2019 Budget *10% Salary Increase For – Civil Servants, Teachers, Police and Military

 

 

The Minister of Finance, Mr Jacob Jusu Saffa, whilst presenting the 2019 Budget in parliament, on Friday 2nd October, 2018 announced that starting January 2019, civil servants, teachers, police and military ranging from grade 1 to grade 6 will get a 10% salary increment whilst those between grades 7 and 14 will get a 5% increment.

He further noted that government will recruit 5, 000 new teachers, 3, 000 nurses and 1, 000 police officers.

According to the Minister, the 2019 Budget describes policies and programmes to restore fiscal discipline, diversify the economy for sustained inclusive growth and job creation, promote human capital development while at the same time increase the role of the private sector and expand social protection services consistent with the Sustainable Development Goals (SDGs) and the new National Development Plan.

However, the Finance Minister disclosed that budget execution during 2018 has been challenging given the huge stock of unpaid bills carried over from 2017 and the shortfalls in revenue collection that saw expenditure overrunning already incurred in Quarter 1 (January to March) 2018.

  1. J. Saffa however said, “I am pleased to report that the fiscal consolidation efforts pursued since April 2018 have resulted in improved revenue collection during the second and third quarters of 2018.

On the revenue collected so far by the government, he said, “Total revenue collected during the first half of the year amounted to Le 2.01 trillion whilst Quarter 3 is estimated at Le1.12 trillion, giving a total of Le3.13 trillion for the first three quarters of the year.” This, according to the minister, was 30% higher than the amount collected during the same period in 2017.

For the whole year, the Finance Minister continued, domestic revenue is projected to increase to Le 4.45 trillion, equivalent to 14.35% of GDP compared to 12.6% of GDP in 2017. The improved performance in revenue he furthered, is attributed to,among other things, the implementation of key revenue enhancing measures contained in Executive Order No.1 including the rationalization of duty and tax waivers; implementation of the Treasury Single Account (TSA); the collection of arrears of debt services owed by State Owned Enterprises; and streamlining the process for the payment of import and excise duties for petroleum products.

Furthermore, he said, the enhanced enforcement of tax compliance, combined with the drive of the new leadership contributed to the improved revenue performance during the second and third quarters of the year.

Total expenditure and net lending amounted to Le3.25 trillion for the period January to June 2018. Total expenditures for Quarter 3 are estimated at Le1.53 trillion, giving a total of Le4.78 trillion for Quarters 1 to 3 of 2018.

Recurrent expenditures amounted to Le3.21 trillion and domestic capital, Le426.9 billion.

Foreign-financed capital expenditures amounted to Le1.06 trillion. Total expenditure and net lending is projected at Le7.38 trillion (23.8 percent of GDP) in 2018.

The overall fiscal deficit, excluding grants is estimated at Le1.18 trillion for the first half of 2018. Including grants, the deficit is estimated at Le975.9 billion.

The budget deficit is projected to reduce to 6.1% of GDP in 2018 from 9.0% in 2017. During the first half of 2018, borrowing from the commercial banking system to finance the deficit, which occurred mostly in Quarter 1 amounted to Le

535 billion.

Government made a net repayment of Le 84.1 billion to the Bank of Sierra Leone, including a repayment of the Ways and Means Advances of Le24.1 billion. A repayment of Le36 billion was also made to the non-banking sector.

Against the backdrop of the economic and social challenges facing the country, Mr. Saffa told parliamentarians that the need to pursue policies that can facilitate the attainment of sustainable and inclusive growth for job creation and poverty reduction cannot be over-emphasized.

This Budget, he pointed out, is one of a series of policy documents under the ‘New Direction’ administration that can deliver the aspirations of our people.

The key objectives of the 2019 Government Budget are as follows:

(i) Pursue fiscal consolidation to ensure fiscal and debt sustainability;

(ii) Accelerate investments in human capital in order to improve the wellbeing of current and future generations;

(iii) Improve the business environment through scaling up investments in infrastructure and the implementation of business friendly reforms to achieve economic diversification and create jobs;

(iv) Expand social protection programmes to mitigate the impact of the liberalization of fuel prices to ensure inclusive growth and poverty reduction;

(v) Address vulnerabilities relating to natural disasters, climate change and environmental damage to strengthen the resilience of the economy.

Mr. Saffa reminded MPs that President Bio inherited a challenging economic situation characterised by weak economic growth and high budget deficits/underpinned by excessive expenditures amidst poor revenue performance.

Government expenditures including the payment of salaries of civil servants were financed through Ways and Means Advances from the Bank of Sierra Leone while payments for goods and services and infrastructure projects were financed largely by borrowing from commercial banks at high interest rates.

The situation was compounded by the inability of the previous Government to take corrective measures, which led to the derailment of the Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF).

Consequently, most development partners withheld budget support to Sierra Leone since 2017 to date.

These developments culminated in a sharp increase in domestic debt and related high debt service payments as well as the build-up of huge arrears owed to suppliers and contractors.

The exposure of these suppliers and contractors to overdraft and loan facilities from the commercial banks as well as loans to Politically Exposed Persons (PEP), contributed to the rise of non-performing loans in the domestic banking system.

The delivery of basic services, especially in health and education deteriorated significantly with adverse implications for human capital development.

Thus, Mr. Saffa said that upon assuming office, the Bio Administration has re-engaged the IMF indicating its desire to re-launch the economic programme to provide disciplined and efficient economic management of the State.

As a demonstration of this commitment, His Excellency the President, Julius Maada Bio issued two Executive Orders aimed at restoring fiscal discipline with a view to averting an economic and social crisis. Accordingly, Government pursued fiscal consolidation focusing on enhancing domestic revenue mobilization and expenditure rationalization.

Some of the revenue measures implemented so far include: the rationalisation and development of a policy on duty and tax waivers; implementation of the Treasury Single Account (TSA); liberalization of retail fuel pricing; upfront payment of excise duty on petroleum products by Oil Marketing Companies; adoption of the ECOWAS Common External Tariff; review of the process of exporting timber and revising upwards the royalty on timber exports.

On expenditure rationalization, Cash Management was strengthened to aid budget execution and avoid the build-up of new arrears. Government implemented several measures to clean the wage bill as well as improve public procurement through the publication of price norms and limiting the use of the sole sourcing method of procurement; reviewed the policy on overseas travelling.

In addition, Government carried out a comprehensive stock take of arrears owed to suppliers and subjected the same to an audit to ascertain the authenticity of the claims.

Furthermore, Government has completed the biometric verification of workers on Government payroll.

These measures created the fiscal space that enabled Government to pay salaries of civil servants and staff of sub-vented agencies as well as payment of monthly NASSIT contributions without resorting to domestic bank borrowing.

In addition, the Government funded key components of the Free Quality School Education (FQSE) including the payment of fee subsidies and supply of exercise books.

Government also provided resources to Ministries, Departments and Agencies (MDAs) for the delivery of public services without external budgetary support.

Additionally, Government has commenced the financing of the completion of roads abandoned by the previous administration.

As part of effort to normalize our relations with development partners and restore donor confidence, Government commenced the negotiations of a new programme with the IMF.

I am pleased, Mr. Saffa told MPs, to report that discussions with the IMF have progressed satisfactorily. The preconditions for the negotiation of the new programme agreed during the IMF staff visit in June were fully implemented by Government.

This paved the way for the negotiation of the new

programme in September 2018.

The negotiation of the new programme was successful, culminating in agreeing to medium term macro-fiscal framework, structural benchmarks and quantitative performance criteria for monitoring the new programme. The new programme will be submitted to the Executive Board of the IMF for approval this month.

We are very much on course in the implementation of the prior actions for the approval of the new programme. This will trigger the disbursement of budget support by development partners, he said.

Concerning Domestic Macroeconomic Developments in 2018, Mr. Saffa said real GDP growth for 2018 is revised downwards to 3.7 percent compared to the earlier projection of 6.1 percent following the cessation of iron ore mining in November 2017.

The non-iron ore economy is, however, projected to grow by 5.7 percent, underpinned by increased activities in agriculture and fisheries, recovery in diamond and other mining activities as well as improvements in the services sector.

Though inflation has declined from its peak of over 20 percent in March 2017 to 15.3 percent by end March 2018, it has increased gradually to 19.2 percent in September 2018 due to the depreciation of the exchange rate, liberalisation of retail fuel prices and periodic shocks to the availability of food items in the market.

In response to higher inflationary pressures during the year, the Bank of Sierra Leone tightened monetary policy by gradually increasing the monetary policy rate to 16.5% in July 2018 from 14.5% in December 2017.

Performance of the external sector the Finance Minister said improved during the first half of 2018. Total value of exports for the period January to

June 2018 is estimated at US$515.8 million. The sharp increase in exports is accounted for primarily by the export of palm oil by SOCFIN Agribusiness Company; followed by timber and natural honey amounting to US$308.2 million.  Cocoa and Coffee exports more than doubled to US$10 million.

However, relative to the corresponding period in 2017, mineral exports declined by 16.8% in the first half of 2018 due to the drop in iron ore exports by 83.5 % rutile by 10.4% and ilmenite by 32.3%

Diamond exports, on the other hand, increased by 50.4 %, bauxite by 29.5% and gold by 100.2%.

Total import value for the period January to June 2018 declined by 9.9 percent to US$664.2 million compared to US$737.4 million during the same period in 2017.

There was a drop in all categories of imports, except fuel products. Food imports including rice dropped by 5.3 percent. The value of rice imports dropped by 15.4 percent to US$91.6 million from US$108.3 million due to the drop in the volume from 432.6 metric tons to 284.1 metric tons.

Imports of intermediate goods dropped by 11.4%; manufactured goods by 26.6% and machinery by 34.8%.

Fuel imports, however, increased by 60.6 percent to US$139.8 million compared to US$86.8 million due to both increase in price by 25.7% and volume by 27.7%.

The trade deficit decreased significantly to US$148.7 million during the first half of 2018 from US$484.6 million during the same period in 2017.

Gross foreign reserves of the Bank of Sierra Leone amounted to the equivalent of 3 months of import cover, as at end of September 2018.

The Leone was relatively stable during the first half of 2018. However, the non-disbursement of budget support, loss of iron ore export proceeds, combined with the higher demand for foreign exchange by oil marketing companies and associated speculative behavior put undue pressure on the exchange rate during Quarter 3, 2018.

In response, the Bank of Sierra Leone intervened through a weekly auction of foreign exchange to smooth the excess volatility in the exchange rate.

The stock of external debt increased from US$1.51 billion at end 2017 to US$ 1.53 billion in June 2018. Multilateral debt is estimated at US$ 1.16 billion, accounting for 75.8 percent of external debt. Bilateral debt amounted to US$ 178.79 million while commercial debt was US$192.05 million in June 2018. The stock of domestic debt increased from Le4.52 trillion, equivalent to US$594.0 million at end 2017 to Le5.14 trillion, equivalent to US$627.0 million in June 2018 due to increased borrowing during the first quarter of the year.