Sierra Leone: Ebola debt to IMF contributes to big cuts in public spending

In November the IMF agreed a new $172 million loan programme with Sierra Leone, spread over the next 3 and a half years, until mid-2022. At the same time, the IMF increased its rating of Sierra Leone’s risk of debt default from moderate to high.

The West African country has become heavily indebted due to the Ebola crisis of 2014. Following international campaigning, including by Jubilee Debt Campaign, the IMF agreed to cancel $29 million of Sierra Leone’s debt payments coming due in 2015 and 2016 in response to Ebola. However, the IMF also lent more money, totaling $254 million between 2015 and 2017. Jubilee Debt Campaign warned that lending more money in response to the Ebola crisis would lead to a future debt crisis, and called for all international assistance to be given as debt relief and grants instead.

The Magbenteh Ebola Treatment Centre, run by the African Union support to Ebola Outbreak in West Africa (ASEOWA), December 2014. (Photo: UNMEER/Martine Perret/Flickr)

The IMF now say Sierra Leone’s external government debt payments will be over 13% of revenue in 2019, rising to 19% by 2022. If there is another economic shock the IMF estimates payments will reach 25% of revenue by 2022. A significant amount of these payments are to the IMF itself (see graph below).

Source: Estimated by Jubilee Debt Campaign based on IMF Debt Sustainability Analysis, IMF projections on debt payments to it, World Bank projections on debt payments to it and World Bank International Debt Statistics database

The new IMF loans mean $43 million will be disbursed every year until mid-2022. This covers around half Sierra Leone’s debt payments in 2019, falling to one-third by 2021. And of course, these new IMF loans will then come due to be repaid from 2023 to 2032. This means that through these future debt payments, the impact of Ebola on reducing the government’s finances will continue for another decade.

Under the IMF programme public spending per person is required to fall by 13% in 2019 on 2018 levels (and by 15% on 2016 levels). Public spending is then allowed to increase, but will still be 7% lower per person in 2022 than it was in 2016. For one of the most impoverished countries in the world to be having to cut public spending shows a shocking global commitment in responding to the Ebola crisis and meeting the Sustainable Development Goals.

Calculated by Jubilee Debt Campaign from IMF, ‘Sierra Leone : Request for An Extended Arrangement Under the Extended Credit Facility-Press Release; Debt Sustainability Analysis; Staff Statement; and Statement by the Executive Director for Sierra Leone’ December 2018

Under the IMF programme, government revenue is projected to increase significantly, from $56 per person in 2016 to $79 per person in 2022 (in 2016 prices) an increase of 41%. However, the people of Sierra Leone will not see the benefit of any increase in tax revenue, with much of it being spent on debt payments.

Moreover, the IMF may be very optimistic predicting that Sierra Leone’s economy will grow by over 5% a year, and government revenue as a proportion of GDP will increase, from 12.1% of GDP in 2016 to 16.5% of GDP in 2022. Previous Jubilee Debt Campaign research has found that only 22% of low and middle income countries with high GDP growth rates were also able to increase government revenue as a percentage of GDP at the same time.

The new government of Sierra Leone has huge challenges, with incoming President Julius Maada Bio appealing for help in April 2018 to deal with the debt crisis he says he has inherited from the previous government. A necessary step is cancelling debt which came from the Ebola loans, to give the possibility that government spending can increase with the hoped for increase in government revenue.

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