SL-DPL-FOOD CRISIS RESPONSE

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The Food Crisis Response Development Policy Grant for Sierra Leone of US$3 million is intended to support the Government's poverty reduction strategy by providing the authorities with needed fiscal space to partially compensate for the lost revenues resulting from the recently reduced tariffs on food and fuel imports. The grant will be financed through the Food Price Crisis Response Trust Fund, which was approved by the Board on May 29, 2008. In the medium-term, the government intends to stimulate food production through a combination of agricultural investment projects, investments in the road network, especially rural roads, and an expansion in the provision of extension services. Sierra Leone remains vulnerable to commodity price changes. The risks to the project and their mitigation measures are: a further rise in the prices of food or energy could undermine the impact of the Government's program on the poor. This can also create pressures for a civil service wage increase. If food and fuel prices remain high for a prolonged period or rise further, there is also a risk that the authorities may resort to heterodox policies such as government subsidized importing companies or de facto or de jure price fixing. Such policies can drive private sector importers and producers out of the market, resulting in significant distortions and shortages. These risks are being mitigated through intensive monitoring by the Government and dialogue with donors and, in the case of further significant increases in food and fuel prices, may require additional measures to sustain the fiscal balance and macroeconomic stability. Furthermore, the goal of redirecting resources to offset rising food prices can be made more difficult in the event that revenues or grants fall significantly short of targets or if substantial new and unavoidable spending requirements arise. These risks are mitigated by the Government's manifested commitment to adhere to the already established principle of protecting priority expenditures through reductions in less essential spending. Finally, there is a risk that implementation capacity in central ministries and local councils may not be sufficient to ensure that targeted beneficiaries are served in 2008 at least as well as they had been in 2007, because of the natural replacement of various key officials due to the political transition in late 2007 and early 2008. Ministry of Finance and Economic Development (MOFED) officials indicated they have largely addressed this risk through intensive dialogue and monitoring with the implementing ministries and local councils.