Sierra Leone and the IMF

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Sierra Leone Letter of Intent and Memorandum of Economic and Financial Policies

August 12, 2002

The following item is a Letter of Intent of the government of Sierra Leone, which describes the policies that Sierra Leone intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Sierra Leone, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Use the free Adobe Acrobat Reader to view Tables 1–3
Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington D.C. 20431

Dear Mr. Köhler:

1.  I am glad to report on progress made in implementing our economic recovery and poverty reduction program supported by a three-year arrangement under the IMF's Poverty Reduction and Growth Facility (PRGF), approved on September 20, 2001. The attached memorandum of economic and financial policies (MEFP) describes progress made to date, and outlines government policy objectives and targets for the period July 1, 2002–June 30, 2003.

2..  In our letter of February 12, 2002 relating to the first review under the arrangement, we described the substantial progress that had been made in advancing the peace process. Since that time, the reintegration of ex-combatants into civilian life has continued. In addition, to further consolidate the peace and promote reconciliation, presidential and parliamentary elections were successfully and peacefully conducted on May 14, 2002. With a renewed mandate, the government is strongly committed and positioned to implementing its program of economic and structural reforms, with a view to promoting growth and ameliorating the abject poverty that afflicts the majority of our citizens.

3..  As indicated in paragraph 3 of the MEFP, all quantitative performance criteria and benchmarks relating to end-December 2001 and end-March 2002 were observed, except for the end-December 2001 performance criterion relating to subsidies to the National Power Authority (NPA), which was exceeded. Regarding structural performance criteria and benchmarks, the structural performance criterion regarding the audit of domestic arrears by end-March 2002 was observed.

4..  The government is convinced that the policies and measures described in the attached MEFP are consistent with its poverty reduction and growth strategy, and are adequate to achieve the objectives set out under the government's program; it stands ready to take any additional measures that may become necessary for this purpose. On this basis, the government requests the following: a) a waiver with respect to the end-December 2001 performance criterion on subsidies to the NPA; b) the completion of the second review; and c) the disbursement of the third and fourth loans under the arrangement.

5..  The government will conduct the third review under the PRGF arrangement not later than end-March 2003, based on quantitative performance criteria for end-September 2002 and end-December 2002. The fourth review under the PRGF arrangement will be conducted not later than end-September 2003, based on quantitative performance criteria for end-March 2003 and end-June 2003.

6..  The government intends to make the contents of this letter and the attached memorandum of economic and financial policies public and authorizes the Fund to have them posted on the IMF website subsequent to the Fund's Executive Board approval.

Sincerely yours,


Mr. J. B. Dauda
Minister of Finance
Freetown, Sierra Leone

Memorandum of Economic and Financial Policies
Of the Government of Sierra Leone

July 1, 2002–June 30, 2003

August 12, 2002

I.  Introduction

1.   In September, 2001, the Fund approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in support of the government's program for the period 2001-04. The objectives and targets of the program during 2001/02 (July–June) were to attain a real growth rate of 5 percent in 2001 and 6 percent in 2002; limit the average annual rate of inflation to 8 percent in 2001 and to 5 percent in 2002; and raise gross external reserves to the equivalent of two months of import cover by the end of 2002. The government's medium-term fiscal policies are underpinned by the twin objectives of enhancing government revenue and fiscal discipline, and phasing out domestic bank financing of the government's budget deficit. This fiscal policy stance was the centerpiece of the government's long-term objective of maintaining macroeconomic stability. The government program also incorporated measures aimed at a) improving service delivery and enhancing the population's capacity for undertaking income-generating activities; and b) implementing structural reforms to improve competitiveness, spur the development of a vibrant private sector, and enhance the economy's capacity for growth.

2.   As indicated in our letter relating to the first review in March 2002, economic performance has generally remained favorable. Real GDP is estimated to have risen by 5.4 percent in 2001, while the average annual rate of inflation was contained at 2.2 percent, rising from –0.9 percent in 2000. Gross external reserves of the Bank of Sierra Leone (BSL) rose to US$52 million as at end-December 2001, equivalent to 1.7 months of import cover. With the return to peace and improved security, prospects for 2002 are now expected to be better than projected earlier. Real GDP growth is projected at 6-7 percent in 2002, while the average rate of inflation is projected to be limited to under 5 percent.

3.   Performance under the program remained generally satisfactory. All quantitative performance criteria and benchmarks relating to end-December 2001 were observed, except for the performance criterion relating to the ceiling on net subsidies to the National Power Authority (NPA), which was not met. Performance with regard to structural benchmarks and targets was mixed. The objective of effecting payments for utilities on a current basis was not fully achieved. Legislation creating an autonomous Central Statistical Office (CSO) was also not passed, in part, owing to the delay in receiving technical assistance for the reorganization of the CSO and reviewing the proposed legislation. This legislation was recently passed by the new parliament that was elected in May 2002. All quantitative performance criteria relating to end-March 2002 were observed. The structural performance criterion relating to the audit of domestic arrears to suppliers was also met. The government has maintained its policy of remaining current on payments for utility bills. However, arrears reemerged during the first and second quarters of 2002, as budget allocations for utilities proved to be significantly short of government consumption; arrears also remained on 2001 utility bills. The government has agreed on a plan to clear arrears relating to 2001, and intends to clear all 2002 bills during 2002 and to increase payments so as to remain current on 2002 bills. Government revenue collection during the first quarter of 2002 exceeded the program projection. However, the quarterly program target with regard to the wage bill was significantly exceeded during the first quarter of 2002, reflecting the continuing inadequate management of the teachers' payroll, extrabudgetary increases in wages and allowances to nurses and other medical staff following strikes by health workers, and the impact of the rapid expansion in primary school enrollment following the introduction of free education for all children in primary school.

4.   Fiscal performance during the first half of 2002 remained generally on track, although the problem of inadequate control over the wage bill remained and pressure to spend in other areas persisted. Government domestic revenue collection, estimated at Le 118.7 billion (7.2 percent of GDP), was in line with the program projection, and reflected the continuing recovery in economic activity and imports. Recurrent expenditure, estimated at Le 211 billion (12.7 percent of GDP), broadly in line with the program target for the first half of the year, despite the overrun on the wage bill and higher-than-projected defense outlays. The overrun on the wage bill, amounting to about 7 percent of the total wage bill for the year, was due to a higher-than budgeted number of teachers and a new salary settlement for health workers, following a general strike by nurses and doctors, that resulted in a significant extrabudgetary increase in health workers' pay. There were also unbudgeted outlays as a result of payments of gratuities to departing members of parliament, the expanded membership of the new parliament, the clearance of arrears to foreign missions, and grants-in-aid to students in tertiary institutions.

5.   The government had planned to postpone the recruitment of new teachers until new policies were in place to make the process orderly and predictable; however, the surge in primary school enrollment as a result of the policy of free primary education exerted pressure on schools to recruit teachers in order to contain teacher-pupil ratios. Development expenditure fell significantly short of the program projection, although the pace of project implementation improved significantly relative to the previous year. Total expenditure for the first half of 2002, equivalent to 17 percent of GDP, was contained well within the programmed level. External budgetary aid exceeded the program projection for the first quarter of the year, significantly reducing the government's recourse to domestic financing; however, inflows expected during the second quarter were delayed, leading to a greater-than-planned recourse to domestic financing in that quarter.

6.   Monetary conditions were marked by the rapid growth of broad money, including foreign currency deposits, as demand for money rose significantly, owing to low inflation, increased confidence, and the reopening of previously inaccessible areas. Despite the rapid rise in bank credit to the private sector during the first half of the year, it remained a relatively small (24 percent) component of total bank assets, and banks remained highly liquid and heavily invested in government securities. The share of nonperforming loans in the commercial banks' portfolio continued to decline, following to 24 percent in March 2002 from 29 percent in December 2001. Interest rates remained generally stable, while real interest rates edged up slightly, from relatively high levels; however, the spread between deposit and loan rates remained very wide. Following the improvement in security across the country, commercial banks have started to reopen their up-country branches destroyed during the war.

7.   Overall exports grew moderately in 2001, due to continued constraints on domestic supply. However, recorded exports of diamonds increased substantially, from US$10.1 million in 2000 to US$26.3 million in 2001, thanks to the implementation of the UN-sponsored export certification scheme for diamonds. Rutile mining is expected to resume in late 2003. The recovery of agricultural exports is under way, as internally displaced people continue to resettle and agricultural production begins to expand. The exports of coffee and cocoa showed some encouraging signs of recovery in the first quarter of this year. Imports continued to grow rapidly in 2001 on the strength of economic recovery, large foreign aid inflows, and the UN peace operations. As a result, the external current account deficit (before official transfers) widened to 21 percent of GDP from 18 percent in 2000. Official transfers and capital inflows significantly short of the programmed level and BSL gross foreign reserves at US$52 million as at end-December 2001 amounted to 1.7 months of imports cover.

8.   The foreign exchange market was relatively steady despite some pressure on the exchange rate in late 2001 in the wake of reduced foreign exchange supply—a reduction that, in turn, resulted from the delays in the disbursement of external assistance. The leone depreciated on average by 16 percent between end-December 2000 and end-December 2001, but appreciated by 4 percent from the end of 2001 to the beginning of June 2002. Given the moderate (2.2 percent) inflation rate in 2001, the leone depreciated in real terms by a magnitude similar to that of the nominal depreciation and has appreciated slightly since the beginning of this year.

II.  Policies for 2002/03

A.  Implementation of the Poverty Reduction Strategy

9.   As outlined in our interim poverty reduction strategy paper (I-PRSP), the government adopted a two-stage poverty reduction strategy. During the first stage (2001–02), government policies would focus on addressing the immediate poverty and economic issues arising from the war, including the reestablishment of peace and security, the resettlement of the displaced population, the reintegration of ex-combatants, the rebuilding of the social and economic infrastructure, and the reconstruction of the economy. During the second stage, starting in 2004, the emphasis is to gradually shift to longer-term development and poverty reduction issues, in the context of a full poverty reduction strategy paper (PRSP). The preparation of the PRSP is under way and is expected to be issued by end-June 2003. The policies described in this memorandum are consistent with the objectives outlined in the I-PRSP. In particular, government efforts are focused on consolidating peace, improving security, and addressing the immediate social needs of the population, particularly the most vulnerable groups of war victims and displaced persons. At the same time, the government is determined to improve service delivery to the poor, particularly in the areas of education, health, and sanitation, and to strengthen the rural infrastructure. These policies will be anchored by the maintenance of stable macroeconomic policies.

10.   To address the urgent needs of previously inaccessible areas, the government has drawn up a National Recovery Strategy (NRS) focusing on immediate actions to address the essential needs of the population while laying the foundation for the transition to sustainable development. The major objectives of the NRS are to consolidate civil authority; improve and expedite service delivery; facilitate resettlement and re-integration; promote reconciliation and human rights; stimulate economic recovery; and facilitate access to these previously inaccessible areas. The strategy and related programs were put together after extensive consultation with, and the participation of, the relevant district and local government officials and civil society, who established the most critical needs and priorities in their respective districts. The estimated cost of the basic needs program is estimated at US$55 million, of which about US$31 million is expected to be spent in 2002. The cost of this program is to be met from the government budget, bilateral and multilateral aid, and support from nongovernmental organizations (NGOs).

B.  The Macroeconomic Framework

11.   Real GDP is projected to rise by 6–7 percent per year during 2002–03, while the rate of inflation is targeted to be contained under 5 percent over the same period. Gross external reserves of the BLS are programmed to increase to about 2.3 months' import cover in 2003. Against these objectives, fiscal policies will seek to enhance revenue and improve expenditure control and management systems, while limiting bank financing of the government budget deficit. Monetary policy will focus on containing inflation and improving the soundness and efficiency of the financial system. Finally, the authorities intend to maintain liberal trade and exchange systems.

C.  Fiscal Policy and Budgetary Reforms

12.   The prospects are good that the fiscal objectives for 2002 will be attained. On the basis of performance during the first half of the year, government revenue as a percentage of GDP is projected to reach the program target of 14.4 percent. Despite the strong pressure to spend in several areas, the government is committed to keeping overall expenditures under firm control. In this regard, and in view of the difficulties encountered in managing the government wage bill, government has adopted the measures described below to bring greater control over the teachers' payroll. The government expects to contain the 2002 primary budget deficit at the program target of 5.5 percent of GDP.1 The overall budget deficit (excluding grants) is also projected to be contained within the program target of 28 percent of GDP, and it will be largely financed by concessional donor budgetary and project support, including relief under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative).

13.   The government expects that the management of the education sector and education policy will be greatly improved following the implementation of the proposed Basic Education Sector Project, supported by the International Development Agency (IDA) and the African Development Bank (AfDB). In the meantime, the government has decided to take the following interim measures and guidelines to ensure the orderly management of the teachers' payroll:

  • The establishment of new schools. Approval for the establishment of new schools will be integrated with the annual and medium-term budgetary framework, based on a detailed costing of the budgetary implications of the new schools over the next three-year period. Such costing will specify the annual requirements in terms of teachers, teaching materials, and the projected wage bill during the three-year period. This information will be included in the Ministry of Education, Science and Technology's (MEST) annual and three-year budgetary submission, upon approval by MEST and the Ministry of Finance (MOF).

  • A ceiling on the number of teachers. A ceiling on the number of teachers will be imposed based on enrollment. With effect from the 2002/03 academic year,2 unplanned increases in the teachers' payroll will not be allowed. To this end, MEST and MOF will agree on the number of new teachers to be included in the budget one year in advance of the new teachers' inclusion in the payroll. Apart from replacements, new teachers may be approved for inclusion in the teachers' payroll in September of each new academic year.

  • Upgrading/expansion of schools. The MEST will require at least one year's notice prior to the approval of the upgrading and/or expansion of primary, secondary, and "feeder" schools.

  • Grading/regrading of teachers. This must be done in consultation with the MOF and the Establishment's Secretary's Office, and should be consistent with the overall civil service pay structure.

  • Teachers in nursery schools. These institutions are not eligible for government grants in support of their teachers' payroll and teaching materials.

  • All grant-aided primary schools will receive support in respect of teachers employed only when they observe the standard pupil-teacher ratio of at least 1:40.

  • Deletions/transfers/reinstatements. The MEST will take prompt action to inform the MOF and the Accountant General's Department (AGD) of deletions from the teachers' payroll as soon as they are made. Starting with 2003, no backlog of salary will be paid in respect of transfers not promptly communicated to the MOF and AGD.

  • In early 2002, a survey of teachers and schools was carried out by the Central Statistical Office. The results of this survey indicated that there was a significant discrepancy between the teachers enumerated under the survey and the numbers on the payroll. As a follow-up to this survey, the government decided to hire a team of private accounting firms to verify and physically account for the teachers on the government payroll. This rapid audit, initiated in September 2002, was intended to create a more reliable database for teachers and identify "ghost" teachers and other irregularities.

  • Study leave. With effect from 2003, teachers on study leave will be budgeted for separately. New awards of study leave will have to be negotiated with the MOF to ensure that they are in accordance with available budgetary resources.

14.   In view of the expenditure overruns in regard to the wage bill and other outlays, the government has reviewed and reprioritized expenditure commitments for the second half of 2002, reducing or eliminating some nonpriority expenditures outside the key social sectors. At the same time, given the disbursement of HIPC resources, the government has started utilizing these resources in poverty-reducing outlays, including outlays for new teachers over the number alloted in the budget in 2002, services to refugees and internally displaced persons, etc. All poverty-reducing expenditures using recurrent and development classification will be identified and monitored in the revised 2002 budget, and in future budgets.

15.   As envisaged under the program, the government is committed to remaining current on payments of its utility bills. Efforts were deployed to making utility payments on a current basis during 2002. However, the government did not succeed in these efforts, owing to inadequate budgetary allocation and excessive consumption. The government agreed on a plan to retire the carryover of arrears in 2001, to pay off arrears accumulated during the first half of 2002 by the end of 2002, and to become current on utility payments for the balance of 2002. Nevertheless, a thorough review of the billing practices of the major utilities, particularly the ones providing electricity and telephones, has revealed major flaws and a lack of transparency in the billing process, which have led to frequent complaints by public and private customers about utility bills. Consequently, the government, together with the utility companies, is to undertake an inventory of the government consumption centers to ensure that all the facilities appearing in the government utility bills belong to or are used by the government. Also, the power and telephone companies have major technological and managerial problems and inefficiencies, which we plan to address within the context of the program to reform public enterprises. Current subsidies to the NPA are expected to be contained within budgeted limits, although increases in petroleum product prices may require an increase in these expenditures to ensure a continued improvement in electricity generation and distribution.

16.   The budget for 2003 will be geared toward maintaining macroeconomic stability while further reorienting government expenditures toward poverty reduction. Government revenue is projected to rise to 15.1 percent of GDP that year as the recovery in economic activity intensifies and improvements in tax administration are continued. Government expenditure as a percentage of GDP is expected to remain high (about 37 percent of GDP), reflecting the continuing expenditure demands for improved services, reconstruction, and poverty reduction. The bulk of these outlays is expected to be covered by external budgetary and project assistance. The budget for 2003 will be finalized and discussed with Fund staff and other donors before the end of 2002.

17.   Revenue growth will be underpinned by the continuation of reforms aimed at improving tax administration and streamlining indirect taxes, in line with the recommendations of the technical assistance mission from the Fund's Fiscal Affairs Department. In this regard, the operationalization of the National Revenue Authority (NRA) was made possible by the recent passage of the legislation. This will be followed by the redesign and modernization of customs and income tax processes, training, and the development of information technology, with the NRA expected to be fully operational and equipped by the end of 2003 (see Appendix I, Table 3). In the meantime, the customs department is introducing a computerized customs clearance system (ASYCUDA), which should greatly improve customs administration. The government is also committed to continuing its policy to further reduce external tariffs. In the context of the Second Monetary Zone (SMZ) under the Economic Community of West African States (ECOWAS), the government and its partners in the SMZ have agreed to adopt the common external tariff (CET) of the ECOWAS, comprising three nonzero customs duty tariff rates (5, 10 and 20 percent), by 2003.3 The exact timing of the implementation of the new CET will be decided after its revenue and economic impact has been reviewed. The government plans during 2003 to initiate preparations for the eventual introduction of the value-added tax (VAT), with a view to implementing the tax by December 2005.

18.   Regarding the sales tax, the government plans to extend the application of the tax to domestic goods and services at the same rate applicable to imports, in line with our obligations under the World Trade Organization (WTO).

19.   In the context of the civil service reform, the government plans to review the pay structure for the civil service. This exercise, which is to be coordinated closely with the diagnostic studies of key government ministries, is intended to attain a better grading of civil service jobs, introduce merit-based job performance evaluation procedures, and modernize human resources management techniques in the civil service.

20.   Unlike expenditures on salaries and wages, which exceeded the program targets, payments for goods and other services, as well as for domestically financed development expenditures, were well below the program targets. This spending pattern raises concern about the low absorptive capacity for construction, renovation, maintenance, and operational expenditures, all vital for this period of social and economic rehabilitation and recovery. Although, to some extent, this is explained by the fact that full government operations (except security services) have yet to be reestablished in some parts of the country, it also indicates a low administrative capacity in the budget execution processes, both in the MOF and the spending agencies. To address this problem, the MOF will issue the quarterly allocations of the above-referenced expenditures according to the real needs of spending agencies. This will enable spending agencies to initiate expenditure commitments for bulk purchases that require contract and delivery arrangements for periods longer than three months. The authorities also intend to convene the tender board meetings more frequently, to change its composition, so as to allow more officials to act as board members, and to raise the threshold for procurement requiring Central Tender Board (CTB) approval. The authorities intend to pursue vigorously their procurement reform program with assistance from the World Bank.

21.   The government plans to implement reforms in the area of public expenditure management, with a view to strengthening government accounting, reporting, and budget financial information systems, and to enhancing expenditure-tracking capacity. The implementation of the medium-term expenditure framework (MTEF) is continuing and should be aided by the conduct of public expenditure reviews planned for key sectors during 2000–03. The government also plans to conduct regular expenditure tracking surveys (PETS) to monitor expenditures for critical poverty-reducing activities. With assistance from the European Union (EU), accounting and reporting systems have improved substantially. Based on the findings and recommendations of the recent country financial accountability assessment (CFAA) by the World Bank, and of the June 2002 IMF mission, the government plans to take steps to improve its financial management systems.

D.  Monetary Policy and Financial Sector Reform

22.   Monetary policy will focus on controlling inflation. The BSL will pursue this objective by managing the growth of its net domestic assets. Assuming relatively stable velocity, broad money is projected to rise by about 15 percent during the period from July 31, 2002 to June 30, 2003, reflecting the growth in economic activity and an increasing demand for money. Net bank credit to the government4 is to be reduced from 1 percent of GDP in 2002 to about 0.6 percent in 2003, in line with the government's policy of reducing domestic debt over the medium term. As the economy recovers, increased access to bank credit will be essential. Consequently, the government will adopt measures to reduce impediments to credit, and to narrow the loan-deposit rates spreads. These impediments include insecurity, high levels of nonperforming loans, lack of collateral, judicial inadequacies in regard to loan recovery, a large volume of high-yield "risk-less" government securities, and limited competition among commercial banks.

23.   The BSL has been implementing a program of reforms developed and executed with assistance from the Fund's Monetary and Exchange Department (MAE). Progress has been made in advancing the program to strengthen bank supervision; we have recently agreed on the measures needed to improve monetary operations and the technical aspects of the treasury bill auction. Work has also commenced on implementing needed organizational changes, and we are reviewing the pay structure, career streams, and training requirements, with a view to attracting and retaining key skilled staff.

24.   As of end-December 2001, the government's domestic debt amounted to Le 850 billion (US$409 million, or 57 percent of GDP). This debt comprises government securities and borrowing from the banking system (89 percent), holdings of government securities by the private sector (8 percent), and arrears to domestic suppliers (3 percent).

E.  External Sector Policies

25.   The government is committed to maintaining liberal trading and exchange systems. The current flexible exchange rate regime, centered on the weekly foreign exchange auction, will be maintained, although efforts will be continued to encourage the development of an interbank market and to narrow the spread between the official and the parallel exchange markets. This spread is partly explained by the different instruments used in the official and parallel markets: in the former, transactions are overwhelmingly done through wire transfers and drafts; in the latter, transactions are almost exclusively made in currency, largely U.S. dollar bills.

26.   Trade policy will continue to focus on a further reduction in external tariffs, in the context of the government's commitments under the various regional integration arrangements. Sierra Leone is a member of ECOWAS and of the West African Monetary Institute (WAMI), which is intended to create the Second Monetary Zone under ECOWAS. As indicated in paragraph 17, countries in the SMZ have agreed to adopt the ECOWAS CET by 2003. The government is committed to formalizing the trade in diamonds and is participating in the UN-sponsored diamond export certification program, as well as in the Kimberly Process discussions, which are aimed at increasing the participation of diamond-importing and -exporting countries in the diamond export certification program.

27.   Export growth will remain moderate in 2002 and 2003, owing to the continued suspension of rutile and bauxite mining; imports will continue to increase substantially, thanks to rehabilitation and reconstruction activities. The external current account deficit (excluding official transfers) is projected to amount to about 27 percent of GDP in 2002, and about 34 percent of GDP in 2003, compared with 21 percent in 2001. The resulting financing gaps are projected at about US$24 million in 2002 and US$35 million in 2003, which will be covered by Fund support under the PRGF.

28.   The government will continue to maintain strong support for the export sector by creating a favorable domestic environment. Mining officials have undergone training and been dispatched to some mining areas to ensure the continued implementation of the diamond export certification scheme and the newly introduced production licensing system. The resumption of rutile mining is crucial to increasing Sierra Leone's export capacity; to that end, the government has been facilitating an early conclusion of financing arrangements between the mining company and its potential creditors. Also, tariff reductions and the abolition of the excise duty and sales tax (except for petroleum, tobacco, and alcohol products), which were introduced late last year, will continue to have a positive impact on export growth. The government intends to continue its program of trade reform, both unilaterally and in the framework of the ECOWAS and the Western African SMZ Agreements.

29.   The government will continue to maintain a market-determined exchange rate and a liberal foreign exchange regime within a sound macroeconomic framework. The BSL's foreign exchange auction—its primary form of intervention in the foreign exchange market—will be limited to attaining its gross foreign exchange reserve objectives and minimizing market volatility. No exchange restrictions will be imposed on current account transactions.

30.   The government has completed 9 out of 11 bilateral rescheduling agreements with Paris Club creditors and is pursuing discussions with private creditors for debt relief. These discussions with private creditors have been difficult. Some creditors have gone to court and won judgments against the government, thereby encouraging other creditors to consider similar action. In view of the need to avoid a further buildup of an onerous external debt burden, the government has made a commitment not to contract or guarantee new nonconcessional external loans. The government intends to request assistance from the World Bank to support a second commercial debt buyback operation aimed at eliminating all remaining commercial debts. The government also intends to strengthen capacity for debt management through the acquisition of appropriate technology and the training of staff at the BSL and in the MOF. Technical assistance has been provided by the Commonwealth Secretariat in London for debt-management software and the training of staff. Additional assistance is being provided by the AFDB.

F.  Structural Reforms

31.   The government intends to accelerate the pace of structural reforms. These reforms can be grouped into three main areas: a) public sector reforms aimed at streamlining the sector, improving efficiency and service delivery, and enhancing transparency and good governance; b) reforms aimed primarily at improving the climate for private sector development; and c) sectoral reforms. The first area includes civil service reform; public enterprise restructuring and divestiture; the reform of government financial management and reporting systems; the improvement of tax administration; the reform of the procurement system; and local government revitalization. Reforms aimed at private sector development, the second area, include legal and judicial reforms; reforms to improve financial intermediation and widen access to credit; and further deregulation. Sectoral reforms, the third reform area, are focused on the key sectors providing social and economic services and infrastructure.

32.   In the public expenditure management (PEM) area, there have been significant recent improvements, especially in budget presentation, including the application of a MTEF to the recurrent and development expenditures and a program classification of the recurrent expenditures, both of which will facilitate the identification and monitoring of poverty-reducing expenditures. Nevertheless, the PEM system will need to be further improved to meet the new challenges of managing the large external aid inflows, as well as the increased domestic resource mobilization that is expected to follow the restoration of peace to the country. To this end, an organic budget law will need to be passed to strengthen the legal framework of the government budgeting, accounting, and reporting systems. In this process, provision should be made for, among other legal reforms, the re-regulating the management of external grants and domestic revenues (mostly administrative fees and service charges) that are raised and spent by spending agencies outside government budget, as well as for transforming the Accountant General's Department into a fully integrated treasury department within the Ministry of Finance. Moreover, a Sierra Leonean official will soon fill the post of the Accountant General (AG), replacing the EU technical advisor who is now occupying that position. The EU has pledged to continue providing technical assistance on accounting and information technology to the government accounting and reporting systems. External auditing functions will also be strengthened, and the U.K. Department for International Development (DFID) has proposed to provide technical assistance to this end.

33.   The implementation of some key structural reforms, namely, the restructuring of the CSO and the reorganization of government revenue agencies under the NRA, was slowed considerably by the delay in the passage of the enabling legislation. In response to the urgent need to accelerate these reforms, the new parliament passed the legislation relating to the CSO and the NRA during August 2002 in line with technical assistance from the Fund. This action should allow for the implementation of the CSO and NRA reform timetables indicated in Table 3 (Appendix I). Following technical assistance from the Statistics Department of the IMF (STA) in June 2002, a broad program of statistical reform has been elaborated—together with specific short- and medium-term objectives for restoring capacity—in line with Sierra Leone's commitment to adopt the Fund's General Data Dissemination System (GDDS) as a framework for improving the statistical system. The government will allocate more resources to the CSO to enable it to recruit and train the necessary staff.

34.   The program with regard to some key structural reforms is summarized in Table 3 (Appendix I). For the civil service reform, the diagnostic studies of four key ministries (Education, Health, Agriculture, and Local Government) are scheduled to be completed by end-June 2003. A review of the civil service grading and pay is under way and will provide the basis for future reform in this area. On the basis of the government's strategy for the restructuring and divestiture of public enterprises, the National Commission for Privatization (NCP) has been developing a divestiture plan. For 2002–03, this plan entails developing a detailed work program, preparing an inventory of all assets of nonoperating public enterprises (PEs), and appointment an Executive Secretary and staffing the commission. The NCP is to take control as a prudent shareholder of all PEs and appoint independent boards of directors in accordance with government policy.

35.   The government is committed to improving governance, based on policies to (a) institute, over time, a decentralized, transparent, and accountable system of government; (b) promote fiscal discipline and control, in order to minimize corruption and rent-seeking activities; (c) enhance the capacity and effectiveness of the Anti-Corruption Commission; (d) strengthen the capacity of the Auditor General's Office; (e) reform the civil service and public enterprises; (f) strengthen the judiciary and the legal system; and (g) improve procedures for procurement in the public sector. Efforts to improve governance are being supported by the DFID, the World Bank, and other donors.

G.  Preparation of the PRSP

36.   After a slow start, owing largely to administrative problems and initial funding difficulties, the preparation of the PRSP has begun to move at a satisfactory pace. Given the scope of the survey, consultative, and participatory activities that form part of the PRSP process, it is planned that the PRSP should be ready by June 2003. This timetable is ambitious, but feasible. The consultative activities, involving the enhancement of the public's understanding of the PRSP process and their role and participation in it, is to be pursued through a campaign of publicity and workshops for stakeholder at national, district and subdistrict levels. Participatory and nonparticipatory data and information collecting has commenced, including the preparation and conduct of a Household Income and Expenditure Survey (HIES), to be conducted during July 2002-December 2003. The terms of reference for reviews of key sectors (agriculture, health, education, infrastructure, mining, the private sector, tourism, micro credit, security and good governance) are being developed and work should begin shortly for some of the sectors. The diagnostic study of the mining sector is expected to be completed by end of 2002. An assessment of the impact of HIV/AIDS is to be conducted during August-December 2002. Building on existing procedures and mechanisms, the government plans to expand the scope of the Strategic Participatory Planning Process (SPP) and the Participatory Poverty Assessment (PPA) methodologies. A "trainers" workshop was held in March 2002, and the newly trained officials commence field work in August 2002.

1Excluding poverty reduction expenditures financed by HIPC resources.
2School starts in September and ends in June the following year.
3Sierra Leone's current customs tariff has four nonzero rates of 30, 20, 15, and 5 percent. However, Sierra Leone does not have special transitional protective rates, which are allowable and incorporated in the CET.
4Excluding the use of HIPC deposits at the Bank of Sierra Leone.