## _cr10371

## Source details

**Canonical URL:** [_cr10371](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10371.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10371.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10371.pdf.json)

---

### Status of Key Recommendations from the 2005 Ex Post Assessment — Key recommendations and Fund experience (2006–10)
- Future involvement: conditionality focused on core areas of Fund competence; access exceeded initial expectations ("30 percent of access, augmented twice by 10 percent of quota") in response to external shocks.
- Conditionality level: "relatively high," particularly early in the program period.
- Policy coordination: advice coordinated informally with the World Bank and other budget support donors; growth performance described as satisfactory.
- Fund/Bank roles: focused on respective core areas with overlap on enhancing fiscal discipline.
- Capacity/institution building: 2006 PRGF emphasized capacity building with extensive TA; need to strengthen prioritization and sequencing given absorption constraints.
- Budget financing: budget deficit financed predominantly by external grants.
- Civil service reform: progress limited; donor funds available to support short-term costs.
- Exit from Fund arrangements: not feasible during shocks; successor ECF approved in June 2010.
- Technical assistance: intensive TA provided by Fiscal Affairs, Monetary and Capital Markets, and Statistics Departments.

### II. Economic Performance during the EPA period (mid-2005 to mid-2010) — Macroeconomic performance — summary findings
- Growth:
  - "The economy grew on average by 6 percent per year during 2005–09, albeit on a declining trend."
  - Growth slowed to "3.2 percent in 2009."
  - Main contributors: agriculture and informal services; mining sector relatively small.
- Inflation and exchange rate:
  - Inflation trended downward with spikes from 2008 food and fuel shock, nominal exchange rate depreciation in late 2009, and GST introduction in early 2010.
  - Nominal exchange rate stable until 2009 when foreign exchange inflow delays increased depreciation pressures.
- Fiscal performance:
  - Programmed revenue increases not achieved; revenue fell in 2006–07 and rebuilt thereafter.
  - Strict cash-based budget in 2007 contained impact of revenue shortfall but led to expenditure arrears.
  - 2008 shocks: import duties on basic food temporarily lowered and fuel subsidies increased.
- External sector and reserves:
  - Current account deficit widened in 2008–09.
  - Foreign reserves bolstered by the SDR allocation in 2009.
  - Reserves coverage improved from "less than three months of imports coverage in 2006 to over six months in 2009."
- Financial sector and access:
  - Financial depth and intermediation remain low; credit growth increasing.
  - High lending-deposit spread; limited competition and high risk premium.
  - Majority of population has limited access to financial services.
- Debt relief and social spending:
  - Total debt relief amounted to "$675 million," of which "$125 million from the IMF (in net present value terms)."
  - Debt service payments on a cash basis declined from "4 percent of GDP, on average, during 2004–06 to less than 1 percent of GDP during 2007–09."
  - Poverty-reducing expenditure more than doubled from "2 percent of GDP in 2007 to about 5½ percent, on average, in 2008–09."

### Vulnerabilities and social indicators
- Vulnerabilities:
  - Small formal sector; undiversified economy limits tax base.
  - Export base narrow and volatile: "diamonds comprise about one half of exports."
  - Imports dominated by oil and rice, sensitive to international prices.
- Social indicators:
  - Poverty prevalent; unemployment high, especially among urban youths.
  - Infant and under-five mortality and HIV prevalence rates have slightly declined with health sector reforms.

### B. Structural reforms — achievements and gaps — Achievements
- Public financial management (PFM):
  - IFMIS partly rolled out to government MDAs.
  - New PFM legislation introduced.
  - Internal audit capacity developed; external audit strengthened.
  - Donor-funded integrated PFM reform program in place since late 2009.
- Revenue administration and tax policy:
  - Introduction of the GST implemented in "January 2010."
  - FAD preparatory reforms recommended in early 2006 would have enabled GST in 2008, but implementation delays occurred.
- Monetary and financial sector:
  - BSL recapitalization via conversion of noninterest bills to T-bills strengthened monetary policy capacity.
  - Liquidity management expanded to open market operations using repos and reverse repos; weekly T-bill auctions continued.
  - Private sector credit grew rapidly from a low base; new banks entered market.
  - Banking supervision capacity being strengthened; high nonperforming loans remain a concern.
  - Payment systems strengthening project underway.
- Legal and sector reforms:
  - New Mines and Minerals Act with revised royalty regime approved at end-2009.

### B. Structural reforms — constraints and outstanding agenda
- Slower-than-expected implementation due to capacity constraints and, in some areas, lack of buy-in (e.g., delays in mining fiscal regime).
- High turnover in NRA management and insufficient political backing affected GST preparatory steps.
- Persistent PFM weaknesses: budget formulation/execution, procurement, project appraisal and planning.
- Privatization program progressed slower than envisaged.
- Significant remaining reform agenda in business environment reforms; need to prioritize and sequence reforms given absorption constraints.

### III. Key issues in Fund engagement — Program objectives (PRGF approved May 2006)
- Overarching aim: consolidate progress on macroeconomic stability in an uncertain post-conflict environment.
- Specific objectives:
  - Increase revenue to create fiscal space for priority spending.
  - Through financial reforms, increase private savings and investment.
- Target: Domestic revenues targeted to increase from "12.2 percent of GDP in 2005 to 13.6 percent of GDP by 2008."
- Outcome: program provided a sound macroeconomic framework and built resilience to shocks; targeted revenue improvement did not materialize.

### Program design — features and adjustments
- Quantitative framework included PCs on:
  - Net domestic assets of the central bank.
  - Gross foreign exchange reserves.
  - Net domestic budget financing.
  - Additional fiscal target on the domestic primary balance.
- Targets and adjustors:
  - Indicative target on government revenue elevated to a performance criterion; indicative target on government wage bill removed in 2008.
  - Adjustor for budget support shortfalls initially capped at "50 percent of projected budget support inflows;" later replaced by an adjustor capped at "$20 million" to protect foreign reserves.
  - Recommendation: merit in increasing the cap "perhaps gradually" conditional on comfortable foreign reserves outlook.
  - Inconsistency in adjustor application (applied to domestic financing target but not to domestic primary balance) was tackled in the ECF program (June 2010).
- Structural conditionality:
  - Original program had extensive structural targets; intensity reduced during implementation.
  - Most measures "macrocritical," some extended beyond Fund core expertise (electricity tariff policy, human resource management).
  - Revenue measures grew more central after the second review.
  - Emphasis on structural measures that capture implementation of "real changes" rather than formulation only.
  - No evidence fewer structural targets would have produced stronger implementation.

### Program performance
- Improvements over time:
  - PC on foreign reserves met on all test dates.
  - PC on net domestic assets missed only once.
  - All end-2006 quantitative targets missed due to revenue slippages, expenditure overruns, and budget support delays.
  - By 2007, all quantitative targets except indicative targets on revenue and poverty-related expenditures were met; strict cash budget led to arrears.
  - After belated completion of second review, core PCs met at all test dates except:
    - Domestic primary balance PC missed twice (reflecting adjustor inconsistencies).
    - Domestic revenue target missed except mid-2006 and 2009 test dates.
- ECF design (June 2010) adjustments:
  - Simplified design with fewer quantitative targets; only one core fiscal PC.
  - Adjustors applied uniformly across all PCs.
  - PC on revenue collections changed back to an indicative target.
  - Attempt to strengthen structural agenda focus on macrocritical reforms.

### 20. The frontloaded revenue targets were — Revenue targets and collection performance
- Frontloaded revenue targets described as "overly ambitious."
- Disappointing outturn reflected unrealistic targets and weakening collection efforts in run-up to 2007 elections.
- Tax reform measures implemented only partially or with delay.
- More realistic revenue targets incorporated in subsequent reviews.
- Guidance: balance needed in setting revenue targets that are ambitious, supported by strong measures, yet achievable given structural constraints.
- Program objectives (Appendix 1) included increasing domestic revenues from "12.2 percent of GDP in 2005 to 13.6 percent by 2008" while containing expenditures close to "23 percent."

### Payroll and fiscal management
- "Overruns on the payroll have been a recurring problem under the program."
- Indicative target on wage bill "was missed on three out of five test dates, and it was dropped starting from 2008."
- Structural measures to strengthen payroll management were "limited in scope, and proved inadequate."
- To preserve macro stability during 2007 elections, authorities adopted a cash-budget management system with no bank financing, helping most quantitative PCs be met in 2007.

### Technical assistance, statistics, and civil service reform
- Program well supported by TA focused on revenue administration, PFM, monetary policy, bank supervision, and statistics.
- Continued weaknesses in core statistics: "the national accounts, inflation, and balance of payments" constrain official data use for monitoring.
- Renewed focus needed on civil service reform; donors support implementation and Fund involvement should advise on budget and macroeconomic impact.

### Donor collaboration and IMF mission timing
- Collaboration with donors close; mission teams and donors interact frequently, including video conferencing.
- With IMF resident representative relocation to Sierra Leone, cooperation expected to evolve.
- Difficulties completing the second review contributed to budget support delays; subsequent disbursements more predictable though concerns remain.
- Proposal: IMF resident representative could observe budget support review missions.
- Timing/focus of missions: review missions typically twice a year; MoFED issues budget call circular in June; limited time remains to adjust draft budget after second review mission.
- Options to reinforce budget preparation: (i) brief staff visit between reviews to finalize macro framework, or (ii) extend scope of first review mission to cover next fiscal year's projections.

### Medium-term development strategy
- "The Agenda for Change (PRSP II) envisages a moderate rebalancing of social spending and infrastructure reconstruction."
- Strategy emphasizes continuing improvements in health, education, governance, and rebuilding physical infrastructure.
- Regulatory and institutional reforms in transportation, power, and water sectors important.
- Critical need to enhance government capacity to appraise, design, and implement infrastructure projects; donor sector expertise needed.
- Fund should "work with the government to assess the scope to scale up investment in infrastructure within realistic fiscal and macroeconomic frameworks."

### Lessons for future Fund involvement and strategy
- Fund has been "essential" in advising on macroeconomic policy; continued close engagement desirable given weak but improving capacity.
- Key objective: support authorities in designing/implementing sound macro framework and signal to budget support donors.
- Continued capacity-building and long-term engagement attuned to rebuilding capacity weakened by conflict.
- Consider engaging broader stakeholders to deepen program ownership.
- Approval of successor ECF in June 2010 judged appropriate; successor could be new ECF or PSI. A successor ECF with reduced access "possibly 'as low as 10 percent of quota'" could be reasonable, contingent on financing needs assessment.

### Specific recommendations (text excerpts)
- Key fiscal objective: improve revenue collections to create fiscal space for priority spending; balance forecasting with structural constraints.
- "The push to increase revenue from the minerals sector and enhance transparency is paramount."
- Over time consider eliminating indicative target on revenue, though "in the short term this should be retained."
- Increase cap for budget support shortfalls while foreign reserves remain comfortable.
- Continue parsimonious use of structural conditionality; focus on macrocritical benchmarks that capture implementation.
- Sustained medium-term TA required; realistic prioritization of reforms critical given absorption constraints.
- Program review missions could support capacity via focused workshops (e.g., financial programming, revenue forecasting).
- "The timing and scope of the IMF review missions should reinforce the budget preparation process."
- Strengthen collaboration with budget support donors; IMF resident representative could act as informal observer in multi-donor review missions.
- On debt: HIPC and MDRI "improved the debt sustainability outlook"; new borrowing contracted on concessional terms. Recommendation: continue to borrow prudently on concessional terms, with grants as main source of budget financing.

### Key program performance highlights and statistics (preserved verbatim)
- Original program objectives included:
  - output growth of "6 percent by 2008";
  - overall fiscal balance of "-2.7 percent of GDP";
  - domestic primary balance of "2 percent of GDP";
  - domestic financing below "0.3 percent of GDP annually";
  - gross official reserves of "about three months of imports";
  - increase domestic revenues from "12.2 percent of GDP in 2005 to 13.6 percent by 2008";
  - contain expenditures close to "23 percent."
- Program performance notes:
  - "The target for gross reserves was always met."
  - Growth: "The average growth rate from 2005–09 was 6 percent, close to the program objective."
  - Inflation: "inflation down to 9.2 percent in 2009"; "inflation to 18 percent in the 12 months through August 2010."
  - Current account: deficit rose from "5.5 percent of GDP in 2007 to 11.4 percent of GDP in 2008."
  - Domestic revenue: frequently missed earlier; domestic revenue target "was subsequently elevated from an indicative target (IT) to a performance criterion (PC)."
- Specific reform measures:
  - "The GST was introduced on January 1, 2010 replacing seven other sales taxes to simplify and broaden the tax base."
  - Other measures: introduction of a tax identification number and adoption of a modernized customs law consistent with WTO practices.
- Administrative challenges:
  - "Many TA recommendations in the revenue area were either not implemented or only implemented after a delay."
  - Revenue targets achieved more consistently starting in 2008 due to increased realism and stronger focus on structural measures.

### Introduction of the GST — Key measures, timelines, and status
- GST introduction:
  - Type: BM; Test Date: "First of Jan 2010"; Status: M*
- Adoption by Cabinet of implementation decree for GST:
  - Type: PA / PAM; Status entries: PAM* (prior action met)
- Integrate GST administration within LTO:
  - Type: BM; Test Date: End-December 2009; Status: NM*; revised expectation end-December 2010 or end-September 2010 in appendices.
- Establish Domestic Tax Department (DTD) and make it functional:
  - Type: PC / BM; Test Dates: End-December 2009; End-September 2010; Status entries: NM / expected to be met under new program by end-September 2010.
- Related measures:
  - Implementation decree for modernized customs law/regulations: Test Date End-June 2009; Status: NM* (later M in table entries).
  - Simplified small taxpayer regime: Test Date End-September 2009; Status: M* / M.

### Revenue administration and NRA management
- Frequent NRA management changes during 2005–10; Commissioner General appointed in 2008 suspended in 2009; deputy CG acting since mid-2009.
- FAD TA recommendations (2006, reiterated 2008 and March 2010) to enforce compliance for large taxpayers:
  - (i) strictly impose penalties for failing to file income tax returns;
  - (ii) apply penalties and interest for late/underpayment of tax;
  - (iii) not tolerate further accrual of parastatal PAYE arrears.
- Program actions/status examples:
  - Three-year NRA modernization plan adopted by cabinet and tabled before parliament — PC End-June 2007 — NM* (missed).
  - Promulgate interest rate and penalties effective October 1, 2008 — PC End-September 2008 — M* (met).
  - Adoption by cabinet of implementation decree for GST — PC End-December 2008 — NM* (missed).

### PFM, expenditure composition, and program targets (Percent of GDP; values preserved exactly)
- Total expenditures and net lending: 2005 24.6; 2006 22.7; 2007 17.6; 2008 20.7; 2009 22.7
- Current expenditures: 2005 18.7; 2006 17.6; 2007 13.3; 2008 14.6; 2009 15.6
- Wage bill: 2005 6.5; 2006 6.4; 2007 6.0; 2008 5.7; 2009 6.3
- Poverty related spending: 2005 4.8; 2006 4.4; 2007 2.2; 2008 5.7; 2009 5.6
- Capital expenditures: 2005 5.9; 2006 5.1; 2007 3.5; 2008 6.2; 2009 7.1
- Program aim: shift expenditures from current to capital spending and rationalize wage bill via civil service reforms.
- Outcomes: wage share declined slightly; poverty-related and capital spending increased. Wage bill target frequently missed and later dropped.

### Governance, extractive sector transparency, and anti-corruption
- Auditor General appointed.
- Medium-term revenue projections for diamonds, rutile, and bauxite incorporated in fiscal framework.
- Steering committee for National Anti-Corruption Strategy Agreement established; revised Anti-Corruption Act enacted.
- Government committed to EITI; first EITI report launched March 2010 for fiscal year 2006–07.
- Program conditionality included establishment of steering committee and medium-term revenue projections (status: NM* initially, later PAM*/met).

### Financial sector, monetary operations, and statistics
- Financial sector:
  - Challenges deepening intermediation; banking supervision reforms moved toward risk-based focus but progress slower than expected.
  - Measures to increase access: credit reference bureau; Financial Sector Development Plan (FSDP) in 2009.
- Monetary operations:
  - Liquidity management enhanced via conversion of noninterest securities to marketable T-bills.
  - Strengthened macroeconomic policy coordination; repos and reverse repos commenced June 2009.
  - Reverse repo rate targeted as benchmark.
- Statistics:
  - New fiscal and monetary reporting system; statistics units established in key MDAs.
  - Since March 2004, 14 national accounts TA missions under GDDS Anglophone Africa Project.
  - Shortcomings: capacity limitations, lack of comprehensive source data, need for single reliable CPI and better agriculture data.
  - Conditionality on data reconciliations missed and elevated to prior actions.

### Overall assessment of structural conditionality and sequencing
- Structural measures per review averaged 13 during 2006–08 and declined to five per review from 2009 onwards.
- Focus shifted from PFM/statistics/institutional reforms to revenue administration and financial sector/monetary operations.
- Some measures exceeded Fund core expertise (electricity tariff, HR/payroll); donor expertise often better placed.
- Attempts to measure implementation (e.g., GST introduction, DTD establishment) had mixed success; capacity and political support constraints noted.
- Case made for better sequencing with earlier focus on capacity-limiting reforms.

*Source: IMF staff report — Status of Key Recommendations from the 2005 Ex Post Assessment (mid-2005 to mid-2010).*

### 1. Status of Key Recommendations from the 2005 Ex Post Assessment ..................................5

### 1. Status of Key Recommendations from the 2005 Ex Post Assessment

### Key recommendations and Fund experience (2006–10)
- Recommendation: Future involvement should be consistent with the Fund's overall approach to LICs, focusing conditionality on core areas with precautionary or low-access financing.
  - Experience: Conditionality with a few exceptions has focused on core areas of the Fund's competence; access has been higher than anticipated (30 percent of access, augmented twice by 10 percent of quota) in response to external shocks.
- Recommendation: A relatively high level of conditionality may be needed to ensure strong policy implementation.
  - Experience: The level of conditionality was relatively high, in particular early on in the program period.
- Recommendation: Policy advice should be coordinated with the World Bank and other donors, and set the country on a sustainable growth path.
  - Experience: Advice has been coordinated informally with the World Bank and other budget support donors. The growth performance has been satisfactory.
- Recommendation: Fund and Bank policy advice should contribute, respectively, to enhance fiscal discipline and the investment environment.
  - Experience: The Fund and the Bank have focused on their respective core areas of expertise, but with overlap in areas aimed at enhancing fiscal discipline.
- Recommendation: A successor PRGF program should place emphasis on capacity and institution building.
  - Experience: The 2006 PRGF program had an appropriate focus on capacity building reinforced by an extensive TA program; there is scope to strengthen the prioritization and sequencing of reforms given absorption constraints.
- Recommendation: The budget deficit should be largely financed by external grants.
  - Experience: The budget deficit has been financed predominantly by external grants.
- Recommendation: Civil service reforms should be phased in and their short term social costs absorbed in the budget.
  - Experience: Progress on effective civil service reforms has been limited; donor funds are available to support the short term costs of civil service reform.
- Recommendation: Over the medium term, an exit from Fund financial arrangements could be considered.
  - Experience: Given the role played by the Fund as an advisor on macroeconomic policy, and to strengthen the confidence of donors and investors, an exit was not feasible. The economy was also hit by external shocks which increased financing gaps. Hence, a successor ECF was approved in June 2010.
- Recommendation: It is important for the Fund to continue to provide technical assistance to Sierra Leone.
  - Experience: The Fund has provided intensive TA including from the Fiscal Affairs, Monetary and Capital Markets, and Statistics Departments.

---

### II. Economic Performance during the EPA period (mid-2005 to mid-2010)

### Macroeconomic performance — summary findings
- Growth:
  - The economy grew on average by 6 percent per year during 2005–09, albeit on a declining trend.
  - Growth slowed to 3.2 percent in 2009 as exports and remittances were affected by the global demand shock.
  - Main contributors to growth: agriculture and informal services; mining sector remains relatively small.
- Inflation and exchange rate:
  - Inflation has been trending downward, but with spikes related to the 2008 food and fuel price shock, the nominal exchange rate depreciation in late 2009, and unanticipated price increases triggered by the introduction of the goods and services tax (GST) in early 2010.
  - The nominal exchange rate remained stable until 2009 when delays in foreign exchange inflows increased depreciation pressures.
- Fiscal performance:
  - The programmed increase in revenue collections was not achieved; revenue collections fell in 2006–07 and were gradually rebuilt thereafter.
  - Authorities adhered to a strict cash-based budget in 2007 to contain the impact of the revenue shortfall, which led to the accumulation of expenditure arrears.
  - In response to the 2008 food and fuel price shocks: import duties on basic food commodities were temporarily lowered and fuel subsidies increased.
- External sector and reserves:
  - The current account deficit widened due to external shocks in 2008 and 2009.
  - Foreign reserves held up, bolstered by the SDR allocation in 2009.
  - Reserves coverage improved from less than three months of imports coverage in 2006 to over six months in 2009.
- Financial sector and access:
  - Financial depth and intermediation remain low, although credit growth has been increasing.
  - The spread between lending and deposit rates is high, reflecting limited competition, inefficiencies, and a high risk premium.
  - Majority of the population continues to have limited access to financial services.
- Debt relief and social spending:
  - Total debt relief amounted to $675 million, of which $125 million from the IMF (in net present value terms).
  - Debt service payments on a cash basis declined from 4 percent of GDP, on average, during 2004–06 to less than 1 percent of GDP during 2007–09.
  - Poverty-reducing expenditure more than doubled from 2 percent of GDP in 2007 to about 5½ percent, on average, in 2008–09.

### Vulnerabilities and social indicators
- The economy is vulnerable to domestic and external shocks:
  - Formal sector is small; economy not diversified, limiting the tax base.
  - Export base is narrow and volatile: diamonds comprise about one half of exports.
  - Imports are dominated by oil and rice, sensitive to international price fluctuations.
- Social indicators:
  - Poverty remains prevalent and unemployment is high, especially for urban youths.
  - Infant and under-five mortality indicators and the HIV prevalence rate have slightly declined with health sector reforms.

---

### B. Structural reforms — achievements and gaps

### Achievements
- Public financial management (PFM):
  - IFMIS partly rolled out to government ministries, departments, and agencies.
  - New PFM legislation introduced.
  - Internal audit capacity gradually developed and deployed; external audit strengthened.
  - Donor-funded integrated PFM reform program in place since late 2009.
- Revenue administration and tax policy:
  - Introduction of the GST (a VAT) implemented in January 2010.
  - Preparatory reforms recommended by FAD in early 2006 would have enabled GST introduction in 2008, but implementation delays occurred.
- Monetary and financial sector:
  - Bank of Sierra Leone (BSL) recapitalization by converting noninterest bills to T-bills strengthened monetary policy capacity.
  - Liquidity management expanded to open market operations using repos and reverse repos; weekly T-bill auctions continued.
  - Private sector credit has grown rapidly from a low base; new banks entered the market.
  - Banking supervision capacity is being strengthened; concerns about high nonperforming loans persist.
  - Payment systems strengthening project underway.
- Legal and sector reforms:
  - New Mines and Minerals Act with revised royalty regime approved at end-2009.

### Constraints and outstanding agenda
- Implementation of structural reforms generally slower than expected, reflecting:
  - Capacity constraints.
  - In some areas, lack of buy-in from authorities (e.g., delays in implementing the mining fiscal regime).
  - High turnover of management in the National Revenue Authority (NRA) and insufficient political backing at critical junctures (notably affecting GST preparatory steps).
- Persistent PFM weaknesses in budget formulation and execution, procurement practices, and project appraisal and planning in MoFED and sector ministries.
- Privatization program progressed slower than envisaged.
- Significant remaining reform agenda in business environment reforms to encourage private sector-led growth.
- Need for prioritization and sequencing of reforms given absorption constraints.

---

### III. Key issues in Fund engagement

### Program objectives (PRGF approved May 2006)
- Overarching aim: consolidate progress on macroeconomic stability in an uncertain post-conflict environment.
- Specific objectives:
  - Increase revenue to create fiscal space for priority spending.
  - Through financial reforms, increase private savings and investment.
- Target: Domestic revenues targeted to increase from 12.2 percent of GDP in 2005 to 13.6 percent of GDP by 2008.
- Outcome: The program provided a sound macroeconomic framework and built resilience to shocks; the targeted improvement in revenue collections did not materialize.

### Program design — features and adjustments
- Quantitative framework included standard PCs on:
  - Net domestic assets of the central bank.
  - Gross foreign exchange reserves.
  - Net domestic budget financing (capturing bank financing and T-bill holdings by the nonbank sector).
  - Additional fiscal target on the domestic primary balance.
- Targets and adjustors:
  - An indicative target on government revenue was later elevated to a performance criterion; an indicative target on the government wage bill was removed in 2008.
  - The adjustor for shortfalls in budget support was initially capped at 50 percent of projected budget support inflows; later replaced by an adjustor capped at $20 million to protect foreign reserves.
  - The low $20 million cap was intended to protect reserves but given lumpiness and unpredictability in budget support, there would be merit in increasing the cap (perhaps gradually), conditional on a comfortable foreign reserves outlook.
  - An inconsistency in the application of adjustors to fiscal targets (adjustor applied to domestic financing target but not to domestic primary balance target) was tackled in the ECF program approved in June 2010.
- Structural conditionality:
  - Original program had extensive structural targets; intensity of structural conditionality was reduced during implementation.
  - Most measures were “macrocritical,” but a few extended beyond Fund core expertise (e.g., electricity tariff policy and human resource management).
  - Revenue measures became more central from the second review.
  - Growing recognition of the need for structural measures that capture implementation of “real changes” rather than formulation of plans and policies only.
  - No evidence that fewer structural targets would have produced stronger reform implementation.

### Program performance
- Overall improvement over time:
  - The PC on foreign reserves was met on all test dates.
  - The PC on net domestic assets was missed only once.
  - All end-2006 quantitative targets were missed due to revenue slippages, expenditure overruns, and delays in budget support.
  - By 2007, all quantitative targets except the indicative targets on revenue and poverty-related expenditures were met (adhering to a tight cash-based budget led to accumulation of arrears).
  - Following the belated completion of the second review, program performance improved with core PCs being met at all test dates, except:
    - The domestic primary balance PC was missed twice (reflecting inconsistencies in the adjustor for budget support).
    - The target on domestic revenue was missed except for test dates in mid-2006 and in 2009.
- ECF design (June 2010) adjustments:
  - Simplified design with fewer quantitative targets; only one core fiscal PC.
  - Adjustors applied uniformly across all PCs.
  - PC on revenue collections changed back to an indicative target.
  - Attempt to strengthen structural agenda focus on macrocritical reforms.

*Source: IMF staff report — Status of Key Recommendations from the 2005 Ex Post Assessment (mid-2005 to mid-2010).*

### 20.      The frontloaded revenue targets were

### _cr10371 - 20.      The frontloaded revenue targets were

### Revenue targets and collection performance
- Frontloaded revenue targets were described as "overly ambitious."
- Disappointing revenue outturn reflected a combination of unrealistic targets and a weakening in collection efforts in the run-up to the elections in 2007.
- Tax reform measures were only implemented partially or with a delay.
- More realistic revenue targets were incorporated into the program in subsequent reviews.
- Guidance: "Looking ahead, a proper balance is needed in setting revenue targets that are ambitious, supported by strong policy or administrative measures, but still achievable given the structural constraints in the economy."
- Program objectives (Appendix 1) included increasing domestic revenues from "12.2 percent of GDP in 2005 to 13.6 percent by 2008" while containing expenditures close to "23 percent."

### Payroll and fiscal management
- "Overruns on the payroll have been a recurring problem under the program."
- The indicative target on the wage bill "was missed on three out of five test dates, and it was dropped starting from 2008."
- Structural measures to strengthen payroll management were "limited in scope, and proved inadequate to tackle the underlying problems experienced in controlling the payroll."
- To preserve macroeconomic stability during the 2007 elections, authorities "adopted a cash-budget management system with no recourse to bank financing," which helped improve the overall fiscal balance and allowed most quantitative PCs to be met in 2007.

### Technical assistance, statistics, and civil service reform
- The program has been "well supported by technical assistance (TA)."
- TA focus: improving revenue administration and PFM, strengthening capacity for monetary policy and bank supervision, and improving statistics.
- Continued weaknesses in core economics statistics—"the national accounts, inflation, and balance of payments"—constrain the use of official data for program monitoring.
- A "renewed focus is also needed on civil service reform," with donors supporting implementation of the government's reform program; Fund involvement should focus on advising on the budget and macroeconomic impact.

### Donor collaboration and IMF mission timing
- "The collaboration with donors has been close." Mission teams and donors interact frequently, including by video conferencing.
- With the IMF resident representative soon to be relocated to Sierra Leone, cooperation with donors is expected to evolve further.
- Difficulties completing the second review contributed to delays in budget support at a critical juncture; since then there have been no prolonged delays, but concerns remain about the predictability of disbursements.
- Proposal: IMF resident representative could participate as an observer in budget support review missions to strengthen interaction.
- Timing/focus of Fund missions: review missions are typically twice a year with the second mission discussing the macroeconomic framework for the following year. The MoFED issues the budget call circular in June; following the second review mission, expenditure ceilings are often revised, leaving limited time to adjust the draft budget.
- Options to better reinforce budget preparation timeline: (i) conduct a brief staff visit between reviews to finalize the macroeconomic framework for the next fiscal year, or (ii) extend the scope of the first review mission to also discuss projections for the coming fiscal year. Both would require greater efforts by government and donors for earlier discussion.

### Medium-term development strategy
- "The Agenda for Change (PRSP II) envisages a moderate rebalancing of social spending and infrastructure reconstruction."
- Strategy recognizes continuing improvements in health, education, and governance, and calls for more attention to rebuilding physical infrastructure damaged or neglected during the conflict.
- Regulatory and institutional reforms in transportation, power, and water sectors are important.
- Critical need: enhance government capacity to appraise, design, and implement infrastructure projects; donors with sector expertise should provide strong support.
- The Fund should "work with the government to assess the scope to scale up investment in infrastructure within realistic fiscal and macroeconomic frameworks."

### Lessons for future Fund involvement and strategy
- The Fund has played an "essential role in advising on macroeconomic policy"; given weak (albeit improving) capacity, continued close engagement is desirable.
- Key objective: support authorities' design and implementation of a sound macroeconomic framework and play a signaling role with respect to budget support.
- Continued attention to capacity-building is needed; long-term IMF engagement has been attuned to rebuilding capacity weakened during the civil conflict.
- Consider engaging with a broader range of stakeholders in Sierra Leone to deepen ownership of the economic program.
- Decision to approve a successor ECF in June 2010 was judged appropriate; a successor arrangement could be a new ECF or a PSI. A successor ECF arrangement with reduced access (possibly "as low as 10 percent of quota") could be reasonable, contingent on financing needs assessment.

### Specific recommendations (text excerpts rendered as bullets)
- "The key fiscal objective remains to improve revenue collections to create fiscal space for expanding priority spending." Balance needed in forecasting revenue, accounting for structural characteristics and strength of revenue measures.
- "The push to increase revenue from the minerals sector and enhance transparency is paramount."
- Over time, consider eliminating the indicative target on revenue, though "in the short term this should be retained to avoid signaling a shift in priorities."
- "There would be merit in increasing the cap for shortfalls in budget support as long as the foreign reserves position remains comfortable."
- Continue the trend toward "a more parsimonious use of structural conditionality" and focus on structural benchmarks that are macrocritical and capture implementation.
- Sustained, medium-term TA engagement is required to strengthen capacity; realistic prioritization of reform agenda and TA activities is critical given absorption constraints.
- Program review missions could improve capacity for macroeconomic analysis through focused workshops (e.g., on financial programming or revenue forecasting).
- "The timing and scope of the IMF review missions should reinforce the budget preparation process."
- "The collaboration with budget support donors should be further strengthened" and could be formalized by the IMF resident representative participating as an informal observer in multi-donor budget support review missions.
- On debt: "Debt relief under the HIPC and MDRI initiatives improved the debt sustainability outlook" and created room for some new borrowing to scale up priority spending; "new debt has been contracted on concessional terms." Recommendation: continue to borrow prudently and on concessional terms, with the main source of budget financing in the form of grants.

### Key program performance highlights and statistics (preserved verbatim)
- Original program objectives included:
  - achieve output growth of "6 percent by 2008";
  - overall fiscal balance of "-2.7 percent of GDP";
  - domestic primary balance of "2 percent of GDP";
  - domestic financing below "0.3 percent of GDP annually";
  - gross official reserves of "about three months of imports";
  - increase domestic revenues from "12.2 percent of GDP in 2005 to 13.6 percent by 2008";
  - contain expenditures close to "23 percent."
- Program performance notes:
  - "The target for gross reserves was always met."
  - Growth: "The average growth rate from 2005–09 was 6 percent, close to the program objective."
  - Inflation: slowed to single digits in 2006; "inflation down to 9.2 percent in 2009"; "inflation to 18 percent in the 12 months through August 2010."
  - Current account: deficit rose from "5.5 percent of GDP in 2007 to 11.4 percent of GDP in 2008."
  - Domestic revenue: frequently missed earlier in the program; domestic revenue target "was subsequently elevated from an indicative target (IT) to a performance criterion (PC)."
- Specific reform measures:
  - "The GST was introduced on January 1, 2010 replacing seven other sales taxes to simplify and broaden the tax base."
  - Other measures included introduction of a tax identification number and adoption of a modernized customs law consistent with WTO practices.
- Observed administrative challenges:
  - "Many TA recommendations in the revenue area were either not implemented or only implemented after a delay."
  - Revenue targets were achieved more consistently starting in 2008, reflecting increased realism and stronger program focus on structural measures.

*Source: IMF staff report text (content unit: _cr10371 - 20.      The frontloaded revenue targets were).*

### introduction of the GST). Frequent changes to the NRA’s leadership may also have impacted

### _cr10371 - introduction of the GST). Frequent changes to the NRA’s leadership may also have impacted

### Revenue administration and tax policy
- Frequent changes in NRA management during 2005–10: Commissioner General appointed in 2008 was suspended in 2009; deputy CG acting since mid-2009.
- Original plan: introduce the GST in 2008, in line with FAD TA recommendations.
- Extensive TA provided by the Fund and the DFID on tax administration reforms.
- Measures taken:
  - Establishment of a Domestic Tax Department (DTD).
  - Integration of the GST administration within the Large Taxpayer Office (LTO).
- Outstanding reforms could have positively impacted revenue mobilization—particularly from the mining sector—and increasing tax compliance, which remains weak.
- FAD TA recommendations (2006, reiterated 2008 and March 2010) to enforce taxpayer compliance for large taxpayers:
  - (i) strictly impose penalties for failing to file income tax returns;
  - (ii) apply penalties and interest for late/underpayment of tax;
  - (iii) not tolerate any further accrual of parastatal PAYE arrears.
- Program actions and status (selected):
  - A three-year modernization plan for the NRA, including separation of HQ and operations functions adopted by cabinet and tabled before parliament — PC End-June 2007 — NM* (missed).
  - Promulgate interest rate and penalties for under/late payments of taxes and make effective starting October 1, 2008 — PC End-September 2008 — M* (met).
  - Adoption by the cabinet of the implementation decree for the GST — PC End-December 2008 — NM* (missed).

### Public Financial Management (PFM) reforms and execution
- Major challenges: budget credibility and predictability; unrealistic MTEFs; overcomplicated budget preparation; late changes in expenditure ceilings; slow execution; monthly cash releases without consultation; continued arrears problems.
- Reforms introduced under program, supported by TA from the Fund, EU, and DFID:
  - 4-year Integrated Public Financial Management Reform Program (IPFMRP) introduced to strengthen PFM legal framework and ensure transparency, accountability, and efficiency.
  - Revisions to Government Budgeting and Accountability Act (GBAA) and implementing regulations for Public Procurement Act and GBAA.
  - Adoption of a new Local Government Act and progressive decentralization.
  - MoFED introduced a new chart of accounts and initiated an integrated financial management information system (IFMIS) project in 2005; IFMIS gradually rolled out and now covers (directly or indirectly) most transactions by MDAs.
  - Public expenditure tracking surveys integrated into annual budget cycle.
  - Internal audit gradually developed; external audit strengthened.
- Implementation shortfalls:
  - Delays in recruiting budget officers in MDAs with IFMIS.
  - Improvement in aggregate control achieved but at expense of effective budgeting and weak implementation of government policy objectives.
- Program conditionality examples:
  - Database of job grades and salary levels for all civil servants and teachers updated and audited; guidelines for annual salary adjustments within grade ranges approved by cabinet — PC End-June 2006 — NM* (initially), later listed as PAM*/PAM.
  - Coverage of IFMIS extended to key MDAs — BM End-April 2007 — M* (met).
  - Stock of outstanding utility and wage arrears identified as of February 28, 2006 and action plan approved — PAM*/End-February 28, 2006 — status indicated as elevated.

### Expenditure composition and program targets (in Percent of GDP)
- Expenditure composition, 2005–09 (values preserved exactly):
  - Total expenditures and net lending: 2005 24.6; 2006 22.7; 2007 17.6; 2008 20.7; 2009 22.7
  - Current expenditures: 2005 18.7; 2006 17.6; 2007 13.3; 2008 14.6; 2009 15.6
  - Wage bill: 2005 6.5; 2006 6.4; 2007 6.0; 2008 5.7; 2009 6.3
  - Poverty related spending: 2005 4.8; 2006 4.4; 2007 2.2; 2008 5.7; 2009 5.6
  - Capital expenditures: 2005 5.9; 2006 5.1; 2007 3.5; 2008 6.2; 2009 7.1
- Program objectives:
  - Aim: shift expenditures from current to capital spending and rationalize wage bill via civil service reforms.
  - Outcome: share of wages declined slightly while poverty-related spending and capital spending increased.
  - Specific program target on the wage bill was frequently missed; following payroll control progress (creation of comprehensive personnel file and correction of anomalies), the wage bill target was dropped from the program in line with Fund-wide guidance.
  - Target on poverty-related spending often missed—particularly earlier in the program—due to delays in budget processing and limited execution capacity; later years met end-year targets though mid-year targets often missed.

### Governance, anti-corruption, and extractive sector transparency
- Measures and outcomes:
  - Auditor General appointed.
  - Medium-term revenue projections for diamonds, rutile and bauxite incorporated in fiscal framework.
  - A steering committee for implementation of the Plan for National Anti-Corruption Strategy Agreement established.
  - A revised Anti-Corruption Act enacted.
  - Government committed to principles of the Extractive Industries Transparency Initiative (EITI).
  - First EITI report launched in March 2010 on payments made by mining companies and revenues received by MDAs from extractive sector for fiscal year 2006–07.
- Program conditionality examples:
  - A steering committee for implementation of Plan for National Anti-Corruption Strategy established and produced first report — BM End-March 2007 — NM* (missed initially); later entries show establishment as PAM*.
  - Medium-term revenue projection for diamonds, rutile and bauxite finalized and incorporated in fiscal framework — PAM* (met as PAM* in table).

### Financial sector and monetary operations
- Progress and challenges:
  - Difficulties deepening financial intermediation and strengthening financial sector; banking supervision reforms moved toward risk-based focus but progress took longer than expected.
  - Delays in receiving technical and financial donor support impacted effectiveness of Fund TA.
  - Some reforms drawn from Financial System Stability Assessment (FSAP) were delayed due to capacity constraints and institutional weaknesses.
  - Inclusion of measures to increase access to finance: establishment of a credit reference bureau; adoption of the Financial Sector Development Plan (FSDP) in 2009.
- Monetary operations improvements largely met:
  - Liquidity management enhanced by conversion of noninterest-bearing government securities into marketable securities.
  - Strengthened macroeconomic policy coordination between MoFED and BSL (continuous structural benchmark from June 2008 through end-2009).
  - Development of interbank market after phasing out discount window; commencement of repos and reverse repos operations in June 2009.
  - Reforms aimed at establishing reverse repo rate as benchmark interest rate.
- Structural benchmarks and status:
  - Assessment of bank capitalization and credit quality finalized by Bank of Sierra Leone — PC End-September 2006 — M* (met).
  - Structural benchmark to adopt new offsite surveillance guidelines for banks consistent with revised Banking and Other Financial Services Act was consistently missed.
  - Comprehensive strategy for reform of financial sector adopted by BSL drawing on FSAP — PC End-September 2007 — NM* (missed).

### Statistics and data reconciliation
- Achievements:
  - New fiscal and monetary reporting system implemented; fiscal data reconciled with an expanded set of monetary data.
  - Statistics units established in key MDAs to collect and assemble information for Statistics Sierra Leone (SSL).
  - Since March 2004, 14 national accounts TA missions visited Freetown under GDDS Anglophone Africa Project.
- Shortcomings:
  - Delays in implementing several elements due to capacity limitations.
  - Quality of statistics affected by lack of comprehensive source data.
  - Need to strengthen SSL capacity to collect and disseminate data, with particular attention to agriculture output data and computing one single reliable consumer price index.
- Conditionality status:
  - Reconciliation of fiscal data with expanded monetary data and establishing statistics units in key MDAs were missed and subsequently elevated to prior actions for completion of following review.
  - Prepare reconciliation of fiscal data with expanded monetary data produced by BSL — PC End-December 2007 — NM* (missed).

### Overall assessment of structural conditionality and sequencing
- The structural reform agenda focused on macrocritical reforms; average number of structural measures declined from 13 per review during 2006–08 to five per review from 2009 onwards.
- Focus shifted over time:
  - Earlier period: PFM, statistical, and institutional reforms were more critical.
  - Later period: revenue administration, and to a lesser extent financial sector and monetary operations, gained prominence.
- Observations:
  - Some reforms (e.g., tariff policy for electricity sector, human resources management/payroll) extended beyond Fund’s core expertise; implementing such reforms effectively may require donor expertise better placed to provide it.
  - Attempts were made to include measures capturing implementation (e.g., introduction of GST, establishment of DTD), but some stronger outcome-targeting measures were missed—reflecting limited capacity and/or lack of political support.
  - There may have been a case for better sequencing with earlier focus on capacity-limiting reforms.

*Source: IMF staff report content (text extracted from _cr10371 PDF).*

### introduction of the GST

### introduction of the GST

### Key measures and milestones
- Tax policy: Introduce the GST  
  - Type: BM  
  - Test Date: First of Jan 2010  
  - Status: M*  

- Adoption by the Cabinet of the implementation decree for the Goods and Services tax (GST)  
  - Type: PA (as listed in one table) / PAM (in another table)  
  - Status entries in tables: PAM* (indicative of prior action met)  

- Integrate the GST administration within the Large Taxpayer Office (LTO)  
  - Type: BM  
  - Test Date: End-December 2009 (multiple tables)  
  - Status: NM* (not met)  
  - Revised expectation under new program: end-December 2010 (noted in Appendix Table 6 and Appendix Table 8)

- Establish a Domestic Tax Department (DTD) as the vehicle for achieving the integration of domestic tax collection and make it functional  
  - Type: PC / BM (varies across tables)  
  - Test Dates appearing: End-December 2009; End-September 2010  
  - Status entries: NM / expected to be met under the new program by end-September 2010

### Related revenue-administration actions and timelines
- Adoption by the cabinet of the implementation decree for new and modernized customs law and regulations that reflects the WTO agreement and protects government customs revenue  
  - Type: BM / PC (varies across tables)  
  - Test Date: End-June 2009  
  - Status entries: NM* (M with Delay) / M (in later table entries)

- Adoption by the cabinet of a simplified and fully designed small taxpayer regime with supporting draft legislation  
  - Type: BM  
  - Test Date: End-September 2009  
  - Status: M* / M (appears as met across tables)

### Program sequencing and expected completions
- Measures originally scheduled for end-December 2009 (integration of GST within LTO; DTD functional) were not met (NM) in those tables and are repeatedly noted as expected to be met under the new program by end-December 2010 or end-September 2010 depending on the measure.  
- The GST introduction measure itself is recorded as BM with Test Date First of Jan 2010 and Status M* in the Appendix Table 6.

*Source: _cr10371 - introduction of the GST*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10371.pdf_