Memorandum of Economic and Financial
of the Government of Sierra Leone for April 1–December 31, 2004
1. Progress continued to be made in strengthening peace and security in
Sierra Leone. The disarmament, demobilization, and reintegration (DDR) program
was completed in February 2004, and improved security in neighboring Liberia
is further enhancing stability. The withdrawal of the United Nations forces
in Sierra Leone (UNAMSIL), originally scheduled for end-2004, has been delayed
by the UN Security Council, maintaining a reduced UNAMSIL presence until
mid-2005, to allow more time for strengthening domestic armed and police
2. Local government elections were held in May 2004. A decentralization
plan and timetable is being developed by the government. The Ministry of
Finance is identifying budgetary resources (for the 2005 budget) from line
ministries for the devolved functions, including primary education and primary
health car. The total budgetary provisions for these programs will be distributed
to all regional and city councils using a grants distribution formula, which
reflects the relative needs of each council. Additional fiscal implications
are likely, given the need to strengthen ministries for carrying out their
new functions of policy formulation, monitoring and supervision.
3. Improved security and the decentralization of government are having a
positive impact on the environment in which the government's growth and poverty
reduction policies are being implemented.
4. This memorandum of economic and financial policies (MEFP) supplements
the one issued in February 2004. It describes recent developments and performance
under the program, and outlines government's macroeconomic objectives and
policies for the remainder of 2004.
II. Recent Developments and Performance Under the Program
5. Output growth was strong in 2003, reflecting robust agricultural, mining,
and manufacturing operations, but the economy also experienced a sharp increase
in consumer prices. Real output is estimated to have increased by 9.3 percent.
Statistics Sierra Leone has now received detailed returns on outturns for
2001 and 2002 and has revised GDP growth rates for these years. Given the
stronger than the earlier estimated performance in agriculture, real GDP
growth for 2001 is now put at 18 percent, compared to the original 5.4 percent,
while it is revised to 27.5 percent from 6.6 percent in 2002. Annual
average inflation rose to 8.2 percent, resulting initially from higher fuel
costs but expansionary monetary policy, partly owing to delays in donor support,
and a depreciation of the currency towards the end of the year also fueled
inflation. Year-on year inflation accelerated from 11.3 percent at end December
2003 to 14.6 percent at end-June 2004.
6. Fiscal performance in 2003 was somewhat weaker than envisioned, largely
due to overruns related to domestic outlays. While domestic revenue collection
was stronger and total expenditures were only marginally higher than projected,
mainly reflecting higher wage and nondefense expenditures (the latter included
poverty-related outlays that exceeded the programmed level by 0.1 percent
of GDP), a shortfall in external program grants and loans, vis-à-vis
the original program, led to large domestic financing of the budget, especially
from the banking system.
7. Fiscal pressures continued in the first quarter of 2004. The government
scaled down its expenditure outlays mainly in response to the 3.4 percent
of GDP shortfall in non-HIPC external program grants and loans, but in the
event domestic bank and nonbank financing of the budget was larger than programmed.
Non-interest current expenditures were below the programmed level (this included
lower than programmed social and poverty-related outlays), whereas domestic
interest outlays, in part reflecting the higher cost of borrowing, and the
repayment of domestic supplier and wage arrears were higher than originally
8. Poverty-related expenditures were constrained by delays in the issuance
of new procurement guidelines in line with the ongoing reforms in procurement
policy. The delays resulted in a large backlog in processing contract awards
and, hence, effected payments. For end-March 2004, actual expenditure for
poverty-related outlays was Le 29 billion compared to a projected amount
of Le 55 billion, as significant under spending occurred in the health sector.
Domestic interest expenditures exceeded programmed levels in the first quarter
of 2004 reflecting higher domestic bank borrowing and the higher interest
rates on government securities.
9. Broad and reserve money growth rates in 2003 were higher than projected,
mainly due to expansion of credit to the government and the private sector.
Growth in both magnitudes continued at a rapid pace in the first quarter
of 2004. Interest rates on three-month Treasury bills rose to 26½ percent
in March 2004, reflecting inflationary pressures and large domestic borrowing
of the government, while bank-lending rates remained unchanged at 20 percent,
after adjusting for inflation, the rates stood at 14 and 8 percent respectively.
Private sector credit expanded strongly in the first quarter, continuing
the pace experienced in 2003. This rapid expansion (from a relatively low
base) is in part explained by sustained high activity levels, notably in
construction, manufacturing, and services.
10. The external current account deficit, excluding official transfers,
widened in 2003 to 14.1 percent of GDP, from 12.1 percent in 2002. However,
this was less than programmed and reflected delays in rehabilitating the
Rutile mining operations. While export performance during the year improved
significantly, particularly for diamonds, import needs remained at a high
level due to continued expansion in reconstruction activities and high oil
prices. Gross official reserves fell to 1.5 months of imports (US$60 million
at end-2003), and remained at about the same level by end of first quarter
11. Partly due to delays in external donor assistance during the year, the
government missed a number of indicative performance targets at end-2003.
The indicative ceilings on net domestic bank credit to the government, and
on net domestic assets of the Bank Sierra Leone (BSL), as well as the floor
on domestic primary budget balance were missed. The ceiling on the government's
wage bill was also missed, in part due to the earlier underestimation of
pension and related social security expenditures as well as the depreciation
of the exchange rate that affected salary payments to foreign missions. All
other indicative program targets were met, including the floors on government
domestic revenues and poverty-related outlays.
12. All quantitative performance criteria for the eight disbursement under
the PRGF arrangement have been met, except for the ceiling on net bank credit
to the government, in part owing also to the unexpected shortfall in program
grants and loans (mainly, from the African Development Bank (AfDB)), which
was disbursed in April 2004, and from the European Union (EU)). The end-March
2004 indicative program targets for floors on total domestic government revenue
and poverty-related expenditures were also missed. On the revenues, there
was some diversion of taxable activities through Liberia following the beginning
of the peaceful political transition in that country. As mentioned above,
the implementation of new procurement procedures delayed procurement in the
social sectors resulting in lower-than-projected expenditures.
13. All structural performance criteria subject to the fifth review under
the program have been met, with the exception of the reconciliation of fiscal
and monetary data for 2000-02, and the issuance of new personnel management
regulations. The exercise to reconcile fiscal and monetary data will not
be completed by the end-May 2004 deadline, reflecting delays in the provision
of IMF technical assistance. The issuance of new personnel management regulations
was delayed to allow the incorporation of the proposed new structure for
top civil servants—the senior executive service (SES)—into the guidelines.
Guidelines requiring double signature in operating school bank accounts were
issued in February 2004. However, the opening of school accounts has been
slow as only 30 percent of schools were operating bank accounts as at end
June 2004.The aim now is to double the proportion to 60 percent by end-2004.
Identification cards were issued by mid-March for the remaining twenty percent
of all verified teachers.
14. Progress has also been made in completing the benchmarks under the program.
With regard to the specific measures to strengthen the Auditor General's
Office, additional professional and managerial staff has been hired to expedite
the audits of government ministries and agencies. Employment ceilings for
individual schools have been established and published in the government
gazette. The Establishment Secretary's Office (ESO) database of civil servants
and teachers is being updated monthly and used to update the payroll data
of the Accounting General's Office. Equipment has been acquired to support
efforts for making the photo verification system for civil servants and teachers
in the ESO fully operational, and seven new staff have been hired. An action
plan has been formulated to implement recommendations of the financial audit
of the Ministry of Education. The amendments to the Income Tax Act, Sales
Tax Act, and Customs Act to ensure consistency with the National Revenue
Authority Act are proceeding with the assistance of the Commonwealth Secretariat
and will be completed by mid-2005. Plans to convert the ESO into a personnel
management office is under way, and are being supported by the U.K. Department
for International Development (DfID). On the issuance of identification cards
for all civil servants, the software to handle the data has been obtained,
and the process will conclude by end-December 2004. The Fund provided, in
April 2004, technical assistance for developing a medium-term budgetary framework
that would incorporate all major mineral revenues. The medium-term budget
will systematically incorporate these revenues beginning in 2005. On the
securitization of all remaining verified domestic arrears, the government
has examined various options and decided to pay smaller creditors directly.
The remaining Le 20 billion owed to a single creditor has continued to raise
legal and other questions which the government will examine, and communicate
its final stand to the claimant by end-September 2004. Finally, diagnostic
studies related to six key ministries have been completed, and Cabinet has
approved action plans on three of those. The remaining three are at various
stages of review and approval. Under phase 2 of the Governance Reform Project
funded by DfID, diagnostic studies on the remaining government ministries
will be conducted over a period of three years.
15. The third public expenditure tracking survey (PETS) for FY 2002 was
conducted in October 2003 to effectively track the flow of public funds.
The October 2003 survey traced the flow of school fees subsidy, teaching
and learning materials and essential drugs from the central government to
schools and health units, for financial year 2002. The report was issued
in July 2004. The survey identified significant transfer discrepancies in
the flow of essential drugs from the headquarters to health facilities. Similarly,
transfer discrepancies were discovered in the flow of teaching and learning
materials. The survey also revealed that the payment of school fees subsidies
to primary schools improved significantly when an auditing firm, KPMG, was
contracted to undertake the payments.
16. The IMF and the World Bank conducted a HIPC Expenditure Tracking Survey
(AAP) in January 2004. Sixteen key indicators were reviewed and benchmarks
set for each indicator. The assessment shows that the country met 7 out of
the 16 Public Expenditure Management (PEM) benchmarks in 2003. An action
plan has been prepared to strengthen PEM. With the coordinated assistance
of the major donors active in PEM, adequate technical assistance is being
provided to support the implementation of the action plan.1
17. Interim procurement rules and regulations were approved by Cabinet in
June 2004 and were made effective immediately. A public procurement board
to review procurement cases has been set up. The drafting of a comprehensive
procurement law commenced in June 2004, and a technical working group has
been established by to review recommendations of the consultant drafting
the law. A national consultative workshop was held in August 2004. The draft
law will then be submitted to Cabinet for approval and subsequently to Parliament
18. On the preparation of a full poverty reduction strategy paper (PRSP),
a first complete draft was finalized in August. A series of consultations
with key stakeholders were undertaken in 2004, leading to policy matrices
based on four sets of policy pillars. Quantitative and qualitative poverty
analyses have been carried out (partly based on a household survey finalized
in early 2004) and a poverty profile (including a poverty line) has been
established. Sector reviews were concluded in June. The complete draft is
scheduled to be discussed with domestic shareholders and development partners
in August/September, to be followed shortly after that by the finalization
of the paper.
19. In order to strengthen the fight against corruption, a review of the
organization and activities of the Anti-Corruption Commission was completed
in 2002, with several recommendations made for strengthening the commission,
including capacity building, strategic planning, staff rationalization, pay
enhancement, and other improvements in the conditions of service. Since March
2004, the Commission has been implementing these recommendations. Furthermore,
the prosecution of alleged corruption cases is being expedited by the arrival
of two judges from the United Kingdom while on the investigative side, the
relevant department of the commission is being strengthened by the recruitment,
by DfID, of two principal investigators and a senior investigator.
20. A number of projects are currently under way to speed up the privatization
of state enterprises. In the financial sector, a financial advisor would
be selected soon to lead the privatization of the National Development Bank
(fully government-owned) and the Rokel Commercial Bank (majority government-owned).
A consultant is being hired to set up the regulatory agency for the energy
sector. A consulting firm, PKF, has submitted a report to the government
for the privatization of the non-core activities of the ports, namely, port
services, ferry services, slipway and clinic. In addition, the terms of reference
have been prepared for the consultant to undertake a study on the core activities.
A joint venture company has been established to transform the National Workshop
into an economic and trade zone; construction work has already commenced.
The UNDP has provided funding for the evaluation of the assets of the Forestry
Industries and KPMG has been appointed to undertake the study.
21. In November 2003, the government cleared all outstanding arrears
to the National Power Authority (NPA) through a settlement of cross debt
liabilities, which resulted in the net debt of Le 6.4 billion due from the
government (paid in cash). In addition, several measures have been
implemented to prevent the reoccurrence of arrears, including priority payment
for utility bills by ministries out of departmental expenditure outlays.
Government has also mandated the utility companies to disconnect ministries
in default of payment. However, government has accumulated arrears to the
national telephone company (Sierra Tel) and Guma Water Company. A payment
plan has been agreed. An amount of Le1 5 billion was paid to the two parastatals
during the first half of 2004.
III. Objectives and Policies for the Remainder of 2004
22. The government is assuming growing responsibility for maintaining peace
and security, while effecting the decentralization of public administration
and related services to local (district) authorities. Increased emphasis
will be placed on maintaining macroeconomic stability and reducing poverty.
A full PRSP will be finalized in the course of the year and discussed with
key domestic stakeholders and development partners.
23. The program for 2004 projects real GDP growth at 7.4 percent, revised
upwards from 6.8 percent in the original program (following the revised national
accounts), supported mainly by the continued recovery of the agricultural
sector and expanded reconstruction and other investment activities. Average
annual inflation has also been revised upward in light of the continued rapid
rise in the consumer prices. For 2004, inflation is projected to average
A. Fiscal Policy
24. Fiscal policy will aim at supporting macroeconomic stability. A particular
issue relates to the domestic interest bill, which is projected to rise by
almost 2 percent of GDP relative to the program, reflecting rising interest
rates and higher domestic borrowing. With domestic revenues projected at
slightly below the level of the original program (12.2 percent of GDP), domestic
non-interest expenditures will have to be contained to provide for the higher
interest outlays. The overall fiscal deficit, including grants, will increase
from 5½ percent of GDP to 7½ percent (at 17 percent excluding grants)
while the domestic primary deficit will decline by 2 percentage points to
3 percent of GDP. The government will aim at protecting poverty-related spending.
The domestic financing of the budget is expected to rise to about 1½ percent
of GDP in 2004 compared to 0.9 percent in the program, to allow a modest
easing on the tight expenditure constraint.
25. Domestic revenues are expected to reach Le 348 billion in 2004, reflecting
gains due to higher exchange rate and inflation, as well as improvements
in revenue collection efforts. A specific issue concerns the scope for implementing
rate reductions for income and corporate taxes (as announced in the 2004
budget); these revenue measures would be expected to amount to about ⅔ of
a percent of annual GDP. However, given the very tight fiscal position, the
tax rate reductions will be postponed beyond this fiscal year.
26. External budgetary support will be broadly in line with the original
program, but uncertainties remain regarding the timing of the disbursement.
Domestic financing of the 2004 budget will need to come largely from nonbank
sources as envisioned under the program, as net bank credit to the government
will have to be curtailed.
27. In respect of mineral taxation, an important milestone was reached in
November 2003 with the adoption of the Core Mineral Policy, which defines
the broad policy framework for the mineral sector. The next step, envisioned
to be completed by mid-2005, will be to amend the 1996 mineral act to make
it consistent with the new policy framework, issue relevant regulations,
and develop a tax schedule for the mineral sector. All future agreements
with mining companies will be subsidiary to the revised mineral act.2 NRA
has undertaken to develop model agreements for the rest of the mineral sector,
based on a model agreement for the petroleum sector. In light of the significant
revenues that are expected from the mineral sector in coming years, the government
has decided to join the Extractive Industries Transparency Initiative (EITI)
to ensure maximum transparency in the collection of these revenues. To this
end, the government will work with mining companies and the civil society
towards the development of revenue reporting templates, which will be reconciled
by an independent agent, and published. As a first concrete step in this
direction, the government has requested technical assistance from the World
Bank. Furthermore, tax incentives have been included in the relevant tax
laws, and not in the Investment Code.
28. On the expenditure side, some reductions for the rest of 2004 are planned
in critical lines, including security and economic outlays, while, as much
as possible, safeguarding poverty-related outlays. In respect of the
wage bill, its reporting will be done on an accrual, rather than on cash
basis in order to prevent repeated and unanticipated build-up of arrears.
The accumulation and payment of wage arrears will be shown separately below
the line. Furthermore, the hiring of teachers and other civil servants as
well as any increases in salaries would be strictly guided by programmed
29. As the international community reduces its intervention in maintaining
peace in Sierra Leone, the government will need to increasingly assume its
responsibility in this area. By October 2004, the peacekeeping forces, UNAMSIL,
would have handed over responsibility for security to the government throughout
the country. This will have major implications for security expenditures
given the need to equip the security agencies. The implementation of the
decentralization process also has fiscal implications since all 19 councils
would need to be assisted with initial administrative and related costs.
30. The NRA will be pursuing a broad reform agenda aimed at enhancing the
integrity and probity of tax collectors at all levels. To improve tax administration,
NRA has decentralized the income tax department through the creation of tax
districts and Taxpayer Service Units (TSU) in each district; established
a Large Taxpayer Unit (LTU) to improve the management of tax arrears; streamlined
the clearing of goods at the port; established Flexible Anti-Smuggling Teams
(FAST) to lead the fight against smuggling; developed a strategy for the
computerization of tax procedures; and mounted effective publicity and education
campaigns to sensitize taxpayers on their obligation. In 2004, the Government
will transfer to the NRA the three percent of tax revenues specified in the
Act in order to strengthen the institution. The Government Gold and Diamond
Evaluation Office has now been fully integrated into the NRA's Income Tax
Department to facilitate the collection of the withholding tax for diamond
exports. This has also resulted into the regularization of the payment of
a 5 percent withholding tax by the independent evaluator of Diamond Council
International. With FAD technical assistance, medium-term revenue
forecasts have been proposed for each major mining project. The finalized
forecasts will be incorporated in the medium-term revenue framework beginning
with the 2005 financial year.
31. The implementation of the Automated System of Customs data (ASYCUDA)
for which the U.K. Department for International Development (DfID) has indicated
readiness to provide support is in progress. In this regard, technical assistance
will be provided to conduct a comparative study of ASYCUDA and Trade Net
software to determine which would better the NRA. The African Development
Bank has also agreed to support the computerization of the NRA subject to
the outcome of an independent needs assessment, specification of appropriate
design features and costs.
B. Monetary Policy and Financial Sector Reform
32. Monetary policy in 2004 will complement fiscal policy to reduce inflation.
The BSL will pursue this objective mainly by managing its net domestic assets.
Net bank credit to the government will rise only modestly. Broad money
is projected to rise by about 18 percent in 2004. To assist in containing
money growth and mopping up excess liquidity, the BSL raised the statutory
reserve requirement ratio from 10 to 12 percent [the timing needs
to be confirmed by the authorities]. The BSL is also exploring the possibility
of extending the reserve requirement to foreign currency deposits of commercial
banks, and would need technical assistance from the Fund for the purpose.
Secondary market trading in T-bills will also soon be introduced. By end-October
2004, the Bank intends to commence securities repurchase agreements (repos)
after the necessary preparations have been finalized. Interest rates should
also rise as a result of the foregoing measures to moderate the growth of
private sector credit.
33. The BSL has worked closely with the MFD on a program of reforms in the
key areas of banking supervision and monetary operations. Improvements in
monetary operations, together with the development of a secondary market
for government securities, will be critical for the BSL's modernization program.
In addition, efforts are under way to strengthen the payments system. With
the view of safeguarding the stability of the financial system in light of
the rapid growth in private sector credit, the BSL is monitoring closely
the portfolios of commercial banks to ensure observance of high credit standards.
34. The exchange rate in Sierra Leone will continue to be market-driven,
based on BSL's weekly foreign exchange auctions. At end-2003, the special
window that had been used by oil companies to purchase foreign exchange was
35. The BSL is implementing the recommendations of the Fund's safeguard
assessment mission of 2002, in part to avoid the repetition of the internal
check recycling incident discovered in mid-2003. BSL's external auditors
have been replaced by a team comprising a local and an internationally reputable
audit firm; Parnell Kerr Forsters has been selected to conduct the 2003 audit.
The central bank's recordkeeping is also being computerized, with the view
to strengthening internal controls.
C. External Sector Policies
36. The current account deficit in 2004, excluding official transfers, is
projected at 18 percent of GDP (at 12 percent, including transfers).
A significant development on the export side was the opening of the Koidu
Kimberlite mine, which is expected to yield US$19 million in export receipts
in 2004. Once the mine reaches full capacity in 2006 with an annual production
of about US$44 million, annual income to the government in form of royalty,
free carried interest, and corporate income tax payments could exceed US$5
million.3 The government
is also currently negotiating a production license for the resumption of
bauxite mining, and production could resume in late 2004. The rehabilitation
of these mines requires considerable capital imports, which have combined
with the increase in oil prices to produce strong growth in the value of
projected imports. Over the medium-term, however, import growth is expected
to slow down leading to a considerable improvement in the current account
37. The government has reached debt relief agreements with most of its official
creditors, but progress with commercial creditors has to date been limited.
Despite efforts to contact creditors with validated claims, and to make goodwill
payments to most of them, it has not been possible so far to reach debt relief
agreements consistent with the HIPC Initiative and on terms comparable to
those granted by the Paris Club. In order to address this situation, the
government has decided to request for a second IDA debt buyback operation.
It is hoped that this would extinguish most of Sierra Leone's outstanding
38. In respect of fostering regional integration, the government plans to
adjust its external tariffs gradually toward the agreed common external tariff
(CET) of the Economic Community of West African States (ECOWAS). FAD has
provided technical assistance for this purpose. A study has also been initiated
to assess the fiscal impact of the change in the tariff regime, and a technical
working group has been formed bringing together experts from relevant ministries.
A regional conference was held in July 2004 to review the various country
impact assessments with a view to adopting an implementation schedule consistent
with the 2005 implementation deadline.
D. Structural Reforms
39. The program of structural reforms for the period July-December 2004
will focus on three main areas: the management of the school system; the
reinforcement of budgetary discipline and transparency; and improvements
in the civil service (Attachment I, table 4).
40. In respect of the management of the school system, considerable progress
has been made. Further action is, however, needed in effecting payments for
salaries and other transactions through the banking system. In this regard,
the government is aiming at increasing the proportion of schools with bank
accounts from its current 30 percent to 60 percent at end-December 2004.
In the same vein, the government will encourage greater use of the banking
system for the payment of salaries to civil servants and teachers through
individual bank accounts.
41. The government is continuing to reinforce budgetary discipline and to
increase transparency. At a broad level, government is taking action to effect
the enactment of the Budgetary and Accountability Act, aimed at streamlining
the budgetary process. Additionally, interim guidelines have been adopted
to guide government procurement; a comprehensive legislation will be put
in place before end-2004. The government has also decided to monitor the
wage bill on an accrual basis for each quarter of the year, starting in the
first quarter of 2005.
42. Government is continuing to strengthen personnel management and to streamline
key ministries. New personnel management regulations for the civil service,
establishing a code of ethics, an appraisal system, and a performance-based
system, will be issued by mid-October 2004. Diagnostics studies and reforms
for key ministries will be finalized by 2005 to assist in streamlining and
staffing of these ministries. A senior executive service (SES) within the
civil service is planned to be introduced by mid-2005 to improve the management
of the key ministries and of governmental major initiatives. The introduction
and management of the SES will be made consistent with available fiscal resources.
IV. Program Monitoring and Reviews
43. The government is requesting waivers for the nonobservance of the structural
performance criteria on the reconciliation of fiscal and monetary data, and
on the issuance of new personnel management regulations. The first performance
criterion was missed because of the delay in IMF technical assistance, while
the implementation of the second one was delayed in order to incorporate
aspects related to the proposed senior executive service. Furthermore, the
government is requesting a waiver on the nonobservance of the quantitative
performance criterion at end-March 2004, pertaining to central government
net credit from the banking system, owing in part to the shortfall in external
program grants and loans. The government has since taken steps, as discussed
in section III.A., to address this problem for the remainder of 2004.
Given the likely timing of the completion of the fifth review, the government
of Sierra Leone requests a three-month extension of the arrangement from
the current expiration date of March 25, 2005. The program will continue
to be monitored based on quantitative and structural performance criteria
and benchmarks indicated in Tables 3 and 4 of this attachment. The sixth
and final review of the PRGF arrangement will be completed by end-May 2005,
based on end-December 2004 quantitative performance criteria, on end-November
2004 structural performance criterion, and on structural benchmarks through
Sierra Leone: Technical Memorandum of Understanding
1. This memorandum sets out the understandings between the Sierra Leonean
authorities and the International Monetary Fund (IMF) regarding the definitions
of the quantitative performance criteria and benchmarks for the program supported
by the Poverty Reduction and Growth Facility (PRGF) arrangement, as well
as the related reporting requirements. The definitions have been revised
to ensure that the memorandum continues to reflect the best understanding
of the Sierra Leonean authorities and the Fund staff in monitoring the program.
Unless otherwise specified, all quantitative performance criteria and benchmark
will be evaluated in terms of cumulative flows from the beginning of the
period, as specified in Tables 1 and 3 of the attached Memorandum of Economic
and Financial Policies of the Government of Sierra Leone for April 1–December
II. Quantitative Performance Criteria: Definitions and
A. Gross Foreign Exchange Reserves of the Bank of Sierra
2. Definition. Unless otherwise noted here, gross foreign exchange
reserves of the Bank of Sierra Leone (BSL) will be defined as reserve assets
of the BSL. Reserve assets are defined in the IMF's Balance of Payments
Manual (5th ed.) and elaborated in the reserve template of
the Fund's International Reserves and Foreign Currency Liquidity: Guidelines
for a Data Template. They exclude, for example, foreign assets not readily
available to, or controlled by, the monetary authorities.
3. Gross foreign exchange reserves consist of (a) monetary gold; (b) foreign
currency in cash; (c) unencumbered foreign currency deposits at non-resident
banks; (d) foreign securities and deposits; (e) SDR holdings and Sierra Leone's
reserve position with the Fund; and (f) balances in the Bank of England account
related to debt service to Paris Club creditors. Gross reserves will exclude
nonconvertible currencies and pledged, swapped, or any encumbered reserves
assets including but not limited to reserve assets used as collateral or
guarantees for third party external liabilities.
4. Adjustment clauses. The floor on gross foreign exchange reserves
will be adjusted (a) downward (or upward) by the amount in U.S. dollars of
the shortfall/excess in programmed external budgetary assistance4;
(b) downward (upward) for any shortfall/excess in the U.S. dollar value of
disbursements from the IMF under the PRGF arrangement; and (c) upward or
downward for any increase in BSL short-term foreign currency-denominated
debt (to residents and nonresidents), using the definition of short-term
5. For the purpose of this target, as well as of those for external debt
and arrears, valuation will be in U.S. dollars, using the program exchange
rates. For the 2004 program, the program exchange rates between the U.S.
dollar and other non-leone currencies will be those prevailing at March 31,
6. Supporting material. Data on gross foreign exchange reserves,
including its components, will be transmitted by the BSL to the Fund on a
weekly basis within ten days of the end of each week.
B. Net Domestic Assets of the (BSL)
7. Definition. Net domestic assets (NDA) of the BSL are defined
as the end-period (based on daily data) stocks, during the month of the test
dates, of the reserve money less net foreign assets calculated at the program
exchange rate of 2,735 leones per U.S. dollar. Reserve money includes currency
in circulation and required reserves on leone deposits. Net foreign assets
of the BSL are defined as gross foreign exchange reserves (defined above)
minus foreign liabilities (defined below).
8. Foreign liabilities are defined as short-term (one year or less in original
maturity) foreign currency-denominated liabilities of the BSL to nonresidents
and the outstanding use of Fund credit.
9. Adjustment clauses. The ceiling on the NDA of the BSL will be
adjusted upward by up to fifty percent of the amount of the shortfall in
the external budgetary assistance at the test dates. The ceiling will be
adjusted downward by the amount of the excess in the external budgetary assistance
at the test dates.
10. Supporting material. Net domestic assets of the BSL will be
transmitted to the Fund on a monthly basis within four weeks of the end of
the month. This report will include foreign assets excluded from the definition
of gross foreign exchange reserves in Section IIA above.
C. Net Domestic Bank Credit to Government (NCG)
11. Definition. NCG refers to the net banking system's claims on
the central government and is defined as the following:
· the net position of the government with commercial banks, including:
(a) treasury bills; (b) bonds issued by the Government of the Republic
of Sierra Leone (GSL); (c) loans and advances; less (d) Central government
deposits (defined to include account balances under the authority of controlling
· BSL holdings of (a) GSL statutory bonds; (b) ordinary GSL bonds;
(c) bonds in respect of loans to current and former parastatals; (d) treasury
bills on the trading portfolio of BSL; (e) other government stock; (f)
HIPC debt relief deposits; less (g) special non-interest-bearing government
stocks to cover foreign exchange valuation losses.
12. Adjustment clauses. The ceiling on the increase in NCG will
be adjusted upward by up to fifty percent of the amount of the shortfall
in external budgetary assistance. The ceiling will be adjusted downward by
the amount of the excess in external budgetary assistance. The leone value
of the cumulative shortfall or excess in external budgetary assistance will
be converted at the program exchange rate of 2,735 leone per U.S. dollar.
The ceiling will also be adjusted downward (upward) by the net increase (decline)
in the leone value of net issues of government securities to the nonbank
private sector up to the ceiling set on net domestic bank credit to government
for each test date.
13. Supporting material. The data source for the above will be the
series "Claims on Government (Net)" submitted to Fund staff on
a weekly basis and reconciled with the monthly BSL monetary survey to be
submitted to the Fund within six weeks of the end of each month. These data
will be reconciled with monthly reports on treasury bill transactions and
the ways-and-means account, and with treasury bearer bond transactions to
be submitted to the Fund staff by the Ministry of Finance, within six weeks
of the end of each month.
D. Domestic Primary Balance of Central Government
14. Definition of Central government. Central government is defined
for the purposes of this memorandum to comprise the central government and
those special accounts that are classified as central government in the BSL
statement of accounts. The National Social Security and Insurance Trust (NASSIT)
and public enterprises are excluded from this definition of central government.
15. The floor on the domestic primary budget balance of the central
government is defined as domestic revenue minus total expenditure and net
lending, excluding interest payments, externally financed capital expenditure,
and the externally financed DDR program.
16. Supporting material. The data will be submitted to Fund staff
by the Budget Unit of the Ministry of Finance (MFIN) within six weeks of
the end of each month.
E. Domestic Revenue of Central Government
17. The target on total domestic government revenue is defined as
total central government revenue, excluding external grants.
18. Supporting material. The data will be submitted to Fund staff
by the Budget Unit of (MFIN) within six weeks of the end of each month.
F. Central Government Wage Bill
19. The ceiling on the government wage bill is defined as total expenditure
outlays on wages, salaries, pensions, payments to NASSIT and cash allowances
by the government.
20. Supporting material. The data will be submitted to Fund staff
by the Budget Unit of the Ministry of Finance within six weeks of the end
of each month.
G. Poverty-related Expenditures
21. Poverty-related expenditures refer to those expenditures in those areas
identified in Table 2 of the Sierra Leone HIPC Decision Point Document (EBS/02/30;
2/19/02). These budgetary expenditures include but are not limited to those
sub-components that are financed by drawdown from the HIPC Relief Account
at the BSL.
H. External Payment Arrears
22. Definition. Official external payment arrears are defined as
the stock of external overdue debt-service payments by the public sector.
For the purposes of this Memorandum, the public sector will comprise the
central government, all public enterprises and the BSL. The nonaccumulation
of external arrears is a performance criterion during the program period.
Excluded from this performance criterion are those debts subject to rescheduling
arrangements. This performance criterion will apply on a continuous basis.
23. Supporting material. Data on arrears are compiled jointly by
the MFIN and the BSL and will be reported to Fund staff by the Budget Director
of the MFIN on a quarterly basis within six weeks of the end of each quarter.
I. Official Medium- and Long-Term Nonconcessional Loans
24. Definition. Those are defined as all forms of official debt
contracted or guaranteed by the public sector.5 This
performance criterion applies not only to debt as defined in Annex 1of this
Technical Memorandum of Understanding but also to commitments contracted
or guaranteed for which value has not been received. This performance criterion
will apply on a continuous basis. Excluded from this performance criterion
are disbursements from the IMF and rescheduling arrangements. In this memorandum,
the public sector consists of the central and regional governments and other
public agencies, including the BSL.
25. Supporting material. Detailed data on all new concessional and
non-concessional debt contracted or guaranteed will be provided to Fund staff
by BSL/the Ministry of Finance on a quarterly basis within six weeks of the
end of each quarter.
J. External Short-Term Debt Contracted or Guaranteed by
the Public Sector
26. External short-term debt is defined as external debt with a maturity
of less than one year contracted or guaranteed by the public sector. Debt
is defined in Annex 1 of this Technical Memorandum of Understanding. For
this purpose, short-term debt will exclude normal trade credit for imports.
A performance criterion is no new external short-term debt during the
program period. This performance criterion will apply on a continuous
27. Supporting material. A comprehensive report on all new external
debt with original maturity of less than one year owed or contracted by the
public sector will be transmitted to Fund staff by the BSL on a quarterly
basis within four weeks of the end of each quarter.
K. Subsidies to the NPA
28. The term "subsidy" refers to any financial government support
(i.e., unrequited transfers) to the National Power Authority (NPA). It does
not include the government's on-lending of external loans for capital expenditure
of the enterprise. The subsidy is to be reduced by the amount of arrears
accumulating in regard to the charges for government's electricity consumption.
This performance criterion will apply on a continuous basis.
III. Program-Monitoring Committee
29. Definition. The Sierra Leonean authorities shall maintain a
program-monitoring committee composed of senior officials from the Ministry
of Finance, the Ministry of Economic Development and Planning; the Bank of
Sierra Leone, and other relevant agencies. The committee shall be responsible
for monitoring the performance of the program, recommending policy responses,
informing the Fund regularly about the progress of the program, and transmitting
the supporting materials necessary for the evaluation of performance criteria
and benchmarks. The committee shall provide the Fund with a progress report
on the program on a monthly basis within four weeks of the end of each month,
using the latest available data.
IV. Data Reporting to the Fund
A. Domestic Prices
30. Reporting standard. the monthly disaggregated consumer price
index will be transmitted within four weeks of the end of each month.
B. Government Accounts Data
31. Reporting standard. A consolidated budget report of the central
government comprising (a) the revenue data by each major item, including
those collected by the National Revenue Authority, as well as privatization
receipts to the budget; (b) details of the recurrent and capital expenditure
of the central government; (c) details of budget financing (domestic and
external), which will be transmitted on a monthly basis within six weeks
of the end of each month; and (d) details on the government's outstanding
arrears outstanding, including payments and other arrangements to discharge
them (these data will be transmitted on a monthly basis within six weeks
of the end of each quarter).
C. Monetary Sector Data
32. Reporting standard. The balance sheet of the central bank and
the consolidated balance sheets of the commercial banks will be transmitted
on a monthly basis within six weeks of the end of each month. A special report
on transactions in the HIPC relief account at the BSL will be provided to
the Fund on a monthly basis within six weeks of the end of each month. The
results of the treasury bill auctions will be transmitted on a biweekly basis
within five business days. The stocks of government securities, balances
in the divestiture account, detailed information on interbank loans (terms,
duration, and participating institutions), and interest rate developments
will be transmitted on a monthly basis within two weeks of the end of each
D. External Sector Data
33. Reporting standard. The following standard will be adhered to:
(a) the interbank market exchange rate, as the simple average of the daily-weighted
average buying and selling rates, will be transmitted on a weekly basis within
five business days of the end of the week; (b) the results of foreign exchange
auctions (on a weekly or more frequent basis) will be transmitted on a weekly
basis within five business days of the end of each week; and (c) the foreign
exchange cashflow data will be transmitted on a quarterly basis within six
weeks of the end of each quarter.
Implementation of the Revised Guidelines on Performance
with Respect to Foreign Debt
The term "debt" has the meaning set forth in point No. 9 of the
Guidelines on Performance Criteria with Respect to Foreign Debt adopted on
August 24, 2000 [which reads as follows: "(a) For the purpose of this
guideline, the term "debt" will be understood to mean a current,
i.e., not contingent, liability, created under a contractual arrangement
through the provision of value in the form of assets (including currency)
or services, and which requires the obligor to make one or more payments
in the form of assets (including currency) or services, at some future point(s)
in time; these payments will discharge the principal and/or interest liabilities
incurred under the contract. Debts can take a number of forms, the primary
ones being as follows: (i) loans, i.e., advances of money to obligor by the
lender made on the basis of an undertaking that the obligor will repay the
funds in the future (including deposits, bonds, debentures, commercial loans
and buyers' credits) and temporary exchanges of assets that are equivalent
to fully collateralized loans under which the obligor is required to repay
the funds, and usually pay interest, by repurchasing the collateral from
the buyer in the future (such as repurchase agreements and official swap
arrangements); (ii) suppliers' credits, i.e., contracts where the supplier
permits the obligor to defer payments until some time after the date on which
the goods are delivered or services are provided; and (iii) leases, i.e.,
arrangements under which property is provided which the lessee has the right
to use for one or more specified period(s) of time that are usually shorter
than the total expected service life of the property, while the lessor retains
the title to the property. For the purpose of the guideline, the debt is
the present value (at the inception of the lease) of all lease payments expected
to be made during the period of the agreement excluding those payments that
cover the operation, repair or maintenance of the property. (b) Under the
definition of debt set out in point 9(a) above, arrears, penalties, and judicially
awarded damages arising from the failure to make payment under a contractual
obligation that constitutes debt are debt. Failure to make payment on an
obligation that is not considered debt under this definition (e.g., payment
on delivery) will not give rise to debt"]. (B) Excluded from this
performance criterion are normal import-related credits, disbursements
from the IMF,
and those debts subject to rescheduling arrangements.
IMF has introduced a regional public expenditure management advisor, based
in Accra, Ghana, to cover Sierra Leone, among other countries. This expert
will focus primarily on the issues identified in the HIPC AAP report.
2Fund staff will be
consulted, in the context of the PRGF-supported program, prior to any commitments
to be made in this area.
3An exploration license
in the Tonga area has been issued to the company operating the Koidu Kimberlite
mine. Should the bulk sampling be successful, a mine on a similar scale to
the Koidu mine could be developed.
assistance is defined as program grants and program loans, but excluding external
financing for the Disarmamanent, Demobilization and Reintegration (DDR) Program,
project-related grants and loans. The leone value of the cumulative shortfall
(excess) of external budgetary assistance will be calculated at the program
exchange rate of 2,735 leones per U.S. dollar.
5Debt is considered
concessional if it has a grant element equalent to 35 percent or more. Calculation
of the degree of concessionality of new external borrowing is based on the
10-year average commercial interest reference rate (CIRR) of the Organization
for Economic Cooperation and Development (OECD) for loans with maturities at
least 15 years and the six-month average CIRR for loans maturiting in less
than 15 years.