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Sierra Leone: Staff Report for the 2008 Article IV Consultation, Third Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility, Financing Assurances Review, and Requests for Waivers of Nonobservance of Performance Criteria, Augmentation of Access, and Modification of Performance Criterion Informational Annex

Author(s):
International Monetary Fund
Published Date:
January 2009
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Appendix I. Relations with the Fund

(As of October 31, 2008)

I. Membership Status: Joined 9/10/62; Article VIII

II. General Resources Account:

SDR Million% Quota
Quota103.70100.00
Fund holdings of currency103.6999.99
Reserve position0.020.02

III. SDR Department:

SDR Million% Allocation
Net cumulative allocation17.46100.00
Holdings19.78113.32

IV. Outstanding Purchases and Loans:

SDR Million% Quota
PRGF Arrangements27.5126.53

V. Latest Financial Arrangements:

TypeApproval

Date
Expiration

Date
Amount

Approved

(SDR Million)
Amount

Drawn

(SDR Million’)
PRGF5/10/065/9/1031.1113.51
PRGF9/26/016/25/05130.84130.84
PRGF3/28/945/04/98101.9096.85

VI. Projected Payments to Fund 1 (SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20082009201020112012
Principal1.403.274.62
Charges/interest0.070.140.140.130.11
Total0.070.141.543.404.73

VII. Implementation of HIPC Initiative

Enhanced Framework
Commitment of HIPC Initiative assistance
Decision point dateMarch 2002
Assistance committed (NPV terms)
By all creditors (US$ million)2675.20
Of which: IMF assistance (US$ million)125.21
(SDR equivalent in millions)100.00
Completion point dateDecember 2006
Disbursement of IMF assistance (SDR million)
Amount disbursed100.00
Interim assistance66.03
Completion point balance33.97
Additional disbursement of interest income 36.58
Total disbursements106.58

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

I. MDRI-eligible debt (SDR Million) 4117.34
Financed by: MDRI Trust76.75
Remaining HIPC resources40.59
II. Debt Relief by Facility (SDR Million)
Eligible Debt
Delivery DateGRAPRGFTotal
December 2006N/A117.34117.34

IX. Safeguards Assessment

Under the IMF safeguards assessment policy, the Bank of Sierra Leone was subject to a safeguards assessment with respect to the PRGF arrangement approved on May 10, 2006. The assessment, which was completed on June 12, 2006, proposed recommendations to address new and continuing vulnerabilities in the financial reporting, internal audit, and internal controls areas. The implementation of these measures is being monitored by IMF staff.

X. Exchange Rate Arrangement

The BSL calculates an official exchange rate every Friday morning as the weighted average of the auction rate, the commercial banks’ mid-rate and the bureaus’ mid-rate in the previous week, for customs valuation purposes and for official transactions. Commercial banks may buy and sell foreign exchange from/to individual customers, as well as trade among themselves or with the BSL on a freely negotiable basis. As of November 6, 2008, the BSL mid-rate was Le 3003.68=US$1. In March 2008, the exchange rate regime was reclassified as “conventional peg” to reflect the nominal stability of exchange rate developments under de facto management by the BSL through the auction as the only seller of foreign exchanges.

With effect from December 14, 1995, Sierra Leone has accepted the obligations of Article VIII, Sections 2, 3, and 4. On June 29, 2001, Sierra Leone removed the remaining exchange restriction, in the form of a tax clearance certificate required for payments and transfers of certain types of current international transactions. Sierra Leone continues to maintain an exchange system free of restrictions on the making of payments and transfers for current international transactions.

XI. Article IV Consultation

The 2006 Article IV consultation was concluded by the Executive Board on December 15, 2006. The next Article IV consultation with Sierra Leone will be held in accordance with the provisions of the decision on consultation cycles approved on July 15, 2002.

XII. Technical Assistance

DepartmentPurposeDate
FADEvaluation of progress on tax administration reform and VAT preparationSeptember 2008
Evaluation of progress in PFM reformsJuly 2008
Implementation of public financial management reformsMarch 2008
Tax administration reforms for successful VAT implementationFebruary 2008
Evaluation of progress of revenue administration modernization.November 2007
Assist the authorities in developing a comprehensive revenue administration reform strategy.February 2006
Review the system of fiscal incentives, especially the special tax regimes applied to mining and petroleum sectors.March/April 2004
Review the tariff and indirect tax system, National Revenue Authority, and tax and customs administration.February 2004
LEGProvision of TA on a legal review of the Bank of Sierra Leone Act of 2000.March/April 2007
MCMBank of Sierra Leone: Internal audit and management of theOctober 2008
Monetary policy, banking supervision, and recapitalization of the Bank of Sierra LeoneApril/May 2008
Recapitalization of the Bank of Sierra Leone

Assist the Bank of Sierra Leone in bringing its accounting practices up to international best practice.
February 2008

November/December 2007
Foreign exchange, monetary operations, and central bank recapitalizationNovember 2007
Assist the Bank of Sierra Leone in setting up an action plan for implementing FSAP recommendations/financial sector reformsJune 2007
Foreign exchange, monetary operations, and central bank recapitalization.January/February 2007
MFDMulti-topic technical assistance.November 2005
Multi-topic technical assistance.November 2004
STAGDDS mission on national accounts statisticsSeptember/October 2008
GDDS mission to review the methodological basis for compiling national accounts aggregatesJanuary 2008
GDDS project on implementation of SRFJune 2007
GDDS project on monetary-fiscal accounts reconciliationAugust 2006
GDDS project on national accounts.January 2006
GDDS project on national accounts.February 2005
GDDS project on monetary-fiscal accounts reconciliation.February 2005
GDDS project on monetary-fiscal accounts reconciliation.October 2004
GDDS project on BOP issues.September/October 2004
GDDS project on national accounts.September 2004
GDDS project study tour for Sierra Leonean officials to Kenya on strategic planning.August 2004
GDDS project on national accounts.April 2004
GDDS project on strategic planning.March 2004

XII. Resident Representative

Mr. Alvin Hilaire assumed responsibility for the Fund office in November 2006. Mr. Hilaire is also the Fund’s resident representative in the Republic of Guinea and is stationed in Conakry.

Appendix II. Joint World Bank-IMF Work Program, 2008–09

TitleProductsProvisional timing of missionExpected delivery date
A. Mutual information on relevant work programs
World Bank work program in next 12 monthsPublic Expenditure ReviewTbdAugust 2009
Public Financial Management TAOctober 2008 (appraisal)February 2009
Second Governance Reform and Growth Credit (GRGC 2)August 2008 (appraisal)October 2008
Mineral Sector TA (discussion underway to merge activity with a planned regional Mining project)August 2008 (appraisal)
Decentralization StudyTbdNovember 2008
Reproductive and Child Health- Phase 2 ProjectAugust 2008 (appraisal)November 2008
Basic Services ISeptember 2008 (pre-appraisal)June 2009
Food Crisis Response Grants (investment and budget support)n.a.August 2008
Debt Buy Back Operation Phase In.a.December 2008
Third Governance Reform and Growth Credit (GRGC 3)TbdOctober 2009
Financial Sector Development PlanTbdJanuary 2009
IMF work program in next 12 monthsMacroeconomic policy analysis and adviceSeptember 2008 (Article IV)December 2008 (Staff Report and Selected Issues Papers)
March 2009 (PRGF 4th review)May 2009 (Staff Report)
September 2009 (PRGF 5th review)November 2009 (Staff Report)
Technical assistance
• Revenue administration and tax reformNovember 2008/March 2009
• Public financial managementNovember/December 2008
• Restructuring of the MTEF process and streamlining of budget executionJanuary/March 2009
• Monetary operationsDecember 2008
• Internal audit and managementJanuary 2009
• Monetary and financial statisticsApril 2009
B. Requests for work program inputs
Fund request to BankPublic expenditure review
Bank request to FundMedium-term macroeconomic framework
C. Agreement on joint products and missions
Joint products in next 12 monthsJSAN for PRSP IIJune 2009
DSASeptember 2009
Assisting the authorities with the implementation of their financial sector reform strategy

Appendix III. Statistical Issues

1. Data provided to the Fund are affected by serious shortcomings that significantly hamper surveillance. The prolonged civil war resulted in a virtual collapse of statistical systems in the late-90s. Serious deficiencies still affect balance of payments statistics, national accounts, and social indicators. The authorities are cooperating fully in providing data to the Fund and disseminating economic and financial data to the public on a regular basis. The country participates in the GDDS, but its metadata needs to be updated.

2. A major and sustained improvement in the coverage and timeliness of economic data will require greater inter-agency coordination and restructuring the institutional framework. Statistics Sierra Leone (SSL) continues to face scarce budgetary resources, which adversely affect the compilation of national accounts and price statistics. Since March 2004, and with support from the GDDS Anglophone Africa Project, six national accounts TA missions visited Freetown, the most recent in January 2008. These missions reviewed source data, methodologies, compilation, and dissemination issues and assisted with data development and improvements in methodology.

National accounts

3. The coverage of private sector activities in the national accounts is hampered by an outdated business directory and low response ratios to surveys. Small businesses in particular, which represent a very high proportion of business activity, are not adequately captured in national account statistics. The consumer price index (CPI) is used extensively to derive estimates of GDP at constant prices. AFR missions continue to make their own estimates and projections of key national accounts aggregates, as well as adjustments to historical data using available information.

4. Efforts to reconstruct the national accounts estimates commenced during 2003/04, with the main effort focusing on preparing new estimates for the period starting in 2001. Resource constraints significantly delayed production of final estimates and only preliminary data for 2001–04 were made available. Efforts are underway to prepare revised national accounts based on a 2005 benchmark and using 2005 prices to compile constant price estimates. However, shortages of resources and staff continue to pose major constraints to statistical development undertaken by SSL.

Prices

5. The CPI is compiled on a monthly basis by the SSL and published with a lag of about three weeks. It has been rebased to 2003 using the 2003 Sierra Leone integrated household survey and continues to cover the capital city and three towns. While national CPI is being compiled, the authorities continue to publish the old CPI (1992=100). To avoid confusion, the authorities should be encouraged to cease publication of the old series, although they may

Government finance statistics

6. The budget reporting system was established with assistance under the Fund/UNDP technical assistance project. Monthly data on central government revenue, current expenditure, and financing are provided with appropriate detail. The European Commission (EC) is providing technical assistance to the Accountant General’s Office to improve the timeliness and quality of fiscal data. Data on capital expenditure are poor. Fiscal data are reported to AFR but the submission of annual data for publication in the GFS Yearbook has been discontinued (the most recent data refer to 2004). Fiscal data only cover the central government, excluding extrabudgetary agencies and local governments.

7. There is an urgent need for greater timeliness and accuracy of data on foreign-financed development projects. Reports on the implementation of the development budget and its financing are currently not produced in a format that is suitable for budget analysis as implementation data are not available. There is also need for assuring quality control of the final data. The authorities are currently considering the introduction of a flash reporting system for government expenditure in general- and foreign aid-financed projects. In the context of the GDDS regional project for Anglophone African countries, work has been undertaken to reconcile fiscal and monetary data, and to improve the coverage and classification in these two data sets.

Monetary statistics

8. The main components of the central bank balance sheet are available on a daily and weekly basis; this system provides an early warning system on key financial targets. The full monetary survey is compiled by the Bank of Sierra Leone (BSL) with a lag of about six weeks, with comprehensive coverage of commercial banks.

9. There has been some progress in the compilation of data in line with the 2000 Monetary and Financial Statistics Manual. The BSL, with assistance from STA, has completed the preparation of a standardized report form (SRF) for central bank, but it has not started regular reporting to the IMF yet. Work is ongoing in the preparation of the SRF for other depository corporations.

10. Reconciliation of fiscal and monetary statistics remains a challenge. In the past, compilation of fiscal data solely on a cash basis, and differences in the coverage of the central government explained most of the discrepancies between both datasets. In 2007, a TA mission found limited progress on previous recommendations on the fiscal reporting system for extra budgetary agencies and projects. The coverage of reporting agencies had improved, but there were many obvious errors and omissions in the reported data and in the BSL database. In June 2008, the authorities notified the IMF, however, that the fiscal data have been reconciled with the expanded BSL monetary data.

Balance of payments

11. The BSL is responsible for the compilation of balance of payments (BOP) statistics. The BSL obtains source data from the SSL, government ministries, the Customs and Excise Department (Customs), and the “Financial Survey of Major Limited Companies,” for data on foreign direct investment. Imports and exports of goods estimates are based on data compiled by Customs and are adjusted for coverage, valuation, and timing to accord with BOP definitions. The BSL does not make adjustments to BOP data using supplementary information to take account of unreported data.

12. External transactions are characterized by a large volume of activity in the informal sector, principally the smuggling of diamonds. A considerable portion of imports is financed by these unrecorded exports. As a result, official BOP statistics tend to substantially understate transactions. The staff has been addressing this problem through the use of third-country (principally EU member) import data. STA has been providing technical assistance on BOP issues under the GDDS project to help the authorities with the implementation of the Balance of Payments Manual, Fifth Edition (BPM5).

13. Outstanding data problems also exist for trade in services, income statistics, current transfers, and in the capital and financial accounts. Regarding the latter, there are substantial difficulties in tracking financial transactions of the public and private sectors that are routed through commercial banks. While the authorities are producing data on international investment position, improvements are required in coverage and in valuation adjustments. These difficulties are manifested in reconciling flow data in the BOP and stocks in the international investment position. Estimates of smuggled imports and exports, in particular diamonds, are also not available.

14. Against this background, information on official grant and loan receipts is relatively good and is prepared by AFR on the basis of contact with the authorities and donor agencies. In contrast, data on private capital flows are very poor. Some information on private banking flows can be derived from the monetary survey. Other private capital flows, especially those linked to the informal diamond trade, are implicitly included in “errors and omissions.”

Sierra Leone: Table of Common Indicators Required for Surveillance November 2008
Date of latest observationDate receivedFrequency of Data 4Frequency of Reporting 4Frequency of publication 4
Exchange Rates11/0811/08DWW
International Reserve Assets and Reserve Liabilities of the Monetary Authorities109/0811/08MMM
Reserve/Base Money09/0811/08MMM
Broad Money09/0811/08MMM
Central Bank Balance Sheet09/0811/08MMM
Consolidated Balance Sheet of the Banking System09/0811/08MMM
Interest Rates 209/0811/08WMW
Consumer Price Index09/0810/08MMM
Revenue, Expenditure, Balance and Composition of Financing Central Government09/0811/08MQN/A
Revenue, Expenditure, Balance and Composition of Financing Central Government09/0811/08MQN/A
Stocks of Central Government and Central Government-Guaranteed Debt06/0709/08MQN/A
External Current Account Balance12/0709/08AAA
Exports and Imports of Goods and Services12/0709/08AAA
GDP/GNP200709/08AAA
Gross External Debt12/0709/08AAA
International Investment Position 312/0709/08AAA

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

1When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.
2Assistance committed under the original framework is expressed in net present value (NPV) terms at the Completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.
3Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.
4The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end–2004 that remains outstanding at the time the member qualifies for such debt relief.

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