Press Release No. 24/77

IMF Staff Completes Staff-Level Agreement on the First Review of the Extended Credit Facility Arrangement for Somalia

March 8, 2024

• Somalia has continued to advance its reform agenda and program performance has been strong. A staff-level agreement was reached on the 1st review of Somalia’s Extended Credit Facility (ECF) arrangement.
• On the back of these efforts, the economy continues to strengthen. Real GDP growth is expected to rise to 3.7 percent in 2024 compared to 2.8 percent in 2023, supported by continued recovery in agriculture, greater remittances, and higher investment.
• However, the challenges ahead are still significant, and continued support from international partners is crucial to support the authorities’ policy efforts.

Washington, DC: An International Monetary Fund (IMF) team, led by Laura Jaramillo, conducted discussions with the Somali authorities in Nairobi during February 26 to March 7, 2024 and reached a staff-level agreement on the first 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:

“I am pleased to announce that the Somali authorities and the IMF team have reached a staff-level agreement on policies to complete the first review under the ECF arrangement approved in December 2023 for total access of SDR 75 million (about US$100 million) (Press Release No. 23/463). The agreement is subject to approval by the IMF’s Executive Board. Board approval would enable access to SDR 7.5 million (about US$10 million), bringing total disbursements under the arrangement to about US$50 million.

Growth is expected to strengthen in 2024 supported by continued recovery in agriculture, remittances, and investment, though risks remain. Real GDP growth is forecast at 3.7 percent in 2024, compared to an estimated 2.8 percent in 2023. Livestock and crop exports are expected to recover following the resumption of rainfall. Remittance inflows are expected to improve in the context of moderating global inflation and an upgrade of the global growth outlook. Foreign direct investment is expected to trend upwards, following US$4.5 billion in debt relief obtained at the Completion Point under the Heavily Indebted Poor Countries (HIPC) Initiative in December 2023 (Press Release No. 23/438). Inflation is expected to decline to 4.8 percent in 2024 from 6.1 percent in 2023, reflecting better crop yields and lower commodity prices. Near-term risks include climate shocks, security risks in Somalia and the region, and lower global growth.

The authorities are committed to continue improving domestic revenue collection and making room for priority spending. A small overall fiscal surplus was achieved in 2023, with strong domestic revenue outturns that were supported by the implementation of higher customs duties and tax administration improvements. The approved 2024 budget targets a modest overall fiscal deficit of 0.3 percent of GDP, which is appropriate to accommodate priority expenditure that is supportive of growth, security, and development while limiting other discretionary spending. Domestic revenues in 2024 will continue to increase and will fully cover the cost of compensation of employees.

The authorities continue to advance fiscal reforms to support these objectives. 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. Efforts continue to strengthen public financial management—including streamlining of business processes—and debt management capacity. Improvements are ongoing on integrating all employees in the payroll system and the authorities will take steps to implement the Pay and Grade policy.

The Central Bank of Somalia (CBS) continues to implement reforms to strengthen institutional capacity and promote financial deepening. The CBS will continue to enhance the regulatory framework and strengthen its capacity in risk-based supervision. Efforts continue to strengthen the framework for anti-money laundering and the combating the financing of terrorism.

External budget support from multilateral and bilateral partners remains crucial to support the authorities’ policy efforts.

The mission would like to thank our counterparts for a constructive and fruitful dialogue. Meetings were held with the Minister of Finance, Minister of Planning, the Central Bank Governor, other government officials, and development partners.”