Freetown, SIERRA LEONE – Sierra Leone’s fiscal adjustment, centred on revenue mobilization and spending control while limiting domestic bank financing, faced challenges, according to the International Monetary Fund (IMF) in its November Country Report No. 23/377.
The government, in alignment with the IMF recommendations, undertook significant reforms in revenue administration, including digitalization through ITAS, ECR, and ASYCUDA World. Monitoring, auditing, and risk management functions were reinforced, and the National Revenue Authority (NRA) Act was amended to facilitate audits for selected sectors (extractives, financial, and telecoms) and large taxpayers. Strategies were implemented to identify and tax High Net Worth Individuals (HNWI), and a Medium-Term Revenue Strategy (MTRS) was developed and published, with ongoing implementation.
Despite these efforts, the IMF Staff reported that domestic revenues underperformed, declining from 13.8 per cent of GDP in 2018 to 12.4 per cent in 2022, with a 1 per cent GDP decline in tax revenues. The underperformance, according to the report, began in 2020 and did not return to the initially projected path at the time of the Extended Credit Facility (ECF) program approval.
Reforms were also implemented on the expenditure side, encompassing public sector payroll verification, expanding the coverage of the web-based Integrated Financial Management System (IFMIS), and reconciliation of interagency arrears. The authorities increased transparency by publishing annual reports on arrears, including information on crystallized cheques.
The IMF Staff analysis of the country’s performance under the 2018-23 ECF program highlighted the development and implementation of a domestic arrears clearance strategy. Recently updated to include all pre-July 2023 outstanding arrears, including unpaid checks, the strategy now commits to clearing only arrears that have been budgeted for.
To prevent new arrears, authorities have taken action to enhance cash flow forecasting and budget execution. Training from AFW2 on cash flow forecasting and planning was received, and the Expanded Cash and Debt Management Committee (ECDMC) regularly meets to produce cash flow forecasts, informing quarterly budget allocations.
Cash management improvements include the conclusion of Phase II of Treasury Single Account (TSA) expansion, mandating ministries, departments, and agencies (MDAs) to process expenditures through the web-based IFMIS, and implementing the Electronic Funds Transfer (EFT) system.
The IMF report underscores the ongoing challenges and the government’s proactive steps to address fiscal concerns and strengthen financial management practices. ZIJ/1/12/2023