Identifier
Created
Classification
Origin
08FREETOWN6
2008-01-07 17:56:00
CONFIDENTIAL
Embassy Freetown
Cable title:  

SIERRA LEONE MINISTER OF FINANCE PRESENTS

Tags:  ECON EFIN PGOV SL 
pdf how-to read a cable
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RR RUEHPA
DE RUEHFN #0006/01 0071756
ZNY CCCCC ZZH
R 071756Z JAN 08
FM AMEMBASSY FREETOWN
TO RUEHC/SECSTATE WASHDC 1629
INFO RUEHZK/ECOWAS COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 02 FREETOWN 000006 

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/07/2018
TAGS: ECON EFIN PGOV SL
SUBJECT: SIERRA LEONE MINISTER OF FINANCE PRESENTS
2008-2010 BUDGET


Classified By: CDA Elisabeth Susie Pratt
Reasons 1.4(b),(d).


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SUMMARY
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C O N F I D E N T I A L SECTION 01 OF 02 FREETOWN 000006

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/07/2018
TAGS: ECON EFIN PGOV SL
SUBJECT: SIERRA LEONE MINISTER OF FINANCE PRESENTS
2008-2010 BUDGET


Classified By: CDA Elisabeth Susie Pratt
Reasons 1.4(b),(d).


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SUMMARY
--------------

1. (U) Minister of Finance and Economic Development David
Carew presented the new Sierra Leone administration's
medium-term budget to parliament -- covering 2008-2010 -- on
December 21, 2007, along with a comprehensive overview of
Sierra Leone's economic and financial status and his
government's intended policies in the coming three years.
Despite the stated goal of fiscal consolidation, the budget
has an overall built-in deficit of 3.3 percent of the
projected $1.95 billion GDP, nearly three times the 2007
deficit. If 2008 repeats 2007's 33 percent revenue
shortfall, the Government of Sierra Leone will have to
reprioritize its programs. Should there be no revenue
shortfall, this three-year budget may still be overly
ambitious.

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FISCAL AND ECONOMIC STATUS
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2. (U) In his December 21 presentation to Parliament, the
Sierra Leone Minister of Finance and Economic Development
David Carew projected that the total revenue and budget
grants for 2008 would be 1,055 billion Leones (LE),or USD
351,781,000. Total expenditures are budgeted to be LE 1,241
billion (USD 413,636,000). The overall deficit is expected
to be LE 191 billion (USD 3,488,000). This deficit
represents 3.3 percent of the projected GDP of LE 5,833.5
billion (USD 1,944,483,000),which is significantly more than
the estimated 1.2 percent deficit in 2007. In 2007 Sierra
Leone experienced a total revenue short fall of 33 percent,
which resulted in the need to cut spending by 29 percent from
the original budget projections. According to Minister
Carew, 44 percent of the budget depends on development
assistance.


3. (U) According to the budget submission, although GDP
continued to grow in 2007, growth was slower than in 2006 or
2007's antiipated 7.4 percent. The minister expected
domestic output to reach 6.8 percent in 2007. Inflation rose
from 8.3 percent in December 2006 to 15.6 percent by November

2007. The nominal trade deficit remained steady at $135

million, but shrank in real terms as the export growth rate
nearly doubled the rate of import growth.

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POLICY GOALS
--------------

4. (U) The Finance Minister aims to reduce inflation to
single digits by the end of 2008 and to cut the primary
fiscal deficit to less than one percent of GDP by 2010.
However, the projected 2008 basic primary deficit is 2.7
percent, up from 1.4 percent in 2007. The GoSL also intends
to raise the GDP growth rate to 6.5 percent and contain money
supply growth, while investing more in basic infrastructure,
improving the investment climate, bolstering public sector
institutions, and strengthening efficiency, transparency, and
accountability in public financial management.

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NEW INITIATIVES
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5. (U) The minister announced several new initiatives to
improve revenue collection and accountability, including:

-- The new budget provides for a 10 percent increase in basic
salaries for public workers (civil servants, teachers,
police, military) and pensioners, along with a five percent
annual cost of living adjustment. The budget also includes
4,500 new teachers and 400 new police and prison officers.

-- The GoSL intends to address inefficiencies in the National
Revenue Authority (NRA) to improve revenue collection and
reform tax assessment structures that adversely affect
business. In particular, the GoSL intends to diversify the
tax base instead of overtaxing certain segments of the
population.

-- The government will introduce Taxpayer Identification
Numbers to facilitate a tax assessment and collections
tracking system.

-- A broad Goods and Services Tax (GST) will replace the
current Sales, Restaurant, Entertainment, and Message Taxes
in January 2009.

-- The Ministry of Finance has charged the NRA with

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completion of a newly-approved Currency Reporting Form for
travelers entering or leaving Sierra Leone with more than USD
10,000 in cash.

-- Foreign visitors must be issued visas on accountable visa
foils, which will improve visa fee collection. The use of
"rubber stamp" visas hampered accountability by obscuring any
correlation between the numbers of rubber stamped visas
issued and the amount of fees collected.

-- Expatriates and consultants working in Sierra Leone will
have to start paying taxes, even if their salaries are paid
by development partners. (Note: This is a reinterpretation
and clarification of existing law, not new legislation. End
Note)

-- The GOSL plans a new levy on timber and "dimension stone"
exports, along with ending the current suspensions on timber
and dimension stone production and export. Dimension stones
are natural stones or rocks that can be fabricated to
specific sizes or shapes and are used in home improvements,
historic preservation, building facades, and other
construction. The minister also proposed resuming the export
of geological sample materials, which is vital to encouraging
foreign firms to invest in the extractive industry

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INFLATED REVENUE PROJECTIONS
--------------


6. (C) According to a UK technical assistant working with
the Ministry of Finance, the budget revenue projections were
provided by the National Revenue Authority (NRA). In 2007
only 81 percent of projected domestic revenue and 49 percent
of projected budget grant income were actually received.
Given this background, the Finance Ministry apparently
considers current NRA budget projection to be highly inflated
and has carefully prioritized spending.


7. (U) Central government salaries and government operations
will be the GoSL's primary funding concerns, followed by
supporting energy needs. Poverty reduction initiatives
(roughly a quarter of total planned expenditures) will fall
behind if there is a revenue gap.


8. (C) COMMENT: Like many of President Koroma's initiatives,
the budget goals are overly ambitious, if well intentioned.
Unless proposed tax reforms take effect quickly enough to
generate significant revenue, it seems unlikely the GoSL will
be able to invest in many of the proposed projects while
still exercising fiscal restraint. Since the GoSL adopted a
cash budget management system (pay as you go) in April 2007
per IMF guidelines, future budget cuts are more probable than
significant deficit spending. The three-year budget plan is
consistent with the promises President Koroma made during his
October 5, 2007 parliamentary opening speech, in which he
asked for three years to provide measurable results of his
presidency. The clock is ticking. END COMMENT.
PRATT