Financing economic stability and service delivery in Sierra Leone

Sierra Leone faces severe fiscal challenges that continue to undermine economic stability and effective service delivery. It is estimated that an additional USD 3 billion will be required to finance the country’s Medium-term National Development Plan 2024-2030. However, the country’s revenue-to-GDP ratio is slightly over 10%, and current revenue mobilised is far below its spending needs. This, combined with the shrinking donor space, constrains the government’s ability to meet its financing needs.

It is against this background that the Government of Sierra Leone, in partnership with the United Nations, the International Growth Centre and other development partners, hosted the inaugural Sierra Leone Policy Conference under the theme: Options for Sustainable Development Financing for Sierra Leone Amidst the Evolving Global Uncertainties.

The conference was expected to identify gaps to strengthen revenue mobilisation; provide practical insights and lessons for government and development partners on strategies for expanding the fiscal space; encourage collaboration and cooperation among stakeholders for effective mobilisation of sustainable development financing; and promote collective research and evidence to inform policy and decision-making in development finance.

Achieving macroeconomic stability and effective public financial management

While macroeconomic stability is the foundation for sustainable development financing, high domestic debt service, reliance on short-term instruments, and external shocks are shrinking the fiscal space in Sierra Leone. Therefore, raising more revenue without improving spending efficiency and accountability will not close the financing gap. 

The following recommendations to achieve and maintain macroeconomic stability emerged from the conference:

• Adopt prudent, growth-supportive macroeconomic policies and fiscal discipline to keep the exchange rate stable and sustain low inflation targets.
• Increase transparency around debt, State-Owned Enterprises, contingent liabilities, and fiscal risks through regular public reports. 
• Reduce inflationary pressures through domestic debt management and longer-term instruments. 
• Establish a Public Financial Management (PFM) Delivery Taskforce to drive and monitor reform implementation. 
• Continue digitisation of the national monitoring and evaluation (M&E) system and link financial and performance data for real-time tracking.
• Rationalise the Public Investment Programme, focusing on high-impact, high-readiness projects.
• Develop and publish a Government Action Plan for implementing audit recommendations, with clear responsibilities and deadlines. 
• Integrate audit and M&E findings into budget hearings and resource allocation decisions.

Strengthening domestic revenue mobilisation in Sierra Leone

With shrinking aid and high debt service, domestic revenue mobilisation is Sierra Leone’s most important lever. In his presentation, Professor Stefan Dercon described domestic revenue mobilisation as a non-negotiable foundation for sustainable growth, stating that no country can develop until its people own its development trajectory. A country having its own resources to finance development plans is even more important now, as international markets are becoming difficult to access, and global financing is becoming increasingly uncertain. 
How can the country improve its fiscal space? Consistent with government priorities, as articulated in the Budget Statement, 2025, the following key recommendations were made:

1. Local revenue mobilisation: Community-based models and modernised systems, combined with balanced enforcement, can increase revenue potential and improve compliance and revenue collection. An ongoing IGC study in Kenema has shown that modernising property tax administration (by introducing automated billing and transparent enforcement) increased revenue potential threefold and compliance by five times. 
2. Implementing technology and data solutions: Adopting centralised tax data systems, digital payment platforms, and national data warehouses can enhance transparency and efficiency. A comparative study from Uganda shows that stringent measures, such as harsh enforcement and audits, can impair firms’ ability to operate, discourage compliance, and reduce future tax revenue.
3. Promoting taxpayer education and advocacy: This would enhance voluntary compliance and understanding of institutional mandates.

Expanding the tax base to broaden revenue sources

However, improving tax administration and compliance alone cannot address shortcomings in domestic revenue mobilisation. The current tax burden in Sierra Leone is concentrated on a narrow base, and exemptions and waivers cost an estimated one-third of potential domestic revenue. Broadening the tax base and diversifying sources of revenue were some of the key recommendations at the conference:

1. Financial inclusion and formalisation of the informal sector: Design tailored financial products and incentives such as simplified registration regimes, tiered goods and services tax, and financing to encourage a transition away from the informal sector, which could widen the tax base.  
2. Rationalising tax exemptions and waivers: Taxpayer verification, oversight mechanisms, and scrutiny of tax exemptions can enhance transparency and revenue generated from the mining sector – potentially reclaiming more than one-third of domestic revenue.
3. Manage tax revenue from mining and fishing: Assess and restructure fisheries and mining sectors, including reviewing regulatory frameworks to increase revenue mobilisation and participation. Establish a Mineral Wealth Fund as a vehicle for mobilising natural resources revenue and investment, and enable natural resources accounting and marine spatial planning. 
4. Enabling institutional alignment: Collaborate to address challenges in taxpayer registration, data access, and overlapping tax mandates between the National Revenue Authority and local councils that are necessary for revenue mobilisation.

Innovative financing and capital market development

Diversifying beyond Official Development Assistance (ODA) and expensive debt presents an opportunity for Sierra Leone to unlock new sources of sustainable financing. Deliberate efforts need to be made to tap into domestic savings, diaspora capital, and global sustainable finance – the following recommendations could help achieve this:

1. Roll out financing instruments: Adopt a phased approach to rolling out innovative financing instruments – including green bonds (climate, resilience, energy), blue bonds (marine, fisheries, coastal ecosystems), diaspora bonds (based on diaspora appetite surveys), social/sustainability-linked bonds, and Islamic bonds or sukuk.¹
2. Create a blended finance framework: Providing instruments such as first-loss guarantees can help crowd in private capital, especially for SMEs and infrastructure.
3. Sequenced reforms on domestic debt management and central bank independence: Domestic, short-term, bank-held debt – not just total debt size – is a macro risk driver. Strengthening policy oversight to prohibit monetisation of public debt can help control inflation and ensure fiscal prudence.
4. Coordinated reforms in policy, regulation and technology: These are necessary to unlock private sector capital and financing innovations. Exploring sovereign credit rating could further enhance Sierra Leone’s credit profile and access to capital markets.
5. Leveraging insurance fund investments: These can support investment infrastructure and foster public-private partnerships. Ongoing efforts must also be made to revise laws and adopt risk-based supervision to enable funds to support private sector development. 

These discussions at the Sierra Leone Policy Conference brought together high-level policymakers – including the Chief Minister, Minister of Finance, Minister of Planning and Economic Development, and Minister of Information and Civic Education – as well as development partners, private-sector actors, researchers, civil society organisations, and students.

Recordings of the sessions can be found on the IGC YouTube page.
 

1 Sukuk are Sharia-compliant financial certificates representing partial ownership in tangible assets or projects, acting as an Islamic alternative to conventional bonds, which involve interest prohibited in Islam.