IMF wraps up discussions with Somalia on the sixth review under the Extended Credit Facility (ECF)

Imf Wraps Up Discussions With Somalia On The Sixth Review Under The Extended Credit Facility (ecf)

Saturday September 23, 2023

Washington, DC: In Nairobi, Kenya, from September 11 to 21, 2023, a team from the International Monetary Fund (IMF), led by Laura Jaramillo, engaged in discussions with the Somali authorities and reached a staff-level agreement on the sixth review under the Extended Credit Facility (ECF) arrangement. This agreement is subject to the approval of the IMF’s Executive Board.

Upon the conclusion of the discussions, Ms. Jaramillo issued the following statement:

“Somalia has made significant progress in rebuilding its economy and institutions, although challenges still exist. Despite the return of rainfall in the first quarter of 2023, the economy has been negatively impacted by the lasting effects of drought, recent floods, and reduced remittances. Food insecurity remains a concern, and certain areas of the country face security challenges. There are elevated risks in the near future, including a potential worsening of food insecurity if favorable rainy seasons do not persist or if a global food shock occurs.

Nevertheless, the Somali authorities continue to make progress in implementing the ECF-supported program and are working towards achieving the HIPC Completion Point (CP) by December 2023.

Projected growth for 2023 stands at a moderate rate of approximately 2.8 percent, with inflation at 5.7 percent. Domestic revenue, including customs revenues, has been performing well. The overall balance is expected to show a small deficit of 0.1 percent of GDP, which will be financed using previous cash balances. In 2024, revenues are anticipated to remain strong, supported by key reforms such as the implementation of the customs automated system in Mogadishu. The budget is expected to allocate funds towards growth, security, and development, while keeping discretionary spending under control. Importantly, domestic revenue is expected to cover employee compensation in 2024. External financing is crucial for budget support.

The authorities are committed to advancing fiscal reforms, particularly in domestic revenue mobilization. Key ongoing reforms include customs modernization, the introduction of a new income tax law, and the improvement of revenue collection from major businesses, including the telecom sector. Public financial management has been strengthened, with continuous efforts to integrate all employees into the payroll system, enhance invoice tracking, streamline procurement, and improve non-financial asset management. Progress has also been made in the legal framework for the petroleum sector.

The Central Bank of Somalia (CBS) is focused on enhancing institutional governance and implementing financial sector reforms. The CBS will further enhance its regulatory and supervisory capacity, including the enactment of risk-based prudential regulations. Steps have been taken to address money laundering and terrorism financing risks, such as the establishment of the Targeted Financial Sanctions Law and its implementing regulations, although challenges remain. More action is needed in this area.

The Somali authorities are actively working towards achieving the HIPC Completion Point by December 2023. Most of the triggers for the HIPC Completion Point have been implemented. As of July 2023, signed agreements for debt relief represent 76.8 percent of the net present value of debt after traditional debt relief, including agreements with all Paris Club creditors, the Kuwait Fund for Arab Economic Development, and the Saudi Fund for Development.

The Somali authorities have requested a successor IMF-supported program to continue advancing reforms that strengthen key economic institutions, promote macroeconomic stability, and drive inclusive growth. Discussions on this matter are ongoing. Looking ahead, key policy priorities include further strengthening domestic revenue, public financial management, financial deepening and inclusion, governance, and statistics.

Timely financing and capacity development support from development partners are vital for the successful implementation of the authorities’ reform strategy. Contributions from Somalia’s partners to the Somalia Country Fund are essential in ensuring the smooth provision of IMF technical assistance to support the authorities’ reform agenda.

The mission extends its gratitude to our counterparts for engaging in constructive and productive dialogue. Meetings were held with the Minister of Finance, the Central Bank Governor, other government officials, development partners, and representatives from the private sector.”