Sierra Leone’s debt servicing costs surged in 2025 as the government leaned more heavily on short-term domestic borrowing, pushing interest payments sharply higher and adding strain to already stretched public finances, according to official data.
Total public debt rose to about US$3.07 billion at the end of December, equivalent to 38 percent of gross domestic product, driven largely by increased domestic borrowing even as external debt declined slightly.
Domestic debt climbed to roughly US$1.20 billion from about US$830 million a year earlier, reflecting the government’s growing reliance on the local debt market to finance persistent fiscal deficits amid declining external grants.
In contrast, external debt edged down to around US$1.87 billion from approximately US$1.93 billion, offering only limited relief to the overall debt burden.
The composition of domestic debt highlights rising refinancing risks, with treasury bills — short-term instruments — accounting for about US$870 million. Treasury bonds stood at roughly US$287 million, while central bank advances, known as Ways and Means, totalled around US$27 million.
During the year, the government raised approximately US$1.07 billion from domestic sources and repaid about US$825 million, resulting in a net increase of roughly US$245 million, largely through the rollover of maturing securities.
But this strategy came at a steep cost.
Interest payments on domestic debt jumped to about US$350 million in 2025 from roughly US$200 million the previous year, as treasury bill yields rose amid tighter liquidity conditions and investor demand for higher returns.
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Analysts say the shift toward short-term borrowing has exposed the government to higher and more volatile financing costs.
“Short-term instruments may provide quick access to funds, but they significantly increase refinancing and interest rate risks,” a regional fiscal analyst said.
External debt servicing also intensified. Total payments rose to around US$106 million, including about US$36 million in interest — nearly three times higher than in 2024 — reflecting rising global borrowing costs and repayment obligations.
The growing debt burden has further weakened Sierra Leone’s fiscal position.
The government ended 2025 with a negative cash and bank balance of approximately US$278 million, wider than the roughly US$267 million deficit recorded a year earlier. The annual cash deficit also deepened to about US$59 million, underscoring persistent liquidity challenges.
Economists warn that rising interest costs are crowding out spending on essential services and development priorities, while increasing the risks associated with rolling over large volumes of short-term debt.
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“The rapid increase in debt servicing costs limits fiscal space and complicates economic management,” the analyst said.
The data highlights the difficult balancing act facing policymakers as they seek to finance government operations while maintaining debt sustainability in a challenging economic environment.
With grant inflows weakening and external financing conditions tightening, authorities have increasingly turned to domestic markets — a strategy that is proving costly as yields rise.
Looking ahead, analysts say efforts to lengthen the maturity profile of domestic debt, improve revenue mobilisation and secure more concessional external financing will be critical to easing pressure on public finances.
For now, however, Sierra Leone faces mounting fiscal constraints as higher borrowing costs and growing refinancing needs continue to weigh on its economic outlook.
