## EXECUTIVE SUMMARY

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### Introduction and eligibility for HIPC assistance
- Preliminary assessment of Somalia’s eligibility for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative based on a joint HIPC debt relief analysis (DRA) by IMF and IDA staffs and Somali authorities following data reconciliation missions in August 2019.
- Somalia is eligible for support from the IMF under the Poverty Reduction and Growth Trust (PRGT) and is an IDA-only country.
- Somalia has maintained satisfactory performance under four consecutive Staff-Monitored Programs (SMPs); the fourth SMP was endorsed by IMF Executive Directors in May 2019 as meeting the standards of an Upper Credit Tranche arrangement.
- Estimated IMF financing needs to cover HIPC and beyond-HIPC costs:
  - SDR 131.1 million (equivalent to US$182.3 million) — IMF’s HIPC cost
  - SDR 109.9 million (equivalent to US$153 million) — IMF’s beyond-HIPC cost
- Staff expectation: Somalia could reach the Decision Point by the end of March 2020, subject to:
  - continued satisfactory performance under the fourth IMF SMP;
  - clearance of arrears to AfDB, IDA and the IMF;
  - agreement on Completion Point triggers in the Decision Point document;
  - satisfactory financing assurances from other creditors for exceptional assistance under HIPC; and
  - commitments from IMF members to finance the IMF’s share of debt relief.

### Macroeconomic and poverty context
- Long-run fragility: protracted conflict and fragility for over two decades; federal political structure established by 2012 Provisional Constitution (FGS and FMS).
- Poverty and demographics:
  - Poverty (% below poverty line): 69 (2017).
  - Almost 70 percent of Somalis live on less than US$1.90 a day (PPP terms).
  - Population growth: 2.8 percent per year.
  - Non-monetary deprivations:
    - "Almost nine of 10 Somali households are deprived in at least one dimension of poverty—monetary, electricity, education, or water and sanitation."
    - "Nearly seven of 10 households suffer in two or more dimensions."
    - "About one third of the non-poor is within 20 percent from the poverty line."
  - Household vulnerability: rural populations and IDPs face deeper poverty; average distance to the poverty line for the poor in rural populations and IDPs is more than one third of the poverty line.
- Human development indicators (selected, year as presented):
  - Adult literacy rate (Age 15+) (%): 50 (2017)
  - Female literacy rate (Age 15+) (%): 41.7 (2017)
  - Net primary enrollment rate (Age 6-13): 33 (2017)
  - Under-five mortality (per 1,000): 121.5 (2018)
  - Life expectancy at birth (years): 56.7 (2017)
  - Incidence of HIV (per 1,000 uninfected population ages 15-49): 0.04 (2018)

### External debt stock, arrears, and DRA findings
- FGS public and publicly guaranteed external debt at end-2018:
  - Nominal terms: US$5.3 billion
  - Arrears: US$5.0 billion (about 95.8 percent of external debt was in arrears as of end-2018)
  - NPV terms: US$5.2 billion
- DRA results (end-2018 basis):
  - After full application of traditional debt relief mechanisms: NPV of debt estimated at US$3.5 billion at end-2018, equivalent to 328.9 percent of exports of goods and services.
  - Additional debt relief needed to reach HIPC threshold (150 percent of exports): US$1.9 billion in end-2018 NPV terms.
  - Implied common reduction factor (CRF): 54.4 percent.
  - DSA-based NPV of debt-to-exports ratio for 2018 prior to modeled adjustments: 491.7 percent.
  - With HIPC, MDRI and beyond-HIPC assistance, projected NPV of debt-to-exports ratio:
    - 57.0 percent in 2027
    - 41.5 percent in 2038
- Arrears composition (of US$5.0 billion arrears):
  - US$1.3 billion owed to multilateral creditors.
  - US$3.7 billion owed to bilateral claimants.
  - Arrears to the World Bank and the U.S. made up the largest shares to multilateral and bilateral creditors, respectively.

### HIPC, MDRI, arrears clearance and program financing
- Possible HIPC debt relief at end-2018: US$1.9 billion in NPV terms (CRF 54.4 percent).
- MDRI eligibility and preliminary estimate:
  - Somalia would qualify for MDRI relief from IDA and AfDF at Completion Point.
  - MDRI preliminary estimate if Completion Point by end-2022: US$116.6 million in 2022 NPV terms (US$96.8 million from IDA and US$19.8 million from the AfDB Group).
  - Somalia has no debt eligible for MDRI relief from the IMF.
- IMF beyond-HIPC assistance:
  - Cancellation of portion of pre-Decision Point financing not covered by interim relief, including the first disbursement under the ECF and EFF-supported arrangement.
  - Assumed new financing of up to 30 percent of Somalia’s new quota would be provided and evenly disbursed under a three-year Fund-supported program; beyond-HIPC relief would apply to the first disbursement of this additional access.
- Creditor-by-creditor illustrative HIPC assistance (end-2018 NPV terms, selected):
  - Multilaterals total reduction under CRF: US$812.8 million (multilaterals NPV before US$1,494.3 million → post-HIPC US$681.5 million).
  - Bilateral and commercial total reduction under CRF: US$1,091.8 million (bilateral NPV before US$2,007.2 million → post-HIPC US$915.4 million).
  - IDA assistance under HIPC and MDRI: US$439.8 million in end-2018 NPV terms; IDA expected to deliver 71.2 percent of this relief through the concessional element of an arrears clearance operation financed with grants.
  - IMF HIPC assistance: US$182.3 million in end-2018 NPV terms (including US$9.8 million representing cost of PRGT interest subsidization).
  - AfDB Group assistance: US$72.9 million in end-2018 NPV terms delivered through arrears clearance.
  - Paris Club HIPC assistance: US$816.56 million in end-2018 NPV terms (assumed Cologne flow operation modalities).
  - Non-Paris Club official bilateral creditors: US$275.2 million in end-2018 NPV terms (preliminary offers secured from some key creditors).
- Arrears clearance modalities and sequencing (selected):
  - IDA arrears: expected cleared early March 2020 through a bridge loan from a bilateral donor; up to US$375 million of a Development Policy Grant (DPG) proceeds to be used to repay the bridge loan; DPG amount financed with exceptional allocation from IDA arrears clearance set-aside, on grant terms.
  - IMF arrears: expected cleared in early-2020 via a bilateral donor bridge loan; proceeds to be repaid using new Fund arrangement financing (blend of ECF and EFF), front-loaded.
  - AfDB Group arrears: expected cleared in February 2020 through Transition Support Facility (TSF) operation.
  - All remaining multilaterals assumed to clear arrears at Completion Point on terms consistent with Somalia’s limited repayment capacity.
- Interim-period debt service and net flows:
  - Estimated average annual debt service during the interim period to IDA, IFAD, AfDB: US$17.6 million or 7.4 percent of projected fiscal revenues.
  - Proposed IDA DPG would include US$45 million of budget support to ensure positive net-flows to Somalia during the interim period.
- Paris Club beyond-HIPC potential:
  - Some Paris Club creditors may provide additional cancellation after Completion Point; estimated additional assistance US$719 million in end-2022 NPV terms.

### Program framework and policy priorities
- Expected IMF-supported program (blended ECF/EFF) aims to:
  - support sustained growth;
  - further strengthen fiscal and financial institutions;
  - draw on priorities in Somalia’s Ninth National Development Plan (NDP9).
- NDP9:
  - Submitted and adopted January 30, 2020; covers 2020–24.
  - Four pillars: (1) Inclusive and Accountable Politics; (2) Improved Security and the Rule of Law; (3) Inclusive Economic Growth (including increased employment); (4) Improved Social Development.
  - Six cross-cutting priorities: (i) gender, human rights and social equity; (ii) resilience; (iii) environment and natural resources; (iv) durable solutions to long term displacement; (v) interface between humanitarian and development planning; (vi) governance.
  - NDP9 submitted to IDA and IMF on October 15, 2019 to fulfill HIPC poverty reduction strategy requirement; Joint Staff Advisory Note being prepared.

### Risks, vulnerabilities and conditionalities
- Key risks:
  - High vulnerability to climate shocks and deterioration in security.
  - Significant implementation and capacity risks for a relatively rapid HIPC timeline.
- Decision and Completion Point conditionalities include:
  - satisfactory financing assurances from creditors representing at least 70 percent of HIPC-eligible debt for interim assistance;
  - delivery of financing commitments from IMF member countries for the IMF’s share of debt relief at Decision Point;
  - agreement on Completion Point triggers and satisfactory performance under the upcoming IMF-supported arrangement.
- Actual delivery of debt relief contingent on securing necessary financing.

### Poverty, social vulnerabilities, and labor market
- Urban-rural and regional patterns:
  - Cities generally have lower monetary poverty and better services than rural areas, except Mogadishu where poverty is higher than national average.
  - Urban challenges include hunger, high absolute poverty of 64 percent, non-monetary poverty of 41 percent, and gaps in universal service access.
- Women and youth:
  - "Women across all population groups have lower literacy and educational attainment."
  - Youth unemployment estimated at 74 percent.
  - Policy implication: urgent economic reforms to promote inclusive growth and meaningful jobs for women and youth.
- Household shocks and mitigation:
  - Successive droughts and heavy rains (notably severe droughts in 2017 and 2019) have aggravated humanitarian challenges.
  - Authorities developing a social registry (proposed Completion Point trigger) to improve delivery of post-disaster assistance.

### Post-conflict reform track record and recent economic outcomes
- Reforms and institutional progress since 2016:
  - PFM: offices of accountant general and auditor general established 2015; Somalia Financial Management Information System (SFMIS) implemented 2017; cash, arrears, treasury management progress 2018–19.
  - Revenue: domestic revenue increased by over 70 percent since 2016, supported by sales tax, excise taxes, and a large-and-medium-taxpayers’ office.
  - Fiscal federalism: Intergovernmental Fiscal Forum (IGFF) established 2018.
  - Monetary/financial: Central Bank of Somalia (CBS) restructuring; financial sector supervision strengthened; oversight extended to mobile money providers.
  - AML/CFT: multi-agency task force; Financial Reporting Center established 2017; new AML/CFT Law enacted.
  - Statistics: Somali National Bureau of Statistics established 2017; monthly CPI published 2018.
  - Governance: Anti-Corruption Act enacted October 2019.
- Recent macro outcomes:
  - GDP growth: "estimated at 2.8–2.9 percent in 2018–19."
  - Inflation: 3.2 percent in 2018; 4.0 percent in 2019 after climate shocks; down from 6.1 percent in 2017.
  - Domestic revenue: cumulative FGS domestic revenue in 2019 US$229.7 million (25 percent increase over 2018); tax revenue increase US$15.9 million (11 percent); non-tax revenue increase US$30.4 million (68 percent).
  - Fiscal: expenditures US$325 million relative to US$340.5 million projection; estimated fiscal surplus for 2019 US$13.3 million; "no domestic arrears accumulation since 2016."
  - External public debt: US$5.3 billion at end-2018 of which 95 percent was in arrears; about 99.9 percent of total value of debt fully reconciled.

### Medium-to-long-term macroeconomic outlook and scenarios
- Key baseline macro assumptions (Box 1, verbatim):
  - Annual real GDP growth: 2.9 percent in 2019 rising to a peak of 5.4 percent in 2027; long-term growth around 4.8 percent.
  - CPI inflation: about 2.2 percent annually over the long-term.
  - Grants: peak about 6.7 percent of GDP in 2023 then gradual decline.
  - Concessional borrowing/fiscal deficit: between about 1.5 and 2.7 percent of GDP in 2024-2029.
  - Domestic revenue (FGS level): increase from 4 percent of GDP in 2019 to over 6.5 percent in 2029.
  - Current account deficit: projected to average about 13 percent between 2019 and 2029.
  - Remittances and grants (currently 32 and 44 percent of GDP, respectively) expected to decline as percent of GDP over the long-term.
  - Scenario assumes no domestic borrowing.
- Growth projections and impact of debt relief:
  - "Growth is expected to gradually accelerate to a peak of close to 5.5 percent by 2027, before settling to a long-term average of around 4.8 percent."
  - Implies "a long-run growth rate about 1.3 percentage points higher relative to a scenario without debt relief."
  - Per-capita growth "to reach about 2 percent over the long-run."
  - Achieving 4.8 percent long-run growth implies "about a two percentage point pickup in growth relative to the historical average."
- Scenario sensitivity (selected outcomes):
  - Baseline: NPV of debt-to-exports ratio declines to 57 percent in 2027 and 41.5 percent in 2038; debt service-to-exports peaks at 2.5 percent in 2027 then declines to 1.9 percent in 2038.
  - Lower exports scenario: NPV of debt-to-exports initially deteriorates by about 22 percentage points pre-Completion Point, narrows to around 10 percentage points through 2029, and long-term deterioration declines to 7.5 percentage points (NPV around 49 percent).
  - Permanently lower growth scenario: NPV of debt-to-exports averages about 7 percentage points higher than baseline in medium term and about 27 percentage points higher in the long term.

### Decision Point timing, Completion Point triggers, and monitoring
- Decision Point timing:
  - Somalia could reach Decision Point by end-March 2020, contingent on: satisfactory SMP performance; arrears cleared to IDA, IMF and AfDB; completion of prior actions for proposed IDA DPG; satisfactory financing assurances for IMF’s share of debt relief.
  - IMF and IDA staffs’ baseline: Completion Point by March 2023 appears feasible (faster than average HIPC experience).
- Possible Completion Point triggers (preliminary list, verbatim highlights):
  - Poverty reduction strategy: satisfactory implementation for at least one year evidenced by Annual Progress Report.
  - Macroeconomic stability: satisfactory implementation of ECF-supported program.
  - PFM and expenditure: publish at least two years of audited financial accounts; issue regulations implementing PFM Act on debt, public investment, natural resources.
  - Revenue: adopt and apply a single import duty tariff schedule at all ports.
  - Governance/anti-corruption: enact Extractive Industry Income Tax Law; ratify UNCAC.
  - Debt management: publish at least four consecutive quarterly reports on outstanding stock and projections, monthly debt-service projections for 12 months, annual principal payment projections (next five years), and key portfolio risk indicators.
  - Social sectors: establish a national social registry; FGS and FMS Ministers of Health adopt joint national health sector strategy; FGS and FMS Ministers of Education adopt agreement on roles for curriculum and examinations.
  - Growth/structural: enact Electricity Act and issue supporting regulations; issue Company Act implementing regulations on minority shareholder protection.
  - Statistics: publish at least two editions of the "Somalia Annual Fact Book".
- Monitoring public spending following HIPC:
  - Continued capacity-building and technical assistance from IDA, IMF, AfDB and partners needed.
  - Existing budget/accounting classifications can monitor allocations and expenditures by administrative and economic classification; sectoral classification can be prepared using administrative estimates; projects can be individually coded in absence of a program budget.

### Debt service projections, NPV and discount-rate methodology
- Selected debt statistics (as reported):
  - DRA estimate of average annual debt service payments during calendar years 2020-22: US$16.7 million.
  - Table 3 summary (end-2018):
    - NPV of Debt (end-2018) (A): Total US$3,501.5 million (328.9 percent of exports).
    - NPV of Debt Post-HIPC (B): Total US$1,596.9 million (150.0 percent of exports).
    - Reduction due to HIPC (A-B): Total US$1,904.6 million (178.9 percent of exports).
    - Memorandum: Exports (three-year historical average, 2016-2018) US$1,064.6 million.
- Discount rates and exchange rates (methodology as presented):
  - Discount rates applied: "the average Commercial Interest Reference Rates published by the OECD over the 6-month period prior to December 2018."
  - Discount rate for the SDR: calculated using the CIRR published by the OECD for all SDR basket currencies except the Chinese yuan; for Chinese yuan the Chinabond 7-year yield plus 100 basis point is used per standard CIRR methodology; this amounted to 4.5 percent for the 6-month period prior to December 2018.
  - Exchange rates are "expressed as national currency per U.S. dollar at end-December 2018."
- External debt projections and indicators (selected verbatim series and ratios are reported in Tables 6–9 and 7–8 in the source; see DRA tables for full numeric series).

### Annex I — Discount Rate for Chinese Yuan and SDR (summary)
- Problem: no OECD CIRR exists for the Chinese yuan after its inclusion in the SDR basket effective October 1, 2016.
- Interim proposal: estimate a yuan discount rate as the Chinabond 7-year yield plus a margin of 100 basis point, consistent with standard CIRR methodology, to be used temporarily for PV calculations in new HIPC cases until an official CIRR for the yuan is adopted.
- Construction of SDR CIRR including yuan: use CIRRs for USD, EUR, JPY, GBP and the proposed yuan discount rate (Chinabond 7-year + 100 basis point).
- Steps and parameters for CIRR construction are described in Box A1 (extracted verbatim in source).

### Issues for Executive Directors’ discussion (verbatim highlights)
- Eligibility:
  - Do Executive Directors agree that Somalia is eligible for assistance under the enhanced HIPC Initiative?
- Timing of the Decision Point:
  - Do Directors agree with staffs’ recommendation that Somalia could reach its Decision Point by end-March 2020, together with approval of an ECF arrangement by the IMF Board, provided that:
    - (i) Somalia has a current six month track record of satisfactory performance under a program of upper-credit tranche policy conditionality with the IMF;
    - (ii) satisfactory financing assurances have been secured to cover the IMF’s share of debt relief;
    - (iii) Somalia clears its arrears to its multilateral creditors or agrees on a strategy to clear them; and
    - (iv) Somalia agrees on appropriate Completion Point triggers?
- Floating Completion Point:
  - What are the Executive Directors’ views on possible key policy measures ("triggers") linked to the floating Completion Point?

*Prepared by the Staffs of the International Monetary Fund and the International Development Association*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Introduction and eligibility for HIPC assistance
- Paper presents a preliminary assessment of Somalia’s eligibility for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative based on a joint HIPC debt relief analysis (DRA) conducted by IMF and IDA staffs and Somali authorities following data reconciliation missions in August 2019.
- Somalia is eligible for support from the IMF under the Poverty Reduction and Growth Trust (PRGT) and is an IDA-only country.
- Somalia has maintained satisfactory performance under four consecutive Staff-Monitored Programs (SMPs), with the fourth SMP endorsed by IMF Executive Directors in May 2019 as meeting the standards of an Upper Credit Tranche arrangement.
- IMF members are mobilizing financing resources to help clear Somalia’s arrears and finance the IMF’s costs of HIPC and beyond HIPC debt relief, which are estimated at:
  - SDR 131.1 million (equivalent to US$182.3 million) — IMF’s HIPC cost
  - SDR 109.9 million (equivalent to US$153 million) — IMF’s beyond-HIPC cost
- Staff expects Somalia could reach the Decision Point by the end of March 2020, subject to:
  - continued satisfactory performance under the fourth IMF Staff Monitored Program;
  - clearance of its arrears to its multilateral creditors (AfDB, IDA and the IMF);
  - an agreement on appropriate Completion Point triggers to be included in the Decision Point document;
  - satisfactory financing assurances from Somalia’s other creditors regarding exceptional assistance under the HIPC Initiative; and
  - commitments from IMF member countries to provide financing necessary for the IMF’s share of debt relief.

### Macroeconomic and poverty context
- Somalia has experienced protracted conflict and fragility for over two decades; the 2012 Provisional Constitution established a federal political structure (FGS and FMS).
- Sustained political, economic and institutional reforms since 2016 have rebuilt core state capabilities, but large development challenges remain.
- Poverty and demographics:
  - Almost 70 percent of Somalis live on less than US$1.90 a day in purchasing power parity terms.
  - Population growth is estimated at 2.8 percent per year.
  - Poverty is particularly deep in rural populations and internally-displaced people (IDPs).
  - Almost nine out of 10 Somali households are deprived in at least one dimension of poverty—monetary, electricity, education, or water and sanitation—and nearly seven out of 10 households suffer in two or more dimensions.
  - Poverty rates are higher than the national average in Mogadishu, rural areas, IDPs and nomads; urban areas other than Mogadishu have poverty rates around 10 percentage points lower than the national average.
  - The average distance to the poverty line for the poor in rural populations and IDPs is more than one third of the poverty line.

### External debt stock, arrears, and DRA findings
- FGS public and publicly guaranteed external debt at end-2018:
  - US$5.3 billion in nominal terms
  - US$5.0 billion in arrears
  - US$5.2 billion in net present value (NPV) terms
- DRA results (end-2018 basis):
  - After full application of traditional debt relief mechanisms, Somalia’s NPV of debt is estimated at US$3.5 billion at end-2018, equivalent to 328.9 percent of exports of goods and services.
  - The amount of debt relief needed to bring Somalia’s NPV of debt-to-exports ratio down to the HIPC threshold of 150 percent is estimated at US$1.9 billion in end-2018 NPV terms.
  - This implies a common reduction factor (CRF) of 54.4 percent.
- The DRA also reports the DSA-based NPV of debt-to-exports ratio for 2018 as 491.7 percent prior to the modeled adjustments; with HIPC, MDRI and beyond-HIPC assistance, the NPV of debt-to-exports ratio is projected to decline to:
  - 57.0 percent in 2027
  - 41.5 percent in 2038
- Debt service implications:
  - Debt service-to-exports ratio is expected to initially increase after the Completion Point—mainly due to the resumption of regular payments and arrears rescheduling—but decrease gradually thereafter to 1.9 percent in 2038.

### HIPC, MDRI, arrears clearance and program financing
- Possible HIPC debt relief at end-2018 is estimated at US$1.9 billion in NPV terms with a CRF of 54.4 percent.
- On reaching the Completion Point, Somalia would qualify for MDRI debt relief from IDA and the AfDF and for beyond-HIPC assistance from the IMF.
  - MDRI from IDA and AfDB would cancel all remaining claims to Somalia and could amount to US$116.6 million in 2022 NPV terms.
  - Somalia has no debt eligible for MDRI relief from the IMF.
  - At the Completion Point the IMF would provide beyond-HIPC assistance through cancellation of the portion of the pre-Decision Point financing that is not already covered by interim relief; this would include the first disbursement under the ECF and EFF-supported arrangement.
- Arrears clearance and IDA financing:
  - The World Bank Group’s Country Partnership Framework (CPF) for Somalia (FY19–FY22) initiated IDA financing via exceptional pre-arrears clearance grants (PACGs) of US$140 million per year in FY19 and FY20.
  - The proposed Reengagement and Reform Development Policy Grant (DPG) would facilitate Somalia’s arrears clearance, estimated to reach around US$357 million by end-February 2020, and would disburse US$45 million directly to Somalia as budget support.
  - In anticipation of arrears clearance and the HIPC Decision Point, staff are seeking funds from the IDA18 Turnaround Regime for remainder of FY20 and an IDA19 Turnaround Allocation for FY21–FY23.

### Program framework and policy priorities
- Expected IMF-supported program (ECF and EFF) aims to:
  - support sustained growth;
  - further strengthen fiscal and financial institutions;
  - draw on priorities outlined in Somalia’s Ninth National Development Plan (NDP9).
- Somalia has submitted its Ninth National Development Plan 2020-24, adopted in January 30, 2020, to meet the requirement of developing a poverty reduction strategy for the Decision Point.

### Risks, vulnerabilities and conditionalities
- Somalia remains highly vulnerable to climate shocks and a deterioration in the security situation.
- HIPC Decision and Completion Point conditionalities include:
  - satisfactory financing assurances from creditors representing at least 70 percent of HIPC-eligible debt for interim assistance;
  - delivery of financing commitments from IMF member countries for the IMF’s share of debt relief at the Decision Point;
  - agreement on Completion Point triggers and satisfactory performance under the upcoming IMF-supported arrangement.
- The actual delivery of debt relief in the interim period and at the Completion Point is dependent on securing the necessary financing.

*Prepared by the Staffs of the International Monetary Fund and the International Development Association*

### 9.      In addition to monetary poverty, most Somali households suffer non-monetary

### 1somea2020001 - 9.      In addition to monetary poverty, most Somali households suffer non-monetary

### Poverty and Non-monetary Deprivations
- "Almost nine of 10 Somali households are deprived in at least one dimension of poverty—monetary, electricity, education, or water and sanitation."
- "Nearly seven of 10 households suffer in two or more dimensions."
- "About one third of the non-poor is within 20 percent from the poverty line."
- Table 1 — Key Poverty and Social Indicators (values and years as presented):
  - Poverty (% below poverty line)*: 69 2017
  - Adult literacy rate (Age 15+) (%)*: 50 2017
  - Female literacy rate (Age 15+) (%)**: 41.7 2017
  - Net primary enrollment rate (Age 6-13)*: 33 2017
  - Under-five mortality (per 1,000)***: 121.5 2018
  - Life expectancy at birth (years)***: 56.7 2017
  - Incidence of HIV (per 1,000 uninfected population ages 15-49)***: 0.04 2018

### Urban-Rural and Regional Patterns
- Cities generally have lower monetary poverty and better services than rural areas, with the exception of Mogadishu where poverty is higher than the national average.
- Cities provide better access to services—except for land and housing—and more stable income than rural areas.
- Urban challenges persist: "hunger, high absolute poverty of 64 percent, nonmonetary poverty of 41 percent, and ensuring universal access to services."
- Regional disparities in services: Mogadishu and North East and North West cities provide better access to services compared to Baidoa, Kismayo, and central urban areas.

### Women, Youth, and Labor Market Challenges
- "Women across all population groups have lower literacy and educational attainment."
- "An estimated 74 percent of youth are unemployed," contributing to fragility and recruitment by spoiler groups such as Al-Shabab.
- Policy implication: urgent need for economic reforms to promote inclusive growth and meaningful jobs for women and youth.

### Household Vulnerability and Shocks
- Households are especially vulnerable to shocks: natural disasters, epidemics, and household-level shocks such as injury, death, or unemployment.
- Successive droughts and heavy rains (notably severe droughts in 2017 and 2019) have aggravated humanitarian challenges.
- Poorer households are more likely to experience multiple shocks; simultaneous shocks magnify impacts.
- Limited public and private insurance and limited access to finance increase vulnerability.
- Authorities’ mitigation measures: development of a social registry (a proposed Completion Point trigger) to improve delivery of post-disaster assistance.

### Post-Conflict Macroeconomic and Structural Reform Track Record
- Somalia has completed three successive IMF SMPs and sustained satisfactory performance under a fourth SMP.
- International support and creditor engagement are intensive; AfDB expected to mobilize about US$86 million in 2020 (based on end-2019 exchange rate).
- Key reform areas and progress:
  - Budget preparation and execution, and PFM: establishment of offices of accountant general and auditor general in 2015; implementation of Somalia Financial Management Information System (SFMIS) in 2017; progress on cash, arrears, and treasury management in 2018–19.
  - Revenue: domestic revenue increased by over 70 percent since 2016, supported by introduction of sales tax, excise taxes, and a large-and-medium-taxpayers’ office.
  - Fiscal federalism: Intergovernmental Fiscal Forum (IGFF) established in 2018 to develop a fiscal federalism model and harmonize budget processes.
  - Monetary and financial reforms: Central Bank of Somalia (CBS) restructuring; strengthened financial sector supervision; extension of oversight to mobile money service providers; financial sector roadmap developed.
  - AML/CFT: multi-agency task force, advisory council for remittances, Financial Reporting Center established in 2017; new AML/CFT Law and regulations enacted.
  - Economic and financial data: Somali National Bureau of Statistics established in 2017; Statistical Law submitted to Parliament; monthly CPI data produced and published in 2018; progress on consumer prices, balance of payments, public debt, and national accounts.
  - Governance and anti-corruption: participation in Open Budget Survey; publication of monthly revenue and expenditure reports; release of audit report for 2018; Anti-Corruption Act enacted in October 2019.

### Recent Economic Outcomes
- Sectoral supports: telecom, trade, construction, and financial sectors supported economic activity.
- GDP growth: "estimated at 2.8–2.9 percent in 2018–19."
- Inflation: 3.2 percent in 2018; increased to 4.0 percent in 2019 after climate shocks; down from 6.1 percent in 2017.
- Trade deficit remains large and is largely financed by official grants and remittances.
- Domestic revenue mobilization: "increasing by over 70 percent since 2016."
- Fiscal outcomes: expenditures kept in check and "there has been no domestic arrears accumulation since 2016."

### Medium-to-Long-Term Macroeconomic Outlook
- Growth projections:
  - "Growth is expected to gradually accelerate to a peak of close to 5.5 percent by 2027, before settling to a long-term average of around 4.8 percent."
  - This implies "a long-run growth rate about 1.3 percentage points higher relative to a scenario without debt relief."
  - Per-capita growth "to reach about 2 percent over the long-run."
  - Achieving a long-run growth rate of 4.8 percent would imply "about a two percentage point pickup in growth relative to the historical average."
- Drivers and composition:
  - Growth supported by higher consumption and increased contributions of export and investment.
  - Trade deficit expected to remain large as imports pick up to support growth; composition shift from food to investment goods as resilience investments improve food security.
  - Short- to medium-term financing of the trade deficit: higher grants and remittances.
  - Long-term financing shift: grants expected to decline and be gradually replaced with concessional debt and greater FDI.
- Inflation: projected to remain broadly stable at "below 3 percent, in line with international prices."
- Fiscal outlook:
  - Fiscal resource envelope will increase with higher aid and domestic revenue mobilization over the medium-term.
  - Expenditure will remain in check; improved cash management and expenditure control; "there will be no new domestic arrears."
- Risks:
  - Risks are significant: weak security, political tensions, vulnerability to climate shocks.
  - Mitigants: strong international support, authorities’ drive to build resilience and enhance political dialogue, and demonstrated capacity to implement reforms under successive SMPs.

### Interim Poverty Reduction Strategy (NDP9)
- NDP9 approved by Cabinet on September 26, 2019; covers 2020–24 and builds on NDP8 (2017–19).
- NDP9 informed by analysis of poverty drivers: political fragility, conflict, insecurity, lawlessness, and climatic shocks.
- Development process: highly consultative and participatory with civil society, private sector, FGS and FMS ministries, parliamentarians, judiciary members, and development partners.
- Four pillars of NDP9:
  1. Inclusive and Accountable Politics
  2. Improved Security and the Rule of Law
  3. Inclusive Economic Growth (including increased employment)
  4. Improved Social Development
- Six cross-cutting policy priorities integrated into each pillar:
  - (i) gender, human rights and other kinds of social equity;
  - (ii) resilience of households, communities and the government;
  - (iii) Somalia’s environment and its natural resources;
  - (iv) durable solutions to long term displacement;
  - (v) interface between humanitarian and development planning; and
  - (vi) governance.
- NDP9 includes an implementation arrangement framework with associated risks and a strategy to fill large data gaps.
- Submission and follow-up: NDP9 submitted to IDA and the IMF on October 15, 2019, to fulfill the HIPC Initiative’s poverty reduction strategy requirement; Joint Staff Advisory Note on NDP9 is being prepared.

### Debt Reconciliation and External Debt Structure
- Preliminary Debt and Restructuring Assessment (DRA) based on provisional reconciliation of public and publicly-guaranteed external debt at end-2018.
- Reconciliation completed jointly by IMF, World Bank, and authorities in July 2019.
- Authority-provided information on multilateral and official bilateral debt reconciled close to 100 percent with creditor data.
- According to authorities, "no commercial debt is outstanding."
- End-2018 public and publicly guaranteed external debt of the FGS:
  - Nominal terms: US$5.3 billion
  - Net present value (NPV) terms: US$5.2 billion
- Creditor composition (shares of total nominal debt at end-2018 as presented):
  - Multilateral creditors: 28.9 percent
    - IDA, IMF and the AfDB together: 18.5 percent of total external debt
    - AMF: 5.4 percent
    - AFESD: 3.5 percent
    - IFAD, OFID and IsDB combined: 1.5 percent
  - Paris Club creditors: 57.9 percent (major creditors: United States, Russia, Italy)
  - Non-Paris Club official creditors (Algeria, Bulgaria, Iraq, Kuwait Fund for Arab Economic Development, Libya, Romania, Saudi Fund for Development, Serbia, United Arab Emirates): 13.2 percent

*Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1somea2020001.pdf*

### 28.      As of end-2018, about 95.8 percent of Somalia’s external debt was in arrears. The stock

### 1somea2020001 - 28.

### External debt and arrears (as of end-2018)
- About 95.8 percent of Somalia’s external debt was in arrears.
- The stock of external arrears stood at US$5.0 billion.
- Of the US$5.0 billion arrears stock:
  - US$1.3 billion was owed to multilateral creditors.
  - US$3.7 billion was owed to bilateral claimants.
- Arrears to the World Bank and the U.S. made up the largest share of arrears to multilateral and bilateral creditors, respectively, as of end-2018.

### NPV of debt and HIPC Initiative eligibility
- Somalia would qualify for debt relief under the HIPC Initiative’s “export window” based on end-2018 data because its NPV of debt-to-exports ratio exceeds the benchmark of 150 percent.
- After full application of traditional debt relief mechanisms:
  - The country’s NPV of debt is estimated at US$3.5 billion at end-2018.
  - This is equivalent to 328.9 percent of exports of goods and services.
- Additional debt relief needed to reach the HIPC threshold of 150 percent:
  - Estimated at US$1.9 billion in end-2018 NPV terms.
  - Implies a common reduction factor (CRF) of 54.4 percent.
  - Under proportional burden sharing:
    - Multilateral creditors’ assistance would amount to US$0.8 billion (US$812.8 million in table).
    - Bilateral and commercial creditors’ assistance would amount to US$1.1 billion (US$1,091.8 million in table).
- Table 3 (summarized figures):
  - NPV of Debt (end-2018) (A): Total US$3,501.5 million (328.9 percent of exports).
  - NPV of Debt Post-HIPC (B): Total US$1,596.9 million (150.0 percent of exports).
  - Reduction due to HIPC (A-B): Total US$1,904.6 million (178.9 percent of exports).
  - Of which:
    - Multilaterals: NPV before US$1,494.3 million → post-HIPC US$681.5 million → reduction US$812.8 million.
    - Bilateral: NPV before US$2,007.2 million → post-HIPC US$915.4 million → reduction US$1,091.8 million.
  - Memorandum item: Exports (three-year historical average, 2016-2018) US$1,064.6 million.

### Illustrative HIPC delivery scenarios and creditor contributions
- Assumed timing:
  - Decision Point in March 2020.
  - Completion Point by March 2023.
- IDA assistance under the HIPC Initiative and the MDRI:
  - US$439.8 million in end-2018 NPV terms.
  - Equivalent to a reduction of 91.8 percent of the NPV of debt to IDA at end-2018.
  - Expected that IDA would deliver 71.2 percent of this relief through the concessional element of an arrears clearance operation to be concluded ahead of the Decision Point and entirely financed with grants.
  - Remaining relief provided through MDRI relief at Completion Point.
- IMF HIPC assistance:
  - US$182.3 million in end-2018 NPV terms.
  - Of which US$9.8 million represents the cost of the subsidization of PRGT interest.
  - IMF expected to provide HIPC interim assistance on IMF-related obligations falling due prior to Completion Point, subject to satisfactory program progress.
- AfDB Group assistance:
  - US$72.9 million in end-2018 NPV terms, delivered entirely through an arrears clearance operation.
- Other multilateral creditors’ assistance:
  - US$297.2 million in end-2018 NPV terms based on the CRF, assumed to be provided through cancellation or concessional rescheduling of arrears commencing at Completion Point.
- Paris Club creditors:
  - HIPC assistance estimated at US$816.56 million in end-2018 NPV terms.
  - Assumed to provide share through a Cologne flow operation (90 percent NPV reduction on non-ODA debt and 100 percent rescheduling on highly concessional terms on ODA debt) after Decision Point, with remaining assistance via stock of debt operation at Completion Point.
- Non-Paris Club official bilateral creditors:
  - HIPC assistance estimated at US$275.2 million in end-2018 NPV terms.
  - Authorities have secured preliminary offer of debt relief from some key creditors and will seek comparable terms from the full set once Paris Club terms are confirmed.

### Arrears clearance strategy and modalities
- Nearly all official external debt was in arrears at end-2018, including to IDA, IMF and the AfDB Group.
- Most arrears expected to be cleared through concessional arrears clearance or concessional rescheduling operations.
- Specific clearance plans:
  - IDA arrears: expected to be cleared early March 2020 through a bridge loan provided by a bilateral donor; up to US$375 million of a Development Policy Grant (DPG) proceeds to be used to repay the bridge loan. The DPG amount to repay the bridge loan is financed with an exceptional allocation from the IDA arrears clearance set-aside, provided on grant terms.
  - IMF arrears: expected to be cleared in early-2020 through a bridge loan obtained from a bilateral donor; proceeds to be repaid using new Fund arrangement financing (blend of ECF and EFF), front-loaded.
  - AfDB Group arrears: expected to be cleared in February 2020 through an operation under the Transition Support Facility (TSF). Cost generally shared by country, donors, and TSF.
  - AMF and AFESD: expected to clear arrears through rescheduling at highly concessional terms.
  - IFAD, IsDB and OFID: authorities have approached these creditors for clearance arrangements.
- All remaining multilateral creditors assumed to clear arrears at the Completion Point on terms consistent with Somalia’s limited repayment capacity.
- Grant element embedded in multilateral arrears clearance operations is counted toward the creditor’s contribution to debt reduction under the HIPC Initiative.
- Expected effects of multilateral arrears clearance:
  - 100 percent of HIPC debt relief due from multilateral creditors (US$812.8 million in NPV terms) would be provided through financing in support of clearance of Somalia’s arrears.
  - Somalia’s future debt service payments due to multilaterals would increase cumulatively from US$206.0 million before arrears clearance to US$695.74 million after arrears clearance.
  - The repayment of the IMF arrangement would induce a sharp increase in debt service in 2025 (no principal obligations falling due for the first 4½ years after the Decision Point).
  - Most of the post-clearance increase would be netted out by beyond-HIPC relief provided by the IMF at the Completion Point.
- Interim-period obligations:
  - Somalia’s annual debt service during the interim period to IDA, IFAD, AfDB is estimated to average US$17.6 million or 7.4 percent of projected fiscal revenues.
  - Proposed IDA DPG would include US$45 million of budget support to ensure positive net-flows to Somalia during the interim period.

### MDRI, beyond-HIPC assistance, and Paris Club beyond-HIPC potential
- On reaching the Completion Point, Somalia would qualify for MDRI debt relief from IDA and the AfDF and for beyond-HIPC assistance from the IMF.
- MDRI coverage:
  - Would cover all outstanding debt disbursed prior to end-December 2003 (IDA) and end-December 2004 (AfDB) and still outstanding at implementation dates.
  - MDRI preliminary estimate if Completion Point by end-2022: US$116.6 million in 2022 NPV terms.
    - Of which US$96.8 million from IDA and US$19.8 million from the AfDB Group.
- Somalia has no debt eligible for MDRI relief from the IMF.
- IMF beyond-HIPC assistance at Completion Point:
  - Cancellation of the portion of pre-Decision Point financing not already covered by HIPC relief, including any Fund financing disbursed immediately after arrears clearance and before the Decision Point (initial disbursement under new IMF arrangement).
  - It is assumed new financing of up to 30 percent of Somalia’s new quota would be provided and evenly disbursed under a three-year Fund-supported program; beyond-HIPC relief would apply to the first disbursement of this additional access.
- Some Paris Club creditors expected to provide further relief beyond HIPC:
  - Potential additional cancellation of 100 percent of their claims after Completion Point.
  - Estimated additional assistance: US$719 million in end-2022 NPV terms.

### Expected impact of debt relief and sensitivity analysis
- Simulations conducted under a baseline and two alternative scenarios (lower export and lower growth), holding debt indicators fixed to after conditional HIPC, MDRI and bilateral beyond-HIPC assistance.
- Baseline scenario (assumptions described in Box 1 in source):
  - Somalia’s NPV of debt-to-exports ratio gradually declines to 57 percent in 2027.
  - Declines further to 41.5 percent in 2038.
  - Debt service-to-exports ratio initially increases slightly after Completion Point, peaking at 2.5 percent in 2027, then decreasing to 1.9 percent in 2038 (long-run average).
- First alternative scenario (lower exports, e.g., climate shock affecting livestock and agricultural production):
  - NPV of debt-to-exports ratio initially deteriorates sharply relative to baseline—by about 22 percentage points just before the assumed Completion Point.
  - Deterioration narrows to around 10 percentage points through to 2029.
  - Long term, deterioration declines to 7.5 percentage points; at that point NPV of debt-to-exports ratio is around 49 percent.
- Second alternative scenario (permanently lower growth, e.g., sustained deterioration in security):
  - Prolonged deterioration in security leads to increasing deterioration in NPV of debt-to-exports ratio relative to baseline.
  - Over the medium term, NPV of debt-to-exports is on average about 7 percentage points higher than baseline.
  - Over the long term, on average about 27 percentage points higher than baseline and on an increasing trend.

*Source: Federal Government of Somalia (FGS) authorities and staff estimates and projections.*

### 44.      Somalia could reach the HIPC Decision Point by the end of March 2020–at the time of

### 1somea2020001 - 44. Somalia could reach the HIPC Decision Point by the end of March 2020–at the time of

### Decision Point timing and conditions
- Somalia could reach the HIPC Decision Point by the end of March 2020, contingent on:
  - the authorities having maintained satisfactory performance under the SMP;
  - Somalia having cleared its arrears to IDA, the IMF, and the AfDB;
  - completion of the prior actions for the proposed IDA DPG; and
  - satisfactory financing assurances secured to cover the IMF’s portion of Somalia’s debt relief.
- IMF and IDA staffs’ baseline assumption: achieving the Completion Point by March 2023 appears feasible, noting this would be somewhat faster than the average HIPC experience (of over four years). Risk around this timing— notably weak capacity— is mitigated by sustained reform commitment under consecutive IMF SMPs and World Bank engagement.

### Key macroeconomic assumptions underlying the DRA (Box 1)
- Annual real GDP growth:
  - projected to increase gradually from 2.9 percent in 2019 to a peak of 5.4 percent in 2027;
  - subsequently long-term growth expected to settle around 4.8 percent.
- CPI Inflation:
  - over the long-term projected to be about 2.2 percent annually.
- Grants and borrowing:
  - Grants expected to increase sharply to a peak of about 6.7 percent of GDP in 2023 before beginning a gradual decline.
  - Concessional borrowing (also the fiscal deficit) projected to range between about 1.5 and 2.7 percent of GDP in the five years after DP (2024-2029).
  - Domestic revenue, at the level of the FGS, projected to gradually increase from 4 percent of GDP in 2019 to over 6.5 percent in 2029.
- Domestic borrowing:
  - The scenario assumes no domestic borrowing.
- Official borrowing:
  - Framework assumes limited concessional borrowing at terms comparable to standard IDA terms.
- External sector:
  - The current account deficit projected to remain elevated, averaging about 13 percent between 2019 and 2029.
  - Remittances and grants (currently 32 and 44 percent of GDP, respectively) will gradually decline as a percent of GDP over the long-term, as FDI and concessional borrowing increase.
- Note: The three-year historical average exports of goods and services is used for the NPV of debt ratios, while the current year export of goods and services is used for the debt service ratios.
- These assumptions are consistent with those that will underpin the new Fund-arrangement.

### Possible Completion Point triggers (Box 2) — preliminary set discussed with authorities
- Poverty reduction strategy implementation:
  - Satisfactory implementation for at least one year of Somalia’s poverty reduction strategy, evidenced by an Annual Progress Report submitted by the government to IDA and the IMF.
- Macroeconomic stability:
  - Maintain macroeconomic stability as evidenced by satisfactory implementation of the ECF-supported program.
- Public financial and expenditure management:
  - Publish at least two years of the audited financial accounts of the Federal Government of Somalia.
  - Issue regulations to implement the Public Financial Management Act’s provisions on debt, public investment, and natural resource management.
- Domestic revenue mobilization:
  - Adopt and apply a single import duty tariff schedule at all ports in the Federal Republic of Somalia (to also foster greater trade integration).
- Governance, anti-corruption, and natural resource management:
  - Enact the Extractive Industry Income Tax Law.
  - Ratify the United Nations Convention Against Corruption (UNCAC).
- Debt management:
  - Publish at least four consecutive quarterly reports outlining the outstanding stock of general government debt; monthly debt-service projections for 12-months ahead; annual principal payment projections (for at least the next five years); and key portfolio risk indicators (including proportion of debt falling due in the next 12-months; proportion of variable rate debt; and projected debt service-to-revenues and debt service-to-exports for the next five years).
- Social sectors:
  - Establish a national social registry as a functional platform that supports registration and determination of potential eligibility for social programs.
  - FGS and FMS Ministers of Health adopt a joint national health sector strategy.
  - FGS and FMS Ministers of Education adopt an agreement defining their respective roles and responsibilities on curriculum and examinations.
- Growth/structural:
  - Enact the Electricity Act and issue supporting regulations to facilitate private sector investment in the energy sector.
  - Issue Company Act implementing regulations on minority shareholder protection (to encourage private sector investment).
- Statistics:
  - Publish at least two editions of the “Somalia Annual Fact Book”.

### Rationale and expected effects of the triggers
- Triggers are critical for enhancing growth, improving fiscal sustainability, and reducing poverty; and support state-building efforts.
- Adoption and application of a single import duty tariff expected to:
  - enhance fiscal sustainability by supporting higher domestic revenue mobilization;
  - support higher growth by facilitating trade integration.
- Triggers on public financial and expenditure management, governance and anti-corruption aim to:
  - ensure effective management of scarce financial resources;
  - enhance the legitimacy of the state.
- Debt management reforms aim to enhance debt transparency, institutions, and capacity.
- Triggers supporting private sector development are expected to increase FDI, create jobs, and support poverty reduction.
- Implementation of poverty reduction strategy measures in NDP9's Human Development Pillar targets:
  - improving maternal and child health;
  - increasing access to services in rural areas;
  - boosting youth employment.
- Inter-governmental agreements on education and health are expected to promote greater coherence across FGS and FMS service delivery and reduce fragmentation from off-budget programs.
- Establishment of the social registry expected to provide the cornerstone for future social programs by enhancing targeting and speeding post-disaster assistance.

### Monitoring public spending following HIPC assistance
- Objective: secure the effective use of public spending for poverty reduction and inclusive growth.
- Capacity-building and technical assistance from IDA, IMF, AfDB and other partners will continue to be needed to strengthen public financial management capacity.
- Existing budget and accounting classifications can monitor allocations and expenditures by:
  - administrative classification (ministries, departments and agencies) including development projects; and
  - economic classification (expenditure types).
- Spending data can be presented following a sectoral classification with broad categories resembling functions (such as education and health), prepared using estimates from the administrative classification.
- In absence of a program budget, projects can be individually coded within the administrative classification to allow recording and reporting on project expenditures.

### Fiscal impact of arrears clearance and interim-period debt service
- Somalia has not been servicing external debt to its creditors; after arrears clearance, the government must resume paying debt service.
- The DRA estimates that debt service payments will average US$16.7 million annually during calendar years 2020-22 (roughly the interim period) in a scenario of enhanced HIPC assistance and multilateral arrears clearance.
- While this will represent a drain on fiscal space available for development spending, the impact is expected to be mitigated by an anticipated increase in external aid once Somalia normalizes relations with the IFIs; overall the fiscal resource envelope is expected to expand.

### Issues for Executive Directors’ discussion
- Eligibility:
  - Do Executive Directors agree that Somalia is eligible for assistance under the enhanced HIPC Initiative?
- Timing of the Decision Point:
  - Do Directors agree with staffs’ recommendation that Somalia could reach its Decision Point by end-March 2020, together with approval of an ECF arrangement by the IMF Board, provided that:
    - (i) Somalia has a current six month track record of satisfactory performance under a program of upper-credit tranche policy conditionality with the IMF;
    - (ii) satisfactory financing assurances have been secured to cover the IMF’s share of debt relief;
    - (iii) Somalia clears its arrears to its multilateral creditors or agrees on a strategy to clear them; and
    - (iv) Somalia agrees on appropriate Completion Point triggers?
- Floating Completion Point:
  - What are the Executive Directors’ views on possible key policy measures (“triggers”) linked to the floating Completion Point?

### Selected debt statistics and indicators (as reported)
- DRA estimate of average annual debt service payments during calendar years 2020-22: US$16.7 million.
- Figures and tables provided in the text include:
  - Composition of Stock of External Debt at End-2018 by Creditor Group (chart).
  - Potential Costs of the HIPC Initiative by Creditor (chart; excluding the costs of the delivery of traditional debt relief by bilateral creditors).
  - External Debt Sustainability Indicators, 2018-38 (charts showing NPV of Debt to Exports and Debt Service to Exports under various scenarios).
  - Sensitivity Analysis, 2019-38 (charts comparing Baseline scenario, Lower export level, Permanently lower growth after conditional enhanced HIPC assistance and multilateral arrears clearance, MDRI, and bilateral beyond HIPC).
  - Table 4: Nominal Stock and Net Present Value of Debt as of end December 2018, by Creditor Groups — sample entries shown:
    - Total nominal debt: 5,262.4 US$ million (100.0 percent)
    - Multilateral: 1,520.3 US$ million (28.9 percent)
    - World Bank: 501.1 US$ million (9.5 percent)
    - IMF: 335.1 US$ million (6.4 percent)
    - AfDB Group: 137.2 US$ million (2.6 percent)
    - Bilateral and commercial: 3,742.1 US$ million (71.1 percent)
    - Paris Club: 3,045.1 US$ million (57.9 percent)
    - United States: 1,065.4 US$ million (20.2 percent)
    - Russia: 686.1 US$ million (13.0 percent)
    - United Arab Emirates: 240.3 US$ million (4.6 percent)
  - Notes in table:
    - 1/ Includes Arrears.
    - 2/ Discount rates applied are the average Commercial Interest Reference Rates published by the OECD over the 6-month period prior to December.
    - 4/ Paris Club cutoff date is October 1, 1984.
    - The Netherlands and the United-Kingdom have decided to classify these credits as bilateral creditor loans and cancel them at Completion.

*Source: IMF staff assessment as presented in the provided chapter excerpt.*

### 2018. The discount rate for the SDR is calculated using the CIRR published by the OECD for all SDR basket currencies exc

### 1somea2020001 - 2018. The discount rate for the SDR is calculated using the CIRR published by the OECD for all SDR basket currencies exc

### Discount rate methodology and key assumptions
- Discount rates applied are "the average Commercial Interest Reference Rates published by the OECD over the 6-month period prior to December 2018."
- "The discount rate for the SDR is calculated using the CIRR published by the OECD for all SDR basket currencies except the Chinese yuan. The OECD does not publish a CIRR for the Chinese yuan, therefore it is calculated based on the Chinabond yield curve for bonds with a 7-year maturity increased by 100 basis point, per the standard CIRR methodology. This amounted to 4.5 percent for the 6-month period prior to December 2018."
- Exchange rate convention: "The exchange rates are expressed as national currency per U.S. dollar at end-December 2018."

### Table 5 — Discount and exchange rate assumptions (as of end-December 2018)
- Exchange rates and discount rates are reported in the table; footnotes explain:
  - "1/ The exchange rates are expressed as national currency per U.S. dollar at end-December 2018."
  - "2/ Discount rates applied are the average Commercial Interest Reference Rates published by the OECD over the 6-month period prior to December 2018."
  - "4/ The IsDB, AfDB Group and AMF use the Islamic dinar (ISD), African currency unit (UAC) and Arab accounting dinar (AAD) respectively, which are all linked to the SDR (ISD 1=UAC 1=AAD 3=SDR 1) and use the same discount rate as the SDR."
- Sources cited for the table: "Sources: OECD; and IMF, International Financial Statistics."

### External debt service projections and scenarios (Table 6, 2019–2038)
- Projections are presented under multiple scenarios and treatments of debt relief:
  - I. Before traditional debt relief and multilateral arrears clearance
  - II. After traditional debt relief
  - III. After enhanced HIPC assistance and multilateral arrears clearance
  - IV. Debt Service after HIPC and MDRI Assistance
  - V. After enhanced HIPC assistance, multilateral arrears clearance, MDRI, and bilateral beyond HIPC assistance
- Selected numeric entries (in millions of U.S. dollars, as reported):
  - "Total" (I. Before traditional debt relief and multilateral arrears clearance) — sample annual totals (2019–2028 excerpt as printed): 22.4 21.8 20.9 19.9 18.6 17.7 17.5 17.7 17.3 16.9 15.7 14.1 19.2 24.8 28.9 31.8 34.6 36.2 37.9 41.1 19.1 28.4
  - "Existing debt" (same section) — 22.4 21.8 20.9 19.9 18.6 17.7 16.4 15.3 13.9 12.7 10.8 8.3 7.6 7.3 6.6 5.2 4.5 2.5 0.6 0.2 18.0 5.3
  - "Multilateral" (same section) — 17.1 17.0 16.8 16.4 15.9 15.4 15.0 14.4 13.6 12.4 10.6 8.1 7.4 7.1 6.4 5.0 4.3 2.3 0.5 0.2 15.4 5.2
  - "World Bank" (same section) — 14.1 14.0 13.8 13.4 12.9 12.4 12.2 11.6 10.8 9.9 8.5 6.8 6.4 6.2 5.6 4.3 3.6 1.8 0.1 0.0 12.5 4.3
  - "AfDB Group" (same section) — 2.5 2.5 2.5 2.5 2.5 2.5 2.4 2.4 2.3 2.1 1.7 1.3 1.0 0.9 0.8 0.7 0.7 0.5 0.4 0.2 2.4 0.8
  - "Bilateral" (II. After traditional debt relief) — 66.3 66.3 66.4 89.6 88.8 88.0 89.7 91.4 70.4 73.7 77.3 81.1 85.5 90.1 95.3 100.9 120.6 128.4 137.2 146.6 79.1 106.3
- Debt burden indicators reported in Table 6 (selected ratios reproduced verbatim):
  - "Debt service to exports ratio" (I. Before traditional debt relief): 2.0 1.8 1.7 1.5 1.3 1.2 1.1 1.1 1.0 0.9 0.8 0.7 0.9 1.0 1.1 1.2 1.2 1.2 1.2 1.2 1.4 1.0
  - "Debt service to revenue ratio" (I. Before traditional debt relief): 11.4 9.3 7.8 6.5 5.2 4.1 3.4 2.9 2.4 2.1 1.8 1.5 2.0 2.3 2.5 2.5 2.5 2.4 2.4 2.4 5.5 2.3
- New borrowing assumptions (reported across scenarios):
  - "New debt" (sample series): 0.0 0.0 0.0 0.0 0.0 0.0 1.2 2.4 3.4 4.3 5.0 5.8 11.6 17.5 22.3 26.6 30.0 33.7 37.3 40.9 1.1 23.1
- Reductions in debt service as a result of relief measures (reported verbatim in one line):
  - "Reduction in debt service as a results of Traditional debt relief mechanisms" — -61.0  -61.5  -62.3  -86.1  -86.1  -85.6  -88.3  -90.5  -70.1  -73.5  -77.1  -80.9  -85.3  -89.9  -95.1 -100.8 -120.4 -128.2 -137.1 -146.6  -76.5 -106.1

### Net Present Value (NPV) of external debt (Table 7, 2018–2038)
- All NPV debt stocks refer to public and publicly guaranteed debt at end-December 2018.
- Selected NPV series (in millions of U.S. dollars, verbatim excerpts):
  - "NPV of total debt" (headlines): 5,234.9 5,218.3 5,201.7 5,185.4 5,169.7 5,154.8 5,247.6 5,346.5 5,426.7 5,499.5 5,560.0 5,632.1 5,712.4 5,791.3 5,862.3 5,920.8 5,970.2 6,002.7 6,008.7 6,014.2 6,017.9 5,268.5 5,863.0
  - "NPV of outstanding debt" (sample): 5,234.9 5,218.3 5,201.7 5,185.4 5,169.7 5,154.8 5,140.2 5,126.6 5,113.6 5,101.7 5,090.6 5,081.2 5,073.9 5,067.1 5,060.5 5,054.4 5,049.6 5,045.2 5,042.8 5,042.3 5,042.1 5,164.7 5,059.1
  - "Multilateral" (NPV components): 1,494.3 1,482.0 1,469.5 1,456.8 1,444.1 1,431.6 1,419.2 1,406.8 1,394.6 1,382.9 1,372.0 1,362.7 1,355.6 1,349.0 1,342.5 1,336.6 1,331.9 1,327.7 1,325.5 1,325.0 1,324.8 1,438.2 1,341.2
  - "Bilateral" (NPV components): 3,740.6 3,736.3 3,732.2 3,728.6 3,725.5 3,723.2 3,721.0 3,719.8 3,719.0 3,718.8 3,718.6 3,718.5 3,718.3 3,718.2 3,718.0 3,717.9 3,717.7 3,717.5 3,717.4 3,717.3 3,717.3 3,726.5 3,717.9
- NPV of new borrowing (selected): 0.0 0.0 0.0 0.0 0.0 0.0 107.3 219.9 313.1 397.8 469.4 550.9 638.5 724.2 801.8 866.4 920.6 957.4 965.8 971.9 975.7 103.8 803.9

### External debt indicators (Table 8) — selected ratios and benchmarks (2018–2038)
- Headline indicator examples (verbatim):
  - "NPV of debt-to-GDP ratio" (I. Before traditional debt relief): 110.9 105.2 99.7 94.2 88.7 83.4 79.9 76.2 72.2 68.1 64.1 60.6 57.4 54.5 51.7 48.9 46.1 43.4 40.7 38.1 35.7 85.3 49.2
  - "NPV of debt-to-exports ratio 2/" (I. Before traditional debt relief): 491.7 477.6 452.5 435.7 414.2 391.6 376.2 361.9 347.0 332.3 317.0 302.6 288.9 275.4 261.9 248.3 234.9 221.5 207.8 195.1 183.3 398.8 248.8
  - "NPV of debt-to-revenue ratio 4/" (I. Before traditional debt relief): 2,854.1 2,658.7 2,219.4 1,942.9 1,696.5 1,432.3 1,221.1 1,037.7 880.6 778.8 694.4 657.0 627.8 602.5 555.6 514.0 477.4 439.4 403.6 378.2 354.4 1,540.9 518.6
- Debt service ratios under alternative scenarios are presented across the table (examples):
  - "Debt service-to-exports ratio" (III. After conditional delivery of enhanced HIPC assistance and multilateral arrears clearance): ... 7.3 7.0 6.7 8.1 7.5 7.0 6.8 6.5 5.0 4.9 4.7 4.5 4.7 4.8 4.9 4.9 5.4 5.3 5.3 5.4 6.7 5.0
  - "Debt service-to-revenue ratio" (III. After conditional delivery ...): ... 42.5 35.6 31.2 34.8 29.1 24.0 20.5 17.6 12.4 11.3 10.8 10.4 10.9 10.9 10.8 10.6 11.3 11.0 11.0 11.1 25.9 10.9

### Sensitivity analysis (Table 9) — baseline and shocks (2019–2038)
- Baseline scenario headline metrics (I. Baseline Scenario 2/):
  - "NPV of debt-to-GDP ratio" — 84.4 36.2 34.5 31.4 9.9 10.8 11.5 11.7 11.7 8.3 24.1 10.3
  - "NPV of debt-to-exports ratio 3/4/" — 383.0 164.2 159.8 146.6 46.6 50.7 54.5 56.3 57.0 42.6 112.1 52.4
  - "NPV of debt-to-revenue ratio 5/" — 2132.2 805.3 712.7 600.5 170.5 164.6 156.2 142.8 133.5 82.4 478.9 107.5
- Lower export level scenario (selected):
  - "NPV of debt-to-GDP ratio" — 84.4 37.9 38.1 34.6 11.0 11.9 12.7 12.9 12.9 9.2 25.6 11.4
  - "NPV of debt-to-exports ratio" — 383.0 168.8 173.6 168.4 55.1 59.9 64.3 66.4 67.3 50.3 122.0 61.9
- Permanently lower growth scenario (selected):
  - "NPV of debt-to-GDP ratio" — 84.4 36.5 35.4 33.0 10.8 12.2 13.5 14.3 14.8 14.6 26.0 16.0
  - "NPV of debt-to-exports ratio" — 383.0 164.7 161.7 150.9 49.2 55.4 61.8 66.4 69.8 72.7 119.1 79.4

### Possible delivery of multilateral and IMF assistance under HIPC/MDRI (Tables 10–11)
- World Bank Group assistance under Enhanced HIPC Initiative (Table 10, selected lines in millions of U.S. dollars):
  - "Projected stock of IDA credits outstanding at implementation date" — 108.6
  - "Remaining IDA credits after MDRI" — 0.0
  - "Debt stock reduction on eligible credits" — 108.6 (with "Due to MDRI" — 108.6)
  - "Debt service to IDA covered by HIPC assistance and MDRI (in percent)" — 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
- IMF enhanced HIPC assistance and beyond-HIPC delivery (Table 11, based on SDR/US$ exchange rates of January 10, 2020; selected lines in millions of U.S. dollars):
  - "Total HIPC-eligible debt" (sample series): 0.0 1.1 0.8 1.0 1.0 5.6 39.1 68.0 67.9 67.7 67.5 33.7 0.0 0.0 0.0
  - "IMF assistance--deposits into Somalia's Umbrella Account" — "Interim assistance" series includes 0.0 0.7 0.8 1.0 and "Completion point assistance 4/" — 175.7; "Completion point interest 5/" — 7.4
  - "II. Debt relief provided after Completion Point (on stock basis in cash terms) 6/" — 346.1 (HIPC assistance 183.2; Beyond-HIPC 163.0)
  - "III. Debt service due to the IMF after HIPC and beyond-HIPC debt relief" — 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.9 6.8 10.6 11.6 11.6 8.7 4.8 1.0

### Bilateral creditors' delivery modalities (Table 12) and HIPC status (Table 13)
- Table 12 reproduces Paris Club official bilateral creditors' approaches to topping up HIPC relief and modalities (flow vs stock; coverage of ODA and non-ODA claims). The table lists creditor-by-creditor entries (e.g., Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Norway, Russia, Spain, Sweden, Switzerland, United Kingdom, United States) and notes such as "Australia cancelled all HIPC claims," "Denmark provides 100 percent cancellation of ODA loans and non-ODA credits contracted and disbursed before September 27, 1999," and other creditor-specific rules as reported verbatim.
- Table 13 lists HIPC Initiative country cases and their decision/completion point status under enhanced or original frameworks, with country-level NPV of assistance, percentage reduction, and breakdowns by creditor type as reported in the table.

*Sources: OECD; and IMF, International Financial Statistics; Federal Government of Somalia (FGS) authorities and staff estimates and projections; Fund staff estimates and projections.*

### Annex I. Discount Rate for Chinese Yuan and SDR

### Annex I. Discount Rate for Chinese Yuan and SDR

### Proposed methodology for yuan-specific discount rate
- Purpose: introduce a currency-specific discount rate for (i) calculation of the present value (PV) of loans denominated in Chinese yuan and (ii) calculation of the SDR discount rate in HIPC debt reduction analysis.
- Current practice: HIPC Initiative uses currency-specific discount rates based on commercial interest reference rates (CIRR). OECD announces monthly the CIRR for all major currencies.
- For currencies without a CIRR: use either the SDR CIRR; or the U.S. dollar CIRR where the currency is pegged to the U.S. dollar.
- Context: The composition of the SDR basket was modified effective October 1, 2016 with the introduction of the Chinese yuan. Following this modification, no HIPC case has been considered by the Boards of the IMF and the World Bank. Therefore, in all past HIPC cases, loans denominated in Chinese yuan were discounted using the SDR CIRRs, which did not include the Chinese yuan.

### Rationale for interim yuan discount-rate estimation
- No established CIRR exists for the Chinese yuan as of the writing of this Annex.
- An OECD or non-OECD member can request estimation of a CIRR for a currency according to a defined methodology (see Box A1).
- Initiating the official CIRR process for the yuan could delay approval of new HIPC cases.
- Interim approach: IMF and World Bank could agree on a methodology to estimate a discount rate for the yuan akin to that used by the OECD; the estimated yuan discount rate would be used in PV calculations for new HIPC cases until an official CIRR for the Chinese yuan is adopted.

### Data source and proposed formula for the yuan discount rate
- Reference interest series: the three-month benchmark yield for China Treasury bonds (Chinabond) as published by China Central Depository and Clearing Co (CCDC).
- The Chinabond yield curve reports daily values for several maturities, including those at 7 years, which is the maturity used to determine the yield used as discount rates for PV calculation.
- Proposed yuan discount rate: the interest rate on the Chinabond yield curve for bonds with a 7-year maturity plus a margin of 100 basis point, consistent with the standard CIRR methodology reported in Box A1.

### Construction of the SDR CIRR including the yuan
- The SDR discount rate for PV of debt would be calculated as the SDR CIRR using as base interest rates:
  - (i) the CIRRs for the U.S. dollar, the euro, the Japanese yen, and the British pound; and
  - (ii) the Chinese yuan discount rate as proposed above (7-year Chinabond yield + 100 basis point).

### Box A1: Construction of CIRRs (steps and parameters)
- Steps followed to establish a CIRR:
  a) Each Participant selecting one of two base rate systems for its national currency:
    1. three-year government bond yields for a repayment term of up to and including five years; five-year government bond yields for over five and up to and including eight and a half years; and seven-year government bond yields for over eight and a half years; or
    2. five-year government bond yields for all maturities.
    - Exceptions to the base rate system shall be agreed by the Participants.
  b) CIRRs shall be set at a fixed margin of 100 basis points above each Participant’s base rate unless Participants have agreed otherwise.
  c) Other Participants shall use the CIRR set for a particular currency should they decide to finance in that currency.
  d) A Participant may change its base-rate system after giving six months’ advance notice and with the counsel of the Participants.
  e) A Participant or a non-Participant may request that a CIRR be established for the currency of a non-Participant. In consultation with the interested non-Participant, a Participant or the Secretariat on behalf of that non-Participant may make a proposal for the construction of the CIRR in that currency using Common Line procedures in accordance with Articles 58 to 63.

### Implementation considerations and transitional arrangement
- The estimated yuan discount rate (Chinabond 7-year + 100 basis point) would be used temporarily for PV calculations in new HIPC cases to avoid delays while awaiting an official CIRR determination.
- Once an official CIRR for the Chinese yuan is adopted (via OECD or Participant procedures), that official CIRR would replace the interim estimated discount rate in HIPC PV calculations.

### Related IMF content excerpted in the same source (selected factual figures and program details)
- Somalia macroeconomic and program highlights (excerpted from the same PDF):
  - Real growth in 2019 is expected at 2.9 percent; inflation in Mogadishu for 2019 came in at 3.1 percent; staff project growth in 2020 at 3.2 percent.
  - Cumulative domestic revenue for the FGS in 2019: US$229.7 million (relative to the indicative target of US$196.3 million), a 25 percent increase over 2018.
  - Tax revenue increase: US$15.9 million or 11 percent; non-tax revenue increase: US$30.4 million or 68 percent.
  - Expenditures: US$325 million relative to US$340.5 million projection; estimated fiscal surplus for 2019: US$13.3 million.
  - Domestic revenues for the FGS and FMS together could represent about 6 percent of GDP in 2019, relative to a projected 4 percent for the FGS alone.
  - A new three-year blended ECF/EFF Fund arrangement: staff-level agreement for SDR 291 million (178 percent of quota).
    - Note: SDR 242 million would be needed to repay the bridge financing needed for arrears clearance. All GRA access will be disbursed upfront and therefore subject to full debt relief at the HIPC Completion Point.
  - Somalia’s external public debt stood at US$5.3 billion at end-2018 of which 95 percent was in arrears; About 99.9 percent of the total value of debt has been fully reconciled, with claims from two creditors worth about $6.5 million remaining to follow up on.
  - Poverty: 69 percent of the population is estimated to live on less than $1.90 per day.

*Annex I. Discount Rate for Chinese Yuan and SDR; Statement by the Staff Representative on Recent Developments in Somalia — source content as provided.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1somea2020001.pdf_