## Somalia — IMF staff report and MEFP excerpt (1somea2020002) ## Source details **Canonical URL:** [Somalia — IMF staff report and MEFP excerpt (1somea2020002)](https://www.imf.org/-/media/files/publications/cr/2020/english/1somea2020002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1somea2020002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1somea2020002.pdf.json) --- ### Executive summary and background - Somalia reached the HIPC Decision Point (DP) after meeting required conditions: a satisfactory six-month track record under a staff-monitored program meeting UCT standards; delivery of a poverty reduction strategy (NDP9 delivered October 15, 2019); clearing arrears to international financial institutions; agreeing a plan to clear arrears to other external creditors; and the IMF securing necessary financing to cover debt relief costs. - Arrears cleared and financing developments: - Arrears to the AfDB and WB cleared on March 5, 2020. - On February 26, 2020, the Fund confirmed sufficient financing pledges to provide comprehensive debt relief and arrangements are in place for a bilateral donor to provide bridge financing to help Somalia clear its arrears to the IMF. - Political context and risks: - Constitutional Review due by June 2020; electoral reform underway ahead of Presidential and national elections expected early 2021. - Political and administrative capacity risks remain. ### SMP IV performance and program transition - SMP implementation rated satisfactory; Management approved completion of the second review of SMP IV. - Targets and benchmarks: - All end-September, October, and December indicative targets (ITs) were met; all structural benchmarks (SBs) except one were met. - SMPIV SB#4 (use of commitment controls) narrowly missed: payments subject to commitment controls increased to 74 percent, narrowly missing the 75 percent target. - Progress advanced on February 2020 SBs. - Authorities propose canceling the SMP and requesting three-year blended ECF/EFF arrangements: - SDR 291 million equals 178 percent of quota (as reported in the Executive Summary). - SDR 253 million under the PRGT; SDR 38 million under the GRA (as reported in the Executive Summary). - Later text indicates authorities request three-year blended arrangements totaling SDR 292.4 million (179 percent of quota), with SDR 253 million (155 percent of quota) under the PRGT and SDR 39.6 million (23 percent of quota) under the GRA. - Letter of Intent (LOI) requests IMF Executive Board approval of blended assistance of SDR 252.862 million and SDR 39.56778 million, respectively, and cancellation of the SMP. ### Recent macroeconomic developments and outlook - 2019 outcomes: - Real GDP growth: 2.9 percent in 2019. - Inflation (CPI, e.o.p.): 3.1 percent in 2019. - Domestic revenue (FGS, 2019): $230 million (2018: $183 million; IT: $196 million). - Increase in tax revenues: US$16 million or 11 percent relative to 2018. - Increase in non-tax revenues: US$31 million or 68 percent, including telecommunications licenses ($8.5 million) and ICAO back payment ($6.5 million). - Expenditures: US$315 million (projection US$341 million). - Estimated fiscal surplus for 2019: US$24 million (including US$10 million earmarked for 2020 and about US$0.5 million for paying down domestic arrears). - Current account: widened to 12 percent of GDP in 2019 from 10 percent. - Key risks affecting near-term performance: - Spring drought reduced cereal production in southern Somalia; Autumn higher-than-normal rainfall caused flooding. - Humanitarian assistance increased food imports and mitigated growth impacts. - Locust invasion increases near-term uncertainty. - Medium-term growth projections and assumptions: - Growth expected to increase gradually, peak close to 5.5 percent by 2027, then settle to a long-term average of 4.8 percent. - This implies growth about 1.3 percentage points higher relative to projections without debt relief. - Somalia’s per-capita growth expected to average about 2 percent per annum over the long-run, compared to zero growth in previous projections. - Text Table 1: Selected indicators (Real GDP growth — Est./Proj.): - Real GDP growth: 2016 2.9; 2017 1.4; 2018 2.8; 2019 2.9; 2020 3.2; 2021 3.5; 2022 3.7; 2023 3.9. - Inflation (CPI, e.o.p.): 2016 1.2; 2017 6.1; 2018 3.2; 2019 3.1; 2020 3.0; 2021 2.5; 2022 2.2; 2023 2.2. - Revenue and grants (% of GDP): 2016 4.1; 2017 6.0; 2018 5.7; 2019 6.8; 2020 9.5; 2021 10.8; 2022 12.4; 2023 13.6. - Grants (% of GDP): 2016 1.4; 2017 2.8; 2018 1.8; 2019 2.2; 2020 5.0; 2021 6.0; 2022 7.2; 2023 7.7. - Total expenditure (% of GDP): 2016 3.3; 2017 5.3; 2018 5.7; 2019 6.3; 2020 9.1; 2021 9.5; 2022 10.4; 2023 11.7. - Overall balance (% of GDP): 2016 0.8; 2017 0.7; 2018 0.1; 2019 0.5; 2020 0.4; 2021 1.4; 2022 2.0; 2023 1.8. - Current account balance (% of GDP): 2016 -9.4; 2017 -9.8; 2018 -10.3; 2019 -11.9; 2020 -12.3; 2021 -12.5; 2022 -12.5; 2023 -12.7. - External debt (% of GDP) (assumes full traditional debt relief, multilateral arrears clearance, interim HIPC assistance as of 2020): 2016 121.1; 2017 115.1; 2018 111.3; 2019 106.0; 2020 73.3; 2021 70.1; 2022 66.8; 2023 9.4. - Stock of domestic arrears (U.S. dollar, million): 2016 76.5; 2017 68.8; 2018 68.8; 2019 68.2; 2020 66.7; 2021 65.0; 2022 62.2; 2023 59.2. ### Policies under the proposed ECF/EFF arrangements - Program objectives and focus: - Anchor policies and reforms between HIPC Decision Point and Completion Point. - Strengthen public finances while balancing fiscal sustainability. - Deepen central bank capacity. - Improve the business environment and governance. - Enhance statistics. - Access and disbursement design (as described): - Access heavily front-loaded and requires exceptional access under the PRGT. - The full amount of the EFF arrangement will be available in the first purchase. - Access under the ECF arrangement will be evenly phased and intended for CBS reserves accumulation. - This level of access stated as consistent with Somalia’s balance of payments needs. ### Program financing, safeguards, and monitoring - Financing status and creditor engagement: - The program is fully financed. Financing needs for the next 12-months will be met through expected grants from the EU, WB, and other donors, together with the AfDB and WB arrears clearance operations completed in March 2020. - Paris Club creditors provided official financing assurances for interim debt relief contingent on Somalia reaching the DP; some large non-Paris Club bilateral creditors plan to attend Paris Club negotiations scheduled March 31, 2020. - CBS safeguards assessment and financial sector risks: - First safeguards assessment of the CBS substantially completed. - Fund TA improved safeguards including legal framework and internal audit. - Identified weaknesses: external audit quality and transparency, oversight of audit committee, elevated credit risks in foreign exchange accounts given limited correspondent banking access, key central banking functions not yet operational. - Program monitoring and conditionality: - Monitored by QPCs and ITs aimed at increasing domestic revenues and creating fiscal space while maintaining fiscal discipline and building reserves. - Quantitative anchors include fiscal cash balance, domestic revenue floor, ceiling on non-priority spending, and floor on net foreign assets of the CBS. - Limits on domestic arrears and public debt accumulation; QPCs, ITs, and SBs set for first 12 months with semi-annual reviews. - Program conditionality described as parsimonious and macro-critical. ### Exceptional access rationale - Exceptional access under the PRGT considered met based on criteria: - Criterion 1: exceptionally large BoP need due to large external payments at program outset related to arrears clearance. - Criterion 2: comparatively strong adjustment program and ability to repay the Fund contingent on expected debt relief/restructuring under HIPC, MDRI, and beyond-HIPC assistance. - Criterion 3 and 4: Somalia has no market access and income below IDA operational cut-off. ### Fiscal reforms, fiscal federalism, and governance progress - Fiscal reporting and structural reforms implemented or in progress: - Preliminary quarterly consolidated fiscal reports across FMS and FGS produced (SMPIV SB#2); 2019 general government revenues estimated at 6.5 percent of GDP. - Customs manifest verification implemented at the Port of Mogadishu (SMPIV SB#7); automated front-end declaration process includes goods inspection (SMPIV SB#9). - Revenue Act (incorporating Allocation of Revenue Raising Powers Bill) enacted (SMPIV SB#8). - Amendments to the Public Procurement Act awaiting President’s signature; draft implementation regulations ready (SMPIV SB#5). - Preliminary expenditure assignment guidelines agreed with FMS (SMPIV SB#3). - Cooperation on fiscal federalism: - Finance Ministers meet on common customs tariff, revenue-sharing, and harmonizing PFM information systems. - Endorsement of a policy paper on intergovernmental transfers. - Technical work supported by UK DFID, WB, and IMF advancing fiscal reporting and customs modernization at Bossaso and Kismayo. ### Revenue mobilization and tax administration - Domestic revenue targets: - FGS domestic revenues projected to increase from around 4.5 percent of GDP in 2019 to nearly 6.0 in 2023 (staff projection). - General government domestic revenue expected to rise from estimated 6.5 percent in 2019 to nearly 8.0 percent by 2023. - Operational actions: - Develop operational plan to implement the Revenue Act prioritizing customs and sales taxes. - Implement tax audit strategy at LMTO and prepare lessons-learned report by end-June 2020 (SB#1 / ECF/EFF SB#1). - Advance customs reform: harmonized HS codes at three regional ports and ad valorem tariff schedule toward single tariff by end-September 2020 (SB#4 and CP trigger). ### Public financial management (PFM) and expenditure controls - MTFF and budget process: - MTFF to be updated to cover 2020–2023 and inform 2021 budget; future budgets to use rolling three-year MTFF. - 2020 budget appropriated with revenue envelope of $466 million and expenditures of $474 million — increases of about 23 percent and 29 percent, respectively, from earlier budget. - Budget anticipates a $25 million social spending program supported by a WB Shock Response Safety Net for Human Capital project. - Supplementary budgets planned: early Spring for debt servicing on restructured debt; likely second supplementary in Fall for post-DP grant inflows and NDP9 costing. - Expenditure controls: - Staff proposes a QPC ceiling on expenditures on compensation and use of goods and services to direct fiscal space to NDP9 priorities. - Contingency measures: project grants adjust if short, fiscal buffer and sequestration rule protect priority spending, practice of backloading discretionary expenditures and stronger commitment controls. ### Debt relief, debt sustainability, and sequencing - DSA findings: - As of end-2018, Somalia’s debt NPV corresponded to more than 450 percent of exports, above HIPC threshold of 150 percent. - Under baseline, NPV/external debt ratios remain above thresholds; an alternative scenario assuming full delivery of debt relief at CP and post-CP concessional borrowing would put debt burden indicators below thresholds by 2023, consistent with a moderate risk rating at CP. - Aid and debt relief sequencing: - Until HIPC CP, aid expected to be entirely grants. - After CP, aid expected to shift to mix of grants and highly concessional loans. - Staff baseline assumes CP in March 2023; authorities suggested CP could come as early as March 2022; fragility could cause setbacks. ### Social protection, resilience, and human capital - Authorities developing resilience and social protection consistent with NDP9: - A comprehensive social protection policy aims initially to focus on social transfers (short- to medium-term) and work towards setting a floor on social protection. - Social spending and programs: - Budget includes a $25 million Shock Response Safety Net for Human Capital project supported by WB. - Social registry establishment is a CP-trigger; program envisages targeted social transfers and conditional cash transfer system with WB support. - Social conditions and challenges (Annex II): - About 70 percent of Somalis live on less than US$1.90 a day (PPP). - Real per capita incomes declined by 0.4 percent annually in 2016–18. - Youth: more than 70 percent of population under age 30; youth unemployment estimated at 67 percent in 2013. - Food security and malnutrition: 2016–2017 drought impacts cited (OCHA estimates included). ### Financial sector, AML-CFT, and currency reform - CBS capacity building and reforms: - Implement new organizational structure, recruit key staff, develop medium-term vision. - Expand supervisory capacity, especially mobile money; issue and implement mobile money regulations (target end-July 2019 issued; implementation end-February 2020 and completed by 2021 licensing round). - Develop prudential tools, reserve requirements, and frameworks to deal with problem institutions. - Exchange rate and currency reform: - Somalia is de facto dollarized with no independent monetary policy; no change in dollarization anticipated. - Currency exchange project (phase I) planned with preconditions: formulate medium-term policy priorities, build basic monetary policy capacity, secure assets to backstop new currency. - AML-CFT and correspondent banking: - Strengthen Financial Reporting Center (FRC) capacity (GOAML, IT, physical infrastructure); ECF/EFF SB#2. - Enact Targeted Financial Sanctions Law and associated regulations (SB#7 target end-March 2021). - Complete National Risk Assessment and prepare for MENA-FATF Mutual Evaluation Assessment in 2024. - Digital ID to support KYC and targeted service delivery. ### Structural benchmarks, program monitoring cadence, and data reporting - Structural benchmarks and targets (selected): - Implement manifest verification at Port of Mogadishu: Target End-September 2019; Status: Met; monitoring continuous monthly thereafter. - Include goods inspection in automated front-end declaration: Target End-December 2019; monitoring continuous monthly. - Implement harmonized HS codes and ad valorem tariff schedule at Bossaso, Kismayo, Mogadishu: Target End-May 2020; thereafter end-month basis. - Enact Revenue Bill: Target End-October 2019; Status: Met. - Pass Amendment to Statistics Law and submit statistics action plan: Target End-February 2020. - Implement Mobile Money Regulations and operationalize supervision capacity: various targets through 2020–2021. - Develop and implement tax audit strategy at LMTO: Target End-June 2020 (SB#1). - Publish cabinet-approved National Anti-Corruption Strategy: Target End-June 2020 (SB#3). - MEFP Table 1 selected QPC/IT values (Millions of U.S. dollars): - FGS domestic revenue floor: 109.0 (June 2020), 160.0 (September 2020), 234.0 (December 2020), 50.0 (March 2021). - Ceiling on spending on FGS compensation, goods & services & contingency: 154.0 (June 2020), 231.0 (September 2020), 308.0 (December 2020), 77.0 (March 2021). - Net foreign assets of the CBS (floor): 69.1 (June 2020), 69.1 (September 2020), 78.7 (December 2020), 78.6 (March 2021). - Contracting new domestic debt (ceiling): 0.0 (all listed dates). - Indicative target — Fiscal balance (cash basis; floor): -10.0 (June 2020), -10.0 (September 2020), -10.0 (December 2020), 0.0 (March 2021). - Data reporting schedules and institutional monitoring: - Program-monitoring committee composed of senior officials from MoF, CBS, and MoPIED; IMF Resident Representative observer. - Quarterly progress reports within four weeks of end of each quarter. - Detailed monthly and quarterly reporting schedules for monetary survey, bank data, TSA balances, SFMIS reports, domestic arrears, domestic debt, external debt, STR/LCTR/Nil reports, CPI, and GDP data specified. ### Program risks, timing uncertainty, and upside potential - Elevated risks: - Political risk from upcoming elections and potential change in administration. - Security risk: AMISOM transition to Somalia National Army could raise budgetary risks. - Climate shocks: droughts, floods, locusts increasing agricultural loss and displacement. - Fragility could delay HIPC Completion Point (staff baseline: CP by March 2023; authorities’ success could yield CP as early as March 2022). - Upside potential: - Greater-than-expected impact of program reforms, additional development financing, and development of new industries (e.g., petroleum, commercial fishing) could yield higher and more inclusive growth. - Policy implications: - Maintain program continuity and reform momentum through election period. - Preserve incentives for authorities via prospect of full HIPC debt relief. - Ensure continued donor technical and financial support to finance large trade deficits and protect gains in domestic revenue mobilization. - Continue financial sector development and monitoring as private sector credit expands. ### COVID-19 statement (March 24, 2020) - Somalia declared its first COVID-19 case on March 14, 2020; authorities banned international flights, closed schools and universities, and suspended sporting events for 15 days. - Authorities expect containment is best given limited public health capacity; economic growth, government revenues, and remittances could decline as the health crisis affects trading partners. *Source: IMF staff report and Supplemental Memorandum of Economic and Financial Policies (MEFP) excerpt — 1somea2020002.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background and context - Somalia has fulfilled the necessary conditions to reach the HIPC Decision Point (DP), cleared its arrears and normalized relations with the IMF and other international financial institutions. - Reaching the DP unlocks access to new financial resources to fund development and social spending; large, multi-year investments in human and physical capital—especially in agriculture and livestock—are needed to improve resilience and growth. - Conditions to reach the DP included: a satisfactory track record on economic policies of at least six-months under a staff-monitored program meeting UCT standards; delivery of a poverty reduction strategy (PRS); clearing arrears to the international financial institutions; agreeing a plan to clear arrears to other external creditors; and the IMF securing necessary financing to cover debt relief costs. - The authorities delivered Ninth National Development Plan (NDP9) as the PRS on October 15, 2019. On February 26, 2020, the Fund confirmed sufficient financing pledges to provide comprehensive debt relief and arrangements are in place for a bilateral donor to provide bridge financing to help Somalia clear its arrears to the IMF. Arrears to the AfDB and WB were cleared on March 5, 2020. - Political context: Constitutional Review due by June 2020; electoral reform underway ahead of Presidential and national elections (expected early 2021). Risks to political and administrative capacity remain. ### Staff-Monitored Program (SMP) performance - SMP implementation rated satisfactory; Management approved completion of the second review of SMP IV. - All end-September, October, and December indicative targets (ITs) were met; all structural benchmarks (SBs) except one were met. - SMPIV SB#4 (use of commitment controls) narrowly missed: payments subject to commitment controls increased to 74 percent, narrowly missing the 75 percent target. - Progress is well advanced on the February 2020 SBs. ### Recent macroeconomic developments and outlook - 2019 real sector developments broadly as expected: - Spring drought contributed to low cereal production in southern Somalia; Autumn higher-than-normal rainfall led to flooding. - Humanitarian assistance facilitated higher food imports, mitigating food insecurity and growth impact. - Locust invasion increases near-term uncertainty. - Inflation: 3.1 percent for 2019 as better food supply and lower transport costs eased pressures on food prices in the second half of the year. - Current account: widened to 12 percent of GDP in 2019 from 10 percent. - Fiscal performance (FGS, 2019): - Domestic revenue reached $230 million (2018: $183 million; IT: $196 million). - Increase in tax revenues: US$16 million or 11 percent relative to 2018. - Increase in non-tax revenues: US$31 million or 68 percent, including over-flight fees and one-off receipts: telecommunications licenses ($8.5 million) and ICAO back payment ($6.5 million). - Expenditures: US$315 million (projection US$341 million). - Estimated fiscal surplus for 2019: US$24 million (including US$10 million earmarked for 2020 and about US$0.5 million for paying down domestic arrears). - SMP IV indicative target and program reporting (selected): - Domestic revenue floor (cumulative, millions of U.S. dollars): Prog. June 110.9; Prel. June 126.3 Met. Prog. October 154.4; Prel. October 178.3 Met. Prog. December 196.3; Prel. December 229.7 Met. - Accumulation of new domestic expenditure arrears (ceiling): Program 0.0; Prel. 0.0 Met across test dates. - Contracting of new domestic debt (ceiling): Program 0.0; Prel. 0.0 Met across test dates. - Net foreign assets of the CBS (floor) (millions of U.S. dollars): Program 24.8; Prel. 24.9 Met (June); Program 24.8; Prel. 25.0 Met (October); Program 24.8; Prel. 25.1 Met (December); Program 24.8; Prel. 24.8 (May). - Text Table 1: Selected economic indicators, 2016–23 (percent of GDP unless indicated; Real GDP growth and inflation e.o.p. in percent; figures shown as Est./Proj.): - Real GDP growth: 2016 2.9; 2017 1.4; 2018 2.8; 2019 2.9; 2020 3.2; 2021 3.5; 2022 3.7; 2023 3.9. - Inflation (CPI, e.o.p.): 2016 1.2; 2017 6.1; 2018 3.2; 2019 3.1; 2020 3.0; 2021 2.5; 2022 2.2; 2023 2.2. - Revenue and grants (% of GDP): 2016 4.1; 2017 6.0; 2018 5.7; 2019 6.8; 2020 9.5; 2021 10.8; 2022 12.4; 2023 13.6. - Grants (% of GDP): 2016 1.4; 2017 2.8; 2018 1.8; 2019 2.2; 2020 5.0; 2021 6.0; 2022 7.2; 2023 7.7. - Total expenditure (% of GDP): 2016 3.3; 2017 5.3; 2018 5.7; 2019 6.3; 2020 9.1; 2021 9.5; 2022 10.4; 2023 11.7. - Overall balance (% of GDP): 2016 0.8; 2017 0.7; 2018 0.1; 2019 0.5; 2020 0.4; 2021 1.4; 2022 2.0; 2023 1.8. - Current account balance (% of GDP): 2016 -9.4; 2017 -9.8; 2018 -10.3; 2019 -11.9; 2020 -12.3; 2021 -12.5; 2022 -12.5; 2023 -12.7. - External debt (% of GDP) (assumes full traditional debt relief, multilateral arrears clearance, interim HIPC assistance as of 2020): 2016 121.1; 2017 115.1; 2018 111.3; 2019 106.0; 2020 73.3; 2021 70.1; 2022 66.8; 2023 9.4. - Stock of domestic arrears (U.S. dollar, million): 2016 76.5; 2017 68.8; 2018 68.8; 2019 68.2; 2020 66.7; 2021 65.0; 2022 62.2; 2023 59.2. ### Policies under the proposed ECF/EFF arrangements - Authorities propose canceling the SMP and requesting three-year financing arrangements under blended Extended Credit and Extended Fund Facilities (ECF/EFF) totaling SDR 291 million: - SDR 291 million equals 178 percent of quota; - SDR 253 million under the PRGT; SDR 38 million under the GRA. - Program objectives and focus: - Anchor policies and reforms between the HIPC Decision Point and Completion Point. - Continued strengthening of public finances to meet development needs while balancing fiscal sustainability. - Continued deepening of central bank capacity. - Efforts to improve the business environment and governance. - Enhancing statistics. - Access and disbursement design: - Access heavily front-loaded and requires exceptional access under the PRGT. - The full amount of the EFF arrangement will be available in the first purchase. - Access under the ECF arrangement will be evenly phased and is intended for CBS reserves accumulation. - This level of access is stated as consistent with Somalia’s balance of payments needs. ### Program and other risks; upside potential - Risks elevated, while upside potential exists. - Immediate political risks: upcoming elections. - Climate-related risks: frequent climate shocks contributing to agricultural loss and human displacement; locust invasion increases near-term uncertainty. - Upside scenarios: greater-than-expected impact from program reforms, additional development financing, and development of new industries could yield higher and more inclusive growth than the baseline. ### Fiscal reforms, fiscal federalism, and governance progress - Fiscal reporting and structural reforms implemented or in progress: - Preliminary quarterly consolidated fiscal reports across FMS and FGS produced (SMPIV SB#2); 2019 data suggest general government revenues reached 6.5 percent of GDP. - Customs manifest verification implemented at the Port of Mogadishu (SMPIV SB#7); automated front-end declaration process includes goods inspection (SMPIV SB#9). - Revenue Act (incorporating Allocation of Revenue Raising Powers Bill) enacted (SMPIV SB#8). - Amendments to the Public Procurement Act awaiting the President’s signature; draft implementation regulations ready (SMPIV SB#5). - Preliminary expenditure assignment guidelines agreed with FMS to facilitate spending of shared revenues (SMPIV SB#3). - Cooperation on fiscal federalism improving: - Finance Ministers continued meetings on a common customs tariff, revenue-sharing, and harmonizing PFM information systems. - Endorsement of a policy paper on intergovernmental transfers. - Technical work to improve fiscal reporting across FGS and FMS (supported by UK DFID, WB, and IMF) is advancing. - Cooperation on customs modernization at Ports of Bossaso and Kismayo deepened (support from UK DFID). *Source: EXECUTIVE SUMMARY (1somea2020002) ### 019. Continuous monitoring on a monthly ### 1somea2020002 - 019. Continuous monitoring on a monthly ### Structural benchmarks and implementation progress - Benchmarks implemented at ports and customs: - Implement manifest verification in the customs IT systems at the Port of Mogadishu. Target: End-September 2019, thereafter end-month basis. Purpose: Support domestic revenue generation and modern customs operations; allow validation of online customs declarations submitted via Somalia Standard Administrative Document. Reporting: Submit report detailing number of goods manifests processed by the system in September 2019. Monitoring: Continuous monitoring on a monthly basis following the first test date. Status: Met. - Include goods inspection in the automated front-end declaration process and IT systems at the Port of Mogadishu. Target: End-December 2019; thereafter end-month basis. Purpose: Support domestic revenue generation and modern customs operations; allow verification of goods processed through the automated customs front-end declaration system. Reporting: Submit report on number of goods inspections undertaken. Monitoring: Continuous monitoring on a monthly basis following the first test date. - Implement harmonized HS codes and prepare ad valorem tariff schedule at key ports of Bossaso, Kismayo, and Mogadishu. Target: End-May 2020; thereafter end-month basis. Reporting: Submit schedule of HS codes and ad valorem rate schedule, and report revenue on a continuous, monthly basis (following first test date). - Legislative and institutional benchmarks: - Enact Revenue Bill (“Allocation of Revenue Raising Power” and “Revenue Administration” Bills). Target: End-October 2019. Purpose: Support national revenue collection and expand the tax base by assigning revenue raising authority between FGS and FMS. Reporting: Submit Revenue Acts to the IMF staff. Status: Met. - Develop and implement a tax audit strategy at the LMTO to validate tax returns and revenues. Target: End-May 2020. Reporting: Report number and value of returns audited, tax audit strategy, and tax audit summary report on key findings. - Pass Amendment to the Statistics Law and build capacity to collect key macroeconomic statistics on national basis. Target: End-February 2020. Reporting: Submit passed Amendment; submit a detailed and time-bound statistics action plan to close key data gaps in the areas of trade, FDI, GDP, employment, CPI, and monetary statistics. - Financial sector and AML-CFT benchmarks: - CBS to issue Mobile Money Regulations. Target: End-July 2019. Reporting: Submit issued mobile money regulations to the IMF staff. Status: Met. - Adopt updated CBS Strategic Plan and transition toward updated organizational structure (as approved by the CBS Board November 2018). Target: End-October 2019. Requirements: (i) Prepare updated CBS Strategic Plan; (ii) prepare and secure Board approval of a transition plan to guide the interim period before full implementation of updated CBS organizational structure; and (iii) secure Board approval of updated organizational structure and Strategic Plan. Before Board submission, send draft CBS organizational structure and Strategic Plan to IMF staff, and subsequently deliver Board-approved versions. Status: Met. - MOF to issue AML/CFT regulations that apply to all financial institutions. Target: End-October 2019. Reporting: Submit issued regulations to the IMF staff. Status: Met. - Implement Mobile Money Regulations. Target: End-February 2020. Requirements: Establish LSD capacity to supervise MNOs; develop and finalize prioritized transition plan to imposing full compliance with regulations, supervision manual, and data reporting template; and issue licenses for MNOs. Reporting: Submit transition plan and regulation manual, and LSD resourcing plan to IMF staff. - Issue regulations implementing the Targeted Financial Sanctions Law, following approval by Parliament. Target: End-May 2020. Reporting: Submit issued regulations (by the Ministry of Finance) to IMF staff. - Further operationalize and build capacity at the Financial Reporting Center to review and assess suspicious transactions. Target: End-May 2020. Key gaps to address: (1) key physical infrastructure, (2) IT system (GOAML), and (3) secure data collection and storage. Reporting: Confirm acquisition of key physical and data management infrastructure, and IT systems. Provide summary of activities over previous six months. ### Program request, objectives, and coordination - Authorities request: - New three-year IMF-financing arrangements to anchor medium-term policies during the period between the HIPC Decision Point (DP) and Completion Point (CP). - Cancellation of the current SMP. - Program policy objectives: - Strengthen public finances while balancing fiscal sustainability. - Continue deepening CBS capacity for financial sector supervision and, eventually, monetary policy. - Improve the business environment and governance (including AML-CFT and anti-corruption). - Enhance statistics. - Design and coordination: - Reform priorities coordinated with other donors and complement proposed HIPC floating CP-triggers (see Box 1). Reforms designed to be mutually supportive but not to overlap with CP-triggers. - Satisfactory performance under the new arrangements will satisfy the CP-trigger related to maintaining macroeconomic stability. ### Growth projections and macroeconomic outlook - Real GDP growth projections and assumptions: - Growth expected to increase gradually and reach a higher long-term steady state compared to previous projections. - Following the DP, gradual scaling up of access to resources to support greater investment in resilience, human and physical capital, and social spending. - As NDP9 implementation ramps up, growth expected to gradually accelerate to a peak of close to 5.5 percent by 2027, before settling to a long-term average of 4.8 percent. - This implies growth would be about 1.3 percentage points higher relative to the projections without debt relief. - Somalia’s per-capita growth is expected to average about 2 percent per annum over the long-run, compared to zero growth in previous projections. - External sector: - Current account deficit projected to remain elevated, reflecting continued high demand for imports. - Implementation of NDP9 expected to shift import composition from food and subsistence items to more investment goods. - External inflows expected to transition slowly from grants and remittances towards foreign direct investment (FDI) and other capital flows. - Aid and debt relief sequencing: - Until Somalia reaches the HIPC CP, aid expected to remain entirely composed of grants. - Once the CP is reached, aid delivery expected to gradually shift to a mix of grants and highly concessional loans. - The new framework assumes the CP happens in 2023. ### Risks, timing uncertainty, and upside potential - Elevated risks: - Fragility and vulnerability to security, political, and climate risks into the medium term. - Security risk: transition from AMISOM to the Somalia National Army (SNA) is an important medium-term risk, including potential budgetary risks from increased security costs. - Political risk: frictions between the FGS and FMS linked to the on-going Constitutional Review and upcoming elections. - Climate shocks: continue to contribute to agricultural loss and human displacement. - Mitigants and upside: - Risks mitigated by authorities’ efforts and international support; should decline as resilience increases. - Upside: greater development and social spending, impact of reaching the DP on foreign inflows, development of new sectors (e.g., petroleum), and enhancement of sectors like commercial fishing. - HIPC CP timing uncertainty: - Staff baseline envisages reaching the CP by March 2023 (somewhat faster than average HIPC experience of around four years). - Authorities’ success suggests CP could come as early as March 2022. - Somalia’s fragility and vulnerability could cause setbacks shifting this timeline and slowing improvement in the outlook. ### Floating Completion Point (CP) triggers (Box 1) - Poverty reduction strategy implementation: - Satisfactory implementation for at least one year of Somalia’s full 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 3-year 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 revenue management. - Domestic revenue mobilization: - Adopt and apply a single import duty tariff schedule at all ports in the Federal Republic of Somalia. - 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. - Statistics: - Publish at least two editions of the “Somalia Annual Fact Book”. ### Strengthening the fiscal framework and budgetary policy - 2020 budget and fiscal envelope: - Parliament appropriated a 2020 budget with a revenue envelope of $466 million and expenditures of $474 million, an increase of about 23 percent and 29 percent, respectively, from the budget discussed during the first review. - The increase in projected revenues supported by strong underlying domestic revenues in 2019 and updated projections on grant inflows, much of which are for ear-marked projects. - Social spending and supplementary budgets: - Budget anticipates the first significant social spending program for $25 million, supported by a WB project—the Shock Response Safety Net for Human Capital project. - Authorities plan for an early supplementary budget in the Spring to secure appropriations for estimated debt servicing on restructured debt; a second supplementary budget likely in the Fall to incorporate updated projections of post-DP grant inflows and NDP9 costing. - Medium-term fiscal framework (MTFF) and expenditure controls: - Staff envisages substantial increase in expenditures, including multi-year projects, in context of HIPC and NDP9 implementation. - Staff proposed a new QPC—a ceiling on expenditures on compensation and use of goods and services (see MEFP Table 1)—to ensure fiscal space is directed to NDP9 priorities. The costing of NDP9 expected to be completed by June 2020 (SB#5). - Authorities to be supported by WB advice on introducing a formal civil service grading structure and more modern HR practices. - Future budgetary processes to commence with an update of the MTFF to cover a rolling three-year basis. - Contingency measures and fiscal safeguards: - Contingency measures to protect the budget given tight fiscal constraints: project grants automatically adjust if they fall short; fiscal buffer (implemented under SMP IV) and sequestration rule protect priority spending against revenue shortfalls. - Practice of backloading discretionary expenditures and stronger use of commitment controls allows expenditures to be curtailed if expected revenues do not materialize. - Debt policy and borrowing constraints: - During the program, expenditures will be capped by overall revenue envelope, with a zero limit on new debt accumulation. - Staff encouraged limiting future borrowing (post-program) to concessional sources as much as possible and emphasized transparency and accurate recording of all debt (related CP-trigger). - IMF-supported program includes QPCs: ceilings on contracting new domestic debt and on contracting and guaranteeing new external non-concessionary debt. - Need for regulations relating to incurring and managing government debt, including controls on issuance of government guarantees and the authority of the FMS to enter into debt contracts under the PFM Act. - Reforms to be supported by technical assistance from the IMF and other development partners. - Domestic revenue mobilization targets: - Staff projects FGS domestic revenues to increase from around 4.5 percent of GDP in 2019 to nearly 6.0 in 2023. - Expected increase in general government domestic revenue from 6.5 percent (estimated) in 2019 to nearly 8.0 percent by 2023. *Source: 1somea2020002 - 019. Continuous monitoring on a monthly* ### 23. The authorities recognize the large social needs, which are magnified by persistent ### 1somea2020002 - 23. The authorities recognize the large social needs, which are magnified by persistent ### Social protection and resilience - The authorities recognize the large social needs, which are magnified by persistent climate shocks. - They are developing resilience and social protection interventions in line with NDP9. - A comprehensive social protection policy aims to: - initially focus on social transfers (in the short- to medium-term); and - work towards setting a floor on social protection in the future. ### Revenue mobilization and tax administration - The authorities will develop an operational plan to support the implementation of the Revenue Act, prioritizing the expansion of the coverage and collection of customs and sales taxes. - A new QPC floor on FGS domestic revenue will monitor developments; this will exclude any revenues received and recorded in the current fiscal year but related to previous years’ activities, with the exception of underpaid taxes and fees recovered through the annual tax audit process. - Continued efforts to strengthen tax administration and improve compliance: - Implement a tax audit strategy for the large and medium taxpayers’ office (LMTO) and prepare a report capturing lessons learned from audits (SMPIV SB#10 and ECF/EFF SB#1). - Advance the customs reform roadmap, including introduction of harmonized HS codes at the three regional ports and preparing an ad valorem tariff schedule toward a single tariff schedule (SMP IV SB#11 and ECF/EFF SB#4, and CP trigger). - Develop a customs guidance manual, deliver required training, and install a common IT system (supported by UK DFID). ### Public Financial Management (PFM) reforms - The authorities will deepen and broaden ongoing PFM reforms that hinge on implementing aspects of the PFM Act. - Budget preparation and execution: - Review the use and presentation of earmarked revenues financing various institutions to identify more appropriate medium-term financing. - Institutionalize recent budget process improvements by adding functionality to the Somali Financial Management Information System (SFMIS) to support controls for allotments and linking warrants approval to allotment. - Activate the SFMIS budget module to strengthen budget preparation and align controls over budget execution. - Quality assurance of the SFMIS will be supported by WB TA. - Strengthening PFM processes: - Implement regulations in new areas of activity (CP trigger) and next steps following amendments to the Procurement Act. - Enhance quality of consolidated fiscal reporting by developing a public sector institutional table, a complete inventory of FGS public sector non-financial assets, and a reporting framework for MDAs covering contingent liabilities and extrabudgetary transactions. ### Natural resources and extractive industry framework - The Petroleum Bill has been enacted. - The authorities committed to work towards enacting the Extractive Industry Tax Law (CP-trigger) to provide legal underpinnings to tax the sector. - They will have a model production sharing agreement in place that embeds tenets of both laws before planned auctioning of oil exploration licenses. ### Delivering debt relief and debt sustainability - The Fund-supported program is expected to facilitate comprehensive debt relief to place Somalia’s external debt on a sustainable path. - Staff analysis (HIPC Decision Point document) shows that, as of end-2018, Somalia’s debt in net present value (NPV) terms corresponded to more than 450 percent of exports of goods and services, well above the HIPC threshold of 150 percent. - Debt sustainability analysis (DSA) under the debt sustainability framework for low-income countries finds: - The NPV of external debt-to-GDP ratio and NPV of external debt-to-exports ratio remain well above their respective thresholds (30 and 140 percent) throughout the projection period. - Debt service-to-exports and debt service-to-revenue ratios also see sustained breaches. - An alternative scenario that assumes debt relief at the CP (through the HIPC Initiative, Multilateral Debt Relief Initiative, and beyond-HIPC assistance), with full delivery at CP and post-CP borrowing on highly concessional terms, would put all debt burden indicators significantly below their respective thresholds in 2023, consistent with achieving a moderate risk rating at the CP. ### Financial and monetary policies and reforms - Central Bank of Somalia (CBS) capacity improvements: - Work to implement a new organizational structure, recruit key staff, and develop a medium-term vision once prerequisites are in place. - Expand supervisory capacity, especially in mobile money, as CBS implements new regulations and licensing regime. - Near-term reform priorities: - Conduct a self-assessment of on-site inspection capacity. - Further improve analytical capacity and data reporting, especially in Islamic finance (SB#6). - Develop frameworks for dealing with problem institutions and related supervisory actions. - Develop additional prudential tools, such as a reserve requirement. - Monetary and exchange rate policy capacity: - Somalia is a de facto dollarized economy with no independent monetary policy. - No change in the level of dollarization is anticipated. - Introduction of new Somali shilling notes (initial phase of the currency project) limited to replacing counterfeit notes will require CBS to gradually develop analytical and operational capacity to manage liquidity and support exchange rate operations. - AML-CFT compliance: - Annual bank and MTB relicensing is informed by Financial Reporting Center (FRC) reporting data, supporting improvements in AML-CFT compliance. - FRC technical capacity and infrastructure (goAML software, power, data storage, and security) is becoming more robust (ECF/EFF SB#2). - Inter-agency cooperation is improving through the National Anti-Money Laundering Committee (NAMLC). - Authorities committed to enact the Targeted Financial Sanctions Law (SMP IV SB#16 and ECF/EFF SB#7) by early next year; parliamentary sensitization is needed to facilitate passage and improve correspondent banking relationships. - Over the program period, complete national risk assessment and develop regulations for designated non-financial entities. - Develop technical and legal underpinnings for a national, digital identification to improve customer due diligence implementation. - Financial sector development and access: - Update legal framework starting with Financial Institutions Law, followed by an insurance law. - Payment system (national switch and automatic clearing house) expected operational by early 2021. - Develop a credit reporting system and movable collateral registry; enhance dispute resolution related to business and credit. - World Bank assistance to establish a micro-lending program. ### Governance, economic development, and program-linked reforms - Program supports efforts to improve governance and fight corruption: - Benchmarks and capacity development in fiscal and financial governance, including CP-trigger on publication of audited financial accounts of the FGS. - Encourage ratification of the UN Convention Against Corruption (UNCAC) (CP-trigger). - President signed the law creating the Anti-Corruption Commission (ACC) late last year; nomination process for commissioners has started but parliament approval and ACC constitution will take time. - Authorities committed to secure Cabinet-approval of, and publish, the National Anti-Corruption Strategy (NACS) (SB#3). - NACS will outline framework and actions to fight corruption, including legal framework improvements, asset declaration regime for public officials, and increasing public awareness. - Authorities partnered with UNDP to develop an action plan and support NACS implementation. - Support for long-term growth and poverty reduction: - Reaching DP will generate new financing to implement NDP9 pillars: (i) inclusive and accountable politics; (ii) improved security and the rule of law; (iii) inclusive economic growth; (iv) improved social development; and, (v) resilience to climate shocks (as informed by DINA and RRF). - Program support through fiscal conditionality, CP triggers, and complementary World Bank operations addressing growth, water management, poverty, gender, and ease of doing business. - IFC supporting a “one-stop shop” to coordinate regulatory functions and facilitate investment. - NDP9 has been published; authorities committed to completing initial costing exercise by June 2020. ### Data, statistics, and capacity development - Authorities committed to strengthen data provision: - Amendments to the Statistics Law have been enacted; the President signed the amendments in February 2020. - Immediate priority: create and build the national statistics office from the current Directorate of National Statistics (DNS). - Developing an action plan for production and dissemination of macroeconomic statistics to guide program priorities, support CP-trigger, and coordinate partner support (IMF, Statistics Sweden, WB). - Build capacity across FGS and FMS on GFS reporting standards, and enhance collection of BOP-related and financial institutions data. - Authorities expected to develop a production-based GDP estimate as part of a WB program over the next few years. - Statistical units of FMS need greater support to collect and process administrative data to improve source data quality. - Capacity development support: - Somalia will continue to need extensive capacity development support to meet program goals and reach HIPC CP. - TA will remain closely integrated with program priorities and coordinated with other TA providers. - Staff fundraising for Phase II of the Somalia Fund for Capacity Development (covering FY2021-2024); progress has been relatively slow, representing a risk to future IMF TA. - Phase I of the SCF will be completed at end-April 2020; Phase II expected to run from May 2020-April 2024. Despite fundraising efforts, only minimal funding is available to support TA in the near term. ### Program modalities, financing, and exceptional access - Authorities are cancelling the SMP and requesting three-year blended arrangements under Extended Credit and Extended Fund Facilities (ECF/EFF) totaling SDR 292.4 million (179 percent of quota). - Access composition reflecting annual PRGT access limits: - SDR 253 million (155 percent of quota) under the Poverty Reduction and Growth Trust (PRGT). - SDR 39.6 million (23 percent of quota) under the General Resources Account (GRA). - Phasing will be front-loaded given the large upfront BoP need. - Authorities intend to use most proceeds of the initial disbursement to repay bridge financing needed to clear arrears to the IMF. - The full amount of the EFF arrangement will be available in the first purchase; if drawn as expected, the EFF arrangement will lapse. Program monitoring will continue under the three-year ECF arrangement. - Access under the ECF arrangement is expected to be evenly phased and used for CBS reserves accumulation; this will be monitored via a QPC on net foreign assets. - Program monitoring and conditionality: - Monitored by QPCs and ITs aimed at increasing domestic revenues and creating fiscal space while maintaining fiscal discipline and building reserves. - Quantitative anchors include fiscal cash balance, domestic revenue floor, ceiling on non-priority spending, and floor on net foreign assets of the central bank. - Program includes limits on domestic arrears and public debt accumulation. - Program conditionality is parsimonious and focused on macroeconomic criticality, with semi-annual reviews and QPCs, ITs, and SBs set for the first 12 months. Remaining SBs from SMPIV will be carried into the new Fund-supported program. - Program aims to support achievement of complementary floating CP-triggers focusing on public financial and debt management, governance, and reforms to reduce poverty and improve social conditions. - Exceptional access under the PRGT (access above 100 percent of quota in first 12 months) is considered to be met: - Criterion 1: “an exceptionally large BoP need that cannot be met within the normal limits (e.g., very large external shocks, very low levels of reserves)”. Somalia’s large BoP need reflects large external payments due at program outset related to Somalia’s arrears clearance operation. Similar arrears clearance cases have involved exceptional access under the PRGT. - Criterion 2: “have a comparatively strong adjustment program and ability to repay the Fund.” For countries in debt distress, this requires expected debt relief or restructuring projected to reduce risk of debt distress to moderate or low level, as done in the HIPC process. The Fund-supported program entails an ambitious multi-year fiscal policy and structural reform agenda. Satisfactory performance under the program would help secure comprehensive HIPC, MDRI and beyond-HIPC debt relief. The DSA confirms full delivery of HIPC, MDRI, and beyond-HIPC debt relief, coupled with stronger economic prospects implied by the program, would restore debt sustainability and ensure Somalia’s capacity to repay the Fund is adequate. Table 9 shows that, at that point, outstanding credit to the Fund would represent only around 1 percent of GDP. - Criterion 3 and 4: “has no market access” and “income below the operational cut-off for International Development Association (IDA) assistance.” Somalia has not accessed capital markets, and its income level is substantially below the prevailing operational cut-off for IDA assistance. - The Fund-supported program takes account of Somalia’s primary sources of fragility: security, political, and climate situation, and related pressure points. - The program is aligned with reforms committed under programs with other partners, including the WB, the EU, and UNDP. *Italic: IMF staff summary of program chapter.* ### 43. The program is fully financed. Financing needs for the next 12-months will be met ### The program is fully financed. Financing needs for the next 12-months will be met ### Financing status and creditor engagement - Financing needs for the next 12-months will be met through expected grants from the EU, WB, and other donors, together with the AfDB and WB arrears clearance operations that were completed in March 2020. - The authorities have engaged with their plurilateral creditors to seek an agreement to resolve their arrears and restructure their debt; staff confirmed in early March 2020 that these creditors are in the process of developing restructuring plans. - Paris Club creditors provided official financing assurances for interim debt relief contingent on Somalia reaching the DP, and some of Somalia’s largest non-Paris Club official bilateral creditors plan to attend the Paris Club negotiations with Somalia scheduled for March 31, 2020. - Once concluded, the Paris Club agreement, by covering a majority of Somalia’s creditor base, can be considered adequately representative and arrears to non-Paris Club bilateral creditors can be deemed away under the Fund’s policy on Non-Toleration of Arrears to Official Creditors. - The expected continued engagement of international donors indicates good prospects for full financing over the duration of the Fund-supported program. ### Central Bank of Somalia (CBS) safeguards assessment and financial sector risks - The first safeguards assessment of the Central Bank of Somalia is substantially completed. - Fund TA has had a positive impact on developing some safeguards at the CBS, including the legal framework and internal audit. - Weaknesses and risks identified: - The quality of the external audit and the transparency of financial reporting need to be enhanced. - Strengthening the oversight of the audit committee will be crucial. - Credit risks are elevated in the area of foreign exchange accounts given the CBS’s limited access to international correspondent banks. - Key central banking functions such as issuing legal tender and formulating monetary and foreign exchange policy are not yet operational. - Capacity building and risk mitigation are required to address these weaknesses. ### Macroeconomic performance and humanitarian risks - Somalia has sustained commitment to reforms and reached the HIPC DP, enabling it to begin receiving interim relief on debt service falling due; upon reaching the HIPC CP, Somalia will receive the full amount of debt relief committed at the HIPC DP. - Despite climate shocks, the economy has remained stable with humanitarian support mitigating early drought and subsequent flooding; recent locust swarms threaten crop production and food security in 2020. - Fiscal and monetary outcomes: - The FGS recorded a fiscal surplus of US$24 million in 2019 (including US$10 million earmarked for use in 2020 and about US$0.5 million for paying down the stock of domestic arrears). - The CBS has continued to strengthen its financial sector oversight. ### Structural reforms, fiscal federalism, and revenue - Authorities enacted critical legal reforms: Revenue, Public Financial Management, and Anti-corruption Laws. - Progress in deepening inter-governmental fiscal relations has helped meet SBs on general government fiscal reporting and guidelines for expenditure assignments. - Recommendations and priorities: - Continue investment in key NDP9 projects related to the RRF to improve water management and increase resilience to climate shocks. - Improve international trade and the domestic business environment to create jobs, particularly for youth, to support security improvements. - Strengthen fiscal federalism ahead of the completion of the Constitutional Review; maintain regular Intergovernmental Fiscal Forum meetings and refine FGS–FMS agreements on expenditure assignments. - Continue capacity building and information sharing to deepen consolidated fiscal reporting quality. ### Fiscal framework and public financial management - The FGS budget remains tight, reliant on international grants, with limited space to independently finance social spending and infrastructure. - The IMF-supported program will: - Instill fiscal discipline through its fiscal QPCs and ITs. - Limit growth of recurrent expenditures to preserve fiscal space for development spending. - Support revenue mobilization, including reforms to revenue and customs administration. - Support strengthening of PFM practices in budget development and execution. ### Debt management and borrowing policy - The government does not have the scope to incur new debt during the program period. - The authorities must remain current on debt not in arrears and any debt restructured within the HIPC framework. - The Debt Management Unit needs capacity to maintain proper recording and reporting of outstanding debt and debt service schedules to ensure timely payment. - Partners should support upgrading the current debt recording system and related capacity building. - Even with full HIPC debt relief, Somalia is expected to be vulnerable to shocks and still face a moderate risk of debt distress, arguing for a conservative approach to future borrowing on concessional terms. ### Financial sector development, remittances, and AML-CFT - CBS should continue implementing its restructuring plan, modernize organization, and clarify priorities for developing monetary policy capacity. - Improve financial transparency of the CBS, including publication of audited financial statements and stronger oversight of the external audit committee. - As access to international correspondent banks expands, authorities should seek to use investment-grade banks to hold foreign exchange reserves; until then, aim to keep disbursements under the Fund-supported program in their SDR holdings with the IMF. - Continue building regulatory and supervision capacity as banking, mobile money, and insurance industries grow. - Continue improving AML-CFT compliance, including enacting the Targeted Financial Sanctions Law and issuing associated regulations. ### Governance and anti-corruption - Improving governance and fighting corruption are critical to economic and social development. - Staff welcomes the enactment of the Anti-Corruption Law and urges: - Operationalization of the Anti-Corruption Commission. - Completion of the authorities’ National Anti-Corruption Strategy. - Enhancements to regimes for defining corrupt practices and penalties and for asset declaration. ### IMF financing arrangements and access - Staff supports the authorities' request for exceptional access under the PRGT and a significant front loading of access under the ECF/EFF arrangements. - Access limits under the PRGT require the arrangements to be blended across PRGT and GRA resources. - The EFF arrangement will be fully available in the first purchase. - The authorities intend to use most of the first purchase to repay the bridge financing needed to clear the arrears to the IMF; the remaining access is aimed at building foreign reserves, which are currently very low. *Source: IMF staff report excerpt (program financing, safeguards assessment, staff appraisal).* ### 54. The upcoming national elections and prospects of a change in government ### 54. The upcoming national elections and prospects of a change in government ### Political risk to the program - The upcoming national elections and prospects of a change in government administration represent an important risk to the program. - The DP is only the beginning of the HIPC process, and the authorities the need to remain on track with the new Fund-supported program to reach the CP and qualify for full HIPC debt relief. - Continued stamina from the authorities, regardless of any change in administration, will be required to sustain the reform momentum. - The prospect of full HIPC debt relief creates a strong incentive to remain on track. - Continued technical and financial support from donors will also be needed to maximize the program’s success. ### Macroeconomic outlook and program effects - Reaching the HIPC DP will augment the trajectory of Somalia’s GDP growth. - The trade deficit will remain large and primarily financed by grants and remittances. - As domestic revenues continue to increase, DP brings additional grants supporting higher discretionary spending and improving fiscal stability. - The financial sector continues to grow. - The HIPC process will lead to significant debt relief. ### Key statistics and projections (as presented) - GDP growth (percent): 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 2019 (act) 2021 2023 2025 2027 2029 2031 - Table 3 — National income and prices (Millions of U.S. dollars and percent indicators): - Nominal GDP in millions of U.S. dollars: 4,198 4,509 4,721 4,958 5,218 5,507 5,827 6,179 6,570 7,012 - Real GDP in millions of U.S. dollars: 4,241 4,300 4,420 4,548 4,694 4,858 5,038 5,235 5,454 5,705 - Real GDP, annual percentage change: 2.91.42.82.93.23.53.73.94.24.6 - Real GDP per capita in U.S. dollars: 316311311311312315319323328335 - Consumer prices (e.o.p., percent change): 1.26.13.23.13.02.52.22.22.22.2 - Central government finances (percent of GDP): - Revenue and grants: 4.16.05.76.89.5 10.8 12.4 13.6 10.8 11.5 - of which: Grants: 1.42.81.82.25.06.07.27.74.24.1 - Expenditure (FGS): 3.35.35.76.39.19.5 10.4 11.7 13.1 13.7 - Compensation of employees: 1.32.83.03.34.24.34.75.05.35.6 - Purchase of non-financial assets: 0.30.10.20.30.80.91.11.41.81.9 - Overall balance: 0.80.70.10.50.41.42.01.8 -2.3 -2.2 - Stock of domestic arrears: 1.81.51.51.41.31.21.11.00.90.8 - Public debt: 122.9 116.6 112.8 107.474.6 71.3 67.9 10.3 12.2 13.9 - Monetary and financial sector snapshots (selected): - Net Foreign Assets: -324 -318 -258 -212-183 -174 -162191174179 - Credit to the private Sector: 70 105 184 206 232 269 321 395 500 651 (Table 6 shows Credit to private sector 70 105 184 206) - Broad Money: 178270334432471517580664777928 (presented as sequence) - Central Bank: gross reserves of the CBS: 43 51 54 51 70 88 107 116 - Consolidated commercial banks: Total assets 234345415556; Customer Deposits 177267332430; Credit to private sector 70105184206 - Balance of payments and external sector (Millions of U.S. dollars and percent of GDP): - Current account balance: -393-440-486-592-641-686-726-784 - Overall trade balance: -3,124 -3,908 -4,003 -4,292-4,639 -4,918 -5,256-5,352 - Exports of goods, f.o.b.: 647486570565595629686745 - Imports of goods, f.o.b.: -2,850 -3,452 -3,574 -3,783-4,064 -4,287 -4,572 -4,655 - Current transfers (net): 2,7613,5003,5513,7364,0354,2724,5724,604 - Capital account and financial account: 339369456605659704744793 - Change in central bank reserves (- = increase): 25-30-27-33-19-19-20-10 - External financing and HIPC-related items (Table 10): - Gross financing requirement: 6,4754,9545,2918,362 (for 2020-2023) - Trade balance: -4,639-4,918-5,256-5,352 - Amortization: 15.715.615.36.8 - Interest on external obligations: 1.31.21.19.4 - Official arrears/repayments: 1,801002,984 - Change in reserves (increase = +): 18.418.518.69.8 - Available financing: 4,3034,9185,2565,352 - Current transfers (net): 4,0354,2724,5724,604 - Foreign direct investment: 464495528574 - Exceptional Financing: 1,81917163,001 - HIPC interim assistance: 17171616 - HIPC debt relief: 1,802002,984 - Remaining gap: -353-18-19-10 - Identified financing: 353181910 - Of which: IMF 3/353181910 ### Policy implications and recommendations - Maintain program continuity and reform momentum through the election period and potential change in administration to preserve progress toward Decision Point (DP) and Completion Point (CP). - Preserve incentives for authorities by emphasizing the prospect of full HIPC debt relief as a commitment device. - Ensure continued technical and financial support from donors to maximize program success and finance the large trade deficit primarily through grants and remittances. - Protect gains in domestic revenue mobilization to support higher discretionary spending while safeguarding fiscal stability. - Continue financial sector development and monitoring as private sector credit and deposits expand. *Source: 1somea2020002 - 54. The upcoming national elections and prospects of a change in government (IMF staff estimates and projections).* ### 1. Principal ### 1. Principal ### Repurchases, Charges, and Outstanding Fund Credit - Repurchases (series): 0.0, 0.0, 0.0, 0.0, 0.0, 2.1, 4.9, 7.7, 8.4, 8.4, 6.3, 3.5, 0.7, 0.0; total: 42.0 - Charges: 0.7, 0.7, 0.7, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0; total: 2.9 - SDR related charges: 0.2 (repeated 14 times); total: 3.3 - Total obligations (series): 0.9, 0.9, 0.9, 0.2, 0.2, 2.3, 5.1, 7.9, 8.6, 8.6, 6.5, 3.7, 0.9, 0.2; total: 48.2 - Outstanding Fund credit, end of period (series): 270.0, 284.0, 291.0, 42.0, 42.0, 39.9, 35.0, 27.3, 18.9, 10.5, 4.2, 0.7, 0.0, 0.0, ... ### Memorandum items (selected) - Outstanding Fund credit, in percent of Exports of goods and services (series): 31.6, 32.0, 31.1, 4.3, 4.1, 3.7, 3.0, 2.2, 1.5, 0.8, 0.3, 0.0, 0.0, 0.0, ... - External public debt (series): 9.8, 10.2, 10.4, 10.2, 8.0, 6.2, 4.7, 3.3, 2.1, 1.1, 0.4, 0.1, 0.0, 0.0, ... - Gross official reserves (series): 537.2, 448.7, 381.7, 50.8, 51.2, 48.9, 42.9, 33.5, 23.2, 12.9, 5.2, 0.9, 0.0, 0.0, ... - GDP (series): 7.2, 7.2, 7.0, 1.0, 0.9, 0.8, 0.7, 0.5, 0.3, 0.2, 0.1, 0.0, 0.0, 0.0, ... - Quota (series): 165.2, 173.8, 178.1, 25.7, 25.7, 24.4, 21.4, 16.7, 11.6, 6.4, 2.6, 0.0, 0.0, 0.0, ... - Total Obligations, in percent of Exports of goods and services (series): 0.1, 0.1, 0.1, 0.0, 0.0, 0.2, 0.4, 0.6, 0.7, 0.6, 0.4, 0.0, 0.0, 0.0, ... - Total Obligations, in percent of Gross official reserves (series): 1.8, 1.4, 1.2, 0.3, 0.3, 2.8, 6.3, 9.7, 10.5, 10.5, 8.0, 0.0, 0.0, 0.0, ... *Source: Fund staff estimates and projections. 2/ Projections are based on current IMF charges. (In millions of SDR, unless otherwise noted). 1/ Assumes HIPC CP in early 2023 (gray shading). Based on the proposed level and phasing of access, and subject to the approval of the IMF's Executive Board.* ### Revised Macroeconomic Framework (Annex I) - Assumptions and key effects: - Reaching the HIPC DP will increase on-budget development grants by about $100 million per year after DP, enabling higher development spending and investment. - Long-run growth is estimated at 4.8 percent. - Fiscal envelope expected to increase to over 13 percent of GDP by 2023, reflecting higher grants and domestic revenue mobilization. - After full debt relief at CP and a sustainable debt burden, aid delivery likely to shift toward concessional loans, requiring development expenditure to slow to keep debt low. - Current account deficit to remain elevated at over 10 percent of GDP, financed by grants, remittances, and increasingly by FDI over time. - Potential upside risks include larger-than-expected effects of development/social spending, increased foreign inflows at DP, development of petroleum, and expansion of commercial fishing. - Comparative evidence and conservative staff choices: - Median long-term growth for previous HIPC beneficiaries: 5.1 percent overall; 4.3 percent for fragile countries. Somalia’s projection is between these medians. - Median tax revenue mobilization for fragile members rose by about 1.5 ppts of GDP per year over the five years after DP; Somalia’s assumed increase is gradual and aligned with the full-sample experience, reflecting rollout challenges of the Revenue Act to the FMS and limited technical capacity. - Somalia’s current account balance projected near the bottom of the distribution (80% percentile) due to dependence on grants and remittances and high import needs. ### Social Development Challenges and Policies (Annex II) - Social conditions and needs: - About 70 percent of Somalis live on less than US$1.90 a day (PPP). - Real per capita incomes declined by 0.4 percent annually in 2016-18. - Somalia ranks 15th on the U.K. Department for International Development list of developing countries at high disaster risk. - During the 2016–2017 drought, OCHA estimated 308,000 children under 5 were acutely malnourished and 56,000 children were severely malnourished; overall acute malnutrition burden exceeded 800,000 cases. - WB Wave 2-SHFS (2018): 66 percent reported at least one shock in the previous year; drought accounted for 50 percent of shocks. - Protracted conflict displaced over one million Somalis internationally and about 1.1 million internally (IDPs). - Labor force participation is among the world’s lowest, particularly for women; more than 70 percent of the population is under age 30; youth unemployment estimated at 67 percent in 2013. - Fiscal and financing constraints: - FGS total revenues (including grants) remained below 6.0 percent of GDP in 2017–18. - Spending dominated by employees’ compensation and goods and services; many social/humanitarian programs are financed off-budget by donors. - Policy responses and planned programs: - With WB support: plan to introduce a conditional cash transfer system. - Plans to ratify and implement a national strategy for IDPs with (re)integration measures including land and housing tenure improvements and family reunification support. - Strengthening nutrition and food security capacity; Disaster Risk Management improvements; National Disaster Policy; establishment of early warning systems; public works programs for disaster response. - Social Protection Policy objectives: - Commence development of a social registry and integrate databases; establish social transfer program for the most vulnerable with needed capacity and human resources. - Design an income transfer program as a transitional safety net targeted to vulnerable groups and populations at high risk of food insecurity or malnourishment. - Improve coordination between FGS and development partners; plan social insurance provision; develop accredited capacity building for social workers across key service sectors. - Establish a Social Protection Floor including expansion of locally-procured school-feeding as a national social transfer program. - Formalize and facilitate financial inclusion via savings accounts, mobile banking, and micro loans for informal sector, self-employed, and rural producers. - Develop and implement wages and remuneration policy and an appropriate minimum wage. - Targeted measures: implement Disability Roadmap under the National Disability Act (enacted late 2019); ratified Somali Women’s Charter; National Gender Policy and National Plan on Ending Sexual Violence in Conflict prepared. - Financing unlocked by HIPC DP: - Staff macroeconomic framework estimates additional grants of about $100 million after DP. - AfDB and WB prepared projects aligned with NDP9: AfDB (water infrastructure); WB (Urban Resilience, Human Capital, Women’s Empowerment, Shock Response Safety Net including conditional cash transfers and cash for work, scaling up financial sector and SME financing). - Continued international support pledged for Recovery and Resilience Framework and national systems for safety net delivery. ### Efforts to Improve Governance and Fight Corruption (Annex III) - Governance context: - Somalia scores very low on perception of corruption, bribery risk, transparency and accountability, and rule of law (Transparency International, TRACE, Mo Ibrahim Index, Worldwide Governance Indicators), though some indicators show steady improvements (voice, accountability, political stability). - Information and data gaps limit full objective assessment and quantification of macroeconomic consequences. - Reforms and institutional developments: - 2019 Parliament passed Revenue, Customs, PFM, and Anti-Corruption Laws. - Ministry of Justice & Judiciary Affairs established the National Integrity Unit (NIU) to coordinate anti-corruption efforts; NIU drafted a National Anti-Corruption Strategy (NACS) with five pillars: (i) leadership; (ii) strengthening anti-corruption institutions and laws; (iii) strengthening financial accountability; (iv) public service accountability; and (v) building a culture of ethics and integrity. Draft NACS vetted with government, FMS, civil society, private sector, and international community. - Under the new Fund program, authorities will secure NACS approval by the Council of Ministers and publish it (SB3); an action plan to operationalize NACS will be developed once national elections are decided. - Plans to set up independent Anti-Corruption Commission at federal and regional state levels in line with the Anti-Corruption Law. - Consideration to consolidate corruption provisions and penalties into a single regulatory framework and to develop legal framework for asset declaration among government officials and politicians. - Plans to ratify UN (CP trigger), African Union, and Arab League Conventions Against Corruption. - New UNDP program “Strengthening Anti-Corruption efforts across Somalia (SACE-AS)” signed in 2018 to support national integrity system strengthening. ### Appendix I — Letter of Intent (selected commitments and requests) - Government view and commitments (as of March 5, 2020): - Requests IMF Executive Board approval of blended ECF/EFF financial assistance of SDR 252.862 million and SDR 39.56778 million, respectively, and cancellation of the SMP upon approval. - Requests heavy frontloading of financing to address bridge financing needed to clear IMF arrears and to strengthen external reserves to support increased global trade and financial integration. - Requests access to IMF interim assistance under the Enhanced HIPC Initiative to address IMF debt servicing between HIPC Decision and Completion Points. *Source: IMF staff estimates, projections, and Somalia authorities (text as presented in the PDF chapter).* ### 4. The attached Memorandum of Economic and Financial Policies (MEFP) describes the reform ### 1somea2020002 - Supplemental Memorandum of Economic and Financial Policies (MEFP) excerpt ### Program scope, objectives, and monitoring - The MEFP describes reform priorities of a three-year arrangement covering 2020–23 and identifies specific reforms and conditionality for the first twelve months; additional reforms will be detailed on a 12-month rolling basis during reviews. - Policy anchors for the new program: - Strengthening public financial management (PFM), including debt management. - Domestic revenue mobilization. - Continued deepening of Central Bank of Somalia (CBS) capacity. - Enhancing governance, including AML-CFT. - Program financial anchors include: - A floor for domestic revenue. - A ceiling on recurrent operating expenditures (compensation, goods and services, and contingencies). - A floor on the cash-based fiscal balance. - No accumulation of domestic or external arrears. - No new debt accumulation. - A floor on the net foreign assets of the CBS. - Structural benchmarks (MEFP Table 2) will anchor reforms in revenue administration, PFM, financial stability, governance, and AML-CFT; program objectives beyond the short term will also be supported by floating Completion Point (CP)-triggers. - The FGS will provide IMF staff with all necessary information within deadlines specified in the attached Technical Memorandum of Understanding (TMU, Attachment II). ### Economic and fiscal context and recent outcomes - Macroeconomic indicators and recent fiscal performance: - Real growth in 2019 is expected at 2.9 percent. - Inflation ended at 3.1 percent in 2019. - Cumulative domestic revenue for the FGS through December 2019 reached US$230 million, a 25 percent increase over the same period in 2018. - The 2019 fiscal balance was US$23.9 million (including US$10 million earmarked for 2020 expenditures and US$0.5 million for paydown domestic arrears). - No new domestic arrears were accumulated in 2019. - Risks to the medium-term outlook: - Downside risks: security (AMISOM transition to the Somalia National Army), political (Constitutional Review and national elections expected in early-2021), and climate shocks (droughts, agricultural loss, displacement). - Upside potential: successful reform implementation during the HIPC interim period, increased development and social spending, reaching the Decision Point on foreign inflows, developing new growth sources, and enhanced regional trade integration. - Political and reform context: - Constitutional Review technical work expected to be completed by June 2020. - Electoral reforms underway for the 2021 Presidential Elections. - Finance Ministers across Federal Member States (FMS) committed to supporting reforms underpinning the HIPC process. ### Fiscal policy and PFM reforms (2020–23) - Medium-term fiscal framework (MTFF) and budget process: - The MTFF will be updated to cover 2020-2023 and to inform the 2021 budget preparation. - Future budgets will commence with an updated MTFF on a rolling three-year basis. - Any unanticipated revenue surplus will be used to replenish fiscal buffers, other cash balances, or pay down domestic arrears. - 2020 supplementary budget: - Will secure appropriations for debt servicing on restructured post-Decision Point external debt in 2020. - Will be informed by 2019 outturns and agreed program targets. - Will be approved by Cabinet and Parliament as soon as possible after the Decision Point and by no later than end-October 2020. - Revenue mobilization and administration (cornerstone policies): - Over the next twelve months: - Develop an operational plan to implement instruments in the Revenue Act, including a preliminary assessment of potential revenue impact. - Implement a tax audit strategy and prepare a lessons-learned report to inform future audits by end-June 2020 (SB#1). - Continue implementing Customs Reform Road Map: introduce harmonized HS codes at the three largest ports and prepare an ad valorem tariff schedule towards a single tariff schedule by end-September 2020 (SB#4 and CP trigger); develop a customs guidance manual, deliver training, and install a common IT system. - Over the program: - Roll out the Revenue Act to the FMS, prioritizing customs and sales taxes, and refine assessments of revenue impact. - Work toward enacting the Extractive Industry Income Tax Law (CP trigger) to tax the sector as it develops and build LMTO administrative/enforcement capacity. - Public financial management (PFM) reforms: - Over the next twelve months: - Begin implementing the PFM Act by issuing drafted regulations: budget preparation & execution, payment process, cash advances, and cash management & banking. - Institutionalize budget development improvements for the 2021 budget and operationalize the SFMIS budget module to align controls with Parliament-approved budgets. - Add SFMIS functionality to support allotments, link warrants approval to allotments, and conduct a review of SFMIS functionality and governance. - CMU will analyze sources of forecast errors, improve commitment control compliance, improve cash management across MDAs, restrict cash advances to exceptional circumstances, and re-open some bank accounts based on the Accountant General assessment. - Enact the Audit Bill; Accountant General to circulate an MDA reporting framework covering extrabudgetary transactions, contingent liabilities, and financial assets and liabilities; develop FGS public sector institutions table and complete inventory of FGS public sector non-financial assets. - Over the course of the program: - Undertake a comprehensive review of business practices and develop a more efficient expenditure approval process; develop PFM regulations on debt, investment and asset management (CP trigger). - Implement amendments to the Procurement Act and related regulations; review existing concessions provisions. - Review organizational structure of the Ministry of Finance to enhance efficiency. - Publish two subsequent sets of audited financial accounts for the FGS (CP trigger). - Develop a consolidated FGS public sector financial reporting system and promulgate a standard quarterly financial data reporting template, unified chart of accounts, and accounting guidance in line with GFSM2014. ### Debt management and natural resource governance - Debt management: - Over the next twelve months, the Debt Management Unit will conduct a needs assessment and develop an action plan to bolster capacity to accurately record and report public debt data with development partner assistance. - Over the program, publish at least four consecutive quarterly public debt reports outlining outstanding general government debt, debt-servicing projections, and risk assessment (CP trigger). - Natural resources: - Over the next twelve months, no oil exploration licenses will be issued until: - The Petroleum Act is operationalized. - The Extractive Industry Income Tax Law is enacted (CP trigger). - A model Production Sharing Agreement (PSA) is finalized and associated PFM regulations are issued. - The model PSA will be finalized in line with the Petroleum Act, Extractive Industry Income Tax Law, and PFM Act provisions. ### Intergovernmental fiscal relations - Over the program, continue working with FMS on intergovernmental fiscal relations, including further review/refinement of expenditure assignments as shared revenues increase. - Sustain regular Intergovernmental Fiscal Forum meetings, along with capacity development support and technical-level information sharing. - Deepen consolidated reporting quality across the FGS and FMS to align with GFSM2014. ### Monetary and financial sector reforms - CBS capacity building and organizational reform: - Over the next twelve months: - Hire a legal advisor and a restructuring project manager to implement the CBS reorganization plan and Transition Plan; hire a human resource advisor to complete a skills gap analysis and HR policy. - Once three functional executives are in place, initiate transition to the new organizational structure. - Over the program: - Complete transition to the new structure and develop a longer-term HR strategy. - With IMF and World Bank guidance, assess evolving monetary policy needs given planned currency exchange reform. - Develop a medium-term CBS business plan and budget and reconsider the CBS’ income model. - Program anchor: gradually build reserves while maintaining a minimum floor. - Financial sector reforms and stability measures: - Over the next twelve months: - Implement mobile money regulations over a reasonable time-period, focusing on liquidity controls, protection of funds, and AML-CFT compliance; develop a mobile money licensing and supervision manual, guidelines, and inspection capacity. - Issue guidance on financial reporting and accounting standards for Islamic banking and develop a governance framework for Shariah-compliant financial products by the end of 2020 (SB#6). - Develop and implement a Supervision Action Plan to strengthen on- and off-site inspections, develop a plan for resolving problem institutions, and issue guidelines on Shariah-compliant financial products. - Reflect IMF positions on the CBS balance sheet and clarify positions such as proceeds from asset recovery. - With World Bank assistance, continue establishing an Automated Transfer System (ATS) and establish a National Switch; submit revised Financial Institutions Law, National Payment Systems Act, and Insurance Act to Parliament and draft related regulations. - Over the course of the program: - Complete implementation of mobile money regulations by the 2021 licensing round. - Develop additional prudential regulations, including appropriate reserve requirements, and other regulations called for in the FIL (micro finance, Forex bureau, crisis management). - In a World Bank development project, establish an MSME Financial Facility to support private sector access to financing. - Progress on introducing a credit bureau and movable collateral registry to manage credit risk and support financial intermediation. - Continue evaluating capacity needs to implement prudential supervision commitments, such as insurance regulation. *Source: Supplemental Memorandum of Economic and Financial Policies (MEFP) excerpt, attachments and signatures included in the original document.* ### 14. In the context of a WB project, we plan to implement the currency exchange project ### 1somea2020002 - 14. In the context of a WB project, we plan to implement the currency exchange project ### Currency reform (currency reform phase I) - Plan to implement the currency exchange project (currency reform phase I) once preconditions and financing are in place. - Preconditions beyond operational and financial needs: - Formulate medium-term policy priorities. - Build some basic monetary policy capacity prior to implementation. - Secure assets required to backstop the new currency, including by catalyzing donor assistance. - Further clarification of considerations will be sought with IMF and WB assistance once new functional executives are in place. ### AML/CFT operational and legal framework (remittances and correspondent banking) - Continue accelerating reforms to support critical flow of remittances into Somalia; an Action Plan has been developed with IMF and WB. - Next twelve months actions (timing and benchmarks): - Clarify any overlap and inconsistencies between the new AML-CFT regulations for financial institutions and AML-CFT governance and compliance regulations. - Continue work on building capacity at the Financial Reporting Center by end-June 2020 (SB#2). - Enact the Targeted Financial Sanctions Law by the end-March 2021 and issue associated regulations (SB#7). - Revise existing reporting guidelines and issue new guidelines to support implementation of the new AML-CFT reporting and compliance regulations in banks, MTBs, and MNOs, and develop guidance for DNFBPs. - Strengthen AML-CFT requirements in the annual relicensing processes. - Lay groundwork to conduct a National Risk Assessment (NRA) in a timely manner. - Operationalize the NAMLC Task Force to support technical progress. - Over the course of the program: - Complete the NRA; its findings will inform a new National Strategy for AML-CFT and prepare for the MENA-FATF Mutual Evaluation Assessment in 2024. - Develop a public relations strategy and expand communications with source and transit country regulators (e.g., MOUs, informational websites, Egmont Group participation) to support resumption of correspondent banking relationships. - Continue training and capacity building in financial institutions, leveraging innovations such as the National Compliance Forum. ### Governance and anti-corruption - Recent enactment of an Anti-Corruption Law establishing the Anti-Corruption Commission (in process of appointment). - Cabinet will shortly approve a National Anti-Corruption Strategy (NACS), to be published subsequently. - Donor engagement requested to support a multi-year UNDP program to improve national integrity system. - Next twelve months: - Secure Cabinet-approval of National Anti-corruption Strategy and publish it by end-June 2020 (SB#3). - Develop a draft action plan to implement the NACS that can be rolled out after upcoming elections. - Compile in a new regulation all provisions in existing laws, including the penal code, that define corrupt practices and associated penalties, and identify gaps or needed amendments. - Over the program: - Begin implementing the NACS action plan with international partner assistance. - Ratify the UN, African Union, and Arab Conventions Against Corruption (CP trigger). - Develop legal framework for an asset declaration regime for senior public officials. - Work to protect the independence of the judiciary and improve its capacity. ### Public sector modernization and civil service reform - Over the program: - Complete the pay and grading system for the FGS civil service. - Enact amendments to the Civil Service Law and Public Pensions Bill. - Modernize the FGS civil service commission. ### Inclusive growth, resilience, and structural reforms - Commitments to bolster foundations for sustained inclusive growth and resilience to climate shocks. - Next twelve months (with development partner support): - Implement findings of the Somalia Drought Impact and Needs Assessment and the Recovery and Resilience Framework. - Develop the National Water Resource Strategic Plan by June 2020 and establish the Somalia Water Development Fund. - Pass the Somali Standards and Quality Control Bill and establish the Somali Bureau of Standards by June 2020. - Continue improving road system and interconnections to neighboring countries to enhance trade and reduce transportation costs. - Start establishing a “one-stop-shop” to e-register business for integrated tax and business licensing services, coordinated with the digital ID and assisting access to credit via the new MSME Financing Facility. - Request development partners to obtain a clearance letter from the Minisiter of Planning, Industry and Economic Development to align aid flows with NDP9 priorities; develop an Aid Policy and revised Aid Architecture. - Continue work on legal framework for formal accounting standards and establish a Somali Institute of Certified Public Accountants. - Over the course of the program: - Enact the Electricity Act and issue supporting regulations to permit private investment in the sector (CP trigger). - Issue key regulations under the Companies Act to support private sector investment and strengthen corporate governance (CP trigger). - Establish an Investment Promotion agency to work on investment policy and promotion of key industries. - Continue working towards accession to the World Trade Organization and improving regional and bilateral trade ties. ### Digital ID and targeted government services - Introduce a national digital ID to support enhanced KYC, financial intermediation, and targeted delivery of government services. - First twelve months: - Continue developing legal underpinnings for the digital ID and procure necessary IT system. - Over the program: - Complete enactment of the Digital ID and Data Protection Bills and establish the national ID agency. - Transition the ID to support the targeted social protection scheme, initially developed using partners’ systems. ### Human capital development (health and education) - Over the program: - Adopt the Joint National Health strategic plan. - Develop an education MOU between FGS and FMS to define roles and responsibilities in curriculum and national examinations. - Health strategy and education MOU will support effective functions and accountability across government levels (CP trigger). ### Macroeconomic and financial data, statistics, and reporting - Importance of improved macroeconomic and financial data emphasized for policy guidance. - Next twelve months: - Develop operational framework to collect and disseminate macroeconomic and financial data via an action plan now that amendments to the National Statistics Law have been passed (SB#18 for end-February 2020 under SMPIV). - Work towards a first edition of a “Somalia Fact Book” (CP trigger). - Continue developing key statistics and capacity to report them regularly to the IMF. - Engage MOF to expand import and export goods data to other ports. - Introduce travel survey and airline companies’ data to scale up Immigration Department travel data. - Send IMF preliminary FDI inflow estimates from the survey. - Progress a National Labor Survey and plan to publish national accounts later this year. - Over the program: - Publish at least one other edition of the “Somalia Fact Book” (CP trigger). - Outline additional granular reforms to improve macroeconomic and financial data. - Work with partners to develop production-based national accounts data and collect labor data. ### Program monitoring, quantitative performance criteria, and structural benchmarks - Program monitored through quantitative performance criteria (QPC), continuous performance criteria, indicative targets (MEFP Table 1), and structural benchmarks (MEFP Table 2). - Monitoring cadence: - Semi-annual reviews: first review based on end-June 2020 data, second review based on end-December 2020 data, indicative targets set for end-September 2021; subsequent reviews scheduled at future reviews. - All reviews conditioned on quantitative performance criteria in MEFP Table 3 and defined in the TMU (Attachment II). - MEFP Table 1: Quantitative Performance Criteria and Indicative Targets (Millions of U.S. dollars) — selected values by test dates: - FGS domestic revenue floor: 109.0 (June 2020), 160.0 (September 2020), 234.0 (December 2020), 50.0 (March 2021). - Ceiling on spending on FGS public compensation, goods & services, & contingency: 154.0 (June 2020), 231.0 (September 2020), 308.0 (December 2020), 77.0 (March 2021). - Net foreign assets of the CBS (floor): 69.1 (June 2020), 69.1 (September 2020), 78.7 (December 2020), 78.6 (March 2021). - Contracting of new domestic debt (ceiling): 0.0 (all listed dates). - Ceiling on contracting or guaranteeing any new external, non-concessional debt: 0.0 (all listed dates). - Indicative target — Fiscal balance (cash basis; floor): -10.0 (June 2020), -10.0 (September 2020), -10.0 (December 2020), 0.0 (March 2021). - Indicative target — Accumulation of new domestic expenditure arrears (ceiling): 0.0 (all listed dates). - Indicative target — Ceiling on contracting or guaranteeing any new external, concessional debt: 0.0 (all listed dates). - MEFP Table 2: Structural Benchmarks for March 2020–March 2021 — selected benchmarks and target dates: - Develop and implement a tax audit strategy at the LMTO to validate tax returns and revenues: End-June 2020 (Domestic revenue / MOF). - Further operationalize and build capacity at the Financial Reporting Center: End-June 2020 (Governance / FRC) — confirm acquisition of key physical and data management infrastructure, and IT systems (GOAML). - Publish a cabinet-approved National Anti-Corruption Strategy: End-June 2020 (Governance / MOJ). - Implement harmonized HS codes and prepare ad valorem tariff schedule at Bossaso, Kismayo, and Mogadishu: End-September 2020; thereafter end-month basis (Domestic revenue / MOF). - Complete preliminary NDP9 costing and reflect in 2021 budget: End-October 2020 (PFM / MOF & MOPIED). - Issue guidance for financial reporting/accounting standards and Shariah governance framework for Somali banks: End-December 2020 (Financial stability / CBS). - Enact the Targeted Financial Sanctions Law and issue related regulations: End-March 2021 (Governance / MOF). - Attachment II (TMU) highlights: - Test dates for QPC: end-June 2020 and end-December 2020; related ITs: end-September 2020 and end-March 2021. - Quantitative targets evaluated as cumulative flows from beginning of calendar year and specified in MEFP Table 1. - QPCs proposed for June 30, 2020 and December 31, 2020 include floors and ceilings on FGS domestic revenue, FGS spending, CBS NFA, new domestic debt, new external arrears, and new external non-concessional debt. - Indicative targets include floor on FGS fiscal balance (cash basis), ceiling on new domestic expenditure arrears, and ceiling on contracting or guaranteeing new external concessional debt excluding disbursements under an IMF arrangement. - Government definition for monitoring: FGS (excludes public entities with autonomous legal personalities and FMS); for external debt monitoring, general government = FGS + FMS (Galmudug, Hirsabelle, Jubaland, Puntland, South West State) and Banaadir region. - Government domestic revenue definition: all tax and nontax receipts received into FGS general accounts, excludes grants, measured on a cash basis, cumulative from beginning of fiscal year/calendar year; aligns with GFSM 2014 cash accounting, excluding grants and noncompulsory contributions. - Revenues received and recorded that relate to previous years excluded from program monitoring except underpaid taxes/fees recovered through annual tax audit and specified prepayments (e.g., telecommunications license for 20 years). - Government SFMIS reports supplemented by monthly financial reports from Minister of Finance will be used for program monitoring of revenues and expenditures. *Source: Somalia — MEFP, structural benchmarks, and TMU (March 2020).* ### 5. Total FGS public compensation, and spending on goods and services and ### 1somea2020002 - 5. Total FGS public compensation, and spending on goods and services and ### Expenditure classifications and budget execution control points - Total FGS public compensation, and spending on goods and services and contingencies, is specified by expenditures in associated budget items determined by GFS classification for compensation, goods and services spending, and contingency. - Reporting requests expenditures by budget item (GFS classification) for each MDA. - Budget execution control points (defined in accordance with accepted international practice): - Allotment: issued by the Budget Department; a stage in the procedure for distributing budget funds among spending units permitting them to either commit or pay out funds, or both, within a specified time period and within the amounts appropriated. Also referred in some texts as ‘apportionment’ or ‘allocation’. - Warrant: a request from an MDA for the release of all, or more commonly a part, of the total allotment that allows a line ministry or spending agency to make commitments. Once approved, the warrant reduces the available allotment. Also referred in some texts as ‘reservation’. - Commitment: a stage in the expenditure process at which a contract or other form of legally binding agreement is entered into, generally for future delivery of goods or services. A liability will not be recognized until delivery of the item, but the government is contractually committed to meeting the obligation once delivery is made. ### Fiscal balance, fiscal buffer, and priority spending - Fiscal balance (cash basis) = (i) sum of government revenue (as defined in paragraph 3) and budget grants; minus (ii) total expenditures (excluding foreign-financed off-budget investment). - If expected revenue and grants shortfall occurs, the floor on the 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), as governed by established guidelines, and provided that there are no overruns in other, non-priority spending items. ### Domestic and external arrears - 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 refers to the date payments are due according to the relevant contractual agreement, considering any contractual grace periods. - Government payments include all expenditure for which vouchers have been approved by the Budget Department/Accountant General Office, expenditures automatically approved by legislation, debt payments to CBS and commercial banks, and transfers to regional governments. - External arrears: debt obligations to non-residents not paid on the contractual due date (plus any applicable grace period). - For program purposes, external arrears exclude arrears arising from debt that is being renegotiated with creditors in the context of the HIPC process, including Paris Club creditors; and specifically exclude external arrears where a creditor has agreed that no payment needs to be made pending negotiations. ### Debt definition for program purposes and classifications - Debt is defined in accordance with Executive Board Decision No. 15688 (14/107), adopted on December 5, 2014, and is defined on a residency basis. - “Debt” means a current (not contingent) liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) to discharge principal and/or interest. - Primary forms of debt for the guideline: - Loans: advances of money including deposits, bonds, debentures, commercial loans, buyers’ credits, and temporary exchanges of assets equivalent to fully collateralized loans (e.g., repurchase agreements, official swap arrangements). - Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until after delivery of goods or services. - Leases: arrangements where property is provided for use for specified period(s); for the guideline, debt equals the present value (at lease inception) of all lease payments expected during the agreement, excluding payments covering operation, repair, or maintenance. - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. ### Domestic and external debt specifics, QPCs, and concessionality - Domestic debt: debt for which the counterparty is resident of Somalia, including the CBS. Excludes temporary advances for liquidity management from the CBS; temporary advances will be fully repaid within 90 days. - QPCs and related ITs on domestic debt: cumulative ceilings on contracting new domestic debt from the beginning of the fiscal year. - QPCs (and related ITs) for external debt: cumulative ceilings on contracting or guaranteeing new non-concessional borrowing by the general government from the beginning of the fiscal year. - ITs on external debt: cumulative ceilings on contracting of new concessional borrowing by the general government from the beginning of the fiscal year. - For program purposes, external debt is defined by the residency of the creditor and is deemed contracted when an underlying loan agreement is signed. Excluded from this PC are disbursements from the IMF. - The government will report planned external borrowing and its terms to Fund staff before external debt is contracted or guaranteed. - A debt is concessional if it includes a grant element of at least 35 percent. The grant element is the difference between the net present value (NPV) of debt and its nominal value, expressed as a percentage of the nominal value. The NPV at signing is calculated by discounting the future debt-service payments using a discount rate of 5 percent. ### CBS net foreign assets baseline and valuation conventions - CBS net foreign assets (NFA) = CBS gross foreign assets minus gross foreign liabilities. - Gross foreign assets defined as: - (i) gold (valued over the calendar year at the market price of December 31, 2019 ($1,517.275 per ounce)); - (ii) total foreign exchange held abroad; and - (iii) Somalia SDR holdings in the SDR Department (valued over the calendar year at the December 30, 2019 exchange rate of $1.382830 per SDR); - net of (iv) government grant deposits at the CBS in foreign currency held abroad; and (v) other earmarked foreign currency deposits by residents of Somalia held abroad. - IMF representative exchange rates against the U.S. dollar at December 30, 2019, will be used to convert foreign assets and liabilities denominated in currencies other than U.S. dollars. These exchange rates and gold price will be reset annually on the final business day of the year for the subsequent year. - The current baseline for NFA includes an amount of US1.19 million of recovered assets (included in the CBS’ “total foreign exchange held abroad”). The allocation of these assets between the CBS and the FGS needs to be clarified; once confirmed, the NFA targets will be adjusted. ### Program-monitoring committee and reporting obligations - The Somali authorities shall maintain a program-monitoring committee composed of senior officials from the Ministry of Finance (MoF), the CBS, and the Ministry of Planning, Investment and Economic Development (MoPIED). The IMF Resident Representative will have observer status. - Committee responsibilities: monitor program performance, recommend policy responses, inform the Fund regularly on program performance, and transmit supporting materials necessary for the evaluation of benchmarks. - The committee shall provide the Fund with quarterly progress reports on the program within four weeks of the end of each quarter, using the latest available data. ### Data reporting schedules (selected items and timing) - Central Bank of Somalia: Monetary survey — Monthly, 3 weeks after the end of each month. - Central Bank of Somalia: Consolidated commercial banks’ balance sheet data by residency — Quarterly, 4 weeks after the end of each quarter. - Central Bank of Somalia: Volume and value of mobile money transaction by residency — Quarterly; starting with the end-2020 data point, 4 weeks after the end of each quarter. - FGS external accounts: end-month balances included in the Treasury Single Account held abroad by the CBS on behalf of the FGS — Monthly, 3 weeks after the end of each month. - Ministry of Finance: For annual and supplemental budgets — As required; Within a week of submission to Cabinet and to the Parliament; and when signed by the President. - Ministry of Finance: Current year SFMIS reports showing budget, virements, and monthly data (revenue, expenditure by budget line and GFS classification, details of budget transfers) — Monthly, 4 weeks after the end of the month. - Ministry of Finance: Comprehensive table summarizing Government operations including revenue, expenditure (by MDA and Object code), and TSA balances (Reports 5A, 5B, 5C and 5D) — Monthly, 4 weeks after the end of the month. - Ministry of Finance: Outstanding appropriation, allotment, warrant, commitment, and expenditure recorded by MDA (Report 2A) — Monthly, 4 weeks after the end of the month. - Ministry of Finance: Payments report showing all payments in number and value made — Monthly, 4 weeks after the end of the month. - Ministry of Finance: Monthly cash plan and at least one-month ahead forward projections supported by SFMIS reports (report 3A, 3B, 3C) — Monthly, 4 weeks after the end of each month. - Domestic arrears: end-of-period stock of domestic arrears accumulated during the year by MDA and 4-digit Object Code — Annually, 4 weeks after the end of the year. - Domestic debt: amount of new domestic debt contracted by Government — Monthly, 4 weeks after the end of the month. - External debt: end of year external debt in U.S. dollars, by creditor, and origination currency; amount of new external debt contracted or guaranteed by Government — Annually, 6 weeks after the end of the year. - Disbursements and repayments (scheduled and actual interest and principal on debt of the Government and the CBS, by creditor) — Annually, 30 days after the end of each year. - Accumulation of any new arrears (principal or interest payments) on external debt — Monthly, 3 weeks after the end of the month. - Structural benchmarks: table with description of status of implementation of structural benchmarks in MEFP Table 2 — Quarterly, 4 weeks after the end of each quarter. - Financial Reporting Center: AML-CFT compliance data (total number of STR, LCTR, and Nil reports received from banks, MTBs, and MMOs) — Quarterly, 4 weeks after the end of each quarter. - Directorate of National Statistics of MoPIED: CPI and other economic indicators — Monthly, 6 weeks after the end of each month; CPI every 15th of the month (or next available business day). GDP by expenditure data (from June 2020) — Annually, 6 months after the end of each year. ### COVID-19 statement, introduction, and performance under the SMP - Statement date: March 24, 2020. - Somalia declared its first case of COVID-19 on Saturday, March 14, 2020. Authorities immediately banned all international flights, closed all schools and universities, and suspended all sporting events for 15 days. - Authorities believe containment is best given lack of effective public health systems and infrastructure to carry out widespread testing and care. Economic growth could be impacted, and government revenues and remittances will decline as the health crisis continues to impact Somalia's trading partners. - Introduction highlights: - Authorities thank staff for support in arrears clearance and debt relief processes and for engagement during ECF and EFF negotiations. - Over recent years Somalia has made steady progress rebuilding political, institutional, and economic capabilities supported by successive SMPs. Security has improved and macroeconomic stability is beginning to emerge, though social and economic fragilities remain and growth has been inadequate to meaningfully improve living standards. High debt overhang has prevented access to development finances. - Authorities fulfilled necessary conditions to reach the HIPC Decision Point; on September 26, 2019, the Somali Cabinet approved a comprehensive and widely consulted 9th National Development Plan. Somalia cleared arrears to the World Bank and the African Development Bank in early March 2020, and secured adequate assurances to clear IMF arrears. - Authorities request cancellation of the current SMP and seek a three-year arrangement under a blended ECF and EFF to anchor policy reforms between HIPC Decision Point and HIPC Completion Point. - Performance under the Staff Monitored Program: - Authorities have continued to post solid performance under the UCT quality SMP program. - All end September and December indicative target were met including all structural benchmarks, except one relating to the use of commitment controls. - Consequently, IMF management approved the completion of the second review of the SMP program, confirming that Somalia has established the six months track record of satisfactory performance required for the HIPC Decision Point. *Source: 1somea2020002 - 5. Total FGS public compensation, and spending on goods and services and* ### 6. Throughout implementation of the four SMPs, the authorities have made determined ### 6. Throughout implementation of the four SMPs, the authorities have made determined ### Fiscal and debt management reforms - Authorities committed to strengthening fiscal framework to support priority development needs. - Improvements and measures: - Efficiency of tax collection has improved, new tax measures introduced, and large businesses have begun to make regular tax payments. - Domestic revenue doubled from $112.7 million in 2016 to estimated $229.7 million in 2019. - Plans to sustain revenue growth by deepening reforms and implementing new tax measures, including: - Operationalize the recently approved Revenue Act. - Implement a tax audit strategy. - Continue customs reforms currently underway. - Medium-term: extend implementation of the Revenue Act to all Federal Member States with high priority to broaden coverage and collection of customs and sales tax. - Expenditure management: - Focus on achieving expenditure efficiencies and aligning expenditures with the overall size of the resource envelope. - Recent audit of public servants to better contain the wage bill. - Plan to maintain a cap on compensation and use of goods and services. - Intend to introduce a formal civil service grading structure and modern human resources management practices, with the support of the World Bank. - Public financial management (PFM) measures: - Introduction of the Somalia Financial Management Information System (SFMIS) which has automated government transactions and reduced errors and opportunities for corruption. - Improved cash forecasting and stronger use of commitment controls enhanced efficiency in the management of government finances. - Recent enactment of the PFM Act will be operationalized once the new regulations have been developed. - Comprehensive review of current business practices to improve the efficiency of the expenditure approval process will be undertaken. - Plan to improve budget preparation and execution by rolling out the budget module in the SFMIS. - Commitment to prioritize implementation of the customs reform roadmap focusing on: - Introduction of the harmonized HS codes at the three regional ports. - Development of a guidance manual training. - Installation of a common IT system with the support of development partners. - Debt management: - Determination to maintain debt sustainability beyond the HIPC Completion Point. - Building institutional structure to manage the country’s debt with support from the Fund and other partners. - Conducted a debt reconciliation exercise and established a computerized debt management system at the Ministry of Finance’ Debt Management Unit. - Plan to compile and timely report comprehensive external debt data. - Maintain a zero limit on new debt accumulation and plan to remain current on debt service obligations. ### Monetary and financial sector reforms - Central Bank of Somalia (CBS) capacity building: - Medium-term objective to develop monetary and exchange rate policy capacity within the CBS. - Recruitment to support reorganization and new functions of the central bank is largely on track. - Supported by intensive capacity development including in bank supervision, conducting self-assessment of on-site inspection, analytical capacity and data reporting, development of frameworks for dealing with problematic institutions, and development of prudential tools, such as reserve requirements. - Currency reform: - Economy remains dollarized; authorities intend to introduce a new currency, the Somalia Shilling. - First phase of the two-phase currency reform aimed at facilitating small transactions for the vulnerable citizens. - Interim focus on building human and institutional capacity required to effectively execute monetary and exchange rate policies. - Financial sector legal and regulatory reforms: - Updating the legal framework, starting with the amendment of the Financial Institutions Law. - CBS improving its regulatory regime and capacity to effectively supervise the mobile money market and support the strong mobile money sector. - Mobile money regulations have been approved, and the payment system will be operationalized early 2021. ### Structural reforms - Anti-corruption and governance: - President signed the Anti-Corruption Law on September 21, 2019, which creates the Anti-Corruption Commission. - Authorities developing a robust National Anti-Corruption Strategy (NACS) and plan to ratify the UN Convention Against Corruption. - Over the course of the program, authorities will rectify the African Union and Arab Conventions Against Corruption and develop and implement an action plan to operationalize the NACS. - To strengthen accountability, authorities will enact an Audit bill that encompasses international best practice and complete an inventory of Federal Government public sector non-financial assets. - Fiscal federalism: - Build on progress in creating a workable fiscal federalism framework. - Intergovernmental Fiscal Forum, supported by a technical committee, will continue regular meetings to strengthen fiscal cooperation. - Forum will refine agreements on an expenditure assignment guideline to align with the new Revenue Act and work towards a single import duty tariff schedule. - Ongoing constitutional review process will clarify relative roles and responsibility of different levels of government. - Authorities committed to maintaining an open dialogue at the highest level of government to collectively address challenges and create a comprehensive fiscal federalism framework. - Climate resilience and social protection: - Building resilience to climate shocks and social protection mechanisms is a priority. - With development partners, authorities advancing efforts to strengthen Disaster Risk Management and early warning systems. - Importance placed on building social safety net levers including a cash transfer system and establishing a national social registry to facilitate targeting of vulnerable members of society. - AML/CFT framework: - Continued strengthening of Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) operational and legal framework. - Following enactment of the 2016 AML/CFT law, the Financial Reporting Centre was created and continues to make steady improvements as its capacity becomes stronger. - New guidelines will be issued to help banks comply with AML/CFT regulations. - Authorities committed to enact the Targeted Financial Sanctions Law aimed to improve AML/CFT compliance. - In the medium term, a new national AML/CFT strategy will be developed following a National Risk Assessment exercise. - Strategy will address AML/CFT shortcomings before the next MENA-FATF Mutual Evaluation assessment in 2024. ### Conclusion - Authorities view reaching the HIPC Decision Point as an important milestone in Somalia’s development agenda. - Remain committed to implementing reforms with the same determination demonstrated during the implementation of the SMP. - Acknowledge contributions of the SCA-1 and Deferred Charges Accounts and additional cash grants provided to clear Somalia’s arrears to the Fund. - Look forward to continued support in implementing reforms as well as support from the international community. *Source: 1somea2020002 - 6. Throughout implementation of the four SMPs, the authorities have made determined (PDF chapter/section).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1somea2020002.pdf_