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Annual Report 1999 - Sierra Leone - The Economy
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The year 1999 started with a recurrence of political turbulence, which culminated in the invasion of the capital Freetown, on January 6. This invasion marked the most violent and destructive phase of the 8-year rebellion in Sierra Leone. Tremendous damage was done to the physical and socio-economic infrastructure of Freetown, as well as extensive suffering and death to its inhabitants. The business sector suffered extensive looting and destruction of property. Most commercial banks had to close for as long as three months while nearly all the provincial branch network were permanently closed.
As a result of the above destruction, economic activity was adversely affected, aggravating the unemployment and poverty situation in the country. Following virtual stagnation during 1998, real GDP fell by 8 per cent in 1999, as the recovery that followed the restoration of the democratically elected Government in March 1998 was sharply reversed by the consequences of the rebel attack on Freetown in January 1999. The decline in output, the ensuing shrinkage of the tax base, and the near collapse of Government administration, led to a decline of 57 percentage points in Government revenue during the first half of 1999 compared to the second half of 1998. At the same time, the increase in security related outlays, amounting to about 2 percent of GDP, resulted in an overall budget deficit equivalent to about 9 per cent of GDP in 1999. Given the decline in external budgetary assistance, the overall budget deficit was financed almost entirely by borrowing from the domestic banking system. Consequently, broad money and the rate of inflation registered strong growth rates of 37.81 and 36.74 percent, respectively, while usable external gross reserves fell to less than 1 month of imports. The leone/dollar exchange rate depreciated by 36 per cent between January and December.
With the signing of the Lome Peace Accord on July 7, 1999 and the cessation of fighting, a modest recovery in economic activity began to manifest itself during the second half of 1999. The delay in implementing some key clauses of the peace agreement especially the disarmament of ex-combatants, however put a damper on business confidence. Government revenue, nevertheless, rose substantially during the second half of 1999. At the same time, Government expenditures continued to rise significantly as a result of increasing security outlays.
International Aid to Sierra Leone has increased with the improvement in the security situation. Grants by United Kingdom Department for International Development (DFID) late in 1999 and European Union in early 2000 have provided foreign resources exchange as well as budgetary support. The Central Bank accommodation of the government financing of the deficit has been reduced making liquidity management easier and increasing the prospects for a reduction in the rate of inflation.
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