Somalia’s Cash Pipeline: Billions in Aid, Little Change at Home as Trust Deficit Deepens
MOGADISHU, Somalia— Somalia sits at the center of a paradox. The country attracts substantial external finance — about $4.2 billion in annual inflows by one senior official’s estimate — yet citizens still face delayed salaries, frayed services and scarce formal jobs. As donors recalibrate their risk exposure and the government insists its systems are improving, a widening trust deficit is draining resources, slowing delivery and hardening perceptions on all sides.
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In a recent paper titled “De-risking Somalia is a false economy,” Central Bank of Somalia Governor Abdirahman M. Abdullahi argues that a lack of confidence in the country’s public systems is diverting funds away from Somalis who need them most. He estimates the inflows at roughly $1 billion in aid and $3.2 billion in remittances each year — a lifeline for a fragile, import-dependent economy. Yet approximately $210 million is lost annually, he says, as money is routed through multiple intermediaries in regional hubs before it reaches Somalia, each step adding cost, delay and opacity.
That leakage is not abstract. It translates into fewer resources for clinics, classrooms and payrolls, and feeds a longstanding narrative that Somalia is uniquely risky. Several donors, citing accountability concerns and evidence raised by national auditing bodies, have curtailed or paused support to some sectors. Federal officials dispute allegations of mismanagement and point to new laws and oversight mechanisms. But the gaps between what is pledged, what is disbursed and what is felt in communities remain stubborn.
The money moves, the impact lags
Abdullahi’s case centers on the infrastructure of finance. When aid and remittances bypass Somalia’s formal channels because international actors judge them too weak, funds tend to move via third countries, correspondent banks and layers of implementing intermediaries. That structure may lower perceived compliance risk for donors and banks, but it also pushes up costs, slows projects and often fragments accountability. For households and small businesses, it can make everyday transactions more expensive and access to credit harder.
The Central Bank maintains that this equilibrium is outdated. It notes Somalia has been rebuilding its financial architecture “law by law, rail by rail” to meet international standards, tightening supervision of lenders and money transfer firms and expanding digital payment rails. The argument: continuing to route money around Somali systems starves those very systems of the scale and testing needed to mature.
De-risking and the cost of distrust
“De-risking” — the withdrawal of financial services from clients or regions deemed too risky — is not unique to Somalia. But its consequences are amplified here, where remittances are central to household welfare and aid underwrites essential services. Each intermediary layer adds fees and distance from end beneficiaries. Each workaround becomes a reason not to invest directly in Somali oversight, reinforcing a cycle in which the perception of risk justifies practices that keep risk high.
For donors, the calculus is understandable: reputational and legal exposure are real, and gaps in governance remain. For the government, the price is clear: foregone funds, slower delivery and diminished public trust. The result is a lose-lose configuration — money flows, but its development impact thins out.
Governance questions that won’t go away
Domestic politics complicate the stalemate. PresidentHassan Sheikh Mohamud’s administration has sought to project economic revival and institutional reform. Yet critics accuse it of moving too slowly on the core obstacles to confidence: procurement transparency, timely and public audits, and consistent enforcement against corruption. With elections on the horizon and opposition sharpening its critique, the government faces pressure to prove that funds channeled through state systems will be safeguarded, audited and translated into visible outcomes.
That proof must be empirical. Auditing bodies in Somalia have raised concerns over accountability in recent years, and donors have cited those findings in their funding decisions. The government disputes the conclusions and argues they do not reflect ongoing reforms. The credibility test will come in implementation: whether rules on paper show up in budgets executed, contracts published, and services delivered on time.
Human consequences behind the numbers
The abstract debate over risk management is felt in very concrete ways. When ministries struggle to receive funds reliably, salaries slip. When project money spends months in transit, clinics wait for supplies and schools pause repairs. Small businesses that can’t afford high transfer fees stall expansion or shed workers. Every inefficiency ripples across a low-margin economy where most households have little buffer.
Rebuilding confidence: practical steps
Shifting the equilibrium requires both sides to move. The government must close credibility gaps; partners must avoid risk practices that perpetuate inefficiency. Practical measures include:
- Routinely publishing budget execution reports, procurement awards and project audits in accessible formats, with clear corrective actions where issues arise.
- Expanding direct use of Somalia’s treasury and payment systems for eligible programs as milestones are met, to build track record and capacity.
- Strengthening supervision of banks and money transfer businesses, coupled with consistent, transparent enforcement of anti-money laundering and counter-terrorist financing rules.
- Reducing reliance on multi-layered intermediaries where feasible, to cut costs and improve traceability from donor to beneficiary.
- Digitizing government-to-person payments to lower leakage and ensure workers are paid on time, with grievance channels when they are not.
- Establishing joint donor-government monitoring dashboards that track funds and outputs end to end, updated quarterly.
None of these steps is novel; the difference lies in execution and in aligning incentives so that progress is recognized with increased direct use of Somali systems. For their part, international partners can calibrate risk not only to the possibility of misuse, but also to the costs of bypassing national systems — costs that, as Abdullahi notes, are now borne by Somali taxpayers, workers and families.
The stakes ahead
Somalia is not short on money entering its economy. It is short on trust in how that money moves and what it achieves. Breaking the cycle will require demonstrable governance improvements and a shift away from default de-risking that entrenches inefficiency. With political competition rising ahead of elections, the government has a narrow window to show that channeling funds through Somali institutions can be both compliant and effective. Donors, too, have a stake in building a pathway that turns billions into tangible, timely results.
Absent that mutual recalibration, the country’s cash pipeline will keep flowing — and keep disappointing the people it is meant to serve.
By Ali Musa
Axadle Times international–Monitoring.
