IMF completes staff-level deal with Somalia on review under Extended Credit Facility
Mogadishu, Somalia (PANA) - An International Monetary Fund (IMF) team has reached a staff-level agreement on the sixth review under the Extended Credit Facility (ECF) arrangement for Somalia, but the deal is subject to approval of the IMF’s Executive Board.
At the conclusion of the 11-21 September, 2023 discussions with the Somali authorities in Nairobi, Kenya, the IMF team leader Ms. Laura Jaramillo remarked that Somalia has continued to make important progress in rebuilding its economy and institutions, but challenges remain significant.
“Notwithstanding the resumption of rainfall in the first quarter of 2023, economic activity has been weighed down by the lingering effects of drought, recent floods, and subdued remittances. Food insecurity remains a concern and the security situation is challenging in some parts of the country. Near-term risks are elevated, including a worsening of food insecurity if healthy rainy seasons do not persist or if there is a global food shock,” Ms. Jaramillo said.
Despite these challenges, she noted that the Somali authorities have continued to make progress in implementing the ECF-supported programme and are working toward achieving the HIPC Completion Point (CP) in December 2023.
According to the IMF, Somalia’s growth in 2023 is forecast to be moderate at around 2.8 percent and inflation at 5.7 percent. Domestic revenue has been performing strongly, including customs revenues. The overall balance is expected to be a small deficit of 0.1 percent of GDP that would be financed with previous cash balances.
In 2024, revenues are expected to remain robust, supported by key reforms, including the implementation of the customs automated system in Mogadishu.
The budget is expected to accommodate expenditure that is supportive of growth, security, and development while other discretionary spending is expected to remain contained.
Importantly, according to Ms. Jaramillo, in 2024 domestic revenue is expected to cover compensation of employees. External financing for budget support remains crucial.
She noted that the authorities continue to advance fiscal reforms. On domestic revenue mobilisation, key reforms are ongoing on customs modernisation, a new income tax law, and increasing revenue collection from large businesses, including the telecom sector.
Public financial management has been strengthened, and improvements are ongoing on integrating all employees in the payroll system, invoice tracking, procurement, and management of non-financial assets. Progress has also been made on the petroleum sector legal framework.
The Central Bank of Somalia (CBS) is advancing institutional governance and financial sector reforms. The CBS will continue to enhance its regulatory and supervisory capacity, including through legislation and implementation of risk-based prudential regulations.
Important steps have been taken to address money laundering/financing of terrorism risks, including the new Targeted Financial Sanctions Law and its implementing regulations, although challenges remain. Further action is needed to address money laundering/financing of terrorism risks.
The authorities continue working toward achieving the HIPC Completion Point in December 2023. Nearly all HIPC Completion Point triggers have been implemented. As of July 2023, signed debt relief agreements represent 76.8 percent of the net present value of debt after traditional debt relief, including 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 programme to continue advancing reforms that strengthen key economic institutions and promote macroeconomic stability and inclusive growth.
Building on progress so far, key policy priorities would be to continue strengthening domestic revenue, public financial management, financial deepening and financial inclusion, governance, and statistics.
Timely financing and capacity development support from development partners is essential for the successful implementation of the authorities’ reform strategy. Contributions from Somalia’s partners to the Somalia Country Fund are critical to ensure smooth delivery of IMF technical assistance to support the authorities’ reform agenda.
The IMF team held meetings with the Minister of Finance, the Central Bank Governor, other government officials, development partners, and private sector representatives.
-0- PANA AR/MA 22Sept2023
