Sierra Leone is likely to record a real GDP growth of 4.1 per cent in 2021, following an estimated 3.1 per cent contraction in 2020, according to Fitch Solutions.
Accordingly, global demand for commodities drives the growth forecast. A development expected to spur increased production in the country’s mining sector. That said, the current forecast represents a slight downwards revision from previous forecast of 4.8 per cent, Fitch Solutions indicates.
Furthermore, this reflects the impact of a sharp rise in COVID-19 infections which resulted in a re-imposition of some level of restrictions including social distancing measures.
Mining sector to grow strongly
According to Fitch Solutions, the strong growth in mining sector exports will be the main driver of the economic recovery. Production at major mining projects had ceased in 2019 due to the government suspending several licenses.
“We at Fitch Solutions expect Sierra Leone to record real GDP growth of 4.1 per cent in 2021, following an estimated 3.1 per cent contraction in 2020.
“Strong growth in mining production will be the main driver of the economic recovery; ongoing Covid-19 restrictions will limit the rebound in private consumption growth.
Fitch Solutions
Moreover, this underpins the forecast that iron ore production will grow by 850.0 percent. Also, that the value of the mining industry will increase to US$460 million from US$186 million in 2020.
Additionally, fewer border restrictions and increasing external demand will further bolster external trade, contributing to exports rising by 36.1 percent.
While Fitch Solutions expect an uptick in imports of capital goods, growth in total merchandise imports will be limited by subdued consumer demand.
More so, Fitch Solutions believes net exports will be the largest driver of economic growth, contributing 3.4 percentage points to headline growth in 2021.
Similarly, private consumption is expected to recover, albeit growth will remain below trend. As such, labor market conditions are likely to recover, thus improving household incomes. However, the re-imposition of overnight curfew and ban on mass gatherings will reduce the pace of the recovery in consumer demand.
Fiscal consolidation to reduce government spending
Moreover, Fitch Solutions believes that restrictions on travel will continue to create supply bottlenecks in urban areas. This will further keep price growth elevated, weighing on consumer purchasing power.
Meanwhile, expectations are that private consumption will grow by 0.9 percent in 2021, below an average of 3.4 percent from 2015-2019.
Also, foreign direct investment is expected to result in a modest recovery in gross fixed capital formation. For instance, the expansion of the Tonkolili mine project will provide some tailwinds to capital formation in the coming quarters.
This is important as Kingho Mining Company invests in additional infrastructure. The aim is to enable it to achieve its production target of 20.0 million tonnes of iron ore by 2023. That said, subdued domestic appetite for capital investments will cap growth in fixed investment.
According to Fitch Solutions, the government’s pursuance of fiscal consolidation will limit government consumption. The government’s budget deficit widened to 5.8 percent of GDP in 2020 from 2.9 percent in 2019 as a result of the coronavirus expenditure.
However, the government will likely rein in spending in 2021. This will follow the fiscal consolidation plans detailed in its budget in the coming quarters. Therefore, Fitch Solutions forecasts real government consumption to fall by 1.5 per cent in 2021.
Despite these forecasts, Fitch Solutions believes Sierra Leone’s real GDP will increase to 5.0 per cent in 2022, thus outperforming regional peers, where regional average stands at 3.8 per cent.
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