Press Release No. 24/401

IMF Staff Conclude Article IV Discussions and Reach Staff-Level Agreement on the Second Review under the Extended Credit Facility

October 31, 2024

• IMF staff and the Somali authorities have reached a staff level agreement on the second review under the Extended Credit Facility (ECF). Program performance has been strong, demonstrating the authorities’ steadfast commitment to macroeconomic stability and strengthening institutional capacity and frameworks.
• Real GDP growth has been upgraded to 4 percent for 2024 and 2025 based on strong exports and remittances. However, risks remain elevated, including from regional and domestic security developments, commodity prices and climate shocks.
• Sustained reform efforts are needed to set the conditions for greater resilience, poverty reduction, and inclusive growth. This includes strengthening tax capacity and public financial management, promoting financial deepening, and improving governance.

Washington, DC: A staff team from the International Monetary Fund (IMF), led by Ms. Laura Jaramillo, conducted discussions with the Somali authorities in Istanbul and in Washington DC on the 2024 Article IV consultation and reached a staff-level agreement on the second review of the Extended Credit Facility (ECF) arrangement that was approved by the IMF’s Executive Board in December 2023 (Press Release No. 23/463). This agreement is subject to approval of the IMF’s Executive Board.  

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

“Somalia’s real GDP growth outlook has improved, though challenges and risks remain significant. Positive trends in agriculture, exports, and remittances in 2024 are expected to continue in 2025. As a result, real GDP growth has been upgraded to 4 percent in 2024 and 2025, up by an average ¼ percentage point compared to previous forecasts. Inflation is expected to continue on a downward trend to 4.5 percent by end 2024, although the pace is slower than anticipated earlier. Despite security challenges, the Somali government remains steadfast in its fight against terrorism and continues to work with international partners to ensure a successful transition from the current African Union Transition Mission to a new force by January 2025. Near-term risks to the outlook include climate shocks, domestic and regional security developments, lower global growth, and higher commodity prices.

“The authorities continue to focus on raising domestic revenue, aiming to fully cover operational expenditure with domestic revenues by 2027, while also accommodating higher education and health spending. Fiscal outturns in 2024 have been in line with expectations, and an overall deficit of 0.2 percent of GDP is expected for the year. The 2025 draft budget envisages domestic revenues of 3.3 percent of GDP and an overall fiscal deficit of 0.2 percent of GDP, assuming continued access to grant financing, which remains critical for Somalia.

“The authorities recognize the importance of making steady progress on fiscal reforms. Key revenue measures—guided by the recently published Medium-term Revenue Roadmap—include the ongoing customs modernization, a new income tax law, and stronger enforcement of sales and income taxes. Public financial management continues to be strengthened, with important progress made on payroll integrity. Reforms to improve the debt management framework and capacity are also progressing well. Measures are also being taken to finalize the extractive industries legal framework, including to enhance transparency and accountability.

“The Central Bank of Somalia (CBS) is advancing institutional governance and financial sector reforms. Focus is on promoting financial deepening, including by enhancing the legislative and oversight frameworks, improving the quality of regulatory data, and augmenting CBS technical capacity. Efforts continue to strengthen the framework for anti-money laundering and the combating the financing of terrorism to comply with international standards.

“The authorities intend to reintroduce the Somalia Shilling (SOS) and adopt a currency board arrangement. The new SOS notes will provide an important liquidity function by facilitating payments for small value transactions and will promote financial inclusion for the most vulnerable. To provide a stable and predictable policy environment to ensure confidence in SOS across Somalia, the authorities are also starting preparations for introducing a currency board arrangement, with IMF capacity development support. Implementation of these reforms would take an estimated 18-24 months after prerequisites are in place, including necessary external financing.

“The authorities are also committed to advancing steps to bolster inclusive growth and poverty reduction, improve resilience to climate shocks, and enhance trade integration. Raising human capital by increasing the educational attainment of Somali children and closing gender gaps in education can bring significant growth dividends. Building resilience against climate shocks and strengthening food security is also a priority. Given Somalia’s very limited resources, financing and technical assistance support from international partners remains crucial. The East African Community presents important opportunities, challenges, and risks for Somalia and the integration process needs to be managed carefully.  

“The mission would like to express gratitude to Somali authorities for constructive and fruitful discussions. Meetings were held with the Minister of Finance, Minister of Petroleum, the CBS Governor, other government officials, development partners, and representatives from the private sector.”