November 13, 2010 / 8:42 AM / 9 years ago

Sierra Leone ups spending, cuts mining tax

FREETOWN (Reuters) - Sierra Leone announced capital and development outlays up over one third on Friday in a 2011 budget that will drive its deficit up to 5.7 percent of GDP, but the finance minister said borrowing was under control.

An aerial view shows Lumley Beach in the Sierra Leonean capital Freetown, November 4, 2010. Sierra Leone has enormous potential for tourism, but eight years after the end of the civil war much of the infrastructure remains ramshackle and visitors are few. Picture taken November 4, 2010. REUTERS/Simon Akam (SIERRA LEONE - Tags: SOCIETY POLITICS)

In a move aimed at encouraging further private investment, the West African country — which sees growth accelerating from 4.5 percent this year to six percent in 2012 — announced cuts to mining sector taxes and levies on imported raw materials.

Finance Minister Samura Kamara forecast the 2011 deficit at 492.1 billion leones, up from a deficit of 334.5 billion leones registered at the end of September.

Of that amount, 271 billion leones or 53 percent of the total will by funded by foreign financing, Kamara said.

“It’s being contained within sustainable limits,” Samura Kamara told Reuters in an interview after presenting the budget to parliament in the West African country’s capital Freetown.

The 2011 budget sees Sierra Leone’s total expenditure rise to the equivalent of 25.8 percent of national output, up from 24.5 percent this year.

Domestic revenue is projected at 13 percent of GDP for 2011 which, combined with external grants of 591 billion leones, will bring total revenue to 20.1 percent of GDP.

Inflation, currently running at 16 percent, will fall to 9.5 percent next year and eight percent by 2012, Kamara said.

Announcing a 38 percent increase in capital and development outlays to 883.9 billion leones, Kamara said infrastructure improvements were vital to a country still recovering from a devastating decade-long civil war that ended in 2002.

“War or no war, infrastructure is central to the development of any country ... What the war did was weaken the little that we had,” he said, adding that the initial emphasis would be on completing existing projects.

“What is wrong in our country is leaving projects in abeyance,” he said.

In a move aimed at boosting private investment longer term in Sierra Leone, Kamara said the corporate tax rate for mining companies — a levy raised on declared income after deductibles — will be reduced from 37.5 percent to 30 percent. Import duty for raw materials will also fall from 5.0 to 3.0 percent.

While announcing the cut in the blanket rate of tax for the sector, Kamara made it clear that previous exemptions agreed to this rate — in some cases meaning that companies pay merely six percent tax — had done little for public finances.

“The volume of requests for duty and other tax exemptions have tended to severely erode our tax base,” Kamara said.

“In the process significant revenues have been lost to the government,” he told parliament.

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