IMF TEAM COMMENTS ON SIERRA LEONE ECONOMY

UNCLAS FREETOWN 000684

SIPDIS

SENSITIVE
SIPDIS

FOR AF/W

E.O. 12958: N/A
TAGS: EMIN EFIN PREL SL
SUBJECT: IMF TEAM COMMENTS ON SIERRA LEONE ECONOMY

1.(SBU) Summary: A visiting IMF team provided Embassy with an
overview of the challenges facing the new government in
Sierra Leone. The GOSL is considering revising existing
mining contracts as well as introducing a Value Added Tax in
the coming year. The IMF sees the inflation rate in Sierra
Leone moving up to a little above 10 percent. GDP growth is
down from earlier quarters and is now running at less than 7
percent. Fuel prices are likely to be increased soon. End
summary.

2.(SBU) Two members of an IMF team, resident representative
Alvin Hilaire, and Deputy Division Chief Norbert Toe,
(protect) provided a briefing on the Sierra Leone economy to
the Ambassador on November 14.
The team was here to help Sierra Leone with the 2007 budget
(where there are some projected shortfalls) and the 2008
budget (which is still being developed). They met with the
President earlier the same day. The President seems committed
to anti-corruption efforts as well as other key issues.


3. (SBU) They noted that revenue collection seems to be
worsening, and that there is a need for revamping the
National Revenue Authority (NRA). One of the first actions
the new government of President Koroma took was to make
adjustments for rising petroleum prices. The government chose
to keep fuel prices at the pump stable by cutting fees for
the Port Authority and fees for the Road Authority. Other
taxes were kept in place. The IMF recommended that the fuel
prices be allowed to move up as oil prices rise, to avoid
cutting government revenues. The GOSL officials will
probably take the IMF recommendation, which will result in an
increase in fuel prices in the near future.


3. (U) The IMF team said they believe mining contracts should
be reviewed. The World Bank could assist the GOSL with this.
As an example, the team said that the rutile mining company
re-entered Sierra Leone after the war with a contract on
generous terms. This was agreed to in order to provide an
incentive to restart operations quickly following the war.
The team said the existing contract has a provision allowing
the government to re-examine the contract if mineral prices
rise, and so the review would be within the original
contract.


4. (SBU) The team said that the IMF will provide technical
assistance in the effort to revamp the NRA, and to look at
the introduction of a Value Added Tax (VAT),which the GOSL
refers to as a Goods and Services Tax (GST). A technical
expert from IMF will probably come out to Sierra Leone in
January. The introduction of the VAT will take time and
probably will not happen until the first quarter of 2009 or
the fourth quarter of 2008 at the earliest.


5. (U) Overall, the IMF sees the current inflation rate in
Sierra Leone as moving up, to a little above 10 percent. Up
to now, the government had been successful in keeping
inflation in the single digits. The growth in GDP is down
from earlier quarters and is now at less than 7 percent. On
the budget, the GOSL is looking to the World Bank and UK to
provide financial help to get through the rest of this
calendar year. The World Bank may be able to provide $10
million in budget support, according to the team. The IMF
team views the Peace Building Fund, (PBF) as playing an
important role in stabilizing the country, and sees a
connection between the PBF and the ability to collect
revenue.


6. (U) The Ambassador mentioned that the U.S. may provide
technical assistance and experts on trade and agriculture
projects, including the market at Koindu. The IMF team was
very pleased to hear about this and suggested it could
compliment MDRI resources. They suggested the Embassy
coordinate this assistance with the Financial Secretary
within the Ministry of Finance.

PERRY