The total stock of arrears verified by Audit Service Sierra Leone amounted to Le3.3 trillion or 8.8 percent of GDP, according to the Public Debt Bulletin 2019 published by the Ministry of Finance (MoF).
MoF reached an understanding with the International Monetary Fund (IMF) and World Bank to develop an Arrears Clearance Strategy and Principles (2020-2025) to guide the clearance process.
The domestic arrears clearance strategy was approved by Cabinet in July 2020 and published on the MOF website as a structural benchmark for the IMF third review. About 41 percent of the total arrears the Ministry said is concentrated in the roads sector, 44 percent is distributed across MDAs, 9 percent are outstanding cheques and 6 percent relates to outstanding obligations to NASSIT.
The IMF said that the finalized strategy is broadly consistent with pre-crisis recommendations—underscoring the need for deep Net Present Value (NPV) reductions, transparency, and mindful of sectoral impacts.
However, since the pandemic, the Government has come under added pressure to advance arrears clearance efforts and to do so on more favorable terms for suppliers.
According to the IMF Country Report, “While clearance of a significant portion of unpaid checks helped to cushion the impact on suppliers and support the banking sector, going forward the pace of arrears clearance will need to be carefully calibrated to balance concerns about fiscal space, debt sustainability, and financial stability.”
They further warned that, paying down the arrears stock without securing deep NPV reductions, or at a faster pace than expected, risks crowding out expenditures on development priorities, accumulating new arrears, or jeopardizing sustainability.
MoF was also advised that a more considered approach to arrears clearance is needed, with the possibility of slower clearance if fiscal space is tighter than expected. “Any proposed new financial support mechanisms should be implemented in a way that minimizes the risks to public finances.”
To help cushion the impact of the pandemic on the private sector, the Government reprioritized some actions under its arrears clearance plan, paying down arrears (including unpaid checks) in the order of 2½ percent of GDP.
This prioritized small and medium-sized suppliers expected to have fewest buffers and be hardest hit.
BY [email protected]