, fully functional in January 2015. The Electricity and with other centers such as Portloko, Lungi, and Lunsar Water Regulatory Commission (EWRC), created by being run as isolated grids by EDSA. Out of the seven the Electricity and Water Regulatory Commission Act district headquarter towns, four (Moyamba, Pujehun, 2011 and commissioned in 2014, has the mandate to Kailahun and Bonthe) have diesel generators with some independently regulate the sector. The Ministry of households connected via a distribution network. Sierra Energy (MoE) oversees the sector by providing sector Leone also has a growing off grid sector connective policy formulation, sector planning, and coordination. people at a rapid pace (see Box 5). EDSA has the mandate for trading power and serves as Access to electricity, both grid and off-grid, remains low outside of the offtaker (or purchaser) for all electricity purchased Freetown and other urban areas. from EGTC and independent power producers (IPPs) FIGURE 31: Access to electricity, grid and off-grid, by region (% of households) under power purchase agreements approved by EWRC. 100 EWRC determines electricity tariffs and carries out 90 regular tariff reviews in line with the provisions of the 80 2011 Act. 70 60 Electricity Sector Performance 50 40 Generation 30 Over reliance on heavy fuel oil in the power generation mix 20 has led to high power purchase costs. 10 0 Grid Access O -grid access No Access Sierra Leone currently has three main sources of Urban Rural National power generation, with the largest share coming Source: Multi-Tier Framework for Energy Access survey. from liquid fuels. Overall, Sierra Leone has about 240 megawatts (MW) of installed capacity--the maximum that can be generated if all power plants are functional at full capacity. However, due to poor maintenance, According to a survey released in 2024 conducted under the Multi-Tier 13 Framework for Energy Access, an initiative launched by the Energy Sector Management Assistance Program of the World Bank. The initiative redefines energy access “as the ability to obtain energy that is adequate, available when needed, reliable, of good quality, affordable, legal, convenient, healthy, and safe for all required energy applications across households, productive enterprises, 14 National Electricity Act 2011, Supplement to the Sierra Leone Gazette CXLII, No. and community institutions.” 62, dated September 22, 2011. 24 Sierra Leone Economic Update • October 2024 Breaking the Crisis Circle Distributed Renewable Energy (DRE) solutions such as mini-grids and solar home systems have potential to expand rural access to electricity Box 5 Sierra Leone’s mini-grid and off-grid programs The mini-grid program in Sierra Leone is relatively large, providing electricity to about 0.6 percent of the population. To date, there are 104 mini grids in Sierra Leone. The EWRC issued its mini-grid regulations in 2019 based on a cost-reflective tariff approach, kicking off the mini-grid market in the country. Since then, several programs, supported by development institutions, such as the Rural Renewable Energy Project, Enhancing Sierra Leone Energy Access Project, and the Universal Energy Facility, among others, have supported the roll out of about 95 mini-grids. These mini-grids, operated by the private sector, have a capacity of about 5 megawatts with an estimated 15,000 connections. The EWRC-approved tariffs for these mini-grids range from US$0.32 per kilowatt-hour to US$0.35. With 80 percent of the rural population not connected to electricity, mini-grids and off-grid solutions are at the forefront of increasing access in the country. While grid related expansion of electricity has been slow, the off-grid solar sector has expanded steadily in the past few years. The MTF report shows that 14.7 percent of the population (or about 1.2 million people) is using off grid solutions such as solar home systems, or solar lighting systems and solar lanterns. The government’s decision to provide tax exceptions to VeraSol-certified products in 2014 has led to a boom in the sector. With GIS-based least-cost access analysis showing that nearly 26.3 percent of the population will have to be connected using off grid solar solutions, the sector is set to play a large role in the coming years. Development partners are supporting the government in deploying mini grid and off grid solutions using result-based financing or energy as a service model. Source: World Bank, Mini Grid Deployment in Sierra Leone, 2022. non-availability of spare parts, and seasonal variation in MW and transmission service agreement of 27 MW. There water levels, a large part of this capacity is never available is also generation from solar IPPs amounting to 10 MW. for generation. With all the constraints mentioned, the Apart from these sources, EGTC has 40 MW of HFO units total available generation capacity is about 140 MW in that are either not operating or working intermittently the wet season and only about 100 MW or even lower due to poor maintenance, a lack of spare parts, and lack in the dry season depending on how much generation of funds for fuel supply. capacity EDSA is willing to buy from the heavy fuel oil- fueled plant owned by the IPP, Karpowership (KPS). Heavy fuel oil generation provides the largest share This capacity is not enough to meet peak demand that of electricity and is the costliest among all of EDSA’s already exceeds 100 MW, with no reserve margin--the power purchases, pushing up overall costs for the gap between peak demand and available capacity. The sector. In 2023, EDSA’s power purchases to supply Sierra three main sources of power supply in Sierra Leone Leone’s grid included 35 percent from HFO-based IPPs, today are: (i) Bumbuna hydro power plant (5 to 50 MW, 33 percent from the Bumbuna hydropower plant, and depending on dry or wet season) which is owned by the 31 percent from imports from the Cote D’Ivoire-based government; (ii) an independent power producer (IPP) Compagnie Ivoirienne d’Electricite (Ivorian Electricity liquid fuel-based generation plant (using heavy fuel oils, Company) through the CLSG interconnector (Figure HFO) owned by KPS, (20 and 65 MW for wet and dry 32). These generation sources had greatly varying costs: seasons, respectively); and (iii) the Côte d’Ivoire, Liberia, HFO-based IPPs are more than twice as expensive as the Sierra Leone and Guinea (CLSG) regional transmission imports from Cote D’Ivoire, which utilize cheaper sources line with an initial power purchase agreement (PPA) of 10 of fuels such as hydro and natural gas (Figure 33). Sierra Leone Economic Update • October 2024 25 Breaking the Crisis Circle Sierra Leone’s power supply sources have sharply varying costs. FIGURE 32: Contribution of power supply sources (shares in %) FIGURE 33: Tariff and average power purchase costs by supply source (US$/kWh) Others, 1% Tari $0.22 Imports, 31% HFO, 35% Imports $0.12 HFO EPP $0.25 EGTC $0.05 Hydro, 33% Note: kWh is kilowatt hour. Source: Electricity Distribution and Supply Authority (EDSA) and World Bank staff estimates Transmission and distribution network operation practices. In 2022, the year for which Transmission is severely limited, and distribution is the latest data is available, EDSA recorded 18,231 electricity unreliable and expensive. supply interruptions, with increasing frequency since 2019 but with declining duration (Figure 34). Only two Sierra Leone’s transmission network is severely out of 10 households have access to four or more hours constrained in its capacity and reach to transport of electricity supply.15 Over 60 percent of firms reported electricity from generation sites to areas of demand. experiencing at least four outages of up to nine hours in a There is only one single circuit 161 kilovolt line that month.16 Given the existing power supply constraints, let serves as the main feed from the Bumbuna hydro plant alone future demand, both households and enterprises (including imports) to Makeni, Magburuka and the capital have resorted to alternate means of power supply such city, Freetown. The CLSG 225 kilovolt regional transmission as diesel generators, which carry a heavy financial burden. interconnection line that supplies power imports into Nearly 62 percent of firms in Sierra Leone own generators, the country serves as the only feed to the urban centers accounting for over a quarter of their power supply usage. of Kono, Kenema and Bo located in the southeastern Those who have access to the grid experience unreliable supply. side of the country. With a peak demand of about 100 FIGURE 34: Interruptions to electricity provision (indices and MW, Freetown is the major load center in the country. number in ‘000), 2019-2022 However, due to design limitations on the 161 kilovolt 35 25 transmission line leading to voltage drop along the route 30 20 Average interruptions ('000) length, the line is unable to evacuate at full capacity. There 25 is an urgent need to address the power transmission 15 SAIDI, SAIFI 20 bottlenecks to Freetown for the country to benefit from cheaper power imports and to reduce reliance on heavy- 15 10 fuel-oil power supply, thereby reducing the average cost 10 5 of supply. 5 0 0 Households and firms who have access are faced with 2019 2020 2021 2022 unreliable electricity coupled with high end user tariffs. SAIDI SAIFI Average Interruptions EDSA has about 320,000 electricity consumers connected Notes: SAIDI- System Average Interruption Duration Index and SAIFI- System Average to its distribution network. The distribution network is Interruption Frequency Index are used to measure the duration and frequency of interruptions. faced with multiple challenges which include over-loaded Source: EDSA networks (lines and transformers), aged infrastructure, poor maintenance practices, and the lack of advanced 15 Multi-Tier Framework for Energy Access survey. 16 World Bank Enterprise Survey, 2023. 26 Sierra Leone Economic Update • October 2024 Breaking the Crisis Circle Financial performance customers, and other inefficiencies (i.e., sporadic billing Technical struggles are compounded by the inability to cycles). In addition, of the 344.5 gigawatt hours of collect revenues. electricity billed, translating into NLe1.27 billion, EDSA was able to collect only NLe1.018 billion, representing a Inefficiencies across the electricity sector value chain collection loss of about 20 percent. Overall, EDSA is unable have played a big role in the deterioration of sector to earn revenues on 60 percent of its power purchases. finances. Installed capacity is not available. Billing falls well short of electricity supplied, and collections fall further short. This cascade of inefficiencies contributes to Since 2019, EDSA has been loss making and has never poor financial performance of the power sector. been able to cover even its power purchase costs, let alone the operations and maintenance costs of the Most of the installed generation capacity is not network. This situation is mainly because the cost of available to supply electricity. Despite having installed power purchases outstrips the revenue generated by capacity of about 200 MW, on average only 80 MW is EDSA, further aggravated by the impact of local currency available for supply (Figure 35). This situation is attributed depreciation on the cost of power that is contracted in US to: (i) seasonal variability, such as dry season capacity of dollars. Given the high technical and commercial losses Bumbuna hydro power plant; (ii) the lack of maintenance as well as collection losses, it is not surprising that EDSA and spare parts for the diesel generator sets owned is struggling financially. EDSA’s income statement reveals by EGTC (leaving about 44 MW unutilized), and (iii) negative gross income. Revenues covered around 75 transmission constraints to be able to evacuate power to percent of the cost of energy for financial years 2019 and major load centers in Sierra Leone. 2020 but only 50 percent in 2021 and 2022. EDSA’s lack of liquidity contributed to deteriorating EDSA liabilities, as EDSA receives revenues from only four out of every ten accounts payables (what EDSA owes to its suppliers and units of electricity it purchases. In 2023, EDSA purchased creditors) reached NeL2.319 billion (equivalent to US$108.3 about 684 gigawatt hours (NLe2.1 billion) of electricity million) by the end of 2023 (Table 3). It is also important from EGTC, IPPs and from imports. However, EDSA was to note that the account receivables had accumulated to able to bill only 344.5 gigawatt hours, representing a NeL937.994 million (equivalent to US$43.8 million) by the 50 percent loss. This situation is due to technical and end of 2023 (Table 4), with receivables from government commercial losses related to theft, non-metering of institutions taking the largest share (49 percent). Failures at each stage of power sector delivery compound to undermine sector finances. FIGURE 35: Inefficiencies across the power sector value chain Source: Analysis is based on EDSA’s audited financial statements from 2019-2022. ! Sierra Leone Economic Update • October 2024 27 Breaking the Crisis Circle Table 3: EDSA trade payables, 2019-2023 Management Audited accounts NLE'000 accounts Dec 19 Dec 20 Dec 21 Dec 22 Dec 23 EGTC 338,774 460,628 573,955 618,871 600,130 Other local creditors 275,521 292,633 466,430 343,348 518,319 Taxes and other statutory obligations 35,001 53,734 82,074 85,298 260,558 Other payables 29,339 13,499 (490) 14,605 - Other trade payables/bank loans - - 87,331 481,889 940,237 Total 678,635 820,494 1,209,300 1,544,011 2,319,244 Source: EDSA audited financial statements the year ended 31 December 2019 to 31 December 2022, Management account for 2023 and Deloitte analysis Table 4: EDSA trade receivables, 2019-2023 Management Audited accounts NLE'000 accounts Dec 19 Dec 20 Dec 21 Dec 22 Dec 23 Gov't and Gov't institutions 205,336 98,090 239,194 368,639 454,087 Domestic customers 86,198 165,774 251,426 323,327 436,097 Prepaid receivables 11,428 5,126 4,505 - 21 Aggregators account - (690) 346 - (3,506) EDSA Sas - (993) (2,624) - - GST Output Tax - - - 33,415 Unreconciled difference (Casting error ) - - - (43,374) - Gross trade receivables 302,963 267,307 492,847 648,592 920,113 Allowance for impairment (39,297) (33,583) (33,583) (41,296) - Net trade receivables 263,665 233,724 459,264 607,296 920,113 Staff receivables 147 87 185 - (133) Other receivables 34,097 34,524 23,599 - 18,014 Balance at 31 December 297,910 268,335 483,048 607,296 937,994 Source: EDSA audited financial statements the year ended 31 December 2019 to 31 December 2022, Management account for 2023 and Deloitte analysis Fiscal Risk subsidies equaled 22 percent of revenues in 2019, they Upward tariff adjustments, after years of government reached 102 percent of revenues in 2022--admittedly subsidies, failed to reduce the fiscal risk posed by the power a year of particularly high fuel prices. During 2019 to sector. 2022, EDSA’s accounts show that the government To help absorb EDSA’s losses, the government has has provided over US$100 million in subsidies to the been contributing a high level of subsidies every year, distribution utility. In 2023, the government allocated representing considerable fiscal pressure. The level of US$38 million (0.6 percent of GDP) as subsidies for the subsidies ballooned to NLe708.3 million in 2022 (US$39.0 sector in its annual budget. Furthermore, subsidies are million), representing more than 6.5 times the level of expected to rise to US$61.3 million (1 percent of GDP) 2019 (NLe101.2 million, or US$11.0 million) (Table 5). While by end 2024. Table 5: Government subsidies to EDSA, 2019-2023 Audited accounts Audited Accounts NLE '000 FY19 FY20 FY21 FY22 FY23 Subsidies 101,230 144,718 201,939 708,343 814,905 Source: EDSA audited financial statements the year ended 31 December 2019 to 31 December 2022, Management accounts for 2023 and Deloitte analysis. 28 Sierra Leone Economic Update • October 2024 Breaking the Crisis Circle Despite government intermediate actions of increasing in this scenario are more than double the government’s end-user tariffs, providing subsidies for power purchase annual budget allocation for health and close to that for payments, and assuming EDSA debts, power sector education in 2023. Given the dire situation in the sector, arrears continue to accrue. Sierra Leone’s public electricity there is clearly a need for a comprehensive overhaul of tariffs were historically below cost recovery levels. Since EDSA’s operational and commercial performance to ensure the unbundling of the sector, tariffs for consumers were that the sector can finance itself and provide adequate adjusted first in December 2019 (12 percent increase) support to the country’s economic growth. and then in July 2022 (30 percent increase). The average tariff for customers was equivalent to US$0.22 per kilowatt Sector Turnaround - Setting the Sector on a hour (at an exchange rate of one US$1 to NLe11.569), Financially Sustainable Path which would be a cost recovery tariff if EDSA’s commercial Action Plan 2030 for recovery in the electricity sector and technical losses were close to 40 percent rather than Recognizing the urgency to address sector challenges, the actual 60 percent. Cost recovery further deteriorated the government adopted a Sector Recovery Plan in May as currency depreciation against the US dollar reduced 2020. The plan contains key reforms and a private sector the average tariff to about US$0.12 per kilowatt hour by participation agenda in the distribution value chain that January 2023, while IPP invoices remained denominated aims for cost recovery in the sector. The plan revolves in US dollars. The government stepped in to assist with around: (i) preparation of a least-cost development plan; paying EDSA power purchase invoices and assumed all (ii) implementation of an institutional policy aimed at debts to IPPs and CLSG accrued through October 2023 adopting competitive, transparent, and open procedures (about US$57 million). The government then more than for the procurement of electricity assets by state doubled the tariff in October 2023, back to US$0.22 per authorities; (iii) reduction of technical and commercial kilowatt hour in real terms, one of the highest electricity losses through investments in the network and adopting prices in the region, with the view that EDSA should be advanced metering infrastructure; (iv) improving access able to meet all its financial obligations going forward. to electricity for all customer categories, particularly However, from November 2023 to May 2024, EDSA has large industries, through adequate generation and accrued new arrears to IPPs of US$18.7 million. transmission/distribution grid capacity; and (v) promoting private sector participation to improve operational The enormous fiscal risk posed by ongoing power and management performance, with a strong focus on sector losses makes clear the urgency to improve EDSA’s customer service and reduction of commercial losses. operational and commercial performance. If EDSA’s losses Only limited progress on each of these areas has been remain at around 60 percent and Sierra Leone continues made.17 The US Millennium Challenge Corporation, as to rely mainly on HFO-fueled generation, then by 2030 part of its support to the Government of Sierra Leone, also the utility will face a cumulative loss of US$640 million developed an electricity sector reforms roadmap,18 that (Figure 36). The average annual losses (US$92 million) focuses on five strategic themes: (i) increased electricity Without reforms, EDSA will continue to run up losses. access; (ii) improved financial sustainability; (iii) improved FIGURE 36: EDSA’s projected cash flow, status quo scenario (US$ service delivery; (iv) enhanced institutional capacity; and millions), 2024-2030 (v) enhanced private sector participation 0 -20 Despite some progress, there is a need to accelerate -40 implementation of the Sector Recovery Plan to achieve key goals by 2030. The government has made significant -60 -71 -70 USD Mn -81 progress on electricity access, from 13.5 percent in 2013 -80 -94 -97 to 36 percent in 2023, and has also moved to rationalize -100 -107 tariffs in October 2023. However, there is a need to -122 -120 17 A least cost development plan was prepared in 2021. Competitive procurement procedures were prepared but not implemented, and all new generation -140 has been added via negotiated direct contracting. Advanced metering is in 2024 2025 2026 2027 2028 2029 2030 progress, but the focus needs to be on industrial customers. Improvements of the distribution network are underway. Promotion of private sector participation is under implementation but with delays. Note: Status quo scenario assumes EDSA losses of 60 percent and reliance on HFO generation. See discussion in text of assumptions for scenario. 18 Electricity Sector Reform Update 2023 - MCC Source: World Bank staff calculations Sierra Leone Economic Update • October 2024 29 Breaking the Crisis Circle implement specific actions in a time-bound manner Pillar 1. Green energy transition that would help the sector achieve two things by 2030: There is an urgent need to transition away from (i) reduce fiscal dependence of the power sector by expensive liquid fuel-based generation to improve reducing subsidies from 0.8 percent of GDP in 2023 to sector finances. In 2023, EDSA spent US$57 million less than 0.2 percent of GDP; and (ii) enable the sector to purchasing HFO-based power, with the per unit cost achieve universal access. Figure 37 lays out a schematic hitting US$0.36 per kilowatt hour in December 2023, an of the Action Plan, summarizing its three areas of action amount greater than all revenues EDSA generated. HFO (pillars) and a timeline to 2030. power purchases constitute the largest cost item for EDSA, partly because of the high cost of fuel in HFO generation Activities under Action Plan 2030 fall under three pillars: and partly because HFO generation was not contracted Pillar 1- Green Energy Transition: transitioning away from through competitive procurement. If EDSA was to meet expensive liquid fuel-based (HFO and diesel) generation all demand during 2024-2030 using cheaper imported to bring down costs and help meet power demand over electricity instead of liquid fuel-based generation, it would the long term. This pillar includes activities such as setting save a cumulative US$1.18 billion. up a payment plan for CLSG arrears and preparing and implementing a plan for transitioning out of liquid fuel- To transition away from HFO-based generation, there based generation; is a need to prepare a clear and realistic plan. The plan will allow government to understand its needs Pillar 2- Improving EDSA Performance: taking a low-cost and inform renegotiations of HFO generation contracts approach to reduce fiscal stress until a private sector partner or competitive procurement of other generation, comes on board and further improves EDSA performance. possibly clean energy, of 28 MW within the next 12 This pillar includes activities that will increase EDSA’s months. The government needs to put in place a clear billing and collections, improve its corporate governance, payment plan for arrears that includes setting up a and enhance energy and commercial management. collections account with a ‘waterfall’ mechanism for prioritizing payments. A payment plan will help build Pillar 3- Policy and Regulatory Framework: to provide credibility about government ability to pay for power a clear, transparent, and comprehensive policy and purchases on time, which is necessary to attract new regulatory framework to enhance sector viability IPPs. In the medium term, there is a need to improve the especially as the government attempts to attract private transmission backbone to facilitate more electricity trade, investment. The pillar will focus on aligning sector institutionalize least cost generation planning, ensure that policies and regulations to enable strategic private sector only competitive procurement is used for new generation, partnership at EDSA. and finally, negotiate power purchase agreements with Action Plan 2030 for the electricity sector lays out three pillars of action to achieve two key goals FIGURE 37: Action Plan 2030 schematic of pillars and timeline Source: World Bank and Government of Sierra Leone. ! 30 Sierra Leone Economic Update • October 2024 Breaking the Crisis Circle CLSG countries for more electricity imports. Expediting Then, EDSA should move to enforce that all commercial implementation of the World Bank-supported Regional and management operations are carried out through Emergency Solar Power Intervention Project (RESPITE) that the Management Information System which has been includes the construction of a 52 MW solar PV plant and operational since February 2023. Another critical step 28 MW battery storage will help provide much needed is to update the customer database regularly to ensure generation. RESPITE also supports improvements to the that EDSA has all its customers in the system and can bill existing 161 kilovolt transmission line to transport power them properly. Since 3000 of EDSA’s largest customers are from the CLSG interconnector to demand centers. responsible for over 40 percent of its revenues, installing tamper proof Advanced Metering Infrastructure meters There have been recent attempts to increase supply for the largest consumers and ensuring a dedicated by attracting new IPPs and increasing regional trade. meter control center for monitoring will go a long way The government recently announced that the US to improve collections. This should be followed by a International Development Finance Corporation has strategy to reduce theft and implemented with support approved financing for up to US$412 million (including from other government agencies. Another important US$120 million for risk insurance to attract the private step is to ensure that arrears due from MDAs to EDSA sector) for the proposed 140 MW Western Area Power are cleared and a collection mechanism is set up so that Generation Project. The proposed natural gas power MDAs pay their electricity bills on time, both to improve project is expected to come online in 2027 and replace EDSA’s finances but also to signal government intention HFO generation in the country. The government has also on timely payments of bills. EDSA is already trying to tried to increase power imports from Guinea and Cote connect large customers such as mining companies in a d’Ivoire using the CLSG line. These are positive and indeed bid to improve its collections. Finally, investments in the critical steps that are needed to move the country away 33 kilovolt and 11 kilovolt networks need to continue to from expensive and polluting HFO, however, their viability ensure that the grid can meet the growing demand in the depends on EDSA’s ability to pay for power purchases larger Freetown area. and hence requires a massive improvement in EDSA operations. Improving EDSA’s corporate governance is critical for introducing transparency and accountability in the Pillar 2. Improving EDSA performance. sector. Although corporate governance rules exist and The key to sector sustainability is improving EDSA’s are followed by EDSA, implementation is weak. The EDSA performance. As noted above, EDSA loses 50 percent Board’s composition is dictated by law, but no formal of its energy before billing, an unsustainable situation requirements have been set for qualifications or expertise for any business. On top of not being able to bill all the of Board members, apart from the Chairman of the Board. energy it provides; EDSA is not able to collect all the bills. Delays in nominations have left the Board incomplete for At the end of 2023, government institutions, ministries many months. In addition, no formal calendar for Board and departments owed EDSA NLe454 millions (US$21 meetings is set. The mandates of Board committees are million) for electricity. Every billing cycle, EDSA collect not defined in written documents, and their performance only 80 percent of billed amounts on average. EDSA has is not assessed. On financial reporting, EDSA does not taken some steps to improve its performance, such as make its financial statements public, and it does not implementing a Management Information System and publish an annual report. Implementing established improving its 33 kilovolt and 11 kilovolt networks as well corporate governance best practices such as appointing as constructing new substations. a professional board with clear roles and responsibilities and regular financial reporting are key to improving EDSA Relatively low cost actions can help improve EDSA performance. Moreover, clear qualification requirements performance by lowering losses and improving should be set out for senior EDSA management positions, collections. A first key step is to clarify EDSA’s operational and recruitment should be through a competitive process, and financial performance through a detailed audit. providing much needed technical expertise at the utility. Sierra Leone Economic Update • October 2024 31 Breaking the Crisis Circle Privatizing the operations of EDSA can foster Putting in place a transparent and reliable tariff-setting heightened efficiency, transparency, and performance. methodology is key to building investor confidence. An experienced and technically capable private sector The main issue about tariff reviews in Sierra Leone is the player could be effective in improving EDSA’s operational lack of clarity on what methodology or process is followed. and commercial performance, including reducing losses The EWRC has struggled to impose its control over the and increasing revenues over the medium to long term. sector, especially given its limited technical capacity The government is in the process of competitively and clear mandate over monitoring and enforcement recruiting such a private sector player. International of performance of sector entities. At present, the tariff- experience in India and elsewhere in Sub-Saharan Africa setting methodology is not clear nor public, and no set has shown that an operations concession or ‘Affermage procedure for adjustments or reviews is being followed. contract’ where the private operator is responsible For the private sector to have the confidence to invest, for operating and maintaining the utility (but not for the tariff methodology and review process will need to be financing capital investments) can reduce losses and clear as to how their investments and O&M expenses will improve utility performance.19 However, a key success be recovered through the tariff; and the allows for timely factor in such an arrangement is to ensure there the right adjustments to accommodate shocks due to foreign regulatory framework in place that monitors and enforces exchange movement. This will ensure that the experience performance against set KPIs; allows for autonomy of 2022 and 2023, when currency depreciation completely on the management of network operations including upended the tariff rationalization, is not repeated. In the disconnection of consumers for non-payment and a medium term, EWRC wants to move to a multi-year tariff commitment from Government on ensuring government order mechanism, which will require a review of the agencies pay for energy consumed. methodology and adjustment procedures to make them clear and transparent. Pillar 3. Enabling the policy and regulatory framework Projecting Action Plan Outcomes: Increased The policy and regulatory framework will need to be Access and Reduced Fiscal Dependency brought in line with the government’s goal of bringing in private sector investments across the sector value The Government of Sierra Leone has two main goals chain. Policies and regulations need to be aligned with under the Action Plan for the power sector: increasing a prospective strategic private sector partnership at access to electricity and reducing the fiscal dependency EDSA, including changes to the current policy framework of the sector by 2030. The Action Plan outlined above will (Electricity Act, EWRC Act, and 2010 Public Private allow the sector to become financially sustainable, with Partnership Act). Other revisions will be needed to attract EDSA able to meet its power purchase requirements, IPPs for expansion of generation capacity. A least-cost contribute to clearing arrears and able to fund future planning framework must be set up, and a planning unit investments. This will allow EDSA to focus on making the must be established at the MoE for all sector planning, investments needed to expand and densify the network including the preparation of a long term least-cost to increase access. At the same time, EDSA’s financial generation plan. While the preparation of the plan is key, sustainability will mean the pressure on government it is equally important to ensure that the plan is followed, budget from the sector will be reduced. Detailed actions and all new generation is added through competitive by Pillar to implement the Plan, as well as possible impacts procurement. It is also important that EGTC takes over of each action, are summarized in Table 5. operations and maintenance of its generation assets and transmission line as specified in the law after adequate Implementing the entire set of activities under the capacity is built among its technical staff. Action Plan 2030 can turn EDSA into a financially viable utility able to clear all arrears by 2029. Given the large fiscal footprint of the sector as it stands today, it is important to model the impact of implementing the Action Plan 2030. 19 In such a model, the concessionaire has full freedom to determine human resource functions and run operations in the utility. The government retains A few assumptions are made to model this scenario. On ownership of the assets and is responsible for all power purchases and long- term investments in the sector. The concessionaire collects revenues which first generation, it is assumed that HFO-based power is used are allocated for operational expenses and its fee and then are transferred to the (with gradually reducing capacity until 2027), RESPITE government to make payments for power purchases and other charges. 32 Sierra Leone Economic Update • October 2024 Breaking the Crisis Circle solar comes online in 2025, the Western Area Power its losses to about 25 percent (combined technical, Generation plant comes online in 2027 with 83 MW, and commercial and collections) from the current 72 percent, CLSG imports increase to 110 MW to meet demand. It is EDSA will add US$333 million to its cash flows. This would also assumed that demand grows at 7 percent annually, mean that EDSA would be able to generate positive cash and EDSA can meet almost all demand (so that unmet flows by 2027 and clear all arrears by 2029. . demand falls to less than 7 percent). It is also assumed that EDSA will not accrue any more arrears with IPPs or Implementing the Action Plan will allow EDSA to exporters and pay its power purchase invoices, while its clear its arrears with power purchasers, reducing the collection losses are reduced to 3 percent by 2030, and need for government intervention. The analysis above technical and commercial losses fall to 21 percent by 2030 highlights the importance of reducing EDSA’s losses, (Figure 38). improving collections and transition away from expensive sources of power supply such as HFO-based generation. Implementing the Action Plan 2030 can lead to EDSA The measures outlined in the Action Plan will begin to becoming a financially viable utility able to pay its generate positive cash flows at EDSA as early as 2027, bills and eliminating its dependence on government allowing for the utility to slowly draw down on its arrears finances. The status quo scenario which assumes new with IPPs and CLSG. However, a clear payment plan and solar and gas additions as well as Bumbuna added by waterfall framework for all arrears and future payments for 2030 but with no improvements in losses sees EDSA IPPs and CLSG imports is needed immediately. It is critical accumulating US$431 million in losses. By rationalizing for the Government to build credibility, in terms of its the HFO power purchase contracts and transitioning ability to pay for power purchases on time, allowing for away from HFO-based generation by 2027 through increased power purchases on CLSG and attracting IPPs. increased imports, EDSA adds US$192 million to its cash If the reform plan is implemented and the private sector flows, getting closer to sustainability. However, the largest also brought on board by 2025, EDSA’s dependence on improvement comes through reduction in EDSA losses. fiscal transfers will be reduced to zero. Over the period 2024-2030, if EDSA manages to improve The largest financial benefits of implementing the Action Plan for the power sector are likely to come from improved collections by EDSA. FIGURE 38: Financial impact of implementing Action Plan 2030 Source: Sierra Leonean authorities and World Bank staff estimates. Sierra Leone Economic Update • October 2024 33 Breaking the Crisis Circle Table 6: Detailed Sierra Leone Power Sector Action Plan 2030 Institution What Impact these Steps Action Description Deadline Responsible Could have Pillar 1 Green Energy Transition 1 Prepare Energy A clear short-term transition plan to MoE Oct-24 Provide a clear transition Transition Plan replace emergency IPP with increased framework for GoSL imports and more generation 2 Expedite RESPITE Expedite RESPITE implementation to EDSA PIU, MoE Mar-25 Reduce dependence on Implementation get 52 MW of additional solar power to HFO and increase renewable supply Freetown generation 3 Renegotiate The HFO IPP contract is scheduled to Government of Dec-24 HFO IPP contract be completed in 2025. Renegotiate Sierra Leone Reduce power purchase or competitively contract with new terms and costs. ex. In Dec invoice from procure completion by 2027 or explore IPP was $0.36/kWh replacement competitive procurement of rental power for two years 4 Prepare Payment CLSG payment plan using waterfall Government Dec-24 Plan for CLSG mechanism to clear arrears and of Sierra Leone provide confidence to exporters (MoF, MoE) Provide confidence to CLSG 5 Set up a As a follow up to the payment plan for MoE, MoF, EDSA Oct-24 exporters (Cote D’Ivoire and Collection CLSG a collections account is set with Guinea) that they will receive Account with a clear waterfall mechanism payments allowing for Sierra Waterfall Leone to negotiate for larger Payment PPAs leading to reduced Mechanism power purchase costs. 6 Increase Imports Negotiate increased PPA and MoE, MoF, EDSA Jun-25 transmission service agreement with Provide long term clarity Cote D’Ivoire and Guinea to private sector and development partners on 7 Update and Update the existing IRP and Least MoE Jun-25 least cost generation options implement Least Cost Development Plan to prepare a that should be pursued in a Cost Generation clear long term least cost generation competitive manner. Plan and plan leveraging imports, hydro and institutionalize solar potential. Implement LCDP and competitive increase generation capacity through procurement competitive procurement of least cost generation. 8 Improve 161 Complete tendering process to EDSA PIU Jun-25 kilovolt line increase capacity of 161 kilovolt line to Provide the necessary capacity transmit more electricity to Freetown infrastructure to transport power, especially imports 9 Improve Enhance transmission backbone to Government of Dec-30 across the country in an transmission increase capacity for imports Sierra Leone efficient manner. backbone Pillar 2 Improving EDSA Operational Performance 10 Optimize MIS Map all customers in the CMS, EDSA Jun-25 Implementation regularly update customer database, ensure managers use system for Increase accountability day-to-day processes, ensure EDSA's and transparency within organogram is reflected correctly EDSA leading to better in the MIS, organize regular training management of energy and for key staff, OMS needs to be commercial operations implemented properly to allow for outage recording 11 EDSA energy Complete a comprehensive audit of EDSA Aug-24 Provide a clear status of EDSA purchases and energy purchases and collections for losses to inform decision collections Audit EDSA making 34 Sierra Leone Economic Update • October 2024 Breaking the Crisis Circle Institution What Impact these Steps Action Description Deadline Responsible Could have 12 Establish a Meter Establish a 24/7-meter control center EDSA Oct-24 Control Center in EDSA to monitor the largest 3000 customers 13 Improve Install smart meters (Advanced EDSA Dec-24 Metering Metering Infrastructure) especially Improve collections and for 3000 largest customers and all protect revenues. postpaid clients Provide clear KPIs for EDSA 14 Connect High Connect high consumption customers EDSA Ongoing performance. Value Customers such as mining among others 15 Establish Establish a performance contract EDSA, MoE Dec-24 Performance between EDSA and Government of Contract Sierra Leone based on clear KPIs 16 Institutionalize Incorporate regular financial reporting Government of Dec-24 Financial publicly Sierra Leone Reporting 17 Professionalize Appoint technically experienced Government of Oct-24 Improve corporate EDSA Board people to EDSA Board with clear roles Sierra Leone governance, increase and responsibilities. transparency and accountability 18 Clarify Board Develop formal written corporate EDSA Oct-24 Role charter clarifying clear duties Provide technical expertise and obligations of Board and its to reduce losses committees 19 Recruit COO Recruit experienced COO to manage EDSA Aug-24 technical operations 20 Clear MDA Clear arrears with MDAs while Government of Dec-24 Protect revenues and arrears densifying grid and implementing Sierra Leone improve collections. Provide anti-theft strategies including legal signal to consumers to pay and policy changes. bills 21 Create Call Create a full scope call center EDSA Dec-24 Center integrated with the Call Center System in MIS can go a long way in improving customer experience Improve consumer 22 Establish a Walk in center operations should be EDSA Dec-24 experience and allow for Walk-in Center in separated from Call Center operations proper recording of issues Freetown 23 Implement Anti- Implement strategies to eliminate EDSA Jul-25 Theft Strategy theft is critical and may include Reduce commercial losses legal and policy changes. Strict implementation of measures is necessary for both customers as well as EDSA staff enabling theft 24 Continue Improve kilovolt networks and EDSA ongoing Investment in 33 substations around Freetown will Reduce technical losses kilovolt and 11 reduce losses kilovolt network Pillar 3 Enabling Policy and Regulatory Framework 25 Prepare for Align policies and regulations to lay MoE, MoF, EDSA, Dec-24 Support private sector Private Sector groundwork for strategic private sector EWRC partnership in EDSA Partnership partnership at EDSA 26 Set Up Planning Set up planning unit at MoE that is MoE Dec-24 Unit at MoE responsible for all sector planning and Provide long term planning is responsible for preparing a long expertise term least cost generation plan 27 Competitive Formalize competitive procurement of Government of Dec-25 Lead to procurement of procurement of new generation in line with the Least Sierra Leone affordable power generation Cost Development Plan 28 Establish multi- Review and update EWRC Tariff Rules EWRC Jul-28 year tariff order established in 2019 to prepare for a Clarity on tariff outlook for mechanism multi-year tariff mechanism private sector framework Notes: GoSL= Government of Sierra Leone. MIS = Management Information System. Sierra Leone Economic Update • October 2024 35