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Unlocking the bottlenecks to robust and sustained real growth through economic diversification and addressing pre-existing macroeconomic weaknesses will be crucial for building a resilient economy that promotes inclusive growth and reduces poverty, according to the new World Bank Sierra Leone Economic Update (SLEU).

The country’s macroeconomic situation remains challenging despite the bold and courageous policy measures taken by the new government.

Growth is still low (3.7%), inflation and exchange rate depreciation are high (16.8 and 11.8% respectively), the fiscal and current deficits are high (6.6 and 13.8%, respectively), and increasing debt has resulted in the country being downgraded from moderate to high risk of debt distress.

However, the medium-term outlook is promising, with growth expected to reach 5.2%t by 2021, driven primarily by supply side factors, including favourable agricultural output, uptick in mining activities and strong performance of the services sector, the report noted.

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“There is an urgent need for Sierra Leone to develop a comprehensive strategy for deepening the financial sector and this is required to ensure poverty reduction, job creation, investment and growth in the country,” said Gayle Martin, World Bank Country Manager for Sierra Leone.

Key risks to the growth outlook

Key risks to the growth outlook include a deterioration in Sierra Leone’s terms of trade; lower than anticipated FDI inflows and the effects on the exchange rate and prices; fiscal slippages including adverse debt dynamics; and financial sector weaknesses.

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“Whether Sierra Leone can promote sustained inclusive growth and reduce poverty depends on whether it can modify the structure of the economy to generate more and better-paid manufacturing and service jobs. That could be accomplished by facilitating creation by the private sector of formal manufacturing and services activities and increasing the productivity of the informal sector,” stated Martin.

The SLEU is an annual publication that reports on and analyses recent economic developments, reviews regional and global contexts and analyses the implications for the country, and presents the medium-term outlook and prospects for the economy.

The 2019 Update focuses on promoting inclusive growth and poverty reduction, namely ‘Financial Inclusion for Economic Growth and Development’.

The target audience for the SLEU includes policy makers, business leaders, development partners and analysts interested in Sierra Leone’s economy.

Inclusive economic growth

The special topic of the 2019 Update focuses on deepening the financial sector for inclusive economic growth and development.

The report notes that usage of the financial system is low in Sierra Leone with only about 5% of adults using formal savings products and about 54% saving money within the past year.

Access to finance for enterprises is a significant barrier to growth of the private sector with 40% of firms indicating lack of credit as their biggest constraint.

Only 11% of Sierra Leoneans have mobile money accounts compared to 20.8% in Liberia, 38.9 in Ghana and 72.9% in Kenya.

“The government plays a key role in developing the financial sector through promoting resilience and stability. One of the key functions that needs to be established is an effective supervision and regulatory regime for financial institutions to address market failures like anti-competitive behaviour, market misconduct, information asymmetries, and systemic instability, which can negatively impact financial sector development, economic growth, and shared prosperity,” said Youssouf Kiendrebeogo, World Bank Senior Economist and one of the authors of the SLEU.