GOVERNMENT OF SIERRA LEONE
GOVERNMENT BUDGET
and
Statement Of Economic And Financial
Policies For The Financial Year, 2003
DELIVERED BY
MR. J.B. DAUDA
MINISTER OF FINANCE
In the Chamber of Parliament
TOWER HILL, FREETOWN
On Friday, November 29, 2002

MR. SPEAKER, HONOURABLE MEMBERS,

I rise to move that the Bill entitled "An Act to provide for the service of Sierra Leone for the financial year 2003" be read the first time.

Introduction

Mr. Speaker, Honourable Members, it is my honour and privilege to present to you the first Government Budget of the first Parliament of the Third Republic.

2. Five years ago, this Government's first Budget did set out long-term objectives to achieve sustainable and equitable growth and poverty reduction. However, the implementation of policies and programmes to attain these objectives was frustrated by the escalation of a devastating ten-year civil conflict. Nonetheless, today, less than a year following the end of the conflict, I can report that we have taken significant steps to move our development agenda forward.

3. Mr. Speaker, Government is proud that so much has been accomplished in a very short time. Our achievements include the successful completion of disarmament and demobilization of ex-combatants; the restoration of government authority throughout the country; the resettlement of internally displaced persons and refugees; the revival of economic growth with an exceptionally low inflation and a relatively stable exchange rate; and a significant rise in school enrolment and immunization rates. This progress would not have been possible without the determination of the people of Sierra Leone and a huge investment by the international community in supporting peace, security and humanitarian activities.

4. Despite this progress, the country still faces formidable challenges both in the immediate as well as in the medium-to-long term and therefore further actions are required to build on those achievements. These challenges require our sustained commitment both as a government and as a people and the continued support of the international community. The essence of this year's budget and statement of economic and financial policies is to chart a course to address the major development challenges as we move from peace keeping to peace building and from humanitarian relief to equitable and sustainable development. I will later turn to these challenges and the objectives of this budget.

Global Economic Outlook
5. Mr. Speaker, before I turn to the fuller details of the budget, let me outline some of the key developments in the world economy, including the sub-regional arrangements as they affect our country's political and social revival efforts. The recent issue of the World Economic Outlook indicates that the world economy is expected to recover slowly, with world output rising from 2.2 percent in 2001 to 2.8 percent in 2002. In 2003, projected growth of the world economy has been revised from 4.0 percent to 3.7 percent, reflecting the weakening of financial markets and heightened uncertainty and risk of conflict. In spite of the recent rise in oil prices, inflationary pressures across the globe remained subdued and are expected to remain moderate in 2003. World inflation is projected at 1.4 percent in 2002 and 1.7 percent in 2003.

6. Growth in developing countries is expected to recover to 4.2 percent in 2002 and 5.2 percent in 2003, on the assumption of continued recovery in the industrialized world. For Africa, growth has held up well, supported by improved macroeconomic policies, fewer conflicts and debt relief under the enhanced Heavily Indebted Poor Countries' (HIPC) Initiative. Output growth is projected to pick up to 4.2 percent in 2003 from 3.1 percent in 2002, aided by stronger non-oil commodity prices (especially, cocoa, coffee and metals) as well as stronger external demand as the global recovery gains momentum. Inflation in Africa is expected to fall to single digit levels in 2002, and will remain at these levels in 2003.

Regional Economic Cooperation
7. Mr. Speaker, Government fully supports the principles of the integration of Africa into the global economy. In this regard, Government is committed to the ideals and objectives of the New Partnership for Africa's Development (NEPAD), which was conceived and developed by African leaders to address key economic, social and political priorities in a coherent and balanced manner. In this context, Government will continue to work with other African Governments to achieve the goals of NEPAD which include, among others, strengthening the mechanism for conflict prevention, management, and resolution at the regional, sub-regional and continental levels; promoting and protecting democracy and human rights; restoring and maintaining macroeconomic stability; ensuring transparent legal and regulatory frameworks; revitalizing and extending social services; promoting the role of women in social and economic development; and promoting the development of infrastructure and agriculture.

8. At the sub-regional level, Government reaffirms its commitment to the planned economic cooperation under the Second West African Monetary Zone (WAMZ) programme. At the recently concluded Summit of the Authority of Heads of State and Government of the WAMZ, held in Conakry, Guinea, the preparedness of member countries for monetary union was comprehensively reassessed. The reassessment focused on the objectives of the programme and progress towards its implementation with emphasis on macroeconomic and economic policy convergence.

9. Mr. Speaker, regrettably, while there has been substantial progress in terms of institutional design and arrangements, progress towards macroeconomic convergence has not been satisfactory. As a result, the timeframe for achieving a monetary union has been rescheduled from January 2003 to June 2005. In this regard, Government will continue to work assiduously towards meeting the prescribed macroeconomic and economic policy convergence criteria and other obligations under the programme.

Support from Development Partners
10. Mr. Speaker, the first post-conflict Consultative Group (CG) meeting for Sierra Leone was recently held in Paris on November 13 - 14, 2002. The meeting provided the Government and its development partners an opportunity to review the progress in consolidating peace and stability, and to agree on the way forward to improve the lives of our people to ensure that we leave conflict behind. Sierra Leone's development partners congratulated the country on its successful record of economic performance during the past two years and emphasized the importance of the Government's continued strict fiscal and monetary discipline and implementation of its structural reform agenda.
11. At the end of the CG meeting, a number of leading benchmarks were agreed that would serve as a frame of reference to assess the overall progress the Government is making towards the achievement of sustainable peace and development. They also constitute a framework for the fulfillment of mutual responsibilities by the government and its development partners in support of national policy goals. Government and its development partners agreed to review and assess progress under this framework through a government/donor coordination committee that will meet regularly under the chairmanship of a senior Cabinet Minister. These benchmarks and targets will be reviewed and further defined in the full Poverty Reduction Strategy Paper (PRSP), expected by December 2003. Total pledges at the meeting were in the order of US$650 million over a four-year period. This support excludes HIPC debt relief as well as aid flows from some donors that will continue to channel resources through the UN system, NGOs, or other related implementing agencies, or, whose level of future support is yet to be determined due to internal budgetary processes.

12. I am happy to announce that our relations with the International Monetary Fund (IMF) and the World Bank as well as other multilateral and bilateral donor institutions continue to be sound. Recently, the Executive Board of the IMF concluded a successful second review of our performance under the Poverty Reduction and Growth Facility (PRGF) Arrangement. The World Bank, the African Development Bank, the Islamic Development Bank and a number of other multilateral and bilateral organizations including the Department for International Development, UK and the European Union, have continued to provide support to the country. On behalf of the Government and people of Sierra Leone, I would like to extend our heartfelt gratitude to all our development partners for their continued generous support for our development aspirations.

13. Mr. Speaker, I would want to single out a recent development in our relationship with the Government of the United Kingdom (UK), which we hope could be replicated by other donor governments. Government has agreed on the elements of a development partnership with the UK Government under a "Poverty Reduction Framework Arrangement". In this Arrangement, the UK Government has made a long-term commitment to help Sierra Leone meet the Millennium Development Goals within an economic and social framework that facilitates peace, security, reconciliation, economic growth and inclusive governance. For our part, Government will continue to fulfill a number of obligations or commitments which, inter alia, include: improving the standards of governance and combating corruption; reforming the security sector; ensuring macroeconomic stability; and developing human resources. The UK Government has committed resources over a ten-year period, 2002 - 2012, beginning with a commitment of £120 million over the first three years of the arrangement.

The Objectives of the 2003 Budget
14. Mr. Speaker, the critical development challenges we face include addressing those factors that engendered the civil conflict; healing the wounds of war, particularly social exclusion and alienation; and building sustainable peace. In this regard, Government's key priorities are to improve governance, ensure equity in service delivery, and achieve equitable and sustainable growth through revitalising key economic activities, including agriculture, mining, and public works to generate jobs and incomes.

15. This budget is, therefore, a further step to consolidate peace and foster sustainable development and its theme is ''Peace, Recovery and Development''. Its broad objectives are to:
(i) Enhance peace building through strengthening of the security framework as well as accelerating the reintegration of ex-combatants and completing the resettlement of returnees and the displaced;
(ii) Promote economic growth through the maintenance of macroeconomic stability, an enabling environment for private sector development, and the implementation of structural reforms and appropriate sectoral policies, focusing especially on agriculture and mining;
(iii) Intensify and expand the provision of basic social services, especially primary health care, basic education and prevention and control of HIV/AIDS and other communicable diseases to fight child poverty in particular and rural poverty in general; and
(iv) Support ongoing efforts in promoting good governance including the control and prosecution of corruption at all levels, decentralization and fiscal prudence to enhance service delivery in our rural communities.

National Recovery Strategy
16. Mr. Speaker, in support of these objectives, the Government has prepared a National Recovery Strategy (NRS) based on systematic needs assessments conducted at the district level throughout the country. The NRS focuses on immediate actions to address the essential needs of the population while laying the foundations for the transition towards sustainable development. The NRS constitutes an effort by the Government to restore its leadership role in the recovery process, while capitalizing on the support it is receiving from its partners. It is also aimed at promoting a people-centered approach, seeking community empowerment and wider participation. It constitutes a bridge between emergency humanitarian assistance and longer-term development challenges which are being reflected in the ongoing preparation of the full Poverty Reduction Strategy Paper (PRSP). Through the NRS, the United Nations Development Programme, along with its partner-UN Agencies, UNAMSIL, NGOs, Civil Societies etc, are joining hands to support the government and people of Sierra Leone to build peace, reinforce security, reduce poverty, and foster good governance.

Review of the Economy
17. I will now review economic and fiscal developments during 2002. Mr. Speaker, the progress made in consolidating peace following the resettlement of the displaced and refugee populations, the extension of civil authority countrywide and the peaceful conduct of the general elections, as well as improvements in economic management boosted confidence in the economy and led to an acceleration of the economic recovery. It is estimated that real Gross Domestic Product (GDP) growth will reach 6.6 percent in 2002 up from 5.4 percent in 2001. Agricultural output is estimated to have grown by 6.0 percent, facilitated by the return of the displaced people to their rural communities and the provision of agricultural tools and planting materials by Government. Similarly, mining and manufacturing output will grow by about 6.6 percent and 6.0 percent, respectively in 2002. Growth in the services sector is estimated at 4.0 percent.

Inflation and Exchange Rate
18. Inflation has remained negative for the period January to September, reflecting increased availability of imported consumer items, restraint in monetary expansion, further reduction in import tariffs, large donor inflows and relative stability of the exchange rate. The weekly foreign exchange auctions at the Bank of Sierra Leone also helped in reducing volatility in the exchange rate during the year. Interest rates have remained generally stable and highly positive in real terms through out the year, although the spread between lending and deposit interest rates remained high through out the review period.

Foreign Trade
19. Mr. Speaker, Sierra Leone has continued to experience a faster rate of growth of imports relative to exports. Although merchandise exports recovered during the year, rising from US$21 million in September 2001 to US$35 million as at September 2002, imports of goods rose significantly from US$129 million to US$198 million over the same period, largely on account of the on-going reconstruction and rehabilitation activities, and the opening up of previously inaccessible areas. The trade deficit therefore widened to US$163 million as at September 2002 from US$108 million in September 2001.

Budgetary Performance
20. Mr. Speaker, our budgetary performance has remained on track during the year, reflecting a significant improvement in domestic revenue collection while keeping expenditures in line with budgetary allocations. Total domestic revenue collected for 2002 is estimated at Le237.6 billion or 14.4 percent of GDP, and is broadly in line with revenue targets. Collections from the Customs and Excise Department are estimated at Le158.5 billion or 9.6 percent of GDP. The improved performance in Customs and Excise collections is accounted for mainly by the better-than-expected performance in import duties and domestic sales tax, reflecting the surge in imports and the increase in domestic manufacturing activities. Income Taxes are estimated at Le63.4 billion or 3.8 percent of GDP, slightly less than budgeted, due to underperformance in company taxes. Non-tax revenues from the mining and marine sectors and other Government departments are less than projected.

21. Total expenditure was kept within budgetary limits in spite of the persistent overrun in the wage bill. Recurrent expenditures are estimated at Le443.5 billion, or 26.9 percent of GDP. Wages and Salaries amounted to Le142.0 billion, or 8.6 percent of GDP and accounted for 32 percent of total recurrent expenditures. Non-salary, non-interest recurrent (Goods and Services) expenditures are estimated at Le158.5 billion or 9.6 percent of GDP and accounted for 38.9 percent of total recurrent expenditures in 2002. The bulk of these expenditures, about 45 percent, supported activities in the social and economic sectors. Security-related outlays accounted for 36 percent of the Goods and Services expenditures. Development Expenditures are less than budgeted and estimated at Le86.5 billion or 5.2 percent of GDP. The under spending in development expenditures is mainly due to capacity constraints in the line ministries implementing development projects. Total interest payments are estimated at Le60.3 billion or 3.7 percent of GDP, of which domestic interest payments amount to Le47.7 billion.

Budget Deficit
22. The overall budget deficit (on commitment basis) excluding grants is estimated at Le294.5 billion, or 17.9 percent of GDP. The deficit was financed largely by external budgetary support and project loans and grants. Domestic financing of the deficit is estimated at Le32.4 billion or 2.0 percent of GDP, of which bank-financing amount to Le13.2 billion. The higher bank financing was due to delays in the disbursement of external budgetary support.

HIPC Resources
23. During the year, budget implementation was significantly supported by the receipt of debt relief resources under the enhanced Heavily Indebted Poor Countries (HIPC) initiative. A total amount of Le67.5 billion of HIPC debt relief resources has so far been received and deposited in a special account in the Bank of Sierra Leone as required by creditors. HIPC-financed poverty reducing expenditures have remained well below budgeted allocations owing to a number of factors, including weak implementation capacity in line ministries and their failure to prepare and submit disbursement requests consistent with the implementation framework and guidelines prescribed by the special HIPC Resource Utilisation Management Committee chaired by His Excellency the President. Hence, the revised fiscal projections for 2002 reflect the expectation that while HIPC expenditures will increase in the fourth quarter; a substantial proportion of such commitments estimated at Le23 billion will be carried over into 2003.

Medium-Term Macroeconomic Framework, 2003-2005
24. Mr. Speaker, I will first indicate the broad medium term macroeconomic objectives agreed under the IMF's Poverty Reduction and Growth Facility Arrangement. The macroeconomic targets for the medium-term are:
a. Real GDP is projected to rise by 6-7 percent during 2003-2005. Growth is expected to come mainly from under-utilized capacities in the agricultural and mining sectors and the planned reconstruction and rehabilitation activities. Private investment is projected to increase substantially from 4.1 percent of GDP in 2002 to 13.1 percent of GDP in 2003, while public investment is expected to average 13.6 percent of GDP during 2003-2005 from 5.2 percent in 2002;

b. Inflation will be contained to less than 5 percent through the pursuit of prudent fiscal and monetary policies. Hence, the economy is expected to sustain steady growth with lower inflation;

c. The gross foreign reserves of the Bank of Sierra Leone are programmed to attain a level of 2.3 months of import cover; and

d. Reflecting the sluggish performance of the export sector and the anticipated sharp increase in imports for reconstruction and commercial purposes, the external current account deficit is projected to widen to 33.6 percent of GDP in 2003. The current account deficit will narrow down to 18 percent of GDP in 2005 as exports recover.

Monetary and Financial Sector Policies
25. Monetary policy will continue to aim at controlling inflation and maintaining exchange rate stability. The Bank of Sierra Leone will introduce new instruments such as the Repurchase Agreement (Repo) to enhance its efficiency in implementing monetary policy. The Bank will also facilitate the establishment of community banks as part of the effort to promote rural financial intermediation, foster a market economy and mobilization of rural savings. Government will also support the establishment of a Stock Exchange to deepen the financial sector. Meanwhile, a multi-sector committee headed by the Bank of Sierra Leone is moving the process.

26. Mr. Speaker, Government has also drafted a National Micro-Finance Policy based on best practices in favour of small and medium-sized firms with a high potential for employment and income-generation for the mass of people in the informal sector of the economy. The key objective of the micro-finance policy is to integrate micro-finance into the broader financial system and facilitate the provision of viable and sustainable micro-finance services to low income Sierra Leoneans in a transparent and accountable manner to foster economic activity, boost real incomes and reduce poverty. The proposed community banks will provide an effective vehicle for this exercise.

External Debt and Domestic Debt Arrears
27. Sierra Leone's external debt stock is estimated at about US$1.4 billion. Of this amount, multilateral and bilateral creditors account for 55 percent and 26 percent, respectively; 19 percent is owed to commercial creditors. In October 2001, Sierra Leone was granted debt relief by the Paris Club under the Naples Terms, which cancelled 67 percent of eligible debts and rescheduled the residual. About US$72 million of eligible external debt was cancelled while the residual was rescheduled over a long period.

28. Following the achievement of the Decision Point under the enhanced HIPC Initiative, Paris Club Creditors agreed to provide deeper debt relief by topping-up the Naples Terms to the Cologne Terms. Some of the creditors including the UK, Italy and Germany have indicated a willingness to provide 100 percent debt relief on debt service payments falling due from March 2002 to September 2004. This is expected to substantially reduce our debt service burden further, thus freeing resources for increased budgetary support to the social sectors.

29. While there has been a remarkable success in obtaining favourable terms from official bilateral and multilateral creditors, Mr. Speaker, Sierra Leone continues to be over-burdened with debt owed to commercial creditors, particularly external private creditors. The identified and verified external commercial and short-term debt is estimated at about US$236.1 million. This excludes road contractors' claims arising from contractual defaults amounting to over US$20.0 million. The treatment of these debts has become, and will continue to be, extremely difficult due to budgetary constraints. Some creditors have already taken or are threatening legal action. In the near term, Government can only continue to settle part of these outstanding debt obligations, while at the same time explore prospects for a second debt-buy back under a World Bank or another partner's sponsored Debt Reduction Programme.

30. There has, nevertheless, been a significant reduction of the verified arrears owed to domestic suppliers following the implementation of the discounted debt buy-back programme. Total amount of verified arrears are estimated at Le30 billion. There is an ongoing additional audit of some of the major claims, in addition to verification of the tax liabilities of the eligible claimants. As is the case of the external commercial creditors, Government will continue to make partial settlement of these claims given the budgetary constraints.

Public Financial Sector Management
31. Mr. Speaker, I will now highlight key medium-term reforms in public expenditure management. As you are aware, Government is implementing key reform measures in public expenditure management including the adoption of the Medium-Term Expenditure Framework (MTEF); the establishment of a financial information system to enhance transparency and accountability in the use of public funds; and the development of participatory monitoring systems. The newly established Financial Management and Accounting Systems Unit (FMASU) in the Accountant General's Department will improve the accuracy and timeliness of information on budget implementation, cash management, and adherence to financial regulations as well as reduce the accrual of arrears. With technical assistance support, the office of the Auditor General will be further strengthened and a technically robust organic budget law will soon be brought to this House for enactment. The proposed organic budget law will regulate the balance of financial powers and responsibilities between the Executive and the Legislature.

32. Beginning 2003, the integration of the development and recurrent budget will be deepened in the context of the MTEF to enhance fiscal management and improve budget execution and monitoring. In this regard, under its participatory budget monitoring system, the Public Expenditure Tracking Survey (PETS), Government has established Budget Oversight Committees in all the districts to facilitate participatory budget formulation, implementation and monitoring of budgetary outcomes. Under the proposed organic budget law, these Budget Oversight Committees will be empowered to monitor the implementation of the budget in their respective communities.

Private Sector Development
33. Mr. Speaker, Government recognizes the pivotal role of a vibrant and thriving private sector for employment creation, income generation and poverty reduction. To this end, Government will accelerate efforts at formulating a strong, clear investment code that will outline the incentives framework and investment policies needed to attract strategic foreign and domestic investments in the country as well as substantially improve the competitiveness of our economy.

34. Government will also continue to create an investment environment that is pro-business; that encourages individual efforts; and that drives innovation. As part of this strategy, Government will provide support to the development of small and medium-sized enterprises through the provision of micro-finance; reactivate centres for skills training; facilitate the development of value-added products for accessing markets in the United States and Europe through the United States African Growth and Opportunity Act (AGOA) and the European Union's Everything But Arms Initiative; and create export processing zones.

35. Government has established the National Commission for Privatisation (NCP) following the enactment of the National Commission for Privatisation Act, 2002. The Commission will serve as the policy-making body to advance the restructuring of public enterprises and their divestiture. According to the Act, the Commission will also act as a prudent shareholder, appoint independent boards of directors, manage and prepare all public enterprises for divestiture.

Aid Coordination and Management
36. In the post-conflict era, Mr. Speaker, there is an urgent need to strengthen and rationalize aid coordination in the country. The aim is to achieve two key objectives: (i) ensure better and timely information on aid flows and their use; and (ii) improve planning and monitoring of aid utilization to avoid duplication or gaps, increase aid effectiveness and reduce the transaction costs of aid management.

37. In this regard, the Government will restructure the mechanism used by the Ministry of Development and Economic Planning for aid coordination to ensure full and active participation by all key national entities, especially the Bank of Sierra Leone and the Ministry of Finance. The new mechanism will provide data and analysis to the government on external aid flows, including from non-governmental sources, for use in planning and budgeting as well as for the sector groups that have been established as part of the PRSP preparatory process. While Government recognizes the significant contribution that NGOs are making to humanitarian relief and increasingly to recovery and poverty reduction in the country, Government will review the implementation of the NGO policy in order to ensure proper coordination of their activities consistent with national policy priorities.

Fiscal Framework for Financial Year 2003
38. I will now turn to the estimates of revenues and expenditures for 2003. Total Revenue and Grants are projected at Le578.6 billion or 31.5 percent of GDP. On the basis of the projected growth in economic activities and the envisaged improvement in tax administration following the establishment of the National Revenue Authority, Domestic Revenue collections will constitute 47 percent of total revenue and is projected at Le271.7 billion, or 14.8 percent of GDP. Customs and Excise duties are expected to contribute Le176.4 billion, or 9.6 percent of GDP, of which import duties are expected to amount to Le132 billion, or 7.2 percent of GDP, excise duties on petroleum products Le31.6 billion and other excise duties Le4.5 billion. Domestic Sales tax is projected at Le8.0 billion.

39. Income taxes are projected at Le73.8 billion, or 4.0 percent of GDP. Of this, Company and Personal Income Taxes will contribute Le35.3 billion and Le37.3 billion, respectively. Revenues from mining licenses are projected at Le4.4 billion and Royalties on fisheries at Le4.0 billion, or 0.2 percent of GDP. Road User Charges are expected to amount to Le7.5 billion.

40. Budgetary support in the form of programme grants and loans are projected at Le224.2 billion or 12.2 percent of GDP. DFID, UK is expected to contribute about Le32.1 billion or US$14.5 million; the European Union, Le46.3 billion or US$21.0 million; the World Bank, Le33.1 billion or US$15.0 million; and the African Development Bank, Le15.5 billion or US$7.0 million. HIPC debt relief assistance will amount to Le101 billion, including Le23 billion carried over from 2002.

41. Total expenditure and net lending is estimated at Le725.7 billion or 39.5 percent of GDP. Of this, recurrent and development expenditures will amount to Le490.4 billion or 26.7 percent of GDP and Le234.8 billion or 12.8 percent of GDP, respectively. Domestic contribution to the development budget is projected at Le22.5 billion. Total recurrent expenditure on Goods and Services is increased to Le194.5 billion from Le158.5 billion in 2002. The largest share of the allocation to goods and services goes to the economic and social sectors, whose allocation is increased to Le91.8 billion from Le71.4 billion in 2002. Transfers to the newly established National Revenue Authority (NRA) and Statistics Sierra Leone in 2003 to cover personnel emoluments and other operational costs will amount to Le5.5 billion and Le0.95 billion, respectively. Total interest payments for 2003 are projected at Le77.0 billion, of which domestic interest payments will amount to Le43.9 billion and foreign interest payments Le33.1 billion. An amount of Le6 billion has been allocated to continue the partial amortisation of domestic arrears in 2003.

42. On the basis of the projected domestic government revenue and external budgetary support, and taking into account the Government's major priority expenditures to be spelt out below, the wage bill is increased by 8.5 percent from an estimated Le142.0 billion in 2002 to Le154.1 billion in 2003. This increase in the total wage bill, Mr. Speaker, allows for a moderate structured increase in wages and salaries of between 5-15 percent, distributed across all grades. Future salary adjustments will be related to the results of the ongoing reform of the civil service. Payments for social security contributions will amount to Le10.6 billion.

43. On the basis of these projections, the overall budget deficit excluding grants will amount to Le454.1 billion or 24.7 percent of GDP. The deficit will be financed mostly by external budgetary support. Domestic financing of the deficit is projected at Le40.3 billion or 2.2 percent of GDP. The budget profile for 2003 is attached as Annex 1.

Expenditure Priorities
44. The provision for Goods and Services has been allocated to enhance ongoing key poverty reducing activities in the social and economic sectors consistent with Government's objectives to (i) enhance and improve service delivery, especially in our rural communities for social inclusion; (ii) accelerate economic growth; and (iii) repair the massively damaged economic and social infrastructure. The distribution of the Goods and Services and provisions for the development budget are provided in Annexes 2 and 3, respectively.

45. Mr. Speaker, given the requirements to continue with the strengthening and restructuring of the security sector as UNAMSIL proceeds with its phased withdrawal, an amount of Le42.6 billion is allocated to the Military and Le14.5 billion to the Police to strengthen the police force while gradually expanding its size to prewar levels and capability to maintain internal security. In addition, Government is providing support to the families of military and police officers who were either killed (KIAs) or wounded (WIAs) during the civil conflict.

46. Government recognizes that basic education and health are critical to enhance economic growth, increase income-earning opportunities and reduce poverty. In this regard, an amount of Le44.2 billion is provided to the education sector, of which Le14.0 billion is allocated to Primary Education to enhance the supply of teaching and learning materials, textbooks, school fees subsidies, and the payment of examination fees for the National Primary School Examination (NPSE).

47. A total of Le4.4 billion is also provided for Secondary Education to cover the payment of examination fees for Basic Education Certificate Examination (BECE) and West African Senior Secondary Certificate Examination (WASSCE) while enhancing the provision of textbooks to improve the quality of education. Grants to tertiary educational institutions will amount to Le17.2 billion. The allocation to Youth and Sports is increased from about Le890 million to Le1.5 billion to enhance youth development schemes and sports.

48. The design of an effective, efficient and equitable health system is a key element of the government's post-conflict development agenda. Hence, an amount of Le34.0 billion is provided to the health sector. Of this, Le8.8 billion is allocated to primary health care services, which include maternal, and child health, malaria prevention and control, HIV/AIDS prevention and control. Secondary health care services (district hospitals) will receive Le3.7 billion, while tertiary health care services (referral hospitals) will receive Le8.2 billion. District Health Centres will receive Le5.7 billion. An amount of Le4.7 billion is provided for the procurement of drugs and medical supplies.

49. To revitalise agricultural activities and increase food production, Government is allocating Le8.0 billion to the agricultural sector in 2003, compared to Le4.0 billion in 2002. Key activities in this sector include crop production, veterinary services, land and water development, planning, evaluation and monitoring, forestry conservation and support to agricultural institutions.

50. The Social Welfare Division of the Ministry of Social Welfare, Gender and Children's Affairs will receive Le1.3 billion in 2003 as against Le0.9 billion in 2002, to cover grants to welfare institutions, diets for approved schools and remand homes, and social development programmes. An amount of Le1.7 billion is allocated to the Gender and Children's Affairs Division, of which Le1.1 billion is support to the National Commission for War-Affected Children, mainly for the reintegration of street children.

51. Government is committed to increasing access to safe drinking water, at affordable costs, in both urban and rural areas and to rehabilitate and expand water supply systems to improve health conditions. Government is therefore allocating Le3.2 billion to the Sierra Leone Water Company (SALWACO) to construct wells, improve rural water supply systems and sanitary conditions.

52. The allocation to the General sector is increased to Le34.3 billion for FY 2003 from Le29.7 billion in FY 2002. Specific priority areas in this sector include local government and community development, anticorruption, immigration, audit services, the legislative and judicial services, and information, including mass media services.

53. Mr. Speaker, Government's contribution to the development budget, is doubled from Le11.4 billion in 2002 to Le22.5 billion in 2003, mainly due to the increased requirements for the reconstruction of the social and economic infrastructure to support economic recovery and accelerate growth. A total of Le4.4 billion is allocated for the rehabilitation of trunk and feeder roads, including the Waterloo-Tokeh and the Juba-Sussex segments of the Goderich-Waterloo rural coastal road project.

54. In support of increased food production for the attainment of food security, an additional amount of Le0.8 billion from the development budget is allocated to the Ministry of Agriculture and Food Security to support various agricultural development projects and agricultural institutions.

55. In addition to their allocations under the recurrent budget, a total of Le1.8 billion is allocated to support various health sector projects. The education sector will receive Le1.2 billion for the rehabilitation of the Njala University College, and other tertiary institutions, and the reconstruction and rehabilitation of primary schools.

56. Government places high priority in community and rural development to increase the availability of basic services in rural communities. In this regard, Government is providing an amount of Le0.9 billion for the regeneration of local communities to the Ministry of Local Government and Rural Development. Additionally, in support of other community rehabilitation programmes and the desire to enhance community participation in development programmes, Government is allocating Le1.2 billion to the National Commission for Social Action (NaCSA) to facilitate the implementation of projects by local communities.

57. Government recognizes that fundamental changes are required in energy sector policies. In this context, Government is developing a strategy for private sector participation for power generation, with support from the World Bank. In the meantime, Government is seeking funding from external donors, including the African Development Bank and the Italian Government for the completion of the Bumbuna Hydroelectric dam, which would permit a large increase in power supply. The total cost for the completion of the Bumbuna hydroelectric project is estimated at US$30.0 million. Government is providing an amount of Le1.5 billion as counterpart funds for the project.

58. Preparations for the conduct of a national population census are underway. The United Nation's Fund for Population Activities (UNFPA) is expected to provide funding for the census. This notwithstanding, government has allocated an additional Le0.6 billion to cover costs of cartographic activities, bringing total Government contribution to Le1.1 billion. This is due to the delay in the receipt of donor assistance.

Tax Proposals
59. In recent years, Government has effected progressive reductions in import duties and income tax rates. In this regard, Mr. Speaker, while Government plans to implement the common external tariff of ECOWAS in the near future, technical assistance will be sought to undertake a comprehensive review of the existing tax structures to further enhance the competitiveness of the Sierra Leone economy. With the establishment of the NRA, the review will also determine the efficiency of tax collections while broadening the collection base.

60. In the meantime, all import duty, import sales tax, domestic sales tax and excise tax rates remain unchanged, except that the import duty rates of certain basic educational and primary health products are reduced to 5 percent to increase their availability to improve our national health and educational status.

61. Apart from the changes, which I will announce below, the rates of income and corporate taxes also remain unchanged. However, to minimize the tax burden on many non-resident Sierra Leoneans wishing to invest in landed properties in the country, the rate of tax to be withheld from rents under Section 120 of the Income Tax Act 2000 is reduced from 25 percent to 10 percent and will be a final tax.

62. Furthermore, the maximum redundancy payment or termination benefit that is to be excluded from employment income under paragraph (h) of Sub-section (3) of the Income Tax Act 2000 is hereby increased from Le4,000,000 to Le10,000,000.

63. The rate of tax applicable to mining companies (including those engaged in petroleum exploration) is reduced from 37.5 percent to 30 percent.

64. Finally, with effect from January 2003, all operators of telephone and video centres will be liable to a standard assessment tax.

Conclusion
65. Mr. Speaker and Honourable Members, I want to conclude this statement by expressing my gratitude to my colleagues in Cabinet for their understanding and support, the chairman and members of the Parliamentary Finance Committee for their part in facilitating the budget approval process in Parliament, community leaders who participated in the budget discussions, my staff and staff of the Ministry of Development and Economic Planning, the Bank of Sierra Leone, and Members of the MTEF Technical Committee for their continued support and hard work in meeting tight deadlines. I also wish to recognize the contribution of the Government Printer in producing the printed statement in record time.

66. Finally, the end of conflict has opened up new prospects for achieving sustainable development. With the scale of planned medium-term reform of government matching the long-term investments we are making in education, health, youth, agriculture and rural development, we have made our choices. We now have the best chance to mitigate the risk of renewed conflict while improving the lives of our people and accelerate the reduction of our pervasive poverty. This is the best investment that can be made for the country's long-term security and stability. I, therefore, commend this Budget to the House.

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