## 1somea2023002

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### INTRODUCTION — Overview and purpose
- This Joint Staff Advisory Note (JSAN) reviews the first Annual Progress Report (APR) on Somalia’s Ninth National Development Plan (NDP9).
- NDP9 covers 2020–2024 and is organized around four pillars: Inclusive Politics, Security and the Rule of Law, Economic Development and Social Development.
- NDP9 was 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.
- The first APR was received by the World Bank and the IMF in June 2022 and describes FGS progress implementing NDP9 in 2020. The government is preparing the midterm review of NDP9, which will serve as APR for 2021 and 2022.

### INTRODUCTION — Context: the “triple crises” of 2020
- Somalia began implementing NDP9 amid desert locust infestations, the global COVID-19 pandemic, and floods.
- Desert locust outbreak started in 2019 and threatened food supply across the Horn of Africa.
- Flash floods during the second half of 2020 affected over 555,000 people in Hirshabelle, South West, and Jubaland states, as well as the Sanaag and Banadir regions; thousands of hectares of farmland, property, and infrastructure were damaged.
- Floods coincided with the peak of the COVID-19 pandemic, complicating humanitarian responses.

### INTRODUCTION — Assessment of first-year implementation
- Implementation by the FGS of NDP9 as a full PRS for at least one year is assessed as satisfactory.
- Staffs concur with the APR that important progress was made on NDP9 implementation in 2020 despite the triple shocks.
- Key actions in 2020 included:
  - Preservation of macroeconomic stability and continued reform momentum (domestic revenue mobilization, public financial management, financial sector regulation and supervision, statistics, and governance).
  - Prompt COVID-19 response and implementation of a government-owned Baxnaano cash transfer program.
  - Expansion of financial support to businesses provided by the Gargaara Company.
  - Legal reforms to provide fundamentals for growth and poverty reduction.
  - Progress on channeling more external resources through the budget.
- The triple shocks increased population needs, expanded demand for government support, and complicated government operations and logistics.

*Source: INTRODUCTION — Joint Staff Advisory Note on Somalia’s NDP9 APR (first Annual Progress Report for 2020).*

### MACROECONOMIC PERFORMANCE — Overview and framework revisions
- Prompt action by authorities, supported by international partners and resilient remittance inflows, partially cushioned the impact of the triple shocks.
- Fiscal and financial support measures in response to shocks included:
  - Temporary tax relief on some basic food commodities.
  - Externally funded expansion of the social safety net, lending-support to small and medium-sized enterprises, and inter-governmental fiscal transfers to FMSs.
- GDP growth revisions:
  - NDP9 forecast: 3.2 percent (original FY2020 forecast).
  - Revised FY2020 forecast: −0.7 percent.
  - Outer-year growth projections aligned with IMF November 2020 estimates: a gradual increase from 2.9 percent in 2021 to 3.6 percent by 2024.
- Revised forecasts were used to update the government’s Medium-Term Fiscal Framework for the FY2021 Budget Strategy Paper; revised fiscal projections reflected ECF-supported program quantitative performance criteria and indicative targets.

### MACROECONOMIC PERFORMANCE — Fiscal Policy and Management: Findings
- Domestic revenue collection declined in 2020 to 3 percent of GDP from 3.6 percent of GDP in 2019 (total domestic revenues, excluding grants).
- Domestic revenue remains low and insufficient to cover recurrent expenditure.
- FGS implemented tax policy and administration reforms: reinstatement of income and sales taxes, development of the Revenue Law, establishment of a large- and medium-taxpayer’s office.
- Fiscal management and service delivery improvements with international support:
  - Implementation of the Financial Management Information System.
  - Establishment of expenditure controls with regular and reliable reporting.
  - Integration of non-civilian employees into the payroll.
  - Audit of FGS financial accounts.
  - Enactment of a new PFM Act, new Procurement Act and regulations, and the Petroleum Act.
- In 2020, a budget table consolidating FGS and FMS revenue and expenditure (excluding Banadir and Somaliland) was included in the federal FY2021 Appropriation Act.
- The authorities built a fiscal buffer in 2020 to reduce revenue volatility risks, enabling maintenance of priority expenditure in 2021 despite shortfalls in grant disbursements.
- Progress was made in improving management of security sector expenditure and undertaking anti-corruption measures in 2020.

### MACROECONOMIC PERFORMANCE — Fiscal Policy and Management: Policy recommendations and ongoing needs
- Encourage greater domestic revenue mobilization, including timely implementation of tax policy and administrative reforms identified in the ECF-supported program and NDP9.
- Actions expected to raise revenue:
  - Issuance of a spectrum fee schedule for telecom operators in 2022, expected to raise US$6 million per year over the next 10 years.
  - Publication of a report on tax exemptions as part of the 2023 budget package.
- Continue improvements in debt management (strengthen Debt Management Unit capacity), PFM (enhance accounting system, develop reliable in-year financial reporting, improve quality of fiscal data), statistical capacity, and governance.
- Note the Pay and Grade policy and roadmap for payroll integration approved by the Cabinet at the end of 2022 as a PFM enhancement.

### MACROECONOMIC PERFORMANCE — Monetary and Financial Sector Policies: Findings
- Central Bank of Somalia (CBS) reforms advanced financial sector governance, anti-corruption, market regulation, and AML/CFT.
- CBS actions included improved reporting and audit functions, regular on- and off-site inspections of banks and money transfer businesses (MTBs), licensing and regulation of mobile money operators (MMOs), and commencement of CBS audited financial statements publication.
- IMF and World Bank technical assistance supported strengthening financial sector legal and regulatory frameworks, capacity building for supervision of commercial banks, MTBs and MMOs, modernizing payment systems and financial market infrastructure, and strengthening organization, governance, accounting, auditing, and risk management of the CBS.
- Recent AML/CFT actions:
  - Operationalization of the National AML/CFT Taskforce in 2021.
  - Publication of the National ML/FT Risk Assessment (NRA) in 2022 and approval of the NRA Action Plan in 2023.
  - Enactment of the Targeted Financial Sanctions Law in 2023.

### MACROECONOMIC PERFORMANCE — Monetary and Financial Sector Policies: Policy recommendations and challenges
- Encourage further strengthening of institutional capacity at CBS, including financial supervision, and continued efforts to address AML/CFT risks with IMF technical assistance.
- Somalia is a de-facto dollarized economy for financial assets and liabilities as well as currency in circulation.
- Authorities report approximately 82 percent of the Somali population 15 years of age and older use mobile money services.
- In 2020 credit represented only 3.2 percent of GDP.
- Constraints to financial deepening include a relatively narrow formal sector, lack of financial infrastructures, and fragile correspondent banking relations due to ML/FT concerns.
- Money transfer businesses are the main mechanism to transfer money in and out of Somalia.
- Urge strengthening financial deepening and inclusion while protecting financial stability, including establishment of a national unified social registry (a HIPC Completion Point trigger), efforts to address ML/FT risks, and measures to protect from cybersecurity risks.
- Enactment in March 2023 of the Data Protection and the Digital ID Laws is welcome.

### MACROECONOMIC PERFORMANCE — Currency reform
- NDP9 identifies currency reform as a national development priority.
- The currency exchange project, supported by the World Bank, will reintroduce the Somali shilling as legal tender by replacing old and counterfeit notes in circulation.
- The initiative is expected to support financial inclusion for vulnerable populations and facilitate small-value transactions.
- Encourage development of appropriate monetary and exchange rate policy frameworks for the currency reform and further capacity strengthening at CBS and financial institutions.

### MACROECONOMIC PERFORMANCE — Financing and NDP9 Costing: Findings and challenges
- Completion of NDP9 costing for FY2021 is welcomed; in 2020 the Ministry of Finance interacted with 16 federal spending entities to cost NDP9 development programs and linked financing with NDP9 programs in the FY2021 Appropriation Act.
- In a context of limited resources, staffs emphasize the need to further refine costing so NDP9 implementation is prioritized, sequenced, and matched with planned expenditure.
- Most grant financing remained off-budget in 2020 (more than 70 percent).
- Staffs encourage development partners to channel aid flows through country systems to align with NDP9 priorities, enhance visibility, and facilitate monitoring and evaluation.
- Ministry of Finance worked with development partners through the Use of Country Systems (UCS) Working Group and the Aid Information Management System to link planned interventions and spending with NDP pillars.
- Staffs recognize the importance of reducing off-budget financing and encourage development partners to provide funding through the budget system and timely, complete information on development activities.

### POVERTY REDUCTION — Findings on pro-poor spending
- FGS significantly increased pro-poor spending in 2020 through a mid-year revised budget in response to the triple shocks.
- Revised budget allocations:
  - US$149.1 million allocated to social sector ministries (revised mid-year).
  - Original approved estimate in January 2020: US$64.5 million.
  - Social sector ministries’ share of the total budget increased to 14 percent.
  - This represents over seven-fold increase compared to actual spending of US$19.3 million in 2019.
- Cash transfers to households financed by IDA account for most of the increase (72 percent) while the health sector accounts for 22 percent.
- Some assistance targeted the pastoral nomadic population, identified as the poorest group, but alignment of subnational transfers with local poverty levels can be improved.

### POVERTY REDUCTION — Data gaps, developments and recommendations
- APR reiterates NDP9’s goal to reduce poverty by 15 percentage points by 2024.
- Limited data constrain full assessment of causes, extent, and distribution of poverty.
- Main data sources and developments:
  - Second wave of the Somali High Frequency Survey (SFHS) implemented in 2017/18 remains the main poverty data source.
  - A World Bank phone survey in July 2020 provided evidence of declines in employment and income and highlighted that many Somalis lack access to basic goods and services, particularly IDPs, nomads, and rural residents.
  - The Somalia National Bureau of Statistics completed the Somalia Integrated Household Budget Survey in 2022, which included a more detailed consumption module and, for the first time, an agricultural module and a module on household enterprises; authorities will use the survey to strengthen measurement of poverty, CPI and GDP.
- Recommendation:
  - Intensify efforts to strengthen the availability and quality of poverty and social data.
  - Future poverty analysis should track poverty across different areas and profile demographic groups likely to be poor, and explore linkages between poverty and development challenges such as lack of access to services and vulnerability to climate change.

### INCLUSIVE POLITICS AND FISCAL FEDERALISM
- APR reports the onset of the global pandemic in 2020 deepened federalism in Somalia, a cornerstone of NDP9’s inclusive politics pillar.
- Fiscal transfers and institutional actions in 2020:
  - FGS increased grants to subnational governments above levels provided the preceding two years.
  - Developed rules and frameworks for revenue sharing and drafted the Inter-governmental Relations Act.
  - Revitalization of the Finance Ministers Fiscal Forum.
  - Agreement on an interim fiscal transfer policy.
  - Extensive sharing of fiscal and economic data enabling public reporting of consolidated FGS-FMS government financial operations for the first time.
- Shortcomings and political processes:
  - Outstanding constitutional issues prevented adoption of a federal constitution in 2020.
  - Political Parties Act enacted in February 2020, but elections postponed from end-2020 to 2021 and ultimately not completed until May 2022.
  - Staffs encourage tangible progress on electoral reforms to support greater political inclusion and representation.
- Rationale:
  - A rule-based formula for revenue sharing and intergovernmental grants—linked to clear expenditure responsibilities—can narrow the fiscal gap between states with and without seaports (and their corresponding customs revenue), leading to reduced inequalities and increased citizen trust and state legitimacy.

### SECURITY AND THE RULE OF LAW (Pillar 2)
- Triple shocks contributed indirectly to increased conflict and greater incursion by Al-Shabaab, with an increase in the severity of poverty, food insecurity, and displacement.
- Progress in 2020:
  - Transition planning from AMISOM forces to the SNA and a strengthened legal framework for the security sector.
  - Establishment of the Integrity Coordination Unit at the Ministry of Justice to lead anti-corruption efforts for the FGS.
  - Ratification in December 2020 of the UN Convention against Corruption (a HIPC Completion Point trigger).
  - Drafting or review of 45 laws, policies, and strategies, including the National Anti-Corruption Strategy (an ECF structural benchmark) and the law establishing the Anti-Corruption Commission.
- Rule of law service delivery statistics:
  - Legal aid services provided to over 4,000 beneficiaries (75 percent women).
  - Over 5,000 beneficiaries used the Alternative Dispute Resolution Centers (40 percent women).
  - 1,040 beneficiaries used mobile courts (45 percent women)—more than doubling the final target of 500.
- Security sector administration improvements:
  - Direct payment of security sector salaries strengthened expenditure management and reduced misuse risk.
  - 2020 completion of a second round of biometric registration for national security sector personnel, including all SNA forces (including those in the FMS), the Somali Police Force at the FGS level, the Federal Custodial Corps (prisons), and NISA.
  - Continued efforts to regularize main security sector rations contracts and establish competitive tendering; NISA should resolve incomplete tender processes and ensure rations are delivered under valid, competitively tendered contracts.
- Recommendation:
  - Ensure the security sector is carefully managed and that resources are adequate and timely; maintain commitment to security sector registration and keep information up to date.

### ECONOMIC DEVELOPMENT (Pillar 3)
- Authorities instituted programs in agriculture, livestock, telecommunication, infrastructure, and trade to respond to economic shocks.
- Water and energy:
  - Completion of the National Water Resources Strategy and Roadmap 2021–2025.
  - Encourage shift from emergency assistance to long-term programmatic support to the water sector with coordinated development community support.
  - Electricity Bill and Energy Policy approved by the Council of Ministers and bill submitted to Parliament in December 2020.
  - The Electricity Act was passed by both houses of Parliament and promulgated in March 2023.
  - Encourage government preparation for investments in transmission and distribution and development of the sector regulatory framework.
- Financial sector:
  - Launch of the National Payment System and Gargaara—the financial institution established to facilitate access to finance for micro, small and medium enterprises.
  - Staffs note only the first draft of the national risk assessment was available in 2020 and the report was not completed until 2022.
  - Encourage more detailed reporting on digital ID progress and greater discussion of efforts to increase access to finance for women.
- Telecommunication and digital development:
  - Progress in policy, legal and regulatory framework for digital development; emphasis on ‘Telecom and IT’ welcomed.
  - Recommend assessing ICT developments more broadly to include national ID, cybersecurity, data protection and digital infrastructure development.
  - Acceleration of data protection, cyber security, and digital ID activities encouraged.
  - Improved data collection necessary for monitoring progress, focusing on indicators for digital connectivity and internet access.

### SOCIAL DEVELOPMENT (Pillar 4)
- Social protection response:
  - Government introduced a social protection system to respond to the triple shocks.
  - Baxnaano program clarification:
    - Baxnaano is a cash transfer program and does not provide food.
    - Baxnaano is the first-ever, government-led, cash transfer program, carried out by the Ministry of Labour and Social Affairs with WFP implementation assistance and financed by the World Bank.
    - Baxnaano currently provides unconditional cash transfers to 200,000 poor and vulnerable households with children, reaching about 1.2 million people.
  - Staffs encourage the government to take over direct responsibility for implementing Baxnaano, build the unified social registry (a HIPC Completion Point trigger), and develop policies focused on pro-poor public spending during the remaining years of NDP9 implementation.
- Health and education:
  - COVID-19 hindered health and education programs proposed under NDP9.
  - FMS health ministries set up the COVID-19 Information System for registration and maintenance of national COVID-19 statistics.
  - Staffs encourage expansion of basic education opportunities in areas with largest gaps and enhancement of FMS health management information systems, contract management and PFM.

### IMPLEMENTATION, DONOR COORDINATION, AND MONITORING & EVALUATION
- Donor coordination:
  - FGS revived the UCS Working Group in November 2020, producing a revised UCS roadmap for 2021–2023 with joint commitments and milestones.
  - Coordination between international partners and the FGS remains a challenge and can hinder alignment of support with NDP9 priorities.
  - Staffs urge FGS and international partners to channel development support through the budget to improve aid effectiveness.
- Data and statistics:
  - Somalia implemented the IMF Enhanced General Data Dissemination System (e-GDDS) in June 2022 by publishing essential macroeconomic and financial data through a National Summary Data Page.
  - Somalia National Bureau of Statistics has collected and published new data for required indicators such as Somali Health and Demographic Survey, the Labour Force Survey, and the Somalia Integrated Household Budget Survey.
  - Implementation efforts of the Statistics Act operationalized in 2020 and fulfillment of the statistics HIPC Completion Point trigger—the publication of Somalia Facts and Figures—are noted.
  - Continued implementation of the Statistical Action Plan and advancement within the e-GDDS framework recommended.
- Monitoring and evaluation:
  - MoPIED’s Monitoring and Evaluation Department (MED) developed a National Integrated Monitoring and Evaluation Framework (NIMEF) to coordinate government M&E activities and support evidence-based decision-making.
  - Limitations exist between NDP9 strategic planning and ministry-level actions; staffs encourage stronger linkages between priority setting, planning, and budgeting, including reviewing key performance indicators in budget preparation and ministerial strategic documents.
  - Strengthening linkages between MED and national statistics system is critical for M&E of NDP9 projects and programs.

### CONCLUSION — Assessment, risks, and JSAN recommendations
- Assessment and achievements:
  - APR accurately captures key achievements in PRS implementation in 2020 despite triple shocks.
  - Major achievements highlighted:
    - Implementation of the Baxnaano program, government owned and financed through the budget.
    - Sustained reform momentum in revenue, PFM, CBS institutional capacity, statistics and governance.
    - Increase of development partner support channeled through the budget with adequate safeguards.
  - Implementation by the FGS of NDP9 as a full PRS for at least one year is assessed as satisfactory, fulfilling the HIPC Completion Point trigger.
  - Ministry of Finance worked with 16 Federal spending entities to cost 29 programs under the NDP’s four pillars in 2020.
  - The first review of the ECF-supported program indicated implementation of NDP9; subsequent second to fourth reviews were also completed.
- Implementation risks (listed):
  1. Insecurity impeding progress in sectors such as infrastructure and education.
  2. Lack of policy prioritization, particularly on expenditure policy.
  3. Absence of full costing aligned with FGS and FMS fiscal frameworks.
  4. Political risks from lack of full consensus regarding the federal system and uncertainty around national elections.
  5. Perception of pervasive corruption and weak governance.
  6. Heavy reliance on off-budget donor support and absence of coherent aid policy strategy to align large donors’ assistance with NDP9.
  7. Limited monitoring and evaluation capacity and data to monitor progress and develop a medium-term policy framework.
  8. Risks related to revenue collection, including tax administration’s ability to ensure registration, filing, declarations, and payments by the private sector.
  9. Risks associated with ensuring sound public financial management in line with PFM laws and regulations.
  10. Severe capacity constraints where institutions are recently created and staffed with few adequately trained and experienced employees.
- Additional risk:
  - Climate change is identified as a leading cause of natural disasters and a significant risk to NDP9 implementation.
- JSAN recommendations to support NDP9 goals:
  - Protect fiscal sustainability and strengthen debt management; future borrowing decisions aligned with Somalia’s capacity to repay while maintaining medium-term fiscal sustainability.
  - Accelerate domestic revenue mobilization reforms to increase resources for NDP9 priorities.
  - Continue strengthening public financial management to improve expenditure implementation, transparency, and accountability.
  - Continue reforms to support institutional capacity, including progress on key legislation.
  - Improve transparency and accountability with greater attention to governance and reduce perception of corruption.
  - Ensure security sector is carefully managed and that resources are adequate and timely.
  - Promote tangible progress on electoral reforms to support greater political inclusion and representation.
  - Incorporate climate change resilience into NDP9 program implementation; the midterm review of NDP9 should explore in detail how to improve climate resilience during the second half of implementation.

### NEAR-TERM REFORM MEASURES UNDER PREPARATION (selected)
- Strengthening domestic revenue:
  - Operationalize the Customs Automated System at the main ports.
  - Operationalize point-of-sale machines in key sectors.
  - Introduce a turnover tax.
  - Initiate the development of the Integrated Tax Administration System (ITAS).
- Enhancing public financial management (PFM):
  - Integrate all federal government workers into the payroll.
  - Launch the invoice tracking system.
  - Improve reporting.
  - Strengthen PFM capacity of FMS.
- Improving governance and transparency:
  - Seek enactment of a modernized Audit Bill.
  - Work towards finalizing the legal framework for the extractive industries.
  - Develop a policy for the management of non-financial assets.
  - A taskforce was commissioned to coordinate implementation of the measures announced in the Prime Minister's Directive of May 2023 on financial governance and integrity, including stronger oversight over concessions and procurement and development of a merit-based system for appointments.
- Mainstreaming climate resilience:
  - Create a new Ministry of Environment and Climate Change to focus on incorporating climate change resilience into the implementation of NDP9 programs.

### MONITORING, ASSESSMENT, NEXT STEPS, AND HIPC COMPLETION POINT TRIGGERS (progress as of June 16, 2023)
- Staffs will assess progress in implementing these recommendations and the evolution of risks in future JSANs based on subsequent APRs; JSANs will be shared with the IDA and IMF Boards.
- Annex — Status of HIPC Completion Point Triggers (progress as of June 16, 2023) — selected highlights:
  - Poverty reduction strategy implementation: APR evaluating implementation of the National Development Plan in 2020 completed in June 2022; Joint Staff Assessment Note prepared.
  - Macroeconomic stability: fifth review of the ECF-supported program completed on May 17, 2023.
  - Public financial and expenditure management: Office of the Auditor General published the 2019, 2020, and 2021 FGS financial accounts; PFM regulations approved by the Cabinet in May 2022.
  - Domestic revenue mobilization: customs regulations on valuation and declarations issued in September 2022; ad valorem tariff schedule enacted in June 2022; CAS piloted in Mogadishu port and airport with rollout next to Bosaso, Garowe, and Kismayo.
  - Governance, anticorruption, and natural resource management: EIIT Bill approved to Parliament in March 2023; Somalia acceded to UNCAC in August 2021.
  - Debt management: Regular quarterly debt bulletins published since 2020Q4 with debt stock and composition details.
  - Social sectors: Authorities establishing a national unified social registry (USR); USR platform/MIS developed and ready to receive data; Data Protection Law approved by Parliament in March 2023; operational guidelines need development.
  - Education and health coordination: FGS and FMS MoEs signed revised draft education cooperation MoU on July 14, 2021; Somalia Health Sector Strategic Plan for 2022–2026 finalized and framework for joint national health strategy agreed.
  - Growth/structural: Somalia Electricity Bill enacted on March 8, 2023; Company Act implementing regulations on minority shareholder protection issued in January 2021 and additional regulations in May 2022.
  - Statistical capacity: Facts and Figures of Somalia published for 2018, 2019, 2020, and 2021.

*Source: Excerpt from IMF staff report (progress as of June 16, 2023).*

### INTRODUCTION

### INTRODUCTION

### Overview and purpose
- This Joint Staff Advisory Note (JSAN) reviews the first Annual Progress Report (APR) on Somalia’s Ninth National Development Plan (NDP9).
- NDP9 covers 2020–2024 and is organized around four pillars: Inclusive Politics, Security and the Rule of Law, Economic Development and Social Development.
- NDP9 was 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.
- The first Annual Progress Report (APR) was received by the World Bank and the IMF in June 2022 and describes FGS progress implementing NDP9 in 2020. The government is preparing the midterm review of NDP9, which will serve as APR for 2021 and 2022.

### Context: the “triple crises” of 2020
- Somalia began implementing NDP9 amid desert locust infestations, the global COVID-19 pandemic, and floods.
- Desert locust outbreak started in 2019 and threatened food supply across the Horn of Africa.
- Flash floods during the second half of 2020 affected over 555,000 people in Hirshabelle, South West, and Jubaland states, as well as the Sanaag and Banadir regions; thousands of hectares of farmland, property, and infrastructure were damaged.
- Floods coincided with the peak of the COVID-19 pandemic, complicating humanitarian responses.

### Assessment of first-year implementation
- Implementation by the FGS of NDP9 as a full PRS for at least one year is assessed as satisfactory.
- Staffs concur with the APR that important progress was made on NDP9 implementation in 2020 despite the triple shocks.
- Key actions in 2020 included:
  - Preservation of macroeconomic stability and continued reform momentum (domestic revenue mobilization, public financial management, financial sector regulation and supervision, statistics, and governance).
  - Prompt COVID-19 response and implementation of a government-owned Baxnaano cash transfer program.
  - Expansion of financial support to businesses provided by the Gargaara Company.
  - Legal reforms to provide fundamentals for growth and poverty reduction.
  - Progress on channeling more external resources through the budget.
- The triple shocks increased population needs, expanded demand for government support, and complicated government operations and logistics.

*Source: INTRODUCTION — Joint Staff Advisory Note on Somalia’s NDP9 APR (first Annual Progress Report for 2020).*

### MACROECONOMIC PERFORMANCE

### A. Introduction
- Prompt action by authorities, supported by international partners and resilient remittance inflows, partially cushioned the impact of the triple shocks.
- Fiscal and financial support measures in response to shocks included:
  - Temporary tax relief on some basic food commodities.
  - Externally funded expansion of the social safety net, lending-support to small and medium-sized enterprises, and inter-governmental fiscal transfers to FMSs.
- Resilient remittance inflows and the Baxnaano social safety net program buoyed domestic demand and helped protect the vulnerable.

### Macroeconomic framework revisions
- Authorities revised the FY2020 macroeconomic framework in mid-2020 following March 2020 JSAN guidance.
- GDP growth was downgraded from 3.2 percent (NDP9 forecast) to −0.7 percent.
- Outer-year growth projections aligned with IMF November 2020 estimates: a gradual increase from 2.9 percent in 2021 to 3.6 percent by 2024.
- Revised forecasts were used to update the government’s Medium-Term Fiscal Framework for the FY2021 Budget Strategy Paper; revised fiscal projections reflected ECF-supported program quantitative performance criteria and indicative targets.

### B. Fiscal Policy and Management

Findings
- Domestic revenue collection declined in 2020 to 3 percent of GDP from 3.6 percent of GDP in 2019 (total domestic revenues, excluding grants).
- Domestic revenue remains low and insufficient to cover recurrent expenditure.
- FGS implemented tax policy and administration reforms: reinstatement of income and sales taxes, development of the Revenue Law, establishment of a large- and medium-taxpayer’s office.
- Authorities improved fiscal management and service delivery with international support:
  - Implementation of the Financial Management Information System.
  - Establishment of expenditure controls with regular and reliable reporting.
  - Integration of non-civilian employees into the payroll.
  - Audit of FGS financial accounts.
  - Enactment of a new PFM Act, new Procurement Act and regulations, and the Petroleum Act.
- In 2020, a budget table consolidating FGS and FMS revenue and expenditure (excluding Banadir and Somaliland) was included in the federal FY2021 Appropriation Act.
- The authorities built a fiscal buffer in 2020 to reduce revenue volatility risks, enabling maintenance of priority expenditure in 2021 despite shortfalls in grant disbursements.
- Progress was made in improving management of security sector expenditure and undertaking anti-corruption measures in 2020.

Policy recommendations and ongoing needs
- Staffs encourage greater domestic revenue mobilization, including timely implementation of tax policy and administrative reforms identified in the ECF-supported program and NDP9.
- Staffs recognize actions expected to raise revenue:
  - Issuance of a spectrum fee schedule for telecom operators in 2022, expected to raise US$6 million per year over the next 10 years.
  - Publication of a report on tax exemptions as part of the 2023 budget package.
- Staffs encourage continuous improvements in debt management (strengthen Debt Management Unit capacity), PFM (enhance accounting system, develop reliable in-year financial reporting, improve quality of fiscal data), statistical capacity, and governance.
- Staffs note the Pay and Grade policy and roadmap for payroll integration approved by the Cabinet at the end of 2022 as a PFM enhancement.

### C. Monetary and Financial Sector Policies

Findings
- Central Bank of Somalia (CBS) reforms advanced financial sector governance, anti-corruption, market regulation, and AML/CFT.
- CBS actions included improved reporting and audit functions, regular on- and off-site inspections of banks and money transfer businesses (MTBs), licensing and regulation of mobile money operators (MMOs), and commencement of CBS audited financial statements publication.
- IMF and World Bank technical assistance supported:
  - Strengthening financial sector legal and regulatory frameworks.
  - Capacity building for supervision of commercial banks, MTBs and MMOs.
  - Modernizing payment systems and financial market infrastructure.
  - Strengthening organization, governance, accounting, auditing, and risk management of the CBS.
- Recent AML/CFT actions:
  - Operationalization of the National AML/CFT Taskforce in 2021.
  - Publication of the National ML/FT Risk Assessment (NRA) in 2022 and approval of the NRA Action Plan in 2023.
  - Enactment of the Targeted Financial Sanctions Law in 2023.

Policy recommendations and challenges
- Staffs encourage further strengthening of institutional capacity at CBS, including financial supervision, and continued efforts to address AML/CFT risks with IMF technical assistance.
- Somalia is a de-facto dollarized economy for financial assets and liabilities as well as currency in circulation.
- Access to mobile money is relatively high: authorities report approximately 82 percent of the Somali population 15 years of age and older use mobile money services.
- In 2020 credit represented only 3.2 percent of GDP.
- Constraints to financial deepening include a relatively narrow formal sector, lack of financial infrastructures, and fragile correspondent banking relations due to ML/FT concerns.
- Money transfer businesses are the main mechanism to transfer money in and out of Somalia.
- Staffs urge strengthening financial deepening and inclusion while protecting financial stability, including establishment of a national unified social registry (a HIPC Completion Point trigger), efforts to address ML/FT risks, and measures to protect from cybersecurity risks.
- Enactment in March 2023 of the Data Protection and the Digital ID Laws is welcome.

Currency reform
- NDP9 identifies currency reform as a national development priority.
- The currency exchange project, supported by the World Bank, will reintroduce the Somali shilling as legal tender by replacing old and counterfeit notes in circulation.
- The initiative is expected to support financial inclusion for vulnerable populations and facilitate small-value transactions.
- Staffs encourage development of appropriate monetary and exchange rate policy frameworks for the currency reform and further capacity strengthening at CBS and financial institutions.

### D. Financing and NDP9 Costing

Findings
- Completion of NDP9 costing for FY2021 is welcomed; in 2020 the Ministry of Finance interacted with 16 federal spending entities to cost NDP9 development programs and linked financing with NDP9 programs in the FY2021 Appropriation Act.
- In a context of limited resources, staffs emphasize the need to further refine costing so NDP9 implementation is prioritized, sequenced, and matched with planned expenditure.

Challenges
- Most grant financing remained off-budget in 2020 (more than 70 percent).
- Staffs encourage development partners to channel aid flows through country systems to align with NDP9 priorities, enhance visibility, and facilitate monitoring and evaluation.
- Ministry of Finance worked with development partners through the Use of Country Systems (UCS) Working Group to encourage utilization of the Aid Information Management System linking planned interventions and spending with NDP pillars.
- Staffs recognize the importance of reducing off-budget financing and encourage development partners to provide funding through the budget system and timely, complete information on development activities.

### POVERTY REDUCTION

Findings on pro-poor spending
- FGS significantly increased pro-poor spending in 2020 through a mid-year revised budget in response to the triple shocks.
- The revised budget allocated US$149.1 million to social sector ministries, more than double the original approved estimate of US$64.5 million in January 2020.
- Social sector ministries’ share of the total budget increased to 14 percent.
- This represents over seven-fold increase compared to actual spending of US$19.3 million in 2019.
- Cash transfers to households financed by IDA account for most of the increase (72 percent) while the health sector accounts for 22 percent.
- Some assistance targeted the pastoral nomadic population, identified as the poorest group, but alignment of subnational transfers with local poverty levels can be improved.

Poverty analysis and data gaps
- APR reiterates NDP9’s goal to reduce poverty by 15 percentage points by 2024.
- APR discusses targeting of poor and vulnerable populations (via Baxnaano cash transfer and education programs).
- Staffs highlight the importance of further analyzing poverty and distributional effects of development policies and plans.

Data limitations and developments
- Limited data constrain full assessment of causes, extent, and distribution of poverty.
- The second wave of the Somali High Frequency Survey (SFHS) implemented in 2017/18 remains the main poverty data source.
- A World Bank phone survey in July 2020 provided evidence of declines in employment and income and highlighted that many Somalis lack access to basic goods and services, particularly IDPs, nomads, and rural residents.
- The Somalia National Bureau of Statistics completed the Somalia Integrated Household Budget Survey in 2022, which included a more detailed consumption module and, for the first time, an agricultural module and a module on household enterprises; authorities will use the survey to strengthen measurement of poverty, CPI and GDP.

Recommendations
- Staffs emphasize intensifying efforts to strengthen the availability and quality of poverty and social data.
- Future poverty analysis should track poverty across different areas and profile demographic groups likely to be poor, and explore linkages between poverty and development challenges such as lack of access to services and vulnerability to climate change.

*Source: INTRODUCTION — Joint Staff Advisory Note on Somalia’s NDP9 APR (first Annual Progress Report for 2020).*

### 19. The APR reports that the onset of the global pandemic in 2020 deepened federalism in

### 1somea2023002 - 19. The APR reports that the onset of the global pandemic in 2020 deepened federalism in

### Inclusive politics and fiscal federalism
- The APR reports the onset of the global pandemic in 2020 deepened federalism in Somalia, a cornerstone of NDP9’s inclusive politics pillar.
- Fiscal transfers and institutional actions in 2020:
  - FGS increased grants to subnational governments above levels provided the preceding two years.
  - Developed rules and frameworks for revenue sharing and drafted the Inter-governmental Relations Act.
  - Revitalization of the Finance Ministers Fiscal Forum.
  - Agreement on an interim fiscal transfer policy.
  - Extensive sharing of fiscal and economic data enabling public reporting of consolidated FGS-FMS government financial operations for the first time.
- Shortcomings and political processes:
  - Outstanding constitutional issues prevented adoption of a federal constitution in 2020.
  - Political Parties Act enacted in February 2020, but elections postponed from end-2020 to 2021 and ultimately not completed until May 2022.
  - Staffs encourage tangible progress on electoral reforms to support greater political inclusion and representation.
- Rationale for fiscal federalism:
  - A rule-based formula for revenue sharing and intergovernmental grants—linked to clear expenditure responsibilities—can narrow the fiscal gap between states with and without seaports (and their corresponding customs revenue), leading to reduced inequalities and increased citizen trust and state legitimacy.

### Security and the rule of law (Pillar 2)
- Context and achievements:
  - Triple shocks contributed indirectly to increased conflict and greater incursion by Al-Shabaab, with an increase in the severity of poverty, food insecurity, and displacement.
  - Progress in 2020 includes transition planning from AMISOM forces to the SNA and a strengthened legal framework for the security sector.
- Anti-corruption and legal instruments:
  - Establishment of the Integrity Coordination Unit at the Ministry of Justice to lead anti-corruption efforts for the FGS.
  - Ratification in December 2020 of the UN Convention against Corruption (a HIPC Completion Point trigger).
  - Drafting or review of 45 laws, policies, and strategies, including the National Anti-Corruption Strategy (an ECF structural benchmark) and the law establishing the Anti-Corruption Commission.
- Rule of law service delivery statistics:
  - Legal aid services provided to over 4,000 beneficiaries (75 percent women).
  - Over 5,000 beneficiaries used the Alternative Dispute Resolution Centers (40 percent women).
  - 1,040 beneficiaries used mobile courts (45 percent women)—more than doubling the final target of 500.
- Security sector administration improvements not fully captured in APR:
  - Direct payment of security sector salaries strengthened expenditure management and reduced misuse risk.
  - 2020 completion of a second round of biometric registration for national security sector personnel, including all SNA forces (including those in the FMS), the Somali Police Force at the FGS level, the Federal Custodial Corps (prisons), and NISA.
  - Continued efforts to regularize main security sector rations contracts and establish competitive tendering; NISA should resolve incomplete tender processes and ensure rations are delivered under valid, competitively tendered contracts.
- Staffs’ recommendation:
  - Ensure the security sector is carefully managed and that resources are adequate and timely; maintain commitment to security sector registration and keep information up to date.

### Economic development (Pillar 3)
- Overview:
  - Authorities instituted several programs in agriculture, livestock, telecommunication, infrastructure, and trade to respond to economic shocks.
- Water and energy:
  - Completion of the National Water Resources Strategy and Roadmap 2021–2025.
  - Staffs encourage shift from emergency assistance to long-term programmatic support to the water sector with coordinated development community support.
  - Electricity Bill and Energy Policy approved by the Council of Ministers and bill submitted to Parliament in December 2020.
  - The Electricity Act was passed by both houses of Parliament and promulgated in March 2023.
  - Staffs encourage government preparation for investments in transmission and distribution and development of the sector regulatory framework.
- Financial sector:
  - Launch of the National Payment System and Gargaara—the financial institution established to facilitate access to finance for micro, small and medium enterprises.
  - Staffs note only the first draft of the national risk assessment was available in 2020 and the report was not completed until 2022.
  - Staffs encourage more detailed reporting on digital ID progress and greater discussion of efforts to increase access to finance for women.
- Telecommunication and digital development:
  - Progress in policy, legal and regulatory framework for digital development; emphasis on ‘Telecom and IT’ welcomed.
  - Staffs recommend assessing ICT developments more broadly to include national ID, cybersecurity, data protection and digital infrastructure development.
  - Acceleration of data protection, cyber security, and digital ID activities encouraged.
  - Improved data collection necessary for monitoring progress, focusing on indicators for digital connectivity and internet access.

### Social development (Pillar 4)
- Social protection response:
  - Government introduced a social protection system to respond to the triple shocks.
  - Baxnaano program clarification:
    - Baxnaano is a cash transfer program and does not provide food.
    - Baxnaano is the first-ever, government-led, cash transfer program, carried out by the Ministry of Labour and Social Affairs with WFP implementation assistance and financed by the World Bank.
    - Baxnaano currently provides unconditional cash transfers to 200,000 poor and vulnerable households with children, reaching about 1.2 million people.
  - Staffs encourage the government to take over direct responsibility for implementing Baxnaano, build the unified social registry (a HIPC Completion Point trigger), and develop policies focused on pro-poor public spending during the remaining years of NDP9 implementation.
- Health and education:
  - COVID-19 hindered health and education programs proposed under NDP9.
  - FMS health ministries set up the COVID-19 Information System for registration and maintenance of national COVID-19 statistics.
  - Staffs encourage expansion of basic education opportunities in areas with largest gaps and enhancement of FMS health management information systems, contract management and PFM.

### Implementation, donor coordination, and monitoring and evaluation
- Donor coordination:
  - FGS revived the UCS Working Group in November 2020, producing a revised UCS roadmap for 2021–2023 with joint commitments and milestones.
  - Despite efforts, coordination between international partners and the FGS remains a challenge and can hinder alignment of support with NDP9 priorities.
  - Staffs urge FGS and international partners to channel development support through the budget to improve aid effectiveness.
- Data and statistics:
  - Somalia implemented the IMF Enhanced General Data Dissemination System (e-GDDS) in June 2022 by publishing essential macroeconomic and financial data through a National Summary Data Page.
  - Somalia National Bureau of Statistics has collected and published new data for required indicators such as Somali Health and Demographic Survey, the Labour Force Survey, and the Somalia Integrated Household Budget Survey.
  - Staffs welcome implementation efforts of the Statistics Act operationalized in 2020 and note fulfillment of the statistics HIPC Completion Point trigger—the publication of Somalia Facts and Figures.
  - Continued implementation of the Statistical Action Plan and advancement within the e-GDDS framework recommended.
- Monitoring and evaluation:
  - MoPIED’s Monitoring and Evaluation Department (MED) developed a National Integrated Monitoring and Evaluation Framework (NIMEF) to coordinate government M&E activities and support evidence-based decision-making.
  - Limitations exist between NDP9 strategic planning and ministry-level actions; staffs encourage stronger linkages between priority setting, planning, and budgeting, including reviewing key performance indicators in budget preparation and ministerial strategic documents.
  - Strengthening linkages between MED and national statistics system is critical for M&E of NDP9 projects and programs.

### Conclusion, risks, and recommendations
- Assessment and achievements:
  - Staffs believe the APR accurately captures key achievements in PRS implementation in 2020 despite triple shocks.
  - Major achievements highlighted:
    - Implementation of the Baxnaano program, government owned and financed through the budget.
    - Sustained reform momentum in revenue, PFM, CBS institutional capacity, statistics and governance.
    - Increase of development partner support channeled through the budget with adequate safeguards.
  - Implementation by the FGS of NDP9 as a full PRS for at least one year is assessed as satisfactory, fulfilling the HIPC Completion Point trigger.
  - Ministry of Finance worked with 16 Federal spending entities to cost 29 programs under the NDP’s four pillars in 2020.
  - The first review of the ECF-supported program indicated implementation of NDP9; subsequent second to fourth reviews were also completed.
- Implementation risks (listed):
  1. Insecurity impeding progress in sectors such as infrastructure and education.
  2. Lack of policy prioritization, particularly on expenditure policy.
  3. Absence of full costing aligned with FGS and FMS fiscal frameworks.
  4. Political risks from lack of full consensus regarding the federal system and uncertainty around national elections.
  5. Perception of pervasive corruption and weak governance.
  6. Heavy reliance on off-budget donor support and absence of coherent aid policy strategy to align large donors’ assistance with NDP9.
  7. Limited monitoring and evaluation capacity and data to monitor progress and develop a medium-term policy framework.
  8. Risks related to revenue collection, including tax administration’s ability to ensure registration, filing, declarations, and payments by the private sector.
  9. Risks associated with ensuring sound public financial management in line with PFM laws and regulations.
  10. Severe capacity constraints where institutions are recently created and staffed with few adequately trained and experienced employees.
  - Climate change is identified as a leading cause of natural disasters and a significant risk to NDP9 implementation.
- JSAN recommendations to support NDP9 goals:
  - Protect fiscal sustainability and strengthen debt management; future borrowing decisions aligned with Somalia’s capacity to repay while maintaining medium-term fiscal sustainability.
  - Accelerate domestic revenue mobilization reforms to increase resources for NDP9 priorities.
  - Continue strengthening public financial management to improve expenditure implementation, transparency, and accountability.
  - Continue reforms to support institutional capacity, including progress on key legislation.
  - Improve transparency and accountability with greater attention to governance and reduce perception of corruption.
  - Ensure security sector is carefully managed and that resources are adequate and timely.
  - Promote tangible progress on electoral reforms to support greater political inclusion and representation.
  - Incorporate climate change resilience into NDP9 program implementation; the midterm review of NDP9 should explore in detail how to improve climate resilience during the second half of implementation.

*International Monetary Fund — excerpted from the APR discussion of Somalia’s NDP9 implementation in 2020.*

### 41. The authorities are already working on a number of near-term reform measures in the

### 1somea2023002 - 41. The authorities are already working on a number of near-term reform measures in the

### Near-term reform measures under preparation
- Strengthening domestic revenue:
  - Operationalize the Customs Automated System at the main ports.
  - Operationalize point-of-sale machines in key sectors.
  - Introduce a turnover tax.
  - Initiate the development of the Integrated Tax Administration System (ITAS).
- Enhancing public financial management (PFM):
  - Integrate all federal government workers into the payroll.
  - Launch the invoice tracking system.
  - Improve reporting.
  - Strengthen PFM capacity of FMS.
- Improving governance and transparency:
  - Seek enactment of a modernized Audit Bill.
  - Work towards finalizing the legal framework for the extractive industries.
  - Develop a policy for the management of non-financial assets.
  - A taskforce was commissioned to coordinate implementation of the measures announced in the Prime Minister's Directive of May 2023 on financial governance and integrity, including stronger oversight over concessions and procurement and development of a merit-based system for appointments.
- Mainstreaming climate resilience:
  - Create a new Ministry of Environment and Climate Change to focus on incorporating climate change resilience into the implementation of NDP9 programs.

### Monitoring, assessment, and next steps
- Staffs will assess progress in implementing these recommendations and the evolution of risks in future JSANs based on subsequent APRs.
- 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 on Somalia’s further implementation of the NDP9.

### Annex — Status of HIPC Completion Point Triggers (progress as of June 16, 2023)
- Poverty reduction strategy implementation:
  - Requirement: 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.
  - Progress: The Annual Progress Report evaluating the implementation of the National Development Plan in 2020 was completed in June 2022. Staff of the World Bank and IMF have prepared a Joint Staff Assessment Note.
- Macroeconomic stability:
  - Requirement: Maintain macroeconomic stability as evidenced by satisfactory implementation of the 3-year ECF-supported program.
  - Progress: The fifth review of the ECF-supported program was completed on May 17, 2023.
- Public financial and expenditure management:
  - Requirement: Publish at least two years of the audited financial accounts of the FGS.
  - Progress: The Office of the Auditor General published the 2019, 2020, and 2021 FGS financial accounts.
  - Requirement: Issue regulations to implement the Public Financial Management Act’s provisions on debt, public investment, and natural resource revenue management.
  - Progress: The PFM regulations—including chapters on debt, public investments, and natural resource revenue management—were approved by the Cabinet in May 2022.
- Domestic revenue mobilization:
  - Requirement: Adopt and apply a single import duty tariff schedule at all ports in the Federal Republic of Somalia.
  - Progress: The customs regulations on valuation and declarations were issued in September 2022 and the ad valorem tariff schedule was enacted in June 2022. The Customs Automated System (CAS) is being piloted in Mogadishu port and airport. The next step is for the CAS to be rolled out to Bosaso, Garowe, and Kismayo, together with a common valuation table.
- Governance, anticorruption, and natural resource management:
  - Requirement: Enact the Extractive Industry Income Tax (EIIT) Law.
  - Progress: The EIIT Bill was approved to Parliament in March 2023.
  - Requirement: Ratify the ‘United Nations Convention Against Corruption’ (UNCAC).
  - Progress: Somalia acceded to UNCAC in August 2021.
- Debt management:
  - Requirement: Publish at least four consecutive quarterly reports outlining 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.
  - Progress: Regular quarterly debt bulletins have been published since 2020Q4 with information on the outstanding stock and composition of debt liabilities and financial assets, and, where they exist, loan guarantees and other contingent liabilities, including their currency denomination, maturity, and interest rate structure.
- Social sectors:
  - Requirement: Establish a national unified social registry (USR) as a functional platform to support registration and determination of potential eligibility for social programs.
  - Progress: The authorities are establishing a USR with support from the World Bank, the World Food Program (WFP) and UNICEF. The USR platform/MIS have been developed and ready to receive data and support the functions of registration and determination of eligibility. The core team dedicate to manage the operations the USR has been established at the Ministry of Labor and Social Affairs. The drafting of the operational manual detailing the operational processes of the system and institutional management are well advanced. The Data Protection Law was approved by Parliament in March 2023, and operational guidelines need to be developed.
  - Requirement: FGS and FMS Ministers of Education adopt an agreement defining their respective roles and responsibilities on curriculum and examinations.
  - Progress: On July 14, 2021, the FGS and FMS MoEs finalized and officially signed the revised draft education cooperation MoU at the intergovernmental meeting held in Garowe. A permanent intergovernmental forum for education has been formalized. Key agreements reached include the formation of national examination, certification, and curriculum boards. An interim committee to develop the criteria for selection of the board members was also established.
  - Requirement: FGS and FMS Ministers of Health adopt a joint national health sector strategy.
  - Progress: The Somalia Health Sector Strategic Plan for 2022–2026 was finalized. FGS and FMS ministers have agreed on a framework for a joint national health strategy.
- Growth/structural:
  - Requirement: Enact the Electricity Act and issue supporting regulations to facilitate private sector investment in the energy sector.
  - Progress: The Somalia Electricity Bill was enacted on March 8, 2023.
  - Requirement: Issue Company Act implementing regulations on minority shareholder protection to encourage private sector investment.
  - Progress: The regulations to the Company Act were issued in January 2021. A second set of Regulations to the Company Act were issued in May 2022 specifically covering the issue of minority shareholder protection.
- Statistical capacity:
  - Requirement: Publish at least two editions of the Somalia Annual Fact Book.
  - Progress: The Facts and Figures of Somalia has been published for 2018, 2019, 2020, and 2021.

*Source: Excerpt from IMF staff report (progress as of June 16, 2023).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1somea2023002.pdf_