Budget credibility describes the ability of governments to accurately and consistently meet their expenditure and revenue targets.

Why doing budget credibility analysis?

• Budgets are one of the key tools that governments use to turn policy intentions into concrete interventions to achieve their objectives.
• Budget credibility highlights performance against the budget at the total and sector levels, to draw out some of the reasons behind this, and identify the impacts on public service delivery.
• It assists government in addressing some of the challenges that are adversely affecting budget credibility.

Methodology

Coverage

• This work has been carried out on both a macro level, as well as doing some analysis of key sector ministries (health, agriculture and basic/tertiary education). 
• The macro analysis is focused largely on an update to selected indicators in the Sierra Leone PEFA assessment 2018.
• Assess revenue measures contained in the 2019 budget.

PEFA is a methodology for assessing public financial management performance. A PEFA assessment measures the extent to which Public Financial Management (PFM) systems, processes and institutions contribute to the achievement of desirable budget outcomes.

Assessment of PEFA indicators PI 1, 2 and 3 has been based on the 2016 PEFA framework, with data from 2017, 2018 and 2019.

Information for assessment

• The assessment was undertaken using the most recently available data from the fiscal tables prepared by the Budget Bureau.
• Assessment used other Government documents such as the Government Statement of Financial and Economic Policies and the Finance Act, 2019.
• The annual statement of government account prepared by Accountant General
•  Interviews were also conducted with some government officials

FINDINGS

Aggregate expenditure out-turn – The score is D*

Definition: The difference between actual expenditure and the originally budgeted expenditure. The purpose of this indicator is to assess the accuracy of the budget and whether the aggregate expenditure levels as approved by Parliament are implemented/or enforced.

Aggregate expenditure out-turn

• The implementation of the 2018 supplementary budget resulted in restraining recurrent expenditure and a pause in disbursement of expenditures relating to domestic capital.
• As with the PEFA report 2018, the omission of significant donor expenditure means that data is not available to score this indicator in accordance with PEFA 2016 requirements, so the score is D*.
• However, excluding donor expenditure, 2017-19 has seen a slight improvement from the 2014-16 PEFA score (from C to B)
• The credibility of the expenditure composition remains a big challenge

Expenditure composition out-turn by economic type

This indicator is intended to measure the extent to which reallocations between budget lines have contributed to variance in expenditure composition

This is assessed from three (3) perceptive

1. Expenditure composition out-turn by function
2. Expenditure composition out-turn by economic type
3. Expenditure from contingency reserves

Expenditure compositions out-turn by function –D*

This measures the difference between the originally approved budgets and actual out-turns. The classification by administrative head (Ministry/Department/Agency) that are included in the approved budget is used for this analysis. Expenditure is taken excluding contingency items and interest on debt

Expenditure composition out-turn by economic type

1. Expenditure composition out-turn by function
2. It is also important to note that the budget heads have changed since the last PEFA assessment. For instance, there were 75 budget heads in 2017, 83 budget heads in 2018 and 87 budget heads in 2019.
3. In 2017, the 20 largest administrative budget heads accounted for 87 percent of actual expenditure. In 2018, the 20 largest administrative budget heads accounted for 80.4 percent of actual expenditure. For 2019, the 20 largest administrative budget heads accounted for 74.2 percent of actual expenditure.
4. The absence of donor funded data will also prevent the indicator from getting a higher score.

Expenditure composition out-turn by economic type

1. Expenditure composition out-turn by function

The very high variance appears to be due to a number of reasons;

• Over the review period, although some MDAs continue to get more than their approved budget, the Office of the President, pension payments and the Ministry of Works, Housing and Infrastructure have been constantly receiving more resources than their approved budget.
• The implementation of new programmes in-year which often results in the re-allocation of resources within the MDA.
• Poor budget preparation on the part of MDAs -allocations have hardly matched the approved budget over the years. For example, the Ministry of Energy under budgeted for fuel supplies in the provinces
• Furthermore, the in-year execution of new activities diverts resources away from other activities which had already received Parliamentary approval.
• Example-Agriculture, the Ministry received only 40 percent of the approved budget for 2019; most of which was received in the fourth quarter of the year. Significant amount of the first quarter allocation to the Ministry of Agriculture was utilized to offset payments arrears for 2018. This has left little resources for the various programmes with departments.

Expenditure composition out-turn by economic type

b) Expenditure composition out-turn by function –D*

• This dimension measures the difference between the originally approved budget and end-of-year out-turn in expenditure composition by economic classification during the last three years including interest on debt but excluding contingency items.

Expenditure composition out-turn by economic type

1. Expenditure composition out-turn by function
2. In 2018 and 2019, the variance of 44.8 percent and 46.0 percent was driven by goods and services and capital expenditures. The weak score is a cause for concern as it shows the actual expenditure on goods and services economic classification, which is essential for supporting the activities of Ministries, Departments and Agencies.
3. It is under the goods and services budget that MDAs provide estimates for their programmes to be implemented. For example, in 2019, the Ministry of Health and Sanitation’s Primary Health Care Division received only Le 740 million from a budget of Le 20.4 billion (4% execution rate)
4. Another example, the Ministry of Health only received Le 3.2 billion of their capital budgets from an approved amount of Le 52 billion (6 percent execution rate). In contrast, the administrative division had an approved budget of Le 10.3 billion but it went on to receive and spend Le 20.3 billion.
5. This means that health service delivery at the primary level will be reduced, hence citizens will not receive adequate healthcare. Similarly, capital expenditures have been below the approved budget over the review period

Expenditure composition out-turn by economic type

c) Expenditure from contingency reserves

This dimension recognizes that it is prudent to include an amount to allow for unforeseen events in the form of a contingency vote, although this should not be so large as to undermine the credibility of the budget.

Sections 36 (1) and (2) of the Public Financial Management (PFM) Act, 2016, prescribe a more formal arrangement for a Contingencies Fund. Any Appropriation Bill for any Financial Year should make provision(s) for contingencies and should not exceed 2% of non-extractive revenue for that year. There are three contingency votes under the PFM Act, 2016.

• These are contingencies fund (601),
• Special Warrant of the President (611)
• Unallocated head of expenditures (612).
• However, budgetary allocations are also made to Miscellaneous Services (501) and is regularly used without any detail

Expenditure composition out-turn by economic type

• Expenditure from contingency reserves

Summary of findings

Fiscal Management in Sierra Leone

Public Debt

Even with all these measures to increase revenue, the government public debt continued to rise. In 2017, total debt was Le 14.9 trillion which represent 51% of the GDP. In 2018, it increased by Le 18 trillion (59% of GDP) and it further increased to Le 21.5 trillion (58% of GDP) in 2019.

Overall cash deficit/surplus

• In 2017, the cash deficit was Le 1.8 trillion (6% of GDP)
•  In 2018, the overall cash deficit reduced to Le 542 billion (1% of GDP).
• In 2019, there was an overall cash surplus of Le 65 billion (0.002% of GDP).

Arrears

 In 2017, arrears payment was Le 169 billion, dropped to Le 112 billion in 2018 and further decreased to Le 86 billion in 2019

Recommendations

•  Improving budget credibility entails much more than keeping within the aggregate MDA spending levels approved by Parliament. It also involves ensuring that MDAs get their approved budget on time, and can deliver on the activities contained in the budget (without interference). Delays are having a significant impact on service delivery.  
• It is also imperative that the forecasting of revenues and expenditures over the medium term is improved in order to minimize the in-year adjustments, which have been a regular occurrence over the years.
• Strict adherence to the Public Financial Management (PFM) Act, 2016, and Public Financial Management Regulations, 2018, will also contribute towards the implementation of a credible and transparent budget throughout the year.
• Government should include donor budget and spending in the annual statement of account
• More needs to be done on reducing the difference between approved and actual MDA budgets and improving the credibility of expenditure composition to reduce changes to individual budget lines.