The Inflationary Effects of Fiscal Deficit in Sierra Leone: A Simulation Approach

The objective of the study is to identify rules for the conduct of fiscal and monetary policies for low inflation in Sierra Leone. Policy simulations are carried out following the estimation of an inflation model with annual data from 1971 to 2012. The results reveal that, achieving Sierra Leone's medium-term inflation targets of 6.0%, 5.4% and 5.4% for 2015, 2016, and 2017, respectively, requires budget deficit, excluding grants, to be 6.0 %, 5.6%, and 4.9% of GDP, respectively, with corresponding money supply growth targets of 10.4%, 9.7% and 8.6%, respectively.