In Sierra Leone, the recent arrears reconciliation exercise revealed domestic arrears of 83.4 percent of GDP that is Le 3.3 trillion as of April 2018 and an additional accumulation of 11.4 percent of GDP since. These arrears have curtailed economic activity and pose a risk to financial stability, by stalling projects and undermining contractors’ ability to service their bank loans. The government’s recent efforts have focused on determining a final, comprehensive arrears figure. During June-August 2019, the Ministry of Finance worked with the Audit Service Sierra Leone (ASSL) and relevant Ministries, Departments and Agencies (MDAs) to review individual claims. Through this process, the authorities determined the portion of verified claims that are in arrears, combined this amount with unpaid checks, eliminated any double counting, and subtracted amounts paid to suppliers in the interim. This is according to the Aide Memoire submitted by the International Monetary Fund team, titled Sierra Leone Managing and Preventing Government Expenditure Arrears dated September 22, 2019. The IMF mission, led by Karen Ongley, visited Freetown during 18 to 24 September, 2019, to discuss recent economic developments and progress towards structural reforms. The reconciliation exercise revealed a stock of arrears close to 10 percent of GDP. Most arrears (83.4 percent of GDP) date back to before April 2018, and almost 90 percent of these were accumulated during 2016 and 2017.
Sorry, there are no polls available at the moment.
The sectoral composition of the pre-April 2018 arrears is heavily skewed toward roads (41 percent), followed by security (211.2 percent) and energy sectors (171.4 percent), while all other sectors account for less than 6 percent. A further 11.4 percent of GDP in arrears has accumulated since April 2018 in the form of unpaid checks and the Government expects to repay a significant portion of this by the end of 2019. However, these amounts do not yet reflect any accumulated interest obligations or penalties, which could alter the total amount of arrears.’ For instance, the CSE arrears include penalty interest on which the Government was able to negotiate a 40 percent waiver, with the remainder being securitized as part of the zero-coupon bond. “Developing a transparent and carefully prioritized strategy to clear and prevent new arrears is therefore important. Clearing 10 percent of GDP in arrears is challenging as the public financing situation is tight and priority spending needs are high, while suppliers are demanding favorable repayment terms” the IMF writes. It went further to state that this note highlights that lower interest rates and stretching out the amortization schedule alone will not be enough to bring financing needs from arrears clearance to sustainable levels, implying a need for haircuts and additional financing on highly concessional terms. “A published arrears clearance strategy and equitable treatment of creditors—in line with the Government’s overall strategy to foster good governance—will strengthen the authorities’ negotiating position. A credible plan to improve public financial management (PFM) to avoid future arrears can help increase acceptance of haircuts and help mobilize concessional resources” it added. Under the sub topic, understanding arrears in Sierra Leone, the team noted that the authorities’ initial reconciliation efforts revealed a large stock of arrears and a complex situation. At the time of the IMF-supported program approved in November 2018, the estimated stock of arrears was about 4 percent of GDP, reflecting the stock of unpaid checks at the Ministry of Finance. In early 2019, the Audit Service Sierra Leone (ASSL) completed an audit of claims totaling Le 11.6 trillion covering 2010-18, of which it verified claims of Le 4.5 trillion (nearly 14 percent of GDP). As these verified claims included both arrears and future payment obligations and potential double counting, further work was necessary to determine a final arrears figure.
By Zainab Iyamide Joaque
Login or Subscribe to read the entire article