Document of The World Bank FOR OFFICIAL USE ONLY Report No. 19463 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF SIERRA LEONE STRUCTURAL ADJUSTMENT CREDIT (Credit 2546-SL) June 21, 1999 Macroeconomics 5 Economic Management and Social Policy Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (as on May 15, 1999) Currency Unit = Leone (Le) US$1 = Lel669 Lel = US$O.000599 GOVERNMENT FISCAL YEAR ABBREVIATIONS AND ACRONYMS AGD Accountant General's Departnent BSL Bank of Sierra Leone ECOMOG Economic Community of West African States Military Observer Group ECOWAS Economic Community of West African States ESAF Extended Structural Adjustment Facility GDP Gross Domestic Product IDA International Development Association IMF International Monetary Fund MOF Ministry of Finance MOFDEP Ministry of Finance, Development and Economic Planning PE Public Enterprise PSMS Public Sector Management Support Project RAP Rights Accumulation Program RIC Reconstruction Import Credit RUF Revolutionary United Front SAC Structural Adjustment Credit SAPDU Structural Adjustment Program Disbursement Unit SDR Special Drawing Rights Vice President Jean-Louis Saibib Country Director Mamadou Dia Sector Manager Emmanuel Akpa Task Team Leader Preeti Arora TABLE OF CONTENTS FOR OFFICL USE ONLY PREFACE EVALUATION SUMMARY Introduction ..............................................i Achievement of Program Objectives ............................................. ii Assessment of Outcome ............................................. iii Lessons Learned ............................................. iii PART I: PROGRAM IMPLEMENTATION AND ASSESSMENT A. Introduction ............................................. .1 B. Program Objectives and Design ..............................................1 C. Achievement of Program Objectives ............................................. 3 D. Major Factors Affecting the Operation ............................................. 7 E. Sustainability ..............................................7 F. Bank Performance .............................................. 8 G. Borrower Performance ............................................. 8 H. Assessment of Outcome ............................................. 9 I. Lessons Learned ............................................. 10 PART II: ATTACHMENT TABLES Table 1: Summary of Assessments ............................................. 12 Table 2: Related Bank Loans/Credits ............................................. 13 Table 3: Project Timetable ............................................. 14 Table 4: Loan/Credit Disbursements ............................................. 14 Table 5: Key Indicators of Program Implementation ........................ ..................... 15 Table 6: Key Performance Indicators * ............................17,,,,,,,,,,,,,,,......., 17 Table 7: Studies Included in Project ............................ 18 Table 8a: Project Costs ............................ 19 Table 8b: Project Financing ............................ 19 Table 9: Economic Costs and Benefits ............................ 19 Table 10: Status of Particular Covenants ............................ 20 Table 11: Compliance with Operational Manual Statements .......................................... 21 Table 12: Bank Resources: Staff Inputs .......................................... 21 Table 13: Bank Resources: Missions .......................................... 22 APPENDIX I BORROWER CONTRIBUTION TO THE ICR ................................................ 23 A. INTRODUCTION ................................................ 23 B PROGRAM OBJECTIVES ............................................................................................................... 23 C. PROBLEMS IN PROGRAM DESIGN AND IMPLEMENTATION .............................................. 24 Public Enterprise Reform .............................................. 24 Lessons Learned ............................................... 25 Civil Service Reform .............................................. 25 Disbursement Procedures .............................................. 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. IMPLEMENTATION COMPLETION REPORT THE REPUBLIC OF SIERRA LEONE STRUCTURAL ADJUSTMENT CREDIT CREDIT: 2546-SL PREFACE This is the Implementation Completion Report (ICR) for the Structural Adjustment Credit (SAC) for Sierra Leone. The SAC, approved on October 14, 1993, was for an amount of SDR 35.9 million (US$50 million equivalent). Four supplemental Credits (2546-1-SL, 2546-2-SL, 2546-3- SL, and 2546-4-SL), part of IDA reflows and totaling SDR 0.64 million were subsequently approved. The Credit was declared effective almost immediately, and the first tranche of SDR 14.3 million (US$20 million equivalent) released on October 15, 1993. The second tranche of US$15 million was released on February 10, 1995, and the third and final tranche of US$15 million was released on December 10, 1996. The Credit which was originally expected to close on June 30, 1996 was extended three times - in June 1996 (for one year), June 1997 (for six months) and December 1997 (for one year). It was fully disbursed and closed on December 31, 1998. The successive extensions of the closing dates were directly linked to the deteriorating security situation in the country. The ICR was prepared by Ms. Preeti Arora (AFTM5) and reviewed by Mr. Emmanuel Akpa, Sector Manager, and Mr. Slaheddine Ben-Halima, Acting Country Director for Sierra Leone. Ms. Paula J. White, the task team assistant also contributed to the preparation of the statistical annex. An ICR mission could not take place due to the prevailing security concerns arising from the escalation of the rebel crisis. Nevertheless, an exchange of views and substantive discussions regarding Credit implementation and lessons learned took place between Bank staff and the Borrower via telephone and electronic mail. The Borrower contributed its own evaluation of the Credit, which is attached as Appendix I. IMPLEMENTATION COMPLETION REPORT THE REPUBLIC OF SIERRA LEONE STRUCTURAL ADJUSTMENT CREDIT CREDIT: 2546-SL EVALUATION SUMMARY Introduction 1. Post-independence Sierra Leone suffered from a political and governance crisis characterized by an absence of peace, security and social inclusiveness. Poor governance in Sierra Leone is linked to the corrupting influence of Sierra Leone's tremendous diamond wealth, and has - over time - led to increasing ethnic tensions and the politicization of the armed forces. A cycle of political patronage, falling standards and economic decline in the early 1980s, deterioration of public services, and a feeling of exclusion resulting in frustration and discontent among the youth determined the course of events in the 1990s, comprising several coup d'etats, a protracted rebel war, and interrnittent civil unrest. 2. Faced with. an increasingly desperate situation, the Government began, in early 1989, to implement reform measures aimed at stabilizing the economy and laying the foundations for sustained economic growth. By 1993, with support from the Bank and the Fund, there was reasonable progress on both the macroeconomic and structural fronts. However, program implementation over the years was disrupted by political instability and physical insecurity when the rebel war broke out in 1991. 3. The Structural Adjustment Credit (SAC) was approved in October 1993 in the amount of SDR 35.9 million (US$50 million equivalent) to support the second phase of the Government's reform program. The SAC was designed to be disbursed in three tranches over a period of 24 months. However, the Credit was extended three times and finally closed on December 31, 1998. The successive extensions of the closing dates were directly linked to the deteriorating security situation in the country which made implementation of certain reforms difficult. 4. The reforms supported by the SAC were expected to help maintain macroeconomic stability, facilitate a supply response and reduce poverty. Following the successfully completed Reconstruction Import Credit (RIC), it sought to further deepen the reforms supported by the RIC in the following areas: (i) trade and exchange rate policies; (ii) fiscal management; (iii) civil service reform; and (iv) public enterprise sector reform. It also supported private sector development through the reform of the financial sector, the legal and regulatory framework, and the indirect taxation system. Financially, the SAC directly benefited Sierra Leone by providing: (i) foreign exchange for imports of essential goods; and (ii) budgetary support for priority public expenditures. 5. The main risks facing the program were identified as: (i) possible deterioration in the security and political situation; (ii) delays in donor commitments leading to underfunding of the program; and (iii) weak implementation capacity. -11- Achievement of Program Objectives 6. The very ambitious reform agenda supported by the SAC was implemented under difficult circumstances of weak capacity, political instability and physical insecurity. Modest achievements were made in terms of overall program objectives. However, progress was uneven over time as well as across specific program objectives. On the macroeconomic front, the Government's overall stabilization efforts have not been sustained over the life of the operation. Inflation soared up to 67 percent on an annual basis in 1997 from 22 percent in 1994. 7. Efforts to improvefiscal management also achieved partial success. The Government took several steps to lay the foundation for sound public expenditure management. A new budgeting system was adopted in 1994/95 which provides a framework to plan, record, monitor and control expenditures, including development and capital outlays as part of a unified budget. With a view to improve expenditure control at the commitment level and monitoring of budget implementation, a new computerized accounting system was adopted. However, the rebel war and the lingering instability delayed full implementation of these reforms. The structure of expenditures shifted to reflect the priorities of the Government with allocations for the social and economic sectors increased substantially --in proportion to the availabilities-- throughout the SAC implementation period. Despite the reduced revenue base due to the depressed economy, revenue collection was strengthened following improved administration and periodic revenue measures adopted by the Government. 8. In the area of civil service reform, a census of the permanent civil service staff was carried out in early 1996. While actions were taken based on the report, it has now become ajpparent that there were many shortcomings, including difficulties regarding verification of the number of staff on the payroll. Results of the job inspection and functional reviews of three out of the five departments identified under the Credit were implemented. Civil service salaries and allowances were also reviewed. However, due to revenue shortfalls, a structured salary scale could not be introduced as planned for the 1995/96 budget. 9. The public enterprise reform component was the most difficult and challenging. After an uneven start, the Government made good progress in several areas, leading to the reduction of the fiscal burden and raising the efficient delivery of some services. A number of factors intervened to prevent the completion of the transactions for several enterprises, notably: (i) depressed market conditions; (ii) the security situation which made physical access to some PEs impossible; (iii) inaction by the military Government in the latter half of 1995 due to distractions caused by the preparations for democratic elections, and the internal security situation; and (iv) capacity constraints, especially on the legal front. This was one of the main reasons for the delay in the release of the third tranche. On the basis of the progress made in this area in terms of transactions completed, in light of the transparent process' through which it was achieved, and the Govemment's genuine commitment to see the reform program through, a waiver of this condition for the release of the third tranche was granted. Actions regarding most of the enterprises for which a waiver was granted were completed by May 1997. Sales of assets and shares of public enterprises was through local/international competitive bidding, all proposals were evaluated by a technical committee including an international field expert, and the names of bidders and the value of their bids, as well as the name of the successful bidder and the final sale price were made puiblic. -iii- Assessment of Outcome 10. An assessment of the outcome of the Credit should take into account the ups and downs in the security situation and how these affected program implementation. Having succeeded in implementing most of the reforn measures it had worked out with the Bank, the Government obtains a satisfactory rating in that regard, yet there was not much progress in the overall objective of poverty reduction. Performance rating had been downgraded to unsatisfactory in the Form 590 after the coup d'etat in May 1997. 11. Despite the commitment shown by the Government, economic growth was muted. Exports were lower at the end of the program than at the beginning. This was due to the closing of the rutile and bauxite mines following rebel attacks and rebel occupation of the diamond mining areas. There remains a reliance on foreign funding to fill the balance of payments gap and to finance critical budgetary expenditures. Given the large-scale displacement of the population, it is not unlikely that the extent of poverty has worsened. 12. No discernible progress was made towards fiscal and financial stability, accelerating GDP growth and reducing poverty. The macroeconomic situation can be expected to strengthen as the security situation improves, the conflict subsides, and is finally resolved and normal conditions return. A sustained supply response would then be forthcoming as the country settles down and internal shocks become a thing of the past. Lessons Learned 13. Three key lessons learned from the implementation experience of the SAC are: (i) program design should be simple and address few but high priority issues, and if necessitated by circumstances the program should be revised midstream; (ii) flexible floating tranche arrangements should be used for particular elements of the reforrn program with significant uncertainty with regard to the timing of implementation, to avoid unforeseen delays in tranche release which could jeopardize the overall financing plan; and (iii) design of the program must address the risks inherent in its implementation. 14. Simple program design. In a country with weak implementation capacity, measures in the Government's overall reform program should be ranked by priority, and only those attributed the highest priority by the Government should be included in the Credit. Civil service reform should be handled separately, given its complex nature and the long time required to achieve the desired outcome. Mid-stream revision of the program and re-assessment of the Credit should be undertaken if the country circumstances have changed. At the same time, institutional capacity must be built to facilitate program implementation. This could be done as part of the Credit or may be done through an accompanying capacity building project. The PSMS project that accompanied the SAC played a critical role in building institutional capacity. The Fiscal Monitoring Committee and the SAPDU, both established under the PSMS project to help implement the program supported by the RIC, continue to monitor the Government's program. 15. Floating tranche arrangement. The PE reform component slowed down the release of the second and third tranches considerably for reasons mentioned earlier. Given the slowdown in the economy, Government revenues were dwindling. At the same time, resource requirements to end the rebel war and provide basic services were growing. If the PE reform component was -iv- linked to a floating tranche, part of the resources could have been released when non-PE components advanced. The hardship experienced by the Government as a result of delays in tranche release, owing to slow progress on the PE component, could thus be avoided. 16. Addressing the risks. Program design must address the risks associated withi an uncertain security situation, political will of the stakeholders, especially those who stand to lose from the reforms, and limited institutional capacity. Parallel projects, by Bank or bilaterals,, that address some of the issues that underlie the conflict and can reduce the likelihood of the escalation of the conflict escalating into a large scale civil unrest should be considered as part of the overall package. Such projects could include creation of social safety nets, employment schemes and civic education. Activities aimed at creating ownership through wide consultations, in order to minimize influence of those who stand to lose from the reforms, would also increase the likelihood of successful implementation and sustainability of the outcomes of reforms. 1 PART I: PROGRAM IMPLEMENTATION AND ASSESSMENT A. Introduction 1. Sierra Leone is endowed with substantial mineral wealth, fertile agricultural land, and rich fisheries. Notwithstanding these abundant resources, the per capita income is estimated to be only US$140 (1998) and more than two-thirds of the population lives in absolute poverty. While standard drawback of heavy reliance on primary commodities has been partially responsible for this situation, the more fundamental reasons are inappropriate government policies and poor governance. Post-independence Sierra Leone suffered from a political and governance crisis characterized by an absence of peace, security and social inclusiveness. Poor governance in Sierra Leone is linked to the corrupting influence of Sierra Leone's tremendous diamond wealth, and has - over time - led to increasing ethnic tensions and the politicization of the armed forces. A cycle of political patronage, falling standards and economic decline in the early 1980s, deterioration of public services, and a feeling of exclusion resulting in frustration and discontent among the youth determined the course of events in the 1990s, comprising several coup d'etats, a protracted rebel war and intermittent civil unrest. 2. Faced with an increasingly desperate situation, the Government began, in early 1989, to implement reform measures aimed at stabilizing the economy and laying the foundations for sustained economic growth. These measures were supported by the international community, including the Bank and the Fund, the former through the Reconstruction Import Credit (RIC), and the latter through a Rights Accumulation Program (RAP) followed by a parallel SAFJESAF arrangement. By 1993, there was reasonable progress on both the macroeconomic and structural fronts. However, program implementation over the years was disrupted by political instability and physical insecurity when the rebel war broke out in 1991. Progress on program implementation was uneven, with successes in some periods negated by downturns that followed (para. 12). The RIC closed in December 1993. B. Program Objectives and Design 3. Expecting a speedy end to the rebel war, the Govemment of Sierra Leone prepared the second phase of its reform program. The Structural Adjustment Credit (SAC) was approved in October 1993 to support this program. The Government's program was also supported by the IMF under a three year parallel SAF/ESAF arrangement, which was approved in February 1994 following the successful completion of the RAP. 4. The SAC, approved on October 14, 1993, was for an arnount of SDR 35.9 million (US$50 million equivalent). It was declared effective almost immediately, and the first tranche of SDR 14.3 million (US$20 million equivalent) released on October 15, 1993. The second tranche of US$15 million was released on February 10, 1995, and the third and final tranche of US$15 million was released on December 10, 1996. Four supplemental Credits (2546-1-SL, 2546-2-SL, 2546-3-SL, and 2546-4-SL), part of IDA reflows and totaling SDR 0.64 million were also disbursed during this period. The Credit, which was originally expected to close on June 30, 1996 was extended three times - in June 1996 (for one year), June 1997 (for six months) and December 1997 (for one year). It was fully disbursed and closed on December 31, 1998. The -2- successive extensions of the closing dates were directly linked to the deteriorating security situation in the country (see below). 5. The reforms supported by the program were expected to help maintain macroeconomic stability, facilitate a supply response, and reduce poverty. Following the successfully completed RIC, it sought to further deepen the reforms supported by the RIC in the following areas: (i) trade and exchange rate policies; (ii) fiscal management; (iii) civil service reform; and (iv) public enterprise (PE) sector reform. It also supported private sector development through the reform of the financial sector, the legal and regulatory framework, and the iniirect taxation system. Financially, the SAC directly benefited Sierra Leone by providing: (i) foreign exchange for imports of essential goods; and (ii) budgetary support for priority public expenditures. The main risks facing the program were identified as: (i) possible deterioration in the security and political situation; (ii) delays in donor commitments leading to underfunding of the program; and (iii) weak implementation capacity. 6. Macroeconomic Stability. A stable macroeconomic environment was considered pivotal by the Government for the success of its efforts to restructure the economy and resume sustainable growth. The medium-term reform program aimed to achieve specific targets with regard to price stability, per capita income growth, budget deficit and government borrowing from the central bank. 7. Trade and Exchange Rate Policies. The objectives in trade and exchange policies were to broaden the tax base and promote efficient import substitution. The program sought to do this by further rationalizing the tariff structure and removing the distortions in the indirect tax system; simplifying the regulatory procedures for exporting; repealing the Development of Industries Act of 1983 (which sought to promote industrialization through directed import substitution) and replacing it with a new incentive framework to be incorporated into the income tax and customs laws; and introducing a duty drawback system for non-traditional exports2. A market determnined exchange rate, with free operation of the bureaus as well as the commercial banks in the foreign exchange market was considered essential for maximizing the flow of exports through official channels. 8. Fiscal Management. The Government sought to improve fiscal management through reforms aimed at enhancing the efficiency of public spending and revenue mobilization. The former was supported by IDA-financed technical assistance for the posts of budgetlexpenditure controller in five key ministries, and the provision of logistical support and training for the Auditor General's and the Accountant General's departments. At the same time, allocations for the social and economic sectors were to be increased in real terms by at least 5 percent annually. On the revenue front, the Government planned to completely overhaul and modernize the income tax system. 9. Civil Service Reform. Restoration of civil service efficiency and capacity for delivery of essential public services was an important objective of the Government's adjustment program. 2 Removal of import and export licensing requirement (except for gold and diamonds), removal of public enterprise trading monopolies, removal of quantitative restrictions on imports, rationalization of duty rates on imported goods - with the reduction in the number of tariffs from 19 to 7, and lowering of the maximum rate from 100 to 65 percent were already accomplished under the RIC. -3- The SAC aimed to address the issues of: (i) rationalization of the functions, organizations, and staffing structures in the major departments, including retrenchment of redundant staff; and (ii) institutional and administrative reforms, including the reform of the wage negotiating system and improved personnel management systems. These measures were to be implemented in a way consistent with fiscal prudence and availability of resources. 10. Public Enterprise Reform. The Government's policy for the public enterprise sector, consisting of 44 enterprises, called for the privatization of those enterprises whose activities could be performed more efficiently by the private sector. The Public Enterprise Reforn and Divestiture Commission set up under the RIC was to continue the implementation of the program. Under the RIC, actions had been completed or were at an advanced stage for eight enterprises. The SAC supported program established a timetable to privatize 5 enterprises; liquidate/sell the assets of 6 enterprises; divest Government's shares in 5 enterprises; and enter into management contracts for 3 enterprises. 11. Financial Sector Reform. The Government wanted to address the problems associated with legislative inadequacies, lax prudential framework, and excessive liquidity of the commercial banks in the sector that was small and suffered from high costs of financial intermediation. In order to create a stronger and more effective central bank, the Government decided to amend the Bank of Sierra Leone (BSL) Act and the Banking Act of 1971. Pending the passage of the new Acts, the BSL was expected to develop and implement prudential bank lending and capital adequacy guidelines. As part of an exercise to improve banking supervision, it was decided to reorganize the Bank of Sierra Leone following a management audit. Certain other actions by the BSL, including on-site inspection of at least two financial institutions, and periodic surveys of bank charges and interest rates (to be published regularly) were also to be taken to strengthen the financial sector. C. Achievement of Program Objectives 12. The very ambitious reform agenda supported by the SAC was implemented under difficult circumstances of weak capacity, political instability and physical insecurity. The military government that negotiated the SAC in 1993 was unable to put an end to the rebel war. Following free and fair democratic elections, the Government of President Kabbah took office in March 1996. An uneasy peace accord with the rebel army, the Revolutionary United Front (RUF) was signed in November 1996 when popular sentiment condemned fighting, paving the way for constitutional rule. Peace was, however, elusive. After less than one year in office, the Government was overthrown in a bloody military coup d'etat in May 1997. The military joined hands with the RUF, and nine months of mis-rule and policy reversal followed. The constitutional Government was restored to power by the ECOMOG forces in March 1998, and program implementation resumed once again. 13. Modest achievements were made in terms of overall program objectives. However, progress was uneven over time as well as across specific program objectives. The pace of reforms slowed down considerably in 1994-95 largely due to the escalation of the rebel war, and came practically to a halt in mid-1997, after a short-lived spurt in 19963 when the newly elected 3 Nearly 2 million of Sierra Leone's population of 4.5 million was displaced, causing a sharp drop in agricultural production, including coffee and cocoa. Diamond mining activity declined significantly as repeated rebel attacks -4- government gained an upper hand over the RUF with the help of the services of external military contractors. 14. The SAC effectively completed the reform agenda in key areas such as trade, exchange rate, and price liberalization. The exchange rate continues to be determined freely in the interbank market and all administered prices have been abolished. In addition, all quantitative restrictions on imports have been removed and the major tariff reforms implemented in 1993-94 remain in effect. Reforms have also led to a reduction in the Government's role in the economy through the privatization of several state-owned enterprises, removal of impediments to commercial activities and improvements to the delivery of government services. Reform of taxation and the regulatory framework, including financial regulations, reached an advanced stage by 1996. 15. Macroeconomic Policies. The Government remained committed to the implementation of macroeconomic policies throughout the SAC execution period. Though the budget deficit (on a commitment basis) increased to about 8 percent of GDP in 1997 from 6.3 percent of GDP in 1993/94, this was due to the developments in the security situation as explained below (para. 16). Similarly, inflation on a year-end basis jumped from 22 percent in 1994 to 67 percent in 1997. There were large revenue shortfalls, particularly in the receipts from petroleum excise and customs duties, and revenues from bauxite and rutile mining operations. In addition, emergency defense expenditures increased sharply as the Government intensified its campaign against the rebels. 16. In 1996, the military govemment gained the upper hand, the security situation improved, and elections brought in a civilian administration. The new Government's proclaimed commitment to reforms began to be translated into progress and the deficit fell to 6.8 percent of GDP and inflation declined to about 6 percent in 1996 on an end-period basis as compared to 9.8 percent and 35 percent respectively in 1995. This was reversed within a year. Government finances deteriorated during the course of 1997 against the backdrop of a virtual cessation in mining revenues, a sharp reduction in customs revenues due to a trade embargo:, and mounting expenditures on generally non-productive activities. Severe foreign exchange shortage, as a result of cessation in mining activity and in donor-financed project and program aid, led to a nearly 100 percent depreciation of the exchange rate, to over Le 1600 to the US Dollar. 17. With the return of elected government and the restoration of political stability in March 1998, the Government resumed the implementation of its economic reform program. Efforts were made to re-establish fiscal and monetary discipline. These efforts were short-lived as another major attack by the rebels in January 1998 slowed down the reform momentum. 18. Overall, the stabilization efforts of the Government have not been sustained over the life of the operation. However, this was largely due to factors outside the direct control of the Government (the escalation of the rebel crisis) rather than a lack of commitment on the part of the Government (see Section D). While it was hoped at the time of project preparation that the drove miners and dealers out of the diamond mining areas. Moreover, rebel attacks led to the closure of the rutile and bauxite mines, drastically reducing foreign exchange receipts and fiscal revenues. Exports of rutile and bauxite, about $70 million in 1994 (60 percent of Sierra Leone's total exports for 1994) dropped to zero in 1995. The uncertainties created by the rebel attacks negatively affected business confidence and general economic activity. GDP declined by 10 percent in 1995. -5- security situation would improve or at least not deteriorate, adjustments were made in the performance targets at the time of the joint Bank supervision and IMF mid-term review mission to accommodate these adverse developments. 19. Fiscal Management. Efforts to improve fiscal management achieved partial success. The Government took several steps to lay the foundation for sound public expenditure management. A new budgeting system was adopted in 1994/95 which provides a framework to plan, record, monitor, and control expenditures, including development and capital outlays as part of a unified budget. Efforts were made to strengthen the capacity in the Ministry of Finance, Development and Economic Planning (MOFDEP) as well as four other key line ministries. Significant reforms in the Accountant General's Department (AGD) have taken place, both in terms of human resources and accounting systems. With a view to improve expenditure control at the commitment level and monitoring of budget implementation, a new computerized accounting system was adopted. However, the rebel war and the lingering instability delayed full implementation of these reforms. 20. The structure of expenditures shifted to reflect the priorities of the Government, with allocations for the social and economic sectors increased substantially, in proportion to the availabilities, throughout the SAC implementation period. The allocations for non-salary, non- interest recurrent expenditures for the social sectors were increased from 16 percent of the total non-salary, non-interest recurrent expenditures in 1992/93 to 35 percent in 19964. The share was increased further to 41 percent in 1997. While the allocations were increased, the actual spending was much lower, largely because of higher emergency defense expenditures as the Government intensified its campaign against the rebels. The economic sectors were hit the hardest. Against an allocation of 17 percent of total non-salary, non-interest expenditures, the actual outcome was only about 7 percent in 1996. Even during such periods, an attempt was made to protect social sector spending. The non-salary, non-interest recurrent expenditures for the social sectors was always in the range of 25 to 30 percent of the total non-salary, non-interest recurrent expenditures, the target specified in the operation. 21. On the revenue front, although the depressed economy reduced the revenue base for most of the period under consideration, administrative, training and consultancy support, provided to the Income Tax Departnent under the PSMS project and from the IMF, has helped strengthen revenue collection. Further, the Government took several steps to boost its revenue performance. These included periodic increases in petroleum excise tax, an increase in sales tax from 17.5 percent to 20 percent in 1994 and an extension of the foreign telecommunication tax of 10 percent to all domestic calls. The resulting pump prices of petroleum products were close to the prices prevailing in neighboring countries. Despite these efforts, actual revenues were below the targets specified in the budget, except for 1993/94. With respect to the modemization of the income tax system, a revised income tax legislation was prepared, with the assistance of the IMF, to replace the existing complicated tax system which was difficult to understand and implement. However, a change in Government, and subsequent further instability kept the draft legislation from being enacted. Nevertheless, the associated simplified procedures have been implemented. 22. Civil Service Reform. A census of the permanent civil service staff was carried out in early 1996. While actions were taken based on the census report, it has now become apparent 4 The fiscal year was changed to the calendar yearfrom 1996 onwards. -6- that there were several shortcomings, including difficulties regarding verification of the number of staff on the payroll. There is no consensus on the number of civil servants - the lists prepared by the Accountant General's Office being significantly different from those prepared by the Establishment Secretary's office (especially for the big Ministries). The results of the job inspection and functional review of the Departments of Works, Finance, and Health were implemented, while rationalization of the Departments of Agriculture, and Education was proposed to be completed in the context of their respective Sector Investment Programs. Based on the recommendations, the program accomplished reductions in staff, rnainly through retrenchment of redundant daily workers and temporary staff and removal of "ghost workers". The sector investment programs for agriculture and education have not yet been. realized. It is well recognized by the Bank and the Government that these two Ministries5 are beset with the greatest problems with respect to staff levels, as well as efficient delivery of senrices. Delays in rationalizing their structure therefore reflects, in some sense, failure of the reform effort. 23. The Government reviewed civil service salaries and allowances. Identified job categories numbered 400, and the study revealed that remuneration levels for professional ranks in the public sector was less than one-fourth of those in the parastatal sector and less than one-seventh of those in the private sector. Following the recommendations of the study, Government planned to introduce a new structured salary scale in the 1995/96 budget. This was not accomplished given severe revenue shortfalls due to the rebel war. 24. Public Enterprise Reform. The most difficult and challenging component of the SAC was that of public enterprise reform. After an uneven start, the Government made good progress in several areas, leading to the reduction of the fiscal burden and raising the efficient delivery of some services. It divested its shares in several public enterprises, including the Sierra Leone Petroleum Refining Company, Bennimix Baby Food Company, and Sierra Fishing Company. Wellington Distilleries and the National Diamond Mining Company, which had all but ceased operations, were liquidated. Management contracts with utility companies were instituted, resulting in an improvement in key services like water and power. The Government also signed a management contract with the Sierra Leone State Lottery Company, which began to make a contribution to government revenues. Four government hotels--Bintumani, Mammy Yoko, Lungi, and Cape Sierra--have been leased. A number of factors intervened to prevent the completion of the transactions for several enterprises, notably: (i) depressed market conditions; (ii) the security situation which made physical access to some PEs impossible; (iii) inaction by the military Government in the latter half of 1995 due to distractions caused by thee preparations for democratic elections, and the internal security situation; and (iv) capacity constraints, especially on the legal front. This was one of the main reasons for the delay in the release of the third tranche. On the basis of the progress made in this area in terms of transactions completed, and in light of the transparent process6 through which it was achieved, and the Government's genuine commitment to see the reform program through, a waiver of this condition for the release of the third tranche was granted. Actions regarding most of the enterprises for which a waiver was granted were completed by May 1997. 5 With the establishment of a Parliamentary form of Govenument, the Departments were renamed as Ministries. 6 Sales of assets and shares of public enterprises was through locaVinternational competitive bidding, all proposals were evaluated by a technical committee including an international field expert, and the names of bidders and the value of their bids, as well as the name of the successful bidder and the final sale price were made public. -7- D. Major Factors Affecting the Operation 25. Factors within the control of the Authorities. Political instability during the period slowed down the implementation of reforms under the SAC. This was particularly the case for the public enterprise reform component during the transition from the military to the democratic rule. Several months prior to the elections, the military government became pre-occupied with the election process, thus overlooking the reform program and slowing down progress. The coup d'etat in May 1997 also affected program implementation. 26. Weak implementation capacity of the Government also contributed to the slow disbursement of proceeds from the Credit in areas other than for large contracts for supply of petroleum products. The release of the second and third tranches were somewhat delayed due to slow progress in implementing the reforms. While the third tranche was released in December 1996, a remnant of about US$2 million was only disbursed in December 1998, after the return of the elected government to office. 27. Factors outside the control of the Authorities. The support provided to the rebels by neighboring countries led to external stimulation of political instability in Sierra Leone. The escalation of rebel activities intermittently from 1995 onwards diverted Government's scarce resources, from social and economic sectors into military spending, in order to bring the rebel war to an end. The concurrent slowdown in economic activities led to severe shortfalls in Government revenues. 28. The closure of the rutile and bauxite mines since January 1995, following rebel attacks, also had a negative impact on the Government's revenue base. Although concerns about security were key factors, the reopening of the rutile mine also required a huge investment. The foreign investors operating the bauxite mine decided not to reopen the mine because the world market prices did not warrant a sufficient return on their investment. E. Sustainability 29. The Government's commitment, demonstrated by its ability to follow sound economic policies despite the unstable political and security conditions, gives some reassurance that reforms are likely to be sustained once peace is re-established. To increase chances for their sustainability, the Government has launched a program of broad national consultations to establish strong local ownership. Furthermore, efforts to raise public awareness about the expected social benefits will strengthen the coalition supporting the reforms and facilitate its implementation. However, delays in finding a lasting solution to the lingering security problems will threaten the sustainability of the reforms undertaken thus far. If the Government is unable to quickly address the issue of high youth unemployment, the likelihood of disaffected youth joining hands with the rebels will increase and peace will become. more distant. With an unstable political situation, there also exists a risk for policy reversal owing to pressures from parties that stand to lose from the reforms. The resulting slowdown in the momentum of the reform program could diminish the goodwill and support of the donor community, and may lead to funding gaps. 30. On the policy front, strict fiscal discipline remains a key to success in stabilizing the economy. Several measures were taken under the SAC to strengthen institutions and ensure -8- fiscal discipline. The capacity of the Ministry of Finance and several other line rninistries has been strengthened. Significant reforms in the Accountant General's Department have taken place, both in terms of human resources and accounting systems. With a view to effecting greater expenditure control at the commitment level and monitoring budget implementation, a new computerized accounting system has been adopted. However, in the face of political instability, the Government has not been very successful in implementing these systems effectively. This constraint is expected to be overcome with the return of peace and stability. 31. The issue of weak institutional capacity is also being addressed under the orngoing Public Sector Management Support Project, which would be followed by an Institutional Capacity and Governance Project. In addition, increased reliance on the private sector will ease some of the capacity constraint. A follow-up Credit is also being planned and is designed to support the continuation of measures that will help maintain macroeconomic stability, generate a sustained supply response and reduce poverty. F. Bank Performance 32. Bank staff assisted the Govemment in preparing its adjustment program aimed at macroeconomic stabilization and structural adjustment in order to lay the foundation for sound economic growth and poverty reduction. Although the SAC was intended to deepen the reforms initiated under the RIC, it had a large number of components; furthermore, there were 14 conditions, besides the maintenance of a satisfactory macroeconomic framework, for the release of the second and third tranches. Some of the conditions consisted of several actions. Thus, while the overall program design may have appeared simple, its implementaticin was quite complex, particularly with regard to the public enterprise reform component -- owinig to limited Government capacity and a precarious security situation. Despite the availability of technical assistance, this component could not be fully implemented (para. 24) and a waiver was requested for the release of the third tranche. 33. Notwithstanding the delays caused by prolonged rebel activities, Bank staff sustained supervision, and supported implementation throughout. The Public Sector Management Support (PSMS) project, which accompanied the RIC, also supported implementation of the SAC. The PSMS project financed many activities, including: technical assistance to strengthen fiscal management in key line ministries; several studies on the civil service reform component; preparation of background documents for divestiture of public enterprises; and a management audit of the central bank. When the release of the third tranche was delayed due to the slow pace of implementation, Bank and Fund staff coordinated efforts with other donors --especially the bilaterals-- to help bridge the financing gap until the SAC funds became available. The continuity in the Bank team also facilitated the implementation of the Credit. G. Borrower Performance 34. Overall, successive Govemments have shown strong commitment to the program, despite continued security problems that affected all aspects of the economy, and the tranasition from military to democratic rule. The Govemment performed well on the macroeconomic stabilization front, as well as in the liberalization of the incentive framework for private sector development. Public expenditure management showed signs of improvement, though progress -9- has been uneven. There were delays, especially in the in PE sector, which delayed release of the second and third tranches. The inability of the Government to rapidly execute the PE reforms as scheduled prior to the deterioration of the security situation may suggest some ambivalence on its part about the pace of reforms in this area. 35. Generally, the Government implemented all the reform measures specified in their Letter of Development Policy, albeit with some delays - some of which were not directly under its control. All the studies planned were commissioned and their recommendations implemented within budgetary parameters. The recommendations with regard to a new civil service salary structure could not be implemented because of severe revenue shortfalls due to the war. However, a new grading structure has been implemented and the number of grades has been reduced to 14. 36. Goods and services financed under the Credit were procured according to the eligibility criteria and the procurement procedures as set forth in the legal documents. The Structural Adjustment Program Disbursement Unit (SAPDU) created under the RIC continued to monitor procurement and disbursement procedures under the Credit. In one instance, the Government requested a line of credit to be opened for an amount that exceeded the undisbursed balance under the second tranche of the Credit. However, the Borrower credited IDA for the payment made by the Bank under this line of credit when the release of the third tranche was delayed. A Structural Adjustment Program Steering Committee closely monitored implementation of the agreed actions under the Credit. 37. The SAC accounts were promptly audited every year, except for the period July 1, 1997 to June 30, 1998 when Sierra Leone was in non-accrual status and no disbursements were made under any Credit. It was agreed with the Operations Support Unit of the Africa Region that the Govemment need not engage any firm to undertake an audit for this period given the account inactivity. The audited accounts for the six months ending December 1998 are currently being prepared. All covenants were complied with, a few with some delay. H. Assessment of Outcome 38. An assessment of the outcome of the Credit should take into account the ups and downs in the security situation and how these affected program implementation. Having succeeded in implementing most of the reform measures it had worked out with the Bank, the Government obtains a satisfactory rating in that regard, yet there was not much progress in the overall objective of poverty reduction. Performance rating had been downgraded to unsatisfactory in the Form 590 after the coup d'etat in May 1997. With the restoration of the democratically elected government in March 1998, the reforrn program resumed in earnest and the rating was upgraded to satisfactory. 39. Despite the commitment shown by the Government, economic growth was muted. Exports were lower at the end of the program than at the beginning. This was due to the closing of the rutile and bauxite mines following rebel attacks and rebel occupation of the diamond mining areas. There remains a reliance on foreign funding to fill the balance of payments gap and to finance critical budgetary expenditures. Given the large-scale displacement of the population, it is not unlikely that the extent of poverty has worsened. -10- 40. No discernible progress was made towards fiscal and financial stability, accelerating GDP growth and reducing poverty. The macroeconomic situation can be expected to strengthen as the security situation improves, the conflict subsides, and is finally resolved and normal conditions return. A sustained supply response would then be forthcoming as the country settles down and internal shocks become a thing of the past. I. Lessons Learned 41. Three key lessons learned from the implementation experience of the SAC are: (i) program design should be simple and address few but high priority issues, and if necessitated by circumstances the program should be revised midstream; (ii) flexible floating tranche arrangements should be used for particular elements of the reform program with significant uncertainty with regard to the timing of implementation, to avoid unforeseen delays in tranche release which could jeopardize the overall financing plan; and (iii) design of the program must address the risks inherent in its implementation. 42. Simple program design. In a country with weak implementation capacity, measures in the Government's overall reform program should be ranked by priority, and only those attributed the highest priority by the Government should be included in the Credit. Given the complexities of civil service reform in most countries and the longer time frame required to achieve the desired outcome, this component should be handled separately. The adjustment credit should only address upstream actions to launch the civil service reform program. Mid-streani revision of the program and re-assessment of the Credit should be undertaken if the country circumstances have changed. At the same time, institutional capacity must be built to facilitate program implementation. This could be done as part of the Credit or may be done through an accompanying capacity building project. The PSMS project that accompanied the SAC played a critical role in building institutional capacity. The Fiscal Monitoring Committee and the SAPDU, both established under the PSMS project to help implement the program supported by the RIC, continue to monitor the Government's program. 43. Floating tranche arrangement. The PE reform component slowed down the release of the second and third tranches considerably for reasons mentioned earlier. Given the slowdown in the economy, Government revenues were dwindling. At the same time, resource requirements to end the rebel war and provide basic services were growing. If the PE reform component was linked to a floating tranche, part of the resources could have been released when non-PE components advanced. The hardship experienced by the Government as a result cf delays in tranche release, owing to slow progress on the PE component, could thus be avoided. 44. Addressing the risks, Program design must address the risks associated with an uncertain security situation, political will of the stakeholders, especially those who stand to lose from the reforms, and limited institutional capacity. Parallel projects, by Bank or bilaterals, that address some of the issues that underlie the conflict and can reduce the likelihood of the escalation of the conflict into a large scale civil unrest should be considered as part of the overall package. Such projects could include creation of social safety nets, employment schemes and civic education. Activities aimed at creating ownership through wide consultations in order to minimize influence of those who stand to lose from the reforms, would also increase the likelihood of successful implementation and sustainability of the outcomes of reforns. 11 PART II: ATTACHMENT TABLES Table 1: Summary of Assessment Table 2: Related Bank Loans/Credit Table 3: Project Timetable Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators of Program Implementation Table 6: Key Performance Indicators Table 7: Studies Included in Project Table 8a: Project Cost Table 8b: Project Financing Table 9: Economic Costs and Benefits (not applicable) Table 10: Status of Particular Covenants Table 11: Compliance with Operational Manual Statements (not applicable) Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions 12 Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not applicable Macro Policies Sector Policies Financial Objectives 5 5 [J Institutional Development 5 E 5 5 Physical Objectives I] Poverty Reduction [: ] Gender Issues Other Social Objectives El Environmental Objectives I 5 0 Public Sector Management x El Private Sector Development 5 5 Other (specify) 5 5 5 5 B. Project Sustainbility Likel Unlikely Uncertain Highly C. Bank Performance satisfactory Satisfactory Deficient Identification 5 5 E Preparation Assistance ] (E s Appraisal 5 x 5 Supervision 5 E ] Higl D. Borrower Performance satisfactory SatisfactorY Deficient Preparation (El E] Implementation 5 5 Covenant Compliance [( El Highly E. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactory O 0 [E El -13- Table 2: Related Bank Loans/Credits ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . . .. .... ............ ..... . . . .. .... . . . . . .. . ......... .-... ........ .. ,,-.-._ : -: , : ,.: - . ... ......... ...... , .,.,,,, ,, , - ........ : :- - -. - -- : -: : - -.... . .... ... .. Lian/crit Titl f'P.roeSau Preceding operations Reconstniction Import Improving fiscal management. Finance FY1992 Closed Credit import of petroleum products, essential raw materials and spare parts which would have a significant stabilizing effect on the budget and the economy. Public Sector Providing technical assistance required FY1992 Closes on Management Support for the successfil implementation of June 30, 1999 Project the Government's program. Following operations Debt Buyback Reduction of Sierra Leone's FY1995 Closed Operation from the commercial debt consisting of US$292 Debt Reduction Facility million of principal and US$118 for IDA-Only Countries million of interest arrears. Health Sector Supporting Government's refonn effort FY95 Implementation Investment Credit in the health sector based on its in progress National Health Action Plan -14- Table 3: Project Timetable : lL :E \E i ~~........... EiE. . ........ . , . -- . -.......... . - ..... ... . .. .. .. . ................... ,i. ... !.-i.. t:'i0: i:0T:--S0te;tVA sps in Projet Cyce RA;- :,; ;;,-;.-Date Planned D-At !'at' sdRuG ilA Identification (Executive Project Summary) July 1993 Preparation March-August 1993 Appraisal June 8, 1993 Negotiations Aug. 16-19, 1993 Letter of Development/Sector Policy (if applicable) . September 13, 1993 Board Presentation October 14, 1993 October 14, 1993 Signing October 15, 1993 October 15, 1993 Effectiveness October 15, 1993 October 15, 1993 First Tranche Release (if applicable) October 15, 1993 October 15, 1993 Second Tranche Release May 1994 February 10, 1.995 Third Tranche Release December 1994 December 10, 1996 Loan Closing June 30, 1996 December 31, 1998 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ millions) ':. i'. :0:fL :: ~~~~~~~~~~~~~~~~~...... -E: EE , -.,,.... .. ... E ,i-.-. i . . .... .. -.E. .. E. ,E...... : .. Appraisal estimate 23.00 44.00 50.79 Actual 18.44 26.04 35.98 50.13 50.13 52.27 Actual as %ofestimate 80.17 59.18 70.84 Date of final disbursement -15- Table 5: Key Indicators of Program Implementation Acons Takeno R en re B ,, , .,,, .........a en:, , -or- :: .:e. 1. Reduction in the number of import duty Done. bands from 7 to 3, and limiting the range to 5 to 40 percent. 2. Government decision regarding the level of Done. fees and charges, as well as the pump price adjustment mechanism for petroleum products will be made and communicated to the Bank. 3. Publish the 1993/94 Recurrent and Done. Development Estimates consistent with the agreement reached with the Bank. 4. Completed job inspection/functional review Done. of key departments. 5. Completed the census of schools and teachers Done. and eliminated ghost teachers identified by the census. A..ion To BeT Tak or Seo Ta.ncie Rele Ie 1. Maintain satisfactory macroeconomic This condition was fulfilled. framework, including: a) staying within the Fund's targets for the overall budget deficit; and b) maintaining a liberalized exchange rate and trade system 2. Review and simplify regulatory procedures This condition was fulfilled. for exporting. 3. Implement agreements reached on public This condition was fulfilled. expenditure allocations for 1993/94. 4. Complete modernization of income tax The condition was fulfilled and a new income tax administration and collection. legislation was drafted. However, a change in Government, and subsequent fiuther instability kept the draft legislation from being enacted. Nevertheless, the associated simplified procedures have been implemented. 5. Implement the results ofjob inspection/ The condition was fulfilled and subsequently, the functional review of the Departnent of Department of Works was reorganized and the Works. number of units were reduced from 80 to 40 and the number of staff were reduced from 14,000 to 1,200. 6. Complete the first phase of the action The condition was fulfilled, but progress in program for the reform of the sector, as implementing the agreed actions was uneven. agreed with the Association. -16- Exp`iedte . Actua 7. Complete a management audit of the Bank of The condition was fulfilled. Sierra Leone by an intemational accounting firm, according to international accounting standards. ActionsT TkenT be Taken Befor BoardPreetto 1. Maintain satisfactory macroeconomic This condition was fulfilled. framework, including: a) staying within the Fund's targets for the overall budget deficit; and b) maintaining a liberalized exchange rate and trade system. 2. Set up a duty drawback system for The condition was fulfilled. However, the impact nontraditional exports based on the value of is not expected to be significant till peace is exports. restored and there is revival of exports across a broad spectrum of products. 3. Reach agreement and implement the This condition was fulfilled. expenditure programs for 1993/94 and 1994/95. 4. Implement the findings of the civil service The review was carried out but the proposed salaries and allowances review within the recommendations were not implemented because parameters of the budget. of revenue shortfalls, but a general 20 percent wage increase was granted. The condition was considered to have been met. 4. Implement the recommendations of the job This condition was fulfilled. inspection and functional review of key line departments as agreed with the IDA. 5. Complete census of the permanent civil This condition was fulfilled. service staff and implement the action plan related to the census as agreed with IDA. 6. Implement the second phase of the action This condition was not met and a waiver was plan for PE reform. granted for the release of the tranche. -17- Table 6: Key Performance Indicators Estimatted - Actual- A. Fiscal deficit, expenditure allocation 1. Overall budget deficit (% of GDP). 4.4 percent by 1995/96. 6.8 percent in 1996. 2. Non-salary, non-interest recurrent At least 25 percent 28.6 percent in 1996. expenditure in the social sector as a throughout the period. share of total non-salary, non-interest recurrent expenditures. B. Civil service reform 1. Complete the functional review/job By December 1994. Completed in 1996. inspections in all departments, and implement the recommendations for key departments. C. Parastatal reform Complete the settlement of cross-debt By December 1994. Partially completed. A study between the Government and public was completed for the period enterprises and among the public ending June 1995, and enterprises. subsequently updated. However, several Government ministries did not accept the findings. Further arrears continued to build up through out the period. D. Inflation, GDP 1. GDP growth rate of 5.1 percent. 1995/96. 5 percent in 1996, after a decline of 10 percent in 1995. 2. Inflation rate of 8.7 percent. 1995/96. 23 percent in 1996 on an annual basis and 6.4 percent on a year on year basis. At the time of Credit preparation, no performance indicators were explicitly defined The indicators shown are implicit in the Credit documentation -18- Table 7: Studies Included in Project Study - s dined at Status Iat of s: i tudy appraisal/redSe t fned 1. Review of Improved control of Done Transparency in awarding Government expenditures and reduced contracts, reduced costs of procurement guidelines. costs of Govemment contracts. contracts. 2. Review of civil Analyze job descriptions and Done All recommendatioans have service salaries and functions, and propose not been met because of allowances, rationalized salary scale and budget constraints. structure. 3. Management audit of Strengthen the role of the Done The BSL restructured, and the Bank of Sierra central bank, focussing on the new structure calls for Leone. promoting monetary stability stronger policy and research and a sound financial and banking supervision structure. departmrents. Overall staff strength reduced by 23 percent. Computerization of _BSL initiated. -19- Table 8a: Project Costs ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. .. ..... .... .. . .. .. .... -. ..... ... ........ ...... .... ..... ........................... ............ ........ . ................ ........ .............I............ - -Appraisal estimate ---Actulllatet esimates - - : :: (USSmillion) (-- -mil --l-tt$ilon) ~~~~~~~~~~~~~~~~.-. :. --. . . . . ---. .. . - . .. . .. . .. .. ................... Local costs Foreign costs Total Local costs Foreign costs Total 50 50 52.25 52.25 Table 8b: Project Financing . . .. ; . - ~~-- ... . ....... .-..-..- ............. .,.:::.............. . : :A Appralstimate - tAsiln estimate- ... . .. .... .. . .. ...... ......... .. ......... . ... .. .. .......... . . .. ....... . mi lion) (.S. mll , ,, ~~~~~~~~~~. ... ..... . ............................ ..... Local costs Foreign costs Total Local costs Foreign costs Total 50 50 52.25 52.25 Table 9: Economic Costs and Benefits Not Applicable -20- Table 10: Status of Particular Covenants Loan Agreement - - scriit f COY Com-ent- Section ~ ~ ~ : o Schedule 3.01 (a) The Borrower and the Association shall from the time to Condition met. time, at the request of either party, exchange views on the progress achieved in carrying out the Program and the actions specified in schedule 3 to this Agreement. Schedule 3.01 (b) Prior to each such exchange of views, the Borrower shall Condition met. furnish to the Association for its review and comments a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request. Schedule 3.02 Except as the Association shall otherwise agree, Condition met. procurement of the goods to be financed out of the proceeds of the Credit shall be governed by the provisions of schedule 2 to this Agreement. Schedule 3.03 (a) The borrower shall maintain or cause to be maintained Condition met. records and accounts adequate to reflect in accordance with consistently maintained sound accounting practices the expenditures financed out of the proceeds of the Credit. Schedule 3.03 (b) The Borrower shall: (i) have the records and accounts Condition met. referred to in para. (a) of this Section including those for However, as a result the Special Account for each fiscal year audited; (ii) of the damage caused furnish to the Association, not later than four months after to several the end of each such year, certified copy of the report; and Government (iii) furnish to the Association such other information buildings, including concerning said records and accounts and the audit. the gutting down of the Ministry of Finance following the coup d'etat in May 1997, some of the records have now been lost. Schedule 3.03 (c) For all expenditures with respect to which withdrawals Same comment as from the credit account were made on the basis of above. expenditure, the Borrower shall: (i) maintain records and accounts; (ii) retain until at least one year after the Association has received the audit report for the fiscal year; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audits. Schedule 3.04 (a) The Borrower shall ensure that BSL continues to maintain Condition met. the SAPDU in a form and with functions and staffing satisfactory to the Association. Schedule 3.04 (b) The Borrower shall continue to maintain the SAPS Condition met. Committee and its Secretariat in a form and with functions and staffing satisfactory to the Association. -21- Table 11: Compliance with Operational Manual Statements Not Applicable Table 12: Bank Resources: Staff Inputs . .:. :- : : :: - e ' : - t: .: ' .: .: .................................. : . :: :: ..... . -tu,....... .... a ...... ........ .. . ... . .. -oX>o~~~~~Acul rr3ctugleEE::-&-i.::::::. Stage of Pr ct Staff Wee . .U... . ....:. Preparation to Appraisal 22.8 65.3 Appraisal Negotiations through Board approval 18.7 58.7 Supervision 207.0 548.0 Completion Total 225.7 606.7.0 -22- Table 13: Bank Resources: Missions T~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ . .:7 .; .: .: .7; .0a .: .E: .: . . ; . . .Ii - i : q tt - t- -- : : : b: : - :4 : : -: : - :. :t ::i e : ; S i; - Wi Efd :f iE, ii.f. ;igi! -F - ij - i.f. i ,#: EF. 7 i -fF S iE- iE i-.Ss . i E........,.. ............. Stage of l pjet cycle.onthn No. ofthtl Days Spedalization1 -Imp D ;evd pm Through Appraisal 05/93 8 21 Econ/Sel. Appraisal through 09/93 5 21 EconlSel._ Board approval 10/14/93 Supervision 10/93 3 21 Econ/Sel. S 2/94 3 21 Econ/Sel. S S 6/94 3 21 Econ/Sel. S_ 10/94 3 21 Econ/Sel. S S 1/95 3 18 Econ/SeL S S _ 5/95 3 22 EconlSel. S_ - 12/95 2 15 Econ/Sel. S_S 3/96 3 7 Econ/Sel. SS 5/96 3 15 EconlSel.U Tranche release delayed because of slow progress on PE reform _ ~~____ ________ component. T 12/96 3 15 Econ/Sel. S S Apra t5/97 3315 Econ/Sel. S changed S changed Performance to U to U deteriorated under the military juota . that~~~~~~fr took power after a coup 2d'2tat on _ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ____ _______ May25, 1997. 5/98 3 15 Econ/Sel. U U :Elected IGovernment reinstated only _______ ________in March 1998. 8/98 1 15 Econ S S Completion 122/13 1/ I - Key to Specialized staff skills: et. 2- Key to Performnce Ratings: etc. 3 - Key to Types of Prob,lems: etc. 23 APPENDIX I BORROWER CONTRIBUTION TO THE ICR Sierra Leone: Implementation Completion Report Structural Adjustment Credit (Credit 2546-SL) A. INTRODUCTION 1. The government negotiated a Structural Adjustment Credit with the World Bank in August 1993. The total resources of about US$50 million from the Credit were to be used to finance exclusively foreign costs of all imports, subject to the Bank's negative list. The reforms supported by the Credit were to promote policies consistent with the objectives set out in its Country Assistance Strategy: to stabilize the economy and create a macroeconomic environment and pursue sectoral policies conducive to sustained growth and poverty alleviation. 2. The Credit became effective in October 1993 and all three tranches were to be fully disbursed over 24 months. However, disbursement was completed and the Credit closed only on December 31,1998, almost three years beyond the expected completion date. Apart from disruptions caused by the escalation in the rebel war and political instability, including the coup of May 1997, delays in accessing various tranches may also be attributed to the design of some conditionalities and ambiguities relating to the interpretations given to what constituted completed actions. 3. In general, we share the views expressed in the Bank's overall assessment of performance including the assessment of benefits as well as the associated problems in implementation and the lessons leamed. This paper will focus on the problems experienced in implementing actions relating to the public enterprise and civil service reform components. B. PROGRAM OBJECTIVES 4. The Credit identified the following objectives, consistent with the Country Assistance Strategy, as areas of special emphasis: * Macroeconomic Stability * Poverty Reduction * Public Sector Management and Capacity Building -24- * Private Sector Development-key element being financial sector reform; othiers are the public enterprise reform program and the judicial reform project * Sustainable Development 5. The policy components of the Credit were the following: * Trade and exchange rate policies * Fiscal management * Civil service reform * Public enterprise reform * Financial sector reform * Legal and regulatory framework 6. For each tranche release, specific actions relating to each policy component except, the legal and regulatory framework, must be completed. The legal and regulatory framework was tied to a separate project, the Judicial and Legal Reform project. 7. Significant progress was achieved in the early years on the implementation of all actions attached to the policy components with the exception of the public enterprise reform component. In these other areas, Bank staff provided effective overall supervision and direction. Bank staff also played a critical role in facilitating policy dialogue between the Bank and Government. However, disruptions caused by the war that escalated in 1995 and subsequent political instability during the period of the military junta reversed most of the early gains. 8. Difficulties in implementing some of the agreed measures under the public enterprise reform program militated against the timely release of the second and third tranches of the Credit. The constraints in accessing these tranches imposed strains on other aspects of economic management, because of insufficient flow of resources. It is significant that the difficulties in accessing the required resources occurred despite reasonable progress on aspects of the program outside of the public enterprise reform, giving the appearance that this component of the program weighed more heavily than the others in the Bank's assessment. It would seem that had the Credit been structured to include a floating tranche, the problems encountered in the implementation of the public enterprise reform program, which arguably were not entirely the fault of the authorities, would not have imposed such a binding constraint on the release of funds under the second and third tranches. C. PROBLEMS IN PROGRAM DESIGN AND IMPLEMENTA1'ION Public Enterprise Reform 9. During the negotiation of the Credit, and as reflected in paragraph 6 of the Agreed Minutes of Negotiation, government drew attention to capacity limitations that were feared would impinge adversely on the implementation of the program, despite the existence of the Public Enterprise Reform and Divestiture Commission (PERDIC) that had been established under the Reconstruction Import Credit (RIC). The Bank's response was to make available consultants to assist with various aspects of the implementation of the program. The outcome, however, was -25- not as positive as had been expected. This, combined with continuing problems with the performance of PERDIC, compromised the efficient and timely implementation of the action plan. PERDIC was consequently disbanded, leaving a void in the institutional framework for execution of the program. Govemment, however, continued with its efforts at implementing the program but the capacity constraints referred to earlier and the deteriorating political environment diminished the impact of its endeavors. 10. With hindsight, it is obvious that the public enterprise reform package, involving 19 enterprises, was somewhat ambitious both in scope and timing, given the capacity and technical limitations. It would also seem, in retrospect, that the definition of "completed actions" may have been more precisely formulated, to avoid differing interpretation by Bank staff and government on the one hand, and individual task managers in situations where changes in personnel occurred midstream. Lessons Learned 11. It is clear that the implementation of a major program such as public enterprise reform requires understanding and cooperation among all the participants (especially Bank officials, government officials and consultants). Such an environment would benefit from mutual consultation in the formulation and implementation of the program. In this regard, a combination of Bank expertise with the local knowledge of domestic operators would provide the ideal ingredients for a more realistic and implementable program. 12. A second and obvious lesson is the need for timely availability of technical assistance required at various stages of the exercise. Slowness in this regard invariably frustrates the program, with consequent slippages in meeting targets. 13. It is also vital that the definition of "completed actions" is unambiguous and understood by all parties. Lack of clarity in this dimension engenders confusion, avoidable arguments and loss of time; in addition to imprecision in the operational sphere. Civil Service Reform 14. An important objective of this policy component was the restoration of civil service efficiency and capacity for the delivery of essential services. However, as the early part of implementation focused on job inspections and retrenchment, officials interpreted this to mean the removal of ghost names and redundant staff. Indeed, the retrenchment of a specific number of staff was prior action for tranche releases. In this regard, the government appointed a high level committee to ensure that targets for retrenchment were met. The computerization of personnel records took off in early 1996 but was disrupted by the coup of May 1997. Further action is required to improve records management. 15. It may be useful for a future civil service reform or capacity building program to: address the mobilization of technical capacity, expertise and training capabilities on a sustained basis; promote opportunities for exchange of experience and information; and alleviate managerial, technical and institutional constraints, which retard implementation and efficiency. The strategy -26- should also include a business process reengineering to allow current staff to focus more on control rather than routine and administrative tasks and records management. Disbursement Procedures 16. Delays in disbursement usually arose from the requirements for supporting documents including evidence of shipment from the Import Inspection agency. In cases when the agents were absent from the country, as in the early part of 1998, it greatly delayed disbursement requests since the pre-shipment certificate was not available. It is therefore proposed that for future operations, required documentation be made flexible and should be within the control of the authorities. For example, a Customs Entry Certificate evidencing arrival of goods in the country should be accepted as a substitute for Pre-shipment Inspection Certificates. 17. The method of disbursement of funds was also cumbersome given the number of procedures to be followed. It is proposed that more flexibility be given to the use of resources including the payment of funds in a designated account. Furthermore, the use of funds should not be linked to specific allocations for eligible commodities nor a cap placed on the financing of eligible commodities. The central bank will then provide a list of import documents to justify the use of the funds for inspection by the Bank. 18. It is hoped that these observations will be taken into consideration in the design of a future adjustment operation to facilitate disbursement of funds to enhance objectives. MAP SECTION IBRD 24409 13 (f 11° A . MAURIIAJAIA NIGER -lIC 0 10 20 30 40 NIGER ;;MILES N ;\ If.O 0 10 20 FAS O 1 OERLF Foloba ~ ~ ~ ~ ~ ~~dFAAE~ NIGERIA Kallongba PORT LOKO _ - C t' > . Kamoron _ . 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