Governor of the Bank of Sierra Leone, Ibrahim Stevens says his strategy aims to rebuild trust in the Leone, after decades of inflation, shocks and fiscal strain, noting that the numbers are improving – but the structural issues remain daunting.
“Sierra Leone has come a long way,” he says, pointing to efforts to stabilise an economy once battered by soaring inflation, a plummeting currency and dangerously thin reserves.
This is no small feat in a country where monetary tools often compete with fiscal imperatives, and where the legacy of aid dependence is giving way to a more precarious era of self-reliance. “The exchange rate had been excessively volatile. For the past 18 months, it has been remarkably stable,” he posits.
Delicate redenomination
When Sierra Leone’s foreign exchange reserves fell below two months of import cover, alarm bells rang – not just in Freetown, but in Washington. The International Monetary Fund (IMF) flagged it as a systemic weakness. Stevens credits tighter fiscal coordination and market reforms. “We sat with the ministry of finance and said: ‘We need to be super-efficient in managing our foreign exchange flows,” he says.
The central bank also stepped into the market, buying dollars from commercial banks and smoothing regulations. “In the past year, we’ve allowed lending in foreign currency under strict rules. We updated laws, and we’ve avoided surprising the market with abrupt changes.” Confidence, he says, is as important as the reserves.
There was also the delicate currency redenomination – dropping three zeros and switching to the new leone (NLE). “I introduced a deliberate policy shift in November 2023 by assuring that people will not lose their money and the Bank of Sierra Leone will always exchange at face value,” says Stevens.
“We were able to collect 99% of the old currency. We will continue to exchange the old currency for the new anytime it is presented at the Bank of Sierra Leone. This helped prevent dollarisation during the transition.”
Government debt
Still, foreign currency dominates. While banks are long on Leones, depositors continue to hedge in dollars. “Yes, there has been an increase in foreign currency deposits, but I don’t believe it’s a monumental shift,” Stevens says.
Forex lending is tightly controlled, he says – permitted only with central bank sign-off, and only to borrowers with foreign income. “It’s limited to mining firms, hotels and similar businesses.” The aim is to put idle dollar deposits to productive use while slowly rebuilding trust in the Leone.
Treasury bill yields remain stubbornly high – around 26% – even as inflation falls. Stevens agrees this blunts the impact of monetary tightening, but says the correction must be gradual. “You can’t have real interest rates 20% above inflation, but a sudden drop would disrupt the banking sector.”
One source of the problem is government debt. “Over a third of bank assets are in government securities. It creates systemic risk. We’re in discussions with the IMF to reduce this exposure, but it must be managed carefully,” Stevens says.
Symbiotic relationship
The IMF has called for an end to fiscal dominance. But how insulated is the central bank? Monetary policy is independent, but in practice, coordination is key. “We’re fiscal advisers. We sit on a joint cash management committee. There is a symbiotic relationship,” he adds.
Under the IMF programme, monetary and fiscal levers must align. “We take an independent stance, but with full awareness of the fiscal environment.”
That stance is evolving through reform. A five-year monetary operations strategy aims to improve clarity and modernise policy tools. Yet Sierra Leone faces what Stevens calls a paradox: “We have a forward-looking Monetary Policy Committee, but we still use quantity-based targets to meet IMF benchmarks.” This can create contradictions between interest rate moves and the liquidity actions required to implement them.
There are also some very encouraging signs. “Our interbank rate tracks the policy rate closely. So at least the corridor system is working,” he assures.
At 3.1% of GDP, credit to the private sector is anaemic – largely due to crowding out by government borrowing. Stevens says this must change: “The economy won’t grow if the private sector doesn’t grow.”
Financial inclusion strategy
The Bank is leading Sierra Leone’s financial inclusion strategy, in its second phase, with improved access supported by fintech regulation.
“We had the first regulatory sandbox in West Africa in 2017. We’ve promoted mobile money, addressed gender bias in lending, and supported Covid-era facilities,” he point out, citing progress on the credit registry and collateral reform, though “we need to do more”.
On exchange rate management, Stevens is measured. “We operate a flexible, market-driven regime. Banks quote at any rate they choose. We publish a daily weighted average – nothing else,” he says. According to him, the real effective exchange rate has appreciated, raising concerns about competitiveness.
Stevens admits that price discovery starts in the informal market. “Research shows the parallel market sets the tone. It’s not ideal, but it’s not new,” he explains.
He sketches the exchange rate’s erratic history – stable for years, then jolted by shocks: war, Ebola, Covid. “When markets trust the regime, the rate holds – until the next crisis.” Stevens doesn’t downplay the risks, but he is not defeatist. “We’re not out of the woods, but we’ve made progress, and that progress matters.”
