By Abou Bakarr Kamara Senior Country Economist, Sierra Leone, and International Growth Centre
Abou Bakarr Kamara stated Sierra Leone faces significant challenges in increasing domestic revenue mobilization due to the large informal economy, dependence on external debt, and a weakened social contract with its citizens. Sustainable growth for any nation relies on adequate revenue to finance the delivery of essential social services.
According to Sierra Leone’s 2024 budget statement, the government’s inability to generate sufficient domestic revenue continues to hinder its capacity to meet the basic needs of its population.
Currently, over 30% of Sierra Leoneans lack access to clean drinking water, 45% lack decent sanitation, and more than 30% of children under five years suffer from stunted growth.
Additionally, access to electricity remains a pressing issue, with over 60% of the population without power and less than 10% of the roads paved.
Revenue can be mobilized domestically through taxation or externally through debts and grants. However, despite various reform efforts, Sierra Leone’s tax system remains fragmented, ineffective, and inequitable, leading to persistent spending that far exceeds domestic revenue collection (see Figure 1).
For each year from 2019 to 2023, total expenditure by the Sierra Leone government significantly exceeds its domestic revenue capacity. Data generated by the author using information from the Ministry of Finance’s budget statements.
According to the government’s Medium Term Revenue Strategy, several institutional reforms have been implemented, such as the merging of the Income Tax and Goods and Services Tax (GST) departments in 2011 and the introduction of the Domestic Tax Information System (DTIS) in 2012. These reforms have aimed to automate taxpayer registration, facilitate new GST processes, and enhance payment systems for the National Revenue Authority (NRA). Despite these initiatives, the revenue-to-GDP ratio remains stubbornly low, hovering between 10% and 15%, well below the sub-regional average of 18%.
This constrained revenue mobilization results in fiscal deficits. Figure 1 illustrates the persistent deficits from 2019 to 2023. While domestic revenue fluctuates between 13% and 16% of GDP, total expenditure ranges from 20% to 26% of GDP, resulting in a substantial gap that is financed through external resources (grants, loans, etc.).
Despite ongoing reforms, the Government of Sierra Leone struggles to expand its fiscal space due to three main challenges, Sierra Leone’s economy is predominantly informal, with over 70% of the workforce engaged in unregistered employment, according to the recent Labour Force Survey. Many individuals and small firms operate without formal records, making taxation challenging. Although the government has developed tax policies and improved tax administration, efforts to encourage formalization and expand the tax base have been insufficient, leaving a significant portion of economic activities untaxed.
The government frequently resorts to borrowing to finance recurrent expenditures and persistent budget deficits (see Figure 2). This reliance on external debt has led to a rising public debt-to-GDP ratio of over 90%. Unfortunately, this debt accumulation has not translated into increased economic growth. The escalating costs of debt servicing further undermine tax revenue collection, trapping Sierra Leone in a cycle of debt distress, where borrowing is necessary for budgetary and growth needs.
Recurrent expenditure consistently exceeds domestic revenue from 2019 to 2023, intensifying the need for domestic resource mobilization. Data generated by the author using information from the Ministry of Finance’s budget statements.
The government’s failure to provide basic services has eroded public trust and weakened the social contract. Access to quality health care, education, and sanitation remains a significant challenge. Coupled with high levels of financial mismanagement, this situation has further diminished public confidence in tax collection efforts.
Addressing these challenges is crucial for improving domestic revenue mobilization in Sierra Leone. A comprehensive approach that includes formalizing the economy, reducing reliance on external debt, and rebuilding public trust is essential for achieving sustainable growth and ensuring that the government can effectively meet the needs of its citizens.
To find the name of the Senior Country Economist at the International Growth Centre in Sierra Leone,