HomeBase MetalsIron prices & Ebola in Sierra Leone result in economic slump

Iron prices & Ebola in Sierra Leone result in economic slump

Ebola outbreak may cause mining shutdown
The outbreak of Ebola in Sierra Leone has dealt a severe blow to the country’s economy

Sierra Leone – A sharp drop in iron ore price together the outbreak of Ebola in Sierra Leone have dealt a severe blow to the country’s economy and resulted in a deep slump in economic activity.

In fact, the country’s economy is set to shrink by about 13 % in 2015 after estimated growth of 6 % in 2014.

This is according to a report by the International Monetary Fund (IMF).

To assist the country overcome economic devastation, the IMF executive board has approved a loan and grant package for Sierra Leone that includes $102 million in extra financing (in addition to significant funding already granted) to help the West African country counter the slump in economic activity engendered by the Ebola outbreak.

The package comprises the release of part of the country’s existing IMF financing arrangement, a top-up of the loan total, and debt relief funded by an IMF grant.

Previous funding

In 2013 the IMF board approved a $12 million loan payout to Sierra Leone under the three-year Extended Credit Facility arrangement and also boosted financing under the loan arrangement by an extra $73 million, in a move aimed at generating the fiscal room to maneuver in tackling the Ebola epidemic and at meeting Sierra Leone’s balance of payment needs.

In addition, Sierra Leone became the second country— after Liberia—to benefit from grants from a newly established trust set up to help low-income countries recover from natural disasters. The board approved a grant of $29 million from the catastrophe containment window of the Catastrophe Containment and Relief Trust to provide debt relief to Sierra Leone, amounting to 20 % of the country’s quota, or subscription, in the IMF.

The package of IMF financing for Sierra Leone draws on $100 million in debt relief funded by IMF grants, announced in February. The debt relief follows $130 million in emergency assistance the IMF disbursed in September 2014 to the African countries worst hit by the Ebola outbreak — Guinea, Liberia, and Sierra Leone.

Economic tragedy

The Ebola epidemic has disrupted production and distribution channels for basic consumer goods, leading to lost incomes and heightened inflationary pressures. The population of orphans, the food insecure, and the vulnerable has increased significantly, stretching thin the current social protection system.

African Minerals' Tonkolili mine in Sierra Leone was put on care and maintenance after iron ore prices halved
African Minerals’ Tonkolili mine in Sierra Leone was put on care and maintenance after iron ore prices halved

As world iron ore prices halved in 2014, the main mining company stopped operating and activity slumped in the second half of the year in an industry that accounts for one quarter of Sierra Leone’s economy and half of its exports

The non-mineral economy contracted in 2014 as the Ebola outbreak reduced activity in agriculture, construction, tourism, and services; and investment projects were scaled back.

Activity has also been disrupted in labor-intensive sectors such as hospitality, due to travel bans and a substantial reduction in government and donor funded projects.

Sierra Leone’s government is currently working with development partners to craft a post-Ebola recovery strategy that would identify measures to revive economic activity, focusing on health, education, and agriculture.

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