IMF, Somalia Reach Staff-Level Deal That Could Unlock $30 Million
Somalia has secured a staff-level agreement with the International Monetary Fund that could release roughly $30 million in fresh financing, a timely boost as the government faces tighter aid flows, the bite of climate shocks, and the demanding work of rebuilding a post-debt-relief economy.
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The agreement, announced Sunday after two weeks of talks in Washington and Mogadishu, will go to the IMF Executive Board in the coming weeks. If endorsed, it would mark the fourth review under Somalia’s three-year Extended Credit Facility, bringing total disbursements close to $100 million since the arrangement began in December 2023.
“To mitigate the negative impact of foreign aid cuts and support their reform efforts, the authorities have requested an augmentation of access under the ECF arrangement,” IMF Mission Chief Ran Bi said, praising the government’s determination to stay on the reform path despite stiff headwinds.
Why it matters
Somalia’s economy, one of the most fragile in the Horn of Africa, has come a long way since it clawed its way out of decades of arrears and won landmark debt relief in 2023. That milestone, delivered under the Heavily Indebted Poor Countries initiative, wiped out nearly all bilateral debt and reopened doors to global finance.
But the scaffolding of that recovery—aid, remittances, and slow-burn institutional reforms—is under pressure. Foreign assistance has softened, even as climate disruptions continue to ricochet through farms, food markets, and family incomes. The IMF projects growth easing from 4.1 percent in 2024 to 3 percent in 2025 and 3.3 percent in 2026. Inflation is expected to hover at 3.5 percent, with food prices likely to stay stubbornly high.
For Somali families, the macro numbers often translate into daily trade-offs: a smaller bag of rice, fewer school hours paid upfront, or a postponed remittance. In markets from Hamar Weyne in Mogadishu to Baidoa in the southwest, shopkeepers say foot traffic picks up around payday and aid disbursement days, then thins quickly. The big question for policymakers: how to keep the reform engine running when the fuel—donor cash—arrives less reliably.
What’s in the agreement
The staff-level deal affirms that Somalia’s fiscal program remains broadly on track. It also recognizes the government’s request for expanded access under the program—about SDR 30 million, roughly $40 million—to cushion against disruptions in external support and to preserve social spending as the country heads toward elections.
Budget numbers tell a cautiously steady story. The deficit is projected at around 0.3 percent of GDP in 2025, rising to about 0.75 percent in 2026 as authorities scale up social programs and election-related outlays. In a region where large deficits have become common amid currency strains, Somalia’s near-balanced stance stands out.
Reforms on the ground
IMF staff credited Somalia with steady improvements that are easy to miss amid the country’s security and climate challenges. Revenue has been strengthened through a new income tax law and tighter customs processes, while spending controls reflect a discipline that eluded the state for years. At the Central Bank of Somalia, regulators have sharpened oversight and are laying the groundwork for a currency board arrangement—a stricter monetary framework designed to stabilize the Somali shilling.
Currency boards are not new. Bulgaria used one to anchor stability after its 1990s financial crisis, and Hong Kong has long operated under such a regime. For Somalia, where the economy is heavily dollarized and mobile money platforms carry daily commerce, a credible anchor could help reinforce price stability and build trust in the currency over time.
The government has also enacted a new extractive industries law, aiming to lift the veil on resource governance and draw investment into oil and gas. Transparency in that sector, long a flashpoint for countries with weak institutions, could define whether future discoveries become a blessing or a burden.
Somalia’s macro picture
- Growth: 4.1 percent in 2024, moderating to 3 percent in 2025 and 3.3 percent in 2026.
- Inflation: projected around 3.5 percent, but food prices remain elevated.
- Budget: deficit of 0.3 percent of GDP in 2025; roughly 0.75 percent in 2026.
- Program financing: nearly $100 million in total ECF disbursements if this review is approved.
Those figures carry real-world implications. An extra point of growth can mean more jobs in the construction sites around Mogadishu’s Lido Beach or steadier sales for small manufacturers in Hargeisa’s industrial zone. Controlled inflation means a family purchasing a sack of sorghum sees fewer surprises month to month. But shocks—drought one season, floods the next—can erase those gains overnight, as Somalis know too well.
Debt relief and the long road back
Somalia’s clean break from arrears in 2023 was historic. Paris Club creditors canceled virtually all bilateral debt, ending three decades of isolation from mainstream finance. The payoff is slow and cumulative: better terms on future borrowing, a broader pool of investors, and the credibility that comes from meeting targets year after year. The risks, however, remain concentrated—climate volatility, security threats, and the ebb of aid as donor priorities shift globally from Ukraine to Gaza and beyond.
A wider Horn of Africa story
Somalia’s challenges mirror those across East Africa: fragile food systems straining under hotter, drier, and sometimes wetter conditions; crowded urban centers where youth unemployment can turn restive; and central banks trying to steady prices without smothering growth. In that sense, the IMF’s nod is not just a financing bridge; it is a vote of confidence that steady policy, even in tough environments, can still bend the curve toward stability.
How much can a staff-level agreement achieve? It buys time and space, especially for a government trying to modernize tax systems, keep a lid on spending, and regulate a dynamic mobile money economy where cash often moves faster than policy. It also sends a signal to other partners—the World Bank, bilateral donors, the private sector—that the reform track is holding.
What happens next
The IMF’s Executive Board is expected to consider the review in the coming weeks. If approved, Somalia would receive the next tranche before the year’s end. Watch for how the authorities deploy it: propping up social programs, firming up election logistics, and maintaining momentum in revenue and financial sector reforms.
For Somali households, the proof is in the marketplace—whether salaries stretch further, remittances hold steady, and staple prices stabilize. For policymakers, the test is whether today’s fragile macro stability becomes tomorrow’s durable growth. And for the international community, the question lingers: can a reforming, climate-exposed country maintain its footing as aid wanes? Somalia says yes. The IMF, at least for now, agrees.
By Ali Musa
Axadle Times international–Monitoring.
