## Somalia Ninth National Development Plan (NDP9) — JSAN review (content unit 1somea2020004)

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### Overview and main assessment
- NDP9 covers 2020–24; approved by the Cabinet of the Federal Government of Somalia (FGS) on September 26, 2019, and submitted to the IMF and World Bank on October 15, 2019, to fulfill the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative’s poverty reduction strategy requirement.
- Organized around four pillars: inclusive politics; improved security and the rule of law; inclusive economic growth; and improved human development.
- Staffs consider NDP9 to exceed typical interim poverty reduction strategy standards, with deeper analysis, broader policy discussions, more extensive stakeholder consultations, and more comprehensive strategies.
- Two critical areas to satisfy HIPC Completion Point requirement of at least one year’s satisfactory implementation:
  - present information on the costing and related financing of planned interventions; and
  - update the plan’s underlying macroeconomic and fiscal framework.

### Participatory process and institutional arrangements
- Consultation rounds:
  - (i) stakeholder input on poverty causes and measures (January–March 2019);
  - (ii) consensus on strategic priorities and interventions (May–June 2019);
  - (iii) validation prior to Cabinet approval (August–September 2019).
- Stakeholders included civil society, private sector, FGS and FMS line ministries, parliamentarians, judiciary, and development partners.
- Oversight by the National Development Council comprising the federal and all five state planning ministries.
- NDP9 incorporates stakeholder input into situation analyses and pillar strategies, with issues presented by stakeholder type and region.

### Poverty diagnosis and statistical capacity
- Main income poverty data: Somali High Frequency Survey (SHFS), collected in 2015 and 2017 by the World Bank with the FGS Directorate of National Statistics.
- SHFS is a multi-topic household survey suitable for a multidimensional poverty indicator.
- Staffs’ observations and limitations:
  - NDP9 presents detailed poverty profiles, spatial variations, drought impact, displacement, social protection, and remittances.
  - Because the two waves of SHFS were not comparable, analysis is primarily a snapshot; adequate data for trend analysis was not available.
  - Neither wave is nationally representative because data were not collected in highly insecure areas.
  - Differences in coverage across waves mean poverty rates are not directly comparable; one cannot say how poverty evolved between 2015 and 2017.
  - Sustainability concerns: the survey was collected and processed by a private survey company hired by the World Bank.
  - No assessments of the poverty or distributional effects of past development policies or plans are available.
- Statistical capacity actions in NDP9:
  - With support from development partners, NDP9 looks to strengthen the National Statistical System to monitor core social and macroeconomic statistics.
  - Authorities preparing a statistical capacity development project and working with partners (including the IMF and World Bank) to ensure sustained data collection.
  - Staffs welcome enactment of amendments to the National Statistics Law and the preparation of a statistical action plan.

### Macroeconomic objectives and recommended framework update
- NDP9 macroeconomic objectives: promote economic growth in an environment of low inflation, sustainable fiscal and current account balances, and healthy foreign exchange reserves.
- NDP9 framework as presented:
  - Gradual improvement in real economic growth from the base year of 2018 to 3.5 percent by 2022.
  - Consumer price inflation: decline from 3.2 percent in 2018 to 2.2 percent in 2022.
  - Current account deficit: expected to remain large at over 8 percent of GDP.
- Staffs’ assessment:
  - Framework is consistent with historical trend and capacity to mobilize resources; growth outlook appropriately conservative.
  - Framework is outdated; staffs recommend updating it to incorporate greater support for poverty reduction and additional financing from development partners during the Interim Period.
  - NDP9’s current framework is grounded in a baseline where Somalia does not reach the HIPC Decision Point or receive debt relief.
  - Staffs and authorities are working to revise the framework to reflect a scenario where Somalia reaches the HIPC Decision Point in early 2020, gaining access to additional grant financing, particularly from the World Bank and African Development Bank, supporting a higher medium- and long-term growth trajectory.
  - Revised framework should maintain a conservative approach while reflecting possible upside from new growth sources (commercial fishing, petroleum, regional trade openings).

### Monetary and financial sector policies
- Key priorities:
  - Financial sector regulation and supervision; anti-money laundering and countering of financing of terrorism (AML/CFT) framework.
  - Use the Financial Sector Roadmap; broaden focus beyond banking to mobile money and payments systems.
  - Improve organization and governance of the Central Bank of Somalia (CBS) and strengthen the Financial Reporting Centre; CBS and Ministry of Finance (MoF) central to the AML/CFT agenda.
  - Introduce a digital identification system to strengthen know-your-customer checks and facilitate citizen interactions with government.
- Currency and inclusion specifics:
  - Staffs support issuance of new Somali shilling banknotes while maintaining de facto dollarization.
  - Somali shillings constitute only around 0.7 percent of annual GDP.
  - In 2017, CBS estimated shilling notes in circulation at around 766 billion shillings, equivalent at that time to around US$33 million.
  - Most currency in circulation was counterfeit apart from a small number of notes printed before 1991; new legitimate notes aim to stamp out counterfeiting.
  - New notes expected to remain a small share of money in circulation given dollarized transactions and prevalent mobile money use; they provide a secure store of value and inclusion benefits for vulnerable groups (IDPs, households in remote areas, rural communities).
  - Somalia expected to remain effectively dollarized for some time; monetary and exchange rate policies, instruments, and reserves management will need consideration once the shilling is introduced but likely play a limited role in early-stage macroeconomic management.

### Fiscal policy, public financial management, and debt
- Alignment and coordination:
  - Authorities should regularly update NDP9’s fiscal projections to align with the latest annual budget and medium-term fiscal framework (MTFF) of the MoF; requires consistent coordination between MoF and MoPIED.
  - Staffs provided technical assistance to MoF to revise the MTFF and macroeconomic framework to reflect expected conditions after reaching the HIPC Decision Point, including resumed debt service payments, expected increase in grant financing, and outcomes of debt restructurings.
  - MTFF expected to be regularly updated and embedded in annual budgeting.
  - NDP9’s revised fiscal projections should reflect quantitative performance criteria and indicative targets under the new three-year financing arrangement with the IMF expected to be approved at the HIPC Decision Point.
- Revenue mobilization:
  - Domestic revenue level projected to grow to 4.5 percent of GDP in 2020; although double its value in 2014, this is the lowest level in the world.
  - Revenue mobilization reforms in NDP9 are broadly adequate; staffs request a more granular presentation of revenue measures and their sequencing.
  - Staffs welcome measures to improve tax administration, including activities by the newly established Large and Medium-term Taxpayers Office, and improved collection at the port and airport.
  - Impact of the newly enacted Revenue Law should be incorporated into the MTFF and reflected in NDP9 as implementation plans are developed.
- Public financial management (PFM):
  - Continued PFM reforms needed to support fiscal discipline, transparency, and accountability for NDP9 implementation.
  - Progress noted in systematic and transparent budget planning and execution, better cash management and forecasting, and more transparent reporting.
  - Regulations to operationalize the recently enacted PFM Law would improve spending efficiency.
  - Improved PFM systems required to handle increased scale and complexity of development financing expected after the HIPC Decision Point.
  - Authorities will need to rebuild public investment management capabilities as spending on social programs and capital investment increases.
  - Beneficial for the FGS to begin introducing programmatic budgeting over time when PFM capacity has improved.
- External debt and debt management:
  - NDP9 correctly highlights Somalia’s external debt is unsustainable.
  - Government commitment: not to engage in new external borrowing until debt falls to a sustainable level and capacity to repay improves.
  - Even after HIPC Completion Point debt relief, Somalia’s debt carrying capacity will be low; future borrowing should be carefully analyzed and aligned with capacity to repay and maintaining medium-term fiscal sustainability.
  - Critical for authorities to stay current on all obligations falling due and not to accumulate new arrears.
  - Strengthening government debt management institutions is important during debt relief operations and for future debt management.
  - Staffs encourage strengthening the capacity of the Debt Management Unit by developing an action plan to improve analytical, negotiation, recording, and reporting capacity.

### Fiscal federalism: role and recommendations
- Findings:
  - Fiscal federalism is a critical dimension of the fiscal framework and financing of NDP9 priorities.
  - Assignment of spending and revenue functions across levels of government and an equitable system of intergovernmental transfers fundamentally shape the resource envelope and the volume and composition of spending.
- Recommendations:
  - Accelerate the pace of fiscal federalism reforms.
  - Maintain momentum from the 2019 Fisheries Agreement and the agreement on expenditure guidelines.
  - Harmonize provisions in the PFM and Petroleum Laws related to natural resource revenue sharing.
  - Address potential horizontal inequities in oil revenue-sharing arrangements.
  - Ensure accountability over shared revenues.
  - Establish procedures for the FMSs to contribute to national economic policy development.
  - Incorporate transparency and accountability measures into NDP9 (openness in budgeting, use of taxes, and public sector performance).

### Financing, costing, and aid architecture
- Findings:
  - The absence of cost estimates in NDP9 is a significant gap and a critical step toward implementation and raising necessary financing.
  - Authorities have expressed the need for technical assistance to support the costing effort; FGS and FMS officials will consult with donors on this exercise.
  - NDP9 indicates priorities by showing the percentages of the fiscal space available in 2020 that would be allocated by NDP topics (see Table 26 on page 300 in the NDP9 document).
- Expectations and next steps:
  - Once the costing exercise for 2020–24 is completed, authorities are expected to prepare a supplementary 2020 budget that:
    - Confirms how those percentages have been applied to the additional fiscal space resulting from higher post-Decision Point inflows.
    - Provides a detailed costing estimate for the fiscal year 2021.
  - The portion of that estimate expected to be on-budget will be made part of the 2021 budget.
  - Indicative estimates for the other years of the NDP9 will be included in the FGS’s MTFF.
- Aid architecture and ODA:
  - Significant off-budget flows greatly exceed aid channeled through the FGS budget.
  - NDP9 interventions will rely heavily on external support for financing and project management while federal and state governments build capacity.
  - Recommendations:
    - Revise Somalia’s aid architecture to improve use, direction, and transparency of official development aid (ODA).
    - Authorities should carefully consider new guidelines and operations and discuss them with ODA providers.
    - Encourage ODA providers and other partners to provide timely and complete information on their activities so federal and state authorities can incorporate externally financed activities into planning, budgeting, and monitoring of NDP9 implementation.
    - New processes for providing information should facilitate donors’ efforts to respond to urgent development needs throughout Somalia.

### Implementation, monitoring, evaluation, and M&E architecture
- Implementation constraints identified:
  - Internal capacity constraints, multi-level coordination, and the need to adopt a budgeting strategy that integrates donor and domestic fiscal resources for the duration of the plan.
- Institutional roles:
  - FGS ministries: primary responsibility for policy development, vertical coordination with FMSs, data collection and management, and monitoring; develop standard operating procedures for program development and implementation.
  - FMS and Somaliland governments: produce state-level strategies and plans; state-level ministries responsible for implementation and localizing sectoral plans prepared by federal line ministries.
  - Under the national monitoring and evaluation strategy for NDP9, FMSs will provide quarterly, semiannual, and annual reports to the MoPIED Monitoring and Evaluation Directorate.
  - Continued collaboration with non-state actors to align their activities with national and state priorities and link their M&E activities to FGS data systems.
- M&E architecture specifics:
  - Identifies outcome indicators at both plan and pillar levels; sets baselines and identifies viable data sources for future measurements.
  - Staffs recommend defining ambitious annual and final targets aligned with organizational capacity and financial allocations.
  - Pillar-based implementation requires regional targets for both outcomes and outputs.
  - Introduce a clear reporting mechanism to track implementation status at strategy and intervention levels.
  - Continuous tracking requires developing indicators and targets at the output level to generate structured and regular progress reports.
- Gender, social inclusion, and data gaps:
  - NDP9 commits that “all program and policy data shall be gender-disaggregated, and all NDP9 interventions will include a gender analysis, and targets and indicators that are appropriately gendered” (page 109).
  - NDP9 will also track statistics on levels of gender-based violence.
  - Identified data gaps: household income and spending; consumer and producer prices; production and investment components of the national accounts.
  - Staffs encourage regular and frequent collection of employment data disaggregated by gender and age; capacity building in FMS statistical bureaus is important.

### Pillar summaries and sector recommendations
- Pillar 1: Inclusive Politics
  - Objectives: establish a functioning federal system embedded in a ratified constitution; harmonize state laws; delineate division of labor across local, state, and federal governments; finalize the Federal Constitution of Somalia; resume FGS-Somaliland dialogue; implement the Revenue Administration Law and harmonize tax systems; equitable sharing of natural resource revenue.
  - Recommendation: implement interventions supporting fiscal federalism and transparency measures; such measures typically do not require large funding and could increase tax morale and compliance.
- Pillar 2: Security and the Rule of Law
  - Findings: security and rule of law necessary for development; threats include terrorism, conflicts over water and other scarce resources, human trafficking, cyber-attacks, and illegal economic activities.
  - Noted accomplishments: payroll verification and biometric registration of security personnel; introduction of competitive bidding for rations contracts; adoption of more robust internal controls and audit systems.
  - Recommendations: prioritize and cost interventions; group interventions by security sector reform themes; emphasize reforms that build confidence and trust in government systems.
- Pillar 3: Economic Development
  - Goals: broaden and sustain economic growth; provide greater employment by transforming traditional industries and inducing private sector growth.
  - Expected results include: (i) more resilient traditional livelihoods and food production systems; (ii) a policy and regulatory environment more accessible to investors and small businesses; (iii) a more diversified and future-fit economy; (iv) reduced unemployment through job creation accessible to all levels of Somali society.
  - Key actions: passage of foundational laws (Company Law enacted December 2019; laws on insurance, intellectual property rights, public-private partnerships); establishment/strengthening of regulatory bodies for banking, electricity, petroleum, telecommunications; sectoral strategies for energy, livestock, fisheries, urban development, and water.
  - Sector recommendations:
    - Agriculture and livestock: prioritize public investment in irrigation and disease control; catalyze private investment in dairy, meat, and poultry; complement with transport, financial services, climate adaptation, animal health, forestry, water, and energy investments.
    - Infrastructure and energy: avoid new debt given constrained fiscal environment; explore innovative financing prioritizing private sector solutions; strengthen transmission and distribution; ensure SME access; bolster renewable energy on a least-cost basis.
    - Petroleum: finalize legal and regulatory framework, fiscal regime (e.g., enact Extractives Industries Income Tax Law), and natural resource revenue sharing arrangements prior to commercial exploitation; issue regulations to implement PFM Law provisions on natural resource revenue management and transparent reporting.
    - International trade: clarify organizational framework for negotiating trade arrangements (including Continental Free Trade Agreement and WTO accession) and establish a National Trade Facilitation Council; implement a trade information portal.
    - Medium and small enterprises: emphasize business entry reforms and interventions to encourage growth from small to larger firms.
- Pillar 4: Human Development
  - Findings: focus on building human capital and increasing resilience to shocks; Somalia has health and education levels amongst the lowest in the world.
  - Most primary health, education, and social protection services currently provided by private sector and non-state actors financed by households, remittances, and foreign grants.
  - Progress and recommendations: support foundations for service delivery (basic standards and regulations for non-state providers, better coordination of humanitarian assistance, strengthening direct service delivery for vulnerable groups, multisectoral interventions including safe water and sanitation), progressive financing increases, and improved governance.
  - Noted steps: approval of the National Social Protection Policy, the Education Sector Strategic Plan (2018–20), the new national education curriculum, and increased access to an Essential Package of Health Services.
  - Emphasize women’s empowerment (including reduction in female genital mutilation) and special attention to vulnerable groups such as displaced persons.

### Cross-cutting issues: climate resilience and legal reform
- Climate resilience:
  - Building resilience to climate shocks is a cross-cutting priority linked to the 2018 Recovery and Resilience Framework (RRF).
  - Recommendation to more clearly bring out NDP9’s connections to the RRF and highlight key RRF messages.
- Legal reform:
  - NDP9 includes a challenging legislative reform agenda requiring new laws or amendments to pre-1991 laws to support transition to a federal state and a market economy.
  - Engagement with international partners and varying conditionality (including HIPC floating Completion Point triggers) add complexity and could tax limited capacity.
  - Recommendation: develop and regularly update a prioritized Legislative Action Plan with clear responsibilities and deadlines.

### Identification of causes, delivery strategy, and M&E strengthening
- Two rounds of consultations identified main causes of poverty and required interventions.
- Staffs encourage authorities to expand the logic of interventions and results embedded in NDP9 and refine implementation as more information becomes available.
- Delivery strategy recommendations:
  - Emphasize geographic areas with maximum potential to address underlying causes of poverty.
  - Use an area-based approach with regional targets for outcomes and outputs.
  - More focused cause-effects analysis beyond consultation-driven prioritization to provide clearer guidance.
- Integration of planning and budgeting:
  - Annual budget preparation and execution must reflect and contribute to NDP9 planning and implementation strategies.
  - Use the priority matrix developed by MoPIED to prioritize projects and inform annual planning.
  - Adequate costing is necessary to mobilize donor resources and plan development spending; costed project information should be shared with MoF and reflected in the MTFF.
  - Annual work plans should balance executing priorities against financing constraints and consider quick wins to maintain public support.

### Risks, high-level recommendations, and reporting expectations
- Key risks to NDP9 implementation:
  1. insecurity and national election uncertainty;
  2. lack of policy prioritization, particularly on expenditure policy;
  3. absence of full costing aligned with FGS and FMS fiscal frameworks;
  4. absence of coherent aid policy strategy to catalyze and align large donors’ assistance;
  5. limited monitoring and evaluation capacity;
  6. the perception of corruption and weak governance, limiting confidence and financing support;
  7. absence of private sector-led development policy associated with policies to strengthen tax collection and the revenue base and public finance management; and
  8. limited economic, financial, and poverty data, which hamper development of a coherent medium-term macroeconomic framework linking to poverty outcomes.
- High-level recommendations:
  - Update NDP9’s macroeconomic and fiscal framework and publish cost and financing information on NDP9 interventions.
  - Authorities committed to:
    - submit a supplemental 2020 budget soon after the HIPC Decision Point;
    - complete the NDP9 costing exercise by June 2020.
  - The government’s proposed 2021 budget and supplementary 2020 budgets should:
    - incorporate revisions in expected financial flows associated with reaching the HIPC Decision Point;
    - show how additional resources will be allocated towards realizing NDP9 priorities within the limits of available fiscal space;
    - ensure consistency between annual budgets, NDP9, and changes in economic and fiscal conditions.
  - To limit post-HIPC debt sustainability risks, develop and action plan to strengthen the capacity of the Debt Management Unit.
  - Future borrowing decisions should be well analyzed and aligned with Somalia’s capacity to repay while maintaining medium-term fiscal sustainability.
  - Authorities must stay current on all obligations falling due and not accumulate new arrears.
  - Give greater prominence to fighting corruption:
    - NDP9 currently treats reducing corruption under “Improved Security and Rule of Law” rather than as a cross-cutting issue.
    - Staffs welcome the enactment of the Anti-Corruption Law and encourage swift establishment of the Anti-Corruption Commission and approval of a National Anti-Corruption Strategy.
    - Authorities encouraged to step up efforts to reduce perception of corruption, ratify the United Nations, African Union, and Arab Conventions Against Corruption, and modernize key public institutions.
  - Develop a prioritized Legislative Action Plan reflecting required legal reforms in NDP9 and regularly update it as new commitments arise (e.g., HIPC Completion Point triggers).
- Reporting and follow-up:
  - Authorities expected to include cost and financing information and regular updates to NDP9’s macroeconomic and fiscal framework in the Annual Progress Reports the FGS submits to the IDA and the IMF.
  - Staffs will assess progress and evolution of risks in future JSANs based on these Annual Progress Reports; these JSANs will be shared with the IDA and IMF Boards.
  - Combined with annual monitoring data, this information would enable staffs to advise the IMF and IDA Boards of Executive Directors whether Somalia has satisfactorily implemented NDP9 for at least one year, in line with HIPC Completion Point requirements.

*International Monetary Fund staff assessment extracted from the NDP9 review content unit.*

### 1.       This Joint Staff Advisory Note (JSAN) reviews Somalia’s Ninth National

### This Joint Staff Advisory Note (JSAN) reviews Somalia’s Ninth National Development Plan (NDP9), covering 2020–24.

### Overview and main assessment
- NDP9 was approved by the Cabinet of the Federal Government of Somalia (FGS) on September 26, 2019, and published by the Ministry of Planning, Investment and Economic Development (MoPIED). Somalia submitted it to the IMF and World Bank on October 15, 2019, to fulfill the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative’s poverty reduction strategy requirement.
- NDP9 is organized around four pillars: inclusive politics; improved security and the rule of law; inclusive economic growth; and improved human development.
- Staffs consider NDP9 to exceed the standards of a typical interim poverty reduction strategy with deeper analysis, broader policy discussions, more extensive stakeholder consultations, and more comprehensive articulation of strategies than usually required at the HIPC Decision Point.
- Two critical areas for improvement to satisfy the HIPC Completion Point requirement of at least one year’s satisfactory implementation of NDP9:
  - present information on the costing and related financing of planned interventions; and
  - update the plan’s underlying macroeconomic and fiscal framework.

### Participatory process
- Development process:
  - Three consultation rounds: (i) stakeholder input on poverty causes and measures (January–March 2019); (ii) consensus on strategic priorities and interventions (May–June 2019); and (iii) validation prior to Cabinet approval (August–September 2019).
  - Consultations included civil society, private sector, FGS and FMS line ministries, parliamentarians, judiciary, and development partners.
- Institutional arrangements:
  - Oversight by the National Development Council comprising the federal and all five state planning ministries.
- Integration of feedback:
  - NDP9 incorporates stakeholder input into situation analyses and pillar strategies, with issues presented by stakeholder type and region.

### Poverty diagnosis
- Data source:
  - Main income poverty data: Somali High Frequency Survey (SHFS), collected in 2015 and 2017 by the World Bank in collaboration with the FGS Directorate of National Statistics.
  - SHFS is a multi-topic household survey suitable for developing a multidimensional poverty indicator.
- Staffs’ observations:
  - NDP9 presents detailed poverty profiles, spatial variations, drought impact, displacement, social protection, and remittances.
  - Because the two waves of SHFS were not comparable, analysis is primarily a snapshot; adequate data for trend analysis was not available.
  - Limitations of SHFS:
    - Neither wave is nationally representative because data were not collected in highly insecure areas.
    - Differences in coverage across waves mean poverty rates are not directly comparable; one cannot say how poverty evolved between 2015 and 2017.
    - Sustainability concerns: the survey was collected and processed by a private survey company hired by the World Bank.
  - No assessments of the poverty or distributional effects of past development policies or plans are available.
- Statistical capacity actions in NDP9:
  - With support from development partners, NDP9 looks to strengthen the National Statistical System to monitor core social and macroeconomic statistics.

### Macroeconomic policies — introduction
- NDP9 macroeconomic objectives: promote economic growth in an environment of low inflation, sustainable fiscal and current account balances, and healthy foreign exchange reserves.
- Staffs’ view:
  - Objectives are broadly appropriate; macroeconomic stability and higher, more inclusive growth are preconditions for reducing poverty.
  - Fiscal sustainability requires remaining current on debt service falling due after the HIPC Decision Point and avoiding any new debt before reaching the Completion Point.
  - Somalia’s de facto dollarization largely ensures price stability; building and maintaining healthy foreign reserves will be more challenging given constrained macroeconomic environment and lack of monetary and exchange rate policies and instruments.
  - The role of financial sector development could be expanded upon to explain its potential to catalyze growth.

### Macroeconomic framework and recommended update
- NDP9 framework (as presented):
  - Gradual improvement in real economic growth from the base year of 2018 to 3.5 percent by 2022.
  - Consumer price inflation: decline from 3.2 percent in 2018 to 2.2 percent in 2022.
  - Current account deficit: expected to remain large at over 8 percent of GDP.
- Staffs’ assessment:
  - Framework is consistent with historical trend and capacity to mobilize resources; growth outlook appropriately conservative.
  - Framework has become outdated; staffs recommend updating it to incorporate greater support for poverty reduction and additional financing from development partners during the Interim Period.
  - NDP9’s current framework is grounded in a baseline where Somalia does not reach the HIPC Decision Point or receive debt relief.
  - Staffs and authorities are working to revise the framework to reflect a scenario where Somalia reaches the HIPC Decision Point in early 2020, gaining access to additional grant financing, particularly from the World Bank and African Development Bank, which would support a higher medium- and long-term growth trajectory.
  - The revised framework should maintain a conservative approach while reflecting possible upside from new growth sources, such as commercial fishing, petroleum, and regional trade openings in the Horn of Africa.

### Monetary and financial sector policies
- Key priorities:
  - Financial sector regulation and supervision, and the anti-money laundering and countering of financing of terrorism (AML/CFT) framework.
  - Use of the Financial Sector Roadmap as a guide to reforms, broadening beyond banking to mobile money and payments systems.
  - Improvements in organization and governance of the Central Bank of Somalia (CBS) and strengthening the Financial Reporting Centre; CBS and Ministry of Finance (MoF) central to the AML/CFT agenda.
  - Introduction of a digital identification system to strengthen know-your-customer checks and facilitate citizen interactions with government.
- Currency and inclusion:
  - Staffs support issuance of new Somali shilling banknotes while maintaining de facto dollarization.
  - Somali shillings constitute only around 0.7 percent of annual GDP.
  - In 2017, CBS estimated shilling notes in circulation at around 766 billion shillings, equivalent at that time to around US$33 million.
  - Most currency in circulation was counterfeit apart from a small number of notes printed before 1991; new legitimate notes aim to stamp out counterfeiting.
  - New notes expected to remain a small share of money in circulation given dollarized transactions and prevalent mobile money use; they provide a secure store of value and inclusion benefits for vulnerable groups (IDPs, households in remote areas, rural communities).
  - Somalia is expected to remain effectively dollarized for some time; monetary and exchange rate policies, instruments, and reserves management will need consideration once the shilling is introduced but likely play a limited role in early-stage macroeconomic management.

### Fiscal policy and management
- Alignment and coordination:
  - Authorities should regularly update NDP9’s fiscal projections to align with the latest annual budget and medium-term fiscal framework (MTFF) of the MoF; requires consistent coordination between MoF and MoPIED.
  - Staffs provided technical assistance to MoF to revise the MTFF and macroeconomic framework to reflect expected conditions after reaching the HIPC Decision Point, including resumed debt service payments, expected increase in grant financing, and outcomes of debt restructurings.
  - MTFF expected to be regularly updated and embedded in annual budgeting to support budget preparation, constrain expenditures, and instill fiscal discipline.
  - NDP9’s revised fiscal projections should reflect quantitative performance criteria and indicative targets under the new three-year financing arrangement with the IMF expected to be approved at the HIPC Decision Point.
- Revenue mobilization:
  - Domestic revenue level projected to grow to 4.5 percent of GDP in 2020; although double its value in 2014, this is the lowest level in the world.
  - Revenue mobilization reforms in NDP9 are broadly adequate, but staffs request a more granular presentation of revenue measures and their sequencing.
  - Staffs welcome measures to improve tax administration, including activities by the newly established Large and Medium-term Taxpayers Office, and improved collection at the port and airport.
  - Impact of the newly enacted Revenue Law should be incorporated into the MTFF and reflected in NDP9 as implementation plans are developed.
- Public financial management (PFM):
  - Continued PFM reforms needed to support fiscal discipline, transparency, and accountability for NDP9 implementation.
  - Progress noted in systematic and transparent budget planning and execution, better cash management and forecasting, and more transparent reporting.
  - Regulations to operationalize the recently enacted PFM Law would improve spending efficiency.
  - Improved PFM systems required to handle increased scale and complexity of development financing expected after the HIPC Decision Point.
  - Authorities will need to rebuild public investment management capabilities as spending on social programs and capital investment increases.
  - Beneficial for the FGS to begin introducing programmatic budgeting over time when PFM capacity has improved to better align spending with NDP9 priorities.
- External debt and debt management:
  - NDP9 correctly highlights that Somalia’s external debt is unsustainable.
  - Government commitment welcomed: not to engage in new external borrowing until debt falls to a sustainable level and capacity to repay improves.
  - Even after HIPC Completion Point debt relief, Somalia’s debt carrying capacity will be low; future borrowing should be carefully analyzed and aligned with capacity to repay and maintaining medium-term fiscal sustainability.
  - Critical for authorities to stay current on all obligations falling due and not to accumulate new arrears.
  - Strengthening government debt management institutions is important during debt relief operations and for future debt management.
  - Staffs encourage strengthening the capacity of the Debt Management Unit by developing an action plan to swiftly improve analytical, negotiation, recording, and reporting capacity.

_Prepared by the staffs of the International Monetary Fund (IMF) and the World Bank — March 6, 2020._

### 23.      Finally, staffs welcome NDP9’s emphasis on fiscal federalism, which is a critical dimension of

### 1somea2020004 - 23.      Finally, staffs welcome NDP9’s emphasis on fiscal federalism, which is a critical dimension of

### Fiscal federalism: role and recommendations
- Findings:
  - Fiscal federalism is a critical dimension of the fiscal framework and financing of NDP9 priorities.
  - Assignment of spending and revenue functions across levels of government and an equitable system of intergovernmental transfers fundamentally shape the resource envelope and the volume and composition of spending in the fiscal framework.
- Recommendations:
  - Accelerate the pace of fiscal federalism reforms.
  - Maintain momentum from the 2019 Fisheries Agreement and the agreement on expenditure guidelines.
  - Harmonize provisions in the PFM and Petroleum Laws related to natural resource revenue sharing.
  - Address potential horizontal inequities in oil revenue-sharing arrangements.
  - Ensure accountability over shared revenues.
  - Establish procedures for the FMSs to contribute to national economic policy development.
  - Incorporate transparency and accountability measures into NDP9 (openness in budgeting, use of taxes, and public sector performance).

### Financing and NDP9 costing
- Findings:
  - The absence of cost estimates in NDP9 is a significant gap and a critical step toward implementation and raising necessary financing.
  - Authorities have expressed the need for technical assistance to support the costing effort; FGS and FMS officials will consult with donors on this exercise.
  - NDP9 indicates priorities by showing the percentages of the fiscal space available in 2020 that would be allocated by NDP topics (see Table 26 on page 300 in the NDP9 document).
- Expectations and next steps:
  - Once the costing exercise for 2020–24 is completed, authorities are expected to prepare a supplementary 2020 budget that:
    - Confirms how those percentages have been applied to the additional fiscal space resulting from higher post-Decision Point inflows.
    - Provides a detailed costing estimate for the fiscal year 2021.
  - The portion of that estimate expected to be on-budget will be made part of the 2021 budget.
  - Indicative estimates for the other years of the NDP9 will be included in the FGS’s MTFF.

### Aid architecture, ODA, and donor coordination
- Findings:
  - Significant off-budget flows greatly exceed aid channeled through the FGS budget.
  - NDP9 interventions will rely heavily on external support for financing and project management while federal and state governments build capacity.
- Recommendations:
  - Revise Somalia’s aid architecture to improve use, direction, and transparency of official development aid (ODA).
  - Authorities should carefully consider new guidelines and operations and discuss them with ODA providers.
  - Encourage ODA providers and other partners to provide timely and complete information on their activities in Somalia so federal and state authorities can incorporate externally financed activities into planning, budgeting, and monitoring of NDP9 implementation.
  - New processes for providing information should facilitate donors’ efforts to respond to urgent development needs throughout Somalia.

### Implementation, monitoring, and evaluation
- Findings:
  - NDP9 identifies main implementation challenges: internal capacity constraints, multi-level coordination, and the need to adopt a budgeting strategy that integrates donor and domestic fiscal resources for the duration of the plan.
  - The Implementation chapter proposes government-driven aid, coordination, and oversight policies to progressively strengthen capacities of the state.
- Institutional roles and processes:
  - FGS ministries: primary responsibility for policy development, vertical coordination with FMSs, data collection and management, and monitoring; develop standard operating procedures for program development and implementation.
  - FMS and Somaliland governments: produce state-level strategies and plans; state-level ministries responsible for implementation and localizing sectoral plans prepared by federal line ministries.
  - Under the national monitoring and evaluation strategy for NDP9, FMSs will provide quarterly, semiannual, and annual reports to the MoPIED Monitoring and Evaluation Directorate.
  - Continued collaboration with non-state actors to align their activities with national and state priorities and link their monitoring and evaluation activities to FGS data systems.

### Pillar 1: Inclusive Politics
- Objectives and actions:
  - Establish a functioning federal system embedded in a ratified constitution with institutional capacity to carry out core state functions.
  - Finalize the Federal Constitution of Somalia; harmonize state laws; delineate division of labor across local, state, and federal governments.
  - Resume FGS-Somaliland dialogue.
  - Implement the Revenue Administration Law and harmonize tax systems.
  - Equitable sharing of revenue from natural resources.
- Recommendations:
  - Implement proposed interventions supporting fiscal federalism and transparency measures that increase legitimacy and reconciliation; note such measures typically do not require large funding and could increase tax morale and compliance.

### Pillar 2: Security and the Rule of Law
- Findings:
  - Security and rule of law are necessary conditions for economic and human development; threats include terrorism, conflicts over water and other scarce resources, human trafficking, cyber-attacks, and illegal economic activities.
  - Noted accomplishments: payroll verification and biometric registration of security personnel; introduction of competitive bidding for rations contracts; adoption of more robust internal controls and audit systems.
- Recommendations:
  - Prioritize and cost interventions to facilitate implementation; consider grouping interventions by security sector reform themes rather than by actor.
  - Emphasize reforms that build confidence and trust in government systems and capability of emerging government structures.

### Pillar 3: Economic Development
- Goals and expected results:
  - Broaden and sustain economic growth and provide greater employment by transforming traditional industries and inducing private sector growth.
  - Expected results include: (i) more resilient traditional livelihoods and food production systems; (ii) a policy and regulatory environment more accessible to investors and small businesses; (iii) a more diversified and future-fit economy; (iv) reduced unemployment through job creation accessible to all levels of Somali society.
- Key actions listed in NDP9:
  - Passage of foundational laws, including the Company Law (subsequently enacted in December 2019) and laws on insurance, intellectual property rights, and public-private partnerships.
  - Establishment or strengthening of regulatory bodies for banking, electricity, petroleum, and telecommunications.
  - Articulation of sectoral strategies and master plans for energy, livestock, fisheries, urban development, and water.
- Sector-specific recommendations:
  - Agriculture and livestock: prioritize public sector investment in irrigation and disease control; catalyze private investment in dairy, meat, and poultry; complement with transport, financial services, climate adaptation, animal health, forestry, water, and energy investments.
  - Infrastructure and energy: avoid new debt given constrained fiscal environment; explore innovative financing that prioritizes private sector solutions; strengthen transmission and distribution of electricity; ensure SME access; bolster renewable energy on a least-cost basis.
  - Petroleum: finalize legal and regulatory framework, fiscal regime (e.g., enact Extractives Industries Income Tax Law), and natural resource revenue sharing arrangements prior to commercial exploitation; issue regulations to implement PFM Law provisions on natural resource revenue management and transparent reporting.
  - International trade: provide clarity on organizational framework for negotiating trade arrangements (including Continental Free Trade Agreement and WTO accession) and establish a National Trade Facilitation Council; implement a trade information portal to enhance transparency and streamline logistics.
  - Medium and small enterprises: emphasize business entry reforms and interventions to encourage growth from small to larger firms to support job creation.

### Pillar 4: Human Development
- Findings:
  - Focus on building human capital and increasing resilience to shocks; Somalia has health and education levels amongst the lowest in the world due to conflict, state fragmentation, and environmental shocks.
  - Private sector and non-state actors currently provide most primary health, education, and social protection services financed by households, remittances, and foreign grants.
- Progress and recommendations:
  - Support foundations for service delivery: basic standards and regulations for non-state providers, better coordination of humanitarian assistance, strengthening direct service delivery for vulnerable groups, multisectoral interventions (including safe water and sanitation), progressive financing increases, and improved governance.
  - Note steps already taken: approval of the National Social Protection Policy, the Education Sector Strategic Plan (2018–20), the new national education curriculum, and increased access to an Essential Package of Health Services.
  - Emphasize women’s empowerment (including reduction in female genital mutilation) and special attention to vulnerable groups such as displaced persons.

### Cross-cutting issues: Climate resilience and legal reform
- Climate resilience:
  - Building resilience to climate shocks is a cross-cutting priority and key theme of NDP9, linked to the 2018 Recovery and Resilience Framework (RRF).
  - Recommendation to more clearly bring out NDP9’s connections to the RRF and highlight key RRF messages.
- Legal reform:
  - NDP9 includes a challenging legislative reform agenda requiring new laws or amendments to pre-1991 laws to support transition to a federal state and a market economy.
  - Somalia’s engagement with international partners and varying conditionality (including HIPC floating Completion Point triggers) add complexity and could tax limited capacity.
  - Recommendation: develop and regularly update a prioritized Legislative Action Plan with clear responsibilities and deadlines.

*International Monetary Fund staff assessment extracted from the NDP9 review content unit.*

### 46.      The main causes of poverty and required interventions have been identified through two

### 46.      The main causes of poverty and required interventions have been identified through two

### Identification of causes, strategy alignment, and ownership
- Two rounds of consultations identified the main causes of poverty and required interventions.
- NDP9 summarizes drivers of poverty, vulnerability, and low resilience in Somalia.
- Proposed strategies, interventions, and outcomes in the four pillars are consistent with NDP9’s analysis given data limitations.
- Staffs encourage authorities to:
  - expand the logic of interventions and results embedded in NDP9;
  - refine implementation of NDP9 as more information becomes available through new or updated data sources.

### Delivery strategy and geographic prioritization
- Staffs recommend a delivery strategy that emphasizes geographic areas with maximum potential to address underlying causes of poverty.
- An area-based approach requires setting regional targets for both outcomes and outputs.
- More focused cause-effects analysis beyond consultation-driven prioritization will provide clearer guidance for implementation.

### Integration of planning and budgeting
- Annual budget preparation and execution must reflect and contribute to NDP9’s planning and implementation strategies.
- Staffs encourage using the priority matrix developed by MoPIED to prioritize NDP9 projects and inform annual project planning.
- Adequate costing (currently lacking in NDP9) is necessary to:
  - mobilize donor resources;
  - plan and manage development spending.
- Costed project information should be shared with MoF to ensure capture in the annual budget exercise and reflection in the latest MTFF.
- Budget execution data from MoF will provide critical feedback to refine plans.
- Annual work plans should balance executing priorities against financing constraints and consider quick wins to maintain public support for reform.

### Monitoring and evaluation (M&E) architecture
- NDP9’s M&E architecture:
  - identifies outcome indicators at both plan and pillar levels;
  - sets baselines and identifies viable data sources for future measurements.
- Defining targets through consultation helps generate ownership despite institutional capacity constraints.
- Preparation for implementation must include ambitious annual and final targets aligned with organizational capacity and financial allocations in the short and medium term.
- Pillar-based implementation requires regional targets for both outcomes and outputs.
- Public interventions could be coordinated under existing mechanisms: National Development Council, General Directorates meetings, and Group Pillar discussion.
- Staffs recommend introducing a clear reporting mechanism to track implementation status at strategy and intervention levels to prioritize and streamline delivery.
- The SDG approach will help frame NDP9 in the global 2030 agenda; current indicator matrices provide the highest layer of M&E analysis.
- Continuous tracking requires developing indicators and targets at the output level (interventions/investments) to generate structured and regular progress reports.

### Gender, social inclusion, and data gaps
- Staffs welcome inclusion of gender and social inclusion monitoring indicators:
  - NDP9 commits that “all program and policy data shall be gender-disaggregated, and all NDP9 interventions will include a gender analysis, and targets and indicators that are appropriately gendered” (page 109).
  - NDP9 will also track statistics on levels of gender-based violence.
- Identified data gaps challenging NDP9’s monitoring framework:
  - data on household income and spending;
  - consumer and producer prices;
  - production and investment components of the national accounts.
- Authorities are preparing a statistical capacity development project and working with partners (including the IMF and World Bank) to ensure sustained data collection.
- Staffs encourage regular and frequent collection of employment data disaggregated by gender and age.
- Capacity building in FMS statistical bureaus is important.
- Staffs welcome enactment of amendments to the National Statistics Law and the preparation of a statistical action plan to develop capacity and produce economic, financial, and social statistics.

### Conclusion, risks, and recommendations
- Assessment:
  - NDP9 provides a comprehensive assessment of Somalia’s development challenges through a participatory approach and a realistic M&E framework.
  - IMF and World Bank staffs believe NDP9 provides an adequate framework to support sustained growth recovery and reduce widespread poverty.
- Key risks to NDP9 implementation stem from:
  1. insecurity and national election uncertainty;
  2. lack of policy prioritization, particularly on expenditure policy;
  3. absence of full costing aligned with FGS and FMS fiscal frameworks;
  4. absence of coherent aid policy strategy to catalyze and align large donors’ assistance to support the NDP9;
  5. limited monitoring and evaluation capacity;
  6. the perception of corruption and weak governance, which limit confidence and financing support;
  7. absence of private sector-led development policy associated with policies to strengthen tax collection and the revenue base and public finance management; and
  8. limited economic, financial, and poverty data, which hamper development of a coherent medium-term macroeconomic framework linking to poverty outcomes.

- Recommendations (high-level, as highlighted in the JSAN):
  - Update NDP9’s macroeconomic and fiscal framework and publish cost and financing information on NDP9 interventions.
  - Authorities committed to:
    - submit a supplemental 2020 budget soon after the HIPC Decision Point;
    - complete the NDP9 costing exercise by June 2020.
  - The government’s proposed 2021 budget and supplementary 2020 budgets should:
    - incorporate revisions in expected financial flows associated with reaching the HIPC Decision Point;
    - show how additional resources will be allocated towards realizing NDP9 priorities within the limits of available fiscal space.
    - Ensure consistency between annual budgets, NDP9, and changes in economic and fiscal conditions.
  - To limit post-HIPC debt sustainability risks, develop and action plan to strengthen the capacity of the Debt Management Unit.
  - Future borrowing decisions should be well analyzed and aligned with Somalia’s capacity to repay while maintaining medium-term fiscal sustainability.
  - Authorities must stay current on all obligations falling due and not accumulate new arrears.
  - Give greater prominence to fighting corruption given its systemic importance and prevailing negative perceptions:
    - NDP9 currently treats reducing corruption under “Improved Security and Rule of Law” rather than as a cross-cutting issue.
    - Staffs welcome the enactment of the Anti-Corruption Law and encourage swift establishment of the Anti-Corruption Commission and approval of a National Anti-Corruption Strategy.
    - Authorities are encouraged to step up efforts to reduce perception of corruption, ratify the United Nations, African Union, and Arab Conventions Against Corruption, and modernize key public institutions.
  - Develop a prioritized Legislative Action Plan reflecting required legal reforms in NDP9 and regularly update it as new commitments arise (e.g., HIPC Completion Point triggers).

- Reporting and follow-up expectations:
  - Authorities are expected to include cost and financing information and regular updates to NDP9’s macroeconomic and fiscal framework in the Annual Progress Reports the FGS submits to the IDA and the IMF.
  - Staffs will assess progress and evolution of risks in future JSANs based on these Annual Progress Reports; these JSANs will be shared with the IDA and IMF Boards.
  - Combined with annual monitoring data, this information would enable staffs to advise the IMF and IDA Boards of Executive Directors whether Somalia has satisfactorily implemented NDP9 for at least one year, in line with HIPC Completion Point requirements.

*Source: 1somea2020004 - 46. The main causes of poverty and required interventions have been identified through two*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1somea2020004.pdf_