IMF approves new climate-focused facility for Sierra Leone, provides additional funding

The Executive Board of the International Monetary Fund (IMF) completed the third review of Sierra Leone’s Extended Credit Facility (ECF) arrangement and approved a new, larger financing package under the Resilience and Sustainability Facility (RSF) to strengthen the country’s ability to withstand climate shocks.

Sierra Leone will receive SDR 23.333 million (approximately US$31.7 million) immediately after the ECF review is completed, bringing the total disbursements under the existing ECF arrangement to SDR 116.664 million (roughly US$158.6 million). In addition, the Board approved an RSF agreement worth SDR 155.550 million (approximately US$211.5 million). After the initial review of the arrangement is completed, disbursements under the RSF will begin.

The Board waived Sierra Leonean authorities’ breaches of two performance measures: the continuous ceiling on concessional external debt and an end-of-year performance criterion on net domestic assets, citing corrective actions by Freetown to address the shortfall. According to the IMF statement, the RSF approval is intended to boost resilience and external stability, with a focus on climate-sensitive public investment management, climate resilience strengthening, and financial sector stability promotion.

According to IMF officials, recent macroeconomic tightening by the government has resulted in tangible gains: exchange rate volatility has decreased, inflation has moderated from earlier peaks, borrowing costs have decreased, and private sector credit access has been restored. Despite these advances, significant vulnerabilities remain. Reserve buffers remain low, and the IMF continues to consider the country’s public debt to be highly vulnerable to distress.

According to the most recent Fund projections, Sierra Leone’s growth momentum will slow in 2026 due to external pressures from the Middle East conflict, with real GDP growth expected to moderate to around 4%. This year’s inflation rate is expected to be around 11.6%. The IMF identified several significant downside risks to the outlook, including rising political tensions ahead of national elections, additional spillovers from the Middle East conflict, and potential reform fatigue, all of which could jeopardise continued fiscal consolidation.
At the conclusion of the Board’s discussion, Acting Chair and Deputy Managing Director Kenji Okamura stated that, while the authorities have some room to absorb fiscal pressures from the international situation, fiscal consolidation measures must be continued. He emphasised the need for consolidation while maintaining critical social spending to protect the most vulnerable.

The IMF suggested a temporary, transparent fuel price subsidy to prevent price spikes due to a lack of a well-targeted social safety net. However, this support should be time-limited, clearly costed, and within an agreed-upon fiscal limit. The Fund also urged faster reforms in energy and public finance management to limit recurring spending, prevent the accumulation of payment arrears, and strengthen monitoring mechanisms for arrears.
The IMF has also identified revenue mobilisation as a priority, with officials indicating that gains will be dependent on improved tax administration and mining-related revenue collections. Strengthening debt management capacity was identified as a critical step toward reducing Sierra Leone’s significant debt vulnerabilities.
On monetary policy, the IMF recommended being prepared to tighten if inflationary pressures persisted, as well as continuing efforts to implement a new monetary policy framework and strengthen central bank safeguards. Critical policy priorities included rebuilding international reserves, allowing the exchange rate to absorb shocks, and repaying overdue budget support loans to the Bank of Sierra Leone.

The Fund advocated for a greater emphasis on structural reforms such as improved arrears management, putting the bank resolution framework into action, resolving the outstanding problem bank, and implementing the Governance and Corruption Diagnostic’s recommendations to improve public sector accountability.
The recently approved RSF agreement aims to supplement these efforts by promoting balance-of-payments stability while also funding investments and policies that reduce vulnerability to climate-related shocks. The RSF’s initial focus will be on improving climate-sensitive public investment management, increasing climate resilience measures, improving social protection, incorporating climate considerations into fiscal planning, and mitigating climate-related financial sector risks.