Public Financial Management and Business Enabling Support Project
- Reference: P-SL-K00-006
- Approval date: 30/09/2011
- Start date: 31/01/2012
- Appraisal Date: 31/05/2011
- Status: OngoingOnGo
- Implementing Agency: GOVERNMENT OF SIERRA LEONE
- Location: Freetown
Project description 1. Project Objectives: The project's broad development objective is to support the effort and plan of the Government to promote inclusive and sustainable economic growth and poverty reduction, through support to PFM reform and private sector development. The specific objectives are to
(i) enhance transparency and accountability in the use of public resources through strengthening local councils PFM systems and oversight and integrity institutions, and
(ii) promote private sector development through business enabling reform, and capacity building of Small Micro-Enterprises and private sector support institutions.
2. Project Components: The project has four main components:
(i) strengthening transparency and accountability in public financial management,
(ii) improving extractive industries governance;
(iii) improving business enabling environment for private sector development, and
(iv) project management. These components are mutually reinforcing.
Component (1): Strengthening Transparency and Accountability in Public Financial Management.
3. Constraints and Challenges: The 2010 PEFA assessment indicated that though there has been substantial improvement in public financial management since the 2007 PEFA, there continues to be weaknesses in budget preparation and execution, internal audit, external scrutiny, financial reporting and records management at local councils, monitoring and evaluation (Technical Annex 7). There are also concerns in the areas of corruption, fraud (for example the issue of ghost personnel), and delays in the follow-up of audit recommendations. At the sub-national level, the PEFA assessment also underscored a number of challenges. Internal audit and external scrutiny of local councils are at its infancy, as most internal auditors were recruited in 2008, and are mostly not professionally qualified. In the area of budget comprehensiveness and transparency, of the 19 local councils, the PETRA accounting software has been installed in only eight councils. To roll out the system to the remaining 11 councils there is a need to provide additional support including generators for the supply of electricity to the councils. In the budget cycle, there are weaknesses in revenue and expenditure projections and weaknesses in the formulation of MTEF. External scrutiny of local councils remains to be tested as 2010 was the first year audit reports were produced. Councilors and chiefdoms have limited understanding of the budget process, and the roles of councilors visa-vis internal control and financial statements.
4. Progress has been made in recent years in terms of timely submission and publication of the annual external audit reports. Despite this progress, further work remains to be done in order to provide an independent oversight of the proper use of public finds. The ACC has also made progress in prevention, investigation and prosecution of corruption charges related to procurement. The President, all ministers, all members of Parliament, and senior civil servants are now required to declare their assets to the ACC. The great majority has already done so. A national anti-corruption strategy has been developed. However, in spite of these developments, there is a need to continue to develop professional competency and skills in specialized audits, such as environmental, civil works, and performance audits. Such strengthening is also essential to enable the Audit Services Sierra Leone (ASSL) to cope with the external audit requirements of local councils. Despite recent improvements, corruption remains a key challenge for Sierra Leone. There is still need for deeper reforms and strengthen the anti-corruption agenda. The project attempts to address these challenges through two sub-components.
Sub-component (1.1) Strengthening Local Council PFM
5. Planned Project Activities: This sub-component will address organisational and human resource capacity constraints in local councils in particular weaknesses in internal audit; budget formulation and execution; financial reporting; monitoring and evaluation; and records management of local councils identified in the PEFA. The project therefore includes components to strengthen human resource capacity; specifically
(i) short-term specialised training for internal auditors, budget officers, and finance officers,
(ii) basic PFM training for non-PFM officers including councillors, paramount chiefs, administrators and project managers to enhance their awareness of PFM issues, and
(iii) training on gender budgeting. The training programs will be delivered in-country by training service providers including public and private training institutions and consultants. The project will also provide technical assistance to transfer skills and knowledge on local council PFM and this involves
(i) funding two long-term PFM experts to support the implementation of local council PFM;
(ii) short term consultants to assist in developing a revised MTEF, budget manual, and undertake diagnostic study on the cost of devolved functions with the aim enhance inter-governmental fiscal transfers for improved local governance and service delivery. The project will also provide office furniture, equipment, and generators to complement the roll out of PETRA accounting system.
6. Key Expected Results: The key expected results are:
(i) qualified internal auditors, finance officers and monitoring and evaluation officers;
(ii) improved internal control and in-year financial and budgetary reporting;
(iii) development of a revised MTEF manual and guidelines; and a budget manual,
(iv) improved budget performance management and timely financial reporting,
(v) improved records management, and
(vi) improved local governance and delivery of basic services.
Sub-component (1.2) Strengthening Accountability and Integrity Institutions
7. Capacity constraints is the major impediments to implementing the reforms needed to strengthen external oversight functions, and hence capacity building covering organizational and human resource capacity through short-term local training, specialized training, technical assistance, experience sharing and peer learning, logistics support, and equipment and software and adoption of new working systems and procedures are the major focus and interventions under this sub component.
8. Planned Project Activities: The proposed capacity building support to ASSL is informed by the project completion report of the Bank's previous ISP and training need analysis (March 2011). Specifically, support will be provided through technical assistance i.e. two posts for auditors will be supported under the project (ToR attached in Technical Annex 10). These international auditors will assist ASSL to develop to competencies in environmental and civil work audit and establish new units within ASSL to carry out these specialised audits. The technical assistance will involve special audit training and partnership arrangement with AFROSAI-E and supreme audit institutions in the region to ensure know-how and skill transfer. The project will also involve
(i) professional development through in-house and intensive regional training programs (e.g. ACCA, and CPA),
(ii) provision of equipment and software and training on the use of the software (e.g. IDEA); and
(iii) strengthening ASSL regional audit by strengthening capacity to conduct local council audit functions. Planned project activities for the Anti-Corruption Commission (ACC) will include:
(i) short-term training in intelligence analysis, advanced surveillance, procurement fraud, fraud investigation and prevention,
(ii) technical assistance for improved communication including up-dating the ACC's web-site; and to undertake corruption diagnostic studies; and
(iii) provision of office furniture, equipment, surveillance and video recording devices to improve efficiency of the anti-corruption work. Gender consideration will be factored in the selection and preparation of the training program.
9. The Expected Results: The main expected results include: increased scope of coverage of central government entities audited annually from 69.3% (2010) to 75% (2014); undertaking central government performance audit reports in civil works and environment; and improved quality and timely submission of internal audit reports. Support to the ACC will lead to curbing corruption and improved citizen's perception and awareness of the anti-corruption efforts, and increase in the number of cases prosecuted and convicted. The outcome of these outputs is anticipated to have positive spill-over effects in improving business environment through gaining investor's confidence and reduce fiduciary risks for.
Component (2) Improved Governance in the Extractive Industries
10. Constraints and Challenges: Sierra Leone is well endowed with mineral resources and is a leading producer of diamonds, rutile and bauxite. Prior to the civil war (1991 -2001), the mining sector accounted for more than 70 percent of the country's export earnings, 20 percent of GDP, and 15 percent of fiscal revenue. The sector, however, experienced a decline in the 1980s and came to a standstill during the 1990s due to the decade-long civil war (1991 -2001). As a post-conflict economy moving toward becoming a transition economy, Sierra Leone seeks to integrate mining development into economic planning to ensure that it contributes to economic growth and poverty alleviation. However, the sector faces significant governance challenges in terms of contract awards and licensing; regulation and monitoring, mining cadastre; and collection of taxes and design of the minerals fiscal regime. The government has since 2005 implemented several legal, regulatory, fiscal and institutional reforms within the sector. Notwithstanding these reforms, the institutional capacity to manage the sector, negotiate agreements, enforce regulations, and monitor compliance remains weak. Other main constraints include:
(i) lack of transparency and accountability in the management of revenues generated from the mining sector; and
(ii) inadequate capacity in monitoring mining activities, mainly because of lack of field and laboratory equipments, as well as shortage of trained technical staff to carry out such activities. Sierra Leone launched in March 2010, the first EITI report on payments made by mining companies and revenue received by government from extractive sector for the fiscal year 2006-07. The report contains a number of recommendations for how the extractive industries revenue management can be improved over the next period. In August 2010, the SLEITI validation report was completed which acknowledge progress but also made comments and proposed specific remedial actions required in order for Sierra Leone to be an EITI compliant country. The project will provide technical and financial support to address the critical findings and recommendations from Sierra Leone EITI reconciliation and validation reports, and mining sector review.
Sub-component 3.1: Support to the Sierra Leone Extractive Industry Transparency Initiative (SL-EITI)
11. Planned Activities: This Support to the SL EITI Secretariat will involve the provision of technical and financial assistance to
(i) develop transparent systems for the collection and reporting of the revenues and payment from the extractive industries,
(ii) support to EITI information, education and communication activities, and
(iii) support to preparing EITI legislation (drafting, consultation and validation). In addition the project will support civil society participation and capacity building for multi-stakeholder dialogue and partnership on extractive industries, especially support to National Advocacy Coalition on Extractives (NACE) to undertake
(i) license and contract monitoring,
(ii) revenue and expenditure monitoring;
(iii) review of contract agreements and concessions to ensure compliance with the law and fiscal benefit for the country; and
(iii) in-country training, public awareness raising and sensitization campaigns directed at parliamentarians, local government councillors, paramount chiefs and chief administrators, women and youth groups, as well as civil society organizations on the need for improved transparency and accountability in the mining sector and the impact of mining on the environment.
12. Anticipated Results: The anticipated results will include the audit report and reconciliation report of the revenues from mining; and improved transparency of mining sector revenue and their collection as a result of the review of the concession agreements and contracts, and reporting systems of the revenues and payments from the extractive industries under the EITI. The training and sensitization provided will increase awareness of the population and civil organizations to engage in transparency and accountability of the extractive sector. The Bank's support will enable the country to attain EITI compliance status, and thereby attract investment and increase revenue from the mining sector in financing social and infrastructure projects.
Sub-component 2.2 Institutional Support to the Ministry of Mines and Mineral Resources and to the National Mining Agency (NMA)
13. Planned Activities: This sub component will complement the World Bank's Eextractive Industries Technical Assistance Project approved in May 2011 by providing additional support to the implementation of the Ministry of Mineral Resources Transformation Plan and the Establishment of a National Mining Agency (NMA). Specifically, support will be provided to
(i) establish a functional laboratory for the Geological Survey Department to effectively undertake surveys for mapping and resources assessment, to evaluate reports and manage geological data; and
(ii) strengthen human resource capacity of the institutions responsible for managing the mining sector. This involves technical assistance and provision of office equipment and post-graduate training for five geologists and one geo-chemist as well as laboratory technicians.
14. Anticipated Results: Through the support provided, the capability of the MMR and the NMA will be improved in terms of its role in monitoring the extractive industries which in turn will contribute to the increased revenues from the mining sector. The project will also contribute to establish a functional laboratory which reduces the costs of geological sampling analysis currently done in overseas and transparency in sector governance.
Component 3: Improving Business Enabling Environment for Private Sector Development.
15. Constraints and Challenges: The country has moved 13 positions upwards in the rankings of the World Bank's Doing Business scale, from 156 out of 183 countries in 2009 to 143 out of 183 economies in 2011. However, challenges still exist in the areas of registering a business, access to credit, enforcing contracts, closing a business, paying tax and trading across borders. Despite the recent improvement in the country's standing in terms of the World Bank's Doing Business (Technical Annex 8), the policy and institutional environment for private sector development continues to be constrained. The doing business report and growth diagnostics studies concluded that the private sector is confronted with several challenges including:
(i) poor infrastructure (electricity, roads, and transport);
(ii) lack of access to finance;
(iii) administrative barriers; and
(iv) lack of entrepreneurial and vocational skills. Government has put in place the necessary policy framework and reform strategy to promote private sector in Sierra Leone, however, capacity constraints are the major impediments to implementing the reforms. One of the major challenges is the weak implementation capacity of the Ministry of Trade and Industry and business associations to meaningfully engage with government and promote the role of the private sector in the economy. Challenges also exist with SME according the diagnostic studies (e.g. Enterprise Survey, 2009), the main obstacles identified by small and medium size enterprises were: access to finance, corruption, tax rate, electricity, as well as weak technical and operational capacity. The project attempts to address these challenges through three sub-components.
Sub-component 2.1: Strengthening Private Sector Development Institutions
16. Planned Activities: Under this sub-component, the project will support the private sector development institutions such as the Ministry of Trade and Industry(MoTI), Sierra Leone Investment and Export Promotion Agency (SLIEPA), Sierra Leone Chamber of Commerce (SLCC), and Sierra Leone Business Forum (SLBF) to better coordinate reform and program of private sector development In this respect, the project will support the
(i) establishment of the Private Sector Directorate (PSD) within the MoTI,
(ii) capacity building support to SLCC and SLBF to facilitate dialogue and effective engagement in fostering private sector development. The project will also provide:
(i) technical assistance in the form of short-term consultancy to undertake analytical and advisory services,
(ii) human resource capacity building through local training, workshops and seminars,
(iii) equipment and furniture, and
(iv) technical assistance to effectively implement a short to medium term doing business reform action plan, develop effective monitoring and evaluation system to track progress and reform implementation. It will also involve the formulation and launching of a nation-wide sensitization and communication campaign of the reforms already adopted.
17. Expected Results: A major result would be the creation of a strong Private Sector Directorate (PSD), capable of streamlining procedures for business registration and termination, and creating improved awareness of both investors and related public sector institutions on the Doing Business reforms. The training provided will build capacity in formulating appropriate private sector development policies and improve the capability for monitoring private sector growth and development. The anticipated results include improved business environment, and reduction in costs and risks of doing business in terms of administrative barriers relating to business registration, closing down businesses and reduction in time of trade across borders.
Sub-component 2.2: Support to Small and Medium Enterprises
18. Planned Activities: The project complement Bank's and other development partners efforts to private sector development including AfDB's support to Bank of Sierra Leone ( payment system development project, and FSF Pillar III support to financial sector development program), by focusing on provision of training to SMEs. The project involves
(i) training in the areas of business management, marketing, financial management and accounting, human resources management, and operations management;
(ii) technical assistance to assist government develop a model for business development in Sierra Leone. Attention will be given to gender in the selection of SMEs and prioritization of training needs to ensure that women entrepreneurs are benefitted from the project.
19. Anticipated Results: The study on Business Development Services will open new horizons of cooperation between SMEs and local business service providers. The training provided will also contribute to improved performance of SMEs.
Component 4: Project Management
20. The proposed project II will use the existing Integrated Project Administration Unit (IPAU) within MOFED. The IPAU has been instrumental in the successful implementation of ongoing donor funded projects in line with Aid Effectiveness principles of using government systems and avoid the use of parallel project implementation units. The Government and donors agreed to centralize the implementation of all PFM and donors funded capacity building projects through the IPAU. The project will contribute funds to enhance the financial and procurement functions of the IPAU without getting involved in determining and recruitment of staff required for the IPAU. The contribution from the ISP will be used to cover the costs of audit services, some of the running costs of the Unit and organize regular meetings and training sessions for the IPAU staff.
21. The expected output will be timely production and quality of financial and progress reports of the project, and improve the fiduciary environment including addressing the risk mitigation measures identified in Technical Annex B4. There will be a broader benefit in terms of institutional capacity to coordinate and implement reform projects
The project's broad development objective is to support the effort and plan of the Government to promote inclusive and sustainable economic growth and poverty reduction, through support to PFM reform and private sector development. The specific objectives are to
(i) strengthen transparency and accountability in the use of public resources through organizational and human resource capacity building of local councils and oversight and integrity institutions, and
(ii) promote private sector development through business enabling reform, and capacity building of Small and Medium Enterprises and private sector support institutions.
I1.2. Rationale for Bank's Involvement
1.2.1 The proposed project will build capacity of key institutions to deepen and implement reforms in Public Financial Management (PFM), extractive industries transparency and accountability, and private sector development. Since the end of the civil conflict, economic policies in Sierra Leone have focused on rebuilding the economy and laying the basis for long term growth. The Government of Sierra Leone has put in place the necessary policy and institutional framework to improve public financial management and private sector development in the country; however, challenges remain due to capacity constraints. The need for Bank's involvement is to sustain and build on the gains realized through previous interventions by both the Bank and other development partners. In this regard, the proposed project will continue supporting government's reform priorities that are critical for effective implementation of the PRSP II.
1.2.2 Achieving the strategic objective of the PRSP II requires building institutions and government systems based on accountability and transparency. This will requires:
(i) continued and deeper reforms to strengthen PFM to enhance local governance and decentralized service delivery; reduced corruption and greater accountability for the use of public funds;
(ii) strengthened capacity of the external audit and anti-corruption commission and enhanced oversight role; and
(iii) capacity building to foster transparency and accountability of extractive industries.
1.2.3 The project complements and adds value to Government and other development partners' efforts to meet the challenges faced by the country. The rationale for the project is three-fold: first, severe organizational weaknesses in the PFM institutions constitute one of the most critical constraints to development, poverty reduction and sustainable peace in Sierra Leone. Hence tackling these weaknesses is a priority for the Government and its development partners. Second, by strengthening the fiduciary systems in government institutions, the proposed project will also help to curb corruption and leakage in public funds. Third, the project will help consolidate gains in financial and economic governance reform supported under the previous project and ongoing PFM reform.
1.2.4 The 2010 PEFA report indicates that donors' support to PFM has been concentrated on PFM reforms at central government and in particular Ministry of Finance and Economic Development. Consequently, the Bank and government agreed to increase focus on local government PFM system improvement in view of the ongoing decentralization process and increased fiscal transfer to local councils (for example: over 15% of the 2011 national budget is allocated for local councils.. The PRSP II has identified corruption as a key challenge for Sierra Leone, in both reality and perception. The enactment of the Anti-Corruption Act (2008) devolved prosecution powers to the Anti-corruption Commission, without the prior consent of the Attorney-General and Minister of Justice . Government has put in place Anti-corruption Strategy to accelerate and deepen reform. Additional support to Audit Service Sierra Leone (ASSL) and Anti-corruption Commission (ACC) will strengthen the external oversight function which is essential for reducing fiduciary risks and inspiring confidence in the government's use of funds.
1.2.5 The medium-term economic development potential from the mineral sector is much greater than that of any other sector in the Sierra Leonean economy. To realize this potential, there are a number of institutional constraints within the Ministry of Mineral Resources and associated institutions that need to be addressed. Recent reviews of the mineral sector by the World Bank has identified a range of institutional reforms and capacity building programs that need to be implemented if Sierra Leone is to attract the investment necessary to provide economic benefits to the government and the people of the country. A new Mines and Minerals Act came into effect in January 2010, and the Ministry of Mineral Resources Transformation Plan envisages establishing an autonomous National Minerals Agency (NMA). The legislation for the creation of the NMA has been drafted, and is expected to be enacted into law before the end of 2011. The rationale for the Bank's involvement in the Extractive Industries is mainly to support Government's reform agenda in the mining sector which is key to future growth and poverty reduction prospects in Sierra Leone. Another rationale for the Bank's involvement within the extractive industries is to assist Sierra Leone in improving transparency and accountability in the management of public revenues generated from the mineral resources. Towards this end the country became an EITI candidate in 2008, and has developed a two-year EITI work plan. In view of this, it is important to support implementation of the extractive industries transparency initiative to enable Sierra Leone become an EITI compliant country.
1.2.6 Private sector-led economic growth is a cornerstone of the Government's poverty reduction strategy. The private sector is expected to be the major engine of growth while the government will focus on maintaining peace and security, ensuring rule of law, providing basic infrastructure and promoting human development. The Doing Business Report and Growth Diagnostics Studies concluded that the private sector is confronted with several challenges including:
(i) poor infrastructure (electricity, roads, and transport);
(ii) lack of access to finance;
(iii) administrative barriers; and
(iv) lack of entrepreneurial and vocational skills. In tackling these challenges, the Government has formulated and is currently implementing the Private Sector Development Strategy (2009-2014). The strategy has five inter-related objectives:
(i) promoting and supporting entrepreneurship,
(iii) reducing the cost and risk of doing business,
(iii) increasing access to finance,
(iv) making markets work better, and
(v) providing adequate infrastructure. The Government has also developed specific reform action plan to establish business enabling environment to help diversify the economy over time and create jobs for the poor. The project will complement ongoing capacity building program supported by development partners by focusing on implementation of the doing business reform plan, and small and micro-enterprises (SMEs) to develop entrepreneurial skills, and linking up with financial institutions and large firms to better access credit and market respectively.
1.2.7 The proposed PFMBESP complements the AfDB's Economic Governance Reform Program (EGRP II) as presented in Technical Annex A1. The EGRP supports institutional reforms in the area public expenditure management, and mining sector. The proposed PFMBESP complements the EGRP II through capacity building of local government councils and accountability institutions (e.g. ASSL, ACC, and EITI). The project will contribute towards improving budget execution at local councils and thereby improve local governance and service delivery. By strengthening the capacity of ASSL and ACC, the proposed project will help also to address the risks mitigation measures identified in the EGRP II and enhance development outcomes.
Expected/designed cross-cutting focus/benefits. The project will enhance government capacity to implement reform (PFM and business enabling) and manage public resources efficiently and effectively. This will strengthen and leverage the impact of budget support on delivery of services, and poverty reduction more broadly through increasing efficiency and effectiveness of resource allocation and execution in line with the policy. Strengthening anti-corruption activities will also reduce risks and improve development outcome of the budget support program. Reform measures aimed at improving business climate and support to SMEs will create more jobs and income to the unemployed youth, and women in the country. The project will incorporates gender issues in capacity building activities including training of women entrepreneurs and civil servants as well as local council training on gender budgeting. In addition, the proposed project will have no adverse impact on the environment rather it will make positive contribution through improving the monitoring capacity of the National Mining Agency to assess potential risks and mitigation of adverse impacts of mining operations, including environmental and social impacts
In focusing on institutions involved in public financial management and private sector development, the direct beneficiaries are: the Ministry of Finance and Economic Development (MoFED), and the nineteen local government and town councils, the Auditor General (ASSL), the Anti-Corruption Commission (ACC), the Ministry of Trade and Industry (MoTI), the SL EITI, the Ministry of Mining and Mineral Resources, the Investment and Export Promotion Agency (SLIEPA), the Chamber of Commerce (SLCC), and the Standards Bureau (SLSB).The indirect beneficiaries are the general population who will benefit from improved PFM and enhanced fiscal space for pro-poor social service delivery; as well as private sector actors who will benefit from improved business environment.
BANDIAKY Julien - OSGE1