Sierra Leone 2018
This assessment of financial management in the central government of Sierra Leone was requested by the Ministry of Finance and Economic Development (MoFED) and supported by its development partners.1 It was funded by UK Government and the European Union. The last PEFA assessment was made in 2014, when a different methodology was used, so one objective was to assess progress since 2014 using the former framework. The assessment shows that there has been some progress over the past three years - see section 4.4 and Annex 4, which may have been greater if allowance is made for possible over-scoring in 2014.
An equally important objective was to provide a snapshot of where Sierra Leone is today, which could be input to the PFM reform strategy and serve as a baseline for future assessments using the new PEFA methodology (the 2016 framework). It is important to point out that the assessment on the 2016 basis, using a different methodology, cannot be compared directly with the 2014 assessment. The scores are not comparable. In fact, it has been noted that the requirements of the 2016 framework are much more detailed than the former framework and it is much harder to obtain A and B scores. In Sierra Leone, as in other countries, there is a preponderance of C and D scores. In each indicator, the requirements are reproduced from the framework document, so that government officers can see for themselves what is needed to improve the scores. Thus, two assessments were made during the fieldwork, one using the 2016 framework and the other using the former framework to assess progress since 2014.
The assessment has been made by an international team with inputs from a wide range of persons and institutions (see Annex 3). The team collaborated with the PFM Reform Unit of MoFED and had meetings with stakeholders during the fieldwork. It remained in touch with all interlocutors.
The assessment covers only the central government, which includes extra-budgetary bodies (subvented agencies and semi-autonomous agencies) but not local councils or public enterprises. Most indicators were assessed as at the last completed year, which at the time of assessment was 2016. The budget credibility indicators were based on the last three completed years, which were 2014-2016. This period was marked by the Ebola virus epidemic, the collapse of iron ore export price and government revenues, the falling away of budget support, and post-Ebola recovery.
Nevertheless, Sierra Leone has maintained its progress since PFM reform started with the IRCB project in 2004. An analysis of changes since 2014 shows more improvements in scores than deteriorations (see section 4.4). In some indicators, the team believe that the 2014 scores were overstated (see annex 4), so the true progress may be greater than it appears. In the light of the difficulties faced by the country over this period, the PFM reform performance should be commended.
The weaknesses in some areas impact on fiscal discipline (the ability to stay on track), on strategic allocation of resources (alignment with the Agenda for Prosperity), and on efficient delivery of services. Weaknesses in fiscal discipline are shown in high composition variances between original budgets and out-turns for revenue and expenditure. The expenditure variances are partly due to frequent ‘overrides’ to the procedures for control of commitments and payments. Commitments are made, goods and services are delivered and bills processed, and cheques are printed, but cheques are not issued to suppliers because of shortage of cash to pay. Cheques are printed and expenditure is recorded as far as possible to use up existing budget allocations, but there has been an increasing disconnect with the cash situation. This is recognized and MoFED is aiming to pay off outstanding cheques by the end of 2017, and not allow further accumulation.
At a time of great fiscal stress, payroll remains the first charge on available resources. As payroll takes 60% of domestic revenue, leaving very little for operations and capital investment, variations in revenue have a geared impact on fiscal space.
Fiscal discipline is also impacted by widespread flouting of laws and regulations, particularly with regard to procurements, payrolls and asset registers.2 Fiscal risk is coming under closer management, but the risk that may arise from government obligations under public-private partnerships falls outside MoFED’s risk management portfolio.
Oversight of fiscal discipline is strongly spearheaded by the Audit Service Sierra Leone (ASSL) but late scrutiny of their reports, years after the event, dilute accountability and reduce the likelihood of effective corrective actions such as system strengthening, prosecution and recovery of public funds.
Strategic allocation of resources
Budgets are drawn up to implement the Agenda for Prosperity and achieve the sustainable development goals of Sierra Leone. All programs are mapped to the pillars of the AfP. However, nonadherence to the budget destroys any planned alignment.3 Political interventions during the year, even if they are well-intentioned, are less well planned than the budget, which goes through a lengthy and inclusive scrutiny before it is approved. Another factor that makes rational sectoral planning difficult is the omission from the accounts of donor expenditures on development projects. The information base is incomplete. Recorded expenditures, say on health, understate the actual expenditure on health. The performance management system is compromised, as expenditure does not compare with physical performance. This omission is well recognised and it is planned to bring all donor aid and expenditures to account.
Efficient use of resources for service delivery
Accounting systems are not yet sufficiently developed to provide management information such as unit costs of similar service delivery centres. Progress has been made in program budgeting, but it is not yet possible to compare unit costs of schools, hospitals, road construction, building maintenance, etc. The weak controls on procurement result in higher prices being paid on purchases of goods and services and on works contracts. Together with the delays in settlement of bills, which also increase the prices, value for money is reduced. A predictable flow of resources is the most vital condition for rational planning, procurement and elimination of waste and delays. Physical resources such as drugs and school supplies that are purchased and stored centrally are no longer being tracked from the centre to service delivery units such as peripheral health units and schools. Without independent checks on distribution, it is inevitable that there will be delays and discrepancies. Even more important than the distribution of physical resources, there are bottlenecks in the disbursement of cash from the centre. In the health sector, MoFED releases funds half yearly to the Ministry of Health and Sanitation and to local councils. Local councils distribute to District Health Management Teams and hospitals. There are long delays and large discrepancies in all links of this chain.
A contributory factor is the cumbersome procedures in which many persons are involved, not for the purpose of segregating functions and preventing fraud, but to spread rent opportunities. In the planned IFMIS strategy, we were informed that business process re-engineering is postponed to a late stage. This reduces the efficiency and effectiveness of service delivery. Nevertheless, over the last three years Sierra Leone has made progress in rolling out its Integrated Financial Management Information System (IFMIS) from a baseline of seven connected BUs (MDAs) in 2013 to 30 (out of all 54 planned) central budgetary agencies. The legal and regulatory framework has been overhauled and the accounting/reporting system is being extended to allow consolidation of the whole of central government, now fully inventoried. A Fiscal Strategy Statement has been developed as a tool for annual assessments of fiscal risk and as the top-down framework within which budgets and medium-term projections are prepared. Revenue data is being systematically shared by MoFED and the National Revenue Authority. The budget timetable has been reformed to allow more time for parliamentary and public participation. Budget analysis has been strengthened by development of a DataMart portal. Cash management has also been strengthened, though currently under stress, and a Treasury single account has initially linked all Treasury-managed bank accounts, though its implementation is slow. The Accountant General has adopted the cash-based IPSAS as the standard for producing the annual financial statements. Since the standard was relaxed in 2017 (with fewer mandatory requirements), full compliance has become easier and could be achieved with the 2017 statements. Capacity of PFM officers is being built, though not within any overall strategy. The oversight capacity of internal audit, external audit, civil society and parliamentary committees has also been strengthened.
The PFM Reform Strategy has been supported by development partners, principally through the PFM Improvement and Consolidation project, multi-donor budget support, and bilateral technical assistance and/or financial support from World Bank, African Development Bank, DFID, EU, IMF and others. The PFM Reform Unit in MoFED coordinates all PFM reform under policy direction from the PFM Reform Committee and technical direction from the PFM Technical Committee. The main ongoing projects are the PFM Improvement and Consolidation Project, the Building Core Systems Project and the State Building Capacity Technical Assistance Project. There are also several projects targeting particular institutions, such as the ACC and ASSL. Chapter 5 elaborates the overall approach to PFM reform, recent and ongoing reforms, and institutional considerations. The main reform areas include revenue and tax administration, financial accountability and reporting including expenditure tracking, the PFM legal framework and environment, and public access to fiscal information, amongst others.
The sequencing of reforms is important as it is generally recognized that a government needs to ensure that its basic or core PFM functions perform to a satisfactory level before it can implement and realise the full benefits of more advanced PFM functions. Sophisticated budgetary systems cannot be effective if simple revenue and expenditure budgets cannot be executed as initially planned without significant arrears of expenditure or shortfalls of revenue. Actual expenditures will not correspond with planned allocations in line with the national Agenda for Prosperity. And operational efficiency in the delivery of public services will not be achieved without widespread compliance with rules and regulations. Adherence to “due process” controls inputs and minimizes bribes and waste. The exact definition of core functions is debatable and may differ from one government to another and from one year to another. For least developed countries they have been defined by a PEFA research study, together with the related PEFA indicators and dimensions and the minimum acceptable scores. Annex 6 lists 16 core PFM functions and 25 target scores for these functions. In Sierra Leone central government, 18 target scores are currently being met or exceeded. An assessment of core PFM functions within the PEFA framework shows that the following elements are not being performed adequately and should be regarded as priorities for reform • Availability of data on expenditure arrears • Comprehensiveness of information in budget documentation • Coverage of reports on government operations • Collection of tax revenues • Predictability in the availability of resources to program managers • Central monitoring of extra-budgetary agencies and public enterprises • Effectiveness of payroll controls • Reliable information on procurement activities • In-year budget execution reporting • Legislative control of budgets • Timely legislative scrutiny of external audit reports These basic deficiencies may be regarded as priorities for reform to strengthen the role of PFM in development.