Sierra Leone - Joint World Bank-IMF Debt Sustainability Analysis

Overview & Synopsis

This joint International Development Association and International Monetary Fund debt sustainability analysis for Sierra Leone, dated June 2026, assesses public debt coverage, recent debt developments, macroeconomic and financing assumptions, risks, and stress test results, with the debt stock measured at end 2025 and including central government public and publicly guaranteed debt, social security, central bank–on-lent obligations, and guarantees, alongside contingent liabilities estimated at 10 percent of gross domestic product (GDP) to account for state-owned enterprise debt and financial sector risks. The analysis finds Sierra Leone’s public debt sustainable but at high risk of external and overall debt distress, unchanged from December 2025, with the present value (PV) of public debt-to-GDP breaching its 35 percent threshold only in 2026 and declining thereafter, and the public and publicly guaranteed external debt service-to-revenue ratio breaching its 14 percent threshold until 2028 before easing as growth stabilizes and concessional financing continues; the overall debt service-to-revenue ratio remains above 100 percent until 2027, reflecting elevated gross financing needs and short maturities, but falls steadily over the medium term. These conclusions hinge on sustained fiscal adjustment, continued access to highly concessional external financing including grants, and a stable macroeconomic environment, and are subject to high downside risks from export, exchange rate, commodity price, contingent liability, and primary balance shocks. Policy changes and commitments include advancing credible fiscal consolidation anchored in full implementation of the 2026 tax package and strengthened public financial management and tax administration, undertaking a comprehensive stocktaking and audit of domestic arrears with a published clearance strategy by April 2027, maintaining a zero ceiling on non-concessional external debt under the Extended Credit Facility and World Bank Sustainable Development Finance Policy performance and policy actions, prioritizing concessional financing and grants, and limiting new external borrowing to highly concessional terms. The authorities have committed to reduce domestic financing needs, lengthen debt maturities through the Medium Term Debt Strategy (MTDS), develop the domestic debt market, refrain from new foreign exchange bonds without ex ante agreement from the Fund and the World Bank, and maintain low inflation by constraining central bank financing. Implementation of energy sector reforms to reduce transfers to independent power producers (IPP), temporary fuel subsidies in response to the oil price shock, and resilience measures under the Resilience and Sustainability Facility (RSF) to strengthen climate-related public financial management, social protection, and fiscal risk management are also integral to the strategy to mitigate liquidity pressures and sustain debt sustainability.