In spite of the global economic uncertainty triggered by the multiple and repeated shocks, the New Direction Government made good progress in boosting the resilience of the economy through the implementation of a wide-ranging public financial management reforms supported by development partners. These reforms have laid the foundation for sustainable and inclusive growth and poverty reduction in the medium-term.
A. Bringing Back Economic Stability
The new Direction Government led by Retired Brigadier Julius Maada Bio inherited a difficult economic situation in 2018. Economic performance was weak with slow economic growth and unsustainable fiscal policies due to policy slippages and adverse external shocks including the Ebola epidemic and fall in commodity prices. The IMF programme went off-track with adverse implications for official development assistance and foreign direct investment.
The first priority of the New Direction Government was to revive the derailed IMF programme with a view to restoring macroeconomic stability. Accordingly, the new Government hosted a high-level seminar with the IMF two weeks after taking over the reins of power to understand the macroeconomic challenges facing the country at the time. This was followed by the visit of a Government delegation to the IMF/World Bank Spring Meetings led by the Minister of Finance to initiate discussions with the Fund on the prospects of reviving the programme. Subsequently, the IMF made a staff visit to Freetown during June 4 -12, 2018 to carry out a stock take on the country’s economic, fiscal and financial situation.
Following the visit, Government and the IMF agreed on several prior actions for the negotiation of a new economic and financial programme in September 2018. The actions include i) a comprehensive stock-take of arrears and a strategy for clearing them, in addition to non-accumulation of new arrears; ii) a forensic audit of foreign exchange transactions at the BSL; iii) Submission to Parliament of the Extractive Industries Revenue Bill, PFM Regulations, Reviewed BSL Act; and the Banking Act; and a strategy for building of Foreign Exchange Reserves of the Bank of Sierra Leone. As a demonstration of its commitment to prudent management of the economy, the Government implemented all the agreed prior actions. The Executive Board of the IMF approved a new economic and financial programme supported under the Extended Credit Facility (EF) on November 30, 2018 for US$172.1 million for the period 2018 to 2022.
The New Direction Government adopted fiscal consolidation as the anchor of its economic management agenda. Reflecting the commitment to instill fiscal discipline and restore macroeconomic stability, the Government issued Executive Orders 1 and 2 focusing on revenue mobilization and prudent expenditure management, respectively. Some of the revenue enhancing measures implemented by the Government during 2018 and 2019 include but not limited to:
(i) Rationalising the process of awarding Duty and Tax Waivers: The Ministry of Finance streamlined the procedures for granting duty and tax waivers to ensure transparency and consistency with the enabling laws and protocols. To this end, the Government established a Special Committee to review the existing processes and procedures for granting duty and tax waiver as the first step towards developing an appropriate Duty and Tax waiver Policy;
(ii) Introduction of the Treasury Single Account (TSA) – Prior to the assumption of office of the New Direction Government, several MDAs were collecting and retaining Government revenues thereby undermining Government’s revenue collection efforts. The introduction of the TSA compelled Ministries, Department and Agencies (MDAs) that hitherto collect and retain Government revenues to transfer all such revenues into the Consolidated Revenue Fund. Consistent with the PFM Act, 2016 and Fiscal Management and Control Act, 2017, the accounts of the six (6) extra-budgetary agencies were closed in the commercial banks and balances transferred into the Consolidated Fund at the Bank of Sierra Leone. The agencies include: Petroleum Regulatory Agency, Petroleum Directorate, Road Maintenance Fund Administration, National Telecommunication Commission, Sierra Leone Maritime Administration and the Environmental Protection Agency. The coverage of the TSA was subsequently broadened to include the Sierra leone Road Safety Authority, Pharmacy Board, Sierra Leone Insurance Commission, Audit Service Sierra Leone, Standard Bureau and the Sierra Leone Police. Revenue collected by TSA agencies has been increasing from year to year, reaching Le445.5 billion in 2021 and further Le619.9 billion in 2022. However, this action did undermine access to funds for the operational requirements of the TSA agencies. In this respect, the Ministry of Finance reviewed the respective budgets of the TSA agencies and determined their operational monthly cash requirement, which is being met from the CRF on a monthly basis.
Furthermore, the Ministry of Finance converted the NRA Transit Accounts in commercial banks into sub-accounts of the treasury main account at the Bank of Sierra Leone. The balances of revenues in these accounts paid by tax payers are swept and transferred into the Consolidated Revenue Account on a daily basis.
(iii) Streamlined the Payments of Excise and Customs Duties on Petroleum Products Oil Marketing Companies (OMCs) used to pay petroleum import duty and excise taxes in arrears of two months or more. This adversely affected cash flow of Government and complicated budget execution. It also led to difficulties in reconciling payments due and actual payments made. Consistent with the Law, Oil Marketing Companies were directed to make full payments of excise duties and 50 percent of import duty before uplifting petroleum products from the depots. The remaining 50 percent is payable within 7 days after uplift, failing which the full force of the law applies;
(iv) Adopted the full-pass through Petroleum Pricing Formula: the Government liberalized the retail price of fuel effective July 13, 2018, allowing it to move in line with movements in the international oil prices and the exchange rate of the Leone to the US dollar. The objective is to reduce untargeted direct and indirect subsidies, thereby enhancing revenue collection from petroleum taxes and minimize the negative impact on the Government budget;
In addition to actions taken to improve domestic revenue collection, the Ministry of Finance also instituted several expenditures saving measures, including:
(i) Cleaning the Government payroll to improve its transparency and integrity: Government payroll accounts for 50-60 percent of domestic revenues and about 40 percent of recurrent expenditure. Therefore, improving the integrity and stability of the Government payroll is critical to ensuring fiscal sustainability. Since 2018, Government has been undertaking several payroll reforms in order to strengthen payroll management and control. The payroll reforms are aimed at achieving a transparent and sustainable payroll for the Government. The main payroll reforms implemented recently include the following:
Executive Order No. 2: Wage Bill Control – The Government upon assumption of office issued Executive Order No.2 dated 25th April 2018, which ordered the Accountant General to remove from the payroll all employees that had attained the retirement age of 60 (with the exemption of those under charged emoluments and those covered by an Act of Parliament). This is to strengthen wage bill management and control. As a result of this order, measures have been put in place to ensure employees are routinely removed from the GoSL payroll upon attaining the retirement age.
Established a Payroll Unit in the Ministry of Finance (MOF) Budget Bureau – This Unit is tasked with the responsibility of developing and monitoring the execution of the Government payroll budgets, and to lead on developing policies related the Government payroll.
Established of a Dedicated Payroll Audit Team in the MOF Internal Audit Directorate
The Dedicated Payroll Audit Team is responsible for conducting routine regular audits of the Government payroll.
Payroll Dashboards and Payroll Quality Assurance Team (PQAT) – Payroll assurance has been strengthened through developing and deploying dashboards using the Tableau Software, which helps to monitor payroll data before payments are made. The dashboards identify errors in NASSIT numbers, bank account numbers, names and dates of birth, and are being used by the Payroll Quality Assurance Team (PQAT) established within the Accountant General’s Department (AGD). These tools have proven highly successful in avoiding mistakes and detecting attempted fraud.
Implementation of the results of the findings of the National Civil Registration Authority’s (NCRA) nationwide biometric verification exercise: NCRA conducted nationwide biometric verification exercise for public sector workers in August 2018, requested by the Government. The results of the exercise presented employees that did not turn up to be verified (no show), as well as those with complete name mismatch (name on central payroll system completely different from name on NCRA’s database). Immediate action was then taken by the Ministry of Finance in collaboration the Accountant General, HRMO and other Employing Authorities, to remove from the Government’s payroll all no show employees. It is now a policy not to bring anyone on the Government payroll without a valid National Identification Number (NIN) issued by NCRA.
NASSIT AND BBAN Number Clean Up – During 2018 and 2019, MOF intensified payroll cleansing effort relating to cleaning up of the National Social Security and Insurance Trust (NASSIT) Numbers and the BBAN Numbers in the Government payroll. This effort led to identification and removal of ghost employees. The exercise also formed the basis of the Government’s policy decision which stipulates that no new employee must be brought on the payroll without a valid Date of Birth (consistent with the NASSIT number), BBAN, NASSIT and NIN, as a long term control measure to curtail dual employment and ghost workers on the payroll. The NASSIT clean-up exercise has also resulted in better data exchange and cooperation between MOF and NASSIT in addressing several other pension-related matters, including minimising the Government’s suspense account at NASSIT
NASSIT Suspense Account1 – MOF has intensified work on reconciliation of social security contributions with NASSIT (including NASSIT contribution gap issues) in order to correctly identify and match social security contributions for public sector workers to their individual accounts rather than to suspense account held at NASSIT. This is to ensure public sector workers get their pensions and other retiring benefits promptly from NASSIT after retirement. o Policies to ensure payroll remains reliable – No employee is brought on the payroll without a valid National Identification Number (NIN), NASSIT number, and Individual Basic Bank Account Number (BBAN) Number. o Payments into Individual Bank Accounts – All salaries, allowances and retiring benefits of public sector employees that are in the Government Payroll are being paid into their individual bank accounts, using the respective BBANs provided.
Teacher Reassessment and Promotions – A total of 2,770 teachers were promoted and 1,388 teachers reassessed in 2021. In 2022, 1083 teachers were reassessed and promoted. For 2023, the plan is to reassess and promoted about 2,500 teachers. The completed reassessment of teachers will ensure that teachers are now being paid according to their qualifications and are now in their right scale/grade. This policy action is taken in line with Government’s commitment to promote continuous professional development of teachers. o Teacher retirement and recruitment policy endorsed by Cabinet (2021) – All teachers due to retire during the school calendar year, that is, from September to August, will be kept on the payroll until the end of the school year. In effect, these teachers will be removed from the payroll in the month of August each year and their gratuities will be paid with their last salaries. This to avoid disruptions to the school year and improved on planning. Also, the retirement age for STEM (Science, Technology, Engineering and Mathematics), Agriculture, French and Arabic Language teachers has been extended from 60 years to 65 years of age as approved by Cabinet (March 2021).
Tertiary Educational Institutions: Starting in 2019, emoluments of Tertiary Educational Institutions are included in the Government wage bill and not classified under subsidies and transfers.
Minimizing Manual Payroll Voucher Payments: In 2016 and 2017 the payroll of about seventy-six Sub-vented Agencies (SVAs) were automated. Army leave allowances are now being paid through central payroll. o Public sector employees to be paid gratuity on retirement together with the last salary – this requires regularisation of start dates of public officers in the CSM central payroll system, and inputting into the central payroll system done by the employing authorities prior to payroll calculation and finalization by the Accountant General’s Department.
Enactment of the Wages and Compensation Commission Act: This Act passed by Parliament in April 2023 establishes the Wages and Compensation Commission (WCC) as a cross-government central body in charge of terms and conditions of service for the public service, with a mandate to harmonise pay and conditions of service across the public service. The mandate also includes addressing issues of multiple pensions for the same employment.
1 When deductions are made for NASSIT but there are errors, e.g. when the NASSIT number is incorrect, the amount is posted to a suspense account. However, this account is not cleared on a regular basis, meaning that contributions deducted from a person’s pay have not been properly credited to their NASSIT account, potentially resulting in a loss of benefits. Transactions in the suspense account have now accumulated.
Going forward, The Government will continue efforts to improve the sustainability of the payroll through: (i) Conduct a biometric verification exercise for teachers and health workers; (ii) the operationalization of the Wages and Compensation Commission following the enactment of the Wages and Compensation Act in April 2023; and (iii) Develop and implement a Medium-term Wage Strategy; and (iv) implement the Payroll Policy
(ii) Reviewed Policy on Overseas Travel to ensure that the cost of tickets and per diems funded from the CRF are limited to statutory meetings and special training needs. More importantly, the Ministry of Finance also ensured that MDAs travel costs are within their approved budgets.
(iii) Improving Public Procurement – To ensure value for money, the Ministry of Finance formally informed all MDAs that all public procurement transactions above the threshold of Le60 million (sixty million Leones) should be done through open competitive bidding, except under compelling circumstances such as natural disasters and epidemics as well as security hardware. All new contracts by MDAs and public corporations should be cleared by the Ministry of Finance to ensure they do not constitute a financial risk to the national budget.
(iv) Discontinued Payment for Fuel, Telephone and Internet Services for the residences of public servants with the exception of the President, Vice President, the Attorney General and Chief Justice and the Speaker of the House of Parliament and their respective deputies. Furthermore, all fuel supplies to the residences of public officials were terminated. These actions yielded positive results in strengthening Government finances and performance of the economy
These revenue-enhancing and expenditure control measures created the fiscal space for Government spending on the social sectors and other poverty-related activities. Government increased the expenditure on education to about 22 percent of the budget. The health and agriculture sectors also benefitted from increased expenditures. .
Domestic revenue collection improved from 12.3 percent in 2017 to 13.7 percent of GDP in 2018 and further to 14.6 percent of GDP in 2019. Total Government expenditures were contained at an average of 21.3 percent of GDP during 2018 and 2019, reflecting the implementation of the expenditure saving measures containment defined in the Executive Order 2.
The overall budget deficit narrowed from 8.8 percent of GDP in 2017 to 5.8 percent in 2019 and further down to 3.1 percent of GDP in 2019. Similarly, the current account deficit, including official transfers also narrowed to 14.1 percent of GDP in 2019 from 18.7 percent in 2018. Reflecting the decrease in financing needs, public debt declined to 67.4 percent of GDP from 68.7 percent of GDP in 2018. Gross foreign reserves dropped slightly to 3.4 months of imports from 3.5 months of import cover in 2018. The average annual exchange rate depreciated by 13.6 percent in 2019.
B. The Outbreak of COVID-19: Impact on the Economy and Government’s Response
The multiple and repeated shocks that hit the world economy during 2020-2022 adversely affected macro-fiscal performance during the period and reversed the gains made in stabilizing the economy and promoting economic growth during 2018-2019. The outbreak of COVID-19 in early 2020 disrupted economic activities. Tourism, trade and travel were the hardest hit sectors. Agricultural activities also declined. As a result, after growing by 5.3 percent in 2019, the economy contracted by 2.0 percent in 2020. This in turn undermined domestic revenue collection in 2020. The tax deferrals granted by Government to businesses to enable them cope with the impact of the pandemic also weakened domestic revenue collection. As a result, domestic revenue as a ratio to GDP reverted to 13.8 percent in 2020. The shortfall in revenue in 2020 amounted to about US$100 million.
In response to the impact of COVID-19, Government prepared the Quick Action Economic Response Programme (QAERP) in 2020 as part of efforts to mitigate the impact of the pandemic on the population especially the poor and vulnerable groups. The QAERP was framed around five thematic areas:: (i) to build and maintain an adequate stock level of essential commodities at stable prices; (ii) provide support to hardest-hit businesses to enable them to continue operations, avert lay-offs of employees and reduce non-performing loans; (iii) provide safety nets to vulnerable groups; (iv) support labour-based public works and (v) provide assistance for the local production and processing of staple food items.
The implementation of the QAERP was supported generously by development partners including the IMF, World Bank, African Development Bank, European Union, Islamic Development Bank and other multilateral and bilateral partners. The IMF provided about US$143 million as emergency balance of payment support, and allowed the Government to utilize the Leone equivalent of the amount to support the Government budget under the first Rapid Credit Facility (RCF); the World Bank provided enhanced budget support of US$100 million; the African Development Bank provided enhanced budget support of US$25 million while the European Union provided Euro25 million as budget support. This support combined with domestic revenue enabled the Government to scale up expenditures and implement the QAERP. Government expenditures increased to about 25.7 percent of GDP in 2020. Reflecting the higher expenditures in the midst of weak domestic revenues, the budget deficit widened to 5.8 percent of GDP in 2020 from 3.1 percent in 2019. On the contrary, despite the drop in exports, the current account deficit, , narrowed further to 6.8 percent of GDP in 2020 from 14.1 percent of GDP in 2019 owing to the sharp increase in official transfers mainly in the form of grants to support the fight against COVID-19 and mitigate its impact on the population. However, public debt increased to 76.3 percent of GDP in 2020 reflecting the disbursements of balance of support (emergency loans) under the rapid Credit Facility. Gross foreign reserves increased to 4.2 months of imports. The exchange rate was relatively stable, with the annual average exchange rate depreciating by less than one percent in 2020.
The increase in expenditures to implement the QAERP translated into enhanced delivery of public services resulting in relative economic and social stability in the midst of the COVID-19 pandemic. In particular, the following interventions were implemented by Government to mitigate the impact of the pandemic on the population, thereby saving livelihoods:
(i) Government launched through the Bank of Sierra Leone a Special Credit Facilities of two tranches of US$50 million each during COVID-19 to support the production, importation, and distribution of essential commodities. Following the utilization of this facility, a second Special Credit Facility in the same amount was also launched. The result was uninterrupted supply of essential commodities in the market and decline in inflationary pressures. After rising initially due to panic buying, consumer prices as measured by inflation declined 10.4 percent in December 2020 and continued to decline to a single digit of 8.9 percent in March 2021
(ii) The National Revenue Authority (NRA) deferred taxes due for the importation of essential commodities, especially for rice, fuel, and other basic foodstuffs. The NRA also deferred taxes for businesses in the hospitality, aviation, transportation, education, security, and health sectors. As at end December 2020, total taxes deferred amounted to Le109 billion, of which, Le102.4 billion, was import duty and GST deferred for the importation of basic goods., .
(iii) Government launched the National Micro-Finance Programme (MUNAFA FUND) to improve access to finance for Small and Medium Enterprises, mostly women-owned, which enabled them to cope with the impact of the pandemic on their businesses. The MUNAFA has benefitted over eiight (7) thousand small businesses, of which over 70 percent are women-owned.
(iv) Government provided cash transfers to 11,000 persons with disabilities across all sixteen districts. informal sector workers in Freetown, Bo, Port Loko, Kenema and Makeni. In addition, Government provided safety net support to 2,368 workers in the tourism and hospitality industry, where each worker received Le1,800,000 as salary for three months. The World Bank also supported the Government with an Emergency Cash Transfer Scheme targeting twenty-nine thousand (29,000) beneficiaries including households affected by COVID-19 and informal sector workers such as petty traders.
(v) Government also provided critical financial support to the Sierra Leone Airports Authority (SLAA), Sierra Leone Civil Aviation Authority (SLCAA), Sierra Leone Road Transport Corporation (SLRTC) and the Sierra Leone Postal Services (SALPOST), whose operations were adversely affected by the restrictions imposed to combat the COVID-19 pandemic. About Le19 billion directly benefited employees in the form of wages and helped to keep these parastatals operational.
(vi) Government rehabilitated of 1,835 km of trunk roads across the country and 109 km of township streets, creating nearly five thousand (5,000) jobs for young men and women and linking farmers to markets.
(vii) Government provided 324 metric tons of improved seed rice; 555 metric tons of fertiliser;10 metric tons of assorted vegetable seeds; and advisory services for land preparation and fertiliser application during the 2020 planting season.
(vii) Government hired tractors from private contractors for the ploughing, harrowing and seed harrowing of 6,000 hectres of land for rice cultivation in 10 districts.
C. Kickstarting the Economy in 2021 Post COVID-19
The economy recovered strongly after the devastating impact of COVID-19, growing by 4.1 percent in 2021, following the implementation of the QAERP, which continued into 2021.
The recovery in economic activities impacted positively on domestic revenue collection, which in improved 15.7 percent of GDP, the highest the country has ever reached and almost at par with the regional ECOWAS average of 16 percent of GDP. It is important to note that Sierra Leone is one of the few countries in the sub region to have raised domestic revenue by over 3 percentage points of GDP within 4 years (from 12.3 percent in 2017 to 15.7 percent in 2021).
On the basis of the need to continue to respond to the lingering impact of the COVID-19 pandemic, Government continued with the implementation of the QAERP. This necessitated further increase in Government expenditures to 28.4 percent of GDP in 2021. Government also continued to spend about 22 percent of primary expenditures on the Free Quality Education Programme-its flagship programme, as well as on other poverty-related activities. Government expenditure on the education sector increased steadily from 2.8 percent of GDP in 2018 to 3.7 percent in 2021. While expenditures remained high, external budget support declined in 2021 relative to 2020 as there were no budget support disbursements from the African Development Bank and the European Union in 2021. The IMF also disbursed only US$50 million in 2021 under the second RCF compared to US$143 million in 2020. Hence, in spite of the increase in domestic revenues, the budget deficit, including grants, widened to 7.4 percent of GDP in 2021from 5.8 percent in 2020. After declining to 8.9 percent in March, Inflation rose gradually to 17.9 percent in December 2019.
Despite the strong recovery in exports by 72 percent, the 33.5 percent increase in imports resulted in the widening of the current account deficit to 8.7 percent of GDP. Public debt increased to 79.8 percent of GDP on account of the increase in the need to finance the budget and current account deficits. Gross foreign reserves increased to 5.5 months of imports, reflecting the allocation of SDR resources of US$283 million to Sierra Leone by the IMF. The annual exchange rate depreciated by 8.7 percent in 2021.
D. Coping with the Spillovers of the Ukraine Crisis
Unfortunately, as economic recovery was about to take hold, the Ukraine crisis, broke out in February 2022. The spillovers of the crisis, which include supply disruptions and consequent soaring of the prices of essential commodities especially food and fuel adversely affected macroeconomic and fiscal performance in 2022. Due to the general uncertainty created by the crisis, domestic revenue collection weakened to 13.8 percent of GDP in 2022, the same level attained at the commencement of the fiscal consolidation agenda in 2018. The sharp increase in the prices food and fuel products led to higher inflationary pressures. Inflation rose to 37 percent in December 2022 while the annual average exchange rate depreciated by 31.3 percent in 2021. These adverse macroeconomic developments translated into higher Government spending especially on goods and services due to the high inflation; higher subsidies to the electricity sector due to the increase in international fuel price and depreciation of the exchange; and higher domestic capital spending due to the increase in the cost of implementing projects contracts . The cost of implementing capital projects in roads, energy, and water supply increased as contractors requested for upward revision of contract prices triggered by the depreciation of the exchange rate. As a result, total Government expenditures increased to 29.8 percent of GDP. In the midst of the limited domestic revenues, the budget deficit rose to 10.9 percent of GDP in 2022.The higher expenditures were also driven by increased spending on the Free Quality Education including school feeding as gross enrollment rates increased and Government’s desire to address the looming energy crisis and huge infrastructure deficit including roads.
The current account deficit widened to 9.2 percent of GDP as imports of goods and services especially fuel increased. Public debt increased to 96.7 percent of GDP in 2022 mainly due to the impact of the depreciation of the exchange rate on external debt.
Given soaring food and fuel prices coupled with the depreciation of the exchange rate, the Bank of Sierra Leone established two (2) new temporary Special facilities in April 2022: a Special Food Facility in the sum of US$50 million to support the importation of rice, flour and sugar; and a Reserve Fuel Facility in the sum of US$36 million to support the importation of fuel. During 2022, the Bank of Sierra Leone provided about US$200 million to support the importation of fuel into the country. These facilities ensured adequate supply of these commodities in the market
E. Implementation of Public Financial Management Reforms
Despite the challenging macroeconomic situation, occasioned largely by the spillovers of the Ukraine crisis and the lingering COVID-19 pandemic, the new Direction Government made significant progress in the implementation of public financial and other structural reforms, which contributed in boosting the resilience of the economy in the face of the multiple and repeated shocks during 2018-2023.
Firstly, the Government developed a successor PFM Reform Strategy covering the period 2018-2022 following the expiration of the previous strategy (2014-2017) and an implementation plan to monitor progress on the implementation of the Strategy. The Strategy targeted a range of improvements across the PFM cycle that sought to contribute to transparency and accountability in the use of public resources and enhanced delivery of public services.
The 2021 Public Expenditure and Financial Accountability Framework (PEFA) assessment conducted by the Government of Sierra Leone with support from the European Union revealed improvements on 8 PPEFA Indicators (PIs), while the same scores were maintained for nineteen (19) PIs as in previous assessment, and deterioration in only two ( 2) PIs.
The objective of the 2021 PEFA assessment was to provide the Government with an objective, indicator-led assessment of the national PFM System, including the gender responsive dimension, to provide an updated understanding of the overall fiduciary environment of the PFM systems with a view to identifying areas for reform and further development. The progress made by the New Direction Government in implementing public financial management reforms is detailed below:
(a) Strengthening the Legal Framework for Public financial Management
Following the enactment of the Public Financial Management (PFM)Act, 2016, Parliament ratified the Public Financial Management Regulations in 2018 to support the implementation of the Act. The Parliament also enacted the Revised Public Procurement Regulations in 2018 to support the implementation of the revised Public Procurement Act, 2016 In April 2023, The House of Parliament also passed into law several PFM related legislations including the Finance Act, 2023 to raise additional revenue of 2.0 percent of GDP in 2023 to meet the increasing but critical Government expenditure; amended Audit Service Act, 2023 to strengthen the independence of the Audit Service as well as compliance in implementing the recommendations of the Auditor-General on the audited annual public accounts; Wages and Compensation Commission Act, 2023 to facilitate the establishment of the Wages and Compensation Commission; Duty and Tax Exemptions Act to streamline the process of granting duty and tax waivers; and the Excise Tax Stamp to improve the efficiency of excise tax collection on excisable goods.
(b) Domestic Revenue Mobilisation
Government undertook the following tax policy measures to support the mobilization of domestic revenues during 2018-2023:
(i) Adopted the ECOWAS Common External Tariff (CET), which generated a net increase in domestic revenues, promote industrial development and improve trade facilitation;
(ii) Develop and enacted the Duty and Tax Waiver Policy to streamline the process of awarding duty and tax waivers to avoid abuse of the privileges, which have been undermining domestic revenue collection;
(iii) Liberalized the retail pricing of petroleum products by adopting the full-pass through petroleum pricing formula;
(iv) Enacted the Extractive Industries Revenue Act (EIRA) in 2018 to put an end to the case-by-case negotiation of mining contracts for expired Mining Lease Agreements and new greenfield investments.
The NRA also implemented several measures to strengthen tax administration and improve domestic revenue collection:
(i) Automating tax collection process through installation of an Integrated Tax Administration System (ITAS) for the filling, assessment and payment of domestic taxes; upgrade to the web-based ASYCUDA World for customs administration, and rolled out the Electronic Cash Registers for the administration of Goods and Services Tax (GST);
(ii) Implementation of an automated payment gateway and recon ciliation system to reconcile revenue in terms of tax assessed, collections, transfers and arrears
(iii) Integration of the payment and reconciliation system with all banking and GOSL systems.
(iv) Continued to carry out robust field audits and regular compliance assessments to strengthen tax compliance in key sectors such as telecommunications, financial and extractive sectors;
(v) Rolled-out the Block Registration System to bring more taxpayers into the tax net though formal registration of businesses;
(vi) Carried a study of High-Net-Worth Individuals (HNWI) for proper identification and bringing them into the tax net;
(vii) Developed and implement the Transfer Pricing Regulations to support assessment, tax audit and other revenue administration;
(viii) Built the capacity of staff in data analytics
(ix) Established a data warehouse
Reflecting the commitment to improve domestic revenue collection in the medium-term in the face of increasing Government expenditures, Government prepared and adopted a Medium-Term Revenue Strategy (MTRS) that outlines the tax policy and administrative measures to be implemented in the next five years (2023-2027). The objective is to raise seven percentage points in additional revenue to achieve Government’s target of 20 percent of GDP in domestic revenue. The MTRS measures sought to improve the collection of income taxes through the introduction of a Minimum Alternate Tax; broaden the base of the GST through the rationalization of some of the exemptions; as well as improving the policy around the collection of excise taxes to boost domestic revenue collection. The Government has commenced the implementation of the tax policy measures articulated in the MTRS in 2023 as defined in the 2023 Finance Act. These measures in the Finance Act 2023 are expected to yield 1.8 percent of GDP in revenues in 2023. NRA will also commence the implementation of several tax administration measures including the use of technology to improve the efficiency of the collection of excise taxes, and GST from the telecommunications and betting and gaming sectors. This is expected to yield 0.4 percent of GDP in revenue in 2023. The implementation of the MTRS in 2024 and 2025 is expected to yield additional revenues of 1.0 percent of GDP in each year.
Budget Planning and Execution
During 2018-2023, Government made significant progress in improving budget planning and execution to improve the credibility of the budget and enhance service delivery.
A set of revised MTEF Guidelines was developed in 2018 to replace the 2012 Guidelines taking into cognisance transformation in the budget formulation and execution process. The new guideline aims at supporting MDAs to formulate their budget and strategies and adopt a logical framework approach to linking strategies, outputs and expenditures to national development goals and objectives as well as prioritize programs and activities.
To further improve budget planning, Government adopted the strategic top-down budgeting approach to ensure that the total level of expenditure is determined before detailed items in the budget are negotiated so that it properly reflects aggregate fiscal policy priorities, hence improving the credibility of the budget. As part of these efforts, Government sought technical assistance from the Fiscal Affairs Department of the IMF on Baseline Budgeting and the costing of new programmes/policies.
Consistent with the Gender Equality and Women’s Empowerment Act and ongoing efforts to strengthen gender equality as articulated in Cluster 5 of the Medium-Term National Development Plan, the Ministry of Finance in collaboration with the Ministry of Gender and Children’s Affairs embarked on Gender-Responsive Budgeting (GRB) with a pilot programme for the Ministries of Basic and Senior Secondary Education, Health and Sanitation, Gender and Children’s Affairs, Defence and the Sierra Leone Police to promote gender equality in budget planning and execution.
These Ministries were selected based on the existence of gender-related programmes in their current budgets and key prerequisites to GRB such as the availability of some gender disaggregated data in their regular reports. Government is committed to ensuring that public spending addresses the needs of women and men, boys and girls equitably. Staff of the Ministry of Finance with support from UNICEF has also been trained on Child Responsive Budgeting.
(c) Roll-out of the Integrated Financial Management System (IFMIS)
To improve budget execution, the Government upgraded the Integrated Financial Management Information System (IFMIS) from version 6.5e to the web-based version 7 with effect from February 2022. The Accountant-General’s Department (AGD) has rolled out the IFMIS to sixty-one (61) MDAs and made it mandatory for the rolled-out MDAs to process all transactions through the IFMIS. About 90 percent of Government expenditure are now processed through the IFMIS This upgraded version entails an integrated application system that has seamlessly integrated the payroll, budget planning and core financial modules all in one with a unified database engine and can be accessed through the internet. . The IFMIS has capabilities that ensure MDAs do not exceed their respective budget allocations as they cannot commit expenditures outside the system. The AGD is poised to roll-out IFMIS to twenty-four (24) additional MDAs and sub-vented agencies before the close of 2023. The AGD has also improved the Chart of Accounts to 33 digits to improve the recording and reporting of Government expenditures. During the review period, the Accountant-General continues to prepare the Annual Public Accounts and submit the same to the Auditor-General on time.
Prior to the upgrade of the IFMIS, the Ministry of Finance automated the budget execution process through the introduction of the Electronic (e-PET) forms. The Accountant-General’s Department also introduced the Electronic Funds Transfer (EFT) System, which facilitates seamless and paperless transfers of payment requests to the Bank of Sierra Leone only when funds are available, thus eradicating the build-up of unpaid cheques with the Bank of Sierra Leone.
(d) Strengthening Cash Management
Government also established the Cash Management Committee and subsequently broadened its mandate to include debt management to improve budget execution and prevent the accumulation of arrears to suppliers. The Expanded Debt and cash Management Committee reviews revenue and expenditure performance, prepare and review quarterly cash flow, assess arrears accumulated and paid down, and determine the borrowing requirement of Government. The Cash Management Unit established in the Accountant-General’s Department has adopted the use of the Cash Forecasting Tool, which supports the regular updating of the cash forecasts to improve the reliability of the forecasts. Furthermore, the expanded Cash and Debt Management Committee regularly monitors and reports on budget performance against budget allocation during the year with a view to determining outstanding payments and inform policy decision
Going forward, the Ministry of Finance will continue to strengthen budget execution by ensuring that quarterly budget allocations are based on to cash forecasts and implementing the principle of not funding any activity that was not budget for.
(e) Improving Public Procurement
Procurement remains a critical area for improving delivery of basic services to the citizens of Sierra Leone. During the review period, Government continued with efforts to strengthen the legal and regulatory framework for public procurement. Following the enacted of the Regulations for Public Procurement Act, 2016 in 2018, the Parliament also enacted the Finance Act of 2022, which gave the power to the Ministry of Finance to give pre-approval to all MDAs before they go into high value procurement related activities i.e. the Ministry reviews requests for procurement of goods, services and works in relation the budgetary provisions to ensure that the allocations are not exceeded. The NPPA regularly publishes Quarterly Price norms to guide MDAs in the procurement of goods and services. The NPPA has also enforced the preparation of procurement plans by MDAs to support budget execution. Information on procurement contracts of MDAs is published on the website of the National Public Procurement Authority’s (NPPA).
Furthermore, Ministry rolled out an Electronic Contract Profiling System (ECOPS) that tracks all outstanding payments for contracts and also capture upcoming procurement expenditure from planning stage unto the payment stage. The process of introducing Electronic Procurement (e-procurement) System by the National Public Procurement Authority (NPPA) is at an advanced stage. This is expected to improve the efficiency and transparency of public procurement transactions. The Independent Procurement Review Panel (IPRP) is fully established and functional to ensure fairness of the procurement processes and transactions.
(e) Strengthening Internal Audit
The Ministry of Finance with support from the World Bank funded Public Financial Management Consolidation and Improvement Project (PFMICP) facilitated the reconstitution of audit committees across MDAs. consistent with the PFM Regulations. A total of 28 audit committees have been reconstituted in various MDAs in with the PFM Regulations of 2018. In 2023, an additional 5 audit committees will be reconstituted at MDAs and Local Councils respectively. The Government Audit Committee (GAC) has also been reconstituted. The GAC continues to oversee the operations of the audit committees in the MDAs and Local Councils
Reflecting its commitment to transparency and accountability in the use of public resources, the New Direction Government through the Ministry of Finance carried out a review of the system used to track and monitor the status of audit recommendations. The review identified weaknesses in the tracking system and provided status on the level of implementation of audit recommendations, with suggestions on how to address those weaknesses. Furthermore, a revised database of all recommendations in the annual reports of the Auditor-General was developed for monitoring purposes. The database provides information on audit recommendations implemented, partly implemented, not implemented, and those to be followed up in subsequent audits. Also, a reporting format for use by the Internal Audit Divisions of MDAs was developed for use in the preparation of reports on follow-up activities. Furthermore, a ‘Good Practice Guide’ on audit recommendations was developed, and meetings were held with key vote controllers in MDAs, with the objective of improving their knowledge, awareness, responsibilities and accountabilities relevant to the implementation of Auditor-General’s recommendations within their respective MDAs, including the risks and penalties that can result from non-implementation of audit recommendations.
The Ministry also developed Good Practice Guides on Internal Auditing for use by Government Internal Auditors. Three of those practice guides – Audit Committee Handbook, Internal Audit Strategy and Internal Audit Customer Handbook were published on the website of the Ministry of Finance. The Internal Audit Manual was also revised to meet current international standards and also to make it user friendly. The Ministry, through support from the PFMICP concluded a training of Audit Committees in MDAs and Internal auditor s of local and city councils.
The Government continued to implement a series of reforms to improve on the implementation of audit recommendations. In August, 2022, the Government through the Ministry of Finance, developed and validated the Standard Operating Procedures (SOPs) on follow-up of audit recommendations.
The development of this SOPs on audit follow up is a novelty and also points to the interest Government attaches the reports of the Audit Service Sierra Leone (ASSL) and Internal Audit Unit of the Ministry of Finance. This SOPs manual on audit follow-up is an important aspect of our PFM reforms, as the Government seeks to improve on the low rate of implementation of both internal and external audit recommendations in the public sector over the years. It brings procedural clarity on how (a) the internal and external audit issues and recommendations are implemented, (b) executive/auditees’ commitments to implement remedial actions are documented, (c) the actual implementation of those actions is tracked, and (d) the results of the follow-up process are disseminated broadly to stakeholders. The SOPs will also address the audit issues and recommendations emanating from PAC, predominantly based on the reports submitted by the Auditor General. The three primary objectives for the development of the SoPs are to:
• Determine the status of audit issues and suggested recommendations to confirm executive commitment to implement recommendations already agreed upon during the audit process, or to come up with executive commitments to solve those issues through the audit follow-up mechanisms;
• Confirm the implementation of the executive commitments by verifying the remedial actions taken; and
• Analyze and disseminate audit follow-up information to improve the overall governance and accountability environment.
The Internal Audit Division of the Ministry of Finance has established a dedicated Follow-up unit to constantly follow-up on audit recommendations and provide the leadership and the Government Audit Committee (GAC) with regular updates regarding the follow-up process and the implementation of audit recommendations. In addition, the draft TOR of the audit follow-up unit and an implementation plan for the SOPs manual have been developed. The successful implementation of this arrangement will enhance the implementation of the SOPs Manual on audit follow-up and hence, increase the rate of implementation of audit recommendations
Going forward, the Government of Sierra Leone, through the offices of the Chief Minister and Head of the Civil Service will institute a policy in which the implementation of audit recommendations is embedded in the performance contracts of vote controllers in public sector entities. This means that Permanent Secretaries/Heads of Agencies who failed to implement both internal and external audit recommendations would have the assessments of their performances negatively affected and will also be liable to other sanctions and penalties. In particular:
(h) Strengthening External Audit
The Government also took actions to strengthen the Audit Service Sierra Leone. The Ministry of Finance, in collaboration with the Law Officers Department, Ministry of Justice and Audit Service Sierra Leone have reviewed the Audit Service Act 2014 and drafted amendments to give effect to the overall objective of strengthening ASSL and the audit process. The amendments have been published in the Official Gazette and Parliament ratified the amended ASSL Act, 2023 in April 2023.
Looking ahead, Government is in the process of preparing a successor Public Financial Management Strategy, 2023-2027 to consolidate the progress made so far in implementing public financial management reforms articulated in previous PFM reform Strategies. The new strategy seeks to address issues relating to modernization of the PFM System to support the long-term vision of Sierra Leone becoming a middle-income country, strengthening of PFM systems and institutions for improved fiscal discipline, alignment of resources to well-defined strategic priorities and efficient use of public resources to deliver public services.
