Although Sierra Leone is a potentially rich country with diverse resources, which include diamonds, gold, rutile, bauxite, and a variety of agricultural products, the economy has been severely depressed over the past two decades. The country has a chronic balance-of-payments deficit aggravated by a rebellion in the export-producing diamond regions of the country. The economy suffers from low production, poor export performance, large budget deficits, shortage of essential goods, deterioration of infrastructure, inability to service external debts, a pervasive parallel market, an influx of refugees from the civil war in Liberia, and inflation.
The government adhered to a structural adjustment program established in 1991–92 that called for a reduction in the number of civil service employees, increased privatization of the economy, increased taxation, and fiscal discipline. The program produced some improvements in the stability of the exchange rate and reduced inflation. Consequently, although some donors suspended aid, Sierra Leone gained the support of the World Bank, IMF, and other international agencies. In 1994, after the devaluation of the CFA franc, the inflation rate was at 104%.
Civil unrest in 1997 and the Army's takeover of the democratically elected government cast doubt on whether support would last. Less than a third of $230 million dollars pledged in 1996 for the first stage of a five-year recovery program was given and it was likely that the donors would renege on the remainder if the political situation worsened. In 1997, GDP weakened by 20%, and remained at this depressed rate; in 1998, GDP gained by only 0.7%. Peace talks in 1998 broke down during the same year, and fighting continued into 2002.
In 2002, Sierra Leone qualified for $950 million in debt relief under the IMF/World Bank Heavily Indebted Poor Countries (HIPC) initiative. Under the IMF's Poverty Reduction and Growth Facility (PRGF), and with the aid of bilateral donors, the country is implementing strategies to reduce poverty and introduce stability by decentralizing government functions, supporting good governance and restoring local government, improving education and health programs, building an effective police force, and fighting corruption. The smuggling of diamonds out of the country from rebel-controlled areas remains a catalyst for instability and undermines the legitimate economy. Bauxite and rutile mines that were closed during the war had not reopened by 2003.