Abstract

High inflation rates and persistent budget deficits represent formidable structural challenges for Sierra Leone, predominantly driven by exogenous macroeconomic shocks and fiscal-monetary policy misalignments. These imbalances have disrupted growth, particularly in 2024, when inflation reached 29.45% and budget deficit (excluding grants) rose to NLe8.6 billion (about $376.37 million). This research investigates the impact of inflation and budget deficits as co-crises on economic growth in Sierra Leone for the period 1980 to 2024. Using time-series secondary data sourced from the World Bank’s World Development Indicators Database, Statistics Sierra Leone, and the Central Bank of Sierra Leone, the research employs an Autoregressive Distributed Lag (ARDL) technique. Real Gross Domestic Product, which is the dependent variable; Inflation (measured by the consumer price index) and Budget Deficits (measured as a percentage of gross domestic product), which are the key independent variables; are incorporated into the model. Unit root tests were conducted for stationarity through Augmented Dickey-Fuller and Phillips-Perron tests, while diagnostic tests were performed to ensure absence of serial correlation and heteroskedasticity. The research empirically reveals a negative long-run relationship between inflation, budget deficits, and economic growth in Sierra Leone for the period being investigated. The research provides key recommendations consistent with findings, among which, is the need for solid policy coordination between the fiscal and monetary authorities in Sierra Leone in order to enhance fiscal discipline through improved revenue mobilisation, adopting inflation-targeting frameworks, and implementing structural reforms to achieve macroeconomic stability and promote sustainable economic growth.