Mogadishu (AX) – Somalia on Thursday reached an agreement with the International Monetary Fund (IMF) on the second and third review of Somalia’s economic program.
The agreement at staff level is subject to the approval of the IMF Executive Board.
The IMF announced that it had reached an agreement after holding virtual talks with Somali authorities.
Dr. Abdirahman Beileh, Somalia’s finance minister, said the agreement showed economic reforms were under way.
“I am pleased that Somalia and its IMF staff have reached a crucial agreement on the second and third review of the Expanded Credit Facility, which is the basis of our successful national economic reforms. This confirms that we are moving forward . ”
In early May, the Somali government contacted the IMF and formally requested a three-month extension to review the economic program originally set by the IMF until mid-May.
There were concerns among IMF and World Bank officials that Somalia would potentially miss the May 17 deadline due to chronic election delays.
The current $ 400 million three-year budget program was approved by the IMF in March 2020 and earmarked to fund Somalia’s national development plan and other economic reforms.
The outgoing Farmajo administration faced significant revenue shortfalls in the last year, mainly due to budget support subsidies that were suspended until the end of the election.
The central IMF-backed program, which supports military pay and other essential services, is also an integral prerequisite for Somalia’s debt relief program.
As it stands, Somalia currently owes $ 3.7 billion, or 63% of GDP, after the Paris Club of Credit Nations agreed to restructure Somalia’s debt, including the immediate cancellation of $ 1.4 billion.
The IMF’s Executive Director for Somalia, Laura Jaramillo, said she believes Somalia can reach the end point of debt relief.
“The government continues to make progress in the HIPC debt relief process. The authorities reached debt relief agreements with most members of the Paris Club and continue to seek agreements with other creditors. Further progress on reforms is needed to reach the HIPC end point, which triggers a timely . ”
If Somalia can implement the IFMF program, the outstanding debt should fall to $ 557 million or 6% of gross domestic product.
Jaramillo said the international lender expects economic growth to rise to 2.7% in 2022, which would be driven by private consumption and supported by remittances, but that higher fuel and food costs will slow economic activity.
Jaramillo also credited Somalia’s central bank for implementing major economic reforms.
“CBS continues to promote institutional reforms. The new national payment system is a major milestone, and the two largest mobile money operators received licenses in 2021. CBS should continue to strengthen its supervisory capacity and monitor the financial system closely. Continued capacity building across all stakeholders are needed to improve AML / CFT compliance. ”
The deal comes as newly elected President Hassan Sheikh Sharif takes over the reins of a country facing several economic shocks, including biting droughts, grasshopper attacks in the desert, rising food and energy costs and security risks.