## EXECUTIVE SUMMARY

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**Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2019/1somea2019004.pdf)

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---

### Background and context
- Implementation of the new SMP IV is satisfactory and the economic outlook is in line with expectations.
- Climate and humanitarian stress:
  - Lower than expected rains in late 2018 and the first half of 2019 threaten Somalia’s already fragile food security.
  - The UN has indicated that up to 2.1 million people face severe hunger through December 2019.
  - The UN issued a severe food insecurity alert through December 2019; almost half of the $1.1 billion humanitarian response plan was funded as of mid-September.
  - The authorities launched a Recovery and Resilience Framework (RRF) in June; key recommendations are reflected in the draft NDP9 (9th National Development Plan).
- HIPC and IFI engagement:
  - Authorities progressing on HIPC Decision Point benchmarks; SMP IV approval has opened the way to establish the policy track record needed for a new IMF financial arrangement and the HIPC Decision Point.
  - SMP IV approved by management on June 26, 2019; Executive Directors agreed it meets upper credit tranche conditionality standards.
  - Outreach to mobilize fund-raising to clear Somalia’s arrears and normalize relations with IFIs has begun, but firm donor commitments to cover IMF and AfDB shares of debt relief have been lacking.
  - A joint IMF-World Bank debt reconciliation mission took place in July.

### Political and institutional context
- Political situation:
  - Political and security situation remains fragile amid a prolonged election cycle and tensions between the federal government (FGS) and federal member states (FMS) around electoral reform and federalism.
  - Positive cooperation in specific policy areas (investment promotion, NDP9) despite tensions.
  - FGS and FMS Finance Ministers met and agreed to support economic and financial reforms required by the HIPC process and to resume regular meetings.
  - Tensions with Galmudug have eased; a peace and reconciliation process is underway; Jubaland elections on August 22 were conducted peacefully.
  - Lower and upper houses of the Federal Parliament announced a resumption of cooperation in July.
- Technical cooperation:
  - Technical work between FGS and FMS counterparts on customs reforms and fiscal reporting is progressing.

### Economic developments
- Real GDP growth:
  - Real GDP growth is projected at 2.9 percent in 2019 (from 2.8 percent in 2018).
  - Text Table 1 — Real GDP growth (percent): 2016: 2.9; 2017: 1.4; 2018: 2.8; 2019: 2.9; 2020: 3.2.
- Inflation:
  - Inflation projected to increase to 4.0 percent for 2019, before easing back to 3.0 percent in 2020.
  - Text Table 1 — Inflation (CPI, e.o.p., percent): 2016: 1.2; 2017: 6.1; 2018: 3.2; 2019: 4.0; 2020: 3.0.
- External and trade:
  - Trade via the Port of Mogadishu has continued to grow, supported by inflows of grants and remittances.
  - Technical work to reconcile Somalia’s external debt advanced with a joint IMF-WB staff mission in July.
- Key indicators (selected, percent of GDP unless noted):
  - Revenue and grants: 2016: 4.1; 2017: 6.0; 2018: 5.7; 2019: 6.9; 2020: 7.2.
  - Grants: 2016: 1.4; 2017: 2.8; 2018: 1.8; 2019: 3.0; 2020: 2.9.
  - Total expenditure: 2016: 4.1; 2017: 6.6; 2018: 5.7; 2019: 6.9; 2020: 7.0.
  - Overall fiscal balance: 2016: 0.0; 2017: -0.6; 2018: 0.0; 2019: 0.1; 2020: 0.2.
  - Current account balance: 2016: -9.4; 2017: -9.0; 2018: -8.3; 2019: -8.0; 2020: -7.7.
  - Remittances: 2016: 32.5; 2017: 31.5; 2018: 29.2; 2019: 28.8; 2020: 29.1.
  - External debt (percent of GDP): 2016: 105.3; 2017: 103.3; 2018: 99.5.
  - Stock of domestic arrears (percent of GDP): 2017: 68.8; 2018: 68.8; 2019: 63.5; 2020: 57.2.

### Fiscal performance and public finances
- Fiscal outcomes through July 2019:
  - Domestic revenue collection of $126 million, exceeding the July 2019 indicative target of $111 million.
  - Multilateral grants are on track.
  - Expenditure restraint, aided by improving cash forecasting, contained spending within available funds.
  - Overall fiscal surplus of $4.3 million through July 2019.
  - No accumulation of new domestic expenditure arrears, no contraction of new domestic debt, and no new non-concessional borrowing as required under SMP IV.
  - Authorities implemented the Somalia Standard Administrative Document (SSAD) for customs and issued guidelines for the fiscal buffer.
- Budgeting and IMF commitments:
  - Authorities plan to issue a supplementary budget for 2019 incorporating better-than-expected year-to-date domestic revenue performance.
  - Outline of the 2020 budget is in line with the program and includes an allocation for payments to the Fund and other key IFIs.
- Structural benchmarks and controls:
  - All structural benchmarks and all but one indicative target for this review were met.
  - Fiscal buffer established with initial funding of $12 million (SB1).
  - CBS clarified guidelines governing the use of the fiscal buffer and confirmed additional controls to protect the floor on net foreign assets.

### Financial sector and monetary policy
- Financial activity:
  - Growth of deposits in the banking sector remained robust at about 30 percent year-on-year.
  - Credit to the private sector grew at about 12 percent year-on-year.
  - Banks’ capitalization increased to over 15 percent in June 2019.
- Central Bank of Somalia (CBS) actions:
  - CBS supervision capacity continues to deepen.
  - CBS issued regulations covering the mobile money sector on June 27, 2019.
  - CBS preparing to implement its re-organization and capacity-building plan developed with IMF technical assistance.
- Reforms and payments:
  - Contracts for payment system vendors finalized and an initial draft of the Payment Systems Law prepared.
  - Phase I of currency reform (currency replacement) preparations underway; World Bank support contemplated.

### Performance under SMP IV and program risks
- SMP IV performance:
  - Implementation of SMP IV is satisfactory.
  - For July 2019, all structural benchmarks and all but one of the indicative targets were met.
  - CBS marginally missed the “continuous” floor on NFA of $24.8 million in June (by just over $0.1 million); the shortfall was eliminated in July.
- Indicative targets (selected, Millions of U.S. dollars):
  - Domestic revenue floor: 110.9; Prel. Status: 126.3 Met; later program values: 154.4, 196.3, 32.0, 92.9.
  - Fiscal balance (cash basis; floor): 0.0; December Prog.: 4.3; Prel. Status: Met.
  - CBS Net foreign assets (floor): 24.8; Prel. Status: 24.9 Met; subsequent program values: 24.8, 24.8, 24.8, 24.8.
  - Continuous indicative targets: accumulation of new domestic expenditure arrears (ceiling) 5/: 0.0; Met. Contracting of new domestic debt (ceiling) 5/: 0.0; Met. Contracting or guaranteeing of new nominal external non-concessional borrowing (ceiling) 5/: 0.0; Met.
- Program and other risks:
  - Underlying risks broadly in line with the June 2019 staff report.
  - Renewed cooperation between FGS and FMS has somewhat reduced risks to reforms requiring broad political support.
  - Securing sufficient financing assurances to cover the IMF’s share of debt relief remains a challenge.

### Structural benchmarks (selection and status)
- SB1: Fiscal buffer under the TSA (Target: End-July 2019). Status: Met.
- SB2: Submit quarterly reports on fiscal operations of the FMS and FGS (Target: End-September 2019).
- SB3: Prepare and issue expenditure assignment guidelines (Target: End-October 2019).
- SB6: Automate front-end customs declaration at Port of Mogadishu (Target: End-July 2019). Status: Met.
- SB7: Implement manifest verification in customs IT systems at Port of Mogadishu (Target: End-September 2019).
- SB8: Enact Revenue Bill (“Allocation of Revenue Raising Power” and “Revenue Administration” Bills) (Target: End-October 2019). Status: Passage remains a challenge.
- SB9: Include goods inspection in automated front-end declaration process (Target: End-December 2019).
- SB12: CBS to issue Mobile Money Regulations (Target: End-July 2019). Status: Met.
- SB13: Adopt updated CBS Strategic Plan and transition toward updated organizational structure (Target: End-October 2019).
- SB14: MOF to issue AML/CFT regulations that apply to all financial institutions (Target: End-October 2019). Drafts under inter-agency review.

### Fiscal outlook and budget planning
- Domestic revenues reached $126 million through end-July 2019 against the 2019 current full year target of $196 million.
- Revenues included two one-off non-tax receipts totalling about $10 million: telecommunications licenses ($4 million, valid for a period of 20 years) and ICAO recovery ($6.5 million).
- All multilateral budget support grants through July 2019 were disbursed; a $20 million grant from Qatar was received in August to support 2019 and 2020 budget needs.
- Authorities will issue a 2019 supplementary budget by end-October 2019 projecting a revised target of $221 million in domestic revenue and $164 million in grants ($150 million budgeted).
- Supplementary budget includes $12 million anticipated to be transferred in overflight fees for 2019; agreement with IATA remains pending.
- Draft 2020 budget projects a domestic revenue envelope of $221 million; tax revenues expected to increase to $154 million.
- Grant forecasts for 2020: $139 million expected, of which $93 million expected to be budget support.
- Expenditure envelope for 2020: $360 million; transfers to FMS anticipated to remain stable at $42 million.

### Token payments on protracted arrears
- Draft budget includes provision to initiate token payments on Somalia’s protracted arrears to the Fund, the WB and AfDB.
- Authorities considered a maximum payment of $10,000 per month to any one IFI, implying monthly payments of $10,000 (annual payment of $0.12 million) to the IMF starting January 2020.
- Footnote: Arrears to the IMF, World Bank, and AfDB were about $332, $351, and $110 million, respectively, at end-August 2019.

### Financial sector, AML-CFT, and data improvements
- CBS finalizing updated Strategic Plan and costed Transition Plan; first mobile money licensing round starting in February 2020.
- AML-CFT reforms accelerated under the AML-CFT Action Plan; prioritized actions include issuing AML-CFT regulations that apply to all financial institutions and enacting targeted financial sanctions law.
- Macroeconomic and financial data improvements underway: FDI and traveler surveys, GFS compilation for central and state governments, templates for GFS source data, and a planned TA mission in October.

### HIPC Decision Point, debt management, and external debt
- Key near-term requirements to reach HIPC Decision Point:
  - Develop necessary track-record under SMP IV.
  - Complete NDP9 (to serve as interim poverty reduction strategy).
  - Secure sufficient financing commitments to clear Somalia’s arrears to the IMF and the African Development Bank, including bridge loans.
- Macroeconomic projections (selected):
  - Nominal GDP (Millions of U.S. dollars): 2015: 4,049; 2016: 4,198; 2017: 4,509; 2018: 4,721; 2019: 4,958; 2020 (proj.): 5,218; 2021 (proj.): 5,507; 2022 (proj.): 5,816.
  - Real GDP growth (annual percent): 2015: 3.5; 2016: 2.9; 2017: 1.4; 2018: 2.8; 2019: 2.9; 2020 (proj.): 3.2; 2021 (proj.): 3.5; 2022 (proj.): 3.5.
  - Per capita GDP (U.S. dollars): 2015: 310; 2016: 313; 2017: 327; 2018: 332; 2019: 339; 2020 (proj.): 347; 2021 (proj.): 357; 2022 (proj.): 368.
  - Consumer prices (e.o.p., percent change): 2015: 0.3; 2016: 1.2; 2017: 6.1; 2018: 3.2; 2019: 4.0; 2020 (proj.): 3.0; 2021 (proj.): 2.5; 2022 (proj.): 2.2.
- External public debt and creditor composition (2018 Prel.):
  - Total stock outstanding external public debt: US$ 4,697 million.
  - Of which in arrears: US$ 4,506 million.
  - Major creditor groups (2018 Prel., Millions of U.S. Dollars): Multilateral creditors total: 1,514; Bilateral creditors total: 3,183; Paris Club creditors: 2,492; Non-Paris Club bilateral creditors: 691.

### Mission, approvals, and next steps
- Mission and approvals:
  - SMP IV approved by management on June 26, 2019.
  - Discussions held in Addis Ababa, Ethiopia during September 9-14, 2019.
  - Mission staff team listed in source document; Approved By: Thanos Arvanitis and Nathan Porter.
- Next steps and priorities:
  - Sustain efforts to meet HIPC Decision Point benchmarks and complete technical debt reconciliation.
  - Continue outreach to donors to secure financing assurances for debt relief, particularly to cover IMF and AfDB shares.
  - Maintain fiscal discipline while using supplementary and 2020 budget allocations to signal normalization with IFIs.
  - Continue implementation of CBS reforms and mobile money regulations and strengthen financial sector supervision.

*Source: IMF staff report and Somali authorities (content unit: 1somea2019004).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background and context
- Implementation of the new SMP IV is satisfactory and the economic outlook is in line with expectations.
- Climate and humanitarian stress:
  - Lower than expected rains in late 2018 and the first half of 2019 threaten Somalia’s already fragile food security.
  - The UN has indicated that up to 2.1 million people face severe hunger through December 2019.
  - The UN issued a severe food insecurity alert through December 2019; almost half of the $1.1 billion humanitarian response plan was funded as of mid-September.
  - The authorities launched a Recovery and Resilience Framework (RRF) in June; key recommendations are reflected in the draft NDP9 (9th National Development Plan).
- HIPC and IFI engagement:
  - The authorities are progressing on HIPC Decision Point benchmarks; SMP IV approval has opened the way to establish the policy track record needed for a new IMF financial arrangement and the HIPC Decision Point.
  - SMP IV was approved by management on June 26, 2019; Executive Directors agreed it meets upper credit tranche conditionality standards.
  - Outreach to mobilize fund-raising to clear Somalia’s arrears and normalize relations with IFIs has begun, but firm donor commitments to cover IMF and AfDB shares of debt relief have been lacking.
  - A joint IMF-World Bank debt reconciliation mission took place in July.

### Political and institutional context
- Political situation:
  - The political and security situation remains fragile amid a prolonged election cycle and tensions between the federal government (FGS) and federal member states (FMS) around electoral reform and federalism.
  - Despite tensions, there are positive signs of cooperation in specific policy areas (investment promotion, NDP9).
  - FGS and FMS Finance Ministers met and agreed to support economic and financial reforms required by the HIPC process and to resume regular meetings.
  - Tensions with Galmudug have eased; a peace and reconciliation process is underway; Jubaland elections on August 22 were conducted peacefully.
  - The lower and upper houses of the Federal Parliament announced a resumption of cooperation in July.
- Technical cooperation:
  - Technical work between FGS and FMS counterparts on customs reforms and fiscal reporting is progressing.

### Economic developments
- Real economic growth:
  - Real GDP growth is projected at 2.9 percent in 2019 (from 2.8 percent in 2018).
  - The projection assumes continued support from development and humanitarian partners and better rainfall in the second half of the year.
- Inflation:
  - Inflation is projected to increase to 4.0 percent for 2019, before easing back to 3.0 percent in 2020.
- External and trade:
  - Trade via the Port of Mogadishu has continued to grow, supported by inflows of grants and remittances.
  - Technical work to reconcile Somalia’s external debt advanced with a joint IMF-WB staff mission in July.
- Key indicators from Text Table 1 (Selected Economic Indicators, 2016–20):
  - Real GDP growth: 2016: 2.9; 2017: 1.4; 2018: 2.8; 2019: 2.9; 2020: 3.2 (percent).
  - Inflation (CPI, e.o.p.): 2016: 1.2; 2017: 6.1; 2018: 3.2; 2019: 4.0; 2020: 3.0 (percent).
  - Revenue and grants (percent of GDP): 2016: 4.1; 2017: 6.0; 2018: 5.7; 2019: 6.9; 2020: 7.2.
  - Grants (percent of GDP): 2016: 1.4; 2017: 2.8; 2018: 1.8; 2019: 3.0; 2020: 2.9.
  - Total expenditure (percent of GDP): 2016: 4.1; 2017: 6.6; 2018: 5.7; 2019: 6.9; 2020: 7.0.
  - Overall fiscal balance (percent of GDP): 2016: 0.0; 2017: -0.6; 2018: 0.0; 2019: 0.1; 2020: 0.2.
  - Current account balance (percent of GDP): 2016: -9.4; 2017: -9.0; 2018: -8.3; 2019: -8.0; 2020: -7.7.
  - Remittances (percent of GDP): 2016: 32.5; 2017: 31.5; 2018: 29.2; 2019: 28.8; 2020: 29.1.
  - External debt (percent of GDP): 2016: 105.3; 2017: 103.3; 2018: 99.5.
  - Stock of domestic arrears (percent of GDP): 2017: 68.8; 2018: 68.8; 2019: 63.5; 2020: 57.2.

### Fiscal performance and public finances
- Fiscal outcomes through July 2019:
  - Domestic revenue mobilization was robust with revenue collection of $126 million, exceeding the July 2019 indicative target (IT) of $111 million.
  - Multilateral grants are on track.
  - Expenditure restraint, aided by improving cash forecasting, contained spending within available funds.
  - Overall fiscal surplus of $4.3 million through July 2019.
  - No accumulation of new domestic expenditure arrears, no contraction of new domestic debt, and no new non-concessional borrowing as required under SMP IV.
  - Authorities implemented the Somalia Standard Administrative Document (SSAD) for customs and issued guidelines for the recently established fiscal buffer.
- Budgeting and IMF commitments:
  - In line with SMP IV commitments, the authorities plan to issue a supplementary budget for 2019 incorporating the better-than-expected year-to-date domestic revenue performance.
  - The outline of the 2020 budget is in line with the program and includes an allocation for payments to the Fund and other key IFIs to demonstrate commitment to normalizing relations with IFIs.
- Structural benchmarks and controls:
  - All structural benchmarks and all but one indicative target for this review were met.
  - To ensure continued strong implementation, the authorities clarified guidelines governing the use of the fiscal buffer and confirmed additional controls to protect the floor on net foreign assets.

### Financial sector and monetary policy
- Financial activity:
  - Growth of deposits in the banking sector remained robust at about 30 percent year-on-year.
  - Credit to the private sector grew at about 12 percent year-on-year.
  - Banks’ capitalization increased to over 15 percent in June 2019.
- Central Bank of Somalia (CBS) actions:
  - CBS supervision capacity continues to deepen.
  - CBS issued regulations covering the mobile money sector on June 27, 2019.
  - CBS is preparing to implement its re-organization and capacity-building plan developed with IMF technical assistance.

### Performance under SMP IV and program risks
- SMP IV performance:
  - Implementation of SMP IV is satisfactory.
  - All structural benchmarks and all but one indicative target for this review were met.
- Program and other risks:
  - Underlying risks broadly in line with the June 2019 staff report.
  - Renewed cooperation between the federal government and member states at Finance Ministers and technical levels has somewhat reduced risks to reforms requiring broad political support.
  - Authorities are increasing outreach to donors to garner support for debt relief, including during a high-level meeting on Somalia in the margins of the UN General Assembly in late September and at the Somalia Partnership Forum in early October.
  - Securing sufficient financing assurances to cover the IMF’s share of debt relief remains a challenge.

### Mission, approvals, and next steps
- Mission and approvals:
  - SMP IV approved by management on June 26, 2019.
  - Discussions were held in Addis Ababa, Ethiopia during September 9-14, 2019.
  - The mission staff team: A. Holland (Head), L. Kohler, P. de Imus (all MCD), G. Kalyandu (FAD), T. Orav (SPR), I. Samake (Resident Representative), W. Irungu (Economist, IMF Office, Somalia) and P. Muir (FAD consultant).
  - The mission met with Finance Minister Mr. Abdirahman Beileh; Minister of Planning, Investment, and Economic Development, Mr. Gamal Hassan; Central Bank Governor Mr. Abdirahman Abdullahi; other officials; FMS Finance Ministers and representatives; and bilateral and multilateral partners.
  - Approved By: Thanos Arvanitis and Nathan Porter.
- Next steps and priorities:
  - Sustain efforts to meet HIPC Decision Point benchmarks and complete technical debt reconciliation.
  - Continue outreach to donors to secure financing assurances for debt relief, particularly to cover IMF and AfDB shares.
  - Maintain fiscal discipline while using supplementary and 2020 budget allocations to signal normalization with IFIs.
  - Continue implementation of CBS reforms and mobile money regulations and strengthen financial sector supervision.

*IMF staff mission and Executive approval details as provided in the source document.*

### 8. Overall performance under SMPIV has been satisfactory:

### 8. Overall performance under SMPIV has been satisfactory:

### Program implementation and compliance
- For July 2019, all structural benchmarks (SBs) and all but one of the indicative targets (ITs) were met.
- Fiscal buffer established with initial funding of $12 million (SB1).
- Customs reform progressing as scheduled (SB6).
- Mobile money regulations were issued (SB12).
- The authorities marginally missed the “continuous” floor on NFA of $24.8 million in June (by just over $0.1 million); the shortfall was eliminated in July and was due to technical operational factors. The CBS has introduced additional internal controls to limit future occurrences.
- For September and October 2019, end-July data suggests that the October ITs are likely to be met.
- Good progress on six SBs due by end-September and October.
- FGS has received preliminary data for Q1 and Q2 from the five FMS and prepared a preliminary version of the general government presentation (SB2), supported by TA with further TA planned for October to improve consolidation quality.
- A preliminary draft of expenditure assignment guidelines has been prepared with technical input from the FMS; sustained cooperation between FGS and FMS finance ministers will be needed to reach final agreement (SB3).
- Budget and Finance Committee undertook detailed review of Revenue Bills ahead of Lower House reconvening to facilitate their passage; securing passage by the Upper House and enactment by the President before end-October will remain a challenge (SB8).
- Technical work towards automating manifest verification (SB7) and goods inspection (SB9) is advancing with UK DFID support.
- CBS prepared drafts of updated strategic plan and a transition plan to be shared with staff for comment ahead of CBS Board approval (SB13).
- AML-CFT regulations that apply to all financial institutions (SB14) have been drafted, are under inter-agency review, and are expected to be issued by the Ministry of Finance before the end of October.
- Staff will make a broad-based assessment of overall program performance at the second review, including evaluation of progress on SBs.

### Indicative targets (June 2019–May 2020) — selected figures from Text Table 2 (Millions of U.S. dollars)
- Fiscal balance (cash basis; floor): 0.0; December Prog. 4.3; Prel. Status Met; later program values 0.0, 0.0, 0.0, 0.0
- Domestic revenue floor: 110.9; 126.3 Prel. Status Met; later program values 154.4, 196.3, 32.0, 92.9
- Accumulation of new domestic expenditure arrears (ceiling) 5/: 0.0; Met
- Contracting of new domestic debt (ceiling) 5/: 0.0; Met
- Contracting or guaranteeing of new nominal external non-concessional borrowing (ceiling) 5/: 0.0; Met
- Central Bank of Somalia (CBS) Net foreign assets of the CBS (floor) 5/6/: 24.8; 24.9 Prel. Status Met; subsequent program values 24.8, 24.8, 24.8, 24.8
- Memorandum item — Contracting or guaranteeing nominal external concessional or non-concessional borrowing debt (ceiling): 0.0 across entries

Notes associated with the table:
- 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/ Test date for the final review of the SMP.
- 5/ Continuous indicative target.
- 6/ As defined in the Technical Memoradum of Understanding, IMF Country Report No. 18/212.
- Test months referenced: July 2/ October 3/ February May 4/

### Structural benchmarks (Text Table 3) — selected SB status and target dates
- SB1: Establish a “fiscal buffer” under the TSA and submit monthly reports on available balances. Target: End-July 2019; thereafter end-month basis. Rationale: Sustain critical expenditures and avoid arrears. Status: Met.
- SB2: Submit quarterly reports on fiscal operations of the FMS and FGS. Target: End-September 2019; thereafter end-quarter basis. First report to capture 1Q and 2Q 2019 data.
- SB3: Prepare and issue expenditure assignment guidelines. Target: End-October 2019. FGS to submit interim principles/guidelines and minutes of discussions with FMS.
- SB6: Automate front-end customs declaration functionality for online customs declaration at the Port of Mogadishu. Target: End-July 2019; thereafter end-month basis. Status: Met.
- SB7: Implement manifest verification in customs IT systems at the Port of Mogadishu. Target: End-September 2019; thereafter end-month basis.
- SB8: Enact Revenue Bill (“Allocation of Revenue Raising Power” and “Revenue Administration” Bills). Target: End-October 2019. Status: Passage by Upper House and Presidential enactment before end-October remains a challenge.
- SB9: Include goods inspection in automated front-end declaration process at Port of Mogadishu. Target: End-December 2019; thereafter end-month basis.
- SB12: CBS to issue Mobile Money Regulations. Target: End-July 2019. Status: Met.
- SB13: Adopt updated CBS Strategic Plan and transition toward updated organizational structure (as approved by the CBS Board November 2018). Target: End-October 2019. Prepare drafts and secure Board approval.
- SB14: MOF to issue AML/CFT regulations that apply to all financial institutions. Target: End-October 2019. Drafts are under inter-agency review; expected to be issued before end-October.
- SB15–SB18: Additional financial stability, AML-CFT, and statistics-related SBs with target dates through End-May 2020 covering Mobile Money implementation, Targeted Financial Sanctions regulations, Financial Reporting Center capacity, and Amendment to the Statistics Law.

### Fiscal performance and 2019 outlook
- Domestic revenues reached $126 million through end-July 2019, against the 2019 current full year target of $196 million.
- Revenues included two one-off non-tax receipts of about $10 million: telecommunications licenses ($4 million, valid for a period of 20 years) and ICAO recovery ($6.5 million).
- All multilateral budget support grants through July 2019 were disbursed, with a $20 million grant from Qatar received in August to support 2019 and 2020 budget needs.
- Authorities will issue a 2019 supplementary budget by end-October 2019 projecting a revised target of $221 million in domestic revenue and $164 million in grants ($150 million budgeted).
- The supplementary budget includes $12 million anticipated to be transferred in overflight fees for 2019; agreement with IATA remains pending and associated spending will depend on receipt of these monies.

### 2020 budget planning and fiscal projections
- Draft 2020 budget projects a domestic revenue envelope of $221 million.
- Tax revenues are expected to increase to $154 million, including plans to extend sales tax provisions to electricity and cable companies.
- Non-tax revenues expected to fall overall in 2020 due to non-recurrence of 2019 one-off receipts.
- Grant forecasts: $139 million expected in 2020, of which $93 million are expected to be budget support.
- Expenditure envelope for 2020: $360 million; wages and goods and services expected near 2019 levels; transfers to FMS anticipated to remain stable at $42 million.

### Token payments on protracted arrears
- Draft budget includes provision to initiate token payments on Somalia’s protracted arrears to the Fund, the WB and AfDB.
- Authorities considered a maximum payment of $10,000 per month to any one IFI, implying monthly payments of $10,000 (annual payment of $0.12 million) to the IMF starting January 2020.
- Staff considers the authorities’ proposal broadly in line with past precedent given exceptional circumstances and development needs.
- Footnote: Arrears to the IMF, World Bank, and AfDB were about $332, $351, and $110 million, respectively, at end-August 2019.

### Revenue mobilization and PFM reforms
- Continued strengthening of revenue administration expected to generate further gains in tax revenues; groundwork being prepared to validate tax returns, perform audits, and expand enforcement.
- Customs administration reforms progressing: success in automating customs declaration process and ongoing work to automate manifest verification processes.
- Passage of the Revenue Bills (SB8) will be important for rollout of FGS measures to the FMS and to increase revenue collection at the federation level.
- PFM reforms prioritized to ensure efficient use of constrained resources:
  - Commitment controls to be expanded across MDAs to improve discipline on goods and services spending.
  - Passage of the Procurement bill (two readings in lower house) to strengthen procurement oversight.
  - Quality assurance review of the SFMIS planned to ensure system meets needs as donor support and revenues rise; scope to reduce some manual processes.
  - Guidelines for operating the fiscal buffer amended to restrict use to critical expenditures: FGS compensation and food rations for the Somalia National Army.
  - Restructured airport-fee management contract finalized; commercial terms for Port of Mogadishu contract re-negotiation agreed.

### Strengthening fiscal federalism
- Fisheries revenues from last season have been shared with respective FMSs based on March 2019 agreement.
- Amended Petroleum Bill (reflecting June 2018 Baidoa agreement) progressed through the lower house.
- Progress on SBs requiring FMS support: fiscal reporting (SB2), drafting of expenditure assignment guidelines (SB3), and passage of the Revenue Bills (SB8).
- Further consultation with FMS will be needed to finalize key agreements before policy changes can be implemented.

*Source: IMF staff report excerpt — “8. Overall performance under SMPIV has been satisfactory:”*

### 15. Reforms in the financial sector continue. With WB operational and financial assistance,

### 15. Reforms in the financial sector continue. With WB operational and financial assistance,

### Financial sector reforms and payment systems
- The Central Bank of Somalia (CBS) is finalizing an updated Strategic Plan and a costed Transition Plan to implement the new organizational structure, developed with the support of IMF TA.
- CBS preparations for mobile money regulation implementation are well advanced, including a transition plan, supervisory manual, and staffing, with the first licensing round starting in February 2020.
- Contracts for the payment system vendors have been finalized and an initial draft of the Payment Systems Law has been prepared.
- The update to the Financial Institutions Law has progressed with World Bank (WB) assistance.

### AML-CFT reforms
- Authorities are accelerating ongoing AML-CFT reforms under the newly finalized AML-CFT Action Plan.
- A July WB scoping mission confirmed the reform priorities outlined in the Action Plan.
- The inter-agency AML-CFT committee (NAMLC) convened two meetings to review the Action Plan and prioritize next steps.8
- Prioritized actions include:
  - Clarifying the responsibilities of operational agencies.
  - Strengthening the annual MTB-licensing process.
  - Issuing AML-CFT regulations that apply to all financial institutions.
  - Enacting the targeted financial sanctions law and regulations.
  - Strengthening the Financial Reporting Center.

### Currency reform (Phase I)
- Momentum behind Phase I of the currency reform—the currency replacement phase—is building.9
- The WB confirmed willingness to provide technical and operational support for the currency replacement project, including fundraising.
- IMF and WB staff will continue close collaboration on the project, especially regarding CBS capacity building needs and coordination of policy advice.

### Macroeconomic and financial data improvements
- Authorities are addressing key macroeconomic and financial data gaps and coordinating the revision of the national accounts with key donors.
- On external statistics, CBS is finalizing the FDI and traveler surveys and continuing to improve MTB data on cross-border financial flows.
- To support SB2, authorities have:
  - Completed the initial compilation of GFS for the central and state governments.
  - Drafted an action plan to address recommendations from the last GFS TA mission.
  - Prepared templates for collecting GFS source data.
- A further TA mission is planned for October to support these efforts.
- The amended National Statistics Bill has been submitted to the legislature, and authorities are drafting a statistics roadmap to meet the requirement under SB18.

### Governance, anti-corruption, and PFM
- Parliament passed the anti-corruption bill, which the President signed into law on September 21, 2019; this will pave the way for formation of the anti-corruption commission.
- An anti-corruption strategic plan is being developed to support implementation of the bill once enacted.
- Continued reforms supporting revenue mobilization, PFM, CBS capacity, financial sector stability, and AML/CFT compliance are expected to strengthen governance and reduce vulnerabilities to corruption.
- Passage of the PFM law will address key gaps in the legal framework.

### HIPC Decision Point technical requirements and debt management
- Work on technical requirements for HIPC Decision Point is on track.
- By end-September, authorities plan to submit to Cabinet the 9th National Development Plan, which will serve as the interim poverty reduction strategy; the current draft reflects three rounds of stakeholder consultation and in-depth analysis.
- The debt reconciliation exercise is close to finalization; IMF and WB staff are working on the HIPC debt relief analysis and related documentation.
- Authorities are working to strengthen their debt management framework and capacity.
- Securing necessary financial commitments for arrears clearance and debt relief, especially to meet the Fund’s costs of debt relief, is a significant hurdle to reaching the HIPC Decision Point.10
- Preliminary discussions have begun, but a concerted effort by IMF membership is needed to mobilize required financing, including for bridge financing, to enable IMF action once a track record of sound economic policy implementation is established.

### Staff appraisal — key judgments and recommendations
- Growth and risks:
  - Underlying economic growth remains stable, but the outlook is vulnerable to climate and security shocks.
  - Insecurity and recurring drought are key risks; growth remains insufficient to substantially reduce poverty.
- Program commitment:
  - Authorities remain strongly committed to implementing SMPIV; satisfactory performance for the first review is noted.
  - Commitment from FMS Finance Ministers to support program goals is welcome; sustaining cooperation is critical, especially for timely passage of the Revenue Bills and development of expenditure assignment guidelines.
- Fiscal policy and PFM:
  - Domestic revenue generation is encouraging.
  - Implementation of the fiscal buffer will help smooth volatile revenues.
  - Authorities met WB RCRF and EU budget support benchmarks.
  - Continued progress on PFM, particularly strengthening expenditure controls and passing the updated PFM Law, is key to improving governance and donor confidence.
- Financial stability:
  - Ongoing reforms to support financial stability are encouraging.
  - New mobile money regulations are welcome; implementation will be key.
  - Rapid, properly sequenced implementation of the AML-CFT Action Plan will support cross-border financial linkages and economic growth.
  - Continued efforts to expand CBS capacity underpin positive developments, including preparation for Phase I of the currency reform.

*Source: International Monetary Fund.*

### 26. Achieving the authorities’ goal of reaching the HIPC Decision Point in early 2020 will

### 26. Achieving the authorities’ goal of reaching the HIPC Decision Point in early 2020 will

### Key near-term requirements to reach HIPC Decision Point
- Authorities are developing the necessary track-record under the SMPIV and work on NDP9 is close to completion.
- Authorities proposed to initiate payments on arrears to IFIs, within their limited capacity, starting in 2020.
- Reaching the Decision Point requires securing sufficient financing commitments to clear Somalia’s arrears to the IMF and the African Development Bank, including securing the necessary bridge loans.
- Staff views that the proposed payments to the Fund are in line with past precedent.
- While donors have been supportive, firm commitments remain lacking and represent a significant risk to achieving the authorities’ goal in a timely manner.

### Macroeconomic developments and outlook (selected indicators)
- Nominal GDP (Millions of U.S. dollars): 2015: 4,049; 2016: 4,198; 2017: 4,509; 2018: 4,721; 2019: 4,958; 2020 (proj.): 5,218; 2021 (proj.): 5,507; 2022 (proj.): 5,816.
- Real GDP, annual percentage change: 2015: 3.5; 2016: 2.9; 2017: 1.4; 2018: 2.8; 2019: 2.9; 2020 (proj.): 3.2; 2021 (proj.): 3.5; 2022 (proj.): 3.5.
- Per capita GDP in U.S. dollars: 2015: 310; 2016: 313; 2017: 327; 2018: 332; 2019: 339; 2020 (proj.): 347; 2021 (proj.): 357; 2022 (proj.): 368.
- Consumer prices (end-of-period, percent change): 2015: 0.3; 2016: 1.2; 2017: 6.1; 2018: 3.2; 2019: 4.0; 2020 (proj.): 3.0; 2021 (proj.): 2.5; 2022 (proj.): 2.2.
- Current account balance (Percent of GDP): 2015: -6.0; 2016: -9.4; 2017: -9.0; 2018: -8.3; 2019 (proj.): -8.0; 2020 (proj.): -7.7; 2021 (proj.): -7.6; 2022 (proj.): -8.5.
- Trade balance (Percent of GDP): 2015: -72.8; 2016: -74.5; 2017: -80.5; 2018: -73.7; 2019 (proj.): -72.3; 2020 (proj.): -70.7; 2021 (proj.): -71.0; 2022 (proj.): -70.2.
- Remittances (Percent of GDP): 2015: 32.9; 2016: 32.5; 2017: 31.5; 2018: 29.2; 2019 (proj.): 28.8; 2020 (proj.): 29.1; 2021 (proj.): 29.3; 2022 (proj.): 28.8.
- Grants (Percent of GDP): 2015: 34.9; 2016: 33.3; 2017: 40.8; 2018: 36.9; 2019 (proj.): 36.2; 2020 (proj.): 34.6; 2021 (proj.): 34.7; 2022 (proj.): 33.6.
- External public debt (Percent of GDP): 2015: 108.2; 2016: 105.3; 2017: 103.3; 2018: 99.5; 2019 (prel.): 99.5; 2020 (proj.): 99.5; 2021 (proj.): 99.5; 2022 (proj.): 99.5 (Table 7a/7b show detailed creditor composition).

### Fiscal stance, revenue, and arrears (selected fiscal facts)
- Central government revenue and grants (Percent of GDP): 2015: 3.5; 2016: 4.1; 2017: 6.0; 2018: 5.7; 2019: 6.9; 2020 (proj.): 7.2; 2021 (proj.): 7.4; 2022 (proj.): 7.7.
- Grants (Percent of GDP): 2015: 0.7; 2016: 1.4; 2017: 2.8; 2018: 1.8; 2019: 3.0; 2020 (proj.): 2.9; 2021 (proj.): 2.9; 2022 (proj.): 2.8.
- Expenditure, total (Percent of GDP): 2015: 3.3; 2016: 4.1; 2017: 6.6; 2018: 5.7; 2019: 6.9; 2020 (proj.): 7.0; 2021 (proj.): 7.2; 2022 (proj.): 7.5.
- Compensation of employees (Percent of GDP): 2015: 1.3; 2016: 1.3; 2017: 2.8; 2018: 3.0; 2019: 3.2; 2020 (proj.): 3.3; 2021 (proj.): 3.4; 2022 (proj.): 3.5.
- Purchase of non-financial assets (Percent of GDP): 2015: 0.1; 2016: 0.2; 2017: 0.1; 2018: 0.2; 2019: 0.5; 2020 (proj.): 0.4; 2021 (proj.): 0.4; 2022 (proj.): 0.3.
- Overall fiscal balance (Percent of GDP): 2015: 0.0; 2016: 0.0; 2017: -0.6; 2018: 0.0; 2019: 0.1; 2020 (proj.): 0.2; 2021 (proj.): 0.2; 2022 (proj.): 0.2.
- Stock of domestic arrears (Percent of GDP): 2015: 1.7; 2016: 1.8; 2017: 1.5; 2018: 1.5; 2019: 1.3; 2020 (proj.): 1.1; 2021 (proj.): 0.8; 2022 (proj.): 0.6.
- Federal Government operations (Millions of U.S. dollars, selected): Revenue and grants (2019 Dec.): 340.1; Revenue (2019 Dec.): 221.3; Grants (2019 Dec.): 118.9; Total expenditure (2019 Dec.): 340.1; Repayment of arrears and advances (2019 Dec.): 6.3; Purchase of non-financial assets (2019 Dec.): 36.5; Stock of domestic arrears (end-2019): 65.7 (Table 2a).

### Financial sector and central bank
- Consolidated commercial banks: total assets (2019 Est.): 457 (Millions of U.S. Dollars); customer deposits (2019 Est.): 363; credit to private sector (2019 Est.): 206.
- Monetary survey (Millions of U.S. Dollars, selected): Net foreign assets (2019Q2 Est.): -255; Gross reserves of the central bank (2019Q2 Est.): 50; Broad money (2019Q2 Est.): 364.
- Somali shillings per U.S. dollar (end-of-period, e.o.p.): 2015: 22,285; 2016: 24,005; 2017: 23,605; 2018: 24,475; 2019 (eop reported in tables): 25,012.

### External public debt and creditor composition
- Total stock outstanding external public debt (2018 Prel.): US$ 4,697 million (US$ 4.7 billion noted in the text).
- Of which in arrears (2018 Prel.): US$ 4,506 million.
- Major creditor groups (2018 Prel., Millions of U.S. Dollars): Multilateral creditors total: 1,514; Bilateral creditors total: 3,183; Paris Club creditors: 2,492; Non-Paris Club bilateral creditors: 691. (Detailed creditor-level figures are provided in Table 7a/7b.)

### Risks and constraints
- Securing financing commitments, including bridge loans to clear arrears to the IMF and AfDB, is a challenging and complex process.
- Firm donor commitments remain lacking; this represents a significant risk to achieving HIPC Decision Point in early 2020.
- Poor rains have triggered a slowing of the growth recovery (figure caption).

### Implications and policy focus
- Continued strengthening of domestic revenue mobilization supports higher discretionary spending and improving fiscal stability.
- Initiating payments on arrears to IFIs starting in 2020, as proposed by authorities, aligns with past precedent and supports normalization with international financial institutions.
- Priority remains securing sufficient financing commitments and bridge financing to clear arrears to IMF and AfDB to enable timely achievement of the HIPC Decision Point.

*Source: IMF staff and Somali authorities (content unit: 26. Achieving the authorities’ goal of reaching the HIPC Decision Point in early 2020 will).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Background and context and development objectives
- Somalia has implemented three successive Staff-Monitored Programs (SMPs) beginning from May 2016 and launched SMP IV, endorsed as meeting the standards associated with arrangements in the Upper Credit Tranches.
- Key reforms and capacity-building efforts underway include:
  - Strengthening budget preparation and execution, broadening the revenue base, enhancing tax collection, expenditure control, and other public financial management (PFM) areas.
  - Launching a Somalia Recovery and Resilience Framework (RRF).
  - Reforms to enhance financial sector stability and deepen intermediation.
  - Working toward the launch of a new national currency in due course.
- Major constraints and risks noted:
  - External public debt is high and Somalia lacks capacity to service debt obligations.
  - Growth is insufficient to reduce widespread poverty and create jobs for youth.
  - High vulnerability to climate shocks and ongoing fragility of the security situation.
- Data and measurement:
  - High Frequency Household Survey (Wave I and Wave II) expanded geographic reach; comparison suggests per capita consumption was likely overestimated in Wave I, implying the level of GDP time series was likely much lower than initially thought, though the general trajectory of GDP growth since 2014 remains unchanged.
  - Data collection for the household survey coincided with the drought and potentially influenced results; ongoing statistical reforms will support improved GDP measurement.

### Recent macroeconomic developments and indicators
- Real GDP growth:
  - 1.4 percent in 2017
  - 2.8 percent in 2018
  - projected 2.9 percent in 2019
- Inflation:
  - 6.1 percent in 2017
  - 3.2 percent in 2018
  - projected 4.0 percent in 2019
- Fiscal performance year-to-date in 2019:
  - Domestic FGS revenues reached nearly $126 million compared to a full year target of $196 million
  - Cumulative fiscal surplus through end-July reached $4.3 million on a cash basis
  - Expenditures have remained in check; monthly cash forecasts are being conducted; there are no new arrears
  - Implemented the Somalia Standard Administrative Document (SSAD) for customs and drafted guidelines for the recently established fiscal buffer

### Progress on governance, fiscal federalism, and financial sector reforms
- Fiscal federalism:
  - Technical engagement with Federal Member States (FMS) on fiscal reporting, tax policy and modernization of customs administration is progressing.
  - A roadmap for mainstreaming fiscal federalism concepts into security, PFM, inclusive politics, and economic policies has been developed and adopted.
  - Council of Ministers Inclusive Politics Forum is scrutinizing candidate models of fiscal federalism; decisions will determine revenue-sharing, natural resources management, and public borrowing powers.
- Financial sector:
  - Central Bank of Somalia (CBS) enhanced on- and off-site inspection capacity for banks and MTBs; banks remain well capitalized; quarterly data reporting is improving.
  - Regulations to supervise mobile money service providers were issued.
  - Progress operationalizing AML/CFT framework: financial institutions regularly report large transactions to the FRC; capacity to analyze suspicious transactions is beginning to be built.
  - Draft Targeted Financial Sanctions Act is with the Parliament and implementing regulations have been drafted with IMF assistance.
- Governance and anti-corruption:
  - Audit Bill and amended PFM Act passed by the House of the People and are now with the Senate.
  - Anti-corruption Bill passed by Parliament and awaiting Presidential signature; an anti-corruption strategy will be presented to cabinet.
  - Ministerial Committee appointed to oversee public property management; HR audit eliminated ghost workers and duplications; security sector contracts not adhering to procurement procedures have been canceled and will be retendered.
  - Office of the Auditor General conducted an interim audit of the security sector.
  - Measures to improve private sector environment include judicial reforms and plans to automate the online business registry.

### Program performance under SMP IV
- Request: Based on policy strength and program performance, Somalia requests completion of the first review of SMP IV.
- Overall assessment: Program performance has been satisfactory despite a difficult environment.
- Structural benchmarks (SBs) and indicative targets (ITs):
  - All structural benchmarks due end-July 2019 were met, including establishment of a fiscal buffer (SB#1), customs reform progress (SB#6), and issuance of mobile money regulations (SB#12).
  - All but one indicative target were met; the continuous floor on net foreign assets (NFA) was marginally missed in June for technical reasons, corrected in July; CBS adopted additional internal controls to avoid future occurrences.
  - For September and October 2019: good progress on six relevant SBs, with expectations they will be met though challenges remain (e.g., consolidation process for quarterly fiscal reporting for the federation (SB#2), expenditure assignment guidelines needing FMS Finance Ministers discussion (SB#4), and legislative scheduling risks for Revenue Bills and SB#8).
- Tables referenced: Tables 1 and 2 (performance and structural benchmarks) and Table 3 (program floors and targets) are cited in the MEFP.

### HIPC track-record, debt relief, and arrears strategy
- SMP IV meets conditionality standards associated with upper credit tranche (UCT) arrangements and lays the basis for fulfilling the track-record criterion required for the Decision Point under the Enhanced Highly Indebted Poor Countries (HIPC) Initiative.
- Milestones and intentions:
  - Expect Cabinet approval of Somalia’s ninth National Development Plan (NDP9) by end September 2019, which will serve as Somalia’s interim Poverty Reduction Strategy (iPRS).
  - Engaged with IMF and World Bank staff and other creditors to provide information in support of qualification for the Enhanced HIPC Initiative.
  - Working with donors to develop a strategy to address arrears with international financial institutions.
  - Intend to make budget appropriations to enable token payments on overdue obligations to the IMF and other relevant international financial institutions to commence in 2020.
  - Aim to reach HIPC decision point in early 2020.

### Operational and administrative requests
- Travel and mission conduct:
  - Considering opportunity costs of key officials traveling abroad for IMF missions, Somalia urges the IMF to revisit its policy regarding travel to Mogadishu and requests consideration of conducting missions at the UN compound at the Mogadishu International Airport.
- Transparency:
  - FGS authorizes IMF to publish this letter, the attached MEFP, TMU, and the related staff report on the IMF website, subject to removal of market-sensitive information.

### Program orientation and medium-term priorities (2019–21)
- SMP IV anchors reforms and focuses on:
  - Expanding revenue mobilization reforms to cover FGS and FMS.
  - Deepening public financial management reforms to improve oversight and governance.
  - Strengthening financial sector stability and compliance with AML/CFT framework.
  - Ensuring implementation through structural benchmarks, including expanding domestic revenue mobilization, strengthening commitment controls and procurement processes, implementing CBS reorganization, broadening financial sector reforms, and implementing AML/CFT.
- Program quantitative anchors include:
  - Floor for domestic revenue.
  - Zero floor on the cash-based fiscal balance.
  - No accumulation of domestic arrears.
  - Floor on the net foreign assets of the CBS.
- Medium-term objectives to establish self-sufficiency will require:
  - Advancing fiscal federalism.
  - Addressing transparency and governance concerns.
  - Encouraging private investment.
  - Properly managing limited resources.
  - NDP9 will provide the blueprint for medium-term strategy.

*Source: Appendix I. Letter of Intent (Mogadishu, Somalia, September 21, 2019) and Attachment I. Supplemental Memorandum of Economic and Financial Policies for 2019–21.*

### 13. The FGS will continue to improve the fiscal framework and fiscal sustainability over

### 13. The FGS will continue to improve the fiscal framework and fiscal sustainability over the medium term

### Fiscal framework and fiscal sustainability — commitments and processes
- Maintain fiscal discipline and oversight, improve the budget process, increase the use of commitment controls, enforce procurement procedures, and deliver more transparent fiscal reporting for general government operations covering the FGS and FMS (SB#2).
- Evaluate the SFMIS by end-December to assess functional adequacy to support PFM and related reforms into the future.
- Continue to avoid accumulating new arrears and make budgeted annual repayments in line with the medium-term fiscal framework.
- Finalized biometric registration of security personnel and currently validating it to solidify accuracy of personnel numbers and allow greater control over the wage bill.
- Any revenue surplus will go toward paying arrears payments and, if needed, replenishing the fiscal buffer.
- Continue building on reforms achieved under SMPIII, including progress in operationalizing the treasury single account (TSA) and enhancing its transparency.

### Key budgetary figures and fiscal targets
- Seek cabinet approval of a supplementary budget to increase the target domestic revenue to $221 million by the end of October (2019), well in excess of the programmed 2019 floor.
- Confident of receiving programmed grants of $164 million.
- 2020 domestic revenue projection: $221 million (reflects strengthening of recurrent domestic revenues that offsets loss of the 2019 one-off measures).
- Note: 2019 supplementary target reflects two significant one-off measures (telecommunication licensing and a one-off payment representing prior years’ overflight fees) that will drop out in 2020.

### Structural benchmarks and PFM reforms (selection)
- Establish a “fiscal buffer” under the TSA to support fiscal liquidity management and submit monthly reports on available balances (SB#1). Guidelines issued; updated to clarify usage restricted to payment of FGS compensation and the food component of SNA expenditures.
- Submit quarterly reports on fiscal operations of the FMS and FGS to support fiscal federalism and broader assessment of revenue/expenditure capacity (SB#2).
- Prepare and issue expenditure assignment guidelines to facilitate spending of revenues collected under FGS and FMS arrangements (SB#3).
- Enforce the use of commitment controls on payments for goods and services across all MDAs (SB#4). Targets: cumulative year-to-date value of payments covered to increase to 75 percent and proportion of payments to increase to 80 percent of total by end-December 2019 (relative to 50 and 65 percent for 2018). Include certification of delivery of goods and services in AGO payment voucher; submit monthly SFMIS report on vendor payments using commitment systems (exclude donor projects).
- Enact amendment of the 2016 Public Procurement, Concessions, and Disposals Act, and issue associated procurement and disposal regulations (SB#5).

### Domestic revenue mobilization and customs modernization
- Roll out enacted Revenue Bills’ tax instruments to facilitate collection of domestic revenue across FGS and FMS (SB#8).
- Implement customs front-end declaration functionality and online SADD at the Port of Mogadishu; follow with manifest verification and goods inspection (SBs#6, #7, #9).
- Roll out customs reforms to other main ports and prepare ad valorem tariff schedule to facilitate transition to a modern system of customs tariffs by May 2020 (SB#11). Committed to implementation as early as feasible in 2020, depending on capacity building progress.
- Develop and implement a tax audit strategy at the LMTO to validate tax returns and revenues (SB#10); improve LMTO capacity, establish a tax academy, and enhance collection of sales taxes on goods and services, including expansion to the FMS.
- Finalize agreements with IATA to permit monthly direct overflight transfers as soon as possible and continue to identify new revenue measures with IMF TA.

### Extractive industries and natural resource revenue management
- Ensure the Petroleum Bill is enacted and Extractive Industry Tax provisions are approved by the cabinet, with a clear strategy for auctioning oil blocks devised prior to issuance of licenses.
- Continue transparent offering of fisheries licenses and build on 2018 experience to attract more bidders in future auctions.
- Distribute related revenues in line with the revenue-sharing agreement signed in March 2019.

### Financial sector reforms and Central Bank of Somalia (CBS)
- Short-term priorities: strengthen CBS governance and organization; regulate and supervise the mobile money sector.
- Implement the CBS re-organization plan in line with IMF TA recommendations, beginning with determining the transition plan and updating the CBS strategic plan (SB#13). Draft plans to be shared with the IMF before adoption.
- Mobile money regulations issued (SB#12) and will be rapidly implemented; plan to establish supervisory capacity and procedures to be ready to issue mobile money service provider licenses within six months of the regulations being issued (SB#15). Draft supervision manual and transition plan to be shared with the IMF before finalization.
- Continue to deepen off- and on-site inspections, improve financial reporting and data quality, and develop a plan for dealing with problem institutions.
- Issue new guidelines on Operational Risk, Financial Reporting and Accounting Standards for Islamic Banks; more stringently enforce Audited Financial Statement regulation; draft a Supervisors Code of Conduct.
- Reintroduced moratorium on licensing new banks following 2018/19 licensing round; future licensing to be commensurate with CBS capacity and financial stability.
- Develop a multi-year audit plan, finalize an accounting manual, and clarify progress to full IFRS compliance; clarify treatment of the IMF position on the CBS balance sheet.
- Complete payments system reform with World Bank assistance; advance work on introducing a movable collateral registry and credit bureau; update key financial sector laws (Financial Institutions, Payment Systems, and Insurance) and the Companies Law; roll out a digital ID to support KYC and financial inclusion.

### AML/CFT reforms and financial integrity
- Accelerate reforms of the AML/CFT operational and legal framework to support remittance flows.
- Detailed AML/CFT Reform Action Plan developed to prioritize and sequence reforms and coordinate donors.
- Urgent priorities: issue AML/CFT regulations that cover financial entities other than MTBs (SB#14); issue implementing regulations to support the Targeted Financial Sanctions Law once the Bill is passed (SB#16)—a preliminary draft has been prepared with IMF assistance.
- Build capacity at the Financial Reporting Center (FRC) (SB#17): address physical infrastructure, IT system (GOAML), and secure data collection and storage; confirm acquisition of key infrastructure and IT systems and provide summary of activities over previous six months.
- Develop an AML-CFT Operational Framework to strengthen coordination between government agencies, clarify supervisory responsibilities, and prepare groundwork for a national risk assessment within the next three years.

*Source: Somali authorities; and Fund staff estimates and projections.*

### 22. We plan to launch Phase I of currency reform as soon as preparations are completed.

### 22. We plan to launch Phase I of currency reform as soon as preparations are completed.

### Phase I: Currency replacement
- Phase I is limited to exchanging counterfeit notes in circulation for new, secure, legitimate currency.
- Preparations still required:
  - Project management framework.
  - Refining the project timeline.
  - Updating the budget.
  - Finalizing the communication strategy.
  - Operationalizing the accountability framework.
- World Bank is considering providing financial and operational support for the currency replacement project.
- Progress on the above issues, including support from development partners, will help drive the program funding process to completion.

### Policies for improving economic growth, governance, and social inclusion (NDP9 / iPRSP)
- NDP8 covers 2017–19; NDP9 will cover 2020–24 and will:
  - Outline national priorities, reflecting consultations with national stakeholders and the international donor community.
  - Address multi-dimensional aspects of poverty.
  - Goals: reduce insecurity; strengthen inclusive politics; accelerate economic growth and strengthen institutions; improve access to social services; strengthen institutional capacity for effective governance.
  - Incorporate findings of the Disaster Needs Assessment (DINA) and the Recovery and Resilience Framework (RRF) completed in 2018, to help address climate vulnerabilities; RRF implementation will occur during 2019.
  - Be costed to the extent possible given limited data; an investment strategy will be developed recognizing financing will require government budget, overseas development aid, private sector investment, foreign direct investment, and remittances.
  - Inform spending priorities in subsequent government budgets, with the medium-term fiscal framework guiding the overall envelope.
- NDP9 will act as Somalia’s Interim Poverty Reduction Strategy (iPRSP), a key benchmark for HIPC decision point and a blueprint for donor engagement.
- Plan to submit a draft of NDP9 for cabinet approval by the end of September.

### Governance and anti-corruption commitments
- Strong commitment to improving governance and fighting corruption to support efficient use of limited resources and gain donor financing for HIPC decision point and beyond.
- SMP-supported reforms that will support governance and transparency include:
  - Increasing fiscal revenues.
  - Customs reforms.
  - Procurement reforms.
  - Other PFM reforms.
  - CBS reorganization.
  - Financial sector surveillance and regulation.
  - AML/CFT measures.
- Additional reforms across market regulation, policing, and the judicial system.
- Expectation that the President will sign the Anti-corruption Bill into law soon; formation of the anti-corruption commission will follow legislation.
- Continue strengthening the Reform Implementation Unit and internal controls to monitor reform priorities and procurement.
- Working with the UN on reforms to the Integrity System (rule of law and anti-corruption policies and institutions).

### Macroeconomic and statistical capacity improvements
- Creation of the National Statistics Bureau and passage of the National Statistics Bill to centralize and formalize statistical generation (SB#18).
- Planned statistical activities and timelines:
  - Develop key statistics and capacity to report regularly to the IMF.
  - Harmonized fiscal reporting under Government Financial Statistics (GFS) is progressing.
  - Develop a production-side GDP estimate with World Bank assistance over the next couple of years.
  - Undertake a labor force survey later this year with ILO support.
  - Expand CPI coverage to wider geographic coverage depending on resources.
  - Improve quality of data reported by financial institutions and develop a monetary survey with IMF assistance.
  - Urgently reconcile the external debt database with IMF and World Bank assistance as a technical precondition for a preliminary HIPC decision point document.
  - Roll-out an FDI survey by October 2019.
  - Develop international trade data covering Mogadishu, Kismayo, and Bossaso based on harmonized HS codes.
  - Ensure availability of aggregated traveler data from the Immigration Department.
  - Continue improvements and expansion of transfers database to cover banks and mobile money service providers.

### HIPC normalization, debt relief, and IMF arrears strategy
- Normalizing relations with international financial institutions and reaching Decision Point under the HIPC Initiative could mobilize additional donor support.
- Three criteria for reaching Decision Point:
  - (i) at least six months satisfactory performance under a program that meets the standard of an UCT-arrangement;
  - (ii) delivery of the cabinet-approved NDP9 as Somalia’s interim poverty reduction strategy (iPRS); and
  - (iii) clearing arrears to the international financial organizations and mobilizing adequate financing assurances, including to cover the IMF’s share of HIPC debt relief.
- IMF Executive Board agreed SMPIV meets the UCT-standard and establishes the basis for the track-record criterion.
- Commitment to make token payments on overdue IMF obligations starting in January 2020:
  - Proposed maximum payment of $10,000 a month to the Fund.
- Continued high-level outreach to creditors to maximize available debt relief and to donors to fund arrears clearance.

### Program monitoring, TMU, and indicative targets
- SMP Monitoring Committee will monitor implementation by preparing and assessing indicative targets (Table 3) and structural benchmarks (Table 4).
- Second review set for December 2019, based on SBs and ITs set for end-September and end-October 2019.
- Indicative targets defined in the TMU (Attachment II).
- SMP coverage: 12-month Staff-Monitored Program spanning May 2019–July 2020.
- Indicative target evaluation dates: end of July 2019, end of October 2019, end of December 2019, end of February 2020, and end of May 2020.
- Indicative targets (as specified in Table 1 of the Memorandum of Economic Financial and Policies):
  - Floor on the Federal Government of Somalia (FGS) fiscal balance (on a cash basis).
  - Floor on FGS revenue.
  - Ceiling on accumulation of new domestic expenditure arrears by the FGS.
  - Ceiling on new domestic debt contracted by the FGS.
  - Ceiling on new external debt contracted or guaranteed by the FGS or the Central Bank of Somalia (CBS).
  - Floor on CBS’s net foreign assets.

### Key definitions and computation rules (TMU highlights)
- Government definition: FGS (excludes public entities with autonomous legal personalities whose budgets are not included in the federal government budget). General government includes FGS and federal member states (Galmudug, Hirsabelle, Jubaland, Puntland, and South West State).
- Government revenue: all tax and nontax receipts received into FGS general accounts; excludes grants; measured on a cash basis, cumulative from the beginning of the fiscal year (calendar year); defined in line with GFSM 2014 on a cash accounting basis.
- Revenues included: taxes, non-tax revenues, other compulsory transfers, property income, sales of goods and services, penalties and forfeits, voluntary transfers received from nongovernment other than grants.
- Revenues excluded from program monitoring: grants, other noncompulsory contributions from foreign governments or international organizations, receipts from sale of nonfinancial assets, future signing bonuses from natural resource contracts, transactions in financial assets and liabilities (such as borrowing, except interest payments).
- Fiscal balance (cash basis): sum of government revenue and budget grants minus total expenditures (excluding foreign-financed off-budget investment).
  - If shortfall in expected revenue and grants, the floor on fiscal balance will be adjusted down by the amount drawn from the fiscal buffer to cover priority spending (public wages and food rations for security personnel), governed by SMP structural benchmark #1, provided no overruns in non-priority spending.
- New domestic expenditure arrears: budgeted federal government payments to residents determined by contractual obligations that remain unpaid 90 days after the due date; due date per contractual agreement including contractual grace periods.
- Debt definition per Executive Board Decision No. 15688 (14/107) (December 5, 2014): current liability created under a contractual arrangement requiring future payments; primary forms include loans, suppliers’ credits, and leases; arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligation that constitutes debt are debt.
- Domestic debt: debt where counterparty is resident of Somalia, including the CBS; excludes temporary advances for liquidity management from the CBS (temporary advances fully repaid within 90 days).
- External debt benchmarks: 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 defined by creditor residency.
- CBS net foreign assets: difference between CBS’s gross foreign assets and gross foreign liabilities.
  - Gross foreign assets defined as: (i) gold valued over the program period at the market price of December 31, 2018 ($1,282.49 per ounce); plus (ii) total foreign exchange; net of (iii) CBS-owned US dollar holdings in Mogadishu categorized as operational balances, (iv) government grant deposits at the CBS in foreign currency, (v) other earmarked foreign currency deposits by residents of Somalia, and (vi) recovered Somalia foreign assets pending clarification of ownership between CBS and MOF.
  - Somalia’s net position to the IMF is excluded from the definition of net foreign assets.
  - Relevant exchange rates against the U.S. dollar at December 31, 2018 will be used to convert foreign assets and liabilities denominated in currencies other than U.S. dollars.

### Program-monitoring committee and data reporting
- 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; IMF Resident Representative as observer.
- Committee responsibilities:
  - Monitor program performance.
  - Recommend policy responses.
  - Inform the Fund regularly on program performance.
  - Transmit supporting materials necessary for evaluation of benchmarks.
  - Provide the Fund with a monthly progress report within four weeks of the end of each month, using latest available data.
- Data reporting obligations (selected):
  - Central Bank of Somalia: monthly monetary survey (3 weeks after month end); CBS temporary advances to FGS monthly (1 week after month end); balance of payments quarterly (4 weeks after quarter end) with trade in goods data by HS code for ports of Mogadishu, Bossaso and Kismayo starting end-June 2020; other financial indicators quarterly (4 weeks after quarter end).
  - Ministry of Finance: monthly FGS budget operations detailed revenue and expenditure by budget line and comprehensive table summarizing government operations including TSA balances (4 weeks after month end); monthly outstanding appropriation/allotment/commitment/vendor payments/cash advances/bank balances since start of calendar year (4 weeks after month end); SFMIS audit report monthly (4 weeks after month end); monthly cash plan (4 weeks after month end); report of payment requests by MDAs awaiting payment where commitments exceed agreed terms (monthly, 4 weeks after month end); payroll and non-payroll salary and allowance payments by MDAs and embassies (monthly, 4 weeks after month end); domestic debt contracted by Government (monthly, 4 weeks after month end).
  - Regional Member States’ fiscal operations: reports from all Federal Member States starting end-3Q2019, quarterly after the end of each quarter.
  - Domestic arrears: annual table providing end-of-period stock of domestic arrears accumulated during the year by MDA and 4-digit Object Code (annually, 4 weeks after year end).
  - 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 (annually, 6 weeks after year end); disbursements and repayments schedules and actual interest and principal on debt of Government and CBS by creditor (annually, 30 days after year end).
  - Structural benchmarks: monthly status table (4 weeks after month end).
  - National Statistics Bureau: CPI and other economic indicators monthly (6 weeks after month end); GDP by expenditure data from June 2020 annually (6 months after year end).

*Source: 1somea2019004 - 22. We plan to launch Phase I of currency reform as soon as preparations are completed.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1somea2019004.pdf_