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Emirati Arabi UnitiEconomic activity held back by falling iron and diamond prices
Growth will slow in 2025 due to falling global prices for iron ore and diamonds in 2024. The trend will be offset by an increase in quantities produced and exported. In this respect, the mining sector will continue to benefit from investment from foreign operators. In May 2024, an iron ore processing plant with a capacity of 12 million tonnes was inaugurated on the Tonkolili mine site.
However, activity will be supported by the services sector, stimulated by the upturn in household consumption in conjunction with easing inflation, which nonetheless will remain high. To keep inflation in check, the central bank raised its key rate by 350 basis points between September 2023 and September 2024, taking it to 24.75%. At the same time, the government is banking on the substitution of food imports by local products, falling global prices and lower currency depreciation. The recovery in household demand will nevertheless be constrained by the restrictive economic policy.
In addition, the Medium-Term National Development Plan (MTNDP) for 2024-2030 and the "Big Five" program aim to strengthen food security via the "Feed Salone" initiative, develop human capital, create jobs for young people, reform public services and promote sustainable economic growth. The plan also includes major investments in the electricity infrastructure and the rail and road transport networks, in particular the Lungi Bridge project, which will connect the north of the country to the capital and the port of Freetown. At a cost of USD 1.5 billion, construction is scheduled to begin in December 2024 and is expected to take three years to complete.
Public accounts on a sounder footing, but current account deficit persists
The government deficit is expected to decline in 2024 on back of increased tax revenues, notably via the reintroduction of a 5% duty on rice and gas imports for domestic use, an increase in excise duties on several petroleum products, and the introduction of an excise tax on gambling. However, the deficit could rise slightly in 2025 due to the incomplete implementation of these measures and pressure on spending from the energy sector. Mining royalties could increase. This deficit will be financed by concessional loans, grants and, to a lesser extent, domestic borrowing. As a result, public debt as a percentage of GDP should fall in 2024 and stabilize in 2025.
The current account deficit should fall slightly as a result of a reduction in the trade deficit, which will narrow owing to an increase in export earnings from minerals and cocoa. However, the services and primary income deficits are expected to increase due to a rise in imports of services required by the mining sector and in profits repatriated by foreign companies. Expatriate remittances will remain a significant source of income. The current account deficit will be financed by project grants and foreign direct investment. At the end of 2023, foreign exchange reserves covered the equivalent of three months of imports.
At the end of 2024, the IMF and Sierra Leone government signed a new 38-month programme including an Extended Credit Facility (ECF) that secured financing of around USD 253 million. The agreement aims to restore economic stability by strengthening debt sustainability, supporting inclusive growth, fighting corruption and improving governance, institutions and the rule of law.
A political climate on the mend, economic ties with China and the US
In June 2023, President Julius Maada Bio was re-elected for a second five-year term after securing 56% of the vote. His party, the Sierra Leone People's Party (SLPP), won a parliamentary majority with 81 seats out of 135. The results were contested by the opposition, with the All People’s Congress (APC) boycotting parliamentary sessions and refusing to take the oath of office until October 2023. However, an agreement was reached in July 2024 following action by a joint election review committee which issued proposals for reforms to enhance the transparency of the electoral process. Despite this, part of the population remains dissatisfied due to inflation, food insecurity and poor public services.
China will remain Sierra Leone's main trading partner, representing its main export market, in particular for mining. China is also the main source of investment, again in the mining sector, where the Chinese company Leone Rock Metal Group operates the Tonkolili iron mine. Chinese companies are also involved in major infrastructure projects such as the Lungi bridge project, as well as telecommunications and power generation projects. Meanwhile, the US will take charge of electricity transmission development.
