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Sierra Leone’s Macroeconomic Situation Remains Challenging Despite Bold Policy Measures

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Unlocking the bottlenecks to robust and sustained real growth through economic diversification and addressing pre-existing macroeconomic weaknesses will be crucial for building a resilient economy that promotes inclusive growth and reduces poverty, according to the new World Bank Sierra Leone Economic Update (SLEU) launched today in Freetown. The country’s macroeconomic situation remains challenging despite the bold and courageous policy measures taken by the new government.

Growth is still low (3.7 percent), inflation and exchange rate depreciation are high (16.8 and 11.8 percent, respectively), the fiscal and current deficits are high (6.6 and 13.8 percent, respectively), and increasing debt has resulted in the country being downgraded from moderate to high risk of debt distress. However, the medium-term outlook is promising, with growth expected to reach 5.2 percent by 2021, driven primarily by supply side factors, including favorable agricultural output, uptick in mining activities and strong performance of the services sector, the report notes. Key risks to the growth outlook include a deterioration in Sierra Leone’s terms of trade; lower than anticipated FDI inflows and the effects on the exchange rate and prices; fiscal slippages including adverse debt dynamics; and financial sector weaknesses.

The SLEU is an annual publication that reports on and analyzes recent economic developments, reviews regional and global contexts and analyzes the implications for the country, and presents the medium-term outlook and prospects for the economy. The 2019 Update focuses on promoting inclusive growth and poverty reduction, namely ‘Financial Inclusion for Economic Growth and Development’. The target audience for the SLEU includes policy makers, business leaders, development partners and analysts interested in Sierra Leone’s economy.

“There is an urgent need for Sierra Leone to develop a comprehensive strategy for deepening the financial sector and this is required to ensure poverty reduction, job creation, investment and growth in the country,” said Gayle Martin, World Bank Country Manager for Sierra Leone. “Whether Sierra Leone can promote sustained inclusive growth and reduce poverty depends on whether it can modify the structure of the economy to generate more and better-paid manufacturing and service jobs. That could be accomplished by facilitating creation by the private sector of formal manufacturing and services activities and increasing the productivity of the informal sector.”

The special topic of the 2019 Update focuses on deepening the financial sector for inclusive economic growth and development. The report notes that usage of the financial system is low in Sierra Leone with only about 5 percent of adults using formal savings products and about 54 percent saving money within the past year. Access to finance for enterprises is a significant barrier to growth of the private sector with 40 percent of firms indicating lack of credit as their biggest constraint. Only 11 percent of Sierra Leoneans have mobile money accounts compared to 20.8 percent in Liberia, 38.9 in Ghana and 72.9 percent in Kenya.

“The government plays a key role in developing the financial sector through promoting resilience and stability. One of the key functions that needs to be established is an effective supervision and regulatory regime for financial institutions to address market failures like anti-competitive behavior, market misconduct, information asymmetries, and systemic instability, which can negatively impact financial sector development, economic growth, and shared prosperity,” said Youssouf Kiendrebeogo, World Bank Senior Economist and one of the authors of the SLEU.

To address existing macroeconomic weaknesses and enhance economic growth, the Sierra Leone government should maintain the fiscal consolidation path, improve debt policy and management and intensify efforts to clear the large stock of arrears.

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EU Politics

Commission invests €1 billion in innovative clean technology projects

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The Commission is launching the first call for proposals under the Innovation Fund , one of the world’s largest programmes for the demonstration of innovative low-carbon technologies, financed by revenues from the auction of emission allowances from the EU’s Emissions Trading System. The Innovation Fund will finance breakthrough technologies for renewable energy, energy-intensive industries, energy storage, and carbon capture, use and storage. It will provide a boost to the green recovery by creating local future-proof jobs, paving the way to climate neutrality and reinforcing European technological leadership on a global scale.

Executive Vice-President Frans Timmermans said: “This call for proposals comes at just the right time. The EU will invest €1 billion in promising, market-ready projects such as clean hydrogen or other low-carbon solutions for energy-intensive industries like steel, cement and chemicals. We will also support energy storage, grid solutions, and carbon capture and storage. These large-scale investments will help restart the EU economy and create a green recovery that leads us to climate neutrality in 2050.”

For the period 2020-2030, the Innovation Fund will allocate around €10 billion from the auctioning of allowances under the EU Emissions Trading System, in addition to undisbursed revenues from the Innovation Fund’s predecessor, the NER 300 programme.

The first call will provide grant funding of €1 billion to large-scale projects for clean technologies to help them overcome the risks linked to commercialisation and large-scale demonstration. This support will help new technologies to reach the market. For promising projects which are not yet ready for market, a separate budget of €8 million is set aside for project development assistance.

The call is open for projects in eligible sectors from all EU Member States, Iceland and Norway. The funds can be used in cooperation with other public funding initiatives, such as State aid or other EU funding programmes. Projects will be evaluated according to their potential to avoid greenhouse gas emission, innovation potential, financial and technical maturity, and potential for scaling up and cost efficiency. The deadline for submission of applications  is 29 October 2020. Projects can apply via the EU Funding and Tenders portal where more details on the overall procedure are available.

Background

The Innovation Fund aims to create the right financial incentives for companies and public authorities to invest now in the next generation of low-carbon technologies and give EU companies a first-mover advantage to become global technology leaders.

The Innovation Fund will be implemented by the Executive Agency for Networks and Innovation (INEA), while the European Investment Bank will provide project development assistance to promising projects that are not ready for full application.

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Electric mobility could boost green jobs as part of the COVID-19 recovery in Latin America

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The transition to electric mobility could help Latin America and Caribbean countries to reduce emissions and fulfill their commitments under the Paris Agreement on climate change, while generating green jobs as part of their recovery plans from the COVID-19 crisis, according to a new study.

The United Nations Environment Programme (UNEP) report, “Electric Mobility 2019: Status and Opportunities for Regional Collaboration in Latin America and the Caribbean,” analyzes the latest developments in 20 countries in the region and highlights the growing leadership of cities, companies, and civil associations in promoting new e-mobility technologies.

Though still a recent development, electrification of the public transport sector is happening at high speed in several countries in the region, says the study financed by the European Commission through the EUROCLIMA + Programme and the Spanish Agency for International Development Cooperation (AECID) and renewable energy company Acciona.

Chile stands outs with the largest fleet of electric buses in the region, with more than 400 units, while Colombia is expected to incorporate almost 500 electric buses in Bogotá, its capital. Other Colombian cities, like Cali and Medellín, have join Ecuador’s Guayaquil and Brazil’s Sao Paulo in introducing electric buses.

Increased efficiency, lower operation and maintenance costs of electric buses, as well as growing public concern around the impacts of road transport-related emissions on human health and the environment are the main drivers behind this transition in public transport, according to the study.

The transport sector is responsible for 15 per cent of greenhouse gas emissions in Latin America and the Caribbean and is one of the main drivers of poor air quality in cities, which causes more than 300,000 premature deaths a year in the Americas, according to the World Health Organization.

“In recent months we have seen a reduction of air pollution in cities in the region due to lockdowns to prevent the spread of COVID-19. But these improvements are only temporary. We must undertake a structural change so that our transportation systems contribute to the sustainability of our cities,” says Leo Heileman, UNEP Regional Director in Latin America and the Caribbean.

The report calls on decision-makers to prioritize the electrification of public transport, especially when updating the old bus fleets that run through the large cities in the region. There is fear of a “technology lock-in” over the next 7 to 15 years if authorities choose to renew old fleets with new internal combustion vehicles that will continue to pollute the air and cause severe health damages.

Some countries are already paving the way to ensure a transition to sustainable transport. Chile, Colombia, Costa Rica, and Panamá have designed national strategies on electric mobility, while Argentina, Dominican Republic, México, Paraguay are finalizing their own plans, according to the report.

More than 6,000 new light-duty electric vehicles (EVs) were registered in Latin America and the Caribbean, between January 2016 and September 2019, according to the report. The need for charging infrastructure has boosted new ventures and services. For example, e-corridors, already running in Brazil, Chile, México, and Uruguay, allow users to extend the autonomy of their EVs by making use of public fast charging point networks.   

Shared mobility businesses focusing on electric bicycles and skateboards are also being developed in at least nine countries in the region.

The development of electric vehicle charging infrastructure has the potential to foster new investments and jobs, which are key to COVID-19 recovery efforts in the region. 

The report calls on governments to develop a clear medium- and long-term roadmap that provides legal certainty for private investment and highlights the role of sustainable mobility in power grid expansion plans, in line with climate commitments under the Paris Agreement.

The 2015 Agreement, signed to date by nearly 200 countries, aims to keep the global temperature rise well below 2 degrees Celsius above pre-industrial levels by the end of the century and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.

The report was produced with inputs from the Latin American Association for Sustainable Mobility (ALAMOS) and contributions from the Center for Urban Sustainability in Costa Rica.

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ADB Becomes Observer for the Network for Greening the Financial System

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The Asian Development Bank (ADB) joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS) as an observer on 23 June.

NGFS, launched at the Paris One Planet Summit on 12 December 2017, is a group of central banks and supervisors willing to share best practices and contribute to the development of environment and climate risk management in the financial sector, while mobilizing mainstream finance to support the transition toward a sustainable economy.

“NGFS is a valuable network to share ADB’s approaches and experience in addressing climate risk management in the financial sector,” said ADB Chief Economist Yasuyuki Sawada. “We look forward to learning from and contributing to the network as we continue our pursuit of a more green and sustainable future.”

“ADB’s operational experience in implementing climate finance targets as well as its expertise in mobilizing innovative finance to support the transition of emerging Asian countries into sustainable economies will be of great value in supporting the work of NGFS,” said NGFS Chair Frank Elderson.

ADB joins the ranks of the World Bank, the International Finance Corporation, the International Monetary Fund, and the Organisation for Economic Co-operation and Development as NGFS observers.

ADB’s inclusion to the NGFS is aligned with the goals in its corporate strategy, the Strategy 2030, particularly in tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability; fostering regional cooperation and integration; and strengthening governance and institutional capacity.

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