Sierra Leone government budget 2020 – winners and losers

Sierra Leone Telegraph: 9 November 2019

Yesterday, 8 November 2019, Sierra Leone’s Minister of Finance – Jacob Jusu Saffa  laid out his budget plans and spending forecasts to parliamentarians, which the government says is designed to tackle poverty and relieve the economic suffering of people in the country.

He called on members of parliament to approve and authorise the proposed government spending from the consolidated fund, to pay for the various programmes and recurring spending activities his government would like to undertake next year.

The key headline from his budget statement is that the Bio-led government is proposing to spend 8.6 Trillion Leones next year.

Minister Saffa referred to his 2020 Budget as a “Bread and Butter Budget” that is aimed at job creation and putting money into the pockets of citizens. But how will he achieve this? where will he get the money from? The economy is very weak – showing serious signs of malnourishment.

He said he will be focusing on women and the youth, through a national micro credit scheme to be implemented by the Ministry of Trade through NGOs, micro finance institutions, commercial and community banks.

Overall, the Budget is aimed at consolidating and improving human capital development and employment in the country, he said.

Saffa told MPs that the minimum wage will be increased from Le 500,000 to Le 600,000. Jobs he said will be created by his policies through innovative financing, recruitment of more health workers, teachers and police officers. In April 2020, teachers salaries will increase by 30%.

Opposition parties and some civil society groups have described the government’s budget for next year as nothing short of a sham. It will do nothing to alleviate the economic suffering being experienced across the country, they say.

Critics of the government say that the president’s expansion of his Cabinet by adding three new ministers (Defence, Environment, Gender and Children’s Affairs) and four new Deputy Ministers (Health, Finance, Environment, Agriculture) which increases the total number of Ministers from 26 to 28 and Deputy Ministers from 26 to 30, demonstrates the SLPP government’s frivolous spending habit that needs curbing.

Are there any winners in this budget? Who are the losers? Is enough being done to address rising prices (inflation), high unemployment, increasing government borrowing, low taxation base, low economic growth, and widespread poverty?

These and other questions will be covered in our analysis later today in the Sierra Leone Telegraph.

This is an excerpt of the finance minister’s budget statement:

Mr. Speaker, honourable members, I rise to move that the Bill entitled “The Appropriation Act 2020” being an Act to authorise expenditure from the Consolidated Revenue Fund for the services of Sierra Leone for 2020, be read the first time”.

I. Introduction

Mr. Speaker, Honourable Members, last year when I presented the 2019 Budget, we made two hundred and sixteen (216) commitments across eleven (11) policy clusters. As at the end of the third quarter of this fiscal year, eighty-six (86) per cent of these commitments have either been completed or on track to be completed. The positive gains achieved will be sustained in ensuing years. We also promised that despite the challenges we inherited, we will restore macroeconomic stability, fiscal discipline and create the enabling environment for sustainable growth.

On assumption of office governance in 2018, recognising that a stable economy is a prerequisite for economic growth, we immediately took steps to restore the derailed programme with the International Monetary Fund (IMF) and implemented tough but necessary policy measures.

Mr. Speaker, Honourable Members, as promised in my address in early November 2018, I am delighted to inform this Noble House that the Executive Board of the IMF approved a new Extended Credit Facility (ECF) Programme for Sierra Leone in late November 2018. The implementation of the Programme is progressing well. The first review of performance was successful, and the Executive Board of the IMF approved the disbursement of balance of payment and budget support in June 2019. Technical discussions between the IMF and Government on the second performance review under the programme are ongoing. Preliminary data indicates that we met all the quantitative performance criteria and have made significant progress in the implementation of structural benchmarks.

The renewed relationship with the IMF has restored the confidence of other development partners and has subsequently led to the disbursement of budget support that was withheld under the previous regime.

Building on the confidence reposed in the Bio Administration, we have also mobilised about US$413 million, and expect to mobilise an additional US$200 million before the end of December 2019, mainly from multilateral financial institutions. This will bring the total external resources mobilised for various projects to US$613 million, of which 40 percent are grants and 60 percent are concessional loans. Including resources provided by the European Union (EU), United Nations Agencies, the United Kingdom’s Department for International Development (DFID) and other bilateral partners, total external resources mobilised so far amounts to almost US$1 billion.

Mr. Speaker, Honourable Members, we have improved domestic revenue collection to 13.7 percent of GDP in 2018 after stagnating at 12.2 percent in 2016 and 2017; creating the fiscal space to facilitate investments in our priority sectors.

To consolidate these efforts, Government launched the Medium Term National Development Plan (2019-2023) in February this year. The plan reflects the views and aspirations of Sierra Leoneans, lending further credence to the vision articulated in our ‘New Direction Manifesto’.

Human Capital Development, which lays the foundation towards achieving middle-income country status by 2039, is at the centre of this Plan. Accordingly, we are successfully implementing the Free Quality School Education Programme launched in 2018. We are investing in our children – OUR FUTURE, by substantially increasing spending on the education sector.

During the 2018/2019 academic year, we: i. Paid examination fees for NPSE, BECE and WASSCE; ii. Provided textbooks, teaching and learning materials to schools; iii. Paid tuition fees for all children in Government-owned and Government assisted schools; iv. Commenced the School Feeding Programme in selected districts; v. Provided school buses; vi. Operationalised the Teaching Service Commission (TSC) for teacher management and teacher development; vii. Revamped the defunct Technical, Vocational and Educational Training (TVET) Unit in the then Ministry of Education Science and Technology and upgraded to a Directorate of TVET in the newly-created Ministry of Technical and Higher Education; and viii. Launched the Education Challenge of the Human Capital Development Incubator.

In the health sector, we continue to fund the Free Health Care Initiative and provide resources for both primary and secondary health care services at national and sub-national levels. We are prioritising resource allocation to health services targeting our children, adolescents and women. Funds recovered from corrupt persons, as part of our anti-corruption drive, are also being ring-fenced for the construction of an ultramodern diagnostic health centre. Government also supports the monthly national cleaning exercise to improve sanitation and public hygiene nationwide.

In our quest to leave no one behind, we are providing cash transfers to over 250,000 of the poorest and most vulnerable in our society. This is being complemented by various ongoing youth development and empowerment programmes.

We also supported the Sierra Leone Premier League, which had been abandoned, as well as other sports and recreative programmes to give our youth opportunities to exhibit their talents and improve their livelihoods.

Mr. Speaker, Honourable Members, Government is gradually diversifying the economy. We have adopted the National Agricultural Transformation Programme, which is comprehensive and focused on achieving rice self-sufficiency. To support this programme, we have established the Seed Certification Agency and the Fertilizer Regulatory Agency to increase the role of the private sector in the provision of agricultural inputs. In addition, Cabinet recently approved the Cocoa, Coffee and Cashew Policy to stimulate production, reaffirm the importance of these traditional exports and improve the livelihood of our people in the rural areas.

In the fisheries sector, we are implementing reforms to ensure the sustainable management of our marine resources to improve the domestic share in marine catch, while creating jobs for our people. We are making progress in controlling illegal, unreported and unregulated fishing activities and steps are being taken to address bottlenecks affecting the export of our fisheries products.

Mr. Speaker, Honourable Members, Government is being deliberate with the scope and speed at which measures aimed at unleashing the full potential of our tourism sector are being implemented. We have embarked on an aggressive marketing campaign to rebrand our country’s image and boost tourism to grow the economy and create jobs.

Mr. Speaker, Honourable Members, interventions in the sectors leading our economic diversification agenda are being facilitated by increased investments in energy, infrastructure and reforms to improve the business environment.
Electricity supply has increased and is being extended to previously under-served areas including the Lumley Beach. The rehabilitation of key trunk roads including the Pendembu-Kailahun, Bo-Bandajuma, Hillside Bypass Road Phase II, Limkokwing Regent Road, Hill Cot Road, and Lumley-Tokeh Road, are all in progress.

Mr. Speaker, Honourable Members, building on these reforms, the Government has also intensified the fight against corruption to restore confidence in the public sector. I want to thank this Honourable House for approving the amendment to the Anti-Corruption Act 2008, which provides a robust legal framework for the eradication of corruption and further enhances our ability to achieve inclusive growth and development.

Mr. Speaker, Honourable Members, it is this progress in the fight against corruption and wider governance reforms that has resulted in Sierra Leone passing the scorecard of the Millennium Challenge Corporation (MCC). Sierra Leone is now eligible for Compact Funding of up to US$600 million from the MCC. To sustain this momentum, Government will continue to implement reforms and undertake investments to address existing infrastructure deficits in key sectors.

Mr. Speaker, Honourable Members, we cannot embark on an economic diversification and inclusive growth agenda without the strengthening and deepening of our financial sector. Due to enhanced supervision by the Bank of Sierra Leone, including restrictions on unsecured lending to Politically Exposed Persons, the financial situation of the two-state owned Banks, Sierra Leone Commercial Bank and Rokel Commercial Bank, which had almost collapsed, is improving. These banks are now in a position to pay dividends for the first time in ten (10) years. To further improve governance of the banks, Cabinet has approved the removal of supervision of these Banks from the National Commission for Privatisation and vest such supervision in the Ministry of Finance.

Mr. Speaker, Honourable Members, our resolve to transform our economy by mainstreaming technology and innovation has never been stronger. The Directorate of Science, Technology and Innovation (DSTI) collaborating across Government is leading the efforts. I am pleased to inform this Noble House that following the launch of the National Digital and Innovation Strategy by His Excellency, on 1st November 2019, Sierra Leone is poised to be among global leaders in the digital economy, governance, innovation and entrepreneurship, focusing on effective service delivery.

Mr. Speaker, Honourable Members, despite these achievements, the legacy of economic mismanagement continues to linger. The economy is recovering but not sufficiently enough to make a significant dent on poverty. The 2018 Sierra Leone Integrated Household Survey launched recently, estimated overall poverty incidence at 56.8 percent and extreme poverty at 12.9 percent.

Furthermore, the Mining Lease Agreements inherited have not improved our earnings from the mining sector. This has adversely affected our export performance causing the Leone to depreciate. Inflation though moderating, remains high, weakening the purchasing power of our incomes and deepening poverty.

This situation is compounded by the huge stock of arrears owed to domestic suppliers and contractors. These were accumulated primarily during 2016 and 2017. The payment of these arrears, together with the high debt service payments on domestic debt, which were also accumulated during the past ten years, have constrained the fiscal space for spending on the productive sectors and infrastructure. This has undermined the public and private sectors’ capacity to create jobs. The consequence is high levels of unemployment especially among our youth, which has given rise to the slogan, ‘Di Gron Dry’.

Mr. Speaker, Honourable Members, the 2020 Budget is an attempt to reverse this ugly situation. Whilst the Budget will continue to focus on scaling-up investments in human capital development, it also lays out strategies and targeted interventions to develop skills and create jobs for our citizens, especially women and youth. This will create the workforce required for greater labour market participation and reduce poverty and inequality.

The Budget will therefore focus on fiscal consolidation for human capital development and job creation, enhanced by a thriving private sector whilst leveraging on science and technology.

Let me at this stage provide you with an update on global developments and outlook and the relationship with the domestic economy.

II. Global Economic Developments in 2019 and Outlook

Mr. Speaker, Honourable Members, after more than four years of uninterrupted global growth, the pace of economic activities has weakened. The global economy is projected to slow down to 3.0 percent in 2019 from 3.6 percent in 2018. This reflects the decline in manufacturing output and global trade, due to higher tariffs and prolonged trade policy uncertainty.

The United States’ economic growth is gradually slowing down due to the waning impact of past fiscal stimulus while the uncertainty surrounding Brexit is weakening growth in Europe. The Chinese economy is also slowing down, as it transitions from an export-led to a services- led growth model.

In Sub Saharan Africa, the growth projection has been revised downwards to 3.2 percent in 2019 from an initial projection of 3.4 percent. This is the effect of prolonged global policy uncertainty, the US-China trade tensions, and weak growth in trading partner countries.

Global inflation is projected to remain low due to softening energy prices in developed countries and stable currencies in emerging and developing economies. Iron ore prices are expected to fall to US$77 in 2020 from over US$100 per metric ton in September 2019, as a result of the normalisation of mining disruptions in Brazil and Australia. Similarly, oil prices are projected to fall from $61.8 in 2019 to $57.9 per barrel in 2020.

Global economic growth is projected to recover slightly to 3.4 percent, and Sub Saharan Africa to 3.6 percent in 2020. The global outlook remains highly uncertain and subject to downside risks. These include elevated trade tensions, policy uncertainties, and rising debt levels.

III. Domestic Economic Developments and Outlook – Macroeconomic Performance in 2019

Mr. Speaker, Honourable Members, the Sierra Leone economy is recovering from subdued growth in 2017 and 2018. Preliminary data indicates that the economy will grow by 5.1 percent in 2019 compared to 3.8 percent and 3.7 percent in 2017 and 2018, respectively. The recovery of the economy is underpinned by increased activities in the agriculture sector, higher production of rutile, increased construction activities, and expansion of the services sector. Excluding iron ore, the economy is estimated to grow by 4.5 percent in 2019.

After a steady decline from 18.2 percent in August 2018 to 14.1 percent in February 2019, inflationary pressures emerged in March 2019. Headline inflation increased to 14.8 percent and further up to 15.4 percent in August 2019. The increase in domestic prices in 2019, could be attributed to the depreciation of the Leone exchange rate with pass-through effects on imported food and non-food prices. It is expected that the underlying inflationary pressures could moderate to 14.0 percent by end December 2019.

Mr. Speaker, Honourable Members, the value of exports more than doubled to US$556.6 million during January to June 2019 from US$ 234.6 million during the same period in 2018. The sharp increase is accounted for mainly by re-exports, which increased to US$270.7 million from US$13.0 million over the corresponding periods. Domestic exports increased by US$ 64.4 million to US$285.9 million during the first half of 2019 due to an increase in mineral and agricultural exports.

The value of imported goods increased by 13.5 percent to US$ 753.8 million for the period January to June 2019 from US$ 661.8 million during the corresponding period in 2018 on account of the sharp increase in the imports of intermediate and manufactured goods, as well as machinery and transport equipment. Food imports however, dropped by 44.0 percent to US$ 131.4 million during the first half of 2019.

The value of rice imports dropped by 16.4 percent to US$ 76.6 million as imported volumes dropped by 13.6 percent to 176 thousand metric tons during the same period. Import values for beverages and tobacco dropped by 44.2 percent and animal and vegetable oils by 41.2 percent. Fuel imports also dropped by 17.5 percent to US$114.8 million.

Due to the sharp increase in total exports including re-exports by US$322 million compared to the increase in imports of US$92 million, the trade deficit decreased significantly to US$197.1 million during the first half of 2019.

Gross foreign reserves of the Bank of Sierra Leone increased to US$ 533.2 million (3.5 months of import cover) as at end August 2019 from US$483 million in December 2018, reflecting mainly the disbursement of programme and project grants and balance of payment support by development partners.

The official exchange rate of the Leone to major international currencies came under pressure during the year. This reflects the low level of domestic exports, as well as speculative behaviour by local market participants. As a result, the Leone depreciated by 11.0 percent against the US dollar from December 2018 to September 2019.

Mr. Speaker, Honourable Members, relative to end December 2018, the external debt stock increased by 2.5 percent to US$ 1.64 billion as at end June 2019. Debt owed to multilateral creditors amounted to US$1.2 billion, accounting for 73.2 percent; bilateral creditors, US$210 million, accounting for 12.8 percent; and commercial creditors, US$ 187 million, accounting for 11.4 percent.

The stock of domestic debt amounted to Le 6.1 trillion, equivalent to US$ 635.6 million as at end June 2019, an increase by 7.5 percent relative to the stock as at December 2018.

Budgetary Performance in 2019

Mr. Speaker, Honourable Members, public finances continue to improve in 2019 reflecting the impact of Government’s sustained fiscal consolidation drive. Total revenue collected during the first half of the year exceeded the IMF programme target while overall expenditures remained within the budgeted limits.

The implementation of the 2019 budget was however challenged by the need to pay some of the inherited domestic arrears to ensure continued service delivery in strategic sectors. The situation was exacerbated by the high debt service payments, especially on domestic debt. Despite these constraints, the budget execution rate as at end September 2019 was 72 percent.

Mr. Speaker, Honourable Members, total revenue collected between January and September 2019, amounted to Le4.1 trillion or 10.8 percent of GDP. This exceeded the target for the first three quarters of the year by Le278 billion. Income taxes amounted to Le1.42 trillion; Goods and Services Tax (GST), Le756.2 billion; Import Duties, Le529 billion; Excise Duty on petroleum products, Le410 billion; Mineral royalties, Le196.3 billion; Royalty on fisheries amounted to Le77 billion; other MDAs including TSA agencies collected Le523 billion. Road User charges amounted to Le90.4 billion.

Mr. Speaker, Honourable Members, the key contributing factors to the improved revenue performance include: broadening of the Treasury Single Account; the continued implementation of the liberalised petroleum pricing formula; the migration to ASYCUDA World; the adoption of the ECOWAS Common External Tariff (CET); improvement in tax enforcement by the National Revenue Authority (NRA); and intensive taxpayer education and trade facilitation.

Budget grants received during January to September 2019 amounted to Le 815.3 billion. Of this, Le 521.3 billion was budget support, disbursed by the World Bank and the African Development Bank. Project grants amounted to Le287.1 billion.

Mr. Speaker, Honourable Members, total expenditure and net lending for January to September 2019 is estimated at Le5.9 trillion. Recurrent expenditures amounted to Le4.3 trillion, of which wages and salaries are Le1.8 trillion; subsidies and transfers, Le576.1 billion; and interest payments, Le891.3 billion. Domestic capital expenditure amounted to Le708.0 billion; foreign funded capital expenditures amounted to Le639.6 billion.

The overall deficit, including grants for January to September is estimated at Le1.6 trillion (4.2 percent of GDP). Including grants, the deficit is Le.756.8 billion (2.0 percent of GDP).

Medium-Term-Economic Outlook: 2020-2022

Mr. Speaker, Honourable Members, the medium-term economic outlook is favourable. The economy is projected to further expand by an average of 4.7 percent during 2020 to 2022. The main sources of medium-term growth prospects are:

(i) sector reforms to enhance productivity an attract investment in agriculture, fisheries and tourism;

(ii) scaled up Government investment in rice production;

(iii) resumption of iron ore mining and expansion in other mining activities;

(iv) increased public and private investments in the energy sector;

(v) scaling up of construction and rehabilitation of trunk, city and feeder roads;

(vi) increasing investment in human capital development with a focus on vocational and technical training;

(vii) implementation of regulatory and financial sector reforms to improve the ease of doing business including the establishment of the National Investment Board;

(viii) increased support to Small and Medium Enterprises;

(ix) establishment of Special Economic Zones and;

(x) continued efforts to improve governance including the implementation of public financial management reforms and intensifying the fight against corruption.

Over the medium-term, inflation is expected to moderate and return to single digits in 2021. This will be driven by the expected increase in domestic food production, stabilisation in the exchange rate, and proactive monetary policy combined with prudent fiscal policy.

The implementation of donor-funded projects is also anticipated to increase foreign exchange inflows, create jobs and increase private consumption with positive impact on economic growth.

The sustenance of fiscal consolidation efforts will lead to a reduction in the overall budget deficit to an average of 3.0 percent of GDP during 2020-2023. The current account deficit will narrow down to 10.2 percent of GDP in 2020 and further down to 8.9 percent in 2022, as exports increase in the medium-term. Gross foreign reserves will remain above three months of import cover.

The favourable outlook of the economy will enable us to make significant progress towards meeting the macroeconomic convergence criteria for the introduction of the single currency in West Africa in 2020. Sierra Leone will benefit from a larger regional market, which will attract investment to the country thereby promoting growth and creating job opportunities.

To this end, the Ministry of Finance, in collaboration with the Bank of Sierra Leone, will continue to implement prudent macroeconomic policies to ensure the achievement of the convergence criteria.

Risks to the Outlook of the Sierra Leone Economy

Mr. Speaker, Honourable Members, while the medium-term prospects of the economy are bright, they are subject to downside risks which include:

I. Continued closure of the iron ore mines and its attendant negative impact on growth, revenues, foreign exchange and inflation;

II. Higher-than-expected rise in international fuel prices would increase the import bill and negatively impact foreign reserves, exchange rate, and inflation;

III. Delays or non-disbursement of budget support and other donor financing would constrain government spending on priority sectors such as education, health, infrastructure, and social protection;

IV. Non-payment of domestic arrears would affect the stability of the banking system, hence its ability to provide credit to the private sector with adverse implications for growth and employment; and

V. Failure to maintain the current momentum in the implementation of policy reform efforts would eventually lead to loss of policy credibility and weaken investor and donor confidence in the economy.

IV. Macroeconomic Policies for Job creation

Mr. Speaker, Honourable Members, youth unemployment is currently high. Therefore, it is imperative that employment creation be central to economic policy formulation in the short to medium-term. In this context, the design and implementation of macroeconomic policies in 2020 will not only aim at safeguarding macroeconomic stability but also focus on creating a supportive environment for employment creation. Fiscal, monetary, exchange rate and debt management policies will be re-oriented to achieve employment growth, poverty reduction and macroeconomic stability.

Fiscal Policy

Mr. Speaker, Honourable Members, fiscal policy in 2020 will seek to strike an appropriate balance between revenue mobilisation, trade facilitation and improving the ease of doing business, in order to achieve the twin objectives of job creation and human capital development.

Domestic Revenue Mobilisation Measures (A) Investment-friendly Tax Policies

Mr. Speaker, Honourable Members, the 2020 Finance Bill, which I will lay for enactment by this Honourable House, proposes several policy measures to increase revenue and at the same time create the enabling environment for businesses to thrive and create employment opportunities. These include:

i. Reduction in the Corporate Income Tax Rate from 30 percent to 25 percent. This will not only strengthen tax compliance but also enable SMEs to enter the formal sector and big businesses to expand investment and increase productivity, thereby creating job opportunities;

ii. All raw materials, semi-processed and finished products, properly labelled for use as input into the production of goods by manufacturing companies will attract an import duty of 5 percent instead of 20 percent;

iii. Products imported by Packaging Industries will attract an import duty of 10 percent;

iv. All aviation related charges will be exempt from the payment of GST. These include landing and parking fees, aircraft towing, aircraft cleaning, baggage handling, aircraft security as well as aircraft fuelling. The objective is to reduce the cost of travel to Sierra Leone in order to boost tourism and create job opportunities;

v. Exemption of GST on free and promotional calls and free data use to the extent that the value of such supply does not exceed 10 percent of the total calls and data use in that period;

vi. Exemption of GST on financial services administered by Commercial Banks, Community Banks, Micro Finance Institutions and the Apex Bank.

vii. Introduction of credit relief utilisation for group of companies in order to ensure fast utilisation of tax credits and reduce the overall tax burden on group of companies; and

viii. Introduction of a rebate or refund system for personal income tax filers paying excess of the actual assessed tax liability.

(B) Revenue Enhancing Tax Policies

The 2020 Finance Bill is also proposing the following revenue measures:

i. Introduce transfer pricing legislation to ensure consistency with international best practice and minimise transfer mispricing and revenue loss from related party transactions;

ii. Section 2 of the Customs Act 2011 has been revised to clarify what constitutes raw materials, intermediate inputs and packaging materials; and

iii. Introduce a specific provision for addressing misuse on duty waivers.

(C) Duty and Tax Waiver Policy

Mr. Speaker, Honourable Members, every year, Government loses substantial revenues from tax and duty exemptions. For the first three quarters of 2019 alone, revenue lost to import GST and customs duty waivers amounted to more than Le 500 billion. Of this, 40.3 percent were those granted to international organisations, 23.5 percent to donor-funded projects and 16.5 percent to private investors.

In line with recommendations of the Review Committee on Duty and Tax Exemptions, a Duty and Tax Waiver Policy has been developed and will be submitted to Cabinet for approval and subsequently a Duty and Tax Exemptions Bill will be tabled before Parliament for enactment.

The aim is to rationalise and harmonise exemptions in order to minimise revenue loss and create a level playing field going forward. Consistent with this framework, Government will institute a review of the fiscal regimes in all existing agreements. In addition, we will soon conclude discussions with development partners on eliminating Duty and Tax Exemptions on all donor-funded projects.

(D) Improving Tax Administration

Mr. Speaker, Honourable Members, in addition to the above policies, the National Revenue Authority will be implementing several administrative measures to boost revenue collection and promote trade facilitation:

I. Digitising Tax Collection

Mr. Speaker, Honourable Members, currently, most of the tax collection processes are largely manual and unintegrated. To improve the administration of domestic taxes and boost domestic revenue collection, the National Revenue Authority (NRA) is automating and integrating the processes and procedures for collecting taxes. In this regard, in 2020, the NRA will introduce the following:

i. the Integrated Tax Administrative System (ITAS), to automate and integrate domestic tax administration;

ii. the Electronic Cash Register (ECR) with the aim of enhancing efficiency in the administration of GST and improving compliance; and

iii. the single electronic window which will serve as a one-stop shop for the payment of customs and excise duty, GST and income taxes. This will reduce clearance and transaction costs and help facilitate trade.

Mr. Speaker, Honourable Members, the introduction of these digital systems will facilitate the availability of tax administration data for analytical work. Government is therefore, collaborating with our development partners to establish a data warehouse. This initiative will improve transparency, efficiency and reduce leakages in tax administration, thereby enhancing revenue mobilisation.

II. Enforcing Tax Compliance

The National Revenue Authority will continue to enforce existing and new tax legislation; including provisions in the Finance Acts in order to improve tax compliance. To achieve this, the NRA will undertake the following:

i. Intensify the enforcement of tax legislation through enhanced monitoring, intelligence and investigations;

ii. Strengthen collaboration with international partners to enhance NRA’s capacity to undertake specialised tax and transfer pricing audits;

iii. Continue to implement a robust tax education programme and communication strategy;

iv. Undertake a rented property census in the major cities, in collaboration with the City Councils, to establish a reliable and complete rental income tax database;

v. Implement a special tax regime for professionals and other ‘high net worth’ individuals;

vi. Implement the Domestic Tax Preparer’s Scheme and simplify the tax regime for SMEs to encourage them to enter the formal sector and create more jobs;

vii. Operationalise the Excise Stamp Duty regime to reduce smuggling of imported alcoholic, tobacco, and other products;

viii. Enforce the provisions in the 2020 Finance Act relating to customers who fail to request for GST receipts after purchasing from GST registered businesses; and

ix. Beneficiaries of GST Relief Purchase Order (GRPO) are now required to make upfront tax payments and will be refunded within 90 days upon filing of a tax reclaim.

Local Councils Revenue Mobilisation

62. Mr. Speaker, Honourable Members, in 2020, emphasis will be placed on building the capacity of local councils to efficiently mobilise own-source revenue; beginning with the automation of property cadastre systems in city and municipal councils. This will reduce their dependence on transfers from the Central Government.

In this regard, the Ministry of Finance and the Ministry of Local Government will collaborate to undertake the following:

i. Automate the property cadastre system in City and Municipal Councils;

ii. Conduct a comprehensive chiefdom finance study;

iii. Provide technical support to local councils for the determination of their individual revenue potentials; and

iv. Prepare and issue revised guidelines for revenue collection and sharing between local and chiefdom councils.

Mr. Speaker, Honourable Members, the ongoing review of the Decentralisation Policy and the Local Government Act 2004, provides an opportunity to address some of the unclear policies and conflicting laws that are constraining local revenue mobilisation efforts. In order to strengthen fiscal decentralisation, the Ministry of Finance will use the revised law to develop a fiscal decentralisation policy and strategy. Government will also provide funding for revenue generating projects at the local level in a timely manner.

Expenditure Management and Control Measures

Mr. Speaker, Honourable Members, to improve public expenditure management and control, Government will embark on reforms to improve the integrity and sustainability of the Government payroll; improve the quality and efficiency of non-salary; non-interest recurrent and capital expenditures; and strengthen expenditure controls on other recurrent expenditures.

(i) Improving the Integrity and Sustainability of the Payroll

Mr. Speaker, Honourable Members, several reforms to improve the integrity and sustainability of the Government payroll are ongoing. Some of these reforms include the cleaning up of NASSIT and BBAN numbers of public sector employees to address cases of dual employment; automation of the payroll of Sub-Vented Agencies and public tertiary institutions; nationwide biometric verification of all public sector employees; and the introduction of payroll quality assurance measures. In the past year, the various clean-up exercises have resulted in the removal of about 4,500 employees from the payroll.

While these reforms have to some extent improved the integrity of the payroll, several anomalies continue to emerge, threatening the sustainability of the Wage Bill. These include weaknesses in man-power planning; incomplete and inconsistent payroll records for some employees; and the absence of a body responsible for oversight and developing polices relating to the terms and conditions of public sector workers. To address these anomalies and consolidate the gains made so far, the Government will continue to implement the findings of the National Civil Registration Authority (NCRA) biometric verification exercise; strengthen the man-power planning process; and develop a follow-up Payroll Strategy.

Mr. Speaker, Honourable Members, plans are at an advanced stage for the establishment of the Wages and Compensation Commission. Very shortly, I will be submitting to this House a Bill for the establishment of the Commission. The Wages and Compensation Commission will take forward some of the payroll reforms including aligning the multiple pensions laws and harmonising pay and remuneration across the public sector.

(ii) Strengthening Expenditure Controls on Other Recurrent Expenditures

Mr. Speaker, Honourable Members, the Ministry of Finance will continue to vigorously pursue expenditure control measures, through rationalisation of expenditures, backed by stronger commitment control and cash management. This is aimed at reducing wasteful expenditures, reducing subsidies to State-Owned Enterprises (SEOs) and forestalling the continuous build-up of arrears that has been a major fiscal challenge in recent years. To this end, Government will implement the following measures:

(a) Improving the performance of State-Owned Enterprises

Mr. Speaker, Honourable Members, State-Owned Enterprises continue to pose significant risk to the Budget. There are issues of poor financial performance, weak governance, inadequate investment and substantial arrears. The estimated liabilities as at end 2018, is approximately Le1.5 trillion.

Between January and September 2019, the Government provided Le98.7 billion as subsidy to the Electricity Distribution and Supply Authority (EDSA) to ensure the sustainable supply of electricity. Should the current trend continue, EDSA would require about Le311 billion in subsidies for the 2020 fiscal year due to technical and non-technical losses. This is clearly not fiscally sustainable.

Mr. Speaker, Honourable Members, consistent with the Public Financial Management Act 2016, my Ministry will therefore continue to strengthen the fiduciary oversight of SOEs and management of fiscal risks with the view to reducing the burden on the budget. To this end, a Fiscal Risk Committee comprising high-level public officials, drawn from relevant MDAs and the Bank of Sierra Leone will be constituted. (b) Fleet Management Policy

To minimise expenditures on the repair and maintenance of vehicles assigned to public servants, Government has developed a Fleet Management Policy, which has been approved by Cabinet. The Ministry of Transport and Aviation is leading the development of a detailed implementation plan with support from the Ministry of Finance.

(c) Overseas Travel Policy

Mr. Speaker, Honourable Members, Government has developed a policy regulating the provision of Daily Subsistence Allowance (DSA) and other allowances for official trips abroad. The policy will be submitted to Cabinet for approval. This Policy will enable Government to rationalise expenditures and guide the selection process for official overseas travel.

This Policy will apply to all officials of institutions covered by the Public Financial Management Act, 2016; all entities of Government established by an Act of Parliament and any person selected as an agent of Government or entities in which Government has controlling equity or exposure.

The cost of air tickets also increases Government expenditure on foreign travel. To address this anomaly, Government will introduce the Billing and Settlement Plan (BSP) system designed to facilitate and simplify the selling, reporting and remitting procedures between travel agents and airlines.

This will mitigate the current irregularities in travelling overseas by preventing fraud and over-invoicing. It will also increase Government tax collection through a transparent database and ensure the application of a single exchange rate for the issuance of tickets in Sierra Leone.

Strengthening Commitment Controls

Government will continue to strengthen commitment control systems to avoid the accumulation of arrears. In 2019, the Ministry of Finance with support from DSTI automated the PET forms for the processing of budgetary requests from MDAs. The implementation of the automated PET forms will commence in 2020 and is expected to minimise expenditure overruns and arrears build-up.

Upgrading IFMIS

The Integrated Financial Management Information System (IFMIS) has been rolled out to fifty-six (56) MDAs, thereby decentralising some components of the payment process. In 2020, the IFMIS will be upgraded to the web-based hybrid version, extended to Local Councils, and subsequently to our Embassies and Project Implementation Units (PIUs) to further decentralise and improve accessibility.

Broadening the Scope of the Treasury Single Account (TSA)

Mr. Speaker, Honourable Members, the operation of the TSA commence in 2018 with six semi-autonomous Agencies. Following the enactment of the Finance Act 2019. The coverage was broadened in 2019 with additional five (5) semi-autonomous Agencies.

While the TSA has enabled Government to mobilise additional revenue into the Consolidated Fund, idle cash balances continue to exist in the accounts of MDAs especially Sub-vented Agencies that receive bulk disbursements. To ensure efficient cash management, Government will commence the implementation of Phase II of the TSA in 2020. This will broaden the scope of the TSA to include all Sub-vented and Semi-Autonomous Agencies.

An analysis of receipts from TSA Agencies, shows that in 2019 total estimated collection was Le480.3 billion while transfers were Le399.7 billion. This represents 83 percent of total TSA collection. We are currently analysing the operating expenses of TSA Agencies and will commence negotiations with them to increase the amount to be retained for use on goods and services.

Strengthening the Internal Audit Function

Mr. Speaker, Honourable Members, in 2019, the Government Audit Committee was established in the Ministry of Finance, and over seventeen (17) Audit Committees were reconstituted in various MDAs. The Government Audit Committee oversees the operations of the other audit committees and follows up on unresolved audit issues.

This arrangement will continue to enhance the implementation of audit recommendations of both internal and external audit reports. Dedicated audit teams have been established to carry out regular audit of the Government payroll and public debt payments. The capacity of the Internal Audit Unit will also be strengthened to carry out ICT-related audits.

Institutionalising Public Expenditure Tracking Surveys

Mr. Speaker, Honourable Members, the Public Expenditure Tracking Survey (PETS) has been revived to generate baseline data for improving public financial management and service delivery. The 2019 PETS covered the procurement and distribution of drugs; teaching and learning materials, and textbooks; payment of school fee-subsidies to schools; and fertiliser to farmer-based organisations for the 2017 and 2018 financial years. The findings will be discussed with stake holders and recommendations will be implemented to improve service delivery.

Developing an Electronic Funds Transfer System

Mr. Speaker, Honourable Members, the manual processing of payment instructions to the Bank of Sierra Leone (BSL) by the Accountant General’s Department (AGD) has resulted in delays and errors of omission and involves significant transaction costs. This is because interbank funds transfer between BSL and the AGD cannot be done electronically as the IFMIS system at the AGD is not integrated with the system at BSL. To address this constraint, an Electronic Funds Transfer (EFT) System is being developed to carry out the following functions:

i. Provide the Accountant General’s Department with the capability to make cashless and paperless disbursements to recipients and beneficiaries of Government payment obligations through the Bank of Sierra Leone;

ii. Enable the real time processing of all payment transactions from the Accountant-General’s Department; and

iii. Provide for a seamless reconciliation process between the Bank of Sierra Leone and the Accountant General’s Department.

Rent for Government Offices

Mr. Speaker, Honourable Members, Government spends billions of Leones on rent for Government offices. Preliminary reviews indicate that these rents are over-bloated and there is possible collusion between occupants and the landlords. Whilst Government is seeking funding to construct permanent structures for offices, effective January 2020, the Ministry of Works and Public Assets will assess the value of all rented buildings. Henceforth, all rental requests will be channelled through the Ministry for assessment and approval before payment.

Strengthening Public Procurement

Mr. Speaker, Honourable Members, the stringent policies of the National Public Procurement Authority (NPPA) and adherence to procurement processes resulted in huge savings to the value of seventy million dollars ($70 million). Among others, NPPA (i) introduced specialised standard bidding documents and now reviews bidding documents and evaluation processes before awards are made; (ii) reviewed the Public Procurement Regulations to include a clear mandate for the introduction and implementation of electronic procurement; (iii) discouraged procuring entities from the use of sole source and restricted bidding; and (iv) now produces quarterly price norms.

In the coming years, the Ministry of Finance, in collaboration with NPPA, will ensure that all procuring entities prepare credible and realistic procurement plans which are linked to the activities in their budgets and this will be the basis for disbursement of budgetary resources. The NPPA will also publish annual procurement assessment reports, starting with the report on procurement activities of MDAs in 2018.

Mr. Speaker, Honourable Members, Government has realised that most of the beneficiaries of local contracts, even for local products like firewood, vegetables and bread, are not resident in the delivery locality (districts) but in Freetown or other regional capitals. This does not facilitate the even spread of the national wealth and encourages further migration into the cities where such opportunities exist.

In order to encourage local participation in our procurement processes, distribute the national wealth among districts and encourage people to be resident in their districts, Cabinet has directed that effective January 2020, only persons permanently resident in the delivery locality (districts) will be eligible to apply for all contracts awarded by Local and Central Government for local products, such as firewood, vegetables and bread as well as civil works contracts not exceeding Le 500 million. The Ministry of Finance and the NPPA shall put in place the necessary statutory arrangements to effect this.

Mr. Speaker, Honourable Members in a bid to strengthen transparency and accountability in public procurement, Government established the Independent Procurement Review Panel (IPRP) pursuant to Section 20 of the Public Procurement Act 2016. The IPRP provides a complaint mechanism for dissatisfied and aggrieved contractors to seek redress if they believe that there have been irregularities with the outcome of the procurement bidding and award of contract process in which they participated.

Since the reconstitution of the Panel, in the last six months, the IPRP has reviewed public procurement contracts amounting to Le 40 billion. The IPRP has restored confidence of businesses as well as development partners in our procurement system. These demonstrates that Government is serious about reducing wastages and providing an equitable and level playing field during the procurement of goods, works and services.

Contract Management

In the area of contract administration, proper and effective procedures will be established to ensure we have a firm grip over the creation, execution, and analysis of Government contracts. This is to maximise operational and financial performance while reducing financial risks associated with those contracts, especially the build-up of arrears that could not be detected easily.

Improving the Management of Donor and Domestic funded Capital projects

Mr. Speaker, Honourable Members, Government will henceforth enter into contracts for the implementation of domestically funded capital expenditures in local currency to limit the exchange rate risk. To speed up implementation and improve quality of delivery of domestic and foreign funded capital projects, the Ministry of Finance and the Ministry of Planning and Economic Development (MoPED) have established a two-tier oversight system: an Inter-Ministerial Committee provides policy oversight of projects without compromising laid down rules and procedures while a Technical Implementation Committee monitors and evaluates the implementation of development interventions.

To improve efficiency in the public investment process, Government in collaboration with the Fiscal Affairs Department of the International Monetary Fund (IMF) will conduct a Public Investment Management Assessment (PIMA) in December 2019. This assessment will highlight the strengths and weaknesses of our public investment systems and proffer recommendations for improving decision-making process and capital expenditure rationalisation.

Mr. Speaker, Honourable Members, in addition, Government is reviewing the draft National Public Investment Management Policy for adoption before the end of 2020 guide capital expenditure planning, execution and coordination; as well as appraisal of developmental projects for informed decision-making.

To improve on the design of projects and preparation of national plans, Government will introduce a planning system that links Ward-level planning with Districts to MDAs and the national portfolio of Public Investments Projects (PIP). MoPED will collaborate with the Ministry of Local Government to develop the system.

Furthermore, Government has operationalised the National Monitoring and Evaluation Department (NaMED) in the Ministry of Planning and Economic Development (MoPED). NaMED, in collaboration with DSTI, is developing an automated Management Information System for monitoring and evaluation of public expenditure on development projects in the Medium-Term National Development Plan.

The disbursement of budgetary allocations to projects will henceforth be triggered by the submission of satisfactory monitoring reports by NaMED.

On the implementation of feeder roads, Government will establish a Feeder Road Basket Fund in which all funds for feeder roads will be channelled. This is to facilitate the coordination of the implementation of feeder roads projects.

4.2 Public Debt Policy

Mr. Speaker, Honourable Members, as reported earlier, external debt is estimated at US$1.6 billion and domestic debt at Le6.1 trillion (about US$650 million) as at end June 2019. The total stock of public debt (external plus domestic) is equivalent to 62.8 percent of GDP as at end June 2019, making Sierra Leone one of the highly indebted countries in Sub-Saharan Africa.

The current level of public debt is a consequence of aggressive borrowing by the past administration, particularly after Sierra Leone benefitted from about 70.0 percent reduction in the stock of external debt under the HIPC and MDRI debt relief initiatives in 2016.

READ THE FULL STATEMENT HERE:

FY 2020 Budget Speech and Profile (002)

 

1 Comment

  1. Mr.Jusu Saffa is indeed a great potential, credible, hardworking and forecasting Minister of Finance. Despite things are hard, he deserves my appreciation. Our only hope is Sierra Leone. Mr president Maada Bio should not attempt to fire tough and up-to-date Mr. Jusu Saffa as criminals would invade Sierra Leone economy. The MDAs and other unpatriots want to attack our revenue to enrich themselves. Criminals are holding the government to ransom. TIME WOULD TELL.

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