The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Document of The World Bank FOR OFFICIAL USE ONLY Report No: PDG278 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED GRANT IN THE AMOUNT OF SDR 53 MILLION (EQUIVALENT TO US$75 MILLION) TO THE REPUBLIC OF SIERRA LEONE FOR AN INCLUSIVE AND SUSTAINABLE GROWTH DEVELOPMENT POLICY OPERATION November 18, 2021 Macroeconomics, Trade and Investment Global Practice Western and Central 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. . The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) The Republic of Sierra Leone GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of October 31, 2021) Currency Unit: Leone (Le) US$1.00 = Le 10,887 US$1.00 = SDR 0.70652404 ABBREVIATIONS AND ACRONYMS AfP Agenda for Prosperity BSL Bank of Sierra Leone CPF Country Partnership Framework CPI Consumer Price Index CPIA Country Policy and Institutional Assessment CSO Civil Society Organization DPF Development Policy Financing DPO Development Policy Operation DSA Debt Sustainability Analysis DSSI Debt Service Suspension Initiative ECF Extended Credit Facility EPA Environment Protection Agency GDP Gross Domestic Product GoSL Government of Sierra Leone IDA International Development Association IFC International Finance Corporation ISGF Inclusive and Sustainable Growth Financing IMF International Monetary Fund EIRA Extractive Industry Revenue Act LDP Letter of Development Policy LIC Low-income Country LIC-DSA Debt Sustainability Analysis for Low-Income Countries MDAs Ministries, Departments, and Agencies MMD Mines and Minerals Development MoF Ministry of Finance MPC Monetary Policy Committee MPR Monetary Policy Rate MTDS Medium-Term Debt Strategy MTNDP Medium-term National Development Plan NLP National Land Policy NPPA National Public Procurement Authority NPL Non-performing Loans NMA National Minerals Agency PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Financial Management PIMA Public Investment Management Assessment PPA Performance and Policy Action PPG Public and Publicly Guaranteed PRSP Poverty Reduction Strategy Paper RCF Rapid Credit Facility SCD Systematic Country Diagnostic SDFP Sustainable Development Finance Policy SDG Sustainable Development Goal SDR Special Drawing Rights SOEs State-owned Enterprises SLIHS Sierra Leone Integrated Household Survey SSA Sub-Saharan Africa TSC Teaching Service Commission UNDC Updated National Determined Contribution WB World Bank WBG World Bank Group . Regional Vice President: Ousmane Diagana Country Director: Pierre Laporte Regional Director: Abebe Adugna Dadi Practice Manager: Francisco Galrao Carneiro Task Team Leader: Kemoh Mansaray The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) REPUBLIC OF SIERRA LEONE SIERRA LEONE INCLUSIVE AND SUSTAINABLE GROWTH FINANCING TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................3 1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5 2. MACROECONOMIC POLICY FRAMEWORK....................................................................................7 2.1. RECENT ECONOMIC DEVELOPMENTS............................................................................................ 7 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ........................................................ 15 2.3. IMF RELATIONS ............................................................................................................................ 20 3. GOVERNMENT PROGRAM ........................................................................................................ 20 4. PROPOSED OPERATION ............................................................................................................ 21 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 21 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 22 4.3. LINK TO CPF, OTHER WORLD BANK OPERATIONS AND THE WBG STRATEGY ............................. 40 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 41 5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 42 5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 42 5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS ................................. 45 5.3. Public Financial Management, DISBURSEMENT AND AUDITING ASPECTS.................................. 48 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 50 6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 51 ANNEX 1: POLICY AND RESULTS MATRIX .......................................................................................... 54 ANNEX 2: IMF RELATIONS ANNEX ..................................................................................................... 59 ANNEX 3: LETTER OF DEVELOPMENT POLICY..................................................................................... 61 ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 71 Page 1 The Grant was prepared by an IDA team consisting of Kemoh Mansaray (TTL, Senior Economist, EAWM2), Smriti Seth (Senior Economist, EAWM2), Aurelien Kruse (Lead Country Economist, EAWDR), Pinar Baydar (Operations Analyst, EAWM2), Claudia Rocio Manrique (Program Assistant, EAWM2), Irene Sitienei (Program Assistant, EAWM2), Sagita Muco (Senior Private Sector Specialist, ETICI), Paula Tavares (Senior Private Sector Development Specialist, CAFA1), Siegfried Zottel (Financial Sector Specialist, EAEF2), Nancy Chen (Senior Financial Sector Specialist, EAWF2), Nightingale Rukuba-Ngaiza (Senior Counsel, LEGAM), John Hodge (Senior Financial Management Specialist, EAWG2), Bayo Awosemusi (Lead Procurement Specialist, EAWRU), Hunt La Cascia (Senior Procurement Specialist, EPRPS), Innocent Kamugisha (Procurement Specialist, EAWRU), Lida Bteddini (Senior Public Sector Specialist, EAWG2), Linus Pott (Land Administration Specialist, SAWU1), Mari Shojo (Senior Education Specialist, HAWE3), Morten Larsen (Senior Mining Specialist, IEEXI), Gloria Mahama (Senior Social Development Specialist, SAWS1) and Philip English (Consultant, EAWM2). Overall guidance was provided by Francisco Carneiro (Practice Manager, EAWM2), Pierre Laporte (Country Director, AWCW1), and Abdu Muwonge (Country Manager, AWMSL). The team coordinated closely with the IMF. The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Project ID Programmatic If programmatic, position in series P175342 Yes 1st in a series of 3 Proposed Development Objective(s) The program development objectives are to: (i) improve natural resources governance; (ii) enhance inclusiveness; and (iii) improve the sustainability of development financing. Organizations Borrower: REPUBLIC OF SIERRA LEONE Implementing Agency: MINISTRY OF FINANCE PROJECT FINANCING DATA (US$, Millions) SUMMARY Total Financing 75.00 DETAILS International Development Association (IDA) 75.00 IDA Grant 75.00 INSTITUTIONAL DATA Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Overall Risk Rating . Page 3 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Results Indicator Name Baseline Target Area of reclaimed mined-out land in four major mining districts 64 (2021) 420 (2024) (Acres) Proportion of mining companies disclosing beneficial owners (%) 0 (2021) 100 (2024) Proportion of women appointed as Commissioners on the Board of 0 (2021) 30 (2024) the new Land Commissions (National and District) (%) Rural chiefdoms with land use planning and protected area documents that follow the climate risk management and climate- 0 (2021) 20 (2024) resilience approach (number) Shares of women and men who received credit in the previous 12 8 (female) and 11 (male) 10 (female) and 12 (male) months as a share of the total female and male populations (%) (2018) (2024) Absenteeism rate of teachers on payroll (%) 12 (2020) 8 (2024) Secondary school enrolment rate for girls (%) 26.4 (2020) 29.5 (2024) Children with disabilities attending school (number) 40,096 (2020) 43,000 (2024) Women and men with an account at a financial institution or with 15 (women) and 25 20 (women) and 29 an electronic/mobile money provider (%) (men) (2017) (men) (2024) Debt/liabilities of SOEs (US dollars millions) 295.1 (2021) 236 (2024) Transactions (tender announcements and contract awards) 0 (2021) 50 (2022) published on NPPA website/portal (number) Proportion of transactions (tender announcements and contract 0 (2021) 50 (2024) awards) published in OCDS format on the NPPA website (%). . Page 4 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) IDA PROGRAM DOCUMENT FOR A PROPOSED GRANT TO THE REPUBLIC OF SIERRA LEONE 1. INTRODUCTION AND COUNTRY CONTEXT 1. This Program Document proposes a Development Policy Operation (DPO) for the Republic of Sierra Leone in the amount of SDR 53 million (US$75 million equivalent) from International Development Association (IDA) grant resources. The proposed DPO is to support the government’s efforts to build the foundations for a robust, inclusive, and sustainable economic recovery from the pandemic. The program development objectives are to: (i) improve natural resources governance; (ii) enhance inclusiveness; and (iii) improve the sustainability of development financing. In the short term, this operation will help the Government close the financing gap created by the pandemic. In the medium term, it will support post-COVID recovery and buttress potential growth by leveraging the government’s reform agenda (which was put on hold temporarily during the pandemic). The first two pillars of the proposed operation focus on better governance of the land and mining sectors (pillar 1) and boosting inclusive growth through reforms to promote economic participation and empowerment of the most vulnerable groups of the population (pillar 2). The third pillar seeks to ensure sustainable development financing through reforms to improve debt management and transparency, and fiscal sustainability. The three pillars are complementary because higher growth would alleviate debt pressures and better debt management and transparency would enhance fiscal sustainability and create fiscal space for inclusive growth reforms. The operation includes one of the three Performance and Policy Actions (PPAs) of the World Bank’s Sustainable Development Finance Policy (SDFP) as a Prior Action (PA#7). This is the first operation in a programmatic series of three, which is aligned with the government’s National Development Plan (NDP) (2019-2023) and Medium- term Debt Strategy (MTDS) (2018-2022). 2. Sierra Leone faces major economic and social challenges, including substantial gender gaps, that lead to low human development outcomes. The country’s growth potential has been constrained by limited spillovers from the mining sector, and poor access by the population to financial services, land and high-quality education. The mining sector plays an important economic role (accounting for 14 percent of GDP and 68 percent of merchandise exports in 2020 but employs only 1.5 percent of the workforce. The artisanal and small-scale subsector, which employs an estimated 300,000 people, is poorly regulated and includes numerous illegal operators. Gains from the mining sector remain constrained due to weaknesses in the legal and regulatory framework that create space for discretion in implementation. Limited financial access is another important constraint to growth. Domestic credit to the private sector is very low, at only 6.0 percent of GDP in 2020, making Sierra Leone one of the world’s poorest performers on access to finance. Women have particularly low access to loans from financial institutions.1 Land plots are major economic assets for low-income households (who predominately cultivate crops for their livelihoods) but per capita landholdings are relatively small (3.8 acres per household), particularly for poor and women-headed households. With respect to education, the number of expected years of schooling is nine years, but only 4.5 in learning-adjusted years. The secondary school enrollment rate is 41.8 percent, below the Sub-Saharan Africa (SSA) average of 43.3 percent. Access to other essential services is also limited. For instance, only 15.7 percent of the population has access to basic sanitation services, compared to 30.9 percent in SSA. As a result, Sierra Leone’s human capital index is 0.36 in 2020, indicating that the future earnings potential of children born today is 64 percent lower than what it would be with complete education and full health. 1According to 2018 Sierra Leone Integrated Household Survey (SLIHS) the incidence of borrowing is slightly higher among men: 11 percent versus 8 percent among women. Access to savings account is also lower for women: 2.1 versus 5 percent for men. Page 5 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) 3. Poverty has fallen in recent years, but it remains very high in rural areas and the COVID-19 crisis may have reversed recent gains, at least temporarily. Between 2011 and 2018, the national poverty rate declined by 5.6 percentage points to 56.8 percent, thanks to a sizeable drop in urban poverty, while rural poverty remained unchanged at around 74.0 percent (World Bank, 2018). Over the same period, however, inequality widened, and the Gini coefficient increased by 0.4 points to 0.37 in 2018. The global pandemic is likely to have cancelled some of the poverty gains made in recent years, at least temporarily. The longstanding high poverty and inequality rates reflect poor job creation, especially in the formal sector. The unemployment rate of 4.5 percent (2015 – 2019) is below the average of 6.1 percent for SSA but the vulnerable employment rate is relatively high (86.4 percent) compared to the SSA average (73.8 percent), reflecting the relatively large size of the informal sector. 4. Sierra Leone is vulnerable to direct and indirect climate change-related risks. Most of the mining activities in Sierra Leone are surface or open-cast mining operations, which require processing greater volumes of soil material, than underground mining operations, and have nearly double the carbon intensity per unit of ore. While open-pit artisanal mines may not have similarly high emissions due to their reliance on manual labor, they still cause deforestation and forest fragmentation and cause disturbance in the hydrological balance and soil acidity levels. In addition, climate forecasts predict an increase of mean temperature (especially in the inland regions), in the number of tropical nights per year, annual precipitation, single rainfall events and annual maximum rainfall2. The combined effect of climate change and mining, deforestation, landslides, soil erosion, changes in soil hydrology and pH balance, are likely to have negative impact on farming activities in the areas adjacent and downstream from mines; small-scale subsistence farmers will be particularly disadvantaged. 5. After decades of macroeconomic imbalances, the authorities have committed to sustained policy and institutional reforms. Over the last five years, the authorities have demonstrated a strong commitment to restoring macroeconomic stability over the medium term. A fiscal reform package was initiated in November 2018, underpinned by a 43-month International Monetary Fund (IMF)-supported Extended Credit Facility (ECF) program, with efforts on the revenue side (tax administration and collection) and the expenditure side (rationalization and prioritization). The authorities have also undertaken reforms to strengthen public debt management by leveraging the 2011 Public Debt Management Act and 2016 Public Financial Management (PFM) Act that provide a legal framework for borrowing, issuing loan guarantees, and developing a medium-term debt management strategy. 6. With the onset of the COVID-19 pandemic, reforms have been put temporarily on hold, to prioritize protecting lives and livelihoods. The pandemic prompted the Government to reprioritize its reform agenda. In May 2020, the authorities requested support under the IMF’s Rapid Credit Facility (RCF) and the ECF program was temporarily suspended (including the fiscal adjustment plan). The authorities presented a supplementary budget to the Parliament with the theme “Saving Lives and Livelihoods”, whereby expenditure was revised upward by 2.8 percent of GDP and domestic revenue was revised down by 2.6 percent of GDP. As a result, the overall deficit rose to 5.8 percent of GDP in 2020. The additional fiscal headroom was channeled toward a Quick Action Economic Recovery Programme (US$136 million), and a comprehensive COVID-19 Health Sector Response Plan (US$34 million). 7. The Government has leveraged the support of its multilateral partners and global initiatives to improve fiscal transparency and accountability. The country has joined the G20 Debt Service Suspension Initiative (DSSI) and managed to defer interest payments of around US$6.6 million in 2020 and US$17.3 million in 2021. As part 2 https://climateknowledgeportal.worldbank.org/country/sierra-leone/climate-data-projections Page 6 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) of the initiative, the authorities created a COVID-19 account and committed to regular monitoring and reporting on the use of the funds in this account. The Accountant General has established a Chart of Accounts for COVID- 19 related expenditures to facilitate monitoring. With technical assistance from the IMF, the Government has established a dedicated entity (with clear accounting and reporting standards) to coordinate and implement the COVID-19 emergency response. The authorities have fulfilled their RCF commitments on transparency, by publicly disclosing details of emergency procurement contracts. They have also committed to publishing financial information on COVID-19 response initiatives. Finally, the country has embraced the World Bank’s, implemented the FY21 PPAs and agreed on the FY22 PPAs. For FY22, one PPA, supported by this DPO, is designed to improve debt transparency, while another is supported by World Bank and IMF technical assistance to improve debt and cash management. 8. The reforms supported by this proposed DPO address the major development challenges described above. The reforms under the first pillar address poor governance of the mining and land sectors. The reform under the second pillar address limited access to financial services, jobs, and high-quality education. The reforms under the third pillar address fiscal and debt vulnerabilities, and weaknesses in the public procurement process. Because the COVID-19 shock has eroded the country’s fiscal position, this DPO proposes reforms that will help minimize the immediate tradeoff between supporting the economy and fiscal sustainability. 9. Some of the reforms supported by this operation are expected to help address climate risks. Prior Action #1 supports improvements in the management of Sierra Leone’s natural resources and regulation of the mining and minerals sector, including improving transparency and environmental standards. In weak regulatory environments, mining activities can generate substantial climate risks and consume large quantities of water during processing. The action supported by this operation will strengthen the legal basis for regulating the sector and managing climate risks. Prior Action #2 is similarly expected to generate climate co-benefits by improving land management practices and efficiency of land use.3 Through progressive rehabilitation and wetlands restoration both climate change adaptation and mitigation objectives will be pursued in this project. Wetlands and reforested mining sites will serve as carbon sinks. Progressive afforestation of mining sites will reverse environmental degradation and will prevent landslides, soil erosion, floods, and other typical consequences of climate change. Engagement of mining companies and improved protection of land tenure rights will ensure that the financial burden for degraded natural resources is not pushed upon impoverished local communities. Further, Prior Actions #3, #4, #5 and #6 could also indirectly contribute to climate risk mitigation and adaptation by reducing carbon emissions and through diversification of economic drivers away from environmentally harmful artisanal mining activities. 2. MACROECONOMIC POLICY FRAMEWORK 2.1. RECENT ECONOMIC DEVELOPMENTS 10. Sierra Leone’s steady economy recovery from the 2014 Ebola outbreak was interrupted by the COVID- 19 pandemic in 2020. Between 2018 and 2019, real GDP grew at a robust average rate of 4.5 percent (5.4 percent excluding the iron ore sector which contributed negatively to growth – Table 1). However, the COVID-19 pandemic interrupted this trend and real GDP contracted by 2.0 percent in 2020, reflecting COVID-related 3 The new land sector bills will contribute to enforcing climate-friendly practices in the agricultural sector through efficient use of forests, grazing lands, rivers, and swamps. The implementation of the bills will incentivize coastal communities to develop and implement co-management plans to protect foreshores from unsustainable exploitation and degradation, contributing toward both climate mitigation and adaptation. Page 7 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) disruptions to domestic production and global supply chains. On the supply side, mobility restrictions, the suspension of international travel and closure of land borders led to a contraction in services and industry; agriculture grew (by 1.6 percent) but at a slower pace than in 2019 (5.4 percent). On the demand side, growth was driven by final consumption expenditure, mainly reflecting the government’s response to the pandemic and private consumption. Both gross fixed investments (-0.3 percentage points) and net exports (-6.4 percentage points) contributed negatively to overall growth due mainly to the adverse impact of the pandemic (see Box 1 for details). 11. Economic growth has begun to recover in 2021, with the easing of COVID-19-related restrictions, the implementation of a fiscal stimulus in response to the pandemic, and the resumption of iron ore mining. Growth is expected to rebound to 2.9 percent during 2021, with a broad-based recovery across all sectors. Agriculture is estimated to account for nearly half of the overall growth (1.6 percentage points), supported by the opening of land borders and rural markets (lumas), and due to an increase in private sector participation. Services contributed 1.2 percentage points to growth, helped by a recovery in trade, tourism, and finance; while industry contributed 0.4 percentage points boosted by the resumption of iron ore production at the Marampa mine. On the demand side, growth was driven by private consumption and gross fixed investment as COVID-19 restrictions are phased out. However, net exports contributed negatively to overall growth (-9.2 percentage points), mainly due to the adverse impact of the pandemic on global demand and the continued disruption of supply chains. Table 1: Selected Economic Indicators (2018-26) 2018 2019 2020 2021 2022 2023 2024 2025 2026 Est. Proj. Proj. Proj. Proj. Proj. Proj. National accounts and prices (Annual percent change, unless otherwise indicated) Growth GDP at constant prices 3.5 5.3 -2.0 2.9 5.0 4.4 4.9 5.1 4.4 GDP excluding Iron ore 5.5 5.0 -1.8 2.2 3.4 4.1 4.6 4.8 4.4 GDP deflator 12.7 7.7 10.9 10.4 10.7 9.7 8.6 7.3 5.5 Inflation Consumer prices (end-of-period) 14.2 13.9 10.4 14.8 13.3 10.8 9.8 8.0 6.0 Consumer prices (average) 16.0 14.8 13.4 11.1 14.1 12.1 10.3 8.9 7.0 External Sector Terms of trade (deterioration -) -13.1 -9.4 20.4 -14.1 -4.4 1.8 0.7 0.5 0.8 Exports of goods 15.3 11.5 -34.2 18.4 13.8 9.3 4.9 10.3 4.5 Imports of goods 0.6 14.7 -12.0 17.4 2.8 0.0 1.7 2.8 3.8 Current account balance (excl. official grants) -13.9 -16.3 -11.3 -17.3 -16.0 -14.4 -13.9 -12.5 -12.4 (% of non-iron GDP) Gross international reserves (months of 3.2 4.3 4.6 6.1 5.3 4.8 4.2 3.4 3.0 imports) Gross international reserves (excl. swaps, US$ 481.0 507.0 677.0 936.0 821.0 761.0 668.0 579.0 530.0 millions) Net international reserves (excl. swaps, US$ 105.0 126.0 159.0 360.0 261.0 243.0 218.0 201.0 229.0 millions) Money, credit, and reserves Domestic credit to the private sector 30.6 22.9 4.9 26.7 22.1 16.5 19.7 25.4 13.3 Domestic credit to the private sector (% of 5.6 6.2 6 6.8 7.3 7.3 7.7 8.5 8.6 non-iron GDP) Base money 6.5 12.4 54.8 8.5 14.3 13 6 8 7.2 Page 8 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) M3 14.5 14.3 38.2 14.9 14.3 14.9 9.6 8 7.2 Financing and debt (% of non-iron GDP) Public debt 69.1 72.6 76.3 75.6 75 73 70 66.8 63.2 Domestic 27.9 27.9 26.6 25.1 22.5 21.3 20.1 19.7 18.8 External public debt (including IMF) 41.2 44.7 49.7 50.4 52.5 51.8 49.9 47.1 44.4 Central government budget (% of non-iron GDP) Domestic primary balance -0.5 -0.8 -4.2 -2.2 -0.6 0.8 1.9 2.0 1.9 Overall balance -5.6 -3.1 -5.8 -4.0 -3.9 -2.6 -1.2 -0.8 -0.5 Overall balance (excluding grants) -7.7 -6.5 -11.1 -8.6 -8.1 -7.1 -5.9 -4.8 -3.8 Revenue (excluding grants) 13.7 14.8 13.8 15.3 15.1 15.0 15.6 16.0 16.2 Grants 2.1 3.4 5.3 4.6 4.1 4.5 4.7 4.0 3.3 Total expenditure and net lending 21.4 21.3 25.7 24.7 23.6 22.1 21.5 20.8 20.0 Memorandum items GDP at market prices (billions of Leone) 32,402 36,731 39,938 44,951 52,119 60,245 69,337 79,108 88,597 GDP Excluding iron ore (billions of Leone) 32,402 36,635 39,938 44,393 50,662 58,519 66,942 75,948 84,644 Excluding iron ore in millions of US$ 4,085 4,063 4,059 4,216 4,259 4,244 4,288 4,390 4,559 Per capita GDP (US$) 534 521 509 524 527 515 512 517 528 National currency per US dollar (average) 7,932 9,016 9,840 … … … … … … National currency per US dollar (end of period) 8,396 9,716 10,133 … … … … … … Sources: Sierra Leonean authorities, World Bank and IMF Staff estimates (August 2021). 12. Despite COVID-related uncertainties, prices started to stabilize after a long period of high inflation. Headline inflation declined from 18.2 percent in 2017 to 13.4 percent in 2020, supported by favorable trends in global food and fuel prices and monetary tightening. In the first quarter of 2020, supply chain disruptions linked to the COVID-19 outbreak generated inflationary pressures, but they subsided when containment measures were lifted (particularly in the fourth quarter as non-food prices fell precipitously). Headline inflation fell to 8.9 percent in March 2021, before rising to 10.2 percent by end-June, reflecting an increase in food and fuel prices. Indeed, food inflation reached 17.1 percent in June (2021H1), well above its pre-COVID-19 level of 9.9 percent (reflecting an increase in the price of key food staples due to food supply difficulties), while non-food inflation declined from 6.9 percent in December 2020 to 4.5 percent in June 2021, on the back of subdued demand for non-food items. 13. The easing of inflationary pressures also reflects the commitment of the Bank of Sierra Leone (BSL) to price stability; in turn this has allowed the BSL to respond proactively to COVID-19. In recent years the BSL has maintained a prudent policy stance, gradually increasing the monetary policy rate (MPR) from 9.5 percent in 2015 to 16.5 percent in 2018, while enhancing its policy toolkit.4 In turn, this gave the BSL space to respond proactively to the COVID-19 crisis. In March 2020, at an emergency meeting, the Monetary Policy Committee (MPC) decided to: (i) reduce the MPR from 16.5 percent to 15 percent; (ii) extend the reserve requirement maintenance period from 14 to 28 days to ease liquidity pressures; (iii) create a Le 500 billion special credit facility to support the production, procurement and distribution of essential goods; and (iv) support the private sector to import essential goods through temporary and targeted duty exemptions. The MPR was further reduced to 14 percent in December 2020 to support aggregate demand and provide liquidity to the private sector. However, the MPR was kept at 14.0 percent from January through September 2021 as the BSL weighed the prospects of a favorable global economic recovery against local food price pressures. Furthermore, the BSL has taken regulatory actions to 4Since December 2018, the BSL has been forecasting near-term inflation and publishing data on key macro-economic time series covering the four sectors, on the BSL’s website. The BSL’s website is: https://www.bsl.gov.sl/ Page 9 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) prevent short-term fluctuations in the exchange rate; for instance, interventions to facilitate the import of essential commodities (food and fuel), and administrative measures to limit uncertainty and prevent market pressures from destabilizing the already-thin market.5 A relatively stable exchange rate has been crucial in moderating inflation. 14. Banking sector stability and resilience have been maintained with strong supervision and oversight by the BSL. At 40.9 percent in 2021H1, the capital adequacy ratio (regulatory capital to risk-weighted assets) of the banking sector remains above the regulatory requirement and all banks in Sierra Leone are above the minimum required ratio of 15 percent. The ratio of non-performing loans (NPLs) to gross loans has declined over the years to reach 12.7 percent in 2020, before rising relatively modestly to 13.8 percent in 2021H1. The liquidity positions of banks have also improved, with the ratio of liquid assets to total assets reaching 73.2 percent in 2021H1 (in part however because commercial banks prefer to invest in short-term securities, over long-term investments. To address weaknesses in the banking sector and promote financial stability, the BSL has been strengthening its macroprudential supervision including risk-based supervision. 15. External trade was hit by the domestic and global economic slowdown in 2020, but a recovery is underway. The current account deficit narrowed from 22.3 to 16.7 percent of GDP between 2019 and 2020 due mainly to higher official transfers to help the country respond to the pandemic. In 2021, total exports increased due mainly to the resumption of iron ore mining exports after severe disruptions in 2020 (when the country did not export any iron ore in 2020). Although they were outweighed by a parallel rise in imports (and the trade deficit increased (from 14.1 in 2020 to 15.8 percent of GDP), an increase in private transfers resulted, on balance in a narrowing of the CAD to 14.3 percent of GDP in 2021. 16. External accounts remain vulnerable to shocks, and financing needs have increased since the onset of COVID-19. Total external financing needs are estimated to have reached US$1.1 billion (25.6 percent of GDP) in 2021, up from US$715million (17.6 percent of GDP) in 2020 (Table 4). The current account deficit accounts for 68 percent of the total financing need in 2021. The main financing sources include disbursements from official creditors (8 percent of total financing), foreign direct investment (28 percent), capital account flows (12 percent) and net official current transfers (12 percent). External debt increased from 41.2 percent of GDP in 2018 to 50.4 percent in 2021. However, net international reserves, excluding swaps, increased from US$126 million in 2019 to US$360 million in 2021 and the import coverage of gross external reserves increased from 4.3 months to 6.1 months thanks mainly to new SDR allocation by the IMF worth US$283million (6.5 percent of GDP). Given the country’s vulnerable external position the authorities plan to keep a large portion the allocated SDR in foreign reserves. 17. The fiscal position of the Government, which was previously improving, has deteriorated as a result of the pandemic. Prior to COVID-19, the fiscal balance was improving as the Government was reaping the benefits of previous fiscal and PFM reforms. Indeed, the Government took measures to improve tax efficiency and domestic revenue mobilization and rationalize expenditure, and during 2018-2019 total revenues increased by 2.4 percentage points of GDP to reach 18.2 percent of GDP, driven by increased tax collections. With total expenditures falling by 0.1 percentage points of GDP (thanks to strengthened controls on recurrent expenditures on goods and services) the overall balance, excluding grants, improved by 1.2 percentage points of GDP (to reach 5The BSL banned street trading of forex in 2020, with stiff penalties for violations of the ban. The ban followed two directives in March 2020, one restricting offshore trading of forex by nongovernmental organizations, and the other prohibiting both foreign currency- denominated contracts and transfers between foreign currency accounts. Page 10 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) -6.5 percent of GDP in 2019 – Table 3). However, COVID-19 reversed that trend, and the overall deficit increased to 11.1 percent of GDP in 2020 (5.8 percent of GDP including grants). The rise in the budget deficit was primarily driven by COVID-related expenditures, as total expenditures increased by around 3.7 percentage points of GDP in 2020, relative to 2019, to reach 25.7 percent of GDP. Meanwhile, tax revenues fell by 1.1 percentage points of GDP in 2020, relative to 2019, reflecting the contraction of economic activity. In 2021, the overall budget deficit excluding grants is estimated to have declined to 8.6 percent of GDP (4.0 percent of GDP including grants), reflecting a combination of spending cuts (1.0 percentage points of GDP) and a boost to domestic revenues (1.5 percentage points of GDP) as the economy recovered. Capital expenditure and spending on goods and services bore the brunt of the cuts as total expenditure declined to 24.7 percent of GDP in 2021 while the increase in tax and nontax revenues supported the overall increase in total revenue to 20.7 percent of GDP in 2021 (as foreign grants declined). 18. COVID-19 related spending explained the deterioration of the fiscal position in 2020 . The authorities’ policy response to COVID-19 has been influenced by the need to save lives while supporting livelihoods. The main pillars of the government’s response included containment measures, health sector responses and the social and economic actions as defined in the Quick Action Economic Response Program (QAERP)6. Spending on the social and economic response pillar in the QAERP was the largest amounting to 2.2 percent of GDP, followed by the health sector response (1.0 percent of GDP) and containment measures (0.4 percent of GDP). Compared to the original budget, actual spending on the COVID-19 response was higher by 2.8 percentage of GDP (Table 2). 19. Public debt has increased significantly in the last few years, driven by large fiscal deficits and depreciation of the Leone. Total public and publicly guaranteed (PPG) debt increased from 69.1 percent of GDP in 2018 to 76.3 percent in 2020, its highest level since the completion of the HIPC debt relief early 2010s. This increase was primarily driven by external debt, contracted from official multilateral creditors (which accounts for 76 percent of total PPG external debt). About 65 percent of total PPG public debt is owed to external creditors (mainly multilateral creditors including the World Bank and IMF under highly concessional terms) while 35 percent is domestic debt comprising of short-term government securities and domestic supplier arrears. Total PPG external debt increased from 41.2 percent of GDP in 2018 to 49.7 percent of GDP in 2020 due to mainly new borrowing (from multilateral sources) to close the fiscal financing gap. Domestic debt declined to 26.6 percent of GDP in 2020 (from 27.9 percent of GDP in 2018) reflecting the clearance of some domestic suppliers’ arrears. Interest payments have also increased by 0.2 percentage points of GDP relative to 2018, to reach 3.0 percent of GDP in 2020 – largely due to an increase in domestic borrowings. At 2.7 percent of GDP in 2020, domestic interest payments exceed interest payments on external debt by over six-fold reflecting an increased reliance on domestic market securities to finance the budget despite high rollover risks and interest costs. Total PPG public debt is estimated to decline to 73.0 percent of GDP in 2021 driven mainly by reduction in domestic debt to 22.0 percent of GDP as the authorities pay down more supplier arrears. PPG external debt is estimated to increase slightly to 51.1 percent of GDP reflecting additional borrowings from multilaterals during 2021. 20. The debt profile is vulnerable to rollover risks, contingent liabilities, and exchange rate fluctuations. Domestic debt is predominantly composed of high-interest short-term T-bills (around three-quarters of domestic debt is owed to commercial banks, mainly in the form of 364-day T-bills) – which poses high rollover risks. Legacy domestic payment arrears reached around 10 percent of GDP at end-2019. Efforts have been made to reduce 6The overarching objective of the QAERP is to maintain macroeconomic and financial system stability, as well as mitigate the impact of COVID-19 on businesses and households. The Letter of Development Policy (LDP) (Annex 3) provides a detail description of the government’s COVID-19 response. Page 11 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) these arrears, but they remain high (about 6.5 percent of GDP) and further reductions are assumed in the Debt Sustainability Analysis (DSA) analysis (discussed below). Contingent liabilities from State-owned Enterprises (SOE) debt, estimated at 6.8 percent of GDP in 2019, also pose fiscal risks. According to the 2019 Auditor General report, some SOEs are poorly managed. A sharp depreciation of the exchange rate could negatively affect SL’s debt service profile. Table 2: COVID-19 Health and Economic Response (Billions of Le) Particulars (line items) 2020 2020 2020 2020 Original Supplementary Revised Actual Budget Budget Budget CONTAINMENT and SOCIAL RESPONSE implemented via budget 44 29 73 144 Health Sector Response Implemented via budget 3 384 387 410 Health Sector Response Plan 0 275 275 375 Other Health Sector Spending 3 109 111 35 SOCIAL AND ECONOMIC RESPONSE 253 628 881 889 QAERP: Budget Expenditure 228 302 530 737 Commence national micro credit scheme 21 29 50 4 Social Safety Net 3 52 55 48 o/w Cash Transfer and Food Assistance 1/ 3 12 15 13 Bailout to SOEs 0 20 20 30 Support to Tourism Sector (Hotels) 0 20 20 5 Rehabilitate unpaved truck and feeder roads 80 30 110 164 Minor repairs on township roads 37 168 205 332 Provide farm inputs including chemicals and seedlings 68 3 71 45 Support farmers to tractors and other machinery 16 20 36 89 Provide extension services to farmers 4 0 4 56 Other economic and social response 25 326 351 152 Tree Planting and Re-afforestation 2 38 40 24 District Electrification Project 20 126 146 40 Support to Agriculture 0 20 20 7 Water Supply Projects 3 142 145 82 Total COVID19-related Budgetary Expenditure 300 1041 1341 1443 % of Non-iron ore GDP 0.8 2.6 3.4 3.6 Source: Sierra Leonean Authorities and IMF Staff (August 2021). 1/ includes indirect support to impacted sectors (tourism) and measures to address food insecurity (improved access to tractors and other machinery). Page 12 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Table 3: Fiscal Operations of the Central Government (Percent of non-iron ore GDP) 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total revenue and grants 15.8 18.2 20.0 20.7 19.6 19.4 20.2 20.0 19.5 Revenue 13.7 14.8 13.8 15.3 15.1 15.0 15.6 16.0 16.2 Tax revenue 11.8 12.5 11.6 12.9 12.6 12.7 13.2 13.6 13.8 Personal Income Tax 3.6 4.1 3.5 3.9 3.8 3.8 3.9 3.9 4.0 Corporate Income Tax 1.4 0.9 1.5 1.5 1.6 1.6 1.7 1.7 1.8 Goods and Services Tax 2.7 2.8 2.6 2.8 2.9 2.9 3.0 3.1 3.2 Excises 1.1 1.6 1.4 1.3 1.6 1.6 1.6 1.6 1.6 Import duties 2.0 2.0 1.6 1.9 1.9 1.8 2.0 2.1 2.1 Mining royalties and licenses 0.7 0.6 1.0 1.1 0.6 0.7 0.8 0.8 0.8 Other taxes 0.3 0.3 0.6 0.2 0.3 0.3 0.3 0.3 0.4 Non-tax 1.9 2.3 0.2 2.5 2.5 2.3 2.4 2.4 2.4 Other, Capital Transfers from BSL (CCRT Debt … … -0.2 0.7 0.4 0.0 0.0 0.0 0.0 Relief) Grants 2.1 3.4 -0.6 4.6 4.1 4.5 4.7 4.0 3.3 Budget support 0.7 2.0 3.8 2.4 1.5 2.1 2.1 2.1 2.1 Project grants 1.4 1.4 1.5 2.2 2.6 2.4 2.6 1.9 1.2 Expenditures and net lending 21.4 21.3 25.7 24.7 23.6 22.1 21.5 20.8 20.0 Current expenditures 14.7 15.4 17.7 17.4 16.1 14.6 13.9 13.8 13.4 Wages and salaries 1/ 6.3 7.0 8.2 8.4 7.7 6.7 6.4 6.4 6.4 Goods and services 3.6 3.2 3.6 3.1 2.6 2.6 2.6 2.6 2.7 Subsidies and transfers 1.9 2.5 2.9 3.1 3.0 2.4 2.3 2.4 2.5 Interest 2.8 2.7 3.0 2.8 2.8 2.9 2.5 2.3 1.9 Domestic 2.5 2.4 2.7 2.5 2.5 2.5 2.1 1.9 1.5 Foreign 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 Capital Expenditure 6.4 5.7 7.6 6.8 7.2 7.1 7.1 6.4 6.1 Foreign financed 4.3 3.1 4.3 4.1 4.8 4.7 4.9 4.2 3.5 Domestic financed 2.1 2.6 3.3 2.7 2.3 2.3 2.2 2.3 2.6 Net lending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Contingent expenditure 0.3 0.2 0.1 0.2 0.0 0.1 0.1 0.2 0.2 Arrears Paydown (cash) … … 0.4 0.2 0.2 0.3 0.4 0.3 0.3 Domestic primary balance 2/ -0.5 -0.8 -4.2 -2.2 -0.6 0.8 1.9 2.0 1.9 Overall balance including grants -5.6 -3.1 -5.8 -4.0 -3.9 -2.6 -1.2 -0.8 -0.5 Overall balance excluding grants -7.7 -6.5 -11.1 -8.6 -8.1 -7.1 -5.9 -4.8 -3.8 Financing 5.6 3.1 5.8 4.0 3.9 2.6 1.2 0.8 0.5 External financing (net) 2.2 0.8 1.7 0.6 0.8 0.8 0.7 0.6 0.7 Borrowing 3.2 1.7 2.8 2.0 2.2 2.4 2.3 2.3 2.3 Projects 3.2 1.7 2.8 2.0 2.2 2.4 2.3 2.3 2.3 Budget 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortization -1.0 -1.0 -1.1 -1.4 -1.5 -1.5 -1.7 -1.7 -1.6 Domestic financing (net) 3.4 2.4 3.9 3.2 3.2 1.9 0.7 0.2 -0.1 Total Banking Sector (net) 3.1 2.6 6.9 4.0 3.6 2.2 1.0 0.2 -0.1 Banks, net of on-lending 2.5 2.2 3.8 2.1 2.3 2.2 2.0 1.4 1.3 SDR on-lending, Net 0.6 0.3 3.1 1.9 1.3 0.0 -1.0 -1.1 -1.3 of which, proposed future on-lending … … 0.0 1.1 1.1 0.6 0.0 0.0 0.0 under ECF Page 13 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) of which, exceptional financing-RCF … … 3.5 1.1 0.0 0.0 0.0 -0.4 -0.8 of which, SDR allocations on-lending … … … … 0.9 0.3 0.0 0.0 0.0 Disbursements 0.6 0.3 … 2.2 2.0 0.9 0.0 0.0 0.0 Repayments 0.0 0.0 … -0.3 -0.7 -0.9 -1.0 -1.1 -1.3 Non-Bank Sector 1.4 -0.2 -0.1 -0.3 -0.4 -0.3 -0.3 0.0 0.0 Government Securities, General 0.0 0.5 0.3 0.3 0.0 0.0 0.0 0.0 0.0 Government Securities, Arrears-Related 1.3 -0.7 -0.4 -0.6 -0.4 -0.3 -0.3 0.0 0.0 o/w Pre-Arrears Strategy 1.3 -0.7 -0.4 -0.9 -0.3 -0.2 -0.2 0.0 0.0 o/w Post-Arrears Strategy 0.0 0.0 0.0 0.3 -0.1 -0.1 -0.1 0.0 0.0 Other 3/ -1.1 0.0 -2.9 -0.6 0.0 0.0 0.0 0.0 0.0 G20 debt initiative (deferment) … … 0.2 0.3 0.0 0.0 0.0 0.0 0.0 G20 debt initiative (payment) … … 0.0 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 Financing Gap --- --- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 RCF2 on-lending … … … 0.0 0.0 0.0 0.0 0.0 0.0 World Bank budget support (additional to … … … 0.0 0.0 0.0 0.0 0.0 0.0 budget assumption World Bank health sector support --- --- … 0.0 0.0 0.0 0.0 0.0 0.0 Remaining Gap --- --- --- 0.0 0.0 0.0 0.0 0.0 0.0 Memorandum item: … … … … … … … … … Change in unpaid checks (+ = accumulation) Total Stock of Arrears … … … … … … … … .. Non-iron ore GDP (Le billions) 32,402 36,635 39,938 44,393 50,662 58,519 66,942 75,948 84,644 Sources: Sierra Leonean authorities; and IMF staff estimates and projections (August 2021). 1/ See Sierra Leone: 3rd & 4th Review Under the ECF (CR/21/183), August 2021. 2/ Starting in 2019, tertiary education wages are classified in the wage bill rather than under subsidies and transfers. 3/ Revenue less expenditures and net lending adjusted for interest payments, foreign financed capital spending, and arrears paydown. 4/ In CR No 19/217 and prior, “other” includes the non-bank sector. 2018 onward, “other” includes the corresponding transaction for securities issued to reduce the stock of arrears. Table 4: External Financing Requirements and Sources (US$ Million) 2018 2019 2020est 2021p 2022p 2023 2024 2025 2026 Financing needs -603 -745 -715 -1078 -690 -681 -641 -606 -667 Current account balance (excluding net -567 -664 -457 -731 -682 -612 -594 -549 -565 official current transfers) Debt amortization (excluding IMF) -38 -39 -45 -58 -62 -65 -72 -74 -74 Gross international reserves accumulation (- 20 -26 -171 -259 115 60 94 89 49 increase) Repayments to IMF -18 -17 -42 -30 -61 -65 -68 -72 -76 Financing sources 452 676 519 941 631 663 646 608 629 Capital account 66 82 94 126 146 136 145 120 94 Disbursements from official creditors 121 170 113 83 95 100 100 100 104 (excluding IMF) Net official current transfers 61 80 181 126 89 114 115 116 118 Foreign direct and portfolio investment 250 301 135 306 291 307 280 268 313 Net acquisition of financial assets of 11 5 -62 8 -1 -4 -5 -5 -10 commercial banks (- increase) Other -58 38 57 291 10 10 10 10 10 Errors and omissions 129 48 -13 0 0 0 0 0 0 Page 14 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Other financing sources 22 21 208 137 59 18 -5 -2 -2 Disbursements from IMF 22 21 166 95 45 23 0 0 0 Exceptional financing 0 0 42 42 14 -5 -5 -2 -2 CCRT first tranche … … 19 0 0 0 0 0 0 CCRT second tranche … … 17 0 0 0 0 0 0 CCRT third tranche … … … 22 0 0 0 0 0 CCRT fourth tranche and remaining tranche … … … 9 17 0 0 0 0 DSSI (deferment) … … 7 12 0 0 0 0 0 DSSI (repayment) … … 0 0 -3 -5 -5 -2 -2 Financing gap 0 0 0 0 0 0 0 0 40 Unidentified financing 0 0 0 0 0 0 0 0 40 Memorandum items Gross international reserves (excluding swaps) 481 507 677 936 821 761 668 579 530 Gross international reserves (excluding swaps, 3.2 4.3 4.6 6.1 5.3 4.8 4.2 3.4 3.0 months of next year’s imports) Sources: Sierra Leonean authorities; and IMF staff estimates and projections. 1/ See Sierra Leone: 3rd & 4th Review Under the ECF (CR/21/183), August 2021. 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 21. Sierra Leone’s economy is projected to recover gradually, as the COVID-19 pandemic is controlled, mobility restrictions are lifted, and the reform momentum resumes. Real GDP growth is projected to average about 4.8 percent over the medium-term (2022–2026), with specific contributions from investments (especially in mining and agriculture) on the demand-side, and of agriculture, tourism, construction, and mining on the supply-side. The implementation of the agricultural policy shift, including reforms to promote private sector participation and boost fish production by artisanal fishers, on-going efforts to reignite tourism, an expansion in construction activities, and the resumption of iron ore mining (on the back of robust external demand) will support the recovery of the economy. Thus, real GDP growth is projected to reach 5.0 percent. However, third and fourth waves of infections and virus mutations in several countries, and challenges with vaccine accessibility and rollout pose significant risks to the medium-term economic outlook. 22. Inflation is expected to decline and stabilize in single digits. Average consumer price index (CPI) inflation is expected to decline gradually (to fall below 10 percent by 2024) thanks to (i) in the short term, the gradual lifting of containment measures and easing of supply disruptions; and (ii) in the medium term, increased domestic food production, on the back of significant investment in agriculture, and proactive management of inflation risks by the BSL and policy adjustments to macroeconomic conditions. 23. External accounts are expected to be buoyed by the resumption of mining production and exports. The trade deficit is projected to narrow gradually over the medium term, to 10.0 percent of GDP by 2025. Having reached 18 percent in 2021, export growth is expected to remain strong over the medium-term (9 percent on average), reflecting robust increase in mining production, especially of iron ore and gold. Thus in 2022, the trade deficit is projected to narrow by 1.7 percentage points, to 14.1 percent of GDP. The current account deficit is also expected to fall, from 14.3 percent of GDP in 2021 to 13.9 percent in 2022 and 9.9 percent of GDP by 2025. Gross external reserves, which reached 6.1 months on import (US$936 million) in 2021 following new SDR allocation by the IMF, will decline gradually over the medium-term because of increasing external debt service. However, Page 15 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) reserve coverage is expected to remain adequate (above 3 months of imports) despite increased debt service. Total external financing needs should decline to US$690 million (16.2 percent of GDP) in 2022. World Bank disbursements are expected to amount to US$175 million, including the current DPO (US$75 million), and project support grants (US$100 million), excluding Trust Fund Grants (US$36.7 million). 24. Enhanced tax collection efforts and further expenditure rationalization are expected to drive improvements in the fiscal position over the medium term. In 2022, the overall deficit (excluding grants) is projected to narrow by 0.5 percentage points of GDP, to 8.1 percent of GDP (3.9 percent of GDP including grants). The improvement is expected to come primarily from the winding down of COVID-19 response measures. Total expenditure is projected to decline by 1.1 percentage points of GDP (23.6 percent of GDP in 2022), while tax revenues are expected to decrease slightly by 0.3 percentage points of GDP (to 12.6 percent of GDP) due mainly lower mining royalties following the temporary closure of the rutile mine. By 2026, the budget deficit is projected to narrow further, to 3.8 percent of GDP (0.5 percent including grants). About 20 percent of the new SDR allocation will be used to fund arrears clearance, COVID-19 response and spending on priority sectors (education and agriculture), amounting to 0.9 percent of GDP over 2022-23. The authorities are expected to resume fiscal consolidation reforms agreed under the IMF-supported ECF program (put on hold during the pandemic). On the revenue side, key measures under the program include: (i) fuel subsidy reform, to allow changes in fuel prices to be passed on to consumers; (ii) the elimination of all duty and tax waivers except those covered by the Vienna Convention, and a comprehensive review of all tax concessions; and (iii) improved customs and domestic tax administration by the National Revenue Authority. On the expenditure side, planned reforms include (i) expenditure controls by the Ministry of Finance (MoF) over other Ministries, Departments, and Agencies (MDAs); (ii) a freeze on public-sector recruitment, a reduction of leave and severance benefits and strict enforcement of the official retirement age of 60 years; (iii) reductions in foreign travel of government delegations; (iv) strengthening public investment management; (v) a comprehensive audit of the stock of suppliers’ and contractors’ arrears; and (vi) an extension of the treasury single account, which has been critical in bringing additional Ministries and MDA revenues on budget, while supporting better cash planning. Page 16 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Figure 1: Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020-2030 PV of debt-to GDP ratio PV of debt-to-exports ratio 90 900 80 800 Most extreme shock is Combination Most extreme shock is Exports 70 700 60 600 50 500 40 400 30 300 20 200 10 100 0 0 2021 2023 2025 2027 2029 2031 2021 2023 2025 2027 2029 2031 Debt service-to-exports ratio Debt service-to-revenue ratio 80 40 70 35 Most extreme shock is Growth Most extreme shock is Exports 30 60 50 25 40 20 30 15 20 10 10 5 0 0 2021 2023 2025 2027 2029 2031 2021 2023 2025 2027 2029 2031 Baseline Historical scenario Most extreme shock 1/ Threshold Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs Yes Avg. nominal interest rate on new borrowing in USD 1.1% 1.1% Natural Disasters n.a. n.a. USD Discount rate 5.0% 5.0% Commodity Prices 2/ No No Avg. maturity (incl. grace period) 17 17 Market Financing n.a. n.a. Avg. grace period 5 5 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests interactions of the default settings for the stress are assumed to be covered by PPG external MLT debt in the external DSA. Default terms tests. "n.a." indicates that the stress test does not of marginal debt are based on baseline 10-year projections. Sources: Sierra Leonean authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2031. Stress tests with one-off breaches are also presented (in any), while these are one-breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most extreme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 25. Public debt increased significantly during the COVID pandemic, with substantial risks stemming from the debt profile. The country is exposed to rollover and refinancing risks resulting from the short maturity of domestic debt, which is predominantly composed of high-interest short-term T-bills (around three-quarters of domestic debt is owed to commercial banks, mainly in the form of 364-day T-bills). Page 17 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) 26. According to the latest joint World Bank-IMF Low-Income Country - Debt Sustainability Analysis (LIC- DSA, July 2021), Sierra Leone’s debt is assessed as sustainable, but with high risk of distress. Under baseline assumptions, the public debt stock is projected to decline over the medium-term (2022–26) to reach 63.2 of GDP by 2026 driven mainly by reduction in both domestic debt (to 18.8 percent of GDP following the clearance of most domestic arrears) and external debt (to 44.4 percent of GDP due to pay down of debt owed to multilateral creditors). The present value (PV) of PPG external debt-to-GDP ratio and the PV of PPG external debt-to-export ratio breaches the DSA thresholds (30 and 140 percent, respectively) over the medium term, before improving around 2024-26 (Figure 1). This protracted deviation from the thresholds is in part due to the downgrade of the country’s debt-carrying capacity from “Medium” in the June 2020 DSA to “Weak” in the DSA conducted in 2021.7 The ratio of PPG external debt service-to-exports also stays slightly above the threshold over the medium term and the ratio of PPG external debt service-to-revenue remains above its threshold for the next ten years. Stress tests indicate that external debt indicators are sensitive to growth and exports shocks. In stress scenarios, all the external debt indicators remain significantly above the thresholds for the next ten years. Since the PPG external debt indicators breach their thresholds under the baseline, Sierra Leone is assessed to be at high risk of external debt distress. However, since all the external debt indicators are projected to decline over the medium to long term, PPG external debt is assessed as sustainable. 27. Since the outbreak of the pandemic, development partners have supported the government’s proactive response. The World Bank approved a US$7.5 million emergency preparedness response project (P173803) in early April 2020 and a US$101.6 million budget support grant in June. An additional financing (P176441) of US$5 million and a Trust Fund (P176243) of US$3 million was approved in 2021 for an emergency preparedness and response project and to help the country acquire more vaccines. The IMF provided support (i) in the amount of US$21.13 million following a second review of its ECF (April 3, 2020); (ii) debt service relief under the Catastrophe Containment and Relief Trust (April 13, 2020); (iii) a first RCF (June 3, 2020) in the amount of US$143 million; and (iv) a second RCF (March 15, 2021) in the amount of US$50 million. The third and fourth reviews of the ECF were approved on July 9, 2021, resulting in the disbursement of SDR 31.11 million (US$44.4 million). Furthermore, the country is participating in the G20 DSSI. In May 2020, the Government issued requests for debt service relief to all bilateral creditors. To reduce debt vulnerabilities and preserve medium-term sustainability, Sierra Leone is also participating in the SDFP implementation with three PPAs. One of the PPAs is supported by this operation. The Government met all three 2021 PPAs and has committed to implement PPAs for 2022. Meanwhile, the authorities have committed to reducing debt vulnerabilities through resorting only to sustainable development finance and enhancing monitoring. They have created a COVID-19 account and are (i) reporting on the use of the funds in this account and (ii) publishing large public procurement contracts online, including the names of the companies awarded contracts, their beneficial owners, and ex-post validation of delivery. 7The debt carrying capacity is measured by a composite indicator. The CI score reflects the impact of several factors on the quality of Sierra Leone’s institutional and policy framework through a weighted average of its Country Policy and Institutional Assessment (CPIA) score, real GDP growth, remittances, international reserves as well as world growth. The contribution of these components to the variation of the CI score was 46 percent for the CPIA score, 31 percent for the import coverage of reserves, 18 percent for global economic growth, 4 percent for domestic economic growth and, 1 percent for remittances. The lowering of Sierra Leone’s debt carrying capacity in 2021 was largely on account of lower world growth. Page 18 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Box 1: COVID-19 impacts under alternative scenarios The COVID-19 pandemic has inflicted severe economic and fiscal costs to Sierra Leone. On the supply side, the pandemic has disrupted both domestic and international supply chains. As a result of containment measures and social distancing, real GDP contracted by 2.0 percent in 2020, a downward revision of 7.4 percentage points relative to pre-COVID-19 forecast (Figure 2). This economic contraction led to job and income losses. On the supply-side, the impact of COVID-19 has been more pronounced in the mining and services sectors. On the demand side, while government consumption picked up in 2020 reflecting the COVID-19 response, the contribution of private demand has declined as households cut back on expenditure and firms cut back on investment. Despite lower private consumption, inflation pressures increased slightly as a result of disruptions in supply chains. The CPI inflation rate reached 13.4 percent in 2020, an upward revision of 0.4 percentage point relative to the pre-COVID-19 projection. Between 2019-2020, the primary balance declined by 3.3 percentage points of GDP, reaching a deficit of 4.1 percent of GDP in 2020. This deterioration of the primary balance led to a sharp rise in the fiscal financing needs in 2020. Figure 2: Economic and Fiscal Costs of COVID-19 in Sierra Leone Real GDP growth (%) Primary balance (% of GDP) CPI Inflation (%) GDP Growth Primary Balance CPI Inflation 6 1.5 16 4 0.5 15 14 -0.5 2018 2019 2020 2021 2022 2 13 -1.5 12 0 -2.5 11 2018 2019 2020 2021 2022 -2 10 -3.5 9 -4 -4.5 2018 2019 2020 2021 2022 Pre COVID-19 Pre COVID-19 Pre COVID-19 Post COVID-19, baseline Post COVID-19, baseline Post COVID-19, baseline Post COVID-19, downside Post COVID-19, downside Post COVID-19, downside Source: Sierra Leonean authorities (March 2021) As the pandemic recedes and economic activity resumes, the macroeconomic outlook is expected to improve, and internal balances projected to improve despite downside risks. With the resumption of the structural and fiscal reform agenda, the macroeconomic outlook is expected to improve gradually. The baseline scenario assumed in this outlook is the optimistic scenario. The infection rate is projected to be low and declining as the government rolls out vaccinations. In this scenario, the pandemic is assumed to fade in the fourth quarter of 2021, which allows for a gradual lifting of all containment and social distancing measures. Growth is projected to rebound to 4.2 percent in 2021 and 5.9 percent in 2022. This economic rebound will be driven by investment, on the demand side, and mining activities, on the production side. In this optimistic scenario, the primary balance will improve by 2 ppts of GDP reaching -2.1 percent of GDP in 2021. This improved fiscal position reflects the projected stronger revenue collection and further expenditure rationalization. Inflationary pressures will drop further as containment measures are lifted and supply chains strengthened. The average CPI inflation rate will decline to 10.7 percent in 2021, which is 2.7 ppts lower than in 2020. However, the growth outlook and internal balances will be muted in an alternative scenario, in which the pandemic lasts longer, and the reform momentum is delayed. The second scenario is the downside or pessimistic situation. In this Page 19 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) scenario, the pandemic will only fade by the end of 2022. The vaccines rollout will be set back by a tighter fiscal space. This scenario also assumes a bounce back in COVID-19 cases with a higher infection rate that in the baseline scenario. Iron ore production, a key supply-side driver of the recovery, is also assumed to be slower than expected compared to the baseline. Under the downside scenario, real GDP rebounds but more slowly: 2.7 percent in 2021 and 2.8 percent in 2022. The primary balance will also improve but at moderate rates, reaching only -2.2 percent of GDP in 2021 and -0.9 percent of GDP in 2022. The CPI inflation rate is projected to decline in the downside scenario but will be slightly higher than in the baseline scenario: 11.8 percent in 2021 and 13.2 percent in 2022. 28. Sierra Leone’s macroeconomic framework is assessed to be adequate for the proposed operation . Growth has resumed in 2021 and the recovery is expected to strengthen over the medium-term, with real GDP growth expected to average 4.8 percent over 2022-26. The recovery is expected to be broad-based on the production side and driven by strong private consumption and investment on the demand side. However, downside risks to the growth outlook exists and include the slow pace of COVID-19 vaccinations or a resurgence in infections, lower-than-expected commodity prices especially for iron ore, the possible longer-than-expected closure of the rutile mine and decline in international financial aid. The continuous rise in international energy prices could also increase inflationary pressures. These risks are mitigated by the authorities’ commitment to reform, strong relations with multilateral institutions and a stronger than expected global recovery. Inflationary risks are contained with the BSL’s commitment to price stability to mitigate inflationary pressures from energy prices and to anchor a return to single-digit inflation by 2025. Both internal and external balances are projected to improve gradually to reach historically low levels by 2026. Planned fiscal reforms will be anchored by resumption of the IMF-supported ECF program which is expected to promote short-term stabilization through an improvement revenue mobilization, expenditure rationalization and medium-term debt sustainability (with the debt-to-GDP ratio projected to stabilize over the medium term). The government’s strong reform commitment is underpinned by comprehensive engagement with the IMF and the World Bank (which is also reflected in the strength of this operation). 2.3. IMF RELATIONS 29. The IMF Executive Board approved the Third and Fourth Reviews of the ECF and provided debt service relief in July 2021. Total disbursements (actual and planned) under the ECF arrangement amount to SDR 124.4 million over 2018-2023, of which SDR 77.6 million has already been disbursed. The latest Article IV consultation was completed on April 3, 2020. On April 13, 2020, the IMF Board approved debt service relief under the Catastrophe Containment and Relief Trust. On June 3, 2020, the Board approved a RCF in the amount of SDR 103.7 million (US$143 million or 50 percent of quota) to support the authorities’ response to the COVID-19 pandemic. The disbursement of the second RCF in the amount of SDR 35.26 million (US$50 million or 17 percent of quota) was approved on March 15, 2021. The third and fourth ECF review was approved on July 9, 2021, resulting in the disbursement of SDR 31.11 million (US$44.4 million). 3. GOVERNMENT PROGRAM 30. The foundations of Sierra Leone’s government program are laid out in its Medium-term National Development Plan (MTNDP 2019-2023). After the current government came to power in 2018, it launched a Development Plan focused on improving human capital, infrastructure, and governance. This medium-term plan, which builds on the third Poverty Reduction Strategy Paper (PRSP-III) and the Agenda for Prosperity (AfP),8 8 The Agenda for Prosperity was Sierra Leone’s Poverty Reduction Strategy over the period 2013–2018. Page 20 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) provides a roadmap for economic transformation, with actions in seven policy clusters: (i) Human capital development; (ii) Diversifying the economy and promoting growth; (iii) Infrastructure and economic competitiveness; (iv) Governance and accountability for results; (v) Empowering women, children, adolescents, and persons with disability; (vi) Youth employment, sports, and migration; and (vii) Addressing vulnerabilities and building resilience. The Plan, which is aligned with the World Bank’s twin goals and the UN’s Sustainable Development Goals (SDGs), provides a platform for donor coordination. 31. Given significant debt vulnerabilities, the government has also adopted a MTDS. Consistent with the Public Debt Management Act 20119, the MTDS (2018-2210) calls for reprofiling the debt portfolio and addressing key debt vulnerabilities. It focuses on the appropriate composition of the debt portfolio and vulnerabilities stemming from all aspects of public debt, domestic and external, as well as explicit and implicit contingent liabilities. Based on the analysis of benefits and costs associated with four alternative scenarios, the government has chosen to seek to lengthen the maturity profile of treasury securities by gradually introducing 2 to 5-year marketable T-bonds, while limiting external financing. This is expected to reduce rollover and refinancing risks and improve the maturity profile of public debt11. The MTDS prioritizes concessional and grant financing to decrease the need for domestic financing. 4. PROPOSED OPERATION 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 32. The proposed DPO supports the MTNDP, via actions to boost inclusive growth, and the MTDS, by promoting sustainable development finance. The main objective is to support the Government’s efforts to build the foundations for a robust and inclusive economic recovery from the pandemic and promote sustainable development financing of the Budget. In the short term, this operation will help the government close the country’s large financing gap, as it emerges from the pandemic. It supports policy reforms under three pillars. Pillar 1 focuses on improving natural resources governance through reforms in two areas: (i) access to land; and (ii) mining governance; Pillar 2 focuses on enhancing inclusion through reforms in three areas: (i) women’s economic participation; (ii) access to quality education; and (iii) financial inclusion. Pillar 3 focuses on ensuring sustainable development financing through measures to improve fiscal sustainability and transparency and enhancing debt management. This pillar includes one of the three 2021 and 2022 PPAs of the World Bank’s SDFP. 33. The proposed DPO builds on previous development policy engagement in Sierra Leone, while also introducing new elements. It has a direct connection with the previous DPO series (“Productivity and Transparency Support Grant” over the period 2017-202012) to the extent that it carries over two policy reforms – the mineral and mines and lands reforms – whose implementation was delayed by the COVID-19 pandemic. Unlike the previous series, however, this DPO also provides direct implementation support to the SDFP. 9 The Public Debt Management Act 2011 requires the Minister of Finance to formulate a Medium-Term Debt Management Strategy annually. 10 This MTDS, was designed with technical support from the IMF, the World Bank, and the West African Institute for Financial and Economic Management. 11 Debt maturing within one year is projected to be 14.5 percent of GDP by 2022 under this strategy, compared to 19.6 percent in the other scenarios. 12 P156651, P168259, and P169498 Page 21 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) 34. The proposed operation also reflects lessons learned from a wide range of operations13. These lessons include: (i) the benefits of a programmatic approach (which outweigh the risks) to support the state-building process in a post-conflict country; (ii) the need to set reasonable targets (since it is unrealistic to expect rapid changes in economic and social conditions in fragile post-conflict situations) that are commensurate with local capacity; and (iii) the importance of using budget support in tandem with investment lending and technical assistance. Table 5: Link Between the Proposed DPO and the government program Government Program Proposed DPO MTNDP Policy Cluster 1: Human Capital Development Pillar 2--- Strengthening the Policy Cluster 2: Diversifying the Economy conditions for inclusive growth Policy Cluster 3: Infrastructure and Economic Competitiveness Policy Cluster 5: Empowering Women, Children, the Adolescents and Persons with Disability Policy Cluster 7 – Addressing vulnerabilities Pillar 1--- Improving natural and building resilience. resource governance Policy Cluster 4 – Governance and accountability for results. Pillars 1 and 3--- Improving natural resource governance (Pillar 1) and the sustainability of development financing (Pillar 3) Policy Cluster 6 – Youth employment, sports, and migration. Covered under other World Bank operations and by other donors. MTDS Strategy 4: Lengthening the maturity profile of treasury securities by Pillar 3--- Improving the gradually introducing 2 to 5-year marketable T-bonds while holding sustainability of development external financing constant as per Strategy 1 and 2. financing 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS 35. The proposed DPO includes eight prior actions across three pillars. The identification of the policy actions was based not only on the government’s priorities as laid out in the MTNDP but also on analytical knowledge and empirical evidence (Table 6). 13Including (i) West Africa Regional Energy Trade DPO Program (P171225); (ii) Governance Reform and Growth Grants (GRGC I-VI, P095575, P102040, P107335, P117822, P126199, and P133107); (iii) Emergency Economic and Fiscal Support Operation (EEFSO, P146726); (iv) Smallholder Commercialization and Agribusiness Development Project (SCADeP, P153437); (v) Revitalizing Education Development in Sierra Leone Project (REiSLDP, P163161); (vi) Energy Sector Utility Reform Project (ESURP, P120304); (vii) West Africa Regional Fisheries Program (WARFP, P162343) and (viii) Public Financial Management Improvement and Consolidation Project (PFMICP, P162667). Page 22 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Table 6: DPO Prior Actions and Analytical Underpinnings Prior Actions Analytical Underpinnings Pillar 1: Improving natural resources governance Prior Action #1. The Recipient through - AfP (2013-2018) and MTNDP (2019-23) its Ministry of Mines and Mineral - Republic of Sierra Leone Systematic Country Diagnostic (SCD) (2018) Resources has submitted to Parliament for its approval, the draft Mines and - IMF ECF Staff Reports (2018, 2019, 2021) Minerals Development Act, 2021 which - PFM Act 2016 and PFM Regulation (2019) inter alia provides a legal framework for - Public Expenditure and Financial Accountability (PEFA) (2007, 2010, 2014, promoting governance, transparency, 2017) fiscal, social and environmental Key findings: Market-friendly mines and mineral sector reforms can help standards for the mines and minerals improve governance, the fiscal regime of the sector, government revenue sector, in accordance with the relevant and wellbeing. Mines and Mineral Policies as evidenced by the letter from the Clerk of Parliament, Office of the Clerk of Parliament, dated November 16, 2021. Prior Action #2. The Recipient’s Ministry AfP (2013-2018); SDC (2018); Agriculture PER (2015 and 2021); CFSVA of Lands, Housing and the Country (2015); Poverty Assessment (2014, 2019); Labor Force Survey (2014); Planning, has submitted to Parliament for its approval the draft Bills entitled, National Land Policy (NLP) (2015). (a) the National Land Commission Act, Key findings: Market-friendly land sector reforms can help improve access 2021 which inter alia outlines the to land for all when they are implemented in a transparent and inclusive institutional arrangements for land way. management; and (b) the Customary Land Rights Act, 2021 which provides for customary land rights and management of customary land; as evidenced by the letter from the Deputy Clerk of Parliament, Office of the Clerk of Parliament, dated September 30, 2021. Pillar 2: Enhancing Inclusiveness Prior Action #3. The Recipient’s Ministry - World Bank, 2020. Gender gap in access to finance and employment in of Gender and Children’s Affairs has: Sierra Leone. Policy Note (Prepared by the DPO team) (a) submitted to Parliament the draft - Sierra Leone Economic Update 2019: Financial Inclusion for Economic Gender Empowerment Act, 2021; which Growth and Development. World Bank inter alia makes provision for financial - World Bank, 2020. Women, Business and the Law 2020. institutions to prescribe procedures for - Islam, A., S. Muzi and M. Amin (2018). Unequal Laws and the the improvement of women’s access to Disempowerment of Women in the Labour Market: Evidence from Firm- finance; as evidenced by the letter Level Data”, Journal of Development Studies. from the Deputy Clerk of Parliament, - Demirgüç-Kunt, A. and Klapper, L. (2013). The Gender Gap in Access to Office of the Clerk of Parliament dated Finance. Private Sector Development Blog, World Bank October 21, 2021; and (b) issued - The Global Findex database 2020, World Bank through the BSL, instructions to all Key findings: Regulatory and legislative reforms are effective in closing licensed banks and regulated financial gender gaps in access to financial services and in access to jobs, which in institutions to provide financial services on a nondiscriminatory basis as turn can help close the gender gap in income. evidenced by the Directive on Provision of Financial Services on a Non- Discriminatory Basis, dated August 5, 2021. Page 23 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Prior Action #4. The Recipient’s Teaching Service Commission (TSC) Act 2011; ASC (2015); Situation Room Teaching Service Commission has: (a) Reports (2016); CSR (2013); PAD REDP (2014); Payroll Verification Study developed a new Teacher Management Information System (TMIS) and piloted (2017); Gbamanja Commission of Enquiry Report (2010) it in sixty (60) schools; a Key findings: Addressing teacher absenteeism and improving teacher nd (b) approved the nationwide roll out management are conducive to education quality and learning. of TMIS, to strengthen the institutional framework for teacher management, as evidenced by the TSC Board Resolution dated August 27, 2021. Prior Action #5. The Recipient’s Cabinet Sierra Leone Economic Update 2020: The Power of Investing in Girls. World has approved the National Policy on Bank. Radical Inclusion in Schools, to improve inclusion of children from Rose, R., Garner, P. and Farrow, B., 2019. ‘Developing Inclusive Education disadvantaged background in schools, Policy in Sierra Leone: A Democratic Research Informed Approach’, in S. as evidenced by the Cabinet Decision Halder and V. Argyropoulos (eds.), Inclusive practices, equity and access for dated April 7, 2021. individuals with disabilities: Insights from educators across world. London: Palgrave MacMillan Key findings: Targeted interventions to ensure that girls remain in school delay marriage and reduce childbearing, and in turn would generate substantial benefits to the Sierra Leone economy; significant numbers of children, and particularly those with disabilities or from remote areas of the country are out of education in Sierra Leone; targeted policy action can improve access to education for those who are marginalized or excluded. Prior Action #6. The Recipient’ MoF has - Sierra Leone Economic Update 2019: Financial Inclusion for Economic submitted to its Parliament for Growth and Development. World Bank approval, an amendment to the Payment Systems Act to facilitate the - Sierra Leone Economic Diversification Study 2019. World Bank effective implementation of electronic Key findings: Facilitating digital finance, especially electronic payments, payments and the National Switch, as leads to better financial inclusion. evidenced by letter from the Deputy Clerk of Parliament, Office of the Clerk of Parliament, dated October 21, 2021. Operation Pillar 3: Improving the sustainability of development financing Prior Action #7. The Recipient’s MoF has - World Bank-IMF Debt Sustainability Framework for Low-income Countries published the debt and guarantees of (LIC): Sierra Leone Assessment. February 2021 and June 2021. the five largest State-owned Enterprises - World Bank, 2020. SDFP of the IDA as evidenced by the letter from the MoF - IMF ECF Staff Report (2018, 2019, 2021) dated May 31, 2021. - IMF RCF Staff Report (2020, 2021) Key findings: Expanding the coverage of public debt, especially through SOE debt disclosure, can help reduce fiscal risks and contingent liabilities. Prior Action #8. The Recipient has AfP (2013-2018); SCD (2018); SLEU (2018); PFM Act (2016); PFM Regulation improved transparency in public (2019); Procurement Act (2016); Evaluation of Budget Support to Sierra procurement for the health and Leone 2002 – 2015; PEFA (2007, 2010, 2014, 2017). education sectors, by: (a) committing to Key findings: Disclosing contract award information for public sector publish on the National Public contracts leads to better transparency and efficiency in public Procurement Authority (NPPA) website procurement. on a periodic basis, contracts and tender awards in said sectors above the threshold in the Public Procurement Regulations 2020; and (b) publishing Page 24 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) said information for the Ministry of Health and Sanitation, Ministry of Basic and Secondary Education and the Ministry of Technology and Higher Education on the NPPA website; as evidenced by the letter from the Ministry of Finance dated October 1, 2021. Pillar 1: Improving natural resource governance 36. Pillar 1 comprises of reforms to improve governance in the mining and land sectors to build resilience and support sustained and inclusive growth. Sierra Leone possesses significant renewable and nonrenewable natural resource endowments in land14, forests, and fisheries. The country is also well-endowed with mineral resources15. Extensive alluvial and kimberlitic diamond deposits as well as Gold, iron ore, and more recently bauxite have been found in the country. Despite the economy’s heavy dependence on natural resources, abundant natural resource endowments have not translated into commensurate welfare improvement for the majority of Sierra Leonean citizens. The 2018 Republic of Sierra Leone Systematic Country Diagnostic (SCD) identified weak governance as the central challenge to maximizing benefits from natural resources especially mineral resources. The reforms under pillar 1 focus on strengthening the legal and regulatory framework in land and mining sectors to improve governance of natural resources, build resilience and maximize revenues for inclusive economic growth in line with priorities in the SCD (Land tenure reform for improved productivity and diversification and Maximizing mineral revenues in a sustainable way to mitigate the environmental effects of the mining sector). The reforms support two of the SCD’s four pathways: (i) strengthening the productivity of the agricultural base and (ii) strengthening the management of mineral resources. Prior Action #1: The Recipient through its Ministry of Mines and Mineral Resources has submitted to Parliament for its approval, the draft Mines and Minerals Development Act, 2021 which inter alia provides a legal framework for promoting governance, transparency, fiscal, social and environmental standards for the mines and minerals sector, in accordance with the relevant Mines and Mineral Policies as evidenced by the letter from the Office of the Clerk of Parliament, Office of the Clerk of Parliament, dated November 16, 2021. (Completed) DPO2 (Indicative Trigger #1). The Recipient, through the Ministries of Finance and Mines and Mineral Resources, has submitted to Parliament regulations to the Extractive Industry Revenue Act (2018). DPO3 (Indicative Trigger #1). The Recipient, through the Ministry of Mines and Mineral Resources, has submitted to Parliament regulations to the Mines and Minerals Development Act. 37. Rationale: the mining sector is key for growth, employment, and revenues. Sierra Leone is endowed 14 Almost 75 percent of the total land area of about 72,300 km2 is arable. Rainfall is abundant and is highest at the coast, 3,000–5,000 mm per year, and decreases progressively inland to 2,000–2,500 mm at the eastern border. There is an average of 2,187 hours of sunlight per year or an average of 6 hours of sunlight per day. Internal renewable water resources are estimated at 160 km3 per year, with surface water accounting for 150 km3 per year (SCD, 2018). 15 Known mineral deposits include approximately 14.5 billion MT of iron ore, 4.7 billion MT of magnetite, 108 million MT of bauxite, 867 million MT of rutile, 11.2 million carats of diamonds, and 4.5 million ounces of gold (Sierra Leone National Mineral Agency, February 2017) Page 25 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) with a wide variety of mineral resources, including iron ore, diamonds, rutile, and bauxite. The extractive sector plays a major role in the economy, accounting for 14 percent of GDP and 68 percent of merchandise exports in 2020. While the extractive sector is dominated by large-scale multinational firms, the artisanal and small-scale subsector, which employs an estimated 300,000 people, also plays a significant role. The formal sector is capital- intensive and employs relatively less labor than other sectors, but mineral rents are substantial, accounting for around 4.5 percent of total public revenue. However, sound governance, fiscal management and sustainable industry practices are essential to translate the growth of the mining sector into broader developmental gains. With this recognition of the importance of sound governance, between 2009 and 2020, Sierra Leone made commendable efforts to modernize the legislative and policy framework for the sector – including, the enactment of the Mines and Minerals Act 2009, Petroleum (Exploration and Production) Act 2011, and the National Minerals Agency Act 2012, under which the National Minerals Agency (NMA) was established. In 2018, the Extractive Industries Revenue Act (EIRA) 2018 was approved, supported by the previous DPO series, which provides a consolidated legal framework for the regulation of all fiscal aspects related to the extractive industries, including, royalties, taxes, and charges. However, despite recent centralized institutional reform, the sector has seen limited revenue gains and continued to experience leakages. 38. The continued weak governance and revenue performance of the sector reflects the high-level of discretion in legal and regulatory procedures. Incomplete application of the fiscal regime results in significant tax leakage. The sector’s legislations are rife with inconsistencies, leaving the Government, license holders and citizens to rely on highly interpretive and personalized agreements on the terms of operation. Opacity in the identity of the beneficial owners of mining companies has also created the risk of undue influence on the implementation of the law. Weaknesses in the MMA 2009 and the Petroleum Act 2011 provide room for discretion and conflicts over institutional roles, powers and functions. By addressing these weaknesses, the government can enhance strategic and functional decision making, reduce rent-seeking behavior and adequately capture revenue. In 2019, the government initiated the process of reviewing the MMA 2009. The draft Mines and Minerals Development (MMD) Bill 2021 and NMA Bill 2021 were subsequently shared with the World Bank and other stakeholders in early 2021 for review. 39. Policy Reform: Adoption of the draft MMD Bill, 2021, supported by this DPO, will address critical shortcomings of the 2009 Mines and Minerals Act. The draft bill clarifies institutional roles, functions, and powers of political and technical officials, reduces discretionary powers, and strengthens the decision-making framework in the sector. In addition, it provides clarity on the various licensing categories, promotes environmentally sustainable mining practices, and equitable distribution of revenues and other benefits between the state, investors, and mining communities. It clarifies the obligations of large and small-scale mining companies to protect the environment, and the rights of women and children. Employment contracts will be made compulsory and include health and safety standards. The criteria for revocation of licenses will be explicitly defined, including on the exploitation of children. It also addresses the rights of rural landowners who are often in conflict with miners, especially artisanal and small-scale miners. With respect to the award, enforcement, and (if needed) suspension of licenses, the MMD Bill 2021 builds on the enactment of the EIRA and seeks to engender an investor-friendly environment capable of attracting world-class, large-scale miners, while improving the performance of both large- and small-scale operations. Following the enactment of the MMD Bill 2021, reforms will focus on strengthening the fiscal regime for mobilizing revenue from the mining sector developing the regulations for the EIRA (completed under the previous DPO). The Extractive Industry Revenue Regulations (Trigger #1 DPO2) will strengthen the framework for taxing mining companies by ensuring consistency and predictability of mining contracts thereby maximizing revenue from the sector. In third operation in the series Page 26 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) (DPO3), the Mines and Minerals Development Regulations are expected to be approved which should provide further clarity on institutional roles, powers, and functions, and reduce the scope for discretionary decision- making by introducing criteria and standards for investment decisions. 40. The indicative triggers for the subsequent operations are the submission to Parliament of regulations for the EIRA (2018) (Trigger #1 DPO2) and the regulations for the MMD Act in accordance with the 2018 Mines and Mineral Policies (Trigger #1 DPO3). These regulations are expected to complement Prior Action #1 by strengthening the implementation of the MMD Act and promoting compliance with the EIRA to boost revenue from the extractive sector. 41. Expected outcomes and results. The implementation of the provisions included in the bill and subsequent regulations are expected to improve sector governance, revenue collection from the industry and enhance transparency. Compulsory disclosure of beneficial owners and modalities for allocating mineral rights, will help enhance transparency. The proposed revisions will improve the operations of small-scale miners and strengthen the enforcement mechanisms for non-compliance. By improving governance and transparency in the sector, the bill will also help attract high-quality foreign investors, provide regulatory certainty, reduce rent-seeking, and improve revenue collection. For domestic operators, the bill will provide additional certainty of the regulatory framework and environment for investments. The working conditions of men, women and children are likely to improve. The progress of this action will be measured by (i) the proportion of mining companies disclosing beneficial owners to enhance transparency in the mining sector, and (ii) the size of mined out land reclaimed (in acres) by end-2024 and reduce land cover loss through reforestation. 42. Climate co-benefits: The proposed reforms will also have positive spillovers on the management of Sierra Leone’s natural resources. Hitherto, the environmental aspects of the mining sector have been poorly managed. The NMA is responsible for regulating the sector but has limited expertise to enforce environmental standards in mining. Weak enforcement resulted in haphazard mining closure practices with several mine sites not restored to their original state for possible reforestation or agricultural activities. The type of mining activities (mostly dredging and open pit) caused significant environment degradation in terms land cover loss and deforestation. The loss of land cover often caused conflict between farmers and mining companies. The Mines and Minerals Development Bill 2021 shifts the responsibility for the regulation of the environmental aspects of mining from the NMA, to the Environment Protection Agency (EPA), which is a specialized agency of government responsible for the environment. Thus, for the first time, this will allow for the cumulative environmental impact of mining to be considered within the broader context of climate change, requiring the EPA to adequately factor mining within their climate change adaptation and mitigation strategy. The environmental provisions of the bill allow for the EPA, working jointly with the NMA, to require mining companies to implement a broad range of decarbonization policies, which are expected to be expanded on in the mining regulation. The bill is expected to contribute to climate change mitigation or adaptation through a stricter enforcement of non-confidential Environmental Impact Assessment (EIA) requirements. The bill provides for mining and environmental regulators to require mining companies to provide financial assurances, including bonds, to guarantee compliance with their environmental obligations, including mines rehabilitation. Overall, the bill will contribute to the sequestering of carbon by avoiding and mitigating deforestation and land degradation, while enforcing revegetation of abandoned mine sites. Prior Action #2: The Recipient’s Ministry of Lands, Housing and the Country Planning, has submitted to Parliament for its approval the draft Bills entitled, (a) the National Land Commission Act, 2021 which inter alia Page 27 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) outlines the institutional arrangements for land management; and (b) the Customary Land Rights Act, 2021 which provides for customary land rights and management of customary land; as evidenced by the letter from the Deputy Clerk of Parliament, Office of the Clerk of Parliament, dated September 30, 2021. (Completed) DPO2 (Indicative Trigger #2). The Recipient through its Ministry of Lands, Housing, and the Country Planning, has taken steps to establish the National Land Commission by appointing the Board members. DPO3 (Indicative Trigger #2). The Recipient through its Ministry of Lands, Housing, and the Country Planning, has (i) submitted to Parliament regulations for the Land Commission and Customary Land Rights Acts, and (ii) established Land Adjudication Tribunals in at least two districts. 43. Rationale: Land is a critical economic asset for Sierra Leoneans, but the tenure system discourages investments and discriminates against women. Land use and ownership is predominantly administered based on customary law.16 Land rights under customary law vary by region, but women are typically excluded from ownership, inheritance, or participation in land use decisions. In many cases, they only have the right to work on the land.17 Long-standing cultural factors, such as patrilineal inheritance considerations, prevent women from getting equal access to land. Women’s land ownership is also strongly tied to marriage – it is difficult to access land other than through their husbands or male relatives, and they risk losing their land through divorce or widowhood.18 This is particularly true for women who marry outside their chiefdom, where they are not considered as members of the family and are ineligible to receive land for themselves or are not allowed to participate in family meetings in which land is allocated to other members of the family. In the case of the husband’s death or divorce, women often face dispossession of their land rights, demonstrating gender-based discrimination regarding land inheritance practices. In many cases a divorcée cannot access land at all. Regarding transfer of land (inheritance, gifts, sales, leases, agreements with investors), women are usually not consulted, demonstrating their lack of involvement in land-related decisions. These legal and cultural arrangements have shaped land distribution, with just 20.7 percent of land plots owned by women, 68.8 percent by men, and the remainder jointly held by both, even though women comprise 70 percent of the agricultural labor force.19 The 2015 National Land Policy sought to remedy some of these issues but failed to address the discrimination and exclusion of women embedded in customary law.20 44. The combination of insecure tenure and limited female participation has affected agricultural productivity by impeding investments and causing disputes. The country’s population is predominantly rural (59 percent) and agriculture accounts for 60.3 percent of GDP and 58.8 percent of the labor force. However, only less than 10 percent of arable land is actually in use, due to institutional constraints such as poor governance of land resulting in insecure tenure. Lack of tenure security is in turn associated with low productivity levels as long- term investments, for example in soil conservation, are disincentivized and farmers tend to spend more time on protecting and defending their land rights instead of engaging in more productive farm or off-farm activities. 21 Insecure tenure in combination with women’s limited participation, is also affecting foreign direct investments 16 As per the 1991 National Constitution, there is a dual land tenure system. Outside of the Capital City (Freetown) and the Western Area, the land tenure system is based on customary rules, with chiefs and family heads making decisions on annual allocations. 17 Hennings, 2020. 18 The Human Rights Defenders Network, 2014; GIZ, 2019. 19 Labor Force Survey, 2014 and Long and Kargbo, 2019. 20 Hennings, 2020. 21 World Bank (2011): Environmental and Gender Impacts of Land Tenure Regularization in Africa. Pilot Evidence from Rwanda. Page 28 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) in agriculture, which have led to land disputes and grievances throughout the country. 22 Some of these disputes have turned violent. 23 However, the legal framework for land in Sierra Leone is outdated, and does not address the issues outlined above.24 45. In 2015, the Government launched the National Land Policy (NLP), setting in motion the process of reforming the land sector. The NLP aims at strengthening the land tenure system and rights for land users, streamlining and modernizing land transactions, encouraging the sustainable use of land and natural resources and responsible investment, resolving systemic conflicts between the formal system and informal/customary systems, and providing fair mechanisms for land disputes resolution. The cabinet adopted the Land Policy Implementation Framework and the National Land Policy Implementation Plan in 2017. In early 2020 a draft Customary Land Rights Bill and a draft Land Commission Bill were prepared by the Ministry of Lands, Housing, and Country Planning (MLHCP). The bills will finally merge the cadastral parcel maps with the registry ownership information – both are currently disconnected under two different ministries. The bills will also decentralize land administration functions significantly. Currently, there are only entities in Freetown, but the bills foresee major decentralization to the district and even town/village/chiefdom levels. Ultimately, the goal is to make land administration more efficient, transparent, and accessible. Consultations on the draft land bills continued and the Food and Agriculture Organization of the United Nations (FAO) and the World Bank technical team reviewed initial drafts of the laws. The MLHCP and Gender-based Regional Land Oversight Committees collaborated with civil society organizations (CSO) (through a national land sector Technical Working Group) to carry out awareness campaigns at the national and sub-national levels to sensitize the population, especially women, about the new laws. Both the Land Commission Bill and Customary Land Rights Bill drafts are aligned with international good practices, namely, the key principles of the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries, and Forests (VGGT).25 46. Policy reform: The draft land bills, supported by this DPO, seek to address the existing gender gaps by strengthening women’s legal land rights. The Customary Land Rights Bill forbids discrimination in the right to hold, use, or acquire land subject to customary law, inter alia, based on gender and marital status. In this context, the draft bill makes specific reference to land held under customary law and declares null-and- void customary practices that exclude, limit, or inhibit women from owning, holding, using, transferring, inheriting, succeeding to or dealing with land. The draft bill seeks to introduce a new form of tenure, i.e., family title to land. Under this form of tenure, the draft bill would ensure that women would be entitled to act on behalf of the family. Under family tenure, each member of a land-owning family would be entitled to the same rights and privileges irrespective of their gender or marital status. The same protection of women’s rights is foreseen in the context of private sector investments in areas with customary land rights. Finally, if a couple wants to register their customary tenure, the law requires joint registration in the names of both spouses if the couple is married or in a domestic relationship. In case of divorce, each spouse would be entitled to a fair disposition of 22 World Bank (2021): Innovative Tenure and Investment Arrangements: Increasing Responsible Agricultural Investments in Sierra Leone (forthcoming). 23 Evidence on Demand (2013): Land and Conflict in Sierra Leone: A Rapid Desk-Based Study. 24 The legal framework for the administration of land rights in is provided by the State Lands Act No. 19 of 1960, the Unoccupied Lands Act, Cap 117 of Laws of Sierra Leone 1960, the General Registration of instruments Act Cap 255, Act, Cap 256 of 1960, and the Provincial Land Act of 1961. 25 The VGGT aims to improve the governance of tenure of land, fisheries, and forests with the overarching goal of achieving food security for all and to support the progressive realization of the right to adequate food in the context of national food security. The VGGT emphasizes the centrality of land to development by promoting secure tenure rights and equitable access to land, fisheries and forests. Page 29 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) land acquired during the marriage. To close decision-making gender gaps, the Land Commission Bill contains gender- specific provisions for establishing a national land commission as well as district, chiefdom, and town/village area land committees. 47. The indicative trigger for the subsequent operation (DPO2): is for The Ministry of Lands, Housing, and Country Planning to take steps to establish the National Land Commission as evidenced by the appointment of its Board (DPO2 Indicative Trigger 1). For the third operation (DPO3), the Ministry of Lands, Housing, and Country Planning is expected to (i) submit to Parliament regulations for the Land Commission and Customary Land Rights Act, and (ii)establish Land Adjudication Tribunals in at least two districts. This will support effective implementation of the land bills. 48. Expected outcomes and results: The Land Commission and Customary Land Rights bills are expected to create a functional land administration system and contribute to the following expected long-term outcomes: (1) Increased productivity of smallholder farmers in customary areas based on more secure land tenure; (2) Increased gender equality, including positive impacts on children as research has demonstrated women tend to reinvest their proceeds based on more secure tenure back into their families26; (3) Strengthened social cohesion and reduced fragility as the new land laws call for the formal registration of land to resolve boundary disputes and improved alternative dispute resolution mechanisms; (4) Improved business environment as the proposed land laws seek to strengthen land administration at all levels, including the digitization of land records and improvement of land- related services; and (5) Increased responsible investments in agriculture as more secure tenure for communities and investors is critical to the success of agriculture investments and reduction of grievances. The progress of this action will be measured by (i) the number of rural chiefdoms with land use planning and protected area documents that follow the climate risk management and climate-resilience approach; and (ii) the participation of women serving in the newly setup Land Commissions and land adjudication tribunals. 49. Climate co-benefits: By improving land management practices and efficiency of land use, this Prior Action is expected to generate substantial climate co-benefits. Sierra Leone’s land cover has undergone significant changes, including the loss of woodland and forest areas across the country. The country has lost over 34 percent of its forests between 1975 and 2018. This forest degradation is most noticeable in the eastern region where most of the forested areas have been degraded to savannahs and agricultural land. Poor land tenure rights have allowed illegal logging to flourish, coupled with the expansion of cultivated land, slash-and-burn agriculture (dominant factors explaining forest loss). In addition, urbanization is characterized by unplanned land use conversion that destroys floodplains, forests, wetlands and natural ecosystems. As evidenced by the 2017 mudslide in Freetown, a key issue was the informal settlement in high-risk areas. The proposed Customary Land Right Bill (CLRB) will provide a crucial step for tackling deforestation by providing the legal basis for registering land in customary areas in which most of Sierra Leone’s forests finds itself. Deforestation tends to occur more often when tenure rights are unclear, and land is accessed by clearing forested areas. The Land Commission Bill (LCB) and CLRB provide more transparent and efficient ways of accessing land through a formal system that coordinates closely with customary institutions. Furthermore, clear and recognized tenure rights are often the primary basis for performance-based payments in many carbon financing instruments. Boundary demarcation of forest and protected areas, as enabled by the two proposed land bills, could contribute to reduced deforestation and the conservation of critical habitats. The CLRB stipulates clearly that authorized officers shall 26 https://www.landesa.org/resources/womens-land-rights-and-the-sustainable-development-goals/ Page 30 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) ensure that wetland wildlife habitats, steep slopes, old growth, virgin forests or any other ecologically sensitive areas in the provinces are protected from degradation. On the other hand, monitoring of illegal land conversions in high-risk areas will be more efficient when the new land administration system is established as proposed by the LCB. Government will also be able to prevent future settlement in high-risk areas through improved surveillance using advanced technologies using geospatial analytics and a national spatial data infrastructure provide under the LCB. Pillar 2: Enhancing inclusiveness Pillar 2 focuses on enhancing inclusion through reforms in three areas: (i) women’s economic participation; (ii) access to quality education; and (iii) financial inclusion. The reforms address some of the most critical structural impediments to raising potential output and improving resource allocation in key sectors of the economy. They are well-anchored in the SCD and are aligned with two of the SCD’s four pathways: (i) diversifying the economy and creating poverty-alleviating jobs and (ii) increasing human capital for new opportunities. Prior Action #3. The Recipient’s Ministry of Gender and Children’s Affairs has: (a) submitted to Parliament the draft Gender Empowerment Act, 2021; which inter alia makes provision for financial institutions to prescribe procedures for the improvement of women’s access to finance; as evidenced by the letter from the Deputy Clerk of Parliament, Office of the Clerk of Parliament dated October 21, 2021; and (b) issued through the BSL, instructions to all licensed banks and regulated financial institutions to provide financial services on a nondiscriminatory basis as evidenced by the Directive on Provision of Financial Services on a Non- Discriminatory Basis, dated August 5, 2021. (Completed) DPO2 (Indicative Trigger #3).To address gender-based discrimination in the labor market and improve women’s access to employment and income, the Recipient has submitted a Bill to Parliament to amend existing labor laws to i) provide for equal remuneration for work of equal value; ii) provide for paid maternity leave of at least 14 weeks to women, which benefits are fully administered by the government, and provide for paid parental leave; iii) prohibit discrimination in employment based on gender and protect pregnant workers from dismissal; iv) repeal provisions prohibiting or restricting women’s work in certain industries, including sections 2, 47 and 48 of the Employers and Employed Act; and v) prohibit sexual harassment in employment, with associated civil remedies. DPO3 (Indicative Trigger #3). To address gender-based discrimination in the labor market and improve women’s access to employment and income, the Recipient has i) adopted regulations including definitions of gender-based discrimination and mandating the adoption by employers of company policies on decent work and non-discrimination, including sexual harassment in employment; ii) implemented labor inspections related to gender-based discrimination; iii) published a guide and implemented training for employers on gender equality in employment; and iv) established a directorate or unit within the relevant labor agency focusing on gender issues 50. Rationale: Women face discriminatory economic practices, resulting in disproportionately lower access to credit and employment opportunities in the country. The country has struggled to achieve financial inclusion Page 31 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) for much of the population, particularly for women.27 The penetration rate of formal financial services is extremely low, gender segregated and mostly informal, and differs between rural and urban areas. Borrowing from sources other than financial institutions is common, but only 34 percent of men and only 25 percent of women have borrowed from a family or friend.28 Financial institutions are even less prevalent: only 10 percent of women, even though 15 percent of men, had an account with a financial institution in 2017. Overall, women are more likely to be denied credit, and to be asked for more collateral (which they generally may not have) and offered higher interest rates. Moreover, unequal access to land ownership resulting from discriminatory practices with respect to succession and marriage also impair women’s access to such collateral for loans. Many of the 70 percent of women that work for small businesses, struggle to access the training and financing products needed to grow, including saving, credit, leasing, and pension facilities (International Finance Corporation (IFC), 2015). Since women dominate the micro and small business space, they have a relatively irregular income. Due to poor access to credit, women’s entrepreneurship and related economic empowerment opportunities are also affected. Access to higher-paying jobs and equal opportunities in the formal sector are constrained by gender-biased recruitment practices and traditions, often associated with parenthood and childcare responsibilities of women. Unequal gender roles and power dynamics permissive to pervasive sexual harassment faced by women in employment further impacts women’s equal work opportunities.29 51. Significant reform opportunities exist for creating a non-discriminatory and enabling environment to strengthen women’s economic empowerment and access to productive resources in line with the GEWE policy. According to recent cross-country evidence, prohibiting gender-based discrimination by creditors is positively associated with female business ownership30. The government can undertake several policy interventions to support women’s financial inclusion and employment opportunities, including – laws protecting women from gender-based discrimination in access to finance, workplace protection against discrimination and sexual harassment, laws affecting occupational segregation and the gender wage gap, and those affecting women’s work during and after pregnancy. 52. Policy Reform: This operation supports reforms that will prohibit creditors from gender-based discrimination in their lending practices. The proposed reform will be implemented in two forms: (i) as part of a broader Gender Empowerment Bill (introduced by the Ministry of Gender and Children’s Affairs), to provide for equal access and rights for men and women to credit and financial services, and (ii) through a legally binding Directives on Provision of Financial Services on a Non-Discriminatory Basis (issued by the BSL (BSL) that build on the Banking Act 2019. The Directives stipulate that, all banks and other financial institutions, (i) are required to ensure that all regulated financial services are provided without any discrimination based on sex and/or marital status; (ii) shall provide fair and equitable conditions to secure credits for all persons without prejudice to sex and/or marital status; and (iii) shall eliminate any practice harmful to the rights of women in terms of access to banking and financial services. The Directives further establish that any contravention thereof shall constitute a violation of the Banking Act 2019 and the Other Financial Services Act 2001 and that violators shall be liable to penalties. The BSL has an established complaint reporting mechanism in place which involves receiving and investigating complaints through its Banking Supervision Department’s Consumer Protection Section and issuing 27 Only 3.5 percent of people report having the savings account, 8 percent participate in the informal Osusu schemes and 9.5 percent of total population borrowed the money/goods or have outstanding loan (SLIHS, 2018). 28 World Bank, 2018. 29 Three in five women reported having experienced some form of sexual harassment in the workplace, which however remains grossly under-reported due to women’s fear of reprisal and unawareness of issue and access to recourse (GEWEP, 2020). 30 Sd Islam, A., S. Muzi and M. Amin (2018) “Unequal Laws and the Disempowerment of Women in the Labor Market: Evidence from Firm- Level Data”, Journal of Development Studies, doi: http://dx.doi.org/10.1080/00220388.2018.1487055 Page 32 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) directives on actions by parties. The BSL is simultaneously working on new Financial Consumer Protection Guidelines that will enable a more robust complaints mechanism in the future. The new legislations will provide the government and the BSL with additional legal provisions to regulate financial activities in such a way that the observed gender gap in access to finance can be reduced. In addition, the Gender Empowerment Bill 2021 also aims to address gender imbalances by making provisions for elective and appointive public office positions through a minimum of 30 percent quota. The Gender Empowerment Bill 2021 also promotes of gender equality in employment and training, providing for financial institutions to prescribe procedures for the improvement of women’s access to finance and other related matters. 53. The indicative triggers for DPO2 and DPO3 are for the Recipient to introduce legislations to address gender-based discrimination in the labor market and improve women’s access to employment and income. For DPO2, the legislation intends to amend existing labor laws to provide for equal access to jobs and equal remuneration for work of equal value ensure. For DPO3, the trigger complements that of DPO2 by adopting regulations mandating the adoption by employers of company policies on decent work and non-discrimination, including sexual harassment in employment. These triggers complement the financial inclusion legislation under DPO1 (Prior Action #3) in closing gender gaps in the labor market. 54. Expected results and indicators. The legislation will make it easier for women to get better access to credit, invest, enter markets, transact, and increase their entrepreneurial activity, although improvement in access to credit for women will be a consequence of many factors and attribution to this reform is difficult to establish. Progress on this action will be monitored with the shares of women and men who received credit in the previous 12 months as a share of the total female and male populations respectively, by end-2024. This indicator measures share of borrowing at household level from both formal and informal sources that is used to cover current and urgent needs. More than a quarter of the female borrowers report using the loan proceeds for business expansion, while many male recipients target housing improvement and investing in agricultural inputs. Therefore, more credit to women and men should contribute to job creation, and an increase in household incomes, reflecting the large economic potential of improving access to financial services for both men and women. Prior Action #4. The Recipient’s Teaching Service Commission has: (a) developed a new Teacher Management Information System (TMIS) and piloted it in sixty (60) schools; and (b) approved the nationwide roll out of TMIS, to strengthen the institutional framework for teacher management, as evidenced by the TSC Board Resolution dated August 27, 2021. (Completed) DPO2 (Indicative Trigger #4). The Recipient, has pursuant to TSC Act (2011), issued a directive to prescribe sanctions against absentee teachers and incentivize teacher attendance. DPO3 (Indicative Trigger #4). The Recipient has through the Ministry of Basic and Senior Secondary Education carried out a biometric verification of all teachers to consolidate its teacher records and reduce ghost teachers. 55. Rationale. Sierra Leone has made progress in improving education outcomes, but it is still lagging other LICs, in part because of poor teacher management. In consultation with key stakeholders of the education Page 33 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) sector, the government carried-out an education sector assessment in 2020. The key issues identified as hindering learning include (a) weak teacher management that contributes to teacher absenteeism and unequitable teacher deployment; and (b) lack of comprehensive monitoring system on teaching and learning. Sierra Leone’s net secondary school enrollment is only 41.8 percent, compared to 63.3 percent on average for LICs. The adult literacy rate (43.2 percent) and expected years of schooling (9.6) are also well below the averages for LICs. Learning outcomes have also been weak, with the number of learning-adjusted years of school (4.9) also below the LICs average (5.6). As a result, Sierra Leone is not on track to achieve the SDGs. The previous DPOs focused on establishing an independent TSC to take over teacher management responsibilities. The TSC is empowered to recruit, promote, deploy, transfer and dismiss teachers in Government and Government assisted schools, register and license all teachers, maintain and upgrade annually a register of all licensed teachers and publish the register in the national Gazette, develop and review standards and codes of professional ethics for teachers, and organize continuing professional development programs for serving teachers. Even though the teacher the absenteeism rate has declined as the TSC gradually took over teacher management, the rate is still high and linked to poor learning outcomes. Thus, it is necessary to progressively strengthen the effectiveness of TSC’s teacher management functions through the deployment of modern management tools such as the TMIS. The adoption of TMIS is a technology-enabled institutional reform which will allow the TSC strengthen its decision making and oversee teacher attendance in real-time. 56. Policy Reform: To address the issues of teacher absenteeism and poor teacher management, this operation will support the government’s efforts to strengthen the teacher management systems. To address the challenge specifically related to teacher’s performance and attendance, the previous DPO operation supported the Teaching Service Commission (TSC) to establish a pilot for a nationwide Teacher Attendance Monitoring System (TAMS) and to develop a teacher deployment protocol and incentive strategy. The proposed reform is a continuation of this engagement and provides a technology-enabled reform to the teacher management systems. The TMIS intends to cover not only teacher attendance, but also other information such as students’ attendance and teachers’ information. The TMIS will also incorporate a One Tablet Per School Program to support school leaders to collect and use dynamic school-level data on teacher registration, student enrolment, teacher and student attendance, and COVID-19 cases or other health information. 57. The indicative trigger for the subsequent operation (DPO2) is expected to facilitate the use of sanctions against absentee teachers along with incentives for promoting teacher attendance especially in rural areas. For the third operation, the Government will conduct a biometric verification of all teachers. This is expected to help the TSC consolidate its teacher records including the payroll thereby improving its oversight over perennial problems of ghost teachers. 58. Expected results and indicators. The development and extension of the TMIS is expected to help strengthen teacher management and address issues related to teacher absenteeism. By providing real-time data, this will also help monitor school-level teaching and eventually help improve student attendance. Additionally, the TMIS is expected to strengthen teacher deployment by providing the required data to enable an equitable distribution of teachers between urban and rural areas. It will also contribute to evidence-based decision-making. The TMIS will play the role of a standard supervision and monitoring system for supporting teaching and learning and managing teachers. The results indicator to be monitored is the improvement in teacher absenteeism, estimated at 12 percent for a sample of 60 of schools in 2020 to 8 percent for all schools covered by TMIS in 2024. It is also expected that 75 percent of schools will be using TMIS by 2024. Page 34 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Prior Action #5. The Recipient’s Cabinet has approved the National Policy on Radical Inclusion in Schools, to improve inclusion of children from disadvantaged background in schools, as evidenced by the Cabinet Decision dated April 7, 2021. (Completed) DPO2 (Indicative Trigger #5). The Recipient’s Cabinet has adopted I) an implementation plan for the National Policy on Radical Inclusion in Schools, and ii) a new education sector plan. DPO3 (Indicative Trigger #5). The Recipient through its Ministry of Basic and Senior Secondary Education, has submitted a new Education Act to the Parliament for approval. 59. Rationale: While Sierra Leone has ratified most international and regional treaties that guarantee the right to education, there are factors that systematically exclude marginalized groups from accessing quality education. Notably, despite recent improvements, girls, children from low-income background and children living in rural remote areas are less likely to get access to quality education. Girls’ future economic opportunities are strongly influenced by their education, both because of opportunities in the classroom (increase in human capital), and risks they face outside of the classroom (i.e., child marriage and early childbearing) which make returning to school difficult. For example, 16.5 percent of girls with secondary education had begun childbearing in 2019, a lower rate than those with primary (22.4 percent) or no education (43.5 percent). Girls in rural areas begin having children earlier than their urban counterparts (29 percent versus 14 percent)31. Less than 2 percent of girls aged 15-19 are both in school and married.32 In 2013, general school completion rates of just 1 percent were found among the poorest rural girls, compared to 56 percent for urban boys from the wealthiest families.33 Girls complete primary school at the same or higher rates as boys, but senior secondary school at much lower rates.34 In addition, children with disabilities are less likely to be in school but also, when they are in school, they are less likely to complete their primary education and transition successfully to secondary school. 60. Policy Reform: The National Policy on Radical Inclusion, supported by this operation, will bolster the authorities’ efforts to address this issue of inclusion in education. In May 2021, the Cabinet approved the National Policy on Radical Inclusion in Schools (Prior Action 5). The ultimate goals of the policy are enrolment, retention, and successful transition of all students in pre-primary, primary and senior secondary education – regardless of disability, gender, pregnancy or parenting status, geographic location, or socio-economic background. The policy aims to prioritize disadvantaged girls, creating opportunities for them to pursue an education through grants, scholarships, and community support programs. It also aims to promote the construction of safe schools in rural remote communities to enable children, particularly girls, living in these locations to access education, and to provide resources to facilitate school attendance – particularly for girls – such as sanitary towels, transportation, and priority in school feeding programs. It also promotes the engagement of families and communities to provide support for their children at home and at school, including for parent learners. This policy was informed by the Policy and Actions for the Promotion of Inclusive Education that focused on inclusion for children with disabilities finalized in 2020 and the reversal of a policy that banned pregnant girls 31 Ministry of Health and Sanitation, 2019. 32 World Bank, 2020b. 33 Ministry of Education Science and Technology, 2013. 34 Research Triangle Institute, 2014. Page 35 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) from attending school in March 2020. 61. The indicative triggers for DPO2 and DPO3 are the adoption of an implementation plan for the new policy on inclusion, and a new education sector plan (Indicative Trigger #5) and the Ministry of Basic and Senior Secondary Education, has submitted a new Education Act to the Parliament for approval (Indicative Trigger #6). These two follow-up reforms will complement Prior Action #5 by extending reforms beyond the scope of National Policy on Radical Inclusion in Schools and formalizing this policy in law. 62. Expected results and indicators. The approval of the National Policy on Radical Inclusion in Schools, and subsequent adoption of a new education sector plan and enactment of a new Education Act are expected to reduce disparities in access to, and quality of education in Sierra Leone. Inclusion of girls in education has already shown benefits: for example, a program that provided girls-only after-school clubs protected girls in participating communities from the impacts of the Ebola outbreak on school dropout and adolescent pregnancy rates.35 Reductions in child marriage and allowing pregnant girls in school could indirectly generate savings in the education and health sectors, for example, reducing under-5 mortality rates. A World Bank (2020) study found that ending child marriage could potentially generate US$367 million Purchasing Power Parity (PPP) in annual benefits to Sierra Leone’s economy over 15 years. Progress on these actions will be monitored with i) an increase in the secondary school enrolment rate for girls, and ii) an increase in the number of children with disabilities enrolled in school by end-2024. Prior Action #6. The Recipient’ Ministry of Finance has submitted to its Parliament for approval, an amendment to the Payment Systems Act to facilitate the effective implementation of electronic payments and the National Switch, as evidenced by letter from the Deputy Clerk of Parliament, Office of the Clerk of Parliament, dated October 21, 2021. (Completed) DPO2 (Indicative Trigger #6). To foster the digitization of government payments, the Government has: i) issued e-money and tiered digital know-your-customer regulations, and ii) passed a decree that all government employees’ salaries be paid digitally. DPO3 (Indicative Trigger #6). To foster the digitization of government payments, the Government has issued a decree to digitize payments under two government programs (e.g., cash transfer program, pensions) and to digitize all National Revenue Authority Collections by September 2022. 63. Rationale: Access to financial services and use of digital payments remain critically low in Sierra Leone. Only 19.8 percent of adults have access to formal financial services (e.g., bank, microfinance institution, or a mobile money account), compared to 42.6 percent and 34.9 percent, on average, for Sub-Saharan and LICs, respectively. Financial inclusion is particularly low among women. In 2017, only 25 percent of men and 15 percent of women had a bank account.36 Digital payments systems can help mitigate the gaps created by poor coverage of banking services at financial institutions, but they remain underleveraged with only 15.6 percent of adults making or receiving digital payments, including 3.1 percent to pay utilities and 4.1 percent using the internet to make a purchase or pay bills. While improving, the use of digital payments is particularly low among women – see Table 7 below for recent developments in digital transactions by gender. Mobile connectivity has improved and can support the future uptake of electronic payments. In 2021, mobile phone connections were at 100.1 35 Bandiera and others, 2019 36 World Bank, 2017 Page 36 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) percent of the population (some people have more than one mobile phone), reflecting an increase of 14 percent since 2020.37 Table 7: Use of digital payments and mobile money by gender, 2014 and 2017 (percent) Female (age 15+) Male (age 15+) 2017 2014 2017 2014 Made digital payments in past year 10 6 17 13 Received digital payments in past year 9 7 16 11 Mobile money account 9 4 14 5 Source: Global Findex Database 2017. 64. Policy Reform. This operation will support the authorities’ efforts to increase digital financial services by strengthening the corresponding legal framework. Thus far, the main initiative by the authorities to advance digital transactions has been through the BSL’s Financial Inclusion project, which aims to promote financial inclusion, digital payments, and the interoperability of digital payments. The project aims to implement a national retail payment switch, connecting rural financial institutions to the switch, promoting the digitization of government payments, and increasing digital merchant payments. This proposed prior actions in this DPO will help bolster the legal and regulatory environment for digital financial services (DFS), including through work on the National Payment Systems Act (NPSA), e-money guidelines, remittances regulations, and agent banking guidelines, among others. The proposed amendments to the National Payment Systems Act will support the implementation and regulation of digital financial transactions, including those which are interoperable in nature, in line with international best practice. 65. The indicative triggers for subsequent operations (DPO2 and DPO3) are for the government to introduce decrees to (i) pay all government employees’ salaries digitally and (ii) digitize payments under two government programs (e.g., cash transfer program, pensions) and digitize all National Revenue Authority Collections. These complement Prior Action #5 by ensuring that the central government takes the lead in implementing the amended Payment Systems Act. 66. Expected outcomes and results. The amended National Payment Systems Act is expected to pave the way for improved access to financial services, usage of digital payments, interoperability in digital payments, and help reduce gender disparities in access. This amended Act, by stimulating the development of digital financial services, will contribute to making financial services available, accessible, and affordable. Additionally, it will help increase the effectiveness and efficiency of government payments. Specific results indicators to be monitored include the percentage of females and males with an account at a financial institution or with an electronic/mobile money provider, which are expected to increase from 15 and 25 percent respectively, to 20 and 29 percent in both cases in 2024. Pillar 3: Improving the sustainability of development financing 67. This pillar focuses on ensuring sustainable development financing through reforms to improve fiscal and debt management, and transparency. It includes one of the three approved SDFP/PPAs for Sierra Leone for the year ending July 2022. Like many LICs around the world, the country has been facing COVID-induced fiscal and debt vulnerabilities. Before COVID-19, the country was already at high risk of debt distress and the level of 37 Kemp, 2021 Page 37 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) public debt was rising. The sources of Sierra Leone’s debt vulnerabilities include: (i) large primary deficits; (ii) exposure to shocks to growth, interest rates, inflation, and the exchange rate; (iii) sizeable contingent liabilities stemming from SOEs; and (iv) a large stock of public payment arrears resulting, in part, from poor cash management. This pilar partly addresses these vulnerabilities through measures to improve debt transparency through better reporting of SOE debt and achieve greater transparency in public procurement. Policy Area 3: Strengthening fiscal sustainability and transparency Prior Action #7. (PPA #2) The Recipient’s Ministry of Finance has published the debt and guarantees of the five largest State-owned Enterprises as evidenced by the letter from the Ministry of Finance dated May 31, 2021. (Completed) DPO2 (Indicative Trigger #7). To enhance debt transparency and reporting, the Government will disclose all guarantees and borrowing of the ten largest State-owned Enterprises (SOEs). DPO (Indicative Trigger #7). To enhance debt transparency and reporting, the Government will disclose all guarantees and borrowing of all SOEs. 68. Rationale: SOEs are a significant source of fiscal risk, despite efforts by the government to improve supervision. Sierra Leone has around 20 SOEs operating primarily in the utilities, transport, and financial sectors. Most of them have weak financial positions due to high administrative costs and below-market pricing for the services they provide. Some of them have accumulated large debts to domestic banks and external private and public creditors. SOE borrowing and guarantees are regulated by the MoF under the PFM Act 2016 and the Public Debt Management Act (PDMA) 2011.38 Accordingly, the MoF publishes an annual public debt bulletin, but its coverage has been limited to central government. Since April 2018, MoF has strengthened oversight of SOEs through the operationalization of its Fiscal Risk Management Division. Since March 2019, this division has expanded its oversight role to most SOEs, including those in the financial sector. Starting with the 2019 budget, budget documents now include an annex on SOEs performance. Despite the government’s effort to strengthen SOEs oversight, non-guaranteed SOE debt is not disclosed and is not part of the DSA debt coverage for the country due to weak capacity of officials who are responsible for debt recording. Also, the institutional arrangement for record SOE debt has been weak, as Fiscal Risk Management Division at MoF was only recently established in 2018. Both the IMF and World Bank have delivered technical assistance to build capacity of the authorities (Fiscal Risk Management Division) to record and report on SOE debt in a comprehensive manner. Cross-country evidence suggests, however, that SOE borrowing represents a potential source of implicit contingent liabilities in LICs with high risk of debt distress. In Sierra Leone, the 2019 Auditor General report shows that some SOEs are poorly managed and contingent liabilities from SOEs (including guaranteed and non-guaranteed borrowings) were estimated at US$ 285.82 million (6.8 percent of GDP). 69. Policy Reform: The proposed prior action seeks to improve debt transparency and support the 38In particular, Section 8 of the Act mandates that SOEs “may not raise loans, obtain overdrafts, or borrow without obtaining p rior approval of the Minister”. Furthermore, and consistent with the Act, the annual budgets of SOEs have been brought into the na tional budget process (but their contingent liabilities were not recorded as part of total public debt). Section 21 of the Public Debt Management Act (PDMA) (2011) directs the Minister of Finance (MoF) to submit to parliament an annual report on all government debt management activities, guarantees and lending. For SOEs, Section 19 of the PDMA 2011 require all Public Enterprises to submit to the Ministry of Finance a record of its outstanding debt and new borrowing including overdrafts no later than twenty working days after end of every quarter. Page 38 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) management of fiscal risks, through better reporting of SOE debt. This prior action/PPA will be implemented in a programmatic way over the period 2021-23 in close collaboration with the Fiscal Risk Management Division of MoF. Given the limited institutional capacity, SOE debt will be disclosed gradually with a focus on the largest SOEs. Following technical assistance from the IMF and World Bank, the publication of the debt report of five SOEs, including the three largest, was made in May 2021 (Prior action for DPO1), those of the ten largest SOEs is expected by April 2022 (indicative trigger for DPO2), and those for all 20 SOEs by April 2023 (indicative Trigger for DPO3). The reason for focusing on the five largest SOEs in the first DPO is that, according to the MoF, these account for about 80 percent of total contingent liabilities from SOEs. These five SOEs operate primarily in the utilities, transport, and financial sectors and represents about 80 percent of the total contingent liabilities of Sierra Leone’s SOEs. Going forward, periodic requests for SOE debt data, in line with the World Bank’s Debt Report System (DRS) format, is expected to create a culture of reporting on SOE debt. With support from the Fiscal Risk Management Division at MoF, this will help sustain compliance with the PDMA 2011 and ensure continued transparency in SOE debt reporting. 70. Expected outcomes and results. In 2019, SOE-related contingent liabilities were estimated at US$285.8 million (or 6.8 percent of GDP). By supporting SOE debt reporting, this PA/PPA will not only help improve debt transparency but also increase the borrower’s accountability and help better manage fiscal risks emanating from implicit contingent liabilities. Specific results indicators to be monitored include the size of outstanding contingent liabilities from SOEs (nominal US dollars), which is expected to decline by 20 percent from US$295.1 million in 2020 to US$236.1 million in 2024, as more disclosure will result in stringent oversight of SOEs to discourage borrowing. According to the report on SOE debt (published by MoF in May 2021), the total contingent liabilities of the five largest is estimated at US$227 million (5.8 percent of GDP) as at end-2020. Prior Action #8. The Recipient has improved transparency in public procurement for the health and education sectors, by: (a) committing to publish on the National Public Procurement Authority (NPPA) website on a periodic basis, contracts and tender awards in said sectors above the threshold in the Public Procurement Regulations 2020; and (b) publishing said information for the Ministry of Health and Sanitation, Ministry of Basic and Secondary Education and the Ministry of Technology and Higher Education on the NPPA website; as evidenced by the letter from the Ministry of Finance dated October 1, 2021. (Completed) DPO2 (Indicative Trigger #8). To increase transparency in public procurement, the Recipient has published tender announcements and contract award information for contracts above the threshold established in the Public Procurement Regulations 2020, for the Health, Education, and Energy sectors, in Open Contracting Data Standard (OCDS) on a monthly basis on the NPPA website/portal. DPO3 (Indicative Trigger #8). To increase transparency in public procurement, the Recipient has published all tender announcements and contract award information for contacts for the Health, Education, Energy and Public Works sectors in Open Contracting Data Standard (OCDS) on a monthly basis on the NPPA website/portal. 71. Rationale: Transparency in Sierra Leone’s public procurements remains weak, constraining the efficiency and accountability of the procurement process. Sierra Leone faces several public procurement challenges, including – opacity around the bidding process and the award of contracts, and the use of discretion in the implementation of the existing procurement laws and regulations. The NPPA provides limited information on procurement contracts (advertisement, contract signed, abandoned, or suspended, supplier database and debarred suppliers). In the past, the Auditor-General has raised concerns on the management of public funds Page 39 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) including the recently created National Corona Virus Emergency Response Centre (NaCOVERC). Despite the government’s continued commitment to strengthening procurement systems and improving transparency, tender announcements and contract award information will still need to be made publicly available. To this end, making the procurement data public in Open Contracting Data Standard (OCDS), prior to the implementation of e-procurement, is critical. OCDS will serve as the building blocks to the final e-procurement system which will be implemented and adopted as part of the upcoming Accountable Governance for Basic Service Delivery Project (P172492). The e-procurement system is expected to be rolled-out in three years. In the meantime, the PA #8 and the indicative triggers for DPO2 and DPO3 are stepping-stones to build the governments capacity to capture this procurement information and publish them on the web site of the NPPA in OCDS format. Once the e- procurement system is adopted it will publish all this information inherently. The e-procurement will enable full compliance with the 2020 Procurement Regulations through the automatic publication of all procurement transaction information in open contracting data standard (OCDS) on a web portal promoting increased transparency and accountability. This same functionality will eventually be merged with the e-procurement system in three years’ time but allows for increased transparency in the interim. 72. Policy Reform: The proposed actions supported by this operation will gradually improve transparency in public procurement, and eventually support the implementation of e-procurement in the medium-term. The proposed prior action and indicative triggers are complementary and will gradually improve the disclosure of public procurement contracts. As a first step, under DPO1, the publication of tender and contract information is required only for the health and education sectors and are not required to follow the Open Contracting Data Standard (OCDS). 73. Subsequently, Indicative Trigger #11 (DPO2) and Trigger #12 (DPO3) go further, and that the publication follows the OCDS, and gradually expands the sectoral coverage. This gradual approach to publishing contract award information is motivated by the country’s weak institutional capacity. By publishing procurement data on tender announcements and contract awards in OCDS format before the implementation of e-procurement, stakeholders will have access to better information to make informed decisions. The NPPA have been working on building the capacity for implementing OCDS. First, NPPA is receiving support from both the Open Contracting Partnership and the World Bank. Second, NPPA is planning to procure an inexpensive OCDS system which will allow users to input tender announcements and contract award information and then converts it into OCDS format. This will accustom the MDAs to collect and publish their information. 74. Expected outcomes and results. By supporting the NPPA to disclose tender announcements and contract award information online, the proposed operation is expected to enhance openness, transparency, and accountability. Furthermore, it will promote more competition in public procurement processes. The disclosure of tender announcements and contract award information in OCDS will also allow the civil society to perform third party monitoring on high value and/or high-risk contracts and enforce greater accountability of public institutions. Consequently, this should eventually contribute towards an improvement in the quality of public service delivery. The results framework will monitor the number of transactions. 4.3. LINK TO CPF, OTHER WORLD BANK OPERATIONS AND THE WBG STRATEGY 75. The proposed DPO supports all three Focus Areas of the FY21–FY26 Sierra Leone Country Partnership Page 40 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) Framework (CPF39). Specifically, Focus Area 1 (Sustainable Growth and Accountable Governance) is supported by Pillar 3 of this DPO, while Pillar 1 and 2 supports the CPF’s Focus Area 2 (Human Capital Acceleration and Inclusive Growth) and Focus Area 3 (Economic Diversification and Competitiveness with Resilience). The proposed operation is also aligned with the 2018 SCD. Furthermore, the reform program supported by this operation complements existing Advisory Services and Analytics (ASAs), Investment Project Financing (IPF), and IFC Advisory Services identified in contributing to achieving the CPF’s development objective.40 76. DPO Pillar 1. Prior Action #3 on “Improving women’s economic participation” is aligned with CPF objective 2.1 to “Expand economic opportunities for women and youth” and CPF cross-cutting theme on “Gender”. Prior Action #1 on “Improving governance and sustainability in the mining sector”, Prior Action #2 on “Improving access to land”, Prior Action #3 on “Improving access to credit for women”, Prior Action #4 and #5 on “Improving access to quality education”, and Prior Action #6 on “Increasing Access to Financial Services” are aligned with CPF objective 2.1 to “Deliver quality and inclusive education and health services”, CPF objective 2.2 to “Expand economic opportunities for women and youth” and CPF objective 3.2 to “Boost productivity for a diversified economy”. 77. DPO Pillar 3. Prior Action #7 (PPA #2) is aligned with CPF objective 1.1 to “Strengthen macroeconomic stability, fiscal and financial management” and CPF objective 1.2 to “Improve government accountability for results in the use of public finances”. Prior Action #8 on “Improving transparency of public procurement” also contributes to achieving CPF objective 1.2. Furthermore, the programmatic PER (P172094) has delivered analytics in fiscal and debt sustainability and public spending allocation and efficiency in Agriculture, Education, Health, and Social Protection. 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS 78. The proposed reforms are aligned with the government’s MTNDP, which was prepared based on nationwide stakeholder consultations. The analytical underpinnings of the MTNDP included macroeconomic and poverty diagnostics. During consultations (the most extensive in the history of Sierra Leone’s development planning) stakeholder were asked to prioritize the main issues identified by the Government and/or suggest additional issues. There were town-hall meetings, focus group discussions, and public engagements in learning institutions. The process also involved consultations with civil servants, local counselors, district and municipal administrators, CSOs, private institutions, trade unions, political parties, development partners, persons with disabilities, market women, the elderly, traditional authorities, religious leaders, inmates in detention centers, and members of the diaspora. Traditional media (Radio and TV) and online social media (Facebook, Twitter, and WhatsApp) were used to reach a wide audience. Around 2 million people were involved in the priority setting and validation steps of the plan. The outcome of the consultations is reflected in the design of the MTNDP, from preparation to validation. As discussed above, the three pillars of this DPO are aligned with these priorities, as summarized in the eight policy clusters. 39Report No. 148025-SL 40The ASAs include Sierra Leone Economic Update - (P175321), Sierra Leone Programmatic Public Expenditure Review (PER)- (P172094), and Sierra Leone Economic Diversification Study - (P162720). The lending (DPO and IPF) projects include Third Productivity and Transparency Support Grant - (P169498), Sierra Leone - Second Productivity and Transparency Support Grant - (P168259), Sierra Leone Agro-Processing Competitiveness Project (P160295), Sierra Leone SSN Project Second Additional Financing (P167757), Third Additional Financing for the Sierra Leone Social Safety Net Project (P174813). Page 41 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) 79. The authorities also conducted extensive consultations with development partners through working groups and bilateral meetings. These consultations were closely coordinated with the Development Partnership Committee, which is the main platform of collaboration between development partners and Sierra Leone authorities, includes technical working groups in the eight policy clusters of the NDP and meets quarterly. 5. OTHER DESIGN AND APPRAISAL ISSUES 5.1. POVERTY AND SOCIAL IMPACT 1. Prior actions under the proposed DPO are expected to reduce poverty both directly by increasing the incomes of the most vulnerable groups of the population, and indirectly through distributional effects that benefit the poor. Reforms under Pillar 1 and 2 (improving natural resource governance and enhancing inclusiveness) are expected to reduce poverty in the long-term by increasing income opportunities for women and low-income households. The most recent poverty measurement for Sierra Leone, based on the household survey from 2018 (SLIHS, 2018) shows that more than 74 percent of rural population subsist below the national poverty line compared to 41 percent in urban areas (excluding Freetown area). The 2015 population and housing census found that 59 percent of the population live in rural areas while the proportion of females was higher than males at the national level (with a sex ratio of 96.8 males per hundred females). Therefore, changes in legislations affecting women’s and poor households’ access to economic resources (e.g., land, credit education, etc) are expected to have positive welfare implications for low-income households since the majority of the poor live in rural areas, where customary law dominates along with discrimination against women from inheriting property and having access and control of assets. Gender discrimination, lower asset ownership (including land) ownership, and low overall familiarity with financial institutions are significant barriers to women’s and poor households’ access to credit, a divide influenced by women’s and poor groups’ lower education and income levels. 80. Positive poverty reducing impact of the proposed actions under DPO stems from ensuring social and economic inclusion of vulnerable groups. The impact of legal empowerment of poor groups is difficult to precisely quantify but, it is evident that economic dividends of the proposed policies emanate from affording better and equal access to economic opportunities. While inequality is the problem by itself, unequal access to economic opportunities creates vicious cycle of low-access-low-income, perpetuating poverty. At the early stages of development, similar to where Sierra Leone is, market imperfections turn inequalities of power to inequalities of opportunities, like uncertain land rights, low access to formal credit and to good education among low-income households. By mitigating the inequality of opportunities, all prior actions under pillar 1 and 2 of the proposed DPO contribute to poverty reduction and income growth. 81. The new Mines and Minerals Bill (Prior Action #1) has the potential to reduce risks that women face in or near mining sites and improve working conditions of poor miners. Women’s participation in Sierra Leone’s mining sector has traditionally been concentrated in the artisanal and small-scale mining subsector, in jobs such as transporting gravel, water and preparing food (Bermúdez-Lugo et al, 2013; Ibrahim et al, 2020, GIZ, 2019), but the mining sector is known to be especially risky for women and girls. The Bill establishes clear requirements for the working conditions of male and female employees and bans the exploitation of children. It also protects the rights of landowners in order to prevent conflicts between farmers and miners. The impacts of the Bill will be reinforced by new land laws supported by this DPO, as well as the recent amendment of the Sexual Offences Act (2019), creating opportunities for redress including criminal penalties. According to SLIHS 2018, poor Page 42 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) households are more likely to be involved in small scale mining compared to non-poor households (6 versus 2 percent, respectively). Thus, better working conditions in mining sites will positively impact productivity of poor miners. The Bill is also expected to boost government revenues from the mining sector which could allow the authorities to allocate more resources to the social sectors and poverty reducing programs to benefit women and other vulnerable groups. Figure 3: Share of households who can sell land and gender of a person who can sell land, by welfare Source: Staff calculations based on SLIHS 2018. 82. Prior Action #2 introduces a new land commission and customary land rights laws to enhance the security of land tenure and strengthening the institutional foundation of land administration. About a quarter of households with land are headed by a female member of the family but the share is slightly higher among wealthier households – 25 percent as compared to the households from first decile, where only 20 percent of families are female-headed. The inability to sell or use land as collateral causes allocative inefficiencies in the use of land. When asked who in the household can sell this land plot, the dominant share of responses (more than 90 percent) pointed to the head of household. Among poor quintiles the share of households where that person is female is lower (14 percent or 29 percent for wealthier), reflecting the gender bias in land ownership and inheritance practices embedded in the local, customary land tenure system, which tend to discriminate against females. Based on the published meta-analysis of similar interventions in other countries, across the developing world (Lawry, 2017), the proposed measures under prior actions #2 are expected to have a positive impact on overall poverty although the impact is likely to be moderate in the short to medium-term. The economic substance of the prior action #2 is in mitigating the uncertainties of access and rights to communal/customary land by farming households and better management/allocation of that land. Thus, the main economic mechanism of this action is in more secure land rights on the part of farming households and ability to better manage and allocate land to productive uses. The productivity of land could increase by as much as 40 percent depending on the institutional capacity to implement the reforms. At the same time, meta-analysis did not find a statistically significant effect of higher probability of formal borrowing because of more secure perceptions of land tenure, implying that the main channel of impact would be the increased investment rather than re-allocation of capital. However, strong implementation of land reforms based on the principles of gender equality (e.g., ensuring that names of both male and female members of the family appear in land registration records) (Chakrabarti, 2020) could empower women’s status in the traditional land tenure systems and transform the gender norms in the rural, traditional setting. Page 43 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) 83. Prior Action #3 aims to remove legal barriers to women’s economic inclusion will likely lead to a higher uptake of financial services by women who were previously biased against accessing banks and formal credit, increasing productive investments, and raising incomes. Evidence from Findex survey (2017) shows that the gender gap in access to financial services in Sierra Leone has not been closing: 18 percent of adult males had bank accounts versus 13 percent of adult females in 2011; while by 2017, the share of males with an account increased to 25 percent versus only 15 percent for females. Household survey data (SLIHS, 2018) also show incidence of borrowing is slightly higher among men (11 percent versus 8 percent among women), but lower among wealthy individuals (8.7 percent among individuals from top quintile, versus 11.2 percent for individuals in lowest income quintile). Although gender discrimination in financial institutions is not the only barrier to women’s access to credit, legal equality is a critical foundation for financial inclusion. Removing explicit gender discrimination to credit and financial services will have positive impact on household welfare and overall business climate. Studies show, that when credit recipient is female, the household tend to invest in less risky, more economically viable activities, which improve income stability for household and generate economic opportunities for local communities. Measures to eliminate perceived discrimination against women in access to formal financial services can positively influence female access to finance (Ladd 1982) and female business ownership through increased savings and productive investment (Islam et al. 2018) – all of which lead to better income outcomes for the whole household. However, other structural barriers to private sector credit allocation (shallow financial sector and high credit risks) could moderate the impact of this reform and necessitate follow up reforms in subsequent operation under the DPO series. 84. The effectiveness of the impact of Prior Action #3 is further enhanced when combined with measures to increase overall financial inclusion through a new payments system law (under Prior Action #6) which among other things promotes women’s participation in digital payments. Digital financial services have been a major driver of financial inclusion in many countries. However, despite a relatively high percentage of households with mobile phones, Sierra Leone has seen the lowest growth in digital finance among low-income SSA countries (World Bank, 2019). The new payments system law is expected to promote population-wide expansion of familiarity with electronic payment systems through the digitization of payments. With digital wages or social transfers going directly to the recipient’s account, women and other vulnerable groups are more likely to have a bank account and would have more financial autonomy over their income (Klapper and Singer, 2017). Like is the case with credit access, the financial empowerment via digital payment system leads to better access to financial transactions, like receiving monetary income, paying debts and sending/receiving transfers for underserved, poor households. The transition toward greater use of electronic payments follows a growing trend with clear benefits for both governments and transfer recipients, with the potential to improve the delivery of public services by lowering corruption and leakages, with significant benefits for women and poor families. 85. Education sector reforms in Pillar 2 (Prior actions #4 and #5) are expected to have a positive impact on poverty reduction through improvements in learning outcomes and human capital base, especially for girls. Girls’ opportunities are strongly influenced by their education, both because of benefits arising from the classroom (increase in human capital), and risks they face outside of the classroom, i.e. child marriage and early childbearing, which make returning to school difficult, leading to long-lasting and cyclical negative impacts. For example, only 16.5 percent of Sierra Leonean girls with secondary education had begun childbearing in 2019, a lower rate than those with primary (22.4 percent) or no education (43.5 percent) (Ministry of Health and Sanitation, 2019). The benefits of inclusive schooling go beyond gender dimension. Ensuring access to quality education by all, regardless of income status, disability or geographic location breaks the vicious circle of chronic Page 44 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) poverty by building strong foundation for better human capital. There is a gap in school enrollment rates across income quintiles in Sierra Leone, as reflected in SLIHS 2018. Enrollment in junior secondary vary from 60 percent for the poorest to 105 percent for children from rich quintiles. The gap widens even more for senior secondary enrollment: 26 percent for the poorest to 144 percent for the richest. In large part, that gap could be linked to geographic location and socio-economic status of households. Remoteness and disability go hand in hand with poverty. Cost implications of sending children to school are significant deterring factors for disadvantaged households. Prior actions #4 and #5 imply that education policies should be guided by goals of inclusiveness and thus better supply of schooling at lower implicit cost to disadvantaged families. Positive welfare impacts of DPO measures to improve access for children from disadvantaged background works through productivity improvements at individual and macro-economic levels. Experiences of comparator countries which invested in inclusive programming for marginalized students, particularly girls, show largely positive outcomes in both school performance, and risk factors outside of school. Fewer child marriages could generate indirect savings in the education and health sectors, e.g., by reducing the under-5 mortality rate. Also, radical inclusion of girls and children with disadvantages (remote and disable) in the education sector encourages children to complete schooling, increasing their chances of entering into the labor force and enhancing their livelihoods on a sustainable basis. 86. Prior actions under Pillar 3 are expected to preserve medium-term sustainability and transparency in public procurement, allowing for successful implementation of the structural reform package. The poverty impact of this pillar will primarily operate through indirect channels. By strengthening fiscal and debt sustainability, prior action #7 will create a stable environment for the successful implementation of the reforms under Pilar 1. By supporting SOE debt reporting, it is likely to strengthen the government’s capacity to identify and monitor fiscal risks, especially contingent liabilities stemming from SOEs and avoid macroeconomic instability which typically affects the poor and most vulnerable groups of the population disproportionately. Transparency in procurement through the publication of tenders and contract awards in the Ministries of Health and Education (Prior action #8), will allow goods and services to be tracked more easily, encouraging fairer competition, which should enable the Government to obtain better pricing and value for money. This action is expected promote a more efficient delivery of goods and services especially in the health and education sectors, enhancing benefits for women, children, and other vulnerable groups. Finally, potential savings from efficiency improvements in public procurement and investments could be re-directed to the programs targeted at improving the human capital of population: health, education, social protection, paving the way for sustainability of economic growth and poverty reduction. 5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS Risks and Vulnerabilities 87. Sierra Leone is highly vulnerable to the adverse impacts of climate change, with a growing number of people at risk to extreme events, and significant impacts on the economy. The impact of climate change could increase the share of the population living below the poverty line up to 2 percent by 2030. Climate forecasts for Sierra Leone warn of the anticipated effects of climate change: increase of mean temperature especially in the inland regions and in the number of tropical nights per year, increase in annual precipitation, single rainfall events and annual maximum rainfall. Removal of natural vegetation for open-pit mining is likely to increase the risk of landslides and soil erosion, floods and flashfloods. Combined effect of climate change and mining, deforestation, landslides, soil erosion, changes in soil hydrology and pH balance, are likely to have negative impact on farming activities in the areas adjacent and downstream from mines, small-scale subsistence farmers Page 45 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) will be particularly disadvantaged. Runoff from mining districts is likely to pollute permanent water bodies and earthen ponds, cause reduction in quality of fish meat (due to bioaccumulation and biomagnification) and/or lead to reduced productivity of fisheries, thus compromising food security of local population. Natural hazards also present severe risks: a major landslide that occurred in 2017 resulted in close to US$32 million in damages and loses in electricity, transportation, housing, education, water, sanitation and hygiene (WASH) and other key sectors. Deforestation is also a major concern as country has lost over 34 percent of its forests between 1975 and 2018. Cognizant of these risks, the authorities have aligned environmental and climate change considerations and with priorities in its MTNDP under an Updated National Determined Contribution (UNDC) that increases the country’s climate ambition and set the stage for proactive efforts to mitigate the causes of global warming and help vulnerable citizens in both rural and urban settings to effectively adapt to climate change over the long term. The UNDC envisions to achieve long-term goals for mitigation: a reduction in CO2 emission levels to 5 percent by 2025, 10 percent by 2030, and 25 percent by 2050. It also envisages a transformational shift toward a low-emission development pathway, by targeting priority sectors (such as Agriculture, Forestry, Land use and Others Land Use (AFOLU) and the Blue Economy), implementing REDD+ (Reducing Emissions from Deforestation and Forest Degradation) and promoting innovation and technology transfer for sustainable breakthroughs in energy, waste management, transport, etc. Climate Change 88. Mining sector activities increases climate change vulnerability if not properly mitigated and/or adapted and reforms supported by the operation are expected to address these risks. Mining operations in Sierra Leone are dominated by surface/open-cast mining. In the process of mining, natural vegetation is fully removed. Soil hydrological balance is disturbed. Surface/Open pit mines, especially open-pit gold mines, have reputation of having nearly double carbon intensity per unit of ore, compared to underground mines, at least when considering direct (scope 1) GHG emissions. This is because for the same volume of ore extracted, open-pit mines require processing several times higher volume of soil material, than underground mining operations. The sector was also poorly managed causing weak enforcement of environmental standards. This operation therefore supports a new Mines and Minerals Development Bill (PA #1) to allow for the introduction of “measures to prevent, reduce, mitigate or compensate for adverse impacts of mining activities on the environment, life and property”. This objective is aligned with the Government’s UNDC to climate change mitigation, which notes that “the mining sector is also a priority because threats to the sector’s profitability and viability, such as climate change, may have significant consequences for development in the country and undermine resilience in various communities”. Through the UNDC, the Government has also committed to ensuring the reclamation of mined out lands by mining operators through a progressive rehabilitation strategy that addresses the legacy of environmental issues in the extractive industries; monitor emission from the extractive sector and regulate the actions of mining companies through the requirements of Environmental Impact Assessments (EIA); as well as integrating climate change adaptation and mitigation in the mining sector. 89. In addition, the proposed bill mandates compulsory progressive rehabilitation and wetlands restoration of mined-out lands allowing for both climate change adaptation and mitigation objectives to be pursued under this operation. Wetlands and reforested mining sites will serve as carbon sinks. Progressive afforestation of mining sites will reverse environmental degradation and will prevent landslides, soil erosion, floods, and other typical consequences of climate change. Engagement of mining companies and improved protection of land tenure rights will ensure that the financial burden for degraded natural resources is not pushed only impoverished local communities. Finally, the bill shifts the responsibility for the regulation of the environmental Page 46 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) aspects of mining from the NMA, to the EPA, which is a specialized agency of government responsible for the environment, allowing for the first time a cumulative environmental impact of mining to be considered within the broader context of climate change. it will ultimately require the EPA to adequately factor mining within its climate change adaptation and mitigation strategy. 90. The proposed Customary Land Right Bill and Land Commission Bill supported by this operation (PA #2) will foster the country’s climate change mitigation and adaption goals envisioned by the UNDC. Sierra Leone has experienced significant land cover changes, including the loss of woodland and forest areas. The country has lost over 34 percent of its forests between 1975 and 2018. This forest degradation is most noticeable in the eastern region where most of the forested areas have been degraded to savannahs and agricultural land. Poor land tenure rights have allowed illegal logging to flourish coupled with the expansion of cultivated land, slash- and-burn agriculture (dominant factors explaining forest loss). In addition, urbanization is characterized by unplanned land use conversion that destroys floodplains, forests, wetlands and natural ecosystems. As evidenced by the 2017 mudslide in Freetown, a key issue was the informal settlement in high-risk areas. The proposed Customary Land Right Bill will provide a crucial step for tackling deforestation by providing the legal basis for registering land in customary areas in which most of Sierra Leone’s forests occur. Deforestation tends to occur more often when tenure rights are unclear, and land is accessed by clearing forested areas. The Land Commission Bill and Customary Land Right Bill provide more transparent and efficient ways of accessing land through a formal system that coordinates closely with customary institutions. Furthermore, clear and recognized tenure rights are often the primary basis for performance-based payments in many carbon financing instruments. Boundary demarcation of forest and protected areas as enabled by the two proposed land bills could contribute to reduced deforestation and the conservation of critical habitats. The Customary Land Right Bill stipulates clearly that authorized officers shall ensure that wetland wildlife habitats, steep slopes, old growth, virgin forests, or any other ecologically sensitive areas in the provinces are protected from degradation. The bills will create an enabling environment for climate resilient land management and climate-smart agriculture and promote degraded land restoration to improve carbon sequestration, among others. 91. The DPO also support reforms that remove legal barriers to women’s economic inclusion (PA #3) which will likely lead to a higher uptake of financial services by women who were previously biased against accessing banks and formal credit, increasing productive investments, and raising income. Barriers for women inclusion in economic activity and property ownership, deprive women of opportunities to protect themselves from any risks, including physical risks from floods, health risks from pathogens, or nutritional risks from crop loss or reduced crop productivity. For example, there are several pathogens that constitute epidemiological concern in Sierra Leone. With climate change and increased precipitation, the risk of some of those diseases will be on the rise. Because of the nature of traditional roles in the society, women are more susceptible to contracting diseases and also likely to lack resources to seek medical help and may have limited access to healthcare facilities to receive information on disease prevention. Facilitating women inclusion will allow women to accumulate capacity and resources to withstand these climate risks. 92. Education sector reforms (PA #4 and #5) are expected to have a positive impact on the environment through poverty reduction precipitated by improvements in learning outcomes especially for girls and poor kids in rural areas. Approximately 35 percent of children aged 5 to 14 in Sierra Leone are already working at this young age. 2,560,844 Sierra Leonean citizens (in the age group 15 years and older) were illiterate as of 2018. Child labor and trafficking, missing school or dropping out before graduating, illiteracy – all lead to locking in young generation into the vicious cycle of poverty. Without education, opportunities for the young are limited Page 47 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) to labor-intensive work, often in industry, mining or agriculture with associated health and climate change risks. Educational sector reforms will stimulate economic growth and will lift the country and its young generation from poverty, will increase physical and economic resilience to climate change. 93. Overall, the proposed DPO is expected to have a positive impact on the environment. Other reforms, including those in pillar 3 (improving the sustainability of development financing), are expected to have a neutral effect on the environment. 94. Sierra Leone has a strong institutional and policy framework for environmental management . In 2019, the government established a dedicated Ministry of Environment to provide overall leadership in sustainable environmental management and ensure coordination, oversight and policy development. The ministry is also in charge of climate risk monitoring, mitigation, and adaptation. The Ministry of Environment has reviewed relevant environmental policies and legislations to promote effective management of the environment and mitigate climate change risks (National Environment Policy, 1994; National Climate Change Policy, 2015; EPA Act 2008/2010, Forestry Act 1988, Wildlife Act 1972, National Protected Area Authority Act, 2012, Sierra Leone Meteorological Agency Act, 2017; Nuclear Safety and Radiation Protection Authority Act, 2012). The policies and legislations are expected to be approved before the end of 2021. Consistent with the 2008 Environmental Protection Act, the EPA is the primary national statutory institution responsible for natural resources management and climate change adaptation and mitigation. Section 62 of the EPA Act mandates the agency to ensure that all development projects integrate sound environmental practices throughout their operation. The EPA develops and administer Environmental Impact Assessment (EIA) guidelines including processes to mitigate negative environmental impacts. EPA issues EIA licenses to mining, quarry, agriculture, manufacturing, tourism, fisheries companies to regulate their compliance with the EPA Act while generating revenue for government. It also regularly monitors the implementation of environmental standards in mining, quarry, agriculture, manufacturing, tourism, fisheries sectors, and the host communities to ensure sustainable environmental management. Under the proposed Mines and Minerals Development Bill, mining companies are requested to develop mine rehabilitation plans and undertake progressive rehabilitation of mined-out lands. The EPA ensure toxic and hazardous substances generated by mining are managed by the companies to minimize environmental pollution. Under the EIA license, all mining companies are required to submit a Community Development and Action Plan (CDAP) aimed at promoting development in host communities. Also, the National Protected Area Authority (NPAA) was established in 2012 to manage forest reserves and oversee reforestation to prevent land degradation and protect fragile and climate sensitive natural ecosystems. 5.3. Public Financial Management, DISBURSEMENT AND AUDITING ASPECTS 95. Despite several challenges, the Government has recently taken strong measures to strengthen the legal framework for PFM with support from development partners such as the European Union (EU), the United Kingdom Foreign, Commonwealth and Development Office (FCDO), World Bank, African Development Bank (AfDB) and IMF. A notable reform was the rollout of the Integrated Financial Management Information System (IFMIS). The IFMIS was rolled out from a baseline of seven connected MDAs in 2013 to 61 by June 2021. In addition, the 2016 PFM Act, 2018 PFM regulations, and 2017 Fiscal Management and Control Act have strengthened the PFM legal and regulatory framework. A Treasury Single Account (TSA) was introduced in 2018 covering all major revenue-generating MDAs. To assess and monitor fiscal risks, the authorities have developed a Fiscal Strategy Statement, which is a top-down framework within which budgets and medium-term projections are prepared. The MoF and National Revenue Authority (NRA) continue to share information on government Page 48 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) revenue. Moreover, the oversight capacity of internal audit, external audit, Anti-corruption Commission, civil society, and parliamentary committees has been improved. The cash based International Public Sector Accounting Standards (IPSAS) has been adopted by the Accountant General to produce standardized annual financial statements. However, despite these improvements, the 2014 and 2017 PEFA and 2020 Public Investment Management (PIMA) assessments found that several PFM issues remain. These issues stem from weak human resource capacity, lapses in public procurement, poor administrative network, and weak digitization (low internet connectivity and power outages). 96. The improved legal and regulatory framework for PFM has improved the quality of budget preparation and oversight. Specifically, the PFM measures have: (i) improved the quality of budget preparation and implementation; (ii) enhanced comprehensiveness of transparency budget cycle and publication of budget documents; (iii) improved collection and monitoring of tax payments; (iv) improved cash management and a rollout of the TSA; (v) improved account reconciliations and timeliness and quality of financial reporting; and (vi) improvements in external audit oversight and audit quality. The PFM Act (2016) and Regulations (2018) provide rules to guide fiscal policy formulation and identification of the government’s fiscal policy objectives over the medium term. There have also been improvements to address the following challenges: commitment and payroll control, incomplete and inadequate procurement management systems, lack of capacity to develop and implement internal audit plans, and arbitrary public investment project selection. 97. The Government has established the institutional framework for assuring value for money in procurement, with the establishment of the NPPA and procurement units in MDAs. Notwithstanding these achievements, several areas still need improvement including the technical capacity of (i) the regulatory authority to monitor performance and compliance and (ii) the procurement staff assigned to MDAs at the central and local governments. It would also be important to improve the complaints mechanisms and appeals processes. 98. Budget transparency. The MoF publishes the annual appropriation act and supporting documents on its website.41 The Accountant General publishes annual financial statements and MoF releases periodic analytical reports of the in-year revenue and expenditure outturn and supporting datasets with detailed data. Also, the Auditor-General Report, on the audit of the annual financial statements, is published annually. 99. Foreign Exchange Environment. The most recent IMF Safeguards Assessment of the BSL was conducted in July 2017. The assessment found that BSL’s legal and accountability framework has gradually been improved since 2010, despite some challenges. Also, an external audit of BSL’s 2018 financial statement was completed and the report was made public. The IMF recommended a forensic audit of the foreign exchange (FX) transactions between the BSL and MDAs during July 2015 -June 2018. The forensic audit of the FX transactions was completed in early 2019. The audit carried out by an international firm with significant proven experience in conducting forensic investigations. The report made recommendations to reduce vulnerability to corruption, safeguard the use of resources, improve reconciliation procedures, and improve the BSL’s FX procedures. The BSL has initiated the development of a remedial action plan to address issues raised in the forensic audit report. The IDA task team assessed the risks raised in the report by this independent firm to assure value for money with integrity for the DPO funds. Owing to the risks noted, IDA shall retain the right to have the dedicated account audited based on terms satisfactory to IDA. The focus of the audit would be to ensure the funds were properly transferred into and out of the dedicated account to the Consolidated Fund using appropriate exchange Page 49 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) rates. The audit report will need to be submitted to IDA six months after the end of the fiscal year. Disbursement and auditing issues 100. Recipient and Financing Agreement. The proposed operation is a single-tranche IDA Grant of SDR 53 million (US$75 million equivalent). The Grant disbursement will follow the standard World Bank procedures for DPO. The MoF will be responsible for the administration of this Grant. 101. Funds flow arrangements. The Government of Sierra Leone (GoSL) shall identify a dedicated foreign exchange account in the BSL (the “Dedicated Account”), which will form part of the country’s Foreign Exchange Reserves. Subjected to meeting the agreed prior actions and the adequacy of the macroeconomic framework, all withdrawals from the Financing Account shall be deposited upon effectiveness into this Dedicated Account. The GoSL shall transfer into the Consolidated Fund an equivalent amount in Leones within five (5) days after the deposit of the amount of the Financing into the Dedicated Account. The Financing amount is to be promptly accounted for in the GoSL’s budget management system, in a manner acceptable to IDA, and confirmed to IDA. Disbursements of the Grant from the Consolidated Fund by the GoSL shall not be tied to any specific purchases and no special procurement requirement shall be needed by the World Bank. The proceeds of the Grant shall, however, not be applied to finance expenditures on the negative list as defined in Section 2.04 and the Appendix of the General Conditions for IDA Financing: DP0 (2018). If any portion of the grant is used to finance ineligible expenditures as defined in the General Conditions for IDA Financing: DPO (2018), IDA shall require the Government to promptly, upon notice from IDA, refund an amount equal to the amount of the said payment to IDA. Amounts refunded to IDA upon such request shall be canceled from the Grant. 102. Assurance Requirements. Within 30 days of the disbursement of the grant by IDA, the Financial Secretary of the MoF of Sierra Leone shall provide written confirmation to IDA, certifying the receipt of the ‘Leones’ equivalent of the Grant into the Consolidated Fund Account of the GoSL, the number of the account, the date of the receipt, and the exchange rate applied to translate the Grant currency into Leones. The GoSL shall also present to IDA the statement of receipts and disbursement of the Foreign Currency Dedicated Account. Owing to high fiduciary risks noted around the foreign exchange control environment, the World Bank shall retain the right to demand an audit of the receiving foreign exchange account into which the DPO resources will flow and consequent local account into which the DPO resources will be transferred to ensure that correct exchange rates are used. This right to an audit will be captured into the Financing Agreement of the DPO. Upon IDA’s request, the GoSL shall have the Dedicated Accounts audited by independent auditors acceptable to IDA, in accordance with consistently applied auditing standards that are also acceptable to the IDA. GoSL shall provide a certified copy of the report of such audit to IDA as soon as available, but in any case, not later than six (6) months after the end of the GoSL’s fiscal year. GoSL shall make such audit reports publicly available in a timely fashion and a manner acceptable to IDA. The GoSL would provide to IDA such other information concerning the Dedicated Accounts and their audit as the IDA shall reasonably request. The GoSL shall equally ensure that the annual entity financial statements of the BSL, audited in accordance with international standards on auditing, as promulgated by the International Federation of Accountants, are publicly available. 103. The expected closing date of the operation is December 31, 2022. 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY Page 50 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) 104. The MoF has the primary responsibility for coordinating, monitoring, and ensuring successful completion of the prior actions. The implementing agencies include the following MDAs: BSL, Ministry of Lands, Housing and the Country Planning, Ministry of Mines and Mineral Resources, Teaching Service Commission, and NPPA. Monitoring of results from the proposed reform package will be based on mechanisms developed by relevant MDAs and local capacity. The MoF has the requisite experience and extensive technical skills to lead the implementation of the agreed reforms in coordination with relevant MDAs. In light of the large number of MDAs participating in the program, a committee in charge of regular monitoring has been created with focal points in each implementing agency. Furthermore, there is a well-coordinated group of development partners providing close support to the Government. This support primarily operates through the Development Partnership Committee. The Results Framework associated with the policy matrix provides the list of results indicators, which will be used to monitor the progress under the program (Annex 1). The monitoring of results from the proposed DP0 will also build on those of NDP, given the strong link between the two programs. Furthermore, an in-country World Bank team will continuously monitor progress on the results indicators. 105. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank Development Policy Operation (DPO) may submit complaints to the responsible country authorities, appropriate local/national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank ’s attention, and World Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 6. SUMMARY OF RISKS AND MITIGATION 106. The overall risk to this DPO is rated as “Substantial”. The risk assessment reflects substantial residual risk to program implementation, emanating mainly from macroeconomic, institutional and fiduciary risks. Moderate risk has been assessed for four areas: political and governance, sectoral strategies and policies, the technical design of the program, and environmental and social risks. Stakeholder risks are considered low. The areas with substantial risk ratings are discussed below. 107. The risks to institutional capacity for implementation are substantial. Despite recent improvements, Sierra Leone’s institutional capacity remains weak in most areas. This is particularly the case for ensuring effective, fair, and equitable implementation of laws and regulations and preventing inappropriate political influence in implementation and enforcement. The impact of the reforms in land, mining, payments systems and access to credit for women would critically depend on how well the relevant laws are implemented and enforced. Complementary reforms for strengthening the implementation capacity of government agencies especially in mining and land sectors including programs to combat discrimination in the form of customs, practices, and beliefs would be critical to success. To address these risks, the World Bank has ongoing and pipeline IPFs focused on strengthening national implementation capacities (Extractive Industries Technical Assistance Project Phase 2 (P160719), Accountable Governance for Basic Service Delivery Project (P172492), Sierra Leone Expanding Financial Inclusion (P166601) and forthcoming Land Administration Project). Page 51 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) 108. Macroeconomic risks are substantial. Macroeconomic risks are tilted towards the downside and stem from (i) uncertainties associated with COVID-19; (ii) domestic shocks, including fiscal risks from SOEs and arrears; and (iii) external shocks to FDI and grant flows, commodity prices and decline in external demand for exports. COVID-19 risks reflect limited access to vaccines including the slow pace of the government’s vaccination program that could cause a fourth wave of infections. This could result in the reimposition of containment measures which would further delay the recovery of domestic demand. The main domestic macroeconomic risks are continued high public debt and domestic payment arrears, lower than expected revenues, and rapid growth in monetary aggregates, including the associated inflationary risks and financial sector weaknesses. With the country at high risk of debt distress, higher future debt service payments could affect growth and debt sustainability, especially if revenues disappoint. External risks relate to lower-than-expected FDI and donor inflows, and weaker than expected exports which could cause a drawdown of reserves, thus adding pressure on the exchange rate to depreciate. These risks are partly mitigated by the Government’s commitment to enhance fiscal sustainability as demonstrated by resumption of the IMF-supported ECF program and the implementation of the World Bank PPAs. Under the ECF program, the Government has prepared a comprehensive arrears clearance strategy based on sound principles of debt transparency. The MTDS has been updated to incorporate the arrears strategy. In addition, the fuel price liberalization implemented under the previous DPO will continue to help offset spending pressures, although rising crude oil prices could risk its continued implementation. 109. Fiduciary risks are substantial. The Government has made good progress in the implementation of PFM reforms. But several fiduciary challenges remain. These challenges include the limited local capacity to ensure value for money, efficiency, effectiveness, integrity, transparency, and accountability in public processes. For instance, the 2017 PEFA Report found large deviations between original budgets and out-turns for both revenue and expenditure. These mismatches are primarily due to frequent “overrides” to the procedures for control of commitments and payments. Politically motivated expenditures on unplanned projects and contracts and lack of procurement plans and budgets, further add to fiduciary risks. Moreover, the 2020 PIMA report found significant weaknesses resulting from inefficient public investment management. Some major projects did not generate intended outputs. Also, the forensic audit of foreign exchange transactions at the BSL and key MDAs found significant weaknesses in the foreign exchange control environment. However, the fiduciary arrangements under the proposed operation are designed to mitigate these risks. The current World Bank Accountable Governance for Basic Service Delivery Project (P172492) and the recently closed PFMICP Project (P162667) are supporting several reforms that will help strengthen the overall PFM systems and improve service delivery. Also, a remedial action plan has been developed under the ECF program to address foreign exchange and other fiduciary risks. 110. Other risks (mainly epidemiological) are substantial. The country has successfully dealt with the first, second and third waves of the COVID-19 pandemic, keeping total deaths at 121, with 6,393 confirmed COVID- 19 cases and 4,381 recoveries as of September 30, 2021. Having learned from its experience during the Ebola epidemic, the country swiftly activated the Public Health National Emergency Operation Center at level 2 and established a high-level governance structure, the National COVID-19 Emergency Response Center (NaCOVERC) to provide strategic leadership for responding to the pandemic. However, COVID-19 is an all-encompassing generalized risk that could adversely affect all risk categories and possibly lead to a slowdown in the implementation of reforms as resources and priorities continue to shift to preventing or curtailing the spread of the virus. The pandemic caused a 4 percent decline in real incomes in 2020, reversing recent gains in poverty reduction. In addition, limited access to vaccines including the slow pace of the government’s vaccination Page 52 The World Bank Sierra Leone Inclusive and Sustainable Growth DPO (P175342) program (only about 2 percent of the population have been vaccinated) could hinder medium-term recovery, worsening the poverty situation. The rapidly evolving nature of the pandemic makes it difficult to assess the full impact of COVID-19 on this operation. The COVID-19 shock has potentially negative impacts on the achievement of the objectives of each of the pillars of this operation. The sustainability of improvements in inclusivity in the mining, land, education, and financial sectors may be impeded by local and international restrictions and containment measures including social distancing requirements, travel bans and supply chain disruptions that can affect basic service delivery. Similarly, the COVID-19 pandemic could make it difficult for the government to continue to focus on fostering transparency and accountability in public procurement and the public sector in general. 111. This risk is in part mitigated by the COVID-19 Emergency Response Project (P173803) and the Government’s proactive stance in taking measures to address the outbreak before it happened as well as the existence of an alert and surveillance system and the country’s experience in dealing with the Ebola virus crisis. The proposed DPO operation would also help to mitigate some of the risks through the provision of resources to respond to health needs including enhanced transparency in public procurement (DPO Pillar 3). The residual epidemiological risk is substantial given limited access to vaccines, low vaccination rate and the uncertainty regarding the spread and duration of the pandemic including its potential for substantial cross-cutting impacts on the health and education sectors and on the economy. Table 8: Summary Risk Ratings Risk Categories Rating 1. Political and Governance ⚫ Moderate 2. Macroeconomic ⚫ Substantial 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Moderate 8. Stakeholders ⚫ Low 9. Other ⚫ Substantial Overall ⚫ Substantial . Page 53 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) ANNEX 1: POLICY AND RESULTS MATRIX Prior Actions under Indicative Triggers for DPO2 Indicative Triggers for DPO3 Result Indicator Baseline Target DPO1 Pillar 1. Improving natural resources governance Prior Action #1. 1.The DPO2 (Indicative) Trigger #1. The Recipient, through DPO3 (Indicative) Trigger #1. The Result indicator 64 (2021) 420 (2024) Recipient through its the Ministries of Finance and Mines and Mineral Recipient, through the Ministry #1. Area of reclaimed Ministry of Mines and Resources, has submitted to Parliament regulations of Mines and Mineral Resources, mined outs land in Mineral Resources has to the Extractive Industry Revenue Act (2018). has submitted to Parliament four major mining submitted to Parliament regulations to the Mines and districts (Acres) for its approval, the Minerals Development Act. draft Mines and Result indicator Minerals Development #2. Proportion of 0 (2021) 100(2024) Act, 2021 which inter mining companies alia provides a legal disclosing beneficial framework for owners (%) promoting governance, transparency, fiscal, social and environmental standards for the mines and minerals sector, in accordance with the relevant Mines and Mineral Policies as evidenced by the letter from the Clerk of Parliament, Office of the Clerk of Parliament, dated November 16, 2021. Prior Action #2. The DPO3 (Indicative) Trigger #2. Result indicator 0 30(2024) DPO2 (Indicative) Trigger #2. The Recipient through its Recipient’s Ministry of The Recipient through its #3. Proportion of (2021) Ministry of Lands, Housing, and the Country Lands, Housing and the Ministry of Lands, Housing, and women appointed as Page 54 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Country Planning, has Planning, has taken steps to establish the National Land the Country Planning, has (i) Commissioners on the submitted to Parliament Commission by appointing the Board members. submitted to Parliament Board of the new Land for its approval the draft regulations for the Land Commissions Bills entitled, (a) the Commission and Customary (National and District) National Land Land Rights Acts, and (ii) (%) Commission Act, 2021 established Land Adjudication which inter alia outlines Tribunals in at least two districts. Result indicator the institutional #4. Rural chiefdoms 0 (2021) 20 (2024) arrangements for land with land use planning management; and (b) and protected area the Customary Land documents that follow Rights Act, 2021 which the climate risk provides for customary management and land rights and climate-resilience management of approach (number) customary land; as evidenced by the letter from the Deputy Clerk of Parliament, Office of the Clerk of Parliament, dated September 30, 2021. Pillar 2. Enhancing inclusiveness Prior Action #3. The DPO2 (Indicative) Trigger #3. To address gender- DPO3 (Indicative) Trigger Result indicator 8 (female) 10 (female) Recipient’s Ministry of based discrimination in the labor market and improve #3. To address gender-based #5. Shares of women and 11 and 12 Gender and Children’s women’s access to employment and income, the discrimination in the labor and men who (male) (male) Affairs has: (a) Recipient has submitted a Bill to Parliament to amend market and improve women’s received credit in the (2018) (2024) submitted to Parliament existing labor laws to i) provide for equal access to employment and previous 12 months as the draft Act to remuneration for work of equal value; ii) provide for income, the Recipient has i) a share of the total Promote Gender paid maternity leave of at least 14 weeks to women, adopted regulations including female and male Equality, 2021; which which benefits are fully administered by the definitions of gender-based populations (%) inter alia makes government, and provide for paid parental leave; iii) discrimination and mandating provision for financial prohibit discrimination in employment based on the adoption by employers of institutions to prescribe gender and protect pregnant workers from dismissal; company policies on decent procedures for the iv) repeal provisions prohibiting or restricting women’s work and non-discrimination, improvement of work in certain industries, including sections 2, 47 and including sexual harassment in women’s access to 48 of the Employers and Employed Act; and v) prohibit employment; finance; as evidenced ii) implemented labor Page 55 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) by the letter from the sexual harassment in employment, with associated inspections related to gender- Deputy Clerk of civil remedies. based discrimination; Parliament, Office of the iii) published a guide and Clerk of Parliament implemented training for dated October 21, 2021; employers on gender equality in and (b) issued through employment; and the Bank of Sierra iv) established a directorate or Leone, instructions to all unit within the relevant labor licensed banks and agency focusing on gender regulated financial issues. institutions to provide financial services on a nondiscriminatory basis as evidenced by the Directive on Provision of Financial Services on a Non-Discriminatory Basis, dated August 5, 2021. Prior Action #4. The DPO2 (Indicative) Trigger #4. The Recipient, has DPO3 (Indicative) Trigger #4. Result indicator 12 (2020) 8 (2024) Recipient’s Teaching pursuant to TSC Act (2011), issued a directive that The Recipient has through the #6. Absenteeism rate of Service Commission has: prescribes detailed sanctions against absentee Ministry of Basic and Senior teachers on payroll (%) (a) developed a new teachers along with incentives for promoting teacher Secondary Education carried out Teacher Management attendance. a biometric verification of all Information System teachers to consolidate its (TMIS) and piloted it in teacher records and reduce sixty (60) schools; and ghost teachers. (b) approved the nationwide roll out of TMIS, to strengthen the institutional framework for teacher management, as evidenced by the TSC Board Resolution dated August 27, 2021. Prior Action #5. The DPO2 (Indicative) Trigger #5. The Recipient’s Cabinet has DPO3 (Indicative) Result indicator 26.4 29.5 Recipient’s Cabinet has adopted i) an implementation plan for the National Policy Trigger #5. The Recipient #7. Secondary school (2020) (2024) approved the National through its Ministry of Basic and Page 56 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Policy on Radical on Radical Inclusion in Schools, and ii) a new education Senior Secondary Education has enrolment rate for Inclusion in Schools, to sector plan. submitted a new Education Act girls (%) improve inclusion of to the Parliament for approval. 40,096 43,000 children from Result indicator #8. (2020) (2024) disadvantaged Children with background in schools, disabilities enrolled in as evidenced by the school (number) Cabinet Decision dated April 7, 2021. Prior Action #6. The DPO2 (Indicative) Trigger #6. To foster the digitization DPO3 (Indicative) Trigger Result indicator 15(women) 20 Recipient’ Ministry of of government payments, the Government has: i) #6. To foster the digitization of #9. Women and men and 25 (women) Finance has submitted issued e-money and tiered digital know-your-customer government with an account at a (men) and 29 to its Parliament for regulations, and ii) passed a decree that all payments, the Government has financial institution or (2017) (men) approval, an government employees’ salaries be paid digitally. issued a decree to digitize with an (2024) amendment to the payments under two electronic/mobile Payment Systems Act to government programs (e.g., cash money provider (%) facilitate the effective transfer program, pensions) or implementation of to digitize all National Revenue electronic payments and Authority Collections. the National Switch, as evidenced by letter from the Deputy Clerk of Parliament, Office of the Clerk of Parliament, dated October 21, 2021. Pillar 3. Improving the sustainability of development financing Prior Action #7. 2. The DPO2 (Indicative) Trigger #7. To enhance debt DPO3 (Indicative) Trigger #7. To Result indicator 295.1 236 (2024) Recipient’s Ministry of transparency and reporting, the Government will enhance debt transparency and #10. Debt/liabilities (2021) Finance has published disclose all guarantees and borrowing of the ten reporting, the Government will of SOEs (US dollars the debt and guarantees largest State-owned Enterprises (SOEs). disclose all guarantees and millions) of the five largest State- borrowing of all SOEs. owned Enterprises as evidenced by the letter from the Ministry of Finance dated May 31, 2021. Page 57 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Prior Action #8. The DPO2 (Indicative) Trigger #8. To increase DPO3 (Indicative) Trigger #8. To Result indicator 0 (2021) 50 (2025) Recipient has improved transparency in public procurement, the Recipient has increase transparency in public #11. Transactions transparency in public published tender announcements and contract award procurement, the Recipient has (tender procurement for the information for published all tender announcement health and education contracts above the threshold established in the Public announcements and contract and contract award) sectors, by: (a) Procurement Regulations 2020, for the Health, award information for published on NPPA committing to publish Education and Energy sectors, in Open Contracting contacts for the Health, website/portal on the National Public Data Standard (OCDS) on a monthly basis on the NPPA Education, Energy and Public (number) Procurement Authority website/portal. Works sectors in Open (NPPA) website on a Contracting Data Standard Result indicator # 0 (2021) 50 (2025) periodic basis, contracts (OCDS) on a monthly basis on 12. Proportion of and tender awards in the NPPA website/portal. transactions (tender said sectors above the announcements and threshold in the Public contract awards) Procurement published in OCDS Regulations 2020; and format on the NPPA (b) publishing said website information for the Ministry of Health and Sanitation, Ministry of Basic and Secondary Education and the Ministry of Technology and Higher Education on the NPPA website; as evidenced by the letter from the Ministry of Finance dated October 1, 2021. Page 58 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) ANNEX 2: IMF RELATIONS ANNEX PRESS RELEASE NO.20/231 IMF Executive Board Completes Third and Fourth Reviews of Sierra Leone’s Extended Credit Facility July 27, 2021 • IMF approves disbursement of US$44.2 million (SDR 31.11 million) to Sierra Leone to support the government’s policy and reform efforts aimed at reinforcing the country’s recovery from the pandemic, preserving macroeconomic stability, and sustaining inclusive long-term growth. • There are early signs of economic recovery, but Sierra Leone continues to face COVID risks, and a tight financing situation amidst substantial development and priority expenditure needs. • Completion of the third and fourth reviews under the Extended Credit Facility underscores the Government’s ongoing commitment to critical reforms and safeguarding macroeconomic stability. Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the third and fourth reviews of Sierra Leone’s performance under the program supported by an Extended Credit Facility (ECF). Completion of these reviews enables the IMF to disburse SDR31.11 million (about US$44.2 million), bringing total disbursements under the arrangement to SDR 77.775 million (about US$111 million). The Executive Board approved the authorities’ request for a waiver of non-observance of two performance criteria. The Executive Board also approved the rephasing and extension of the ECF arrangement by 12 months. The Board had approved Sierra Leone’s 43-month ECF arrangement for SDR124.44 million (about US$172.1 million) on November 30, 2018 (see Press Release No. 18/446 ). The Government’s reform agenda, supported by the ECF, continues to aim at creating fiscal space for development by strengthening revenue mobilization, containing current spending and improving the efficiency of public investment. There are early signs of economic recovery, but Sierra Leone’s fiscal situation remains tight. Economic activity dipped sharply in the second and third quarter of 2020 with inter-district lockdowns and disruptions to international trade and travel. Depressed activity saw inflation trending downwards, though food price inflation remains elevated. Higher frequency indicators suggest a moderate pick-up of activity began in the fourth quarter of the 2020. Mining is expected to drive the recovery in 2021 (growth of 3.2 percent) and 2022 on the back of normalization of production at existing mines and favorable prices. However, fiscal space remains limited, reflecting a still low revenue base, an elevated public debt level, and substantial COVID-19-related and other priority expenditure and development needs. Page 59 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Growth would recover to pre-COVID-19 levels in the medium term, but there are considerable risks to the outlook. Over the medium term, non-mining growth is projected to average around 4.5 percent. The external position would remain vulnerable as international reserve coverage is expected to decline. Risks to the outlook are significant and include, for instance, unexpected global shifts in the COVID-19 pandemic or an intensification of the third wave, uncertainties in the mining sector, lower-than-expected support from development partners or slower-than- expected reform implementation. At the conclusion of the Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement: “The COVID-19 pandemic has strained Sierra Leone’s effort to address its large development needs and exacerbated a difficult financing situation. The authorities’ strong economic and health responses helped mitigate the immediate impact of the crisis while exceptional external support, including from the Fund, helped cushion fiscal and external positions. There are early signs of economic recovery, but a third wave of infections and difficulties in vaccine rollout could delay a return to pre-crisis growth. “The authorities have responded appropriately to the crisis within a tight budget envelope. The 2021 budget continues to prioritize health and other priority spending under the National Development Plan while allowing for a significant improvement in the primary balance. The authorities remain committed to securing fiscal and debt sustainability, through enhanced domestic revenue mobilization, improved expenditure efficiency and controls, and reliance on external grants and concessional financing. “The Extended Credit Facility arrangement provides a critical policy anchor, including for the post-crisis recovery. The arrangement will help meet external and fiscal financing needs and support the authorities’ reform agenda amidst heightened uncertainty. The authorities continue to strengthen governance, including by making progress with the fraud prevention policy and the internal audit function at the Bank of Sierra Leone, and transparent reporting of COVID-19 related spending. “Looking ahead, continued strong policy efforts are needed to help the recovery while safeguarding macroeconomic stability. With a high risk of debt distress, this requires enhanced revenue mobilization, prudent expenditure management, and continued external grant support. Mindful of the price stability objective, monetary and exchange rate policy should remain flexible to support the recovery while rebuilding external buffers and monitoring closely financial stability risks.” IMF Communications Department MEDIA RELATIONS PRESS OFFICER: ANDREW KANYEGIRIRE PHONE: +1 202 623-7100EMAIL: MEDIA@IMF.ORG @IMFSpokesperson Page 60 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) ANNEX 3: LETTER OF DEVELOPMENT POLICY Page 61 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 62 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 63 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 64 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 65 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 66 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 67 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 68 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 69 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) Page 70 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE Significant positive or negative Significant poverty, social or distributional Prior Actions environment effects effects positive or negative Pillar 1: Improving natural resource governance Prior Action #1: 1. The Recipient through its Ministry of Mines and Mineral Positive: The Bill supports progressive Positive: Clear requirements for the Resources has submitted to Parliament rehabilitation and wetlands restoration of working conditions of male and female for its approval, the draft Mines and mined-out lands which promotes climate mining employees, prohibiting exploitation Minerals Development Act, 2021 which change adaptation and mitigation of children and protecting the rights of inter alia provides a legal framework for ambitions of Sierra Leone. Wetlands and landowners to prevent conflicts between promoting governance, transparency, reforested mining sites will serve as farmers and miners supports inclusivity fiscal, social and environmental standards carbon sinks. Progressive afforestation of and boosts government revenues from the for the mines and minerals sector, in mining sites will reverse environmental mining sector which could allow more accordance with the relevant Mines and degradation and will prevent landslides, resources to allocated to the mining Mineral Policies as evidenced by the soil erosion, floods, and other typical sector, benefiting women and other letter from the Clerk of Parliament, Office consequences of climate change. vulnerable groups. of the Clerk of Parliament, dated November 16, 2021. Prior Action #2: The Recipient’s Ministry of Lands, Housing and the Country Positive: Protecting land tenure rights for Positive: Strong implementation of land Planning, has submitted to Parliament for members of local communities will create reforms based on the principles of gender its approval the draft Bills entitled, (a) the the legal field for compensations for equality (e.g., ensuring that names of both National Land Commission Act, 2021 environmental degradation with its male and female members of the family which inter alia outlines the institutional cascading negative effects, to which both appear in land registration records) could arrangements for land management; and mining industry and climate change will increase the productivity of agriculture (b) the Customary Land Rights Act, 2021 contribute. The land bills will create and increase women’s economic which provides for customary land rights facilitating environment for climate participation by empowering them in the and management of customary land; as resilient land management, climate-smart traditional land tenure systems and evidenced by the letter from the Deputy agriculture, degraded land restoration to transforming gender norms in the rural, Clerk of Parliament, Office of the Clerk of improve carbon sequestration, etc. traditional setting. Parliament, dated September 30, 2021. Pillar 3: Enhancing inclusiveness Prior Action #3: The Recipient’s Ministry Positive: Because of the nature of of Gender and Children’s Affairs has: (a) traditional roles in the society, women Positive: Measures to eliminate perceived submitted to Parliament the draft Act to are more susceptible to contracting discrimination against women in access to Promote Gender Equality, 2021; which diseases, they are also likely to lack formal financial services can positively inter alia makes provision for financial resources to seek medical help, and have influence female access to finance and institutions to prescribe procedures for limited access to healthcare facilities to female business ownership through the improvement of women’s access to receive information on disease increased savings and productive finance; as evidenced by the letter from prevention. Facilitating women inclusion investment. the Deputy Clerk of Parliament, Office of will allow women to accumulate capacity Page 71 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) the Clerk of Parliament dated October 21, and resources to withstand the risks. 2021; and (b) issued through the Bank of Sierra Leone, instructions to all licensed banks and regulated financial institutions to provide financial services on a nondiscriminatory basis as evidenced by the Directive on Provision of Financial Services on a Non- Discriminatory Basis, dated August 5, 2021. Prior Action #4: The Recipient’s Teaching Service Commission has: (a) developed a new Teacher Management Information Positive: Better and more transparent System (TMIS) and piloted it in sixty (60) management of teaching and is expected schools; and (b) approved the nationwide to improve the learning outcomes for both roll out of TMIS, to strengthen the boys and girls over the medium to long- Positive: Educational sector reforms will institutional framework for teacher term. stimulate economic growth, and lift the management, as evidenced by the TSC country and its young generation from Board Resolution dated August 27, 2021. poverty, increasing physical and Positive: Inclusive programming for economic resilience to climate change. Prior Action #5: The Recipient’s Cabinet marginalized students, particularly girls, has approved the National Policy on show largely positive outcomes in both Radical Inclusion in Schools, to improve school performance, and risk factors inclusion of children from disadvantaged outside of school. It encourages girls to background in schools, as evidenced by complete schooling, increasing their the Cabinet Decision dated April 7, 2021. chances of entering into the labor force and enhancing their livelihoods. Prior Action #6. The Recipient’ Ministry of Finance has submitted to its Positive: Greater use of electronic/digital Parliament for approval, an amendment payments has clear benefits for both to the Payment Systems Act to facilitate governments and transfer recipients, with the effective implementation of Neutral to positive the potential to improve the delivery of electronic payments and the National public services by lowering corruption and Switch, as evidenced by letter from the leakages, with significant benefits for Deputy Clerk of Parliament, Office of the women Clerk of Parliament, dated October 21, 2021. Pillar 3: Improving the sustainability of development financing Prior Action #7: The Recipient’s Ministry Neutral to Positive: Enhanced fiscal and of Finance has published the debt and debt sustainability could improve access to guarantees of the five largest State- multilateral financing and postpone debt Neutral to positive owned Enterprises as evidenced by the restructuring, protecting the poor and letter from the Ministry of Finance dated vulnerable from the adverse implications May 31, 2021. of macroeconomic instability. Prior Action #8: The Recipient has Positive: A more transparent public improved transparency in public procurement system is expected to Neutral to positive procurement for the health and improve oversight and efficiency of public education sectors, by: (a) committing to resource management, increase value for Page 72 The World Bank SL Inclusive and Sustainable Growth Financing (P175342) publish on the National Public money and reduce opportunities for Procurement Authority (NPPA) website corruption. on a periodic basis, contracts and tender awards in said sectors above the threshold in the Public Procurement Regulations 2020; and (b) publishing said information for the Ministry of Health and Sanitation, Ministry of Basic and Secondary Education and the Ministry of Technology and Higher Education on the NPPA website; as evidenced by the letter from the Ministry of Finance dated October 1, 2021. Page 73