By Sallieu S. Kanu
The Bank of Sierra Leone has expressed concern over weakening external sector performance, declining reserve cover, and a widening fiscal deficit amid slowing economic growth.
In its latest Monetary Policy Statement, the Bank disclosed that Sierra Leone’s trade deficit widened in the second quarter of 2026, driven by reduced export earnings and a growing import bill.
Although gross international reserves recorded moderate growth during the period, reserve accumulation failed to keep pace with rising import demand. As a result, reserve cover declined from 2.1 months of imports in the first quarter to 1.8 months in the second quarter, remaining well below the benchmark of three months of import cover.
Despite the deterioration, the Bank noted that conditions in the foreign exchange market remained stable, with low exchange rate volatility and orderly market operations.
On the fiscal front, the overall budget deficit widened compared to the corresponding period in 2025. The increase was largely linked to higher spending on capital projects, goods, and services, which outweighed gains in domestic revenue mobilisation.
Nevertheless, the Bank observed that the fiscal deficit remained within the agreed quarterly ceiling, resulting in better-than-expected fiscal performance.
The Monetary Policy Committee also reported strong growth in private-sector credit, with lending by commercial banks increasing by 52.2 percent, significantly exceeding the 39.4 percent target under the IMF Extended Credit Facility programme.
However, concerns were raised over deteriorating asset quality in the banking sector. The Non-Performing Loan (NPL) ratio rose to 10.2 percent, exceeding the regulatory ceiling of 10 percent.
The Committee urged commercial banks to strengthen credit management practices and tighten internal controls to curb the growth of bad loans and address operational risks associated with increasing fraud cases.
Despite these challenges, the banking sector was described as broadly stable, resilient, and profitable, supported by adequate capital buffers and compliance with most prudential requirements.
The Bank warned that prolonged geopolitical tensions, persistent supply chain disruptions, and renewed pressure on global energy markets could further weaken domestic economic performance if left unchecked.