- Somalia's program performance has been strong, demonstrating the authorities' steadfast commitment to macroeconomic stability and strengthening institutional capacity and frameworks.
- Real GDP growth projections for Somalia have been upgraded to 4 percent for 2024 and 2025 based on strong exports and remittances. However, risks remain elevated, including from regional and domestic security developments, commodity prices and climate shocks.
- Sustained reform efforts are needed to set the conditions for greater resilience, poverty reduction, and inclusive growth. This includes strengthening tax capacity and public financial management, promoting financial deepening, and improving governance.
Washington, DC: On December 9, the Executive Board of the International Monetary Fund (IMF) completed the 2024 Article IV Consultation and second review under the Extended Credit Facility (ECF) arrangement for Somalia. The Board's decision enables the immediate disbursement of SDR 7.5 million (about US$ 10 million), bringing Somalia's total disbursement under the Extended Credit Facility (ECF) to SDR 45 million (about US$ 60 million). The Executive Board also concluded the 2024 Article IV consultation with Somalia. [1]
Somalia's ECF arrangement was originally approved by the Executive Board on December 19, 2023 for SDR 75 million (about US$100 million) (see Press Release No. 23/463 ). The program supports the authorities' reform strategy, after achieving the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative, to further strengthen key economic institutions and promote macroeconomic stability and growth. This is in line with Somalia's national development plan to maintain economic stability, strengthen revenues and public financial management, promote financial deepening, improve governance, and enhance statistics.
Somalia's real GDP growth outlook has improved, though challenges and risks remain significant. Positive trends in agriculture, exports, and remittances in 2024 are expected to continue in 2025. As a result, real GDP growth has been upgraded to 4 percent in 2024 and 2025. Inflation is expected to continue on a downward trend to 4.5 percent by end 2024, although the pace is slower than anticipated earlier. Despite security challenges, the Somali government remains steadfast in its fight against terrorism and continues to work with international partners to ensure a successful transition from the current African Union Transition Mission to a new force by January 2025. Near-term risks to the outlook include climate shocks, domestic and regional security developments, lower global growth, and higher commodity prices.
Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director, stated:
The Somali authorities' reform momentum has been sustained and performance under the Fund-supported Extended Credit Facility Arrangement has been strong, despite difficult domestic and regional conditions. Key fiscal targets were met, with steady progress on reforms to raise domestic revenues, enhance public financial management, and build debt management capacity. Continuing fiscal reforms, including to strengthen domestic revenue mobilization, is important, especially given the prospects of declining external grants and the large social and development spending needs.
Ongoing efforts to strengthen central bank institutional capacity are commendable. Efforts should continue to promote financial deepening and financial inclusion and advance reforms to improve the AML/CFT framework. The preparatory work to reintroduce the Somali shilling and adopt a currency board arrangement is welcome; a gradual and carefully managed implementation strategy is warranted with support from the IMF and the World Bank. Further reforms to improve governance are encouraged, including measures to enhance transparency and accountability in the petroleum sector.
Promoting inclusive growth calls for addressing food insecurity, building climate resilience, improving access to education and health, and enhancing trade integration. Continued and timely support from development partners, including through capacity development, is important for the successful implementation of the authorities' reform agenda.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They commended the Somali authorities for reaching the HIPC completion point in December 2023 and for their continued commitment to economic reform and strong performance under the Fund‑supported program. Noting downside risks stemming from continued fragility, regional geopolitical tensions, climate shocks, and food insecurity, Directors emphasized the importance of sustaining the reform momentum to place the economy on a sound footing, increase resilience, reduce poverty, and promote inclusive growth. They also stressed the vital role of continued donor support, and capacity development facilitated by the Fund and other development partners, for the successful implementation of the authorities' reform agenda.
Directors emphasized that strengthening domestic revenue mobilization remains crucial to ensure fiscal sustainability given large development and social needs and the prospects for declining external grants. In that context, they encouraged continued progress on the fiscal federalism agenda, customs modernization, implementation of the Income Tax Law, and stronger tax enforcement. Further efforts to strengthen public financial, investment and debt management and enhance spending efficiency are also key. Directors also called for a careful fiscal impact assessment of wage bill and pension reforms before their implementation.
Directors welcomed the enhancement of the central bank's governance and legal frameworks and the progress in implementing the recommendations from the 2024 Safeguards Assessment. They recommended continued reforms to promote financial deepening and inclusion, including further strengthening financial regulation and supervisory capacity. Directors welcomed the authorities' preparatory work to reintroduce the Somali shilling and adopt a currency board arrangement, and agreed that a gradual and careful approach is warranted. In that respect, they emphasized the need for complementary policies to protect the credibility of the currency board arrangement, including fiscal sustainability and central bank operational independence.
Directors welcomed steps to improve governance and fight corruption and called for sustained efforts in this regard. They encouraged addressing AML/CFT deficiencies and stressed the importance of implementing the legal framework for the petroleum sector to enhance transparency and accountability.
Directors emphasized the need for continued efforts to enhance resilience, reduce poverty, and lift growth. Increasing access to and closing gender gaps in education, building climate resilience, and addressing food insecurity would be important in this regard. Noting that accession to the East African Community presents opportunities, challenges, and risks, Directors encouraged a gradual and carefully managed approach to integration.
It is expected that the next Article IV consultation with Somalia will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
