Christine Lagarde, IMF MD
September 17, 2014
Madame Christine Lagarde
Managing Director
International Monetary Fund
Washington, D.C. 20431
USA
Dear Madame Lagarde:
The Ebola Virus Disease that hit Sierra Leone in May this year has had devastating health and social impact on the population, and threatens to erode our progress towards macroeconomic stability. The rapid contagion and high mortality rate of the epidemic has overwhelmed our institutional and medical infrastructure.
So far, some 1,000 persons have been infected, and 461 have died from the epidemic as of end-August. With the support of the United Nations and other bilateral partners, the Government of Sierra Leone initiated an Accelerated Ebola Outbreak Response Plan with an estimated cost of $26 million to meet direct costs in the six months through end-2014. Donor contribution to this plan has left an uncovered gap of US$18 million for which the United Nations has launched an Appeal to all Sierra Leone’s development partners. Despite our efforts to contain the disease, contagion and morbidity have risen in recent days, indicating that the full cost for containment and humanitarian needs is going to be much higher than we had anticipated.
The Ebola epidemic has put a significant strain on the budget, in terms of revenue loss and additional expenditure, and generated important balance of payments needs. The latter is currently estimated at US$ 110 million. The budget is also facing tremendous pressures stemming from revenue loss, estimated at US$45.7 million in the second half of this year, and additional spending of about US$36 million, bringing the Ebola-related budgetary needs to almost US$82 million. While soliciting financial support from our development partners, we have scaled back non-priority spending and domestically financed investment for 2014. The Government expects some lingering effects of the epidemic in 2015 on revenue and spending, with a projected financing gap of 1.1 percent of non-iron ore GDP. Based on indications from Sierra Leone’s development partners, we are confident that this gap will be fully covered with additional budget support. Nonetheless, we stand ready to scale back non-priority spending or domestically-financed investment to ensure that the ECF-supported program is fully financed for 2014 and 2015.
The Government of Sierra Leone is therefore seeking an ad hoc review under the ECF arrangement to address urgent balance of payments and budgetary needs triggered by the epidemic. It is requesting an augmentation of access under the Extended Credit Facility in the amount of SDR 25.925 million (25 percent of quota), for immediate budget support. Accordingly, the Ministry of Finance and Economic Development, and the Bank of Sierra Leone (BoSL) [have signed] a Memorandum of Understanding defining each party’s responsibilities for servicing the related financial obligations to the IMF. The government is also requesting a modification of two end-December performance criteria under the program: (i) net domestic bank credit to the central government, to reflect the requested IMF financing as well as additional borrowing from the securities market needed to cover additional spending triggered by the Ebola epidemic; and (ii) net domestic assets of the Bank of Sierra Leone. To ensure full accountability and effective use of the funds provided by the IMF and other development partners, the Government has put in place a comprehensive set of financial management procedures, including management of the Ebola Fund by the Emergency Operations Center, with fiduciary oversight by a consultancy firm, KPMG.
Prior to the onset of the EVD, we had made good progress towards fiscal consolidation and macroeconomic stability, albeit not without challenges. We kept to the quantitative performance criteria and structural benchmarks under the ECF-supported program, and were poised to complete the second review of the program in mid-December as scheduled. We continue to service our external debt obligations to our creditors, and are in good-faith discussions with our commercial creditors in the context of the debt buy-back arrangement supported by the World Bank.
The Government is committed to the design and effective implementation of measures and policies to address the immediate needs resulting from the EVD epidemic, and to support subsequent economic recovery in a manner that restores and maintains macroeconomic stability. We will consult with the IMF on the adoption of any additional measures and in advance of revisions to policies agreed for restoring macroeconomic stability in line with the broad objectives of the ECF-supported program, and in accordance with the IMF policies on such matters. Furthermore, we will continue to provide the IMF with information in connection with progress in the implementation of policies and reforms under the ECF-supported program.
In line with our commitments to transparency in government operations, we authorize publication of this letter and the related staff report, including placement of these documents on the IMF website, in accordance with IMF procedures.
Very truly yours,
/s/_______________________ /s/___________________
Kaifala Marah Momodu Kargbo
Minister of Finance and Economic Development Governor of Bank of Sierra Leone
(C) Politico 07/10/14
