IMF Staff Completes First Review under the Staff-Monitored Program for Somalia

IMF News, December 10, 2018

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Published: December 10, 2018

Mission and Program Status

Mission led by Mohamad H. Elhage visited Nairobi, Kenya, from December 1–6.
Review conducted under the 12-month (May 2018-April 2019) Staff-Monitored Program (SMP).
Somali authorities and IMF staff reached a staff-level agreement on the completion of the first review under SMP III.
The agreement is subject to approval by the IMF Managing Director, who is expected to consider the Staff Report for the first review under the SMP in early 2019.
The mission will not result in a Board discussion.
SMP III is expected to expire in the Spring 2019.
After satisfactory completion of SMP III, a successor IMF program could be designed to meet the conditionality of an Upper Credit Tranche (UCT) arrangement and pave the way to move Somalia toward the Decision Point under the HIPC Initiative.

Economic Outlook and Performance

Economic activity in 2018 is recovering from the 2016–17 drought.
A favorable rainy season is supporting recovery in the agricultural and livestock sectors and is leading to a decline in food prices.
Increased activity expected to be sustained in construction, communication, commerce, and service sectors.
Projections:
- Real GDP growth in 2018 projected at 3.1 percent (from 2.3 percent in 2017).
- Inflation in 2018 projected at 3.5 percent (from 5.5 percent in 2017).

Fiscal Performance and Public Financial Management

Overall fiscal performance through September 2018 has been strong.
Fiscal balance at end of September recorded a surplus of $8 million (up from $2.3 million in June), mainly due to continued strong domestic revenue collection.
Recommended measures to strengthen PFM reform include:
- Expenditure control and minimizing the use of cash advances.
- Improving domestic arrears management capacity.
- Maintaining efforts toward achieving a Treasury Single Account.
- Continuing to make progress toward fiscal federalism.

Currency Reform and Donor Engagement

Authorities have made considerable progress in implementing steps to support the launch of the new national currency.
IMF team supports Somali authorities’ efforts to continue reaching out to donors to secure funding for the currency reform project.

Financial Sector Reform and Anti‑Money Laundering

Importance of accelerating financial sector reforms emphasized, with priority on:
- Restructuring of the central bank.
- Regulating the mobile money sector.
Progress noted on improving commercial bank and non-banking supervision, but further strengthening of the Licensing and Supervision Department capacity is needed.
Submission of the Targeted Financial Sanctions Law to Parliament is welcomed; steadfast implementation would help safeguard large remittance inflows to Somalia.
Authorities encouraged to support capacity development at the Financial Reporting Center (FRC).

IMF Support and Technical Assistance Priorities

The IMF stands ready to continue supporting Somalia’s reform agenda and capacity development needs by intensifying technical assistance and training, particularly on:

1. Budget preparation and administration; 2. Public financial management, including treasury, arrears, and debt management; 3. Tax policy and administration; 4. National accounts and government financial statistics; 5. AML/CFT and correspondent banking relationship; 6. Banking licensing and supervision; 7. Central bank organization and currency reform.

Engagements, Next Steps, and Timetable

During the visit, the team met with the Finance Minister, Mr. Abdirahman Duale Beileh; Central Bank Governor, Mr. Bashir Issa Ali; and other officials.
The team also met with representatives of bilateral and multilateral donors present in Nairobi to update them on SMP performance and coordination of capacity building activities.
Discussions paved the ground for the next Article IV Consultation visit that will be combined with the second and final review under SMP III and negotiations of SMP IV, scheduled for early Summer 2019.

Press Release No. 18/465 — December 10, 2018. IMF Communications Department.