## SOMALIA: Second and Final Review under the Staff‑Monitored Program and Request for a New Staff‑Monitored Program ## Source details **Canonical URL:** [SOMALIA: Second and Final Review under the Staff‑Monitored Program and Request for a New Staff‑Monitored Program](https://www.imf.org/-/media/files/publications/cr/2018/cr18212.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18212.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18212.pdf.json) --- ### Background and context - Political and security environment: - No-confidence motion against the Speaker ended with his resignation on April 9. - Recent tensions with the United Arab Emirates and armed conflict between Somaliland and Puntland pose regional risks. - Sporadic attacks from terrorist groups persist. - Fund relations and program history: - SMP I completed in April 2017; SMP II covered May 2017–April 2018. - 2017 Article IV consultation completed in February 2018 together with the first review under SMP II. - Since mid-2013, Somalia received 94 TA and training missions. - Somalia’s overdue obligation to the IMF reached $339.9 million (541.9 percent of quota) at end‑May 2018. - SMP III request and strategic objective: - Authorities requested SMP III (May 2018–April 2019) to build on SMP I and SMP II and to lay the foundation to meet IMF Upper Credit Tranche (UCT) conditionality required for reaching the HIPC Decision Point. - SMP III main focuses: (1) enhance public financial management (PFM) and revenue mobilization; (2) complete Phase I of the currency reform; (3) start broad-based financial sector reforms and strengthen AML/CFT compliance; (4) improve data reporting; and strengthen procurement framework, governance, and transparency. ### Recent economic developments and outlook - Drivers of recovery: - Economic activity rebounding from the 2016–17 drought; favorable rainy season, strong remittances, and grant inflows underpin recovery. - Growth and inflation projections: - Growth projected to increase to 3.1 percent in 2018 from an estimated 2.3 percent in 2017. - Inflation expected to ease to under 3 percent in 2018 from about 5.3 in 2017 (text also cites about 5.1 and 4.6 percent in 2017 and April 2018 in different paragraphs). - Recovery expected to continue with growth reaching 3.5 and inflation stabilizing at around 2.5 percent in 2019. - External sector and debt: - 2017 drought widened the trade deficit; financed through humanitarian relief and increased remittances. - Public external debt was 65 percent of GDP in 2017 and expected to stay broadly stable given no capacity to repay external debt service and no access to international credit. - Fiscal and monetary developments: - FGS recorded a small fiscal surplus in 2017 due to higher-than-programmed domestic revenue mobilization and budgetary grant disbursements. - Strong fiscal performance continued through March 2018 partly due to lower-than-projected expenditure and slightly higher domestic revenue. - CBS foreign assets increased to $105.5 million in March 2018 (from $89.2 million in December 2017). - Somali shilling exchange rate stable at about 23,000 shillings per U.S. dollar as of March 2018. - Commercial banks remain well capitalized and expanding; capital‑to‑assets ratio declined to 16 percent in March 2018 from 20 percent in March 2017 as assets surged; loans to private sector increasing, concentrated in trade financing and construction. - Downside near-term risks: - Fragile security; drought recurrence; weak institutional capacity risking poor fiscal management and new domestic arrears; slow reform implementation; volatility in donor support; regional conflict and lack of political consensus among FGS and FMS. ### Performance under SMP II and staff recommendation - Implementation summary: - Program implementation under SMP II has been satisfactory despite political and security challenges. - For December 2017, all indicative targets (ITs) were met and all but one structural benchmark (SB) were met. - The two SBs and all ITs set for March 2018 were met. - Authorities are addressing root causes of missed SBs; World Bank monitoring agent reported significant progress in expenditure control. - Staff recommendation: - Staff supports completion of the second and final review under SMP II and approval of SMP III (12‑month program covering May 2018–April 2019), given satisfactory performance and authorities’ commitment to accelerate and broaden reforms. ### SMP III design, anchors, and near-term priorities - Coverage and timing: - SMP III proposed covering May 2018–April 2019 with quarterly ITs and 18 SBs (June 2018: 3 SBs; September 2018: 5 SBs; December 2018: 5 SBs; March 2019: 5 SBs). - Two reviews based on September 30, 2018 and March 31, 2019 test dates. - Program anchors and continuous indicative targets: - Achieve a zero-cash balance while avoiding accumulation of new domestic arrears. - Ensure fiscal revenue is maintained above a floor. - Maintain CBS net foreign assets above a floor (CBS NFA floor reported as 24.0 [millions of U.S. dollars] in TMU tables). - Continuous ceilings: accumulation of new domestic expenditure arrears = 0.0; contracting of new domestic debt = 0.0; contracting or guaranteeing of new nominal external non-concessional borrowing = 0.0. - Core near-term policy priorities (selected): - Enhance PFM and revenue mobilization, including full operationalization of LMTO and expanded taxpayer coverage. - Complete Phase I of currency reform: exchange all Somali Shilling in circulation with a new national currency; finalize accountability framework and staff implementation team; mobilize donor funds for the operation. - Initiate broad-based financial sector reforms and strengthen AML/CFT to safeguard remittances and restore correspondent banking relationships. - Improve data reporting and statistical systems; strengthen procurement framework, governance, and transparency. - Structural benchmarks (selected highlights and target dates): - 1A Jun-18: Minister of Finance order to require all SNA salaries paid directly to individuals' bank accounts and record/register SNA payroll into SFMIS payroll module. - 6 Dec-18: Conclude renegotiation of the Mogadishu port and airport fee-collection contracts. - 11 Dec-18: Submit the Revenue Bill to Parliament. - 17 Sep-18: Submit Targeted Financial Sanctions Act to Parliament. - 18 Mar-19: CBS to issue regulation on credit classification and bank reporting requirements. ### Fiscal framework, revenue measures, and donor support - Supplementary budget and revenue revisions: - Authorities preparing supplementary budget to be submitted to Parliament by end of June 2018; 2018 total revenue (domestic revenue and grants) revised up to $261.9 from $250.7 million in the program, due mainly to an upward revision of domestic revenue by $7.5 million. - Two new revenue measures planned (annual fisheries licensing and telecommunications licensing, spectrum and other fees) projected to yield $5 million in 2018. - Agreed-on domestic revenue target under SMP III not dependent on adoption of supplementary budget. - Donor support noted: - EU approved budgetary support grants amounting to €92 million over 2018–21 with possible disbursement of €10 million in October/November 2018; authorities intend to treat 2018 disbursement as a fiscal buffer; these grants not included in staff projections due to timing uncertainty. - Debt and arrears status: - Somalia is in debt distress and has not serviced its external public debt in over 27 years. - External public debt stock at end-2017: 65 percent of GDP. - Shares of the stock: multilateral creditors 32.8 percent; Paris Club creditors 53.8 percent. - 92.1 percent of the external debt stock is in arrears; nearly all external public debt is in arrears, including to the IMF, World Bank, and AfDB. - Authorities have reached out to creditors; 15 out of 21 creditors have responded so far (other passages cite 12 out of 21 or 12 bilateral replies in Annex I; monitoring and reconciliation ongoing). ### PFM, procurement, and fiscal federalism measures - PFM measures and targets: - Strengthen expenditure control and SFMIS functionality; biometric registration of SNA personnel to be completed for all FMS and Banadir by end of June 2019. - Consolidate cash management and payment system; design and implement cash-forecasting framework; develop a treasury single account (TSA). - Improve fiscal transparency and accountability; require FMS reporting on utilization of FGS transfers (SB#2). - Procurement and concessions: - Renegotiate port and airport contracts (SB#6); over 30 FGS contracts (each exceeding $5 million) identified for review and possible renegotiation. - Fiscal federalism: - Prepare National Revenue Bill (SB#11); finalize framework to license and share petroleum and offshore fishing revenue between FGS and FMS (SB#14) by March 2019. ### Financial sector, currency reform, and AML/CFT actions - Currency reform Phase I: - Preparatory work in final stages; IMF endorsement letter received in early March 2018. - Phase I limited to exchanging all Somali Shilling currently in circulation (including counterfeit) with new national currency; Phase II (injection of new banknotes) conditional on CBS capacity and reserve management tools. - Financial sector development roadmap (four pillars): CBS capacity; payment system; legal and regulatory reforms; strengthening financial intermediation. - Prudential measures and regulation: - Expand financial reporting requirements; issue regulations on credit classification by March 2019 (SB#18). - Priority to regulate and supervise mobile money service providers with IMF and World Bank TA. - AML/CFT and correspondent banking: - Loss of correspondent banking relationships underscores urgency. - FGS to submit Targeted Financial Sanctions Law to Parliament by September 2018 (SB#17). - CBS implementing plan to improve MTB compliance and reporting to the Financial Reporting Center (FRC); FRC capacity to be strengthened. ### Key statistics and projections (selected exact figures as reported) - National income and prices: - Nominal GDP (millions of U.S. dollars): 2015: 6,659; 2016: 6,767; 2017: 7,052; 2018: 7,405; 2019: 7,822; 2020: 8,256. - Real GDP, annual percentage change: 2015: 3.9; 2016: 4.4; 2017: 2.3; 2018: 3.1; 2019: 3.5; 2020: 3.5. - Per capita GDP (U.S. dollars): 2015: 511; 2016: 504; 2017: 511; 2018: 521; 2019: 535; 2020: 549. - Consumer prices (e.o.p., percent change): 2015: -1.2; 2016: 0.0; 2017: 5.3; 2018: 2.8; 2019: 2.5; 2020: 2.5. - Central government finances (percent of GDP): - Revenue and grants: 2015: 2.1; 2016: 2.5; 2017: 3.5; 2018: 3.5; 2019: 3.7; 2020: 3.8. - Grants: 2015: 0.4; 2016: 0.9; 2017: 1.5; 2018: 1.3; 2019: 1.3; 2020: 1.3. - Expenditure: 2015: 2.0; 2016: 2.5; 2017: 3.5; 2018: 3.5; 2019: 3.7; 2020: 3.8. - Compensation of employees: 2015: 0.8; 2016: 0.8; 2017: 1.8; 2018: 1.8; 2019: 1.8; 2020: 1.8. - Overall balance: 2015: 0.1; 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 0.1. - Stock of domestic arrears: 2015: 1.0; 2016: 1.1; 2017: 1.0; 2018: 0.9; 2019: 0.7; 2020: 0.5. - External sector and reserves: - Current account balance (percent of GDP): 2015: -4.7; 2016: -6.3; 2017: -6.6; 2018: -6.3; 2019: -5.7; 2020: -5.6. - Trade balance (percent of GDP): 2015: -45.1; 2016: -46.8; 2017: -55.2; 2018: -48.3; 2019: -46.8; 2020: -46.4. - Remittances (percent of GDP): 2015: 19.5; 2016: 19.7; 2017: 23.5; 2018: 20.4; 2019: 20.5; 2020: 20.7. - Grants (percent of GDP): 2015: 21.2; 2016: 21.1; 2017: 25.6; 2018: 22.0; 2019: 21.0; 2020: 20.6. - Foreign Direct Investment (percent of GDP): 2015: 4.5; 2016: 4.9; 2017: 5.2; 2018: 5.5; 2019: 5.7; 2020: 5.6. - External debt (percent of GDP): 2015: 66.3; 2016: 64.7; 2017: 65.0. - Central bank foreign assets (gross, millions of U.S. dollars): 2015: 68.6; 2016: 60.9; 2017: 89.2; March 2018: $105.5 million. - Market exchange rate (SOS/USD, e.o.p.): 2015: 22,285; 2016: 24,005; 2017: 23,605; stable at about 23,000 as of March 2018. - Banking sector (selected): - Consolidated commercial banks total assets (millions of U.S. dollars) — March 2018 (Prel.): 347.0. - Credit to private sector (millions of U.S. dollars): March 2018 (Prel.): 126.0. - Capital-to-assets ratio series includes values such as 16.1 (March 2018) and earlier values 22, 24, 24, 22, 20, 18, 17, 15 across sample periods. - Balance of payments (millions of U.S. dollars): - Current account balance: 2015: -314; 2016: -427; 2017: -464; 2018 (Prel.): -468; 2019 (Proj.): -443; 2020 (Proj.): -463. - Exports of goods, f.o.b.: 2015: 683; 2016: 647; 2017: 418; 2018: 675; 2019: 761; 2020: 798. - Imports of goods, f.o.b.: 2015: 2,710; 2016: 2,852; 2017: 3,259; 2018: 3,170; 2019: 3,266; 2020: 3,398. - External public debt (millions of U.S. dollars): - Total external public debt: 2014: 4,394; 2015: 4,414; 2016: 4,377; 2017: 4,585. - "of which: in arrears": 2014: 4,066; 2015: 4,184; 2016: 4,081; 2017: 4,223. ### Implementation risks, mitigation, and operational support - Risk characterization: - Program risks are characterized as elevated. - Mitigating factors: - Continued commitment to SMP reforms by authorities. - Sustained donor support on TA, peace and state building, resilience, and humanitarian aid. - Intensive IMF technical assistance and training across PFM, currency reform, tax policy and administration, central banking, statistics, and financial sector supervision. - Monitoring and reporting: - Program‑Monitoring Committee (MoF, CBS, MOPIED; IMF Resident Representative observer) to provide monthly progress reports within four weeks of each month. - Detailed reporting obligations specified for CBS, MoF, National Statistics Bureau, and FMS with exact timing (e.g., CBS monetary survey monthly — 3 weeks after month end; MoF budget operations monthly — 4 weeks after month end; NSB CPI monthly — 6 weeks after month end). ### Staff appraisal — key findings and program focus - Staff notes progress despite difficult environment: stable macro indicators, progress on PFM, revenue mobilization, and preparatory work for currency reform. - Staff supports SMP III as a sequenced, TA-backed program designed to deepen reforms and advance toward UCT‑type conditionality to enable arrears clearance, IMF financing, and debt relief under the HIPC Initiative. - Remaining challenges: widespread poverty, vulnerability to climatic events, weak institutions, high unemployment and social spending needs, heavy external debt burden with no repayment capacity, and nascent central bank and financial sector constraining intermediation. *Source: IMF staff report to the Executive Board — SOMALIA: SECOND AND FINAL REVIEW UNDER THE STAFF‑MONITORED PROGRAM AND REQUEST FOR A NEW STAFF‑MONITORED PROGRAM (cr18212).* ### 2019. The SMPs for Somalia are designed to help maintain macroeconomic stability, rebuild ### SOMALIA: Second and Final Review under the Staff‑Monitored Program and Request for a New Staff‑Monitored Program ### Background and context - Political and security environment remains challenging: - No-confidence motion against the Speaker ended with his resignation on April 9. - Recent tensions between Somalia and the United Arab Emirates could weaken their relationship. - Recent armed conflict between Somaliland and Puntland could pose a risk to regional stability. - Sporadic attacks from terrorist groups remain a threat, despite increased pressure on those groups. - Fund relations and program history: - SMP I completed in April 2017; SMP II covered May 2017–April 2018. - 2017 Article IV consultation completed in February 2018 together with the first review under SMP II. - Since mid-2013, Somalia received 94 TA and training missions. - Somalia’s overdue obligation to the IMF reached $339.9 million (541.9 percent of quota) at end‑May 2018. - SMP III request and objectives: - Authorities requested SMP III (May 2018–April 2019) to build on SMP I and SMP II achievements and to lay the foundation to meet the IMF Upper Credit Tranche (UCT) conditionality required for reaching the Decision Point under the Heavily Indebted Poor Countries (HIPC) initiative. - SMP III main focuses: (1) enhance public financial management (PFM) and revenue mobilization; (2) complete Phase I of the currency reform; (3) start broad-based financial sector reforms and strengthen AML/CFT compliance; (4) improve data reporting; also strengthen procurement framework, governance, and transparency. ### Recent economic developments - Macroeconomic outlook and drivers: - Economic activity rebounding from the 2016–17 drought; favorable rainy season, strong remittances, and grant inflows underpin recovery. - Growth projected to increase to 3.1 percent in 2018 from an estimated 2.3 percent in 2017. - Inflation expected to ease to under 3 percent in 2018 from about 5.3 in 2017. - Recent floods in central and southern Somalia could lead to food insecurity in some areas. - External sector and debt: - 2017 drought widened the trade deficit; financed through humanitarian relief and increased remittances. - Recovery in agricultural exports and easing of humanitarian assistance expected to narrow the trade deficit in 2018–19. - Public external debt was 65 percent of GDP in 2017 and expected to stay broadly stable given no capacity to repay external debt service and no access to international credit. - Fiscal and monetary developments: - The federal government of Somalia (FGS) recorded a small fiscal surplus in 2017 due to higher-than-programmed domestic revenue mobilization and budgetary grant disbursements. - Strong fiscal performance continued through March 2018 owing partly to lower-than-projected expenditure and slightly higher domestic revenue. - Central Bank of Somalia (CBS) foreign assets increased to $105.5 million in March 2018 (from $89.2 million in December 2017) on account of higher FGS and commercial bank deposits. - Somali shilling exchange rate stable at about 23,000 shillings per U.S. dollar as of March 2018. - Commercial banks remain well capitalized and expanding; capital‑to‑assets ratio declined to 16 percent in March 2018 from 20 percent in March 2017 as assets surged; loans to private sector increasing, concentrated in trade financing and construction. ### Performance under SMP II - Overall assessment: - Program implementation under SMP II has been satisfactory despite difficult political and security environment. - For December 2017, all indicative targets (ITs) were met and all but one structural benchmark (SB) were met. - The two SBs and all ITs set for March 2018 were met. - Authorities are taking measures to address root causes of the missed SB. - Staff supports completion of the second and final review under SMP II and approval of SMP III. ### SMP III design and near-term priorities - Coverage and duration: - SMP III proposed covering May 2018–April 2019. - Core policy priorities under SMP III: - Continue to enhance public financial management and revenue mobilization. - Complete Phase I of the currency reform and move forward with launching a new national currency (Somali Shilling), including finalizing accountability framework and staffing the implementation team; staff encourages authorities to reach out to donors to raise needed funds for the operation. - Start broad-based financial sector reforms to foster financial development while continuing to strengthen AML/CFT regulations. - Improve data reporting, strengthen procurement framework, governance, and transparency. - Strategic objective: - Lay the foundation so Somalia eventually achieves a SMP that meets IMF UCT conditionality—key for reaching the HIPC Decision Point. ### Risks and mitigation - Program risks are characterized as elevated. - Mitigating factors: - Continued commitment to SMP reforms. - Sustained donor support, particularly on technical assistance, peace and state building, resilience, and humanitarian aid, will help mitigate risks. ### Key statistics and projections (selected, as reported) - National income and prices: - Nominal GDP (millions of U.S. dollars): 2015: 6,659; 2016: 6,767; 2017: 7,052; 2018: 7,405; 2019: 7,822; 2020: 8,256. - Real GDP, annual percentage change: 2015: 3.9; 2016: 4.4; 2017: 2.3; 2018: 3.1; 2019: 3.5; 2020: 3.5. - Per capita GDP in U.S. dollars: 2015: 511; 2016: 504; 2017: 511; 2018: 521; 2019: 535; 2020: 549. - Consumer prices (e.o.p., percent change): 2015: -1.2; 2016: 0.0; 2017: 5.3; 2018: 2.8; 2019: 2.5; 2020: 2.5. - Central government finances (percent of GDP): - Revenue and grants: 2015: 2.1; 2016: 2.5; 2017: 3.5; 2018: 3.5; 2019: 3.7; 2020: 3.8. - Grants: 2015: 0.4; 2016: 0.9; 2017: 1.5; 2018: 1.3; 2019: 1.3; 2020: 1.3. - Expenditure: 2015: 2.0; 2016: 2.5; 2017: 3.5; 2018: 3.5; 2019: 3.7; 2020: 3.8. - Compensation of employees: 2015: 0.8; 2016: 0.8; 2017: 1.8; 2018: 1.8; 2019: 1.8; 2020: 1.8. - Purchase of non-financial assets: 2015: 0.0; 2016: 0.1; 2017: 0.1; 2018: 0.1; 2019: 0.2; 2020: 0.2. - Overall balance: 2015: 0.1; 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 0.1. - Stock of domestic arrears: 2015: 1.0; 2016: 1.1; 2017: 1.0; 2018: 0.9; 2019: 0.7; 2020: 0.5. - Central bank and external sector (selected): - Central bank foreign assets (gross, millions of U.S. dollars): 2015: 68.6; 2016: 60.9; 2017: 89.2; March 2018: $105.5 million (noted in text). - Net foreign assets, excl. IMF (millions): 2015: 21.6; 2016: 21.6; 2017: 24.0. - FGS total deposits (millions): 2015: 19.1; 2016: 12.1; 2017: 33.6. - Current account balance (percent of GDP): 2015: -4.7; 2016: -6.3; 2017: -6.6; 2018: -6.3; 2019: -5.7; 2020: -5.6. - Trade balance (percent of GDP): 2015: -45.1; 2016: -46.8; 2017: -55.2; 2018: -48.3; 2019: -46.8; 2020: -46.4. - Exports of goods and services (percent of GDP): 2015: 15.6; 2016: 15.1; 2017: 11.5; 2018: 14.6; 2019: 15.0; 2020: 14.8. - Imports of goods and services (percent of GDP): 2015: 60.6; 2016: 61.8; 2017: 66.7; 2018: 62.9; 2019: 61.8; 2020: 61.2. - Remittances (percent of GDP): 2015: 19.5; 2016: 19.7; 2017: 23.5; 2018: 20.4; 2019: 20.5; 2020: 20.7. - Grants (percent of GDP): 2015: 21.2; 2016: 21.1; 2017: 25.6; 2018: 22.0; 2019: 21.0; 2020: 20.6. - Foreign Direct Investment (percent of GDP): 2015: 4.5; 2016: 4.9; 2017: 5.2; 2018: 5.5; 2019: 5.7; 2020: 5.6. - External debt (percent of GDP): 2015: 66.3; 2016: 64.7; 2017: 65.0. - Market exchange rate (SOS/USD, e.o.p.): 2015: 22,285; 2016: 24,005; 2017: 23,605; stable at about 23,000 as of March 2018. - Text Table 1 selected indicators (2016–19 highlights): - Real GDP growth: 2016: 4.4; 2017: 2.3; 2018: 3.1; 2019: 3.5. - Inflation (CPI, e.o.p.): 2016: 0.0; 2017: 5.3; 2018: 2.8; 2019: 2.5. - Revenue and grants (percent of GDP): 2016: 2.5; 2017: 3.5; 2018: 3.5; 2019: 3.7. - Overall balance (percent of GDP): 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0. - Current account balance (percent of GDP): 2016: -6.3; 2017: -6.6; 2018: -6.3; 2019: -5.7. - Remittances (percent of GDP): 2016: 19.7; 2017: 23.5; 2018: 20.4; 2019: 20.5. - Grants (percent of GDP): 2016: 21.1; 2017: 25.6; 2018: 22.0; 2019: 21.0. - External debt (percent of GDP): 2016: 64.7; 2017: 65.0. - Treasury deposits at the CBS (U.S. dollar, million): 2016: 12.1; 2017: 33.6. - Stock of arrears (U.S. dollar, million): 2016: 76.5; 2017: 68.8; 2018: 65.4; 2019: 55.7. ### Staff recommendation and next steps - Staff supports: - Completion of the second and final review under SMP II. - Approval of a new 12‑month SMP (SMP III) covering May 2018–April 2019, given satisfactory program performance and authorities’ commitment to accelerate and broaden reforms. *Source: IMF staff report to the Executive Board — SOMALIA: SECOND AND FINAL REVIEW UNDER THE STAFF‑MONITORED PROGRAM AND REQUEST FOR A NEW STAFF‑MONITORED PROGRAM (June 21, 2018).* ### 11. The authorities have stepped up efforts to address the two remaining SBs under SMP ### 11. The authorities have stepped up efforts to address the two remaining SBs under SMP ### SMP II implementation and remaining structural benchmarks (SBs) - Two SBs under SMP II were missed in September and December 2017: SB#4 and SB#6 (Table 2). - To address the missed SB in September 2017 (SB#6), authorities are completing renegotiation of two contracts (out of five) with private companies that collect fees on behalf of the government at Mogadishu airport and port. - SB#4 ("Meet the eligibility criteria required to achieve 100 percent of non-salary of the recurrent cost and reform financing (RCRF) budget") was missed in December 2017, mainly due to weak procurement and commitment control. The authorities agreed to address these issues under SMP III. - The World Bank’s monitoring agent reported significant progress in expenditure control: alignment with budget allocation, transaction classifications and verifications, and payments processing through banks. ### Outlook and risks - Medium-term outlook: recovery that started in 2018 is expected to continue; fiscal performance projected to improve through the medium term. - Key macro projections and expectations: - Growth projected to recover gradually in 2019–20 and stabilize at around 3.0-3.5 percent. - Inflation expected to ease in the medium term. - Downside risks identified: - Fragile security. - Continued vulnerability to droughts; the 2016–17 drought is receding. - Weak institutional capacity risking poor fiscal management and new domestic arrears accumulation. - Slow reform implementation. - Volatility in donor support. - Increasing risk of regional conflict and lack of political consensus among the FGS and the federal member states (FMS). - Risk mitigation: authorities’ continued engagement with donors—including on security, peace, capacity building, and implementation of SMP III—should help mitigate risks. ### SMP III: objectives, design, monitoring, and priorities - SMP III objectives for 2018–20: 1. Improve public financial management and revenue mobilization. 2. Finalize the currency reform. 3. Revive the financial sector, including improving AML/CFT compliance. 4. Promote economic recovery and resilience programs. - SMP III anchor metrics: - Achieve a zero-cash balance while avoiding accumulation of new domestic arrears. - Ensure fiscal revenue is maintained above a floor. - Maintain central bank net foreign assets above a floor. - SMP III design features: - Deepening and broadening structural reform measures across PFM, procurement, currency reform (Phase I = exchange all Somali Shilling currently in circulation with the new national currency), financial sector reforms and AML/CFT, and data reporting. - Accelerating critical reform implementation while maintaining the "Quick Win" approach. - SBs and timeline: - SMP III includes 18 SBs focusing on PFM (7 SBs), tax policy and tax administration (8 SBs), growth and poverty reduction (1 SB), and financial sector development (2 SBs). - Timing: June 2018 (3 SBs); September 2018 (5 SBs); December 2018 (5 SBs); March 2019 (5 SBs). - Monitoring: - SMP III monitored by quarterly indicative targets (ITs) and SBs with two reviews based on September 30, 2018 and March 31, 2019 test dates. - June and December 2018 targets to be assessed during the first and second reviews, respectively. - Support and realism: - All proposed reforms backed by IMF TA and advice; staff consulted with IMF FAD, IMF Monetary and Capital Market experts, and World Bank staff to assess realism and appropriateness of new SBs. - Four SBs only require issuance of orders by FGS authorities. ### Fiscal framework, revenue mobilization, and debt situation - Supplementary budget: - Authorities preparing a supplementary budget to be submitted to Parliament by end of June 2018; revised budget expected to be in line with SMP III and include revised yields from ongoing and new tax measures. - 2018 total revenue (domestic revenue and grants) revised up to $261.9 from $250.7 million in the program, due mainly to an upward revision of domestic revenue by $7.5 million. - Two new revenue measures planned: annual fisheries licensing and telecommunications licensing, spectrum and other fees, projected to yield $5 million in 2018. - The agreed-on domestic revenue target under SMP III is not dependent on adoption of the supplementary budget. - Donor support note: - EU approved budgetary support grants to FGS amounting to €92 million over three and a half years (2018–21) with possible disbursement of €10 million in October/November 2018; authorities intend to treat the 2018 disbursement as a fiscal buffer and these grants are not included in staff projections due to timing uncertainty. - Debt distress and arrears: - Somalia is in debt distress and has not serviced its external public debt in over 27 years. - Somalia’s external public debt stock at the end of 2017 stood at 65 percent of GDP. - Of this stock, 32.8 percent and 53.8 percent represent the shares of multilateral and Paris Club creditors’ outstanding debt, respectively. - 92.1 percent of the country’s external debt stock is in arrears. - Nearly all external public debt is in arrears, including to the IMF, World Bank, and AfDB. - Authorities recognize need for successful SMP implementation to pave way for arrears clearance, IMF financing, debt relief, and HIPC initiative support. - Authorities have reached out to creditors to reconcile and validate external public debt data; 15 out of 21 creditors have responded so far. - Strengthening fiscal institutions and measures under SMP III: - Expenditure control and SFMIS functionality improvements, including biometric registration of SNA personnel to be completed for all FMS and the Banadir region by end of June 2019. - Fiscal transparency and accountability measures to further empower the FGS (SB#2). - PFM measures: consolidate cash management and payment system (SB#3); improve governance and develop transparent domestic arrears repayment processing (SB#4); design cash-forecasting framework (SB#5); develop a treasury single account (TSA) (SB#7). - Procurement and concessions: renegotiation of port and airport contracts (SB#6); order MDAs to observe regulations and complete procurement framework in line with 2015 Procurement Act. - Inland revenue measures: fully operationalize LMTO (SB#8) and expand scope to at least 50 taxpayers (SB#10); transfer all non-tax revenue collections from MDAs to the Ministry of Finance (SB#13); condition business license renewal on proof of tax payment (SB#9); Ministers of Finance and Post & Telecommunication to develop plan to enforce telecommunication fees (SB#12). - Customs measures: implement Customs Reform Roadmap with World Bank and DFID assistance (SB#15), strengthen business practices, and adopt a common classification of goods by all ports. - Fiscal federalism: prepare a National Revenue Bill (SB#11); finalize framework to license and share petroleum and offshore fishing revenue between FGS and FMS (SB#14). ### Financial sector, currency reform, and AML/CFT - Currency reform (Phase I): - Preparatory work to launch new national currency in final stages. - Following an IMF endorsement letter received in early March 2018, authorities are mobilizing donor funding for the project. - Phase I limited to exchanging all Somali Shilling currently in circulation, including counterfeit, with the new national currency. - Injection of new Somali shilling banknotes beyond Phase I will occur only in Phase II, which requires strengthening CBS institutional capacity and developing independent monetary policy instruments and reserve management guidelines. - Financial sector development: - Comprehensive financial development roadmap being developed with World Bank and IMF built on four pillars: CBS capacity; payment system; legal and regulatory reforms; and strengthening financial intermediation. - Prudential and operational measures: expand financial reporting requirements and issue regulations on credit classification by March 2019 (SB#18). - Urgent priority: regulation and supervision of mobile money service providers with TA from IMF and World Bank. - AML/CFT and correspondent banking: - Loss of another correspondent banking relationship earlier in the year underscores urgency of addressing AML/CFT gaps. - To safeguard remittance inflows, FGS will submit the Targeted Financial Sanctions Law to Parliament by September 2018 (SB#17) and accelerate implementation of regulations to comply with FATF standards and UNSC Resolutions 1267 and 1373. - CBS implementing plan to improve MTB compliance with AML/CFT regulations to ensure proper reporting to the Financial Reporting Center (FRC). - Authorities committed to improving FRC capacity in coordination with international partners. *Source: IMF staff report excerpt titled "11. The authorities have stepped up efforts to address the two remaining SBs under SMP" (cr18212).* ### 24. The authorities are determined to implement the needed measures to tackle ### 24. The authorities are determined to implement the needed measures to tackle ### Authorities’ priorities and planned measures - Anti-corruption - The authorities are committed to fighting corruption and improving governance which are critical to enhancing the business environment and supporting higher and more inclusive growth (MEFP ¶12, bullets 1 and 2). - Business climate - The authorities are determined to improve the business environment (MEFP ¶12, bullet 3), and Somalia’s ranking in Doing Business Surveys by addressing weaknesses identified in previous surveys. - They are developing a new five-year national development plan (NDP) (SB#16; MEFP ¶12, bullet 4) and started the process to develop a “Vision 2040” plan. - Social spending - The authorities plan to include social safety net programs in future budgets and improve social spending (MEFP ¶12, bullet 5). - This will be followed by increasing budgetary allocations on social spending, including education, health, and humanitarian support. - The humanitarian component will also include managing and facilitating the return of refugees to Somalia which is also supported by the United Nations Refugee Return and Reintegration Project. - Macroeconomic and financial data - Continued efforts to reconstitute economic data will remain essential in guiding policies (MEFP ¶13, bullet 2). - Despite important progress recorded under SMP I and II in economic data reconstitution, the authorities recognize that challenges ahead remain significant and their plan to develop a roadmap for statistical data production and dissemination by end of September 2018 is timely. - Development program - The authorities are taking steps to develop an ambitious long-term economic development program broken into 5-year periods (MEFP, ¶12, bullet 4). - The 2020 to 2024 part of the “Vision 2040” plan will be the basis for the authorities’ Poverty Reduction Strategy Paper (PRSP). - They intend to improve the realism of the social program targets in their National Development Plan (NDP), including poverty incidence, job creation, and capacity and resilience program in response to drought, flooding, and other social safety net programs. - Operational note - The authorities, with the help of the IMF, are preparing a workshop on operational aspects of the currency reform in early July, which will be attended by officials from different ministries and agencies involved in this project. ### Staff appraisal — key findings and program focus - Recent context and macro performance - Somalia’s economy has remained broadly stable despite a difficult environment. - In 2017, Somalia was hit by sporadic terrorist attacks and a severe drought. However, the authorities navigated through these challenges, and with sustained support from the international community, the country avoided a humanitarian crisis and significant economic slowdown. - Economic activities have remained stable and the exchange rate and inflation have stayed at manageable levels. (Paragraph 25) - SMP III scope and priorities - The third SMP (SMP III) builds on the achievements of the previous two SMPs (SMP I and II). - SMP III accelerates critical reform implementation while maintaining a “Quick Win” approach. - Structural reform measures focus on: - enhancing public financial management, fiscal transparency and accountability, and revenue mobilization; - strengthening the procurement framework and improving governance; - completing Phase I of the currency reform, which consists of exchanging all Somali Shilling currently in circulation with the new national currency; - starting broad-based reforms to spur financial sector development, while strengthening compliance with the AML/CFT; and - improving macroeconomic and financial data. - The program indicative targets and structural benchmarks take into consideration the country’s fragility, political economy conditions, and the authorities’ absorptive capacity. - Intensive IMF technical assistance and training delivery will continue to support program implementation and capacity development. (Paragraph 26) - Public financial management (PFM) - Progress on PFM continues to be made. - Starting from a very weak PFM framework in 2012–13, key PFM functions have been established since SMP I at the Ministry of Finance with clear roles and responsibilities. - Since the preparation of the first annual budget in 2013, in over two decades, the authorities have prepared subsequent annual budgets, improved their budget executions over time, and implemented monthly fiscal operations reporting. (Paragraph 27) - Revenue mobilization - The authorities’ resolve to broaden the tax base and improve domestic revenue mobilization is timely. - Given the reliance on grants and the large social and infrastructure building needs, the authorities’ economic reform agenda, endorsing by SMP II and III, includes a floor on domestic revenue and important structural tax measures to broaden and improve domestic revenue mobilization. - Staff commends the authorities for establishing the large-and-medium-taxpayer office, re-enforcing existing tax laws, commencing customs reforms, and adopting several tax measures. (Paragraph 28) - Currency reform - Staff supports the authorities’ ongoing efforts to launch a new national currency. - In March 2018, IMF staff prepared an assessment letter supporting the CBS’s initiative to issue a new national currency. - Staff encourages the authorities to continue to reach out to donors to raise the needed funds for this operation, finalize the establishment of the accountability framework, and to fully staff the team that will manage the process. (Paragraph 29) - Financial sector development and AML/CFT - The authorities’ step-up efforts to develop the financial sector is welcome. - Following a comprehensive diagnostic study, the authorities, with the help of the IMF and the World Bank, are developing an operational roadmap for financial sector development and intermediation. - The roadmap includes critical pillars to overhaul the financial sector, enhance monetary and financial institutions operations, and improve the prudential norms. - SMP III will focus on the governance and operations of the central bank, improving the AML/CFT framework to safeguard the important inflows of remittances to the country, and regulating the mobile money sector. (Paragraph 30) - Remaining challenges - Despite progress achieved thus far, challenges ahead are significant. - Somalia faces widespread poverty, vulnerability to climatic events, and weak political and economic institutions. - Unemployment and social spending needs are very high. - The FGS fiscal position is still weak and it relies heavily on volatile grant funding and has a heavy external debt burden, with no capacity to repay. - Both the central bank and the financial sector are nascent, constraining financial intermediation. (Paragraph 31) - Program implementation and review - Staff supports the completion of the second and final review under SMP II. - Thanks to the authorities’ strong commitment, program implementation has been satisfactory despite difficult political and security environment. - Staff also welcomes the authorities’ remedial actions to address the root causes of the two missed structural benchmarks in September and December 2017. (Paragraph 32) *IMF staff appraisal and authorities’ program priorities as presented in the source text.* ### 33. Considering the satisfactory progress under SMP I and II, and the authorities ### cr18212 - 33. Considering the satisfactory progress under SMP I and II, and the authorities ### Program status and policy recommendation - Staff supports the authorities' request for SMP III given "satisfactory progress under SMP I and II" and the authorities' "continued strong commitment to reform implementation." - SMP III is framed as critical to advancing toward an SMP that meets the IMF’s Upper Credit Tranche type of arrangement, which would "pave the way for eventual arrears clearance and external public debt relief." ### Macroeconomic developments (2014–18) - Real GDP growth: - 2014: (chart shows) -2.0 to 10.0 scale (annual values summarized in Table 3). - Table 3 key figures: - Nominal GDP (millions of U.S. dollars): 2015: 6,659; 2016: 6,767; 2017: 7,052; 2018: 7,405; 2019: 7,822; 2020: 8,256. - Real GDP, annual percentage change: 2015: 3.9; 2016: 4.4; 2017: 2.3; 2018: 3.1; 2019: 3.5; 2020: 3.5. - Per capita GDP in U.S. dollars: 2015: 511; 2016: 504; 2017: 511; 2018: 521; 2019: 535; 2020: 549. - Consumer prices (e.o.p., percent change): 2015: -1.2; 2016: 0.0; 2017: 5.3; 2018: 2.8; 2019: 2.5; 2020: 2.5. - External account highlights (Table 3, percent of GDP): - Current account balance: 2015: -4.7; 2016: -6.3; 2017: -6.6; 2018: -6.3; 2019: -5.7; 2020: -5.6. - Trade balance: 2015: -45.1; 2016: -46.8; 2017: -55.2; 2018: -48.3; 2019: -46.8; 2020: -46.4. - Remittances: 2015: 19.5; 2016: 19.7; 2017: 23.5; 2018: 20.4; 2019: 20.5; 2020: 20.7. - Grants: 2015: 21.2; 2016: 21.1; 2017: 25.6; 2018: 22.0; 2019: 21.0; 2020: 20.6. - Narratives from charts: - "With the drought ending and rain resuming, growth is expected to recover and inflation to ease." - "Remittances and grants finance a large trade deficit, which widened in 2017 due to the drought." ### Fiscal developments and central government finances - Central government aggregates (Table 3, percent of GDP): - Revenue and grants: 2015: 2.1; 2016: 2.5; 2017: 3.5; 2018: 3.5; 2019: 3.7; 2020: 3.8. - Grants component: 2015: 0.4; 2016: 0.9; 2017: 1.5; 2018: 1.3; 2019: 1.3; 2020: 1.3. - Expenditure (total): 2015: 2.0; 2016: 2.5; 2017: 3.5; 2018: 3.5; 2019: 3.7; 2020: 3.8. - Compensation of employees: 2015: 0.8; 2016: 0.8; 2017: 1.8; 2018: 1.8; 2019: 1.8; 2020: 1.8. - Overall balance: 2015: 0.1; 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 0.1. - Stock of domestic arrears (percent of GDP): 2015: 1.0; 2016: 1.1; 2017: 1.0; 2018: 0.9; 2019: 0.7; 2020: 0.5. - Federal Government Operations (Table 4a and 4b) selected levels and ratios: - Revenue and grants (millions of U.S. dollars, selected): 2016 total revenue and grants: 171.1; 2017: 232.1; 2018 (Budg.): 274.6; 2019 (Proj.): 261.9; 2020 (Proj.): 288.3; 317.7. - Tax revenue (millions): 2016: 88.6; 2017: 108.5; 2018: 112.0; 2019: 127.2; 2020: 126.8. - Grants (millions): 2016: 58.4; 2017: 94.5; 2018: 105.9; 2019: 111.9; 2020: 118.6. - Overall fiscal balance (millions): examples: 2016: 0.0; 2017: 1.8; 2018 (Est.): 3.1; 2018 (Budg.): 2.6; 2019 (Proj.): 4.8; 2020 (Proj.): 0.0. - Observations from charts and notes: - "A significant share of total expenditure is absorbed by compensation of employees." - "Domestic revenue remains very low but progress is being made." - "With a small tax base, the government relies heavily on volatile grants... making budget execution difficult, but improvements are evident more recently." ### Financial sector developments - Banking sector size and activity (Table 6 and Figure 3): - Consolidated commercial banks: total assets (millions of U.S. dollars) — March 2018 (Prel.): 347.0. - Credit to private sector (millions of U.S. dollars): March 2018 (Prel.): 126.0. - Credit to private sector share of total assets: (chart trends show) rising to 36.3 (memorandum item noted as percent). - Total capital to assets (percent) series shows values around: 22, 24, 24, 22, 20, 18, 17, 15, 16.1 across sample periods. - Loan to deposits (percent) series shows values like 30.7, 32.5, 33.3, 37.3, 39.3, 39.5, 40.1, 39.4, 46.2. - Soundness and structure: - "The banking sector is relatively small... The sector is highly liquid and it is adequately capitalized." - "Activity is increasing rapidly, especially credit to the private sector... which is focused in key economic areas - trade and real estate, followed by car loans and construction." ### Balance of payments and external finances - Balance of payments (Table 7a, millions of U.S. dollars): - Current account balance: 2015: -314; 2016: -427; 2017: -464; 2018 (Prel.): -468; 2019 (Proj.): -443; 2020 (Proj.): -463. - Goods balance: 2015: -2,026; 2016: -2,206; 2017: -2,841; 2018: -2,495; 2019: -2,506; 2020: -2,600. - Exports of goods, f.o.b.: 2015: 683; 2016: 647; 2017: 418; 2018: 675; 2019: 761; 2020: 798. - Imports of goods, f.o.b.: 2015: 2,710; 2016: 2,852; 2017: 3,259; 2018: 3,170; 2019: 3,266; 2020: 3,398. - Current transfers (net): 2015: 2,715; 2016: 2,767; 2017: 3,459; 2018: 3,144; 2019: 3,251; 2020: 3,406. - Foreign direct investment (millions): 2015: 300; 2016: 328; 2017: 367; 2018: 406; 2019: 445; 2020: 461. - Balance of payments (Table 7b, percent of GDP): - Current account balance: 2015: -4.7; 2016: -6.3; 2017: -6.6; 2018: -6.3; 2019: -5.7; 2020: -5.6. ### External public debt and arrears - Total external public debt (Table 8a, millions of U.S. dollars): - 2014: 4,394; 2015: 4,414; 2016: 4,377; 2017: 4,585. - "of which: in arrears" — 2014: 4,066; 2015: 4,184; 2016: 4,081; 2017: 4,223. - External public debt (Table 8b, percent of GDP): - Total stock outstanding: 2014: 66.9; 2015: 66.3; 2016: 64.7; 2017: 65.0. - "of which: in arrears": 2014: 61.9; 2015: 62.8; 2016: 60.3; 2017: 59.9. - Composition highlights (end-2017): - Multilateral creditors (millions): 1,504 (IMF: 340; World Bank: 506; Arab Monetary Fund: 286). - Paris Club creditors (millions): 2,464. - Non-Paris Club creditors (millions): 617. - Narratives: - "Somalia's external public debt burden is high and virtually all in arrears." ### Central bank and reserves - Central bank summary balances (Table 5, selected): - Foreign assets (gross, millions): 2014: 63.2; 2015: 68.6; 2016: 60.9; 2017: 89.2; March 2018 (Prel.): 105.5. - Net foreign assets (program definition, memoranda): 2014: ...21.6; 2015: 21.6; 2016: 24.0; 2017: 24.1. - Somali shillings per US dollar (eop): 2014: 20,265; 2015: 22,285; 2016: 24,005; 2017: 23,605; March 2018 (Prel.): 23,405. - Government total deposits (millions): 2015: 11.7; 2016: 19.1; 2017: 12.1; 2018 (Prel.): 33.6; March 2018: 42.9 (Table 5 shows series). - Notes: - CBS data are based on incomplete financial statements and balance sheet data. ### Off-budget aid and donor support - Off-budget aid (Table 9, millions of U.S. dollars): - Total estimated grants: 2014: 1,657; 2015: 1,741; 2016: 1,731; 2017: 2,147; 2018 (Proj.): 1,789. - Total Official Development Assistance (ODA) aid: 2014: 1,218; 2015: 1,172; 2016: 1,231; 2017: 1,647; 2018 (Proj.): 1,289. - Humanitarian aid: 2014: 672; 2015: 588; 2016: 613; 2017: 1,011; 2018 (Proj.): 613. - Developmental aid: 2014: 546; 2015: 584; 2016: 618; 2017: 636; 2018 (Proj.): 676. - Support for peacekeeping (2014–18): around 439–500 annually. - Memorandum items: - FGS budgetary grants (millions): 2014: 61.0; 2015: 26.9; 2016: 58.4; 2017: 105.9; 2018 (Proj.): 96.9. - FGS budgetary grants, as percent of ODA: 2014: 5.0; 2015: 2.3; 2016: 4.7; 2017: 6.4; 2018 (Proj.): 7.5. *Source: cr18212 - 33. Considering the satisfactory progress under SMP I and II, and the authorities* ### Annex I. Strategy and Progression of SMPs Since May 2016 ### Annex I. Strategy and Progression of SMPs Since May 2016 ### Diagnosis and Context - Somalia is emerging from decades of war with: widespread poverty; vulnerability to climatic events (severe drought in 2017 and more recent extreme flooding); weak political and economic institutions; high unemployment and large social spending needs; a heavy external debt burden with no capacity to repay; nascent central bank and financial sector constraining intermediation; widespread counterfeiting undermining confidence in the national currency; and unresolved security risks and developing consensus on political and fiscal federalism. - The Federal Government’s (FGS) fiscal position relies heavily on volatile grant funding. - Since 2013, the IMF, through a multi-donor Trust Fund, has delivered 94 TA and training missions. ### Overall SMP Strategy and Program Anchors - Overarching objectives: - Reestablish macroeconomic stability. - Build core macroeconomic institutions. - Catalyze donor support and establish a track record to advance toward the HIPC Decision Point and Upper Credit Tranche (UCT) conditionality. - Program focus areas: - Economic and financial data development. - Building and enhancing fiscal and monetary institutions. - Public financial management (PFM) reform. - Domestic revenue mobilization. - Strengthening the banking system. - AML/CFT framework enhancement. - Currency reform. - SMP program anchors (explicit targets/floors): - A floor for the fiscal balance (zero cash balance). - Non-accumulation of new domestic arrears. - A domestic revenue floor. - A floor on the Central Bank net foreign assets. - Design principles: - Sequenced reform priorities considering fragile conditions and limited absorptive capacity. - Limit number of structural benchmarks (SBs) per year across four key interlocutors: Budget and Treasury; Inland and Customs Departments at the Ministry of Finance (MoF); the Central Bank of Somalia (CBS); and the Ministry of Planning, Investment and Economic Development. - Extensive TA and training planned to support SB implementation. ### Progression and Benchmarks (SMP I–III) - SMP coverage periods: - SMP I: May 2016–April 2017 - SMP II: May 2017–April 2018 - SMP III: May 2018–April 2019 - Structural benchmark activity by quarter and program (June / September / December / March; totals): - SMP I (May 2016–April 2017): June 1 / September 2 / December 3 / March 5 → Total 11; Met 8 - SMP II (May 2017–April 2018): June 1 / September 5 / December 6 / March 2 → Total 15; Met 12 - SMP III (May 2018–April 2019): June 3 / September 5 / December 5 / March 5 → Total 18 - (Table source: IMF Staff — numbers preserved exactly as presented) - Each SMP broadened and deepened targets and benchmarks: - SMP I introduced rudimentary targets and a PFM Reform Action Plan. - SMP II introduced a domestic revenue floor and expanded SBs on revenue administration and statistics. - SMP III continues to deepen PFM measures, complete Phase I of currency reform, and push further on CBS governance, AML/CFT, and financial-sector reforms. ### Key Achievements and Implementation Actions - Public Financial Management (PFM): - Establishment of key MoF departments: revenue collection departments, Budget Department, Accountant General’s Office, Debt Management Unit. - Submission of a PFM Bill; establishment of a Cash Management Unit and Domestic Arrears Management Committee (DAMC). - Progress toward rationalizing the Chart of Accounts and implementation of commitment controls across MDAs. - Production of regular annual budgets since 2013 and FGS monthly fiscal operations reporting. - PFM progression highlights per SMP (selected SBs): - SMP I: PFM Reform Action Plan; prepare plan to identify domestic arrears; plan to improve cash management. - SMP II: Adopt PFM Bill; empower DAMC; initiate cash management plan; conclude renegotiation of five revenue-collection contracts. - SMP III: Require FMS reporting on utilization of FGS transfers; complete stocktaking of domestic arrears; record cash advances; design and implement cash-forecasting system; conclude renegotiation of port and airport fee-collection contracts. - Revenue mobilization and tax administration: - Domestic revenue floor introduced in SMP II and increased to reflect new revenue measures through March 2018 and potential revenues (airspace, telecommunications, fisheries fees). - SBs to modernize revenue and customs administration, establish a large-and-medium-taxpayer office (LMTO), implement customs HS codes, and increase LMTO registrations. - Achievements since late 2017: domestic revenue mobilization is exceeding program targets; all indicative targets (ITs) for December 2017 and March 2018 were met; all but one (out of six) December 2017 SBs were met; both SBs set for March 2018 were met. - Currency reform and financial sector development: - After nearly two years of IMF TA, pre-conditions for launch of a new Somali Shilling were completed; SMP III focuses on achieving Phase I (exchange all Somali Shilling in circulation with a new national currency). - Financial-sector reforms emphasized CBS governance and operations, bank licensing framework, periodic commercial bank reporting, financial analysis, on-site supervisory scoring, completion of on-site examinations of two commercial banks in 2017, and a complete manual on on-site banking supervision. - AML/CFT framework improvements prioritized to safeguard remittance inflows. - Statistics and national development planning: - Efforts to rebuild CPI and GDP time series, complete the debt database, and enhance balance of payments and monetary statistics began in SMP II and continue in SMP III. - SMP III includes an SB to update the National Development Plan using a bottom-up, consultative approach to form the basis for a Poverty Reduction Strategy Paper required for the HIPC initiative. ### Coordination and Donor Engagement - IMF maintained regular donor briefings on program performance, economic developments, and TA needs. - IMF collaborated with DFID and the World Bank to organize roundtables on Somalia’s near-term reform needs at the 2017 and 2018 Spring Meetings; participated in the May 2017 London conference. - Technical collaboration with the World Bank on central banking organization and statistical rebuilding; joint expansion into financial sector and AML/CFT work agreed. - Coordination among TA providers emphasized as critical for effective capacity development delivery. *Source: Annex I. Strategy and Progression of SMPs Since May 2016 (cr18212)* ### 1. Economic activity is rebounding from the effects of the drought in 2017. The drought ### cr18212 - 1. Economic activity is rebounding from the effects of the drought in 2017. The drought ### Economic outlook and immediate risks - The drought in 2017 hurt economic activity, particularly in the north of the country and rural areas; swift government policy responses and international support mitigated negative effects. - Growth and inflation projections: - 2018 growth projected to increase to 3.1 percent from an estimated 2.3 percent in 2017. - Inflation expected to ease to under 3 percent from about 5.1 and 4.6 percent in 2017 and April 2018, respectively. - The economic recovery is expected to gain momentum in 2019, with growth expected to reach 3.5 and inflation to stabilize at around 2.5 percent. - Recent floods in central and southern Somalia could lead to food insecurity in some areas. - Grants, remittance and FDI inflows are expected to remain strong and help sustain the recovery. ### Program performance under SMP II - Overall performance under SMP II has been satisfactory. - June 2017: - One out of the two structural benchmarks (SBs) was not met due to a small technical delay. - Two out of six indicative targets (ITs) were not met—the cash fiscal balance and the revenue floor. - September 2017: - All but one (out of six) ITs and all but one (out of five) SBs were met. - Progress on root causes of missed SB: renegotiation of port and airport fee collection contracts advanced; two MOUs drafted, one for the airport was signed, the port MOU under review. Contracts under negotiation. - SMP III includes SB#4 targeting completion of these two contracts by December 2018. - December 2017: - All indicative targets were met, and all but one SBs were met. - Missed SB related to failing to “Meet the eligibility criteria required to achieve 100 percent of non-salary recurrent cost of the recurrent cost and reform financing (RCRF) budget.” - Procurement and commitment control issues identified as root causes; these are included as SBs in SMP III. - March 2018: - The two SBs and all ITs were met. ### Objectives and anchors of SMP III (2018–20) - SMP III aims to: - Strengthen institutions and economic policies. - Pave the way for higher and more inclusive economic growth. - Continue to catalyze donor grants and help Somalia achieve debt relief under the HIPC Initiative as soon as feasible. - Program anchors: - Fiscal: maintaining a zero-cash fiscal balance; avoiding new domestic arrears; continuing to improve domestic revenue mobilization. - Monetary: not allowing the net foreign assets of the Central Bank of Somalia (CBS), as defined in the Technical Memorandum of Understanding (TMU), to fall below a continuous floor. - SMP III focus areas: 1. Enhance public financial management (PFM) reform, including expenditure control and revenue mobilization. 2. Complete Phase I of the currency reform (exchange all Somali Shilling currently in circulation with a new national currency). 3. Start broad-based financial sector reforms to foster financial development, inclusion, and stability; strengthen AML/CFT compliance. 4. Upgrade data production and reporting systems. - Many program elements aim to reduce governance vulnerabilities and improve transparency, especially fiscal governance, financial sector oversight, central bank governance and operations, and AML/CFT. ### Fiscal policy and reforms (developments through March 2018 and plans) - 2018 budget: - Remains aligned with the SMP; a revised budget will be adopted in June to account for new developments, particularly on the revenue side. - Developments through March 2018: - Strong fiscal performance recorded in Q4 2017 continued through March 2018; fiscal balance registered another surplus due in part to higher-than-programmed domestic revenue mobilization. - Revenue sources: 1. Continued yields from tax measures implemented in late 2017, in particular, sales tax on telecommunication companies. 2. Sales taxes on imported goods, now collected at the seaport and airport. 3. Gains from in-housing revenue collection. - Fiscal strategy for remainder of 2018: - Refrain from expenditures not fully covered by realistic revenue and pledged grants projections. - Remain current on obligations; if revenue or grant shortfalls occur, cut spending in line with sequestering rules (prioritizing expenditures). - Use revenue windfalls to build fiscal buffers and pay down domestic arrears per Domestic Arrears Management Committee (DAMC) procedures. - Cut non-priority spending if revenue falls short of projections. - Revenue policy and potential new revenues: - New measures through March 2018 expected to continue generating important yields. - Collecting new revenues from assessment of wages and corporate taxes, and sales taxes from telecommunications companies. - Possible additional revenues if legal/technical issues resolved: - Airspace fees after takeover of Somali Airspace management from ICAO. - Annual fishing licensing fees. - Telecommunications licensing and spectrum fees. - Accountability, fiscal transparency, and expenditure measures: - Require all FMS to report on utilization of any FGS budgetary transfer on a semi-annual basis (SB#2). - Require that all salaries for the Somali National Army (SNA) be paid directly to individuals’ bank accounts and that all SNA payroll and non-payroll salary payments are registered into the SFMIS payroll module (SB#1). - Biometric registration progress: over 5,000 SNA personnel registered, all in Mogadishu; direct payments to individual bank accounts implemented. Aim to register all SNA personnel and complete entire process by June 2019. - Civil service restructuring to increase staff productivity and contain public wage bill; World Bank assisting. Pilot program to identify and remove absentee staff and underperformers will be expanded to all MDAs. - PFM measures (structural benchmarks): - Record all cash advances in the SFMIS and process them per the Appropriations Act (SB#3) to reduce cash advances and increase compliance with purchasing policy. - Complete stocktaking and recording of all payroll and goods and services vouchers in arrears into the SFMIS (SB#4) to compile verified domestic arrears for transparent repayment. - Design and implement a cash-forecasting framework to inform allotments issued prior to approval of commitments (SB#5); “allow to exceed” overriding function to be used only exceptionally. - Accelerate progress toward a treasury single account: - Issue order to identify MDAs’ accounts at commercial banks and the CBS excluding off-budget accounts, close unnecessary accounts, and move active accounts to CBS. - Require all active MDAs accounts be mapped to the SFMIS (SB#7). - Update legal framework under the PFM Law to ensure Minister of Finance retains sole legal authority for opening and closing government bank accounts. - Inland revenue measures and targets: - Full implementation of agreed tax measures and improved compliance. - Ensure the large-and-medium-taxpayer office (LMTO) is fully operational (SB#8); 16 staff deployed; an experienced manager appointed to start work on June 1. - Expand coverage of large and medium taxpayers from 25 to at least 50. - Evaluate all potential tax arrears for 2017 in Mogadishu and collect corresponding obligations (SB#10). - Ensure at least five of the remaining MDAs still collecting non-tax revenues hand over collection to the Ministry of Finance (SB#13). - Minister of Finance to issue an order making renewal of all licenses by MDAs conditional on presenting a tax clearance certificate (TCC) from the Ministry of Finance (SB#9). - Ministry of Post and Telecommunication and Ministry of Finance to determine regulatory requirements and develop plan to enforce fees including licensing and spectrum fees (SB#12). - Customs measures: - Start implementing Customs Roadmap with World Bank and DFID assistance to move toward a modern, nationwide customs system with harmonized rates based on value, a declarative customs process, and modern business processes and audits. - Submit amended National Customs Act to Parliament; implement common classification of goods based on HS codes and a front-end customs declaration process (SB#15). - Reactivate Somalia’s membership in the World Customs Organization. - Fiscal federalism: - Fiscal federalism is a critical objective to foster higher and more inclusive growth. - Held several fiscal federalism meetings with FMS; agreed steps to harmonize tax rates and on licensing for off-shore fishing, starting with tuna (season 2018). - Finalize a revenue-sharing agreement on petroleum and fisheries by March 2019 (SB#14). - Submit Revenue Bill text to Parliament by December 2018 (SB#11) to update tax laws. - Budgetary and off-budget grants: - Recommend donors report all grants to Somalia to the CBS and MoF to improve FGS oversight. - Procurement and concessions: - Port and airport contracts to be signed by December 2018 (SB#6). Significant progress: two MOUs drafted; Favori MOU signed; Al Bayrak MOU under review. - Over 30 FGS contracts (each exceeding $5 million in value) are in the pipeline requiring review and possible renegotiation. - Empower Interim National Procurement Board in line with the Procurement Act to review contracts, enforce regulations, and complete procurement framework. ### Financial sector reforms and currency reform - Currency reform Phase I: - Plan to launch Phase I of currency reform in 2018. - Endorsement letter received from the IMF in early March; outreach to donors for financial support underway with positive feedback from some donors. - Accountability framework for Phase I endorsed by CBS Board; expected to be staffed by end of June 2018 to support preparatory work for launch of new currency. - Develop and test comprehensive plan to operationalize Phase I; proceed with transparent bidding for a printing company and consult with IMF prior to launch. - Financial sector development roadmap (next twelve months priorities): - CBS organization: reassess organizational structure to focus on operational functions and efficiency; consultations initiated with World Bank and IMF. - Prudential supervision improvements (Licensing and Supervision Department, LSD): - For commercial banks: expand financial reporting requirements, develop on-site inspection and supervisorial manuals, issue regulations on credit classification (SB#18). - One small bank license revoked in 2018; working toward orderly resolution. - For money transfer businesses (MTBs): improve licensing process and compliance; develop standards for disclosing Inspection Reports to MTBs and improve communication. - With World Bank support, develop automated transfer system and national switch tentatively planned to be operational in early 2019. - Mobile money: prioritize regulation and supervision of mobile money services. Near-term: CBS and World Bank support to issue necessary regulations to license and supervise mobile money providers under current legal framework; build operational requirements into LSD structure; National Communications Authority (NCA) to build licensing and reporting requirements for telecommunications sector and mobile network operators (MNOs). - Future regulations will require MNOs that provide mobile money services to fulfill reporting requirements and cooperate with the CBS to receive and maintain licenses. - In coordination with international partners, look to update the Financial Institutions Act to address legal gaps. - CBS accounting and audit: - Appoint a Director of Internal Audit, develop an Audit Manual. - Detail an IFRS transition plan to start accrual accounting for the 2018 financial statement and aim to begin implementing IFRS in 2019. - Financial infrastructure: - With World Bank assistance, develop plan to issue a digital identification to Somalis to support collateral-based lending and KYC objectives. - Explore options for developing a collateral registry. ### AML/CFT, targeted financial sanctions, and compliance - Improving AML/CFT framework and compliance is a priority: - Submit the Targeted Financial Sanctions Regulation Law to Parliament for approval by September 2018 (SB#17) to comply with FATF standards and UNSC Resolutions 1267 and 1373. - Upon passage, move quickly to issue regulations to implement targeted sanctions. - Improve MTBs’ compliance with AML/CFT regulations and reporting of suspicious transactions to the Financial Reporting Center (FRC) by implementing the MTB plan to improve compliance and licensing. - Expand FRC capacity, with international partner cooperation, by addressing personnel and IT gaps. - Resolve overlaps and inconsistencies between Article 14 of the AML/CFT Law and Article 9 of Regulation CBS/NBS/REG/05 which obligate MTBs to report suspicious transactions. *International Monetary Fund — Somalia SMP III chapter (content unit cr18212)* ### 11. We are advancing a broad-based reform agenda to strengthen economic resilience ### 11. We are advancing a broad-based reform agenda to strengthen economic resilience ### Overview - Development challenges for Somalia after decades of civil war are significant, with elevated risk of humanitarian crisis due to droughts and flooding. - Progress on reform implementation under the mutual accountability framework (MAF) has been broad-based and covers: (1) political settlement; (2) security; (3) rule of law; (4) human rights and gender; (5) youth empowerment; (6) financial and economic management; (7) growth, economic recovery, and resilience; and (8) social inclusion. - Several priority areas have been identified to accelerate economic recovery and social inclusion. ### Priority reforms and governance measures - Combating corruption and improving governance: - Passage of the Anti-Corruption Bill which is in line with international best practices; the anti-corruption law has been approved by the House of the People and is awaiting the approval of the Senate. Once the Bill is approved by the Parliament and signed by the President, formation of the Anti-Corruption Commission will follow. - Establishment of a Reform Implementation Unit (“Delivery Unit”) to monitor government reform priorities. - Issuing of orders by all ministers to fight against civil servant workers’ absenteeism. - Continued efforts to improve transparency on monetary and fiscal reporting, including, where possible, on the off-budget support. - Strengthening the MoF website including Budget information. - Public asset protection: - Establishment of a Public Property Protection Committee (PPPC) under the Office of the Prime Minister to compile statistics of all public assets, develop policies/regulations, investigate and evaluate leases and contracts implicating public assets awarded since 2012, and make recommendations on validity and remedial actions. - Business environment and private sector: - Passed a foreign direct investment (FDI) law and adopted a procurement bill. - Follow-through on the Financial Sector Development Roadmap, including better AML/CFT compliance to improve access to financial services and financial intermediation. - Somalia entered the Global Doing Business Survey for the first time in 2017; work will continue to address areas identified in the report. - National Development Plan and social programs: - Developing a long-term “Vision 2040” plan to be broken into 5-year blocks; the 2020 to 2024 portion of the plan will be used to meet SB#16. - Draft NDP will be used as a basis for the Poverty Reduction Strategy Paper (PRSP) required for the HIPC initiative. - Preparation of a medium-term fiscal framework linked to the NDP; improving realism of social program targets (poverty incidence, job creation, capacity and resilience programs); identifying and ensuring adequate financing of the revised NDP. - Social safety nets and social spending: - Develop and include social safety net programs in future budgets and increase budgetary allocations on social spending, including education, health, and humanitarian support. - Progress on managing and facilitating the return of refugees; participation in the United Nations Refugee Return and Reintegration project with training in peace-building and conflict-resolution. ### Institutions and statistics - Natural resource management: - Commitment to transparent and equitable management of natural resources. - Draft PFM Bill includes clause on principles governing natural resource revenue management as it relates to fiscal policy. - Discussions with FMS in Intergovernmental Finance Ministers meetings on natural resource management and revenue sharing are well advanced; many issues addressed in the National Revenue Bill being finalized. - Economic and financial data priorities and tasks: - Press Parliament to adopt the Statistical Law submitted in September 2017. - Ministry of Finance, MOPIED, and CBS to jointly develop a roadmap for statistical data production and dis­semination by end of September 2018. - Critical tasks identified: - (1) Estimate national account aggregates on the demand side (consumption, gross capital formation, and exports and imports of goods and non-factor services) and the GDP (for 2013–17) at both current and constant prices. - (2) Complete the reconstitution of the public debt database. - (3) Update, on a regular basis, the statistical business register across FGS and FMS. - (4) Launch a capital expenditure survey based on the existing one and strengthen Somalia’s export and import data by collecting trade in goods data by value and volume. - (5) Implement IFRS-based accounting at the CBS. - (6) Improve remittance data mainly with the MTB survey. - (7) Start conducting surveys on travel, primary current transfers related to embassies and NGOs. - (8) Finalize the survey form for foreign direct investment and coordinate with the Ministry of Trade and Commerce to begin surveying the 20 largest companies. - (8) Complete a civil service database. - Steps to compile and review GFSM2014-based annual data for the budget for the period of 2015–18 and the draft 2019 budget. - CBS to implement action plan for improving source data and for collecting financial and non-financial data. ### Relations with international creditors and debt relief - Objective: normalize relations with international creditors to address external debt and arrears, facilitate concessional financing, and support social and reconstruction needs. - Requirements to qualify for HIPC Initiative: - (1) Establish a satisfactory track record of cooperation with the Fund on policies. - (2) Normalize relations with creditors, including mobilizing donor agreement and resources to finance debt relief. - (3) Prepare a poverty reduction strategy. - Aim: reach a decision point as soon as feasible under established HIPC policies. - Debt database and validation: - Reaching out to 21 bilateral creditors representing nearly 80 percent of Somalia’s external debt to confirm loan-by-loan terms, principals, interest and outstanding penalties (remaining 20 percent primarily with multilateral creditors). - As of today, 12 bilateral creditors have responded to the validation exercise; once the remaining 9 bilateral creditors respond, nearly all external debt will be confirmed. - DMU is coordinating with the IMF to follow up with 9 creditors who have not responded. - Support for IMF and World Bank in developing Somalia’s first debt sustainability analysis (DSA). ### Technical assistance requested from the IMF - IMF TA requested in: - (1) tax policy, revenue, and customs administration; - (2) budget preparation and execution; - (3) reforms in cash management and forecasting, and the TSA; - (4) planning and implementing Treasury management and reforms, including a GFS-compliant Chart of Accounts; - (5) internal controls; - (6) natural resources sharing; - (7) licensing, supervision, and regulation of banks; - (8) currency reform; - (9) central banking operations and governance structure; - (10) CBS accounting and internal audit; - (11) macroeconomic statistics; and, - (12) Debt Sustainability Analysis. ### Program monitoring and indicative targets - SMP Monitoring Committee will monitor program implementation by preparing and assessing quarterly indicative targets and structural benchmarks. - Program reviews: two test dates of September 30, 2018, and March 31, 2019. - Indicative targets are defined in the TMU. Key indicative target values (Millions of U.S. dollars) — cumulative from beginning of year: - 2018 June / 2018 Sept. 2/ / 2018 Dec. / 2019 March 3/ - Fiscal balance (cash basis; floor): 0.0, 0.0, 0.0, 0.0 - Revenue (floor): 75.7, 116.1, 165.0, 47.0 - Accumulation of new domestic expenditure arrears (ceiling) 4/: 0.0, 0.0, 0.0, 0.0 - Contracting of new domestic debt (ceiling) 4/: 0.0, 0.0, 0.0, 0.0 - Contracting or guaranteeing of new nominal external non-concessional borrowing (ceiling) 4/: 0.0, 0.0, 0.0, 0.0 - Central Bank of Somalia (CBS) Net foreign assets of the CBS (floor) 4/ 5/: 24.0, 24.0, 24.0, 24.0 - Memorandum item: Debt contracting or guaranteeing of nominal external concessional borrowing (ceiling): 0.0, 0.0, 0.0, 0.0 Notes on indicative targets: - Sources: Somali authorities; and Fund staff estimates and projections. - 1/ Based on preliminary data. Cumulative from the beginning of the year. - 2/ Test date for the first review of the SMP. - 3/ Test date for the second review of the SMP. - 4/ Continuous indicative target. - 5/ Calculated using program exchange rates. See Technical Memorandum of Understanding (Attachment II) for definitions of the program targets. ### Structural benchmarks (selected highlights, May 2018–April 2019) - Benchmarks, target dates, and rationale/monitoring (to be provided within four weeks of each benchmark's due date): - 1A Jun-18: Minister of Finance order to require that all salaries provided in cash be paid directly to individuals' bank accounts and record/register all Somali National Army payroll and non-payroll into the SFMIS payroll module. Rationale: Improve PFM and fiscal reporting. - 2A Sep-18: Minister of Finance order to require all Federal Member States (FMS) and the Banadir region to report at end-Q1 and end-Q3 on the utilization of any FGS budgetary transfer. Rationale: Improve fiscal transparency, accountability, FGS leadership and oversight over the FMS. - 3 Sep-18: Record cash advances in SFMIS and process them in accordance with the Appropriations Act. Rationale: Improve cash management and payment processes. - 4 Sep-18: Complete the stocktaking and recording of all payroll and goods & services vouchers to December 31, 2017 which are in arrears into SFMIS. Rationale: Create an accurate and verified compilation of domestic arrears, to improve governance, and to allow a transparent process of repayment to begin. - 5 Dec-18: Design and implement a cash-forecasting system to inform allotments which are issued prior to commitment, in accordance with the Appropriations Act. Rationale: Provide effective use of the purchasing module in SFMIS, improve cash management, and limits/avoid new arrears. - 6 Dec-18: Conclude the renegotiation of the Mogadishu port and airport fee-collection contracts. Rationale: Strengthen PFM and broaden FGS revenue base. Provide concluded and signed Mogadishu port and airport fee-collection contracts. - 7 Mar-19: Minister of Finance to identify MDAs accounts at commercial banks and the CBS, close unnecessary accounts, move active accounts to CBS, and require all active MDA accounts be mapped to the SFMIS. Rationale: Progress toward Treasury Single Account; establish list of MDA bank accounts, require formal authorization by Accountant General, and monthly CBS reporting of bank balances of Treasury accounts. - 8 Jun-18: Ensure the large-and-medium-taxpayer office (LMTO) is fully operational and share organizational structure and staffing status. Rationale: Enhance the Inland Revenue Department, expand revenue base and increase domestic tax collection. - 9 Jun-18: Minister of Finance to issue order to make renewal of all licenses by MDAs conditional on presenting a tax clearance certificate (TCC) from the Ministry of Finance. Rationale: Expand the revenue base and increase domestic tax collection. - 10 Sep-18: LMTO to increase number of registered large and medium taxpayers from 25 to at least 50, evaluate potential tax arrears for 2017 in Mogadishu, and collect corresponding tax obligations due. Rationale: Expand revenue base and increase domestic tax collection. - 11 Dec-18: Submit the Revenue Bill to Parliament. Rationale: Update tax law and correct deficiencies of old tax laws. - 12 Dec-18: MPT and Minister of Finance to develop a plan to enforce regulations associated with fees to be levied (licensing, spectrum, etc.). Rationale: Improve revenue collection; provide agreed fee structure and plan for collection. - 13 Dec-18: Ministry of Finance to take over all non-tax revenue collections from at least 5 of the remaining MDAs currently collecting these revenues. Rationale: Improve revenue collection; provide SFMIS report showing non-tax revenue collections. - 14 Mar-19: Finalize petroleum and fisheries operational revenue-sharing mechanisms between the FGS and FMS. Rationale: Operational step toward fiscal federalism; advance tax harmonization, national unity, equity and accountability. - 15 Mar-19: Submit an amended National Customs Act to Parliament, and implement a common classification of goods based on HS codes and a front-end customs declaration process. Rationale: Foundation for a new tariff, improve coordination and efficiency. - 16 Mar-19: Prepare an update of National Development Plan 2020-24. Rationale: Prepare for the interim PRSP document; include links to fiscal and macroeconomic framework, costing and critical financing identified, and a social program and protection framework. - 17 Sep-18: Submit to Parliament the draft Targeted Financial Sanctions Act. Rationale: Strengthen the AML/CFT framework to address terrorist financing risks and correspondent banking relationships (CBR) pressures. - 18 Mar-19: CBS to issue regulation on credit classification and provision, and review reporting requirement for banks. Rationale: Improve financial intermediation, banking supervision, legislation, and supervision; update reporting requirements for banks to include data relevant to classification of credit and extent of provisioning. *Source: cr18212 - 11. We are advancing a broad-based reform agenda to strengthen economic resilience* ### 2. For the purposes of the SMP, the government is defined as the FGS. This definition ### cr18212 - 2. For the purposes of the SMP, the government is defined as the FGS. This definition ### Definitions of government and general government - Government for SMP purposes: the FGS (Federal Government of Somalia). - Exclusions: public entities with autonomous legal personalities whose budgets are not included in the federal government budget. - General government: the FGS and the federal member states (Galmudug, Hirsabelle, Jubaland, Puntland, and South West State). ### Government revenue: scope and measurement - Government revenue includes: - All tax and nontax receipts transferred into the FGS general accounts at the CBS. - Revenues defined in line with the Government Financial Statistics Manual (GFSM 2001) on a cash-accounting basis. - Exclusions from government revenue for program monitoring: - Grants. - Other noncompulsory contributions received from foreign governments and international organizations. - Receipts from the sale of nonfinancial assets (for example, the sale of physical assets). - Future signing bonuses from natural resource contracts. - Transactions in financial assets and liabilities, such as borrowing but excepting interest payments. - Recognition basis: - Revenues should be recognized on a cash basis and flows recorded when cash is received. - The Government SFMIS reports will be used as the basis for program monitoring of revenues and expenditures; supplemented by the monthly financial statements prepared by the Minister of Finance. - Components of central government revenues: - Taxes and other compulsory transfers imposed by the government. - Property income derived from the ownership of assets. - Sales of goods and services. - Penalties and forfeits. - Voluntary transfers received from nongovernment other than grants. ### Fiscal balance definition - Fiscal balance, on a cash basis, is defined as the difference between: 1. The sum of government revenue (as defined) and budget grants; and 2. Total current expenditure plus capital expenditure (excluding foreign-financed off budget investment). ### New domestic expenditure arrears - Definition: budgeted federal government payments to residents determined by contractual obligations that remain unpaid 90 days after the due date. - Due date: date when payments are due according to the relevant contractual agreement, considering any contractual grace periods. - Government payments included: - All expenditure for which vouchers have been approved by the Budget Department/Accountant General Office. - Expenditures automatically approved by legislation. - Debt payments to CBS and commercial banks. - Transfers to regional governments. ### Debt: program definition and forms - Debt is defined for program purposes in accordance with Executive Board Decision No. 15688 (14/107), Point 8(a) and 8(b), adopted on December 5, 2014. - General program monitoring definition of “debt”: - A current (that is, not contingent) liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s). - Payments discharge principal and/or interest liabilities incurred under the contract. - Primary forms of debt: - Loans: advances of money to the obligor by the lender (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets equivalent to fully collateralized loans (such as repurchase agreements and official swap arrangements). - Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until after goods are delivered or services provided. - Leases: arrangements where the lessee has the right to use property for specified period(s) shorter than total expected service life; for the guideline, debt is the present value (at inception) of all lease payments expected during the period, excluding payments that cover operation, repair, or maintenance. - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - Failure to make payment on an obligation not considered debt under this definition (for example, payment on delivery) will not give rise to debt. ### Domestic debt - Defined as short-term and medium-to-long-term borrowing from residents of Somalia, including the CBS. - Exclusions: - Temporary advances for liquidity management from the CBS. - Domestic expenditure arrears as defined above. - Temporary advances will be fully repaid within 90 days. ### External debt benchmarks - Benchmarks for external debt are cumulative ceilings on contracting or guaranteeing of new nominal external non-concessional borrowing by the government from the beginning of the calendar year. - External debt is defined by the residency of the creditor. ### CBS net foreign assets (NFA) - CBS NFA defined as CBS’s gross foreign assets minus gross foreign liabilities. - Gross foreign assets components: 1. Gold valued, over the program period, at the market price of December 31, 2017 ($1,302.80 per ounce). 2. Foreign exchange (including recovered CBS assets, non-earmarked budget, and earmarked donor grants). - Minus: government budget grant deposits at the CBS in foreign currency. - Minus: other earmarked foreign currency deposits by residents of Somalia. - Exclusions and conversion: - Somalia’s net position to the IMF is excluded from the definition of net foreign assets. - Relevant exchange rates against the U.S. dollar on December 31, 2017 will be used to convert foreign assets and liabilities denominated in currencies other than U.S. dollars. ### Program monitoring arrangements - Program-Monitoring Committee: - Composition: senior officials from the Ministry of Finance, the Central Bank of Somalia, and the Ministry of Planning, Investment and Economic Development. - The IMF Resident Representative: observer status on the committee. - Responsibilities: monitor program performance, recommend policy responses, inform the Fund regularly on program performance, and transmit supporting materials necessary for evaluation of benchmarks. - Reporting: the committee shall provide the Fund with a monthly progress report on the program within four weeks of the end of each month, using the latest available data. ### Data reporting to the Fund — key reporting requirements and timing - Reporting agencies: Central Bank of Somalia (CBS), Ministry of Finance (MoF), Regional Member States, National Statistics Bureau. - Selected reporting obligations and exact timing: - CBS — Monetary survey: Detailed balance sheet data of the CBS submitted in the reporting template. Frequency: Monthly. Timing: 3 weeks after the end of each month. - CBS — Consolidated commercial banks’ balance sheet data by residency: Quarterly. Timing: 4 weeks after the end of each quarter. - CBS — Other financial indicators (prudential data: total capital, core capital, total net assets, high quality liquid assets, and 30-day funding requirement; average interest and maturity information for private sector loans): Quarterly. Timing: 4 weeks after the end of each quarter. - CBS — Balance of payments data (trade in goods for the port of Mogadishu; petroleum imports to Mogadishu; travel data from the Immigration Department; MTB survey on cross-border transfers): Quarterly. Timing: 4 weeks after the end of each quarter. - CBS — Temporary advances to the FGS: Provide monthly amounts and terms of the temporary advances to the Ministry of Finance. Frequency: Monthly. Timing: 1 week after the end of each month. - CBS — Budget grants: Provide data on the amounts of on-budget grants, including transfers to the government’s accounts from the government’s external accounts at the CBS. Frequency: Monthly. Timing: 3 weeks after the end of each month. - Ministry of Finance — FGS budget operations: Detailed revenue and expenditure by budget line and a comprehensive table summarizing Government operations including TSA balances. Frequency: Monthly. Timing: 4 weeks after the end of each month. - Ministry of Finance — Outstanding appropriation, allotment, commitment, vendor purchasing/payments, cash advances, and bank balances (including for all MDA accounts) since beginning of calendar year: Monthly. Timing: 4 weeks after the end of the month. - Ministry of Finance — Report on all fees collected by the MOF from MDAs, disaggregated by MDA: Monthly. Timing: 4 weeks after the end of the month. - Ministry of Finance — Monitoring Agent reports for Recurrent Cost and Reform Financing non-salary reimbursement eligibility: Monthly. Timing: 4 weeks after the end of the month. - Ministry of Finance — SFMIS audit report recording use of the allotment "allow to exceed" control override function: Monthly. Timing: 4 weeks after the end of the month. - Ministry of Finance — Monthly cash plan: Monthly. Timing: 4 weeks after the end of each month. - Ministry of Finance — Report of all payment requests by MDAs awaiting payment since the beginning of the calendar year where the commitments exceed the agreed payment terms (in SFMIS/Excel): Monthly. Timing: 4 weeks after the end of the month. - Ministry of Finance — Payroll and non-payroll salary and allowance payments made by MDAs and individual embassies (in Excel): Monthly. Timing: 4 weeks after the end of the month. - Regional Member States’ budget operations — Reports from all Federal Member States (FMS) and the Banadir region on utilization of any FGS budgetary transfers: Semi-annually. Timing: 4 weeks after the end of Q1 (March) and Q3 (September). - Domestic arrears — End-of-period stock of domestic arrears accumulated during the year by MDA and 4-digit Object Code: Annually. Timing: 4 weeks after the end of the year. - Domestic debt — The amount of new domestic debt contracted by Government: Monthly. Timing: 4 weeks after the end of the month. - External debt — End of year external debt in U.S. dollars, by creditor, and origination currency; amount of new external debt contracted or guaranteed by Government: Monthly. Timing: 4 weeks after the end of the month. - Disbursements and repayments: (1) scheduled; and (2) actual interest and principal on debt of the Government and the CBS, by creditor: Monthly. Timing: 30 days after the end of each month. - Structural benchmarks — A table with a description of the status of implementation of the structural benchmarks in Table 2 of the MEFP: Monthly. Timing: 4 weeks after the end of the month. - National Statistics Bureau — CPI and other economic indicators: Monthly. Timing: 6 weeks after the end of each month. - National Statistics Bureau — Production data: Annually. Timing: 6 months after the end of each year. *Source: IMF SMP documentation (May 2018–April 2019) contained in cr18212.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18212.pdf_