Sierra Leone WT/TPR/S/143 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW1  
1. Sierra Leone covers an area of 71,740 km2 and is bordered by Guinea to the northeast, Liberia 
to the south, and the Atlantic Ocean to the west.  In 2002, its population was approximately 
4.8 million, of which 34% (2004) lived in urban ar eas;  per capita GDP was US$208.8.  The rate of 
population growth is fairly high with a birth rate of 2.3% per annum;  average life expectancy is 
estimated at 34.3 years. 
2. Since the end of the internal unrest in January  2002 (Chapter II(2)), Sierra Leone has made 
strides in stabilizing the macroeconomy, seeki ng sustainable growth, reducing poverty, and 
consolidating peace, despite continuing regional in stability.  Nevertheless, many challenges lie ahead 
in consolidating these gains and in progressing on a broad range of structural reforms.  Economic 
growth remains largely dependant on the performance of the primary sector, mainly mining and agriculture.  The absence of export diversificati on means that diamonds remain the single largest 
export item.  The size of the informal sector is significant. 
3. An Interim Poverty Reduction Strategy Paper (IPRSP) was issued in 2001, and its final 
version (PSRP) was to be ready by end 2004
2;  the PSRP is to provide a much-needed medium-term 
framework to address the socio-economic chal lenges facing Sierra Leone.  Macroeconomic 
stabilization and structural reform have been carried out with the support of a three-year 
(US$196 million) Poverty Reducti on and Growth Facility (PRGF)  arrangement, approved in 
September 2001.3  Macroeconomic discipline is to be stre ngthened at sub-regiona l level through the 
agreement for the establishment of a West African Monetary Zone (WAMZ) by 1 July 2005;  during 
the first half of 2004 Sierra Leone met one of the four primary convergence criteria of the WAMZ 
(none in 2003).  Tax reforms are being undertaken, but privatization has not yet progressed.  Since 
2001, steps have been taken to combat corruption and improve governance, by revising the regulatory framework and creating an Anti-Corruption Commission. 
4. Since 2002 Sierra Leone has been eligible fo r, and benefited from, assistance under the 
enhanced Heavily Indebted Poor Countries In itiative (HIPC), which has improved the outlook for 
Sierra Leone's debt sustainability.  According to the UNDP, Sierra Leone, ranked 177th (out of 177 
countries) on the UN  human development level index for the third consecutive year (Table I.1).  
Sierra Leone's maternal mortality rates ar e currently the highest in the world.   
Table I.1 
Main social and economic indicators  
Land area 71,740 sq. km. Urban share of population (2004) 34% 
Population (2002) 4.8 million Nominal GDP at current market prices 
(2003) US$983.2 million 
Annual population growth  
(trend 2000-15)  
2.3%  
GDP per capita  (2002)  
US$208.8   
Table I.1 (cont'd)
                                                      
1 The entire or partial lack of statistics in several areas (e.g. unemployment, tr ade) do not allow proper 
appraisal of recent economic developments. 
2 This delay was due to Sierra Leone's administrative and technical constraints. 
3 IMF Press Release No. 04/33, 23 February 2004.  Available at:  http://www.imf.org/ external/ 
np/sec/pr/2004/pr0433.htm [28 July 2004].  WT/TPR/S/143 Trade Policy Review 
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UN human development index (2003) 
- Overall ranking - Category 
 
- Ranking within category   
177
th 
Low human development
 
36th 
  
Enrolment ratio in education (1999) - Pre-school 
- Primary 
- Secondary  
Adult literacy (2004) 
- Male - Female  
 .. 
42% 
..  
31% 
23% 11% 
Life expectancy at birth (2002) 
 
Infant mortality rate per '000 34.3 years 
 
165   
.. Not available. 
Source : UNDP (2003), Human Development Report 2003;   Ministry of Developmen t and Economic Planning (2004), 
Poverty Reduction Strategy Paper , December, Freetown;    and IMF (2004), International financial statistics .  
(2) RECENT ECONOMIC PERFORMANCE  
(i) Growth, employment, and poverty 
5. Since the end of the conflict, economic growth rates have increased sharply, to 26.8% in 
2002, before decelerating to 9.4% in  2003 (Table I.2).  Improvement in the security situation, growing 
confidence, increasing diamond exports, rising aid infl ows, and progress in resettling people displaced 
by the civil war, helped account for this trend.4  The growth forecast for 2004 (7.2%) and 2005 (7%) 
is largely based on expectations for increased ac tivity in agriculture, mining, manufacturing, and 
services, as well as expansion in investment related to infrastructure projects.5  
Table I.2 
Economic performance, 2001-04 
  2001 2002 2003 2004 
GDP at current market prices  (US$ million) 812.1 995.0 983.2 .. 
GDP at current market prices (l eones billion) 1,755. 2 2,169.0 2,519.1 .. 
GDP per capita (US$) 177.6 208.8 .. .. 
 Annual percentage change 
Real GDP growth 18.5 26.8 9.4 7.2a 
 Per cent 
Inflation (end period) 3.4 -3.1 11.3 14.6b 
     
Interest rates     
Time deposit rate (3-months averages) 8.10 8.10 8.42 .. 
Commercial lending rates (period averages) 28.00 25.00 25.00 .. 
Broad money, M2 (% change) 30.8 29.6 21.9 25.5b 
     Per cent of GDP 
Government fiscal balance -9.8 -7.5 -6.2 -3.7b 
Domestic revenue (excluding grants) 11.8 11.0 11.4 6.1b 
Tax revenue 11.3 10.6 11.1 5.4b 
Grants received 5.4 7.4 7.1 2.4b 
Table I.2 (cont'd) 
                                                      
4 IMF (2004a). 
5 IMF (2004a). Sierra Leone WT/TPR/S/143 
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  2001 2002 2003 2004 
Expenditure, including net lending 27.1 25.9 24.7 12.2b 
External sector     
Current account balance -9.3 -6.7 -7.2 .. 
Net merchandise trade -16.5 -19.9 -21.7 .. 
Exports 3.6 5.8 9.8 .. 
Imports 20.1 25.7 31.6 .. 
Capital account 6.2 2.1 2.1 .. 
Overall balance -3.1 -4.6 -5.1 .. 
Gross official reserves (US$ million) 51.1 84.4 66.5 67.5b 
in months of imports (c.i.f.) 2.4 2.8 1.9 1.7b 
External debt 175.8 154.4 169.1 164.8b 
.. Not available. 
a Annual estimate as of June 2004. 
b Mid-year estimate as of June 2004. 
Source:  West African Monetary Institute (WAMI);  and Central Bank of Sierra Leone. 
6. Agriculture is Sierra Leone's largest economic  sector, followed by services;  since 1996 the 
GDP shares of mining (due to cessation of rutile  and bauxite exports) and manufacturing have 
declined steadily (Table I.3).  The size of the in formal sector (see below) may raise questions on the 
accuracy of these shares. 
Table I.3 
Sectoral shares in GDP, 1995-03 
  1995 1996 1997 1998 1999 2000 2001 2002 2003 
S h a r e  o f  m a i n  s e c t o r s  i n  G D P           
Agriculture, forestry and fishing 40.0 45.2 57.4 59.4 59.9 55.0 48.8 48.9 47.9 
Agriculture 23.9 28.2 40.9 43.8 45.1 40.1 32.1 31.8 29.2 
Livestock 2.2 2.2 2.6 2.1 2.0 1.9 3.1 3.4 4.0 
Forestry 3.1 2.8 3.1 3.2 3.5 3.5 3.1 2.8 3.4 
Fishery 10.5 12.0 10.8 10.3 9.8 9.5 10.6 10.9 11.3 
Mining and quarrying 23.4 24.8 19.0 17.1 19.0 20.7 17.0 15.7 15.4 
Manufacturing 8.5 8.1 4.8 3.8 3.0 3.3 2.5 2.8 3.2 
Services 18.2 15.3 14.6 14.0 14.0 14.0 24.2 25.4 25.1 
Construction 3.0 3.0 2.9 2.3 2.0 2.3 2.1 2.3 2.6 
Electricity and water supply 1.1 0.4 0.4 0.5 0.3 0.4 0.3 0.3 0.3 
Trade and tourism 6.5 5.1 4.6 4.8 5.3 5.0 5.6 5.4 5.6 
Transport and communication 2.0 1.8 1.8 1.9 1.9 2.1 5.2 5.7 6.6 
Finance, insurance 3.6 3.3 2.8 2.4 2.1 2.3 5.0 5.6 6.7 
Government services 3.5 3.2 3.5 3.1 3.0 2.9 3.9 4.7 3.8 
Other services 2.5 1.9 2.0 1.8 1.7 1.7 4.5 3.9 3.4 
Source:  Sierra Leone Central Statistics Office (2004), Annual Statistical Digest . 
7. Sierra Leone's nominal GDP per capita, in U.S. dollar terms, has increased by 17% since 
2001, to an estimated US$208.8  (current) (Table I.2).  An estimated 70% (2004) of the total 
population are living below the poverty threshold, of which 79% live in rural areas6;  the displacement 
of some two million people during the conflict c ontributed significantly to the poverty profile.  
                                                      
6 Ministry of Development and Economic Planning (2004);  and UNDP (2003). WT/TPR/S/143 Trade Policy Review 
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Around 30% of the population do not have access to safe drinking water.  The literacy rate is low and 
disparities between women and men in terms of education are significant (Table I.1).7 
8. As stipulated at the 2001 Interim Poverty Re duction Strategy Paper (IPRSP) (section 1), 
Sierra Leone's overall objectives for 2001-02 were to improve living standards, restore security, and 
supply basic social services to the most vulnerabl e groups.  The priorities from 2003 to 2005 are to 
reduce its debt burden and increase public expenditures in the social sectors.  According to the 
authorities, the population living below the poverty threshold was reduced from 83% in 1990 to 70% in 2004;  and the share of health and education in  total recurrent expenditure rose from 24.2% in 2000 
to 29.3% in 2003.  As noted earlier a PSRP was to  be ready by end-2004;  since 2001, the process has 
been supported by an IMF PRGF arrangement.
8 
9. Unemployment is one of the basic problems in Sierra Leone;  however no official 
unemployment figures were available from the author ities by the time of completion of this report.9  
In 2002, the authorities estimated that the informal sector accounted for at least two thirds of the 
labour force and over 70% of the urban labour force.10  
(ii) Price inflation 
10. Inflation has been erratic;  the Consumer Pri ce Index declined in both 2000 and 2002 but rose 
to 3.4% in 2001 and 11.3% in 2003 (Table I.2).  During the first half of 2004, there was a further 
increase to 14.6%, higher than the convergence criteria target (inflation rate below 5%) set in the 
context of the planned West African Monetary Zo ne (Box I.1).  In 2003 and the first half of 2004 
inflationary pressure was due to a rise in fuel prices (and their impact on transportation costs), a 
strong growth in import demand for reconstruction, an  expansionary monetary policy, partly owing to 
delays in donor support, and th e "pass-through" impact of the exchange-rate depreciation of the 
national currency (the leone) agains t the U.S. dollar on domestic prices.11  According to the West 
African Monetary Institute (WAMI) (Box I.1), c onsumer spending in the festive seasons, further 
adjustments in the prices of petroleum products, and developments in the foreign exchange market are 
also likely to influence price developments for the second half of the year 2004. 12 
                                                      
7 Only three out of ten Sierra Leoneans can read an d write, compared with an average in sub-Saharan 
Africa of six out of ten persons.  
8 The PRGF is the IMF's concessi onal facility for low-income countries.  PRGF-supported programmes 
are based on country-owned poverty reduction strategies adopted in a participatory process involving civil 
society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP).  This is 
intended to ensure that PRGF-supported programmes are consistent with a co mprehensive framework for 
macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual 
interest rate of 0.5% and are repayable over 10 years with a 5½-year grace period on principal payments.  IMF 
Press Release No. 04/33, 23 February 2004.  Availa ble at:  http://www.imf.org/external/np/sec/pr/ 2004/ 
pr0433.htm [28 July 2004]. 
9 The Ministry of Labour has not carried out a system atic survey of the Sierra  Leone work force.  The 
most up -to-date unemployment figures were based on the last census, carried out in 1985.  Anecdotal evidence 
puts the current unemployment figures at above 50%.  Government seemingly employs about 30% of the adult work force. 
10 Ministry of Development and Economic Planning (2004). 
11 West African Monetary Institute (2004). 
12 West African Monetary Institute (2004).  Sierra Leone WT/TPR/S/143 
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(3) MAIN MACROECONOMIC POLICY DEVELOPMENTS  
(i) Monetary and exchange rate policy 
11. Since 1964  monetary policy has been conducted by the Bank of Sierra Leone (BSL) with 
market-based instruments (Chapter IV(5)(iii)).  Fo r 2004, the monetary policy objectives have been to 
contain inflationary pressures and to rebuild foreign reserves.  The BSL is to meet this objective by 
managing the growth of its net domestic assets, a nd to complement this as needed by maintaining a 
higher reserve-requirement ratio and us ing interest rates more actively.13  As from 2001, the broad 
money supply has been brought gradually under control (Table I.2). 
12. The leone's exchange rate is cla ssified as "independently floating"14;  this float should observe 
the conditions set at the 2002 WAMI arrangement  on the establishment of an Exchange Rate 
Mechanism (Box I.1).15  Since 25 April 1990, the official exch ange rate has been market-determined 
through weekly auctions.  The BSL calculates the o fficial exchange rate every Wednesday morning as 
the weighted average mid-rate of purchases a nd sales made by commercial banks and foreign 
exchange bureaus during the last five business days , for customs valuation purposes and for official 
transactions.  The official buying and selling rates ar e set within a band of plus and minus 1% of the 
official mid-rate.  
13. Commercial banks may buy and sell foreign exch ange from/to individual customers, as well 
as trade among themselves or with the BSL on a free ly negotiable basis.  Foreign exchange bureaus 
are limited to spot transactions, and are not permitte d to sell traveller's che ques.  According to the 
IMF, for the year 2003, the spread between the official  and parallel market exchange rates remained 
relatively stable within a range of 5% to 8%.16   
14. With effect from 14 December 1995, Sierra Leone accepted IMF Article VIII obligations.17  
According to the IMF, on 29 June 2001, Sierra Leone removed the remaining exchange restrictions, in 
the form of a tax clearance certificate required for payments and transfers of certain types of current international transactions.
18  
15. Payments for imports may be made in leones and credited to an external account in the 
currency of the exporting country, which, for practical  purposes, should be in pounds sterling, or U.S. 
dollars.  Receipts from exports to countries othe r than China may be obtained in leones from an 
external account in the currency of the importing country or in any specified convertible currency.19  
16. Sierra Leone nationals and firms may hold foreign-currency bank accounts and may freely 
import and export currency.  Foreign firms with i nvestments in Sierra Leone may remit profits and 
capital without prior BSL approval, subject to fu lfilling the regulations governing the transactions.  
Cash amounts over US$10,000 to be taken out of Sie rra Leone by residents must be reported to the 
authorities.20 
17. In response to shortages of petroleum products (due to oil companies' outstanding payments 
to suppliers), between March a nd 31 December 2003 the BSL allowed oil companies to obtain foreign 
exchange (amounting to about one third of the to tal auction supply) through a temporary special 
                                                      
13 IMF (2004a). 
14 IMF (2004a). 
15 West African Monetary Institute (2003) and (2004). 
16 IMF (2004a). 
17 IMF Article VIII, Sections 2, 3 and 4. 
18 IMF (2004a). 
19 IMF (2003). 
20 The Anti-Money Laundering Act, 2004 (Part II 3);  and IMF (2003). WT/TPR/S/143 Trade Policy Review 
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window.21  The window used the exchange rates determ ined at the weekly auctions;  a total of 
US$10.15 million, or 18% of the total auction suppl y, was made available to the oil companies. 
18. Between 1997 and 2003 the leone depreciated by 58% (in foreign currency terms) against the 
U.S. dollar (Chart I.1), as a result, inter alia,  of excess demand over supply within the banking system 
and the economy, largely due to increased import- driven demand for consumption, manufacturing, 
and services, a decrease in inflows by non-governme ntal organizations (NGOs), non-compliance with 
exchange control regulations, insufficient funds in the foreign-exchange auction, and excess liquidity 
in the economy.22  The reduced supply of foreign exchange , also appears to be due to the scaling 
down of activities of the United Nations Mission in Si erra Leone (UNAMSIL) prior to its withdrawal 
from the country scheduled for June 2005.23  The exchange rate depreci ation improved Sierra Leone's 
international price competitiveness, but worsened inflationary pressures from induced price rises, 
especially on imported inputs.  For 2004 the annual av erage nominal exchange rate (period average) 
stood at Le 2,566.2 per U.S. dollar (June 2004) (Table I.5).24  
30405060708090100110120
1997 1998 1999 2000 2001 2002 200305001,0001,5002,0002,500Chart I.1                             
Exchange rate developments, 1997-03
Index 1995=100;  period averages
Source:  IMF (2004), International Financial Statistics, March.Le/US$ 
(right-hand scale)
Nominal effective exchange rate
(left-hand scale)Real effective exchange rate
(left-hand scale)Le/US$;  period avera ges
 
19. Sierra Leone participates in the sub-regional initiative for the establishment of the West 
African Monetary Zone (Box I.1);  ten criteria were established to monitor the state of macroeconomic convergence of the participants  with prescribed benchmarks (Table I.4). 
 
  
                                                      
21 The IMF expressed concern that this approach would affect the integrity of the foreign exchange 
auctions, although this had not caused an exchange restriction yet (IMF, 2004a). 
22 Ministry of Finance (2003). 
23 IMF (2004a).  Upon departure of the UNAMSIL for ces the Government of Sierra Leone will assume 
the cost of maintaining internal and border security.  
24 Central Bank of Sierra Leone. Sierra Leone WT/TPR/S/143 
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Table I.4 
West African Monetary Zone convergence criteria, 2000-04 
(% unless otherwise specified) 
Criteria Commitment base 2000 2001 2002 2003 2004a 
Primary criteria       
Fiscal deficit excluding grants/GDP  Less than or equal to 4%b -17.3 -15.3 -14.9 -13.3 -6.0 
Inflation rate (end of period) Less than or equal to 5% -2.8 3.4 -3.1 11.3 14.6 
Central bank financing of fiscal 
deficit as percentage of previous 
year's tax revenue  Less than or equal to 10% of 
previous year's tax revenue 32.7 8.9 0.0 25.4 3.1 
Gross externals reserves  Greater than or equal to 3 months 
of imports of goods and services 
(in month) 2.8 2.3 2.8 1.9 1.7 
Secondary criteria       
Arrears (Le billion) Prohibition of new domestic 
arrears and liquidation of 
previous arrears .. .. .. .. .. 
Tax revenue/GDP Ratio greater than or equal to 
20% 10.8 11.3 10.6 11.1 5.4 
Salary Mass/tax revenue Ratio less than or equal to 35% 62.0 56.1 62.0 57.3 59.6 
Public investment from domestic 
receipts  Ratio greater than or equal to 
20% 4.4 8.7 8.8 10.6 10.1 
Nominal exchange rate  
(+= depreciation) 15% flotation band .. 23.2 0.9 14.9 15.8 
Real interest rate Greater than 0% 9.3 1.4 8.6 -5.8 -6.6 
.. Not available. 
a Mid-year estimates as of June 2004. 
b Before 2002, less than or equal to 5%. 
Source:   West African Monetary Institute (2004) " Assessment of country performance on the West African Monetary Zone 
Programme during the first half of 2004 and outlook for the rest of 2004 and beyond" , August.  
Box I.1 
West African Monetary Zone 
Six non-WAEMU (West African Economic Monetary Union) memb ers of the Economic Community of West African States 
(the Gambia, Ghana, Guinea, Liberia, Ni geria, Sierra Leone), signed an agreemen t in April 2000, aimed at establishing a 
monetary union by 1 January 2003:  the West African Monetary Zone (WAMZ) or Second Monetary Zone (SMZ) (Chapter II(6)(ii)(c)).  Cape Verde and Liberia are currently obs ervers in this process.  In 2000, the WAMZ Members agreed 
on ten convergence criteria (four primary and six secondary (Table  I.4)), which they were required to meet as a precondition 
for the establishment of a monetary union;  in 2004 (June) Sierra  Leone met one out of four primary convergence criteria.  In 
November 2002, the Convergence Council of the WAMZ, deferre d the 2003 deadline (for the establishment of a WAMZ) to 
1 July 2005;  this was seemingly because some WAMZ me mbers had not met the agreed macroeconomic convergence 
criteria.  The original plan was for the WAMZ to merge with the WAEMU by the end of 2004, thus ushering in an 
ECOWAS-wide monetary union.  According to the authorities,  in December 2005, a detailed appraisal of the performances 
of the countries in the WAMZ and WAEMU will be undertaken, after which a firm date for the merger will be fixed. 
A West African Monetary Institute (WAMI) was established in January 2001, as a predecessor to a common central bank for 
the WAMZ.  The WAMI, which is funded by the Central Bank of each WAMZ member, started operations in March 2001.  
The functions of WAMI are:  (i) to monitor the state of convergence;  (ii) to harmonize regulations and design policy 
framework;  (iii) to promote a regional payment system;  (iv) to  set an exchange-rate mechanism and conversion rate;  (v) to 
organize sensitization; (vi) design and technical preparation of the new currency;  and (vii) modalities for setting up a 
common central bank.  According to the Sierra Leonean author ities the exchange rate will be pegged to the U.S. dollar.   
In March 2002, an Exchange Rate Mechanism (ERM) was introdu ced by the West African Monetary Institute (WAMI).  This 
arrangement provides for a 15% fluctuation band around parities es tablished on the basis of the currencies' value against the 
U.S. dollar.  According to the Sierra Leonean authorities a new Central Parity Rate (ERM II) set at Le 2,562.18/US$ came 
into operation in January 2004, and until end-June 2004 the coun try had remained well within the agreed band, though 
marginally fluctuating. 
Source : Bank of Sierra Leone (2003), BSL Bulletin January-June 2003 ;  and WAMI (2003), Programmes for 
macroeconomic convergence in the West African Monetary Zone , April. WT/TPR/S/143 Trade Policy Review 
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(ii) Fiscal policy  
20. Sierra Leone's fiscal deficit is due in la rge measure to the post-conflict rehabilitation 
programme.  Its share to GDP has been declining;  from 2001 to 2003 it dropped from 9.8% to 6.2% 
(Table I.2).  For the first half of 2004 the fiscal de ficit (including grants) was estimated at 3.7% of 
GDP and was to be financed for the most part from external sources.25  
21. Since 2000, the share of domestic revenue to GDP  has decreased slightly (Table I.2).  The 
GDP share of expenditure (more than twice as larg e as the revenue share) decreased at a faster pace. 
According to the authorities, the expenditure level is due to high costs relating to the rehabilitation 
programme in social and economic sectors.  In 2003, total expenditure and net lending represented 
24.7% of GDP, and the payroll absorbed 25.7% of total expenditures.26  The IMF estimated that 
government domestic revenue accruing to the State in 2004 would be equivale nt to 16% of GDP and 
that spending was expected to reach 26% of GDP.27  
22. Sound fiscal policy are at the core of the Government's economic reform efforts.  The 
maintenance of strict fiscal discipline is a prime focus of the stated policy in this area;  fiscal policy is 
expected to be driven by measures to rationalize the tax system and strengthen control over spending, 
while reorienting expenditures towards poverty reduction.28  In July 2004, the authorities decided not 
to put into effect all of the reductions in income and corporation tax rates, announced in the 2004 Budget Speech, until satisfactory revenue trends are established in the context of the fifth review 
(end-June 2004)  under the Poverty Reduction and Growth Facility (PRGF) support arrangement.
29  
The authorities intend to accelerate tax reforms (section (4)(i)) with a view to improving tax 
administration, strengthening the capacity of govern ment ministries, and raising the efficiency of 
public service delivery. 30  
(4) MAIN STRUCTURAL POLICY DEVELOPMENTS  
(i) Tax reform 
23. To address deficiencies in the tax system, the authorities have announced and undertaken 
reforms since 2002 (Chapter III(2)(iii)(a) and (4)(i)(b )).  These reforms include:  the establishment of 
the National Revenue Authority (NRA) in September 200231; the lowering of the general maximum 
customs tariff rate from 40% to 30% (2003);  the reduction of the sales tax rate from 20% to 17.5% (2003);  the elimination of the excise tax for l uxury and related goods (2003) ;  and reduction of the 
top rate of the income tax from 40% to 35% (2003).
32   
24. The authorities are studying ways of moving to wards broad-based consumption taxation, such 
as a value-added tax (VAT) in the medium-term, to enhance tax compliance, improve the business 
environment, and generate higher revenues.33  At present, the authorities are assessing the impact of 
implementing an Economic Community of West African States (ECOWAS) Common External Tariff 
                                                      
25 West African Monetary Institute (2003) and (2004). 
26 West African Monetary Institute (2003) and (2004). 
27 IMF (2004a). 
28 Government of Sierra Leone (2002). 
29 IMF (2004a). 
30 IMF (2004a). 
31 Bank of Sierra Leone (2003). 
32 Government Budget 2002. 
33 Ministry of Development and Economic Planning (2004). Sierra Leone WT/TPR/S/143 
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(Chapter II(6)(ii)(c)) on fiscal revenue.34  In this context, the authorities note that to compensate for 
the implied revenue losses, the scope of other reve nue sources needs to be expanded, including the 
possible introduction of VAT by 2007.35   
25. In June 2004  a draft Bill (the Government Budgeti ng and Accountability Act) was sent to 
Parliament;  it is intended to streamline the budge ting process and clarify relationships between the 
central and local governments.36  According to the authorities, tax reforms envisaged for 2004-05 
include:  the implementation of basic financial accoun ting;  the modernization of computer systems;  
the replacement of financial management accounts systems with financial information management 
systems;  and the creation of a codification system for government accounts . 
(ii) Privatization 
26. Privatization is cited as a key element in Sierra  Leone's structural reform programme.  State 
involvement persists in severa l loss-making economic activities (Tab le III.2), constituting a financial 
burden on the budget.37  As of 2002, the authorities undert ook to implement a programme drawn up 
by the National Commission for Privatization;  th e programme does not specify implementation dates 
although in several cases it specifies a time-frame, mo stly outdated.  Sierra Leone benefited from 
technical assistance from the World Bank in this area.  Nevertheless, at the time of completion of this 
report no privatization had been concluded (Chapter III(2)(vi)).  
(iii) Governance 
27. Issues relating to transparency and the proper ma nagement of public affairs have had a direct 
impact on the overall economic environment and on the conditions under whic h economic actors take 
their decisions and operate.  Poor governance (e.g., corruption, rent-seeking activities, disregard for 
the rule of law) seems to have been a major root cause of the conflict in Sierra Leone.  
28. Sierra Leone is determined to prevent and co mbat all forms of corruption and to improve 
governance.  For this purpose, the Anti-Co rruption Act 2000 was amended in October 2002.38  An 
Anti-Corruption Commission (ACC) was established on 1 January 2001.39  The authorities aim to 
enhance transparency and manage public resources to ensure responsibility, efficiency, and control of 
government spending.  According to the ACC the Anti-Corruption Act 2000 is defective to a very 
large extent;  it has seemingly affected ACC's operations.40  One of the ACC's strategic objectives for 
2003-08 is the drafting and passing of new anti-corruption legislation, that will enable it to become more operationally effective.  In December 2003, Sierra Leone signed the United Nations Convention 
against Corruption.
41 
 
  
                                                     
 
34 IMF (2004a). 
35 According to the IMF, a study of the modalities of a VAT tax system is a structural benchmark for 
2004. 
36 IMF (2004a). 
37 National Commission for Privatisation (2003). 
38 Supplement to the Sierra Leone Gazette,  Vol. CXXXI, No. 7, enacted 3 February 2000. 
39 The ACC is composed of a Commissioner and a Deputy Commissioner appointed by the President 
with the Parliament's approval, for a five-year term, renewable as deemed necessary. 
40 Anti-Corruption Commission. 
41 The Convention was signed by 111 countries, but is not yet in force.  UNODC online information. 
Available at:  http://www.unodc.org/unodc/en/crime_ signatures_corruption.html#S [19 July 2004]. WT/TPR/S/143 Trade Policy Review 
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(5) BALANCE -OF-PAYMENTS DEVELOPMENTS  
(i) Current and trade accounts 
29. Sierra Leone's persistent current  account deficit (including official transfers), largely due to its 
high degree of import dependence42, decreased from 9.3% of GDP in 2001 to 7.2% in 2003 
(Table I.2 and I.5).43  It is not expected to narrow significantly in 2004.44  A further decline is forecast 
for 2005 when rutile and other mineral exports are to resume . 
30. Sierra Leone's merchandise trad e deficit widened faster than the current account deficit, to 
21.7% of GDP in 2003 (Table I.2).  This expansion was due to increases in the value of fuel and rice 
(Chapters III(2)(ii)(a) and IV(2)(iii)) imports, as well as a strong demand for manufactured goods 
used in reconstruction activities.45  
Table I.5 
Balance of payments 
(US$ million) 
  2000 2001 2002 2003 
Current account -91.1 -75.8 -66.7 -70.8 
Trade balance -123.7 -133.9 -198.2 -213.7 
Exports (f.o.b.) 12.8 29.2 57.5 96.8 
Imports (f.o.b.) 136.5 163.1 255.7 310.5 
Services -83 -73.3 -35.7 -33.2 
Transfers 115.6 131.4 167.2 176.1 
Private 39.7 31 98.2 100.2 
Official 75.9 100.4 69 75.9 
Capital account  46.5 50.3 20.9 20.9 
Official capital (net) 49.3 65.4 36.6 27.1 
Inflows/disbursements 85.5 110.7 90.9 78.5 
Amortisation due -36.2 -45.3 -54.3 -51.4 
Direct and portfolio investment 1.9 2.2 1.6 4.4 
Short term capital -4.7 -17.3 -17.3 -10.6 
Overall balance -44.6 -25.5 -45.8 -49.9 
Memorandum items     
Exchange rate (period average) 2,098.70 1,985.20 2,099.20 2,535.10 
Source: Central Bank of Sierra Leone.  
31. Since 2001, foreign exchange reserves have fo llowed a rising trend, except for 2003 when a 
drop of 26.9% was registered (Table I.2), due to the non-disbursement of US$46.06 million relating to 
programme funds from certain donors (EC-SASP, IMF-PRGF, ADB-ERRL II), as well as the 
additional foreign exchange allocation of US$13.65 million to the oil companies.  By June 2004, 
Sierra Leone's foreign exchange reserves stood at  US$67.5 million, equivale nt to 1.7 months of 
imports of goods (compared with almost three months  in 2002).  According to the authorities, by the 
end of  2004 foreign exchange reserves were expect ed to attain US$88.9 million, equivalent to 2.2 
months of imports of goods.  
                                                      
42 IMF (2004a). 
43 Government Budget (2003). 
44 IMF (2004a). 
45 Ministry of Finance (2003). Sierra Leone WT/TPR/S/143 
 Page 11 
 
 
(ii) External liabilities/debt 
32. According to the authorities, the main reasons for Sierra Leone's indebtedness come from the 
ten-year rebel war, which disrupted economic activities.   After the war, it became apparent that Sierra 
Leone could not sustain its debt obligations  due to the lack of economic activity.  
33. Since March 2002, Sierra Leone has been eligib le for assistance under the enhanced Heavily 
Indebted Poor Countries Initiative (HIPC).  The IM F Executive Board approved the disbursement of 
interim HIPC assistance of US$30.52 m illion on 21 March 2002, US$33.25 million on 
20 March 2003 and US$22 m illion on 23 February 2004.46  The current interim HIPC assistance is in 
place until March 2005.47 
34. In 2002  Sierra Leone signed debt-rescheduling accords, on Naples terms, with ten out of 11 
Paris-Club bilateral creditors and on Cologne terms with six bilatera l creditors.  Sierra Leone also 
reached rescheduling agreements on arrears with two of its official bilateral non-Paris Club creditors 
(i.e., the Saudi Fund for development and Organiza tion of the Petroleum Exporting Countries (OPEC) 
fund).  The total arrears to OPEC were US$9.5 mil lion (June 2004);  an agreement was reached with 
OPEC in July 2003 to settle the arrears under the fund's Commodity Import Programme (CIP).48  The 
Government of Sierra Leone undertook to full y implement the CIP within a maximum of nine 
months, starting in February 2004, with an initia l payment of US$1.5 million.  Regarding commercial 
creditors, the authorities are negotiating payment of  the arrears over a longer period, but have had 
only limited success.49   
35. Following these developments, Sierra Leone's  external debt ratio to GDP dropped from 
175.8% of GDP (2001) to 169.1% (2003) (Table I.2).  Nevertheless, total exte rnal debt rose by around 
5%, from US$1.47 billion in June 2 002 to US$1.54 billion in June 2003.50  According to the 
authorities, total outstanding debt as at end-Ma rch 2004 was US$1,647.2 million.  Bilateral debt 
represented 25% of the total (US$387.6 million in June 2003), compared with 27% in June 2002.  
Total foreign-debt payments (including IMF repayments and HIPC resources) amounted to 
US$21.3 million in June 2003.51  In June 2003 over 70% of debt service (US$15.2 million) was 
reimbursed as interim debt relief under the enhanced HIPC initiative.52 The debt service payments 
were reduced from US$23.5 million (June  2002) to US$6.1 million (June 2003).53  
(6) DEVELOPMENTS IN MERCHANDISE TRADE  
36. The ratio of Sierra Leone's trade (exports pl us imports) in goods and non-factor services to 
GDP increased from 23.7% in 2001 to 33.7% in 2003.54  
(i) Composition of trade 
37. In the absence of export diversification, Sierra Leone remains largely dependent on 
commodity exports of diamonds and minerals, and to  a lesser extent cocoa and coffee (Chart I.2). 
                                                      
46 IMF Press Release No. 04/33, 23 February 2004.  Available at:  http://www.imf.org/external/ 
np/sec/pr/2004/pr0433.htm [28 July 2004]. 
47 IMF (2004a). 
48 The CIP arrangement involves "back-to-back transfer of funds" between the OPEC and Government 
of Sierra Leone.  
49 IMF (2004a). 
50 Ministry of Finance (2003). 
51 Ministry of Finance (2003). 
52 Ministry of Finance (2003). 
53 Ministry of Finance (2003). 
54 Central Bank of Sierra Leone. WT/TPR/S/143 Trade Policy Review 
Page 12 
 
 
From 2001 to 2003 domestic exports (e xcluding re-exports) continued to grow steadily, supported by 
a competitive exchange rate;  they increased  from US$12 million in 2000 to US$83.9 million in 
2003.55 Imports are concentrated in six product categori es:  food, machinery and transport equipment,  
fuel, manufactured goods, beverage and tobacco, and crude materials, which represent 82% of total 
imports.56 
38. Re-exports grew steadily from US$895,200 in 2000 to US$8.4 million in 2003.57  According 
to the authorities, the relative stability in Liberia increased the re-exportation of food, plywood, and some other building materials by most of the non- governmental organizations and UNAMSIL to this 
destination.  There was also a su rge in the re-exportation of scrap metals to Guinea during the same 
period.   
39. Further appraisal of developments in Sierra Le one's foreign trade is currently impeded by the 
absence of a consistent and recent series of trade da ta in national and international databases (IMF, 
World Bank, UNSD Comtrade, ECOWAS).  According to the authorities, in April 2004 the Ministry 
of Trade and Industry established a Policy, Planning a nd Research Division to coordinate the analysis 
of data for the Ministry and the collection of data from government sources.  The Ministry is also seeking further resources for the establishment of a sta tistical database.  The Central Statistics Office 
of the Ministry of Development and Economic Plan ning now has a Foreign Trade Statistics Section, 
which processes the data after collection from the NRA. 
(ii) Direction of trade 
40. Sierra Leone's narrow export base is concentr ated in low-value-added products and few 
markets.  Since 2000, Sierra Leone's direction of trade structure has not changed.  Its dependence on 
the European Communities (EC), especially as a des tination for exports, remains strongly evident.  
Exports to the EC made up more than 80% of Sierra  Leone's exports in 2003, a slightly larger share 
than in 2000 (Chart I.3).  Belgium remains Sierra  Leone's largest export market, accounting for 77.5% 
of total merchandise exports, followed by ECOWAS trading partners (12%) (Chapter II(6)(ii)(c)).  
During the same period the share of ECOWAS in  total merchandise exports rose from 10.3% to 
12.3%.
58 
41. In 2003, the EC was Sierra Leone's main supplier (30%), followed by ECOWAS trading 
partners (29%) as well as ASEAN countries (26%),  North and South America (6%), and the Middle 
East (5%) (Chart I.3).59  
 
 
 
                                                      
55 Customs and Excise Department, Government Gold and Diamond Office. 
56 Ministry of Finance (2004). 
57 Ministry of Finance (2004). 
58 Government Gold and Diamond Office, Customs and Excise department. 
59 Statistics Sierra Leone (2001). Sierra Leone WT/TPR/S/143 
 Page 13 
 
 
Chart I.2
Composition of merchandise trade, 2001 and 2003
2001 2003
(a)    Domestic exports 
(b)    Imports 
Source:   Ministry of Finance (2004), Economic Bulletin, Volume 9, Number 4, March.Beverages & 
tobacco
2.7
Crude materials
3.2Other
10.4
Fuels
20.6Food
27.8
Mineral fuels & 
lubricants
(excl. fuels)
3.2Agriculture
1.1Diamonds
91.5
Other agric. 
0.1
Other
11.3Food
24.5
Fuels
19.1Beverages 
& tobacco
3.6
Mineral fuels
 & lubricants 
(excl. fuels)
6.7Diamonds
93.3
Manufacturing
5.6Manufacturing
5.3
Cocoa  3.1
Crude materials
2.3Machinery
 & transport 
equipment
20.4Manufactured 
goods
11.8
Machinery & 
transport equip.
18.6Manufactured
goods
13.9 Per cent
 WT/TPR/S/143 Trade Policy Review 
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Chart I.3
Merchandise trade by partner, 2000 and 2003
2000 2003
(a)    Exports (including re-exports)
(b)    Imports 
Source:   Information provided by the Sierra Leone authorities.EU15
29.2America
10.3ECOWAS
10.3
ASEAN
23.9
Other
8.2Other
5.2
EU15
82.2Other 
3.5
Middle East
4.9ASEAN
26.3
EU15
30.2Other
3.1EU15
80.4United States
4.2United States
2.0
ECOWAS
12.3
America
5.8ECOWAS
26.0Middle East
2.4
ECOWAS
29.6 Per cent
 Sierra Leone WT/TPR/S/143 
 Page 15 
 
 
(7) OUTLOOK  
42. Sierra Leone's macroeconomic performance has been encouraging, but many challenges lie 
ahead.  Macroeconomic objectives for 2004 supported higher growth and reduced inflation.  The availability of donor support and debt relief are cr itical in easing financing constraints, including the 
budgetary cost of the scheduled withdrawal of UNAMSIL.  Structural measures should aim at 
achieving efficiency gains in public service deliv ery and management.  Further action to improve 
governance and foster the development of the private sector may be required.
60  
                                                      
60 IMF Press Release No. 04/33, 23 February 2004.  Available at:  http://www.imf.org/ external/np/ 
sec/pr/2004/pr0433.htm [28 July 2004].