FREETOWN (Reuters) - Sierra Leone will increase spending by eight percent next year in a budget described by its finance minister on Friday as a conservative reaction to the expected take-off in iron exports next year.
The International Monetary Fund estimates that new iron ore projects in the West African country, still recovering from an 11-year-civil war that ended in 2002, will boost growth to 51.4 percent next year, one of the highest in the world.
Finance Minister Samura Kamara said government spending would rise from 2.6 to 2.8 trillion leones.
"It's a very cautious, careful budget," Kamara told Reuters in an interview given directly after presenting the budget to parliament. "It's very, very modest."
Sierra Leone itself expects 2012 growth of "at least 50 percent" followed by 10 percent in 2013 and 2014. Excluding iron ore production, it sees average growth at six percent a year between 2012 and 2014, up from 5.3 percent this year.
Government figures predict 242.3 billion leones in mining revenues next year, compared to some 185.5 billion in 2011.
Sierra Leone's infrastructure was devastated during its civil war and building projects account for much expenditure.
Chinese-led construction crews are currently digging up major thoroughfares in Freetown, and roads alone account for 24.1 percent of the 2012 budget.
Kamara defended this prioritisation, which comes ahead of elections in late 2012. "No country develops without good infrastructure .. Infrastructure has the widest exponential effect on development," he said.
Central to Sierra Leone's mineral renaissance are two iron ore projects belonging to British firms African Minerals and London Mining.
African Minerals announced this month that loading of the first trial shipment of ore from its Tonkolili mine had begun and London Mining plans to ship from its smaller facility at Marampa by the end of the year.
Production capacity at Tonkolili mine, African Minerals' primary asset, is currently at 2.5-3.0 million tonnes per year and it will increase to 15 million tonnes per year once phase one of the project will be completed, likely in the second quarter of 2012, the company has said.
When the two companies' leases were drawn up last year they stirred controversy as neither accorded to a recently introduced mining act meant to create a framework for extractive deals.
Both companies insist their deals fairly reflect the level of risk and difficulty associated with the projects.
Kamara forecast Sierra Leone's total domestic revenue at 1.6 trillion leones in 2012, up from 1.4 trillion in 2011. Income taxes will contribute 451.6 billion to this amount.
Inflation fell to 15.7 percent in September from 17.8 percent in May. The government predicts it will fall to 11.0 percent in 2012 and return to single digits in 2013 and 2014.
The overall budget deficit, excluding grants, is estimated at 1.1 trillion leones or 11.8 percent of GDP. The deficit will be financed largely by external project and programme loans.
Domestic financing of the deficit will amount to 116.9 billion leones (1.2 percent of GDP), of which bank financing will amount to 73.6 billion and non-bank financing 43.2 billion.
Kamara predicted the deficit will decline to 11.2 percent of GDP in 2012 and 10.8 percent in 2013 due to increasing exports.
"By 2015 we should be working towards a surplus budget."
Some 148 billion leones are earmarked in the budget for a planned civil service salary increase and the recruitment of more police and military officers.
The increased spend may represent a desire to present voters with achievements come polling next November, when President Ernest Bai Koroma is due to stand for reelection, but the election itself is also a burden on the country's finances.
The government contribution of $24 million is much less than the country's electoral commission originally asked for, however it remains a substantial cost in such a poor country.
International partners will provide another $11.3 million towards the election, which will be a bellwether of Sierra Leone's post-war recovery.