Press Release No. 23/323

IMF Staff Completes Staff-Level Agreement with Somalia on the Sixth Review under the Extended Credit Facility (ECF)

September 22, 2023

• Somalia has maintained strong reform momentum and program performance has been broadly satisfactory. IMF staff and the Somali authorities have reached staff-level agreement on the sixth review of Somalia’s Extended Credit Facility (ECF) arrangement.
• The Somali authorities have continued to make progress toward meeting the conditions for achieving the HIPC Completion Point in December 2023, at which time Somalia’s external debt would be reduced to less than US$600 million in net present value terms, compared to US$5.2 billion at end-2018.
• The authorities remain committed to continue advancing reforms to strengthen key economic institutions and promote macroeconomic stability and inclusive growth. Continued support from international partners is imperative to support these efforts.

Washington, DC: An International Monetary Fund (IMF) team, led by Laura Jaramillo, conducted discussions with the Somali authorities in Nairobi, Kenya on September 11- 21, 2023 and reached a staff-level agreement on the sixth review under the Extended Credit Facility (ECF) arrangement. 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 has continued to make important progress in rebuilding its economy and institutions, but challenges remain significant. Notwithstanding the resumption of rainfall in 2023Q1, 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.

Despite these challenges, the Somali authorities have continued to make progress in implementing the ECF-supported program and are working toward achieving the HIPC Completion Point (CP) in December 2023.

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 for 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, in 2024 domestic revenue is expected to cover compensation of employees. External financing for budget support remains crucial.

The authorities continue to advance fiscal reforms. On domestic revenue mobilization, key reforms are ongoing on customs modernization, 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 program to continue advancing reforms that strengthen key economic institutions and promote macroeconomic stability and inclusive growth. Discussions are ongoing. 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 mission would like to thank our counterparts for a constructive and fruitful dialogue. Meetings were held with the Minister of Finance, the Central Bank Governor, other government officials, development partners, and private sector representatives.”