By: Mohamed Sahr
The Fiscal Strategy for FY2025-2027 indicates the government’s plans to achieve fiscal sustainability, maintain macroeconomic stability, and promote economic growth and development in Sierra Leone. Key highlights of the strategy include revenue targets, expenditure targets, budget allocations, and fiscal consolidations.
Section 23 (1) of the Public Financial Management Act, 2016 requires the Minister of Finance to prepare an Annual Fiscal Strategy Statement for each subsequent year covering three years only. The Annual FSS highlights the government’s fiscal objectives for the next three years and strategies to be implemented to achieve those objectives. It also indicates the revenue and expenditure targets and budget allocations to MDAs for the medium term.
The 2025 FSS is structured as follows: After the introduction, section 1 states the broad fiscal objectives of the Government for the period 2025-2027. Section 2 provides an overview of recent global and domestic economic developments, outlooks, and risks. The section also analyses the variance between previous macroeconomic forecasts and actual outturns.
Section 3 presents the medium-term macroeconomic forecasts (2025-2027) and the assumptions underlying these forecasts. Section 4 discusses Fiscal Policy, including recent fiscal performance and progress meeting the fiscal objectives stated in the previous FSSs. The section also presents the medium-term fiscal forecasts (revenue, expenditure, and debt) for the period 2025-2027 and the assumptions underlying the revenue forecasts.
The section also describes the strategies for achieving the fiscal objectives, which include revenue mobilization, expenditure, and debt management strategies. Section 5 presents the Medium-Term Expenditure Framework (MTEF) and the Public Investment Programme (PIP). Section 6 presents the Fiscal Risk Statement, which discusses the macroeconomic and specific fiscal risks that have the potential to cause deviation of fiscal outcomes from the stated fiscal objectives. The section also proposes measures to mitigate these risks.
The Sierra Leone economy is projected to remain resilient in the medium term, supported by buoyant activities in the mining and agriculture sectors, relative macroeconomic stability, and a favourable global economic outlook. Economic growth is projected to accelerate to 4.5 percent in 2025 and further to an average of 4.7 percent in 2026 and 2027.
Inflationary pressures continue to ease in 2024 and are projected to return to single digits in the medium term. End-of-period headline inflation is projected to decline to 14.9 percent in 2025, 11.4 percent in 2026, and further down to a single digit of 9 percent in 2027.
Annual average inflation is expected to continue declining to 18.0 percent in 2025 and 10.2 percent in 2027. 4.3 Exports After a robust expansion in 2023 and 2024 driven by iron ore, export growth is projected to stabilize at 0.5 percent in 2025. Export growth will resume in 2026 with a growth rate of 4.8 percent and continue to grow by 2.7 percent in 2027.
Imports After contracting by 3.3 percent in 2023, imports are projected to grow strongly by 7.2 percent in 2024. After that, import growth is projected to slow down to 3.6 percent in 2025 and further to 1.5 percent in 2027.
Current Account Balance Reflecting the improvement in the trade balance and increase in official transfers, the current account deficit, including official grants, is projected to improve in the medium term from 4.7 percent of GDP in 2025 to 3.4 percent of GDP in 2027 from 5.3 percent in 2023. 4.6 Balance of Payments The overall balance of payments is projected to be in surplus in the medium term, averaging 0.7 percent of GDP during 2025-2027.
Gross International Reserves: the Gross international reserves of BSL are programmed to increase from 2.7 months of imports in 2025 to 3.0 months of import cover in the medium term. Exchange Rate, The nominal exchange rate between the Leone and internationally traded currencies, including the US dollar, will remain market-determined, and as such, movement in the exchange rate will be determined by the difference between inflation in Sierra Leone and that of our trading partners and other macroeconomic fundamentals. (Source: Ministry of Finance)
FISCAL POLICY
However, fiscal policy’s overarching objective has always been to achieve fiscal and debt sustainability. However, since 2020, achieving these objectives has been challenging due to repeated adverse external shocks combined with policy slippages, which led to the widening of the budget deficit to 6.1 percent of GDP in 2022 from 3.9 percent in 2021.
Given the need to finance these deficits, public debt increased to 55.3 percent of GDP in 2022. Recognizing the adverse macroeconomic implications of unsustainable budget deficits, the Government re-introduced fiscal consolidation in 2023 to stabilize the fiscal and debt situation.
Fiscal Developments in 2022-2023 and First Half of 2024 5.1.1 Fiscal Performance during 2022 and 2023 Fiscal performance in 2022 was adversely affected by the lingering impact of COVID-19, the spillovers of the Ukraine crisis, and policy slippages. In nominal terms, domestic revenue increased marginally to Le7.05 billion in 2022 from Le6.92 billion in 2021. As a percentage of GDP, domestic revenue dropped to 7.2 percent in 2022 from 9.2 percent in 2021.
At the same time, total expenditures increased significantly to 19.9 percent of GDP in 2022, driven by overruns in all categories. This was partly due to the rise in inflation and sharp depreciation of the Leone and the need to continue responding to the impact of the shocks on the population. As a result, the budget deficit widened to 6.1 percent of GDP in 2022 from 3.1 percent of GDP in 2021.
The domestic primary deficit also widened to 5.7 percent of GDP. In a bid to correct these slippages and return the fiscal position to a sustainable path, the Government re-introduced fiscal consolidation in 2023. Domestic revenues increased to Le10.1 billion (7.9 percent of GDP). The improved revenue collection relative to 2022 can be attributed to enhanced tax administration measures, vigorous outreach, tax education programs, and a pickup in economic activities in the second half of 2023.
The improved performance in tax revenue collection in the first half of 2024 is attributed to several reasons, including (i) compliance tracking and enforcement, including data matching and close monitoring, (ii) an increase in dutiable import value by 55 percent due to the upgrade of HS code to HS2022, (iii) upfront payment from bulk cement import, tobacco and rice, (iv) collection of deferred arrears, (iv) tracking of licenses payment for mining, telecoms, marine and other non-tax payers, (v) increase in licenses fee from US$500,000 to US$1.0 million for large scale taxpayers in the mining sector, (vi) implementation of key revenue enhancement reforms including excise tax stamps and fuel marking by SICPA, N-SOFT technology for GST assessment on the telecommunications and the use of a Mobile App for vehicle circulation tax, implementation of the Finance Act 2024 and one-off dividend payment from Freetown Terminal Limited. (Source: Ministry of Finance)
Notwithstanding, the government’s objective, as stated in the Medium-Term Revenue Strategy (MTRS), is to increase domestic revenue by 5.0 percentage points of GDP during 2023 -2027 from the baseline of 7.9 percent of GDP in 2023.
In this regard, the Government will continue implementing the tax policy and administrative measures articulated in the MTRS. As part of this effort, the Government enacted the Finance Acts 2023 and 2024 in July and December 2023, respectively. Implementing the provisions of these Finance Acts is ongoing, albeit with some technical challenges relating to configuring some of the provisions in the Acts into the automated systems of the National Revenue Authority. (Source: Ministry of Finance)
For example, the configuration of the specific excise tax rates into the ASYCUDA World, tourism levy, and Minimum Alternate Tax (MAT) into the Integrated Tax Administration Systems (ITAS). The fiscal provisions in the two Finance Acts were expected to yield 2.0 percent of GDP in revenues in 2023 and 2024. The government has also introduced technology solutions, including N-SOFT, Excise Tax Stamps, and fuel marking to improve the efficiency of collecting GST and excise taxes.
Government Expenditure Projections:Following the fiscal adjustment in 2023 and 2024, total expenditure and net lending are projected to initially increase to 18.3 percent of GDP in 2025 before declining to an average of 16.0 percent of GDP in 2026 and 2027, in line with the government’s fiscal consolidation drive.
Also, recurrent expenditures are projected to increase to 11.9 percent of GDP in 2025, mainly due to the projected increase in domestic interest payments, before declining to 10 percent of GDP in 2027. • Wages and salaries will be contained at an average of 3.9 percent of GDP during 2025-2027, underpinned by the implementation of the Wage Bill Management Strategy.
Goods and Services expenditure will increase to 2.5 percent of GDP in 2025, 2.6 percent of GDP in 2026, and 2.8 percent of GDP in 2027 to accommodate the reclassification of expenditures relating to the Free Quality Education programme from capital to recurrent expenditure.
Subsidies and Transfers are projected to decline to 1.7 percent of GDP in 2025 and, on average, 1.6 percent of GDP in 2026 and 2027 as transfers to EDSA for the payment of IPPs decrease following the implementation of energy sector reforms.
Interest payments are projected to increase to 3.8 percent of GDP in 2025 and, after that, decline to 2.2 percent of GDP in 2026 and 1.7 percent of GDP in 2027. Domestic interest payments are projected to increase to 3.7 percent of GDP in 2025 before declining to 2.0 percent of GDP in 2026 and further down to 1.5 percent in 2027, reflecting the anticipated decrease in domestic financing of the budget deficit as fiscal consolidation is upheld. Foreign interest payments are projected to average 4.9 percent of GDP over the medium term.
Capital expenditures are projected to increase to 6.2 percent of GDP in 2025 and 5.7 percent of GDP in 2026, reflecting the additional spending for the recapitalization of the Bank of Sierra Leone before declining to 5.6 percent of GDP in 2027. Of this, foreign-funded capital expenditures will average 4.9 percent of GDP over the medium term. Domestic financed capital expenditures will average 0.6 percent of GDP over the projection period. Capital transfers for the recapitalization of the Bank of Sierra Leone will amount to 0.7 percent of GDP in 2025 and 0.4 percent of GDP in 2026. (Source: Ministry of Finance)
Fiscal Deficit Projections The overall budget deficit, including grants, is projected to initially increase to 3.8 percent of GDP in 2025 before narrowing down to 1.8 percent of GDP and 1.0 percent of GDP in 2026 and 2027, respectively. The domestic primary balance is projected to be surplus during 2025-2027, reflecting the government’s tight fiscal stance during the period to achieve fiscal and debt sustainability.
Public Debt Projections Total public debt is forecast to increase slightly to 46.0 percent of GDP in 2025 before declining to 45.8 percent of GDP in 2026 and further down to 43 percent in 2027, reflecting the stance of fiscal policy. External public debt is projected to decline gradually from 29.2 percent of GDP in 2025 to 28.5 percent of GDP in 2026 and 27.6 percent in 2027. Domestic debt will initially increase to 16.8 percent of GDP in 2025 percent and 17.3 percent of GDP in 2026 before declining to 15.5 percent of GDP in 2027. (Source: Ministry of Finance)