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Annual Report 1999 - Sierra Leone - The Economy
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3. Open Market Operations
Monetary Operations of the Bank of Sierra Leone (BSL) during the first quarter of 1999 was obstructed by political upheavals, which, in January, culminated in the invasion of Freetown by the RUF/AFRC alliance. The resulting continued closure of all but one Commercial bank in the aftermath of that event, accounted in part for the low level of activity that ensued in the government securities market during the first quarter. Except for Treasury bills, which were rolled over on maturity there was no issue of Treasury Bearer Bonds as all maturities during the period were redeemed and/or taken up by the Bank of Sierra Leone.
(a) Treasury Bills and Treasury Bearer Bonds
Following the resumption of normal banking business in the aftermath of the January 6, 1999 events, BSL obtained authorization to convert a total of Le75.0bn ways and means advances to tradable securities for its monetary policy management. Of this total only Le23.62bn were actually converted and issued in the form of new Treasury Bills. This was in addition to the conversion of Le 11.46bn of Treasury Bearer Bonds into Treasury Bills. At the end of the review period, total Treasury Bills outstanding increased by Le35.08bn while that of Treasury Bearer Bonds declined by Le0.82bn. On the distribution of holdings of outstanding government securities, commercial banks carry the bulk of 61.6 per cent. The non-bank public holdings constituted only 23.7 percent.
Interest rate development during the review period reflects a marginal increase of 0.5 percent on Treasury bills, which averaged 34.7 percent at the end of the review period. Interest rate on Treasury Bearer Bond remained constant at 40.00 percent through out the period.
(b) Government Stock
At the end of the review period no government development stocks were outstanding.
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4. Foreign Exchange Management
(a) Foreign Assets and Reserve Management
Bank of Sierra Leone gross foreign exchange reserves continuously declined during the first three quarters of 1999. From a peak of US$43.82mn at end December 1998, the reserves dropped by 58 percent to US$18.35mn at end September, the lowest level recorded during the period. Thereafter, it surged up dramatically to more than double the September position but settled at US$39.45mn by the end of December 1999. This was just 10 percent lower than the position a year ago.
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Inflows to the foreign reserves during the review period mainly constituted receipts from disbursements of grants and loans, the bulk of which were realized in the fourth quarter of 1999. The poor performance during the first three quarters of 1999 reflected the aftermath of the political instability with its attendant problems of low economic activities and the suspension of donor support programmes.
Outflows of foreign reserves during this period were predominantly in respect of private sector support, emergency military defence, embassy payments (including arrears) and debt service payments to key creditors namely the International Monetary Fund, African Development Bank and World Bank.
During the period under review total inflows increased by 22.0 percent or US$9.03mn from US$41.02mn in 1998 to US$50.05mn in 1999. This increase was mainly accounted for by the dramatic increase in disbursements of grants and loans totalling US$46.73mn realized in the fourth quarter of 1999. The disbursements included Emergency Post Conflict Assistance from the International Monetary Fund of SDR 15.56mn, United Kingdom Department from International Development grant for Balance of Payments and budgetary support of £10.5mn and contribution to the demobilization fund of £1.44mn.
The European Union disbursed US $4.55mn of which US$3.50mn was for European Union Financed Projects and US$1.05mn for Structural Adjustment Support Programmes.
Total Receipts from exports declined by 32.1 percent from US$4.02mn to US$2.71mn in 1999. Receipts from the various sources of this sector deteriorated, except inspection fees, which remained stable at US$0.04mn. This poor performance was due to the continued hostilities and its damaging effects on the export sector.
Total foreign exchange outflows at US$55.12mn in 1999 were 57.1 percent higher when compared to US$35.08mn level recorded a year earlier. Of that total, 40.5 percent or US$22.36mn was in respect of debt service payments and 59.5 percent or US$32.77mn as payment for goods and services. Over 50 percent of the latter was paid to support the private sector; mainly for petroleum imports and assistance to distressed industries for importation of machinery and inputs.
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