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Annual Report January - June 2000
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6. External Debt Management
(i) An Overview
As at end December 2000, Sierra Leone's total disbursed and outstanding official medium and long-term debt, including principal arrears stood at US$ 1,192.5 mn. The total stock of debt is still dominated by debts to Multilateral and Bilateral creditors, accounting for 61.20 per cent and 29.00 per cent respectively. Other creditors like Foreign Military Contractors accounted for 2.40 per cent whilst the residual 7.30 per cent is owed to Commercial Creditors. The principal multilateral creditors are the World Bank, the International Monetary Fund (IMF) and the African Development Bank/Fund (ADB/F).
Table 9 shows the stock of principal and interest arrears owed to all creditors. A total of US$ 184.1 million of the stock of disbursed outstanding debt represented principal arrears owed mainly to the bilateral creditors which accounted for 30.00 per cent of total principal arrears. Interest arrears amount to US$ 32.60 million of which US$ 27.00mn are owed to the Paris Club creditors. This is as a result of late interest charged on arrears due to Paris Club creditors at a high interest rate for non-concessional loans.
(ii) Major Developments
(a) During the period under review, the Government of Sierra Leone continued to make timely debt service payments to key multilateral creditors namely the IMF, the World Bank and the ADF. Goodwill payments were also made to other multilateral creditors like BADEA, IFAD and Kuwait Fund in order to open doors for more funding and facilitate disbursements.
(b) On February 24, 2000, the Government of Sierra Leone entered into an arrangement with the Islamic Development Bank for the settlement of arrears of ID 257,933 (approx. US$ 0.35mn) due as at end December 1999 to be made in Leones. Part of this amount was used to set-off the undisbursed amount of ID 114,256 that was due under the Emergency Assistance project and the Bo Rural Water Supply project.
(c) On February 18, 2000 the International Development Association (IDA) granted the Government of Sierra Leone a new loan for Balance of Payments and Budgetary support under the Economic Rehabilitation and Recovery Credit. The loan amount was SDR 21,900,000.00. The loan was further enhanced by SDR 7,900,000 upon request made by the Government of Sierra Leone, making a total of SDR 29,800,000. The total amount was disbursed in 3 tranches.
During the period under review, the British Government through the Department for International Development (DFID) made available to the Government of Sierra Leone a total of GBP24.3mn under the UK/SL programme grant aid. The funds were targeted towards the reimbursement of debt service payments already made within the period. The Leone equivalent was for the payment of salaries to teachers, police, health workers and expenditure in the social sectors.
(iii) External Debt by Creditor Category
Sierra Leone's stock of disbursed outstanding debt including principal arrears to all external creditors stood at US$ 1,192.5 mn as at end December 2000 as compared to US$ 1,201.9 mn as at end December 1999. This decrease can be attributed to the principal repayments of US$ 25.57 mn made to the IMF in 2000 as compared to the amount of US$ 12.41mn made in 1999. Another reason is the appreciation of the Leone against the other currencies, which has an impact on the total stock of debt in US Dollars. The increase in the disbursed outstanding debt from US$ 1,180.7mn in September 2000 to US$ 1,192.5mn in December 2000 has been due to World Bank disbursements made during the last quarter.
(iv) Foreign Currency Composition
The Special Drawing Rights and the United States Dollars continue to be the major currencies that dominate Sierra Leone's debt. They account for 37.49 per cent and 25.22 per cent respectively as at end December 2000. The total debt in Leones decreased considerably from Le2,037,649,552mn in 1999 to Le 1,468,276,810mn in 2000. This is as a result of the appreciation of the Leone against the other currencies.
(v) Debt Indicators, Debt Ratios and Debt Service
Debt service payments increased by 60.90 per cent from US$ 22.4mn in 1999 to US$ 36.8mn in 2000. Debt service to export ratio at 285 per cent was over and above the IMF/World Bank debt sustainability criteria of 150 per cent under the Enhanced HIPC Initiative. The debt service ratio in 2000 depicts a remarkable decrease when compared to the ratio in 1999. This is as a result of the 48.80 per cent increase in export earnings from US$ 6.30mn in 1999 to US$12.9mn in 2000.
Sierra Leone's strategy is still predicated on the best effort approach of servicing debts due to the first tier creditors namely the IMF, the World Bank and the ADF and to creditors who are disbursing and whose disbursements have a positive impact on the foreign exchange cash flow. The Department is also embarking on a verification exercise with external creditors to reconcile all loans in the database in order to undertake the debt sustainability analysis that would take the country to its decision point.
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