Acting Bank Governor Highlights IMF FSSR

By By Aminaash Nyande Brima Information Attache Rabat, Morocco

The Acting Bank Governor of the Central Bank of Sierra Leone, Ibrahim Stevens participated in the IMF and the World Bank’s week-long annual meeting in Marrakech, Morocco, scheduled on 9th—15th October 2023, during which he highlighted IMF’s Financial Sector Stability Review (FSSR) and discussed the success stories of Sierra Leone.

The Acting Bank Governor was part of a panel discussion on the topic “Strengthening Financial Sector Stability in Fragile and Low-Income Countries”.

The FSSR proposed for, a well-structured approach to designing financial sector reforms based on a thorough diagnostic, capacity gaps, and FSSR recipient countries benefit from a well-prioritised package of technical assistance, in many cases supported by resident technical advisors, who work in close partnership with the authorities.

In his speech, Governor Ibrahim Stevens emphasised the potential efficiency and spillover effects on the monetary policy of such exercises.

He stated that there is a considerable amount of foreign currency deposits in the system and that the review allowed them to re-evaluate their regulatory framework. He said they have implemented changes that now require commercial banks to lend in foreign currency on a case-by-case basis, considering the associated risks.

The Acting Bank Governor stressed the need for the value of having a long-term advisor residing in the Central Bank, which can help maximize resources and contribute to long-term planning and capacity development.

Sharing his experience on what makes the financial sector stability review program different from other technical assistances that have been received by the Central Bank, Sierra Leone Acting Bank Governor said the FSSR is useful because of its detailed nature and structure. He said in their case, what made it particularly useful was their involvement in designing the Technical Assistance (TA) roadmap, following the diagnostic analysis, which he said was critical as it allowed them jointly prioritised what capacity needs there were in the Central Bank.

The Acting Bank Governor added that, in the case of Sierra Leone, it was a very detailed and deliberate exercise as they were able to firstly calibrate the problems, understand the capacity gaps and needs, but also from a very broad stand point, looked at the financial system itself and saw what was required to move the system forward.

He added that they were trying to achieve financial sector development through a detailed diagnostic, assessment, and analysis. He underscored that the FSSR is very good, but however works best when the recipient countries are actively involved in the development and designing of the TA roadmap.

When it comes to delivering the Technical Assistance, Governor Stevens said the IMF has several instruments, including short term expert to the regional tax, or in Sierra Leone ‘case, the AFRITAX West 2 and the African training institute.

He, however, stated that in his view like in The Gambia, the most useful aspect is having a long-term adviser resident in the Central Bank, who not only helps harness their leverages and all other resources that come in, but also helps in long term planning and continuation of capacity development.

One significant outcome of the FSSR in Sierra Leone, he said, it helps to address the challenge of excess liquidity in the banking system.

Speaking on the diagnostic done in Sierra Leone, Governor Stevens said it proved particularly helpful in developing financial stability work processes and risk-based supervision.

In the area of combination of instrument, with the resident supervisors, short-term coming in and other regional training activities that are involved as part of the structural approach in the FSSR, he stated that Sierra Leone has been able to make a considerable progress in that area.

The Acting Governor cited how they have been able to achieve management buy in within the Central Bank from the board to senior management, and that they have been able to redeploy resources to ensure that they have the necessary staff number to be able to take that particular objective forward.

Acknowledging the extreme usefulness of the program, the Governor Ibrahim Stevens noted that it has to be very well targeted and also the host Central Bank must be willing to make the necessary investment in order to ensure that the program itself succeeds, both from deploying their own resources, recruiting the right caliber of adequate number of staff, giving the necessary training, but also working with the old supervisors that are rooted in compliances, to have them change the status quo.

With the right plan in place and good management of the transition, Governor Stevens said, “you are bound to succeed,” disclosing how Sierra Leone has been able to achieve it. He said that over the past years, Sierra Leone completely turned around their approach to banking examination, with all their bank examinations now conducted from a purely risk-based standpoint.

As the IMF and World Bank annual meeting in Morocco closed, a statement from IMF’s Steering Committee chair called for new quota contributions that would “at least maintain the fund’s current resource envelope” as $185 billion worth of bilateral borrowing arrangements expire.

However, Quotas, contributed by member countries in proportion to their shareholding, made up only about 40% of the IMF’s roughly $1 trillion in lending firepower.

According to IMF, a larger proportion of quotas would provide more lending certainty as economic shocks grow. Also, the Development Committee endorsed the World Bank’s new vision “to create a world free of poverty on a livable planet,” aimed at expanding its mission to climate change, pandemics, fragile states and other global challenges.