PROGRAM INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB6077 Sierra Leone: Fourth Governance Reform and Growth Credit Operation Name (GRGC-4) AFRICA Region General finance sector (50%); General public administration Sector sector (50%) P117822 Project ID GOVERNMENT OF SIERRA LEONE Borrower(s) MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT Implementing Agency Ministry of Finance and Economic Development, Government of Sierra Leone George Street Freetown Sierra Leone Tel: (232-22) 225-612 Fax: (232-22) 228-355 [email protected]
October 28, 2010 Date PID Prepared November 8, 2010 Date of Appraisal Authorization December 21, 2010 Date of Board Approval 1. Country and Sector Background Sierra Leone has made rapid progress on many fronts since the end of the war in January 2002. The global economic slowdown and its effects on the economy have constituted a setback for the country. A significant effort remains to be made in order to raise per-capita incomes above peak pre-war levels and sharply reduce poverty. Macroeconomic performance through 2009 has been consistently strong, bringing rapid growth and steadily declining fiscal deficits despite many ongoing challenges. The quality of public financial management has steadily improved. Public service delivery resumed quickly in many sectors, most notably in primary education. An emphasis on decentralization was underscored in 2004 through the first local government elections in over 30 years and the re-establishment of local governments. The first full Poverty Reduction Strategy Paper (PRSP) was issued in February 2005. These achievements helped Sierra Leone gain access to substantial debt relief in December 2006 via the HIPC Completion Point and Multilateral Debt Relief Initiative. General elections in 2007 resulted in a new government and adoption of a second PRSP in 2009. Sierra Leone is at a challenging juncture in its post-conflict history. Having maintained and consolidated peace, it is now moving to national elections in less than two years. The recent global economic downturn has tested its fledgling economic management capability as the mining sector the mainstay of its formal economy was largely idled. It has made gains in social and economic stability which have attracted new investments principally in the mining sector. These have in turn raised concerns about governance, corruption and future economic prospects. The recent confirmation of offshore oil reserves will further exacerbate governance and
economic management challenges. While these pose risks going forward they also represent a unique opportunity to move the country forward. 2. Operation Objectives The proposed credit will support government efforts to preserve the fiscal space needed for poverty reduction by protecting poverty reducing spending priorities during a period when the economy remains under stress and is still recovering from the effects of the global recession. The measures supported under the proposed operation would (a) reinforce the link between resource allocation and the objectives of growth and poverty reduction, through pursuit of procurement reforms, and improving the institutional set-up for public sector reform; (b strengthen domestic resource mobilization and management through tax administration reforms and increased transparency; and (c) improve the prospects for private sector development by ensuring improved provision of electricity.
3. Rationale for Bank Involvement Despite the steady progress made by the country in the post-conflict period its access to capital for development finance remains constrained to a small number of development partners. The Bank is one of those partners and is one of the only sources of financing available to the country. The case for Bank financing rests on the maintenance of an appropriate macroeconomic framework, the consistent progress which has been made to date in strengthening public financial management and in implementing structural reforms. 4. Financing Source: BORROWER/RECIPIENT International Development Association (IDA) Total
($m.) 0 10 710
5. Institutional and Implementation Arrangements The administration of this operation will be the responsibility of the Ministry of Economy and Finance. To facilitate program implementation and the coordination of activities, the government has appointed an Inter-ministerial Steering Committee chaired by the Minister of Finance and Economic Development. This Committee is composed of key Ministers and the Governor of the BSL. The Steering Committee will be assisted by a Technical Committee comprising high level staff from various line ministries and the BSL. The Technical Committee will be chaired by the Financial Secretary and will be responsible for coordinating the activities of all government agencies involved in program implementation. These arrangements are the same as for the Third Governance Reform and Growth Credit. 6. Benefits and Risks
By supporting the implementation of the Government’s overall development program and its poverty reduction strategy this operation will contribute to poverty reduction and the maintenance of economic growth. The reform program faces the following risks which if they materialize have the potential to disrupt and jeopardize its objectives: (a) Macroeconomic risks from exogenous shocks due to a prolonged global downturn, leading to deterioration in the terms of trade or the incurring of unavoidable expenditures from a natural disaster. Government track record provides comfort in this regard on the former as does the ongoing IMF program and related dialogue. The Bank is also monitoring this area closely. (b) Fiduciary risk due to weak institutional capacity could undermine the reform program. Mitigated by government and donor efforts to build capacity and strengthen the fiduciary environment. (c) Political risks could materialize and destabilize the reform program, as the 2012 elections draw closer. Mitigated by experience of the economic management team and close monitoring and dialogue by development partners. 7. Poverty and Social Impacts and Environment Aspects The measures supported by the proposed GRGC-4 are expected to have a significant positive direct impact on poverty reduction. No adverse social or poverty impacts are expected from the prior actions supported by the proposed credit. First, the strengthening of public financial management would enhance efficiency, transparency and accountability in public investments and service delivery. Such measures would also increase the country’s absorption capacity for external resources. To the extent that the Government’s 2011 program has the expected impact of stimulating growth, generating additional employment opportunities, and extending the reach of critical health services, it would protect the objectives of the PRSP-2 and have a positive impact on the poor and on vulnerable groups. The policies and actions supported by the proposed GRGC-4 are not likely to have any significant effect on the environment, natural resources and forests. The policies and actions supported under this operation address primarily institutional reforms, none of which entails any environmental effect. Government’s 2011 budget does, however, include investments in basic infrastructure and agriculture that may have some environmental effects. Most of these additional investments, should they materialize, would be financed by development partners, each with their own environmental requirements. Potential positive environmental effects may arise from increased access to electricity as poor households switch from fossil fuels to electricity. 8. Contact point Contact: Cyrus P. Talati Title: Senior Economist Tel: (202) 458-7375 Fax: (202) 614-7375 Email: [email protected]
9. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: [email protected]