Sierra Leone government spending to rise from Le8.71 trillion in 2021 to Le13.2 trillion this year – says finance minister

Sierra Leone Telegraph: 28 June 2022:

In November 2021, when Sierra Leone’s finance minister Dennis Vandi presented his government’s budget for the 2022 financial year to parliament for approval, he told MPs that total expenditure and net lending for the period January to September 2021 amounted to Le8.71 trillion (19.5 percent of GDP), of which recurrent expenditures was estimated to increase to Le7.74 trillion by the end of last year.

Last Friday, 24th July 2022, MPs were shocked to learn from the finance minister that government spending this year – 2022, has been revised upwards to Le13.2 trillion (25 percent of GDP), reflecting the increase in both recurrent and capital expenditures, with recurrent expenditure going up to Le9.4 trillion (17.7 percent of GDP).

Seven months after tabling his 2022 Budget for approval to MPs, the finance minister was in parliament presenting his government’s supplementary budget and statement of economic and financial policies for this financial Year, 2022, asking for more money to spend – a whopping Six Trillion Leones more than was spent last year, taking the government’s planned expenditure for this year to Le13.2 trillion, as rising costs of living and poverty cripple millions of households in the country.

Defending the government’s decision to increase spending, the minister said:  “Mr. Speaker, Honourable Members, you recall that in presenting the 2022 Budget, the recovery of the economy was predicated on an end to the COVID[1]19 pandemic and its positive effects on growth and service delivery. Growth was initially projected to reach 5.9 percent in 2022 and average 4.4 percent in the medium-term. Unfortunately, an entirely unpredictable event reared its ugly head. After nearly two months into the implementation of the 2022 Budget, the war in Ukraine broke out in February 2022.

“The war has had devastating consequences on the world economy in general, with already overstrained supply chain disruptions. This impact has, in part, further severely disrupted supplies of essential commodities, including fuel, fertiliser, and wheat, leading to supply shortages and sharp increase in prices.

“Mr. Speaker, Honourable Members, we are submitting to this Noble House a Supplementary Budget for the Financial Year 2022 for the following reasons: Firstly, the macroeconomic and fiscal assumptions that underlined the 2022 Budget no longer hold. As Russia and Ukraine are major suppliers of agricultural and energy products, including oil, gas, metals, wheat, corn and fertiliser, countries, including Sierra Leone, are already experiencing uncertain supplies and higher prices. The sharp rise in global food and energy prices coupled with the general uncertainty has slowed down domestic economic activities, undermined domestic revenue collection and created pressures on the budget.

“Secondly, given the urgent need to protect the poor and vulnerable from the soaring food and energy prices, we will adopt mitigating measures, which I will present later in this statement.

“Thirdly, given the need to ensure fiscal and debt sustainability and to facilitate the implementation of the emerging expenditure priorities, Government engaged development partners, including the World Bank, International Monetary Fund and the African Development Bank, for the provision of additional financial resources. Thankfully, reflecting Government’s commitment to implementing policy reforms, the World Bank will provide additional budget support and project grants to support energy and education programmes. We also plan to use a larger share of additional Special Drawing Rights (SDRs) allocated by the IMF to support the budget. The African Development Bank is also providing support under the African Emergency Food Production Programme.

“Fourthly, to expand the fiscal space to finance the emerging expenditure priorities, we are introducing additional tax policy and tax administration measures. These measures are aimed at increasing domestic revenues over and above the original projections.

“Against the background of the general uncertainty in the global economy, combined with higher food, fuel and fertiliser prices, the initial growth projection of 5.9 percent for 2022 has been revised downwards to 3.6 percent.”

“Reflecting the continuous increase in international fuel prices, Government was compelled to adjust the domestic fuel pump price upwards to avoid supply shortages. This, combined with higher food prices, the depreciation of the exchange rate and other factors, have led to an increase in consumer prices. Inflation rose to 24.4 percent in May 2022 from 16.7 percent in January 2022, with food inflation increasing to 26.3 percent from 15.7 percent over the same period.”

He then went on to tell MPs that “the key objectives of the Supplementary Budget are: (i) to safeguard macroeconomic stability through prudent fiscal and proactive monetary policies; (ii) to protect the vulnerable segments of our society from the higher food and fuel prices by expanding existing social safety programmes and enhancing support to the energy sector; and (iii) to complete the implementation of ongoing projects as outlined in the original 2022 budget.”

So how does the government hope to pay for this massive increase in spending, if the economy is not expected to grow as previously predicted? Government borrowing will rise to over 80% of GDP.

“Mr Speaker, Honourable Members, following the impressive performance in 2021 on the back of the recovery in economic activities and improved tax administration, domestic revenue collection weakened during Quarter 1, 2022. Domestic revenue collected in Quarter 1, 2022, recorded a shortfall of Le 330 billion and was also lower than the amount collected during the same period in 2021. Several revenue streams were below their respective quarterly targets, including Petroleum Excise duties, Goods and Services Tax, Fisheries Royalties, and Timber Export Levy’, the finance minister told MPs last week.

“In general, the weak revenue performance can be attributed to the delay in adjusting fuel prices, reduced tax compliance, public resistance to tax reforms, especially the use of the Electronic Cash Register (ECR) , and supply chain challenges in the export of bauxite and timber logs.”

So, what is the Bio-led government going to spend the increased expenditure on this financial year?

This is what the minister told MPs: “Mr. Speaker, Honourable Members, the sharp rise in food and fuel prices occasioned by the war in Ukraine has worsened the food security situation in the country, pushing more vulnerable people into poverty. To cushion the impact of the crisis on the poor and vulnerable households, Government is implementing several mitigating measures and will seek external financing to complement domestic resources to implement these measures.

(a) Monetary Policy Response. Mr. Speaker, Honourable Members, the Bank of Sierra Leone will continue to focus on its core mandate of ensuring price and financial sector stability while supporting Government’s economic recovery programme.

“Monetary policy implementation during the first half of 2022 is challenged by the high inflationary pressures driven by the rising energy and food prices and the continued depreciation of the exchange rate. Like most central banks around the world, the Bank of Sierra Leone responded appropriately by raising the Monetary Policy Rate by 75 basis points in March 2022 to dampen inflationary pressures.

(b) Establishment of the Food and Fuel Facilities by the Bank of Sierra Leone. Mr. Speaker, Honourable Members, given soaring food and fuel prices coupled with the depreciation of the exchange rate, the Bank of Sierra Leone in April 2022 established two new temporary Special facilities: a Special Food Facility in the sum of US$50 million to support the importation of rice, flour and sugar; and a Special Fuel Facility in the sum of US$50 million to support the importation of fuel.

“These facilities are expected to ensure adequate supply of these commodities in the market, reduce the pressure on the exchange rate and stabilise domestic prices.

(c) Expanding Social Safety Nets. Mr. Speaker, Honourable Members, at the request of the Government, the World Bank has agreed to reallocate funds to the Contingency Emergency Response Components (CERC) of the FREE Education and Social Safety Nets and Youth Empowerment Projects to facilitate the preparation of emergency operations. The objective is to mitigate the impact of higher food and fuel prices on vulnerable groups, including school children and the very poor in our society. Under the FREE Education project, US$12 million will be provided to scale up the school feeding programme to cover fifteen districts, including Western Rural; hygiene pads for school girls, teaching and learning materials, and examination fees.

“Under the Social Safety Nets and Youth Empowerment Project, the allocation for cash transfers will be increased from US$4 million to US$10 million to scale up the coverage of the cash transfer programme. The Emergency Cash Transfer Programme will target an additional 35,000 beneficiaries (mostly women) engaged in productive activities in urban and rural communities. This will increase the total number of beneficiaries to 70,000.

“Mr. Speaker, Honourable Members, we will also use the additional SDR resources allocated by the IMF to support the implementation of activities in the Supplementary Budget. Part of these resources will also be utilised to support the expanded school feeding programme (Le60 billion) and Cash transfers (Le20 billion).

(d) Emergency Food Production Support. Mr. Speaker, Honourable Members, Government has also secured financial support from the African Development Bank under the African Emergency Food Production Facility in the sum of US$2.1 million to support farmers with agricultural inputs, especially fertiliser, to enable them to boost production with a view to addressing the looming food security crisis.

“(e) Support to Micro, Small and Medium Enterprises (MSMEs). Mr. Speaker, Honourable Members, you will recall that Government established the MUNAFA Fund and approved the sum of Le100 billion to enhance access to finance for micro, small and medium enterprises (MSMEs) from 2020 to 2023. 35. To date, Government has released the sum of Le30 billion into the Fund. Of this amount, Le26 billion has been disbursed to Financial Services Providers for on-lending to micro, small and medium enterprises. About 75 percent of the beneficiaries are women. Government will disburse additional funds to scale up the programme as part of efforts to mitigate the impact of the Ukraine war on MSMEs.

(f) Fuel and Electricity Subsidies. Mr. Speaker, Honourable Members, the recent upward adjustment in domestic pump prices is not sufficient to cover the cost of fuel at the pump level. Thus, total indirect subsidies on fuel amount to Le 380 billion for the period January to June 2022. In the case of electricity, the rise in the price of fuel has led to an increase in the subsidies provided by Government to the energy sector. Reflecting the higher fuel prices, total subsidies to the energy sector are now estimated to increase to Le538 billion from Le122 billion in the original budget.”

As widerspread blackout continues in the capital Freetown, questions are being asked about the massive $36 million owed by the government to the Turkish company that has been providing offshore powered electricity from their ship. The company has suspended its contract with the government and are demanding payment.

You can read the finance minister’s full statement here:

Sierra Leone government Supplementary Budget Speech June 2022

 

3 Comments

  1. I will always continue to say the truth that President Bio inherited an economy under AUSTERITY in 2018. Unfortunately, in 2019 the Pandemic struck, and in 2020 , the whole world was in Lockdown. Immediately the lockdown ended in 2021, unfortunately, the war started between Russia and Ukraine.
    But under all these difficult circumstances, the New Direction government launched the flagship program Free Quality Education, and increased revenue through the NRA in the Single Treasury Account for rainy days. Now, the finance minister is guaranteed to receive the rainy day fund, instead of declaring austerity, as was the case of the APC. Back then, due to rise in the price of the Iron ore , our country had the fastest growing economy in the world but former President Koroma ended up declaring austerity due to massive theft.
    The link below shows the difference between the APC and the SLPP one year before the 2018 elections and now under this global crisis:
    https://www.thesierraleonetelegraph.com/sierra-leone-government-failing-to-achieve-its-tax-collecting-obligations-as-poverty-grows/

  2. What the Minister of Finance failed to tell the Parliamentarians and the struggling people of Seirra Leone , is how much is the total external debt stock the government owed to officials creditors including multilateral lends like the world Bank , IMF , ADB and The European Union , The Uk government ,other governments like China , Turkey ,and many others that have increasingly becomes lenders of last resort to this out of touch and inept one directionless government that continued to borrow like is no tomorrow , with the full knowledge this loans are coming with strings attached , leaving our country exposed to venture capitalist and international money speculators that have no interest in making a dent of difference to the average persons life in PZ , that can hardly feed themselves .Nevertheless this foreign investors are happy to deal with a government that only cares about themselves and those close to them . Caught between the devil and deep blue sea is an understatement.On the current borrowing gravy train our country finds itself , against the cost of borrowing from international financial institutions , our country might just be heading for debts distress or run the risk of being placed in a debt distress situation , with little or no rescure plan Bio is driving us to the cliff edge with eight million Sierra Leoneans strapped at the back , destination unknown .

    And if our country fail to meets the obligatory demands of our international creditors , there is a real possibility we might end up on defaulting on our sovereign debt. That will make our struggling Leoan even more worthless as it’s stand today. We will be a country of billionaires that can’t afford their daily bread. And no one should wish us that outcome.The failure of the Bio government to come up with sound economic policies like investing in education ,science and technology, health,agriculture and food , roads ,energy sufficiency that helps early starts up ,and the impact of the covid19 pandemic on health and businesses .

    With the rise of commodities prices as a results of Putin’s war in Ukrain any hope of a quick and long lasting recovery is way out of our reach.Maybe African governments should send a delegation to Russia and tell Putin the tyrant that he’d made his point and stop the war in Ukraine.The devastating impact of the war is not only hurting Ukraine’s ability to export their grain , which some African countries stands to gain , the price of petrol and the human cost is too great to satisfy the ego of one bald man .

  3. Hip Hip Hip, Hooray. Wait a minute. Are Sierraleoneans happy with this massive borrowing?
    Look at that! Begging, borrowing, complaining and explaining when it comes to our financial woes. Is that fair? Are there no other options? Why can’t they for heaven’s sake subsidise for Rice and Fuel? Don’t tell me that the IMF will be very unhappy about that. Is this the only formula for financially independence or helping our people? When will we stop this begging, massive borrowing, complaining and explaining on how to solve our financial woes? Alright. “Okay Oh”. “Talk half, lef half”.
    Did they hear the message from the people of Kenema and Sambaia Bendugu?
    Wait and hear what the people of Sierra Leone will say in 2023. I’m very confident as I’ve always been, that the people of Sierra Leone are going to vote for leaders and not friends or personal interest in 2023. Ladies and gentlemen, the people of Kenema and Sambaia Bendugu have taught us a big lesson and have set the bar very high. They clearly told us that the slogan or idea – “This na we stronghold” is beginning to crumble. God bless the people of Kenema District and Sambaia Bendugu. God will richly bless them for their actions in the recent Bye election. Almost fifty fifty, which is a recipe for cooperation and national unity. I believe that this is the way forward. Vote them out or live it fifty fifty, so that they will be forced to engage eachother. Did they get or receive the message loud and clear? Yeah!

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