At the mature age of 60 years, the Bank of Sierra Leone has a lot of reasons to look back in dignity and laud itself for a lifetime of commendable monetary policy services to the now peaceful, forward-looking West African country.
The nation’s apex financial institution has achieved several significant milestones since the enactment of the Bank of Sierra Leone Act in 2019. Its primary mandate, which has evolved over time, now includes issuing and managing the nation’s currency, achieving and maintaining price stability, fostering a sound financial system, and supporting the government’s economic policy.
Less than a year ago, the Bank successfully redenominated the country’s currency, the Leone, by removing three zeros from the old currency, completing the exercise in December 2023. This alone helped to rationalise the nation’s accounting system, making financial data more manageable.
That daunting policy initiative, in concert with other smart measures, has helped to stabilise the economy in patently evident ways. The Bank adopted a tight monetary policy stance, raising the Monetary Policy Rate consistently over 18 months. This strategy, coupled with a stable exchange rate and declining international food and energy prices, has been crucial in reversing the inflation trend, with headline inflation slowing down significantly from 54.59% in October 2023 to 25.49% in August 2024 .
To be sure, the Bank has taken seriously its obligation to support the government’s National Development Plan and the Big Five priority areas.
Starting with the basics, the Bank is supporting the government’s economic policy through the ‘Feed Salone’ programme with the establishment of the Agricultural Credit Facility (ACF) worth NLe 230 million and the Youth Entrepreneurship Fund (YEF) worth NLe 23.8 million.
Financial Inclusion:
The Bank’s drive to promote digital financial services, together with its financial literacy initiatives, aligns directly with the national development goals of improving financial inclusion overall. This is evident in mobile banking services for underserved populations, the strengthening of digital payment infrastructure, and the fostering of partnerships with fintech companies.
The Bank of Sierra Leone is the first to operate a digital sandbox in the sub-region. It is also focused on developing regulatory frameworks for safe and accessible digital financial services. Additionally, the Bank has conducted extensive financial literacy and education campaigns to ensure the population is well-informed about digital financial services.
Key legislative reforms include the Deposit Protection Act 2023, the Credit Reference Act 2011, and the Revised Borrowers and Lenders Act 2019. These reforms are pivotal in strengthening the financial inclusion rate of 29%, particularly in rural areas, while fostering partnerships with fintech companies. Additionally, reforms such as the Deposit Protection Act 2023 have been crucial in ensuring that more people, especially underserved populations, have access to financial services. The initiatives to expand digital financial services and financial inclusion, particularly among women, youth, and rural communities, demonstrate the Bank’s commitment to inclusive economic growth.
Strategic Plan for 2024-2028:
In June 2024, the Bank launched its Strategic Plan, a comprehensive roadmap aimed at repositioning the Bank amidst evolving domestic and global challenges. This plan seeks to transform the Bank into a modern, effective, and dynamic institution that aligns with both national financial growth and global financial systems. Key objectives include advancing digital transformation by promoting digital payment systems, fully implementing the National Payments System Act 2022, and enhancing the monetary policy framework to ensure price stability. These initiatives are intended to support macroeconomic stability, align with government economic policies, and foster a resilient and inclusive financial system.
The National Payment Switch:
The implementation of the National Payment Switch, a major component of the strategic plan, is arguably the most pivotal and critical step towards achieving a cashless society in Sierra Leone. This unified platform for interbank transactions has enabled real-time electronic payments, reduced reliance on cash, and increased the adoption of digital payments among businesses and consumers. Additionally, the initiative has promoted financial inclusion by making digital payments more accessible, particularly in rural areas, and has supported the growth of e-commerce and the digital economy. According to the 2021 World Bank Index Data, the average financial inclusion rate in Sierra Leone currently stands at 29%, with 33% for men, 25% for both women and youth, and 22% for rural communities. While challenges such as digital literacy and cybersecurity need to be addressed, progress towards a cashless society is promising with the imminent launch of Instant Payment.
Strengthening the Balance Sheet:
The Bank’s efforts to strengthen its balance sheet are evident in its approach to managing inflation and exchange rate stability. The strategy includes disciplined monetary policy management and fiscal reforms that contribute to financial resilience, both of which are critical for maintaining a strong balance sheet.
President Bio’s goal to reduce inflation to the low 20% range by the end of 2024, and subsequently to a single-digit range in the medium term, is feasible through a multi-faceted approach. This strategy would involve continued monetary tightening, disciplined monetary policy, prudent fiscal management, financial sector reforms, support for agricultural productivity through the Bank’s Agricultural Credit Facility (ACF), and reducing excess volatility in the exchange rate. A key element of this strategy is the coordination between monetary and fiscal policies, which enhances financial sector resilience, and improving data collection and analysis to inform and communicate policy decisions.
Interest rates play a crucial role in influencing investment and economic growth. Currently, lending rates are high, reflecting perceived risks and inflation, which can deter investment by increasing borrowing costs. However, policy measures such as adjustments to the monetary policy rate, their subsequent transmission, promotion of financial inclusion, and enhancement of credit information systems, which consider the administration’s holistic view of the economy and customer risk profiles, are essential for encouraging investment. Additionally, lowering borrowing costs and fostering competition in the banking sector are critical to creating a conducive environment for investment.
Investment opportunities in Sierra Leone’s financial sector:
Sierra Leone’s financial sector offers diverse investment opportunities, driven by ongoing economic reforms and increasing financial inclusion. Key areas include digital finance and fintech, microfinance and SME financing, green finance and sustainable investments, real estate and infrastructure financing, capital markets and securities, and insurance and risk management. The development of financial literacy and education programmes presents further opportunities for investment, as these initiatives are crucial for empowering the population and supporting the growth of the financial sector.
Promoting lending in foreign currency on a case-by-case basis:
The Bank of Sierra Leone has introduced reforms that permit lending and transactions in foreign currencies on a case-by-case basis. This approach enhances financial resilience and supports economic growth by allowing flexibility in currency usage.