I. Background and objective
Sierra Leone’s Medium-Term National Development Plan (MTNDP), 2019-2023, themed ‘Education for Development’, sets an ambitious vision for the country’s sustainable development path for the next five years. The new MTNDP, developed through a consultative process, charts a clear path towards 2023 and achievement of progress across all the eight pillars of this plan during these five years will be an important step in Sierra Leone’s journey out of fragility towards its vision of becoming an inclusive and green, middle-income country by 2035.
One key lesson from previous MTNDPs was the need to strengthen the means of implementation, which featured as the eighth cluster in the current MTNDP and having a clear pathway for funding the plan. A Development Finance Assessment (DFA) was commissioned to inform the strategy for financing the new plan. This plan has an estimated cost of $8.15 billion. The sum of US$5.49 billion represents direct project–related costs, while the sum of US$2.66 billion represents the government’s statutory expenditures to support project implementation. The government has projected to raise US$6.60 billion from both internal and already committed external resources, leaving a financing gap of US$1.55 billion, for which new money is being sought.
It is clear that achieving the objectives of the MTNDP will require investments from a range of different resources. Therefore, the proposed Consultative Forum will be used to:
⦁ Reconfirm both internal and external resources already committed in support of the MTNDP;
⦁ Mobilise ‘new money’ through Private Sector financing and other innovative financing models.
The expectation is that debt restructuring will free up fiscal space for social spending targeted in the MTNDP, and that the Private Sector would complement the efforts of the Government and Developing partners by funding projects entirely or through public private partnerships and other unconventional sources of financing.
II. Reconfirming Already Committed Resources
The Government has implemented a series of significant reforms to raise domestic revenue, which have seen domestic revenue to GDP increased to 13.7 percent in 2018 from 12.2 percent in 2016 and 2017. Further improvements are expected in coming years and the Government is committed to increase domestic revenue to 20 percent of GDP by 2023. Sierra Leone, like many other countries, is faced with serious development challenges that require huge resources to address. Infrastructure deficit remains pervasive, competing with social needs in education and health for the limited resource envelope from domestic revenue and Official Disbursement Aid (ODA).
As mentioned earlier, the government has projected to raise US$6.60 billion from both internal and already committed external resources, leaving a financing gap of US$1.55 billion, for which new money is being sought. At the CG, these committed resources would be re-confirmed and the possibility of realigning other existing funds from other portfolios to towards Sierra Leone’s MTNDP would be explored.
III. Mobilising Funding From The Private Sector
Traditional development partners will continue to have an important role in supporting the development of Sierra Leone through financial and technical means.
Nonetheless, it is no secret that Official Development Assistance to developing countries is declining. Therefore, domestic revenue mobilisation remains a high priority and the government has shown strong commitment to reforms including steps to strengthen tax administration and tax policy and these are starting to bear fruit. However, from research, it is also evident that domestic revenue mobilisation alone is insufficient to meet the funding requirements for our national and international development goals.
The current development finance context in Sierra Leone is one in which public finance and development assistance continue to dominate, while private finance remains nascent. Currently, private investment remains low, credit to the private sector accounted for only about 5 % of GDP in 2018. Therefore, as the country looks ahead to achieving sustainable development progress over the next five years along the pillars of the MTNDP, the need to mobilise new private investments, develop more innovative private-sector focused financial instruments, deepen the engagement of the diaspora and enhance public-private dialogue cannot be overemphasised.
During the CG, we seek to engage in forward-looking but output-focused public-private dialogue on how Government can leverage on the local and internal private sector to mobilise private funding for our MTNDP. The conversation is expected to address both policy and financial instrument issues whilst paving a way for a mutually beneficial pathway to promote growth in the private sector. Current thinking includes steps to re-invigorate the stock exchange; encourage publicly-owned banks to increase lending to the private sector in line with the strategic objectives of the MTNDP; Public-Private partnerships (PPPs); Pension funds; Diaspora bonds; Development impact bonds; longer-term financing products for infrastructure and other innovative models of financing.
IV. GOVERNMENT COMMITMENTS ON FUNDING
The Government is committed to ensuring that funding raised through domestic revenue and development partners is spent effectively on the delivery of Government priorities. Reforms are underway to improve the integrity and sustainability of the Government payroll; improve the quality and efficiency of recurrent and capital expenditures; and strengthen expenditure and commitment controls.
Commitment control systems are being strengthened, including the automation of the Public Expenditure Tracking (PET) process and upgrades to the Integrated Financial Management Information System (IFMIS). A Government Audit Committee has been established and over 17 Audit Committees reconstituted in various MDAs. Public Expenditure Tracking Survey (PETS) have been revived to generate baseline data for improving public financial management and service delivery.
Procurement processes have been strengthened, including the implementation of new policies by The National Public Procurement Authority (NPPA) including standardised bidding documents and a new review process and established the Independent Procurement Review Panel (IPRP).
Several reforms are directed at improving the management of donor and domestic funded capital projects, including a two-tier oversight system has been established to speed up implementation and improve quality of delivery.
The Government is taking action to address the high level of inherited public debt and arrears. The Government is committed to prudent debt management practices anchored on the Medium-Term Debt Management Strategy, aiming to meet its financing needs at minimal cost consistent with prudent degree of risks. Medium to long-term bonds will be introduced for long-term financing needs such as infrastructure, helping to lower refinancing and foreign currency risks. Debt sustainability will be ensured through continuing to seek grant financing or highly concessional borrowing terms for key sector investments, as well as ensuring non-debt creating financing models such as Public-Private Partnerships supported by a thorough analysis of the potential fiscal risks and without recourse to Government guarantees.
The Government has developed an Arrears Clearance Strategy within the
context of the Medium-Term Expenditure Framework, which is underpinned by transparency, fairness and equity in the treatment of the suppliers and contractors.
V. THE SIERRA LEONE INVESTMENT CLIMATE
Sierra Leone boasts rich soils and seas, with over 5.4 million hectares of arable land and one of the most valuable marine biomass in the region. We have a population that is young and eager to work and we are investing in their education to build a qualified, ready workforce. We are located 6h from Europe by plane, 8h from the US by plane, and 4h from Brazil by sea. Our trade agreements grant us duty free access to developed markets, including the US with AGOA.
The top priority of the Government is to invest in our youth and to improve education. Within our first 6 months in office, we introduced nation-wide free education. Alongside this investment in human capital development, we have prioritised the diversification of the economy. We are targeting agriculture, fisheries and tourism to be the new drivers of growth for Sierra Leone and to create quality jobs. We are committed to support investments in these three sectors with accompanying investments in infrastructure, renewable energy and technologies.
We are embarking on a large project of reforming our business environment to attract foreign and local investment into Sierra Leone. We will simplify the bureaucracy around requirements and regulations for businesses and invest in infrastructure for exports. We will provide attractive fiscal and non-fiscal incentives for companies investing in priority sectors and complying with regulations.
The 2020 Budget introduced a number of initiatives to ensure an investment-friendly tax system, which raises revenue but at the same time creates the enabling environment for businesses to thrive and create employment opportunities. Measures include the reduction in the corporate tax rate to 25% from 30%, reductions in import duty and additional GST exemptions for key sectors. The Government has developed a Duty and Tax Waiver Policy to rationalise and harmonise exemptions to provide certainty to investors and create a level playing field going forward.
To facilitate these reforms and provide ongoing support to investors, we are creating a National Investment Board (NIB). The NIB will be the Government’s principal policy-making body on investment, responsible for facilitating and coordinating all issues relating to investing in the country. The goal of the Investment Board is to enhance our current investment promotion effort, to facilitate investments when they arrive, and to provide aftercare services once they are established.
The Government is exploring the establishment of Special Economic Zones (SEZs) with a view to facilitate rapid economic growth and create jobs by leveraging tax and non-tax incentives to attract more investments, initially through a review of current SEZ policy and development of an implementation strategy.
The Government is increasing investment in critical infrastructure, such as energy,
transport, and ICT that are critical for reducing the cost of business transactions and connecting businesses to markets. Investments are continuing in the construction and rehabilitation of roads nationwide.
The Government is committed to improving transparency and accountability, and recent efforts have seen Sierra Leone scoring 50.9 in the 2018 Mo Ibrahim Index and ranking 26 out of 54 countries, and have improved its performance on other international governance benchmarks. Our government is leading the fight against corruption, with a renewed focus on the rule of law and a commitment to ensuring an even playing field for all businesses.
VI. Organisation Of The Meeting
Proposed Date: April 13, 2020
Venue: Side-Event during the 2020 World Bank/IMF Spring Meeting in Washington, DC in the United States of America.
Leadership: The event will be managed by the Ministry of Finance with inputs from Ministry of Planning and Economic Development, Ministry of Trade and Industry, World Bank and IFC. His Excellency the President and senior leadership of Government will be in attendance. Proposed Agenda is presented in Annex 1.
Audience: The target audience is beyond the conventional donor community and international agencies. It will include international development banks, top-tier investment banks, institutional investors (private equity, pension funds, insurance companies, university endowments, etc.), and CEOs of Fortune 100 global corporations that we plan to invite. Proposed List of Delegates is presented in Annex 2.
Special Facilitators: We propose that IFC takes the lead in organizing the forum as they are more knowledgeable in sourcing private capital and unconventional sources of financing. MIGA will support the session on investment guarantees. Arrangements will also need to be made for repertoires at the meeting.
Pipeline of Bankable Projects: The Government will present the list of Bankable projects across all sectors that are in the pipeline for funding and this will be distributed ahead of the meeting. The Ministry of Planning and Economic Development will take lead on this. Proposed List of Bankable Projects is presented in Annex 3.
Budgetary implications: The cost of participation in this event for the delegation from Sierra Leone will be borne by the Government of Sierra Leone. The cost of participation for all other delegates will be borne by their respective institutions. The costs related to use of World Bank Group meeting room space and refreshments will be negotiated with the World Bank Group.
Preparation:
⦁ Private sector consultation: The Government will undertake a series of consultations with the private sector in February and March 2020 to seek views from key businesses, sectors and stakeholders on successfully undertaken investments in Sierra Leone. The results of these consultations will help to inform the discussions during the forum.
⦁ Compendium of innovative instruments to attract private investment: The Government will update the compendium of incentives to attract private investments in Sierra Leone and these will be shared ahead of the meeting.
⦁ Engagement of IFC and MIGA: The World Bank will lead on engaging IFC and MIGA for this meeting. It is proposed that focal points for Sierra Leone at IFC and MIGA be part of the planning process.
⦁ Communication Strategy: A communication strategy for both the domestic and international audience will be developed. This will include but not be limited to a dedicated website with relevant background materials for the event. The website is currently under development and located at: https://mof.gov.sl/consultative-meeting/
VII. Expected Outcomes
⦁ Development partner and private sector endorsement of the Government’s economic reform program.
⦁ A clear pathway /commitment of funding for the national development plan.
⦁ Comprehensive update on donor-funded programs and confirmation of private sector investments of projects aligned with the MTNDP.
⦁ Achievement of a common understanding on the sequencing of assistance packages from development partners and the private sector and factors that would drive new investments in the country.
⦁ Firm commitments from the private sector and joint development of innovative financing instruments.
⦁ Improved understanding and coordination among the Government, donors and the private sector in meeting Sierra Leone’s development needs.