Sierra Leone Minister of Finance, Jacob Jusu Saffa wants the world to know that the country is wearing a new look, “economically” speaking. The country’s quaintly-named economic blueprint, the New Direction says it all. This exclusive interview reveals the impressive results of the current administration’s effort to straight out its development trucks and its readiness to engage development partners in line with global best practice and regard for the mutual interests of investors and Sierra Leone’s economy.
Challenges currently facing the Sierra Leone economy
No economy can operate without challenges, and Sierra Leone is no exception. One of the challenges currently facing the economy is the massive stock of debt that we inherited. The total stock of public debt as at December 2017 amounted to Le16 trillion of which external and domestic debt accounted for Le11.48 trillion and Le4.52 trillion respectively.
Debt service payment has been challenging too. As at December 2017, debt service payment amounted to Le838.66 billion and has risen to Le1.21 trillion. More recently, the significant depreciation of the Leone against major currencies has pushed up the stock of debt dominated in Leone causing a pass-through effect on final prices to the public. Fortunately, we have instituted sound policies to mitigate these effects, increased domestic revenue generation and helped in debt servicing.
With respect to the exchange rate depreciation, the Bank of Sierra Leone in the 2019 Banking Act has criminalised any transaction in currencies other than the Leone. On the supply side, we have designed and implemented policies that aim to diversify the economy to increase export.
The Ministry of Mines and Mineral Resources is reviewing existing mining agreements to see that the Government is able to realise its maximum revenue from any such contracts to increase the inflow of foreign currency that will help to strengthen the Leone. Government is also implementing measures to improve the business environment. This will attract Foreign Direct Investment and increase foreign exchange earnings. All these are without prejudice to policies and projects to improve productivity in agriculture and fisheries, which will not only increase exports but also enable import substitution which ultimately reduces the demand for foreign currencies.
Expanding fiscal space
The policies being implemented include: the Treasury Single Account (TSA), liberalising domestic fuel prices, rationalising duty and tax waivers, the ECOWAS Common External Tariff as well as strengthening tax administration. This resulted in a significant improvement in revenue collection from 12.3 per cent of GDP in 2017 to 13.7 per cent of 2018. Domestic revenue collection for 2019 is on track. Against the yearly target of 14.1 per cent of GDP for 2019, total revenue collected for the first half of the year amounted to an equivalent of 7 per cent of GDP.
Coming to the efficiency and effectiveness of public expenditures, the measures include payroll reforms to ensure the sustainability of the Government wage bill; strengthening public procurement by ensuring that most transactions are done through open competitive bidding and migrating to electronic procurement in order to improve the transparency of the process. Others are strengthening commitment controls; automating the budget execution process, and rolling out the Integrated Financial Management Information System (IFMIS) in all MDAs as well as prioritising the implementation of domestic-funded capital projects.
Furthermore, Government is reducing waste in public spending by restricting overseas travel to statutory meetings and specialised training needs for MDAs. This enabled Government to save Le2.7billion in 2018 on foreign travel alone. Government also discontinued payment for fuel, internet and mobile phone services in the residences of civil servants. The results of these fiscal consolidation measures are significant increase in domestic revenue collection as well as expenditure savings which created needed fiscal space for spending on priority areas such as the free quality education, health, infrastructure, energy, as well as payment of civil servants’ wages and salaries without resorting to ways and means advances.
Restoring donor and development partner confidence
We started from fixing the Extended Credit Facility (ECF) arrangement with the IMF went off-track due to the previous administration’s inability to implement key reforms, including domestic revenue mobilisation reforms. In general, the level of confidence of other development partners depends on that country’s programme with the IMF. Recognising this, the New Direction Government engaged the IMF immediately and expressed commitment to restoring the derailed IMF programme.
Following the successful implementation of agreed structural benchmarks, Executive Board of the IMF approved a new economic and financial programme supported under the Extended Credit Facility in November 2018. Total disbursements under this programme will amount to SDR124.44 million, equivalent to US$172.1million over a period of 43 months (June 2018 to December 2021).
The first review of performance under the ECF programme with the IMF was successfully completed in June 2019, and the sum of US$21.62 was disbursed as a balance of payment and budget support. This triggered the disbursement of budget support by other development partners. The World Bank disbursed the delayed 2018 budget support of US$40 million in early 2019 and is planning to increase its budget support to the tune of US$100 million under the Productivity and Transparency Support Credit. The ADF also disbursed US$21 million budget support for 2019. The African Development Bank also disbursed US$21 million as budget support. The European Union under the State Building Contract will disburse approximately 25 million Euros as budget support for 2019.
On promises of economic reforms and fidelity to budget
To monitor progress in the implementation of the 2019 Budget by Ministries, Departments and Agencies (MDAs), I initiated the concept of budget implementation tracker that shows on a quarterly basis the number of activities completed, those that are on track, those at risk, and those with critical issues. For instance, Free Quality Education, Improved Access to Quality Healthcare, and Social Protections, which comprise the Human Capital Development Policy have been huge success. Some of the activities implemented under the Free Quality Education Programme include free tuition for all pupils attending Government and Government-assisted primary and secondary schools and the provision of teaching and learning materials and textbooks. Government is also implementing a school feeding programme in some districts in the country.
We have the National Medical and Supplies Agency (NMSA) which deals with the procurement and supply of drugs to healthcare facilities. Increased budgetary allocation to the Free Health Care Initiative, provides free medical care for pregnant women, lactating mothers and children under five years of age. Government is also expanding the coverage of the programme to include school children and Persons with Disabilities.
To tackle deep poverty, Government, through the National Commission for Social Action (NaCSA), is rolling out a social safety net programme to support the most vulnerable segments of the population. NaCSA has been providing income support to 13,000 impoverished households. The two-year pilot programme which started in December 2018 was implemented in Bombali, Kono, Moyamba and the Western Rural districts. The Social Safety Net (SSN) programme involves cash transfers to identified vulnerable households. Each beneficiary household receives a cash transfer of the Leone, equivalent to US$15 per month, payable on a quarterly basis giving a total of US$45 per quarter.
Meanwhile, NaCSA is also providing funds for Labour Intensive Cash For Work’ (CFW) to vulnerable youths between the ages of 15 and 35 years in the same districts. While the SSN target heads of households, the CFW targets vulnerable youths who are willing to participate in community farming activities for a regular daily wage.
Government is also implementing business regulatory reforms to promote investments in key sectors, including agriculture, fisheries, tourism, manufacturing, and services. Though a lot remains to be done to improve our ranking on the World Bank Ease of Doing Business Report, we have made significant progress on some reforms such as starting a business, paying taxes etc. Business registration can now be completed at one point within 24 hours. Government is in the process of establishing a Single Electronic Window for the clearance of goods at the Quay. In furtherance of the economic diversification agenda, the World Bank is supporting Government to develop an Economic Diversification project. This project has four components: promoting business environment reforms and supporting their implementation; supporting the growth of Small and Medium-sized Enterprises (SMEs) and; entrepreneurship in non-mining sectors and; Strengthening public policy and project implementation.
War on corruption public service
As a first step, the president issued a moratorium on recruitment in the public service. All vacancies in the public service thereafter required an Executive Clearance while effectively removing all public servants above the retirement age of 60 years with effect from 31st May 2018. In collaboration with the National Civil Registration Authority (NCRA), biometric verification of public servants was carried out before an internal audit of the payroll. The Directorate of Science, Technology and Innovation at the State House also carried out a scientific analysis of the payroll data. Anomalies in the Government payroll such as dual employment, a mismatch between dates of births on the payroll and those embedded in the NASSIT numbers as well as the existence of ghost workers were revealed. Thus far, 16,000 of about 33,000 employee records that were found to have mismatches have been cleaned-up. Going forward, no new employee will be added to payroll without a valid National Identification Number.
Government wage consequently declined from 6.7 per cent of GDP in 2017 to 6.3 per cent of GDP in 2018. The objective now is to maintain it at the sustainable level of 6.0 per cent of GDP in the medium to long term.
Outlook for Sierra Leone economy
Very bright, I am pleased to say. The economy is projected to grow by 5.4 per cent in 2019. Excluding earnings from iron ore, the economy is expected to grow by 5.1 per cent. Inflation is projected to fall to 14 per cent by the end of 2019 and return to single-digit by 2021 on the back of projected stability in the exchange rate, helped by exports increase in the medium term as well as an increase in domestic food production and tight monetary policy from the Bank of Sierra Leone.
The budget deficit, including grants, is projected to be just 3.7 per cent in 2022, driven by expenditure reforms and stronger revenue mobilisation strategy. Fiscal consolidation effort is expected to result in a reduction of the overall budget deficit, to an average of 3 per cent of GDP in 2021. We envisage stronger foreign inflows, including direct investment in the medium term. Expected expansion in rutile and iron ore mines would finance the current account deficit projected to be 12.7 per cent of GDP in 2019, narrowing further to 10.9 per cent in 2020.
With the confidence the IMF now has in the Government, we are going to ensure that development partners also maintain support by staying faithful to our regime of reforms and prudent macro-economic management.