Overview

Macroeconomic Context

In the second half of 2014 during the outbreak of Ebola, the Sierra Leone economy contracted at an estimated annualized rate of 2.8%. Before then, the economy had grown at an estimated annualized rate of 11.3%, and 2014 growth was projected at 4%, largely based on export earnings from iron ore. The 2015 growth forecast has been, however, adjusted downward to a 2% contraction from the World Bank’s earlier forecast of an expansion of 7.7%, as 2015 growth will be hit by the base-year effect (given growth in early 2014) as well as important second round effects of the prolongation of the Ebola crisis. Much foreign direct investment, previously deferred, is likely to be canceled. Domestic activity will shift towards government consumption as the recovery effort focuses on Ebola containment. Gross domestic product (GDP) in 2014 was estimated to be over $400 million lower than under the projection before Ebola. For 2015 the loss in GDP is projected to be over $900 million.

It is estimated that Sierra Leone’s fiscal deficit, as a share of GDP, increased from 3.9% in 2014 to 4.8% in 2015, owing mainly to three developments within this period: high expenditure on tackling Ebola, a remarkable slowdown of economic activities due to Ebola, and a significant lowering of mining revenue due to suspension of iron ore mining. This deficit situation is, however, expected to ease to 4.2% in 2016 as the effects of Ebola and of the suspension of mining activities in the country continue towards the end of 2015 until the recovery from Ebola gains grounds. In this regard, a 5.5% fiscal rebound for 2016 is expected as investment picks up.

Before the outbreak of Ebola, GDP growth in 2014 remained linked to iron ore export, as international iron ore price (of about $100/ton) started to fall. This indicated that without greater domestic revenue mobilization, revenue in 2015 would dwindle against targets for expected GDP growth. This challenge still remains in 2015.

Tax incentives to several mining companies and declining capabilities of the national revenue authority are also hindering revenue boosting prospects. As a result, revenue as a percentage of GDP is expected to average around 14% in 2016, a low rate by all standards.

The government aims to boost the contribution of the natural resources sector, mainly by introducing a resource rent tax, although the impact will be marginal, as the new rules are unlikely to apply to existing deals. The government has said that it wants to review existing agreements with mining companies but any changes are likely to be gradual, as it is eager not to scare off investors. Overseas grants will continue to contribute around one-quarter of total revenue, although they are likely to fall short of budget projections.

Lax spending control, growing popular expectations of improved public-service delivery and a rising public-sector wage bill (due in part to the introduction of a minimum wage for public-sector workers in 2014) will weigh on fiscal discipline.

Servicing the domestic debt—which mainly consists of relatively expensive short-term Treasury bills—will continue to consume around 10% of total spending. This, together with efforts to clear arrears and unsettled payment obligations accumulated in previous years, will limit investment budget execution. Institutional capacity constraints also make execution of the full range of public investment unlikely.

Overall, it is expected that the fiscal deficit as a percentage of GDP will widen from an estimated 2.1% in 2015 to 3.2% in 2016, as improvements in revenue collection are offset by rising capital spending and increases in the public-sector wage bill. External loans from donors—principally project linked - will support the financing of the fiscal deficit at concessional rates.

Political Context

On September 17, 2007, Ernest Bai Koroma of the All People's Congress (APC) was sworn in as President of Sierra Leone. The second set of local council elections took place in July 2008, with the APC winning 10 out of 19 local councils and the SLPP wining nine.

In the past 52 years since Sierra Leone’s independence in 1961, the SLPP has ruled for a total of 16 years, from 1961 to 1967 and again from 1996 to 2007; while the APC has ruled for 32 years, from 1967 to 1992 and again from 2007 to 2015. Although various military regimes have ruled Sierra Leone for a total of five years, civilian rule, under either the APC or SLPP accounts for over 90% of the country’s post-independence time span as of 2014. Since 1991, the country has been governed under a multi-party constitution which now under review as the Supreme Court presides over the constitutionality of the recent sack of the Vice President.  

Development Challenges

Until the outbreak of Ebola in May 2014, Sierra Leone was seeking to become a transformed nation with middle-income status through key reforms in infrastructure, energy, private sector development and job creation. But the country still carries its post-conflict attributes of high youth unemployment, corruption and weak national cohesion. Under successive past and present leaders, Sierra Leone continues to face the daunting challenge of enhancing transparency in managing the country’s vast natural resource endowments and fiscal policy. Problems of poor infrastructure, including roads and energy, and widespread rural and urban impoverishment still persist in spite of remarkable strides and reforms.

Sierra Leone’s Country Policy and Institutional Assessment (CPIA) database, hosted by the World Bank, was updated in July 2014. The CPIA summarizes the country’s development challenges. 

Last Updated: May 20, 2015

The World Bank Group (WBG) was on the course of doing a new Country Partnership Framework (CPF) for Sierra Leone when Ebola broke out in May 2014 and lasted to date. Hence the WBG continues to engage and operate in the country in the frame of its Joint Country Assistance Strategy (JCAS) with the Africa Development Bank (AfDB) and the International Finance Corporation (IFC). WBG has continued to work closely with other development partners to support Sierra Leone in fighting poverty, promoting economic development and improving living standards. The JCAS is fully aligned with Sierra Leone’s Poverty Reduction Strategy II (2008-2012), “Agenda for Change,” building on ongoing reforms in economic growth, the energy sector, rural and private sector development, decentralization, infrastructure, public financial management and the social sectors.

The WBG support has also included support for policy reforms and macroeconomic management through budget support (provided in harmonization with other budget support donors), and in the areas of human development, infrastructure & productive sectors, and governance. The WBG is also focused on strengthening country systems, including through support to decentralized services and public finance management, rural private sector development and helping to build the demand for good governance. A new CAS/CPS to support Sierra Leone's Poverty Reduction Strategy III (20013 - 2018), "Agenda for Prosperity is being prepared and it is expected to be delivered to the Board in July 2014.

Last Updated: May 20, 2015

Economic Governance

In support of the economic governance and growth agenda of the government, International Development Association (IDA) resources have been used directly in funding policy and institutional reforms. Prior to the outbreak of Ebola, the direct budget support has contributed to sustained fast growth in the post-conflict period by providing a non-inflationary boost to public spending whilst also improving business confidence. It allowed for a higher real level of recurrent spending, a significant part of which was channeled into health, education and economic services, with a diminishing share accruing to defense. Higher spending in these areas helped to secure improvements in service delivery and sector outcomes. Significant improvements were also made to public finance management. The Multi-Donor Budget Support dialogue had contributed to maintaining a positive trajectory of change on governance issues. For example, the preparatory processes leading to the passage of the Freedom of Information Act became a law prior to the outbreak of Ebola.

The Institutional Reforms and Capacity Building Project ($25 million, and an additional $25 million from an IDA-administered Trust Fund) has supported the decentralization process in the last six years. A functioning local government system has been established, with continuing improvements in transparency and accountability. Local councils are now firmly embedded and responsible for the delivery of devolved services to their communities. There is evidence to show that the availability of basic services has improved between 2005 and 20013. Significant improvements have been felt by communities living far from Freetown but close to district towns. The greatest improvements have been found in access to a water source within 15 minutes, access to a health clinic within 30 minutes and access to a market area within 60 minutes. There have been country-wide sensitization program on local government which has helped build an active citizenry participation in governance, especially in accountability and transparency issues.

 Human Development                                    

Through the completed IDA-funded Health Sector Reconstruction and Development Project, Sierra Leone has benefited immensely from restoring the most essential functions of the health sector delivery system in the targeted districts. The project helped to improve primary and first referral health facilities in four districts. A number of specific outcomes of the project include: 50 health posts in the four districts are now fully-equipped, four district hospitals have been rehabilitated and fully-equipped, the percentage of population within a one-mile radius from the nearest primary health unit in the targeted districts has increased to over 60% in 2009 from 41% in 2004, 12 primary health facilities are now fully rehabilitated and equipped, the percentage of children aged 12-23 months completely immunized was 79.7% in 2008, compared with 75% in 2006, the project purchased and distributed 160,000 insecticide-treated bed nets to the population, at least 15 laboratories are capable of performing malaria microscopy, the percentage of pregnant women in the targeted districts who sleep regularly under insecticide-treated bed nets is at least 40%, the percentage of tuberculosis (TB) smear-positive cases successfully treated under the directly observed treatment strategy in the targeted districts is at least 85% and an increase in community-directed distribution of the River Blindness medicine (Ivermectin) to 70% in 2009 from none in 2005.

The IDA-funded National Social Action Project has helped improve access to community roads, with 196 kilometers of access roads completed by 2009. There were 305 small works subprojects under implementation through the cash-for-work component, and the program has created temporary employment for over 12,000 people by 2009.

The WBG supported the education sector through Rehabilitation of Basic Education Project and Education for All Fast Track Initiative. The objective was to re-establish education services and prepare the grounds for strengthening the education sector. The primary gross enrollment ratio (GER) increased to nearly 155% in 2007 from 104% in 2005, and junior secondary GER increased from 41% to 55%. That means more youth are engaged in several types of formal education activities. Girls’ enrollment also improved from 45% to 47% during the same time period. Admission into primary one increased to 323,000 from an estimated 200,000 over the project period. The number of pupils passing the National Primary School Examination after primary grade six also increased to 73% in 2007 from 69% in 2005.

The actual number of pupils passing this examination increased to 69,774 in 2007 from 52,122 pupils in 2005. Access to primary and junior secondary education has been enhanced by the rehabilitation and construction of 207 schools (240 are planned). Quality has been supported by the distribution of textbooks and training of teachers. Over 490,000 sets of textbooks (out of a target of 500,000) have been distributed to primary schools, and over 45,000 sets (out of a target of 50,000) have been distributed to junior secondary schools during the project implementation period. A total of 4,010 primary teachers also have been trained.

 Infrastructure and the Productive sectors

Under the IDA-funded Infrastructure Development Project, the Sierra Leone Port Authority has completed the technical and financial evaluation processes which resulted in the granting a concession for a container terminal. The project has also supported enactment of the Road Maintenance Fund Act, 2010, which provides the basis for establishing an independent fund for this purpose. Rehabilitation of all the selected priority roads under the project was completed on time and within budget. The project has supported improvements in the baggage handling function of the Sierra Leone Airport Authority through outsourcing.

The recently approved West Africa Regional Fisheries Project is helping to address the problem of illegal fishing, strengthen regulation in the sector, and increase value addition locally of fish products.

The Rural and Private Sector Development Project has established working relationships with all 13 elected district councils of the country, approved matching grants to 75 Farmer Based Organizations (FBOs) with a total membership of nearly 5,000. These grants have provided storage sheds, drying floors and processing equipment for the FBOs. The project has supported the creation of cocoa cooperatives with a total membership of nearly 13,000 people. It also supports the rehabilitation, financial and post contract management of nearly 530  kilometers of feeder roads, (excluding over 500km rehabilitated under phase 1) and provides capacity building in procurement of contractors for rehabilitation and routine maintenance. It has supported the establishment of seed nurseries and distributed over 1.2 million cocoa seedlings and other planting materials for rice, cassava and cocoa to farmers, which is helping improve productivity and rural incomes. It has supported the establishment of a market information system and initiated studies to support the establishment of food safety standards to boost exports.

The IDA-supported Bumbuna Hydropower Project has been instrumental in increasing power generation by 50 megawatts, while ensuring appropriate environmental and social safeguards exist, including the creation of a safe zone along the high voltage transmission line right of way and resettlement of affected people. 

Last Updated: May 20, 2015

Under the Multi-Donor Budget Support (MDBS) Framework involving the World Bank Group (WBG), the African Development Bank (AfDB), International Development Association (IDA), European Union (EU), and Britain’s Department for International Development (DFID), coordination among members and with the government has improved over the past few years. The Bank also coordinates closely its activities with United Nations (UN) institutions and other development partners and often collaborates on joint project financing through Trust Funds.

The WBG will continue to utilize IDA resources and make use of IDA fiduciary and safeguard systems to leverage additional resources from Trust Fund partners to support Sierra Leone in pursuing its key priorities in the PRSP, with special focus on strengthening economic governance, improving human development, and boosting infrastructure and productive sectors. The portfolio will continue to be based around budget support and projects in key sectors.

The budget support would allow the government to continue to take forward key policy reforms, while projects would provide support for capacity development and supporting critical investments. Developing a sharper focus on monitoring and evaluation (M&E) and results, both at the country strategy and project-level, will be a key priority, as will be improving the portfolio quality. New projects in the areas of decentralization, fisheries, youth, financial sector and energy would allow IDA to contribute to significant improvements in the lives of ordinary Sierra Leoneans. Policy dialog with the government and other stakeholders will focus on policy options and managing risks, including in the extractive industries. IDA will continue to leverage its national allocation through additional support from other sources.

The WBG will continue coordinating its activities with International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and World Bank Institute (WBI) in providing critical cross support in a well-coordinated manner towards portfolio quality and effective country dialogue and reforms and ultimately the results spelt out in the Agenda for Change.

Last Updated: May 20, 2015


LENDING

Sierra Leone : Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments