VZCZCXYZ0016
RR RUEHWEB

DE RUEHFN #0497/01 3511936
ZNY CCCCC ZZH
R 171936Z DEC 09
FM AMEMBASSY FREETOWN
TO SECSTATE WASHDC 3056

C O N F I D E N T I A L FREETOWN 000497 
 
SIPDIS 
 
E.O. 12958: DECL: 12/17/2019 
TAGS: ECON EFIN PGOV SL
SUBJECT: SIERRA LEONE MINISTER OF FINANCE PRESENTS 2010 
BUDGET 
 
REF: 2008 FREETOWN 00006 
 
Classified By: PD Officer Danna Van Brandt for reason 1.4 (B) 
 
¶1.  (U) SUMMARY: Minister of Finance and Economic Development 
Samura Kamara presented the Sierra Leone Government Budget 
and Statement of Economic and Financial Policies for the 
financial year 2010, titled "Confronting the Future," to 
Parliament on December 4.  The budget includes a 
comprehensive overview of Sierra Leone's economic and 
financial status and the government's intended policies in 
the coming financial year.   Coming off of the recent 
Consultative Group Meeting in London, the Government is 
looking forward optimistically to increasing flows of 
financial assistance and foreign investment.  END SUMMARY. 
 
-------------------------- 
FISCAL AND ECONOMIC STATUS 
-------------------------- 
 
¶2.  (U) The Agenda for Change, proffered by President Koroma 
shortly after taking office, has stated priorities including 
urban and rural energy, enhanced agricultural productivity, 
improved infrastructure, affordable, quality health care, 
education, and sanitation services.  In addition, the 
Government has placed emphasis on economic growth and an 
overall improvement in quality of life.  While they note 
progress in many of these areas, the income per capita, life 
expectancy, literacy rates, and access to safe drinking water 
are among the lowest in the world.  Growth rates remain below 
the levels needed to make significant progress in poverty 
reduction. 
 
¶3.  (U)  In light of the global economy beginning to show 
signs of recovery, the 2010 budget centers around the theme 
"Confronting the Future," which will include tough policy 
decisions to balance economic growth and human development. 
The Government of Sierra Leone seeks to address both 
short-term socio-economic needs and laying the foundation for 
long-term economic growth.  To that end, it seeks to: 
-- boost investment in infrastructure, 
-- eliminate barriers to private sector growth, 
-- support productive sectors of the economy, and 
-- improve delivery of health care, education, and water 
services. 
 
¶4.  (U) Looking into the future, the budget forecasts real 
output growth at 4.7 percent in 2010, and hopes to see 
further growth to 6 percent by 2012, contingent upon the 
global economic recovery.  While inflation in 2009 remained 
high, it is expected to fall to 8 percent in 2010 and stay in 
double digits through 2012.  To support those predictions, 
the government will need to see recovery in agricultural and 
mining exports, to reduce the trade deficit from 9.4 percent 
in 2009 to 8.7 percent in 2010. 
 
------------ 
MONETARY POLICY 
------------ 
 
¶5.  (U) The Government intends to gear monetary policy toward 
containing inflation and stabilizing the exchange rate. 
Note, the value of the Leone has dropped by 30 percent 
relative to the dollar in the last year.  The Bank of Sierra 
Leone is being charged with forecasting the need for 
liquidity, and using that information to guide the auction of 
securities.  An additional Le 50 billion (approximately USD 
12.6 million) in non-negotiable, non-interest bearing 
securities will be converted into marketable securities. 
Reserve currency is targeted to grow by 13 percent in 2010 to 
allow for expansion in private sector credit and a build-up 
of foreign reserves. 
 
¶6.  (U) The Sierra Leonean national debt stood at USD 662 
million as of June 2009, USD 250 million of which is owed to 
commercial creditors.  The World Bank has provided some debt 
relief assistance, but the Government intends to implement a 
debt buy-back operation in 2010.  In addition, the Government 
has secured financing from the African Development Bank to 
develop a National Debt Law to provide a framework for 
borrowing policy and debt management practices. 
 
¶7.  (U) Improving the investment climate has been a key goal 
of the Government of Sierra Leone, and in the past three 
years it has climbed 20 places in the World Bank's Doing 
Business Report.  However, obstacles remain to attracting 
investors, including high intermediation costs, scant 
information on investment prospects, poor infrastructure and 
public services, and the nation's international image.  The 
Government has put in a number of mechanisms to begin to 
eliminate these obstacles, including a Financial Sector 
Development Plan, a series of Public-Private Partnerships 
aimed at public works projects, and the Investment Promotions 
 
Act. 
 
---------------------------- 
WHERE THE MONEY COMES FROM 
---------------------------- 
 
¶8.  (U) Total revenue is projected at Le 1.41 trillion 
(approximately USD 357 million), including external grants. 
Of that, domestic revenue is expected to be Le 844.1 billion 
(approximately USD 213.7 million), and external grants are 
expected to be Le 567.5 billion (approximately USD 143.7 
million).  Of the domestic revenue, 26.1 percent is to come 
from income taxes, 7.6 percent from corporate taxes, and 14.2 
percent from personal income taxes.  Customs and excise 
duties will account for 52.0 percent.  The proposed but not 
yet implemented Goods and Services Tax is projected to 
contribute only 0.1 percent of GDP in 2010.  Of the external 
funds expected in 2010, USD 64.3 million will come in budget 
support, and USD 4.1 million will come as debt relief.  An 
additional Le 317.8 billion (approximately USD 80.5 million) 
is expected in project grants. 
 
¶9.  (C) Foreign assistance currently accounts for 18 percent 
of GDP, and the Government intends to yield tighter controls 
over where it is spent, ensuring it is in line with the 
Government's priorities.  The Government intends to funnel 
all assistance funds through "harmonized modalities," to 
ensure oversight and coordination.  COMMENT: One NGO source 
told EmbOff that they had been informed by the government 
that all hiring decisions, including for positions with INGOs 
must be made through the Ministry of Labor henceforth.  This 
is in synch with the Government's stated intention to exert 
greater control over assistance funds and programs.  END 
COMMENT.  To that end the World Bank has set up a multi-donor 
Trust Fund, which will be structured around broad sectoral 
priorities, and implemented through specific projects 
identified by the Government.  DFID has already indicated its 
intent to contribute 15 million pounds over a five-year 
period to the Fund. 
 
------------ 
WHERE THE MONEY GOES 
------------ 
 
¶10.  (U) Non-Discretionary Payments:  The Government is in 
the midst of restructuring pay and grades for public sector 
workers, with the aim of creating a pay scale that will 
attract, retain, and motivate quality staff.  Meanwhile, the 
Government proposes a 13 percent increase to the wage bill, 
including a minimum pay increase of 20 percent for civil 
servants, teachers, police, military, prisons, and fire 
fighters.  In addition, it includes hiring 2000 new teachers 
and 1000 new police officers in 2010.  Interest payments in 
2010 are projected at Le 137.6 billion (approximately  USD 
34.8 million), bringing total nondiscretionary funding 
obligations to USD 149.6 million. 
Discretionary Payments:   Based on its outlined priorities, 
the Government has allocated resources as follows: 
 
-- Sierra Leone Roads Authority: Le 312.9 billion, or USD 
79.2 million 
-- Ministry of Agriculture: Le 118.3 billion, or USD 30.0 
million 
-- Ministry of Education, Youth, and Sports: Le 91.5 billion, 
or USD 23.2 million 
-- Ministry of Health:  Le 97.1 billion, or USD 24.6 million 
-- Ministry of Energy and Water Resources: Le 82.2 billion, 
or USD 20.8 million 
-- Local Councils: Le 70.4 billion, or USD 178.1 million 
-- Ministry of Defense:  Le 41 billion, or USD 10.4 million 
-- Police: 25.8 billion, or USD 6.53 million 
-- Prisons Department: Le 9.9 billion, or USD 2.5 million 
-- Parliament: Le 9.5 billion, or USD 2.4 million 
-- Audit Services: Le 9.4 billion, or USD 2.4 million 
-- Anti-Corruption Commission: Le 8.4 billion, or USD 2.1 
million 
-- Statistics Sierra Leone: Le 5.8 billion, or USD 1.5 million 
-- Office of National Security: Le 4.5 billion, or USD 1.1 
million 
-- Ministry of Marine Resources: Le 3.2 billion, or USD 
810,000 
-- Fire Force Department: Le 2.6 billion, or USD 658,000 
-- Immigration Department: Le 1.6 billion, or USD 405,000 
-- Environmental Protection Agency*: Le 1.3 billion, or USD 
329,000 
-- Law Officers Department: Le 1.2 billion, or USD 304,000 
 
Total: Le 896 billion, or USD 387 million 
 
* Note: This is an Agency to be created in 2010. 
 
¶11.  (U) Given huge expenditures to fund President Koroma's 
Agenda for Change, the budget deficit is expected to increase 
E 
 
from Le 758.6 billion (approximately USD 192 million) to Le 
926.7 billion (approximately USD 235 million) in 2010. 
However, with foreign grants added in, total deficit will be 
calculated at Le 359.2 billion (approximately USD 91 
million), or 5 percent of GDP. 
 
-------------- 
POSSIBLE RISKS 
-------------- 
 
¶12.  (U) The Government outlined three possible risks to the 
soundness of the budget: 
 
-- fluctuations in the already-plummeting exchange rate, 
-- additional budgetary requests, and 
-- continuing government regulation of petroleum prices. 
 
¶13.  (C)  To minimize these risks, the Government proposes 
eliminating government regulation of petroleum prices, in 
favor of allowing the prices to fluctuate as the market 
dictates, including the changing price of oil and the 
changing value of the Leone.  COMMENT: While deregulation of 
petroleum prices may appear to be a prudent financial 
decision, it will hinder several of the government's other 
goals.  By increasing the price of transportation and 
operating expenses for businesses, it will increase consumer 
prices, driving inflation further up.  The Government also 
seems to downplay the severity of the devaluation of the 
Leone, and its effect on Sierra Leoneans' abilities to make 
ends meet.  Rising oil prices combined with further 
devaluation of the Leone could exacerbate already tense 
situations for Sierra Leoneans who only barely eke out a 
living now.  If the shortages and crowds that accompanied the 
last change in petrol prices are any indication, price spikes 
could seriously threaten stability. END COMMENT 
 
FEDZER