## 1somea2023004 ## Source details **Canonical URL:** [1somea2023004](https://www.imf.org/-/media/files/publications/cr/2023/english/1somea2023004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1somea2023004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1somea2023004.pdf.json) --- ### Executive summary — reform progress and HIPC Decision Point - Somalia has rebuilt state institutions and the economy since the civil war, completing three national elections and Parliamentary and Presidential elections in May 2022. - With international support, Somalia pursued reforms to strengthen economic and financial policy institutions and governance, preserving political stability despite COVID-19, prolonged droughts, a desert locust infestation, external food-price shocks, and security risks. - HIPC Decision Point (March 2020) was reached on the basis of a satisfactory reform track record, including four consecutive IMF staff monitored programs between 2016-2020, and arrears clearance to international financial institutions. - At Decision Point, PV of external debt-to-exports ratio was estimated at 491.1 percent for end-2018. - HIPC debt relief committed at Decision Point: US$2.1 billion in end-2018 PV terms, calculated to reduce PV of external debt-to-exports ratio at end-2018 from 344.2 percent (after traditional relief) to the 150 percent HIPC threshold, implying a common reduction factor (CRF) of 56.4 percent. - Following arrears clearance, Somalia regained access to IDA and AfDB financing; the IDA portfolio has grown to US$2.2 billion (all grants). ### Completion Point trigger assessment and status - Staffs of IDA and the IMF view Somalia as having made satisfactory progress to reach the floating Completion Point. - Achievement summary: - Thirteen of fourteen floating Completion Point triggers have been met across public financial and expenditure management, domestic revenue mobilization, governance, social sectors, and statistics. - The single import duty tariff schedule at all ports (Trigger #5) was not met: - Reform completed at Mogadishu seaport and airport. - Important progress in Kismayo seaport and airport. - Paused in Garowe and Bosaso (Puntland) due to political conditions. - Authorities request a waiver from the IMF Executive Board; IMF staff supports the waiver. - Notable completed actions: - Annual Progress Report evaluating NDP9 for 2020-24 completed June 2022; Joint Staff Assessment Note transmitted July 2023. - Fifth review of the ECF-supported program completed May 17, 2023; sixth and final review to be considered December 13, 2023. - Office of the Auditor General published 2019, 2020, 2021, and 2022 FGS financial accounts. - PFM regulations (including debt, public investments, natural resource revenue) approved by Cabinet in May 2022. ### Debt reconciliation, revised HIPC assistance, and key debt figures - Debt reconciliation revisions (end-2018, PV terms): - PV of external debt revised upward by US$13.0 million to US$5,240.9 million. - Three-year backward-looking average of exports revised to US$1,060.6 million. - PV of external debt after traditional debt relief revised downward by US$170.1 million to US$3,494.4 million due to Russia agreement (80 percent up-front reduction before traditional relief). - HIPC assistance revisions: - Downward adjustment of US$164.1 million in estimated debt relief required to reach 150 percent of exports at end-2018. - Total assistance under the HIPC Initiative reduced to US$1,903.5 million in end-2018 PV terms (lower by US$164.1 million from US$2,067.6 billion estimated at Decision Point). - Common reduction factor (revised): 54.5 percent (Table A4). - Exports of goods and non-factor services used: 1,060.6 (US$ million). - End-2018 nominal stock: - Public and publicly guaranteed external debt estimated at US$5.3 billion, including US$5.0 billion in arrears. - Arrears and reconciliation: - As of end-2018, 96.0 percent of FGS’ revised external debt was in arrears; external arrears stock: US$5.0 billion. - Reconciliation coverage: 100 percent of PPG external debt outstanding and disbursed at end-2018; 99.7 percent at end-2022. ### Creditor participation, MDRI, and beyond‑HIPC assistance - Financing assurances: - Creditors accounting for 89.5 percent of the PV of HIPC debt relief have given satisfactory assurances of participation. - Multilateral creditors: 42.2 percent of PV of HIPC debt relief confirmed. - Paris Club creditors: 42.4 percent confirmed. - Other official bilateral creditors: 4.9 percent confirmed. - Multilateral creditor actions and modalities: - IDA: provided full HIPC share through grant element of arrears clearance in March 2020; at Completion Point IDA will cancel remaining claims under MDRI; IDA MDRI debt relief: US$92.8 million at end-2023 (debt stock reduction). - IMF: at Completion Point will provide HIPC and beyond-HIPC debt relief of SDR 250.4 million (US$348.3 million in end-2018 PV terms) to fully cover outstanding debt at Decision Point; total IMF assistance under HIPC estimated at SDR 135.0 million (US$182.6 million) in end-2018 PV terms; interim assistance: SDR 4.8 million (US$6.7 million). - AfDB Group: delivered HIPC debt relief via arrears clearance March 2020; will cancel remaining claims under MDRI; Somalia’s arrears to AfDB estimated at UA 88.15 million (US$122.6 million). - IFAD: agreed arrears clearance of US$23.2 million in March 2023 via donors, IDA Debt Relief Trust Fund, and IFAD resources. - Russia: bilateral debt relief agreement in July 2023 with 80 percent up-front reduction on pre-cutoff non-ODA claims and Naples terms on remaining 20 percent. - Beyond-HIPC assistance: - Upon Completion Point, Somalia qualifies for MDRI from IDA and AfDB and for beyond-HIPC assistance from IMF and Paris Club creditors; MDRI (IDA and AfDB) would cancel all remaining claims from these multilaterals. ### Debt burden after full delivery, DSA findings, and sensitivities - Conditional full delivery (Completion Point) outcome: - PV of debt-to-exports ratio would fall from 491.1 percent at end-2018 (Decision Point estimate) to 32.5 percent at end-2023 (based on updated Completion Point figures under conditional full delivery). - DSA risk ratings and projections (after full delivery of HIPC, MDRI, and beyond‑HIPC assistance): - External and overall risk of debt distress: Moderate. - PV of PPG external debt-to-exports ratio: remains well below 150 percent over 2023–2043, breaching 80 percent by 2042. - PPG debt service-to-exports ratio: 0.9 percent at end-2023, rising to 3.4 percent at end-2043. - PPG debt service-to-revenues ratio: 6.2 percent at end-2023, rising to 10.4 percent by 2043. - Scenario analysis (post-conditional HIPC, MDRI, beyond‑HIPC): - Baseline: - PV of debt-to-exports ratio declines to 28.5 percent in 2026, then rises to 86.8 percent by 2043. - Security shock: - Assumes permanently lower growth from sustained deterioration in security compressing exports. - Somalia projected to exhaust, within the 20-year projection period, all space provided by full HIPC/MDRI/beyond-HIPC relief. - PV of debt-to-exports ratio would increase above 150 percent by 2043. - Debt service-to-revenue ratio (with only highly concessional new borrowing) would reach above 20 percent by 2043. - Climate shock: - Assumes climate shock affecting livestock/agriculture, lowering exports. - PV of debt-to-exports ratio initially deteriorates and remains on average 10 percentage points above baseline in long term. - Debt service-to-revenue ratio remains 2 percentage points above baseline in medium term. - LIC-DSA stress tests: - Combined shocks produce the most extreme stress; largest contributors: uncertainty around real GDP growth and the non-debt flow shock. - Shock in current official transfers is a significant vulnerability reflecting high dependence on official development assistance. - Interest payments on new debt coming online post-HIPC CP and rising amortization after 2030 drive medium-term increases in external debt service-to-revenue. ### Topping‑up eligibility and outcome - Somalia does not meet requirements for exceptional topping-up based on end-2022 data. - After full delivery of HIPC and beyond-HIPC assistance by Paris Club creditors, PV of debt-to-exports ratio at end-2022 declines to 47.1 percent (well below 150 percent threshold) and does not trigger topping-up. ### Revenue, fiscal, and macroeconomic assumptions (2023–2043) - Real GDP growth: - 2023: 2.8 percent. - Long-term average: 4.5 percent. - Notes: average growth for 2017-2019 was 5.4 percent; projected growth for 2024-2027 is 3.9 percent. - Inflation: - 2023: 5.7 percent. - Long-term average: 2.2 percent. - Fiscal: - 2023 fiscal deficit: 0.1 percent of GDP. - Medium-term: budget moves to moderate deficits of about 2 percent of GDP. - Domestic revenue projected to increase by around 0.3 percent of GDP per year over 2024–2028. - Assumes grants decline after HIPC Completion Point while concessional borrowing rises; no domestic borrowing; external financing on concessional terms. - Macroeconomic table excerpts (selected series preserved verbatim): - Real GDP growth series: "1.7 2.8 3.7 3.9 4.0 4.5 2.4 2.8 3.7 3.9 4.0 4.5" - Revenues and grants series: "8.8 7.8 6.7 6.5 5.5 6.7 6.9 6.4 6.9 5.2 4.7 5.5" - Domestic revenues series: "3.2 3.2 3.4 3.8 4.1 6.6 2.5 2.7 2.8 3.0 3.3 5.4" ### Key policy recommendations and operational implications - Maintain sound macroeconomic management and fiscal discipline. - Strengthen governance, procurement, and public investment management. - Prioritize domestic revenue mobilization and tax capacity building (e.g., broaden tax base; consider excise taxes with safeguards). - Strengthen debt management institutions and sustain DMU staffing and funding; adopt a medium-term debt management strategy. - Ensure new borrowing remains highly concessional post‑Completion Point; rely on concessional financing and donor support. - Safeguard against shocks: build resilience to climate-related shocks and security risks; develop business continuity/disaster recovery plans for debt management functions. - Continue technical and financial support from IMF, World Bank, AfDB, UK, and partners to advance reforms and customs modernization. ### Accountability, transparency, and institutional reforms (selected triggers met) - Publication and audit: - Office of the Auditor General published audited FGS financial accounts for 2019, 2020, 2021, and 2022. - Audits undertaken using ISSAIs; PFM Act requires publication of audits. - PFM regulations (May 2022) — debt, public investment, and natural resource revenue: - Natural Resource Revenue Fund (NRRF) specifications, investment oversight, withdrawals to finance national budget, Accountant General oversight, Auditor General audit requirement. - Public investment measures for projects above US$5 million and PPPs; Minister of Finance verification of affordability and approval of PPPs with budgetary obligations; PPP law under development. - Debt management: DMU to prepare medium-term debt management strategy and annual borrowing plan; computerized debt management system procedures for quantifying and verifying debt service; provisions for on‑lending and public debt guarantees. - Governance and sectoral reforms met: - Extractive Industries Fiscal Regime Law enacted June 2023. - Somalia acceded to UNCAC in August 2021. - National Unified Social Registry (USR) functionality achieved July 20, 2023; World Food Program transferred 131,134 households to USR on June 29, 2023. - Somalia Electricity Act enacted March 8, 2023; regulations issued July 2023. - Companies Act implementing regulations on minority shareholder protection issued May 2022. ### Annex II — LIC-DSA headline outcomes and macro statistics - Baseline assumptions: full delivery of HIPC, MDRI, and beyond-HIPC assistance at Completion Point in December 2023. - Public debt projections: - Total public debt projected to decline to US$706 million, or 6.1 percent of GDP at end-2023 (from US$3.9 billion or 37.4 percent of GDP at end-2022). - External debt at end-2023 projected at US$638 million, or 5.5 percent of GDP. - PV of external debt in 2022 (including HIPC relief) estimated at 22.8 percent of GDP, decreasing to 5.1 percent of GDP in 2023. - Rebasing effects: - New nominal GDP level is 37 percent higher on average between 2016-2022; new real GDP level is 66 percent higher on average between 2016-2022. - Nominal exports series increased notably from 2021 onwards (30 percent increase in estimates for 2023). ### Executive Directors’ decision points and questions - Staff recommendation: Executive Directors of IDA and IMF approve the Completion Point for Somalia under the Enhanced HIPC Initiative. - Questions posed to Executive Directors (selected): - Do Executive Directors agree Somalia has reached the Completion Point? - Do Directors agree with revising proposed HIPC assistance to US$1,903.5 million (end-2018 PV terms)? - Do IMF Directors agree Somalia qualifies for IMF debt relief equal to SDR 250.4 million (US$348.3 million in end-2018 PV terms) at Completion Point? - Do Directors agree Somalia has not met requirements for exceptional topping-up? - Do Directors agree creditors have given sufficient financing assurances to irrevocably commit HIPC Initiative assistance? *Prepared by the staffs of the International Monetary Fund and the International Development Association; excerpts from IMF staff report (content unit 1somea2023004).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background and Reform Progress - Somalia has been rebuilding state institutions and the economy since the end of the devastating civil war, with strong support from the international community. - Since the 2012 Provisional Constitution that created the Federal Government of Somalia (FGS) and the Federal Member States (FMS), Somalia has successfully undertaken three national elections, and Parliamentary and Presidential elections were completed in May 2022. - With financial and capacity development support from international partners, Somalia has pursued wide-ranging reforms to strengthen key economic and financial policy institutions and improve governance. - Despite the global COVID-19 pandemic, prolonged and severe droughts, a desert locust infestation, the impact of external shocks on food supply and prices, and significant security risks, Somalia preserved political stability following Presidential and Parliamentary elections and continued steady progress with structural reforms. ### HIPC Decision Point and Interim Developments - In March 2020, the Executive Directors of IDA and the IMF agreed that the Federal Republic of Somalia had met the requirements for reaching the Decision Point (DP) under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. - The satisfactory track record of reform implementation—including four consecutive IMF staff monitored programs between 2016-2020—and clearance of arrears to international financial institutions enabled approval of the HIPC Decision Point in March 2020, offering Somalia access to interim debt relief and new flows of development finance. - At the time of Decision Point, the present value (PV) of external debt-to-exports ratio was estimated at 491.1 percent for end-2018. - The amount of HIPC debt relief committed at the time was US$2.1 billion in end-2018 PV terms, calculated to reduce the PV of external debt-to-exports ratio at end-2018 from 344.2 percent (after application of traditional debt relief mechanisms) to the HIPC threshold level of 150 percent. - This implied a common reduction factor (CRF) of 56.4 percent. - Following arrears clearance, Somalia regained access to financing for development from IDA and the African Development Bank (AfDB). - Since then, the IDA portfolio has grown to US$2.2 billion, all in grant financing, supporting state-building, investment in social services, investment in resilience and growth, and reforms to support the achievement of the HIPC Completion Point triggers. ### Assessment of Completion Point Trigger Implementation - In the view of the staffs of IDA and the IMF, Somalia has made satisfactory progress in meeting the requirements for reaching the floating Completion Point. - Somalia has satisfactorily implemented for at least one year a poverty reduction strategy and maintained a track record of sound macroeconomic management as evidenced by satisfactory implementation of the ECF-supported program. - Thirteen of fourteen floating Completion Point triggers have been met, including on public financial and expenditure management, domestic revenue mobilization, governance, social sectors, and statistics. - The adoption and implementation of a single import duty tariff schedule at all ports was not met: - The reform was completed at Mogadishu seaport and airport. - There has been important progress in Kismayo seaport and airport. - The reform is paused in Garowe and Bosaso due to political conditions. - The authorities are requesting a waiver for this reform from the IMF Executive Board and IMF staff supports this request. - Specific trigger achievements noted: - The Annual Progress Report evaluating the implementation of the Ninth National Development Plan (NDP9) covering 2020-24 in 2020 was completed in June 2022; a Joint Staff Assessment Note (JSAN) confirmed satisfactory implementation of the NDP9 during 2020 and was transmitted to the IDA and IMF Executive Boards in July 2023. - The fifth review of the ECF-supported program was completed on May 17, 2023; the sixth review and final review will be considered by the IMF Executive Board on December 13, 2023. - The Office of the Auditor General published the 2019, 2020, 2021, and 2022 FGS financial accounts. - The PFM regulations—including chapters on debt, public investments, and natural resource revenue management—were approved by the Cabinet in May 2022. ### Debt Reconciliation, Revised HIPC Assistance, and Adjustments - As a result of the debt reconciliation exercise for the Completion Point, the PV of external debt has been revised upwards by US$13.0 million to US$5,240.9 million (end-2018 PV terms). - The three-year backward-looking average of exports was revised downwards to US$1,060.6 million. - The PV of external debt after traditional debt relief at end-2018 has been revised downward by US$170.1 million to US$3,494.4 million due to the implementation of the debt restructuring agreement with Russia, which included an 80 percent up-front reduction of debt owed to Russia before application of the hypothetical traditional debt relief mechanisms. - In accordance with IMF/World Bank Boards’ policy, upward and downward adjustments are made only when the change in the U.S. dollar amount of HIPC Initiative assistance exceeds one percent of the targeted PV of debt after HIPC Initiative relief. - For Somalia, the downward adjustment of US$164.1 million in the estimated debt relief needed to reduce the PV of debt to 150 percent of exports as of end-2018 is more than 10 percent of the targeted US$1,591.0 million PV of debt after HIPC relief at the Decision Point. - Therefore, total assistance under the HIPC Initiative is reduced to US$1,903.5 million in end-2018 PV terms, lower by US$164.1 million compared to US$2,067.6 billion estimated at Decision Point. ### Creditor Participation, MDRI, and Beyond-HIPC Assistance - Creditors accounting for 89.5 percent of the PV of HIPC debt relief have given satisfactory assurances of their participation in the enhanced HIPC Initiative. - Nearly all multilateral creditors, all Paris Club creditors, and some other official bilateral creditors have agreed to participate. - The authorities have been working toward obtaining participation of all the remaining creditors and have made significant progress to finalize debt restructuring agreements with most multilateral and official bilateral creditors. - Upon reaching the Completion Point under the Enhanced HIPC Initiative, Somalia will also qualify for Multilateral Debt Relief Initiative (MDRI) debt relief from IDA and the AfDB, and for beyond-HIPC assistance from the IMF and Paris Club creditors. - MDRI from IDA and AfDB would cancel all remaining claims on Somalia from these multilaterals. - MDRI debt relief would amount to cancellation of US$96.8 million in end-2022 PV terms. - Beyond-HIPC assistance from the IMF will cancel the portion of the eligible pre-Decision Point financing that is not already covered by the HIPC debt relief. ### Debt Burden after Full Delivery and Sensitivities - Full delivery of HIPC debt relief, MDRI debt relief, and beyond-HIPC assistance by the IMF and Paris Club creditors at the Completion Point would reduce Somalia’s external debt burden significantly. - The PV of debt-to-exports ratio would fall from 491.1 percent at end-2018 (as estimated at the Decision Point) to 32.5 percent at end-2023 based on updated figures at Completion Point under conditional full delivery of debt relief. - The future evolution of these indicators will be sensitive to macroeconomic assumptions, particularly revenues, exports, and the terms of new external financing, as well as government policies. - Important policy and institutional priorities to preserve debt sustainability include: - Sound macroeconomic management. - Further progress on strengthening governance. - Domestic revenue mobilization. - Procurement. - Public investment management. - Debt management institutions and institutional capacity. - Somalia remains highly exposed to climate-related shocks and security risks, which could significantly reduce exports and growth. ### Topping-Up Eligibility and Outcome - Somalia does not meet the requirements for exceptional topping-up of debt relief under the enhanced HIPC Initiative based on end-2022 debt data. - For Somalia, after full delivery of HIPC assistance and beyond-HIPC assistance by Paris Club creditors, the PV of debt to export ratio at end-2022 declines to 47.1 percent. - As this is well below the HIPC threshold of 150 percent, it does not trigger a need for any topping-up (i.e., additional) debt relief. ### Recommendation - The staffs recommend that the Executive Directors of IDA and the IMF approve the Completion Point for Somalia under the Enhanced HIPC Initiative. *Prepared by the staffs of the International Monetary Fund and the International Development Association; Approved By Thanos Arvanitis and Allison Holland (IMF) and Victoria Kwakwa and Pablo Saavedra (IDA).* ### 5. Adopt and apply a single import ### 5. Adopt and apply a single import ### Implementation status and recent actions - Status: Not completed but satisfactory progress has been made. - Customs regulations on valuation and declarations were issued in September 2022. - The ad valorem tariff schedule was enacted in June 2022. - The Somalia Customs Automated System (SOMCAS) has incorporated harmonized tariffs, HS codes, and harmonized item descriptions. - SOMCAS is fully operational in Mogadishu seaport and airport as of October 2023. - In Kismayo seaport and airport, SOMCAS has been partially implemented: shipping lines and airlines are entering manifests into the system and declarations are being made for khat imports. - Efforts are ongoing to implement a common valuation table across Mogadishu and Kismayo; once resolved, Kismayo will be able to carry out all the customs processing through SOMCAS. - The reform has been paused in the ports of Bosaso and Garowe in the Federal Member State of Puntland due to political conditions. ### Key related institutional and legal developments (from the same chapter) - Extractive Industries Fiscal Regime Law: Met — enacted in June 2023. - United Nations Convention Against Corruption (UNCAC): Met — Somalia acceded in August 2021. - Debt reporting: Met — regular quarterly debt bulletins have been published since 2020Q4 with information on outstanding stock and composition of debt liabilities, including currency denomination, maturity, interest rate structure, projected debt service and key risk indicators. ### Operational implications and next steps identified in the text - Completion of a common valuation table between Mogadishu and Kismayo is a prerequisite for Kismayo to perform full customs processing through SOMCAS. - Political conditions in Puntland (Bosaso and Garowe) are an overriding constraint that has paused implementation there; addressing political obstacles is necessary to extend the single import duty tariff schedule nationwide. - Continued rollout and harmonization efforts (tariff schedules, valuation, HS codes, item descriptions) are central to fostering greater trade integration. *Source: IMF staff report excerpt — "5. Adopt and apply a single import" (chapter content provided).* ### 15. Staffs consider this trigger to have been met. ### 1somea2023004 - 15. Staffs consider this trigger to have been met. ### Accountability and Transparency of Fiscal Reports - Publication status: - The Office of the Auditor General published the 2019, 2020, 2021, and 2022 audited FGS financial accounts. - Legal and methodological framework: - The Public Financial Management Act requires publication of audits of FGS financial statements. - Audits are undertaken using the International Standards of Supreme Audit Institutions (ISSAIs). - Audits include a report determining whether financial statements are presented in accordance with the applicable financial reporting framework, accounting standards, and relevant laws and regulations that have a direct effect on the financial statements. - Assessment: - Audits play a crucial role in promoting good governance, fiscal responsibility, sustainable economic development, public trust, effective resource allocation, tax compliance, and informed decision making. - While publication of audited financial accounts is commendable, there is room to improve the quality of financial statements. ### Trigger #4: Regulations to implement the Public Financial Management Act (debt, public investment, natural resource revenue) - Staff assessment: - Staffs consider this trigger to have been met. - Key regulatory actions (May 2022 adoption): - Natural resource revenue management: - Specifications on establishment and management of a Natural Resource Revenue Fund (NRRF). - Framework for collection and deposit of resource revenue into the NRRF; retention of investment earnings within the NRRF; investments of NRRF resources; and withdrawals from the NRRF. - Appointment of an Investment Advisory Committee to oversee investments of NRRF resources. - Withdrawals from the NRRF shall only be used to finance the national budget. - Accountant General tasked with overseeing management of NRRF resources. - Auditor General must issue an audit statement on the NRRF’s annual financial statements. - Public investment management: - Provisions relate to public investment projects above US$5 million and public-private partnership (PPP) projects. - Regulations require inclusion of public investment projects in the national budget and submission of the annual concessions plan, specifying PPP projects as part of the proposed national budget. - Minister of Finance must verify affordability of PPP projects after appraisal and approve PPP projects which include obligations for payments from the national budget, whether direct or contingent. - Measures to be further solidified under a new PPP law currently under development. - Debt management: - Debt Management Unit (DMU) to prepare and submit for approval of the Minister of Finance a medium-term debt management strategy in consultation with the Central Bank of Somalia together with an annual borrowing plan. - Procedures for inclusion of debt service in the budget and for the DMU to quantify and verify the amount of debt service payments through a computerized debt management system. - Provisions for on-lending and issuance of public debt guarantees. ### Domestic Revenue Mobilization — Trigger #5 (single import duty tariff schedule) - Staff assessment: - Staffs consider this trigger not met but conclude that satisfactory progress has been made. - Customs modernization progress: - Completed in Mogadishu seaport and airport. - Important progress in Kismayo seaport and airport. - Reform paused in Garowe and Bosaso (both Puntland) due to political conditions. - Key reform elements and dates: - Enactment of the ad valorem tariff schedule in June 2022. - Issuance of customs regulations on valuation and declarations in September 2022. - Somalia Customs Automated System (SOMCAS) roll-out incorporating harmonized tariffs, Harmonized System (HS) codes, and harmonized item descriptions. - SOMCAS fully operationalized in Mogadishu seaport and airport as of early October 2023. - Partial implementation in Kismayo; manifests and declarations being entered for khat imports; discussions ongoing on common valuation table with Mogadishu. - SOMCAS implementation paused in Bosaso and Garowe due to political conditions. - Waiver request: - For this HICP CP trigger, the authorities are requesting a waiver from the IMF Executive Board, which IMF staff supports, based on full implementation in Mogadishu seaport and airport and significant progress in Kismayo seaport and airport. - Support and next steps: - IMF, the World Bank, UK, and other partners will continue to provide financial and technical support to advance customs modernization; authorities will advance reforms in remaining ports once conditions allow. ### Governance, Anti-Corruption, and Natural Resource Management — Trigger #6 (EIIT Law) - Staff assessment: - Staffs consider this trigger to have been met. - Legislative actions: - Extractive Industries Fiscal Regime (EIFR) Law enacted in June 2023. - Petroleum Act enacted in 2020. - Model Oil and Gas Production Sharing Agreement (PSA) approved by the IMCC in November 2021. - IMCC approved tender protocol in November 2022 to promote competition in bidding rounds for petroleum exploration. - PFM regulations on natural resource revenue management issued in May 2022. - Regulations on the Somali Petroleum Authority and downstream petroleum activities approved by Cabinet. - Work underway on regulations pertaining to the EIFR Law and the Petroleum Act. - Note: - IMF provided technical assistance on the EIFR Law and is providing technical assistance for related regulations; oil discovery and production is yet to occur. ### Governance — Trigger #7 (Ratify UNCAC) - Staff assessment: - Staffs consider this trigger to have been met. - Actions and follow-up: - Somalia acceded to the United Nations Convention Against Corruption (UNCAC) in August 2021. - Authorities are working on UNCAC implementation, including a review of the current legal framework to identify gaps. - Africa Union Convention on Preventing and Combating Corruption (AUCPCC) and the Arab Anti-Corruption Convention (AACC) ratified by Parliament and deposited. ### Debt Management — Trigger #8 (publish at least four consecutive quarterly reports) - Staff assessment: - Staffs consider this trigger to have been met. - Outputs: - Quarterly debt bulletins published since 2020Q4 by the Debt Management Unit of the Ministry of Finance. - Bulletin content and role: - Record information on outstanding stock and composition of debt liabilities and, where they exist, loan guarantees and other contingent liabilities, including currency denomination, maturity, and interest rate structure. - Include key portfolio risk indicators, including the projected redemption profile and debt service for the 12 months ahead. - Consistently reported concluded debt restructuring agreements. - Importance post-HIPC CP: - Bulletins expected to bolster debt management, help mitigate currency, solvency and credit risks, and assist authorities and creditors in evaluating Somalia’s ability to manage and repay debts. ### Social Sectors — Trigger #9 (national unified social registry, USR) - Staff assessment: - Staffs consider this trigger to have been met. - Functionality and legal framework: - On July 20, 2023, the functionality status of the USR was achieved. - Data Protection and Data Privacy Acts, along with Data Protection Operational Guidelines for the USR, were enacted in accordance with internationally acceptable standards. - The Ministry of Labor and Social Affairs (MoLSA) developed and endorsed Data Protection Operational Guidelines on July 8, 2023. - Data and operational achievements: - World Food Program completed data transfer of 131,134 households to the USR system on June 29, 2023. - The system successfully generated welfare scores for the households, fulfilling functionality requirements. - Expected impacts: - USR expected to support ownership of the Baxnaano social protection program, strengthen capacity and visibility of national institutions, enhance targeting efficiency and transparency for social programs, and enable direct government-managed service delivery under Baxnaano post-HIPC as data collection and MoLSA systems develop. ### Social Sectors — Trigger #10 (education roles agreement) - Staff assessment: - Staffs consider this trigger to have been met. - Agreement details: - Memorandum of Understanding (MoU) signed on July 14, 2021, between the FGS and FMS ministries of education. - FGS and Banadir, Galmudug, Hirshabelle, Jubaland and Southwest agreed to cooperate on education matters and defined roles and responsibilities. - MOECHE will develop the regulatory framework; each FMS will establish state-level education laws and policies. - Key agreements include formation of national examination, certification, and curriculum boards; an interim committee to develop criteria for board member selection was established. ### Social Sectors — Trigger #11 (joint national health sector strategy) - Staff assessment: - Staffs consider this trigger to have been met. - Strategy details: - Somalia Health Sector Strategic Plan for 2022-2026 (HSSP III) finalized in December 2021. - FGS and FMS ministers agreed on a framework for a joint national health strategy focused on improving access and equitable quality health service delivery by strengthening governance, capacity of health institutions, and coordination between FMS and FGS. - Strategy provides guidance for each FMS to formulate plans and proposes policy options and actions to address major health system challenges. - Preparation developed through an inclusive, transparent consultative process. ### Growth/Structural — Trigger #12 (Electricity Act and regulations) - Staff assessment: - Staffs consider this trigger to have been met. - Legislative and regulatory milestones: - Somalia Electricity Act enacted on March 8, 2023. - Regulations issued in July 2023. - Act establishes framework to generate electricity, including from renewable sources, and provides for establishment of a regulator for the FGS to reduce fragmentation. - Two approved regulations: Electricity Service Provider (ESP) Licensing Regulations and ESP Tariff Regulations. - Licensing Regulations determine market segments to be licensed (generation, transmission, distribution, and retail sales), criteria for private sector participation, and application/evaluation/award processes. - Tariff regulations include principles for cost recovery and cost-reflectivity tariffs, procedures for transparent accounting and auditing, oversight and regulatory authority over unbundled pricing, and underpinnings of a tariff model specifying approved cost elements, asset base, and regulated return on investments. ### Growth/Structural — Trigger #13 (Company Act implementing regulations on minority shareholder protection) - Staff assessment: - Staffs consider this trigger to have been met. - Actions and related laws: - Companies Act implementing regulations on minority shareholder protection issued in May 2022. - Somalia Companies Act 2019 provides framework for business formalization and establishment of the Office of the Company Registrar, corporate governance requirements, and integration into the international economy. - Companies Act preceded the Investor and Investment Protection Act enacted in March 2023, providing guidelines for treatment of all investors. ### Statistics — Trigger #14 (Somalia Annual Fact Book) - Staff assessment: - Staffs consider this trigger to have been met. - Publications and statistical improvements: - Somalia National Bureau of Statistics (SNBS) has been publishing the Somalia Facts and Figures Booklet annually; first publication based on 2018 data, most recent edition for 2021. - Booklet provides a central repository of reliable statistics on fiscal, economic, social, and environmental data compiled by SNBS, line ministries, FMS, and agencies. - Each publication since 2018 advances breadth and detail of statistics. - In 2022, SNBS conducted the Somalia Integrated Household Budget Survey, the first survey since 1990. - The survey underpinned the Somalia Poverty Report issued in 2023 and the 2023 rebasing of GDP statistics. ### Updated Debt Relief and Sustainability Analysis — Revision of Data Reconciliation as of Decision Point - End-2018 debt stock (nominal terms): - Public and publicly guaranteed external debt of the FGS estimated at US$5.3 billion, including US$5.0 billion in arrears. - Compared to the debt reconciliation conducted at Decision Point, this includes an increase of US$12.8 million in nominal terms at end-2018 exchange rate due to new claims from Islamic Development Bank (IsDB) amounting to US$15.4 million, as well as US$0.6 million and US$1.9 million reductions on claims from Kuwait and UAE, respectively. - Creditor composition (end-2018, nominal terms): - Multilateral creditors accounted for 29.2 percent of the total debt stock. - Liabilities to IDA, IMF, and the AfDB constitute 18.5 percent of total external debt. - Other multilaterals with substantial claims: AMF (5.4 percent) and AFESD (3.5 percent). - IFAD, OFID, and IsDB held claims amounting to a combined share of 1.8 percent of total debt. - Paris Club creditors (United States as the major creditor) accounted for 57.7 percent of total nominal debt at end-2018. - Other official bilateral creditors (Algeria, Bulgaria, Iraq, Kuwait Fund for Arab Economic Development, Libya, Romania, Saudi Fund for Development, Abu Dhabi Fund) accounted for an estimated 13.1 percent of total external debt. - Single commercial creditor (Serbia) accounts for less than one percent of total external debt. *Source: IMF staff report excerpt.* ### 42. As of end-2018, 96.0 percent of FGS’ revised external debt was in arrears (Table 3). The ### 1somea2023004 - 42. As of end-2018, 96.0 percent of FGS’ revised external debt was in arrears (Table 3). The ### External arrears and reconciliation - As of end-2018, 96.0 percent of FGS’ revised external debt was in arrears. - The stock of external arrears stood at US$5.0 billion, of which: - US$1.3 billion was owed to multilateral creditors (or 87.3 percent of total multilateral PPG external debt outstanding at end-2018). - US$3.7 billion was owed to bilateral and commercial claimants (almost the entirety of the debt outstanding). - Among multilateral creditors, only IDA, the AfDB, and IFAD had a portion of outstanding debt not in arrears at end-2018 amounting to US$0.2 billion. - Arrears to bilateral creditors amount to 73.5 percent of the total arrears, comprised of: - 59.7 percentage points owed to Paris Club creditors. - 13.7 percentage points owed to other official bilateral creditors. - Reconciliation outcomes: - The reconciliation of PPG external debt reached 100 percent of debt outstanding and disbursed at end-2018, and 99.7 percent at end-2022, including arrears. - Multilateral creditors: 100 percent of total multilateral debt at end-2018 and end-2022 was reconciled with creditors’ statements. - Paris Club creditors: 100 percent of debt owed to Paris Club at end-2018 and end-2022 was reconciled with creditors’ statements. - Other official bilateral and commercial creditors: 100 percent at end-2018 and 99.6 percent at end-2022 were reconciled with creditors’ statements and the authorities’ data. ### HIPC-related debt indicators, revisions, and outcomes - Exports used to evaluate HIPC assistance: - Backward-looking three-year average of exports of goods and services for 2016-18 revised to US$1,060.6 million (previously US$1,064.6 million at the Decision Point). - Stock of HIPC-eligible external debt in PV terms at end-2018: - Revised upward by US$13.0 million to US$5,240.9 million. - PV of debt after traditional debt relief: - Revised downward by US$170.1 million to US$3,494.4 million (revision mainly due to simulation of traditional debt relief on claims from Russia reflecting modalities in the July 2023 bilateral agreement). - Total assistance under the HIPC Initiative: - Revised downward to US$1,903.5 million in end-2018 PV terms, compared to US$2,067.6 million estimated at the Decision Point. - The downward adjustment is US$164.1 million compared to the Decision Point estimate. - Financing assurances at Completion Point: - Somalia has received financing assurances from creditors accounting for 89.5 percent of the PV of HIPC debt relief. - Multilateral creditors: 42.2 percent of PV of HIPC debt relief confirmed participation. - Paris Club creditors: 42.4 percent of PV of HIPC debt relief confirmed participation. - Other official bilateral creditors: 4.9 percent of PV of HIPC debt relief confirmed participation. - Staff consider these financing assurances satisfactory. ### Multilateral creditors: actions and commitments - IDA: - At Decision Point, debt relief from IDA of US$260.85 million was provided. - IDA provided the full share of HIPC debt relief through the grant element of the arrears clearance operation conducted in March 2020. - At Completion Point, IDA will not provide further debt relief under the HIPC Initiative and will fully cancel the entire stock of its outstanding debt under the MDRI. - IMF: - At Completion Point, the IMF will provide HIPC and beyond-HIPC debt relief in the amount of SDR 250.4 million (US$348.3 million in end-2018 PV terms) to fully cover outstanding debt at the Decision Point, including 100 percent of debt associated with arrears clearance. - Total IMF assistance under the HIPC Initiative is estimated at SDR 135.0 million in PV terms (equivalent to US$182.6 million) calculated on the basis of end-2018 debt stock revised at the Completion Point. - Of this, SDR 10.3 million (US$14.4 million in end-2018 PV terms) provided through concessional element associated with PRGT interest subsidization during the interim period and counted toward IMF’s contribution to HIPC assistance. - Somalia received four tranches of HIPC interim assistance totaling SDR 4.8 million (US$6.7 million in end-2018 PV terms). - AfDB Group: - Total HIPC debt relief delivered with the grant element of the arrears clearance operation in March 2020. - Somalia’s arrears to the AfDB were estimated at UA 88.15 million (equivalent to US$122.6 million), including payment due through June 30, 2021. - At Completion Point the AfDB Group will not provide additional HIPC debt relief; under MDRI the AfDB Group will cancel all remaining outstanding claims on Somalia. - IFAD: - IFAD will provide its full share of HIPC debt relief through the cancellation of arrears. - In March 2023, Somalia finalized an agreement to clear the remaining arrears to IFAD amounting to US$23.2 million using donors’ contributions, resources from the IDA-managed Debt Relief Trust Fund, and IFAD’s own resources. - Other multilaterals: - Agreements with AMF and AFESD are in advanced stages consistent with delivery of HIPC debt relief. - Negotiations are proceeding with OFID and IsDB; OFID expected to raise donor-financing to finance concessional clearance of Somalia’s arrears. - Following recognition by FGS of three additional IsDB loans, negotiations with IsDB have advanced; IsDB expected to provide its share via concessional rescheduling of arrears. ### Bilateral and commercial creditors: status and commitments - Paris Club creditors: - All Paris Club creditors have signed bilateral agreements on Cologne flow terms or provided assurances of outright cancellation of their claims at Completion Point. - Italy provided outright cancellation of all its outstanding claims and went beyond-HIPC debt relief. - Other official bilateral and commercial creditors: - During the interim period, Kuwait Fund for Arab Economic Development (KFAED) and Saudi Fund for Development (SFD) signed bilateral agreements with FGS to provide rescheduling of their pre-cutoff ODA claims on Paris Club comparable terms. - Remaining arrears to other bilateral and commercial creditors amount to US$503.4 million at end-2022. - FGS is negotiating in good faith with other official bilateral and commercial creditors for debt relief under the Enhanced HIPC Initiative on Paris Club comparable terms and consistent with creditors’ share of total HIPC assistance in end-2018 PV terms. - Specific modalities of arrears clearance by each creditor are specified in bilateral agreements between each creditor and FGS. - Russia: - Bilateral debt relief agreement signed between the Russian Federation and FGS in July 2023; Russia provided an 80 percent up-front reduction on its pre-cutoff non-ODA claims and debt relief under Naples terms on the remaining 20 percent. ### Nominal stock and legal situation (summary points from Table 5 and text) - At end-2022, nominal stock of Somalia’s external debt amounted to US$3,827 million. - Multilateral creditors accounted for US$1,075 million or 28.1 percent of the total nominal debt (IDA and IMF accounted for 12.4 percent of total nominal debt). - Paris Club creditors accounted for 52.4 percent of total outstanding nominal debt at end-2022 (main creditor: United States). - Non-Paris Club bilateral and commercial creditors accounted for the remaining 19.5 percent of total nominal debt. - No new borrowing and financial agreements with bilateral and commercial creditors were signed in the interim period. ### Considerations for exceptional topping-up assistance under Enhanced HIPC - Framework: - Exceptional topping-up can be provided at Completion Point if actual debt burden indicators deteriorated compared to Decision Point projections and deterioration is primarily attributable to a fundamental change in a country's economic circumstances due to exogenous factors. - Topping-up aims to bring the PV of debt-to-exports ratio down to the 150 percent threshold at Completion Point. - Staff assessment for Somalia: - At Decision Point, PV of debt-to-exports ratio at end-2022 after unconditional delivery of enhanced HIPC assistance and multilateral arrears clearance was estimated at 120.4 percent. - Updated simulations at Completion Point show: - PV of debt-to-exports ratio at end-2022 after unconditional delivery of enhanced HIPC assistance and multilateral arrears clearance decreases to 48.7 percent. - Ratio declines further to 47.1 percent after implementation of unconditional delivery of beyond-HIPC debt relief by Paris Club creditors. - These outcomes are well below the HIPC threshold of 150 percent. - Staffs are of the view that Somalia does not meet the requirements for exceptional topping-up under the Enhanced HIPC Initiative. ### Multilateral Debt Relief Initiative (MDRI) eligibility - Contingent upon IMF and IDA Executive Directors agreeing that Somalia has reached Completion Point under the HIPC Initiative, Somalia would qualify for additional debt relief from the Multilateral Debt Relief Initiative from IDA and the African Development Fund (ADF). *Source: Excerpts from the provided IMF content unit.* ### 61. Debt relief from IDA. IDA would provide MDRI debt relief through a debt stock cancellation ### 61. Debt relief from IDA. IDA would provide MDRI debt relief through a debt stock cancellation ### Debt Relief Measures - IDA MDRI debt relief corresponds to a debt stock reduction of US$92.8 million at end-2023. - ADF debt relief through debt stock cancellation would reduce what Somalia owes to ADF by US$18 million (debt disbursed before December 31, 2004, and still outstanding at completion). - End-2022 debt stock includes outstanding arrears, accrued interest and consolidated moratorium interest on restructured bilateral debt. - To date, seven countries have received topping-up assistance under the enhanced HIPC Initiative: Burkina Faso, Ethiopia, Guinea-Bissau, Malawi, Niger, Rwanda, and Sao Tome and Principe according to the HIPC Initiative and MDRI - Statistical Update (2019). - The IMF does not have any outstanding MDRI-eligible debt. Its MDRI Trusts were liquidated in 2015. ### Debt Sustainability Outlook (after HIPC and MDRI Assistance, 2023-2043) - Assessment after full delivery of HIPC Initiative, MDRI, and beyond-HIPC assistance at Completion Point: - External and overall risk of debt distress: moderate (Annex II). - PV of PPG external debt-to-exports ratio: remains well below the HIPC threshold of 150 percent over the entire projection period, breaching 80 percent by 2042. - Debt service projections: - PPG debt service-to-exports ratio: 0.9 percent at end-2023, rising to 3.4 percent at end-2043. - PPG debt service-to-revenues ratio: 6.2 percent at end-2023, rising to 10.4 percent by 2043. ### Scenario Analysis and Long-Term Debt Sustainability - Three simulations (reported after conditional HIPC, MDRI, and beyond-HIPC assistance): - Baseline scenario: - PV of debt-to-exports ratio: declines to 28.5 percent in 2026, then rises to 86.8 percent by 2043. - Debt service-to-exports ratio: increases to 3.4 percent in 2043. - Security shock scenario: - Assumes permanently lower growth from a sustained deterioration in the security situation, compressing exports. - Under this scenario, Somalia is projected to exhaust, within the 20-year projection period, all the space provided by full HIPC, beyond-HIPC and MDRI debt relief at the Completion Point. - PV of debt-to-exports ratio would increase above 150 percent by 2043. - Debt service-to-revenue ratio, assuming only new borrowing at highly concessional terms, would reach above 20 percent by 2043. - Climate shock scenario: - Assumes a climate shock affecting livestock and agricultural production, lowering exports. - PV of debt-to-exports ratio initially deteriorates relative to baseline and shows some scarring persisting over the long term. - PV of debt-to-exports ratio expected to remain on average 10 percentage points above the baseline in the long term. - Debt service-to-revenue ratio would remain 2 percentage points above the baseline in the medium term. - LIC-DSA stress tests: - Confirm vulnerability of Somali external debt position to unexpected shocks. - Combined shocks produce the most extreme stress, resulting in external debt service to revenue breaching the indicative threshold. - Largest contributors to the combined shock: uncertainty around real GDP growth and the non-debt flow shock. - A shock in current official transfers is a significant vulnerability, reflecting high dependence on official development assistance. - The jump in external debt service-to-revenue in the medium term is related to interest payments on new debt coming online post-HIPC CP and rising amortization needs after 2030 when grace periods on new debt begin to expire. ### Macroeconomic Assumptions for 2023-43 (Box 1) - General assumption: stable political and social situation and sustained implementation of economic and governance structural reforms. - Real GDP growth: - 2023: 2.8 percent. - Long-term average: 4.5 percent on average over the long-term. - Notes: Average growth for 2017-2019 was 5.4 percent; projected growth for 2024-2027 is 3.9 percent. Medium- to long-term forecast informed by analysis of 36 HIPC beneficiaries; projection assumes growth to accelerate between 0.1 ppts and 0.2 ppts per year between 2025 and 2029. - Inflation: - 2023: 5.7 percent. - Long-term average: 2.2 percent as Somalia remains de facto dollarized. - Fiscal policy: - 2023 fiscal deficit: 0.1 percent of GDP. - Medium-term: budget moves to moderate deficits of about 2 percent of GDP. - Domestic revenue: projected to increase by around 0.3 percent of GDP per year over 2024–2028. - Assumes grants decline after HIPC Completion Point while concessional borrowing rises. - Assumes no domestic borrowing; external financing throughout the projection period is assumed to be on concessional terms. - Current account: - Somalia will continue running a structural trade deficit over the medium- and long-term. - Livestock exports expected to improve; authorities committed to diversifying exports. - Current account deficit projected to widen slightly as grant disbursements decline, financed with concessional loans and higher FDI inflows. ### Conclusions and Policy Recommendations - Progress and Completion Point recommendation: - Somalia made satisfactory progress meeting requirements for Completion Point; implemented thirteen out of fourteen floating triggers. - Authorities requesting a waiver for remaining trigger on implementation of a single import duty tariff schedule (significant implementation in Mogadishu; progress in Kismayo). - IDA and IMF staffs recommend that the Executive Directors determine Somalia has reached the Completion Point under the Enhanced HIPC Initiative. - Changes to HIPC assistance estimates: - Required HIPC assistance in end-2018 PV terms revised downward by US$164.1 million to US$1,903.5 million (from US$2,067.6 billion estimated at Decision Point). - Risk management and policy priorities: - Despite improved outlook with debt relief, Somalia remains vulnerable to security, international commodity price, and climate shocks. - Imperative to strengthen debt management and rely on concessional borrowing. - Authorities should continue seeking debt relief agreements with remaining creditors at comparable terms. - Maintain fiscal discipline and increase domestic revenue. - Strengthen public investment management, debt management institutions, and institutional capacity to safeguard long-term debt sustainability. *Source: 1somea2023004 - 61. Debt relief from IDA. IDA would provide MDRI debt relief through a debt stock cancellation* ### 74. Executive Directors may wish to consider the following questions: ### 74. Executive Directors may wish to consider the following questions: ### Executive Directors' questions (as posed) - HIPC Completion Point. Do Executive Directors agree that Somalia has reached the Completion Point under the Enhanced HIPC Initiative? - Data revision. Do Directors agree with staffs’ recommendation that the updated stock of external debt after traditional debt relief at end-2018 PV terms warrant a revision to the proposed amount of HIPC assistance to US$1,903.5 million in end-2018 PV terms? - HIPC assistance from the IMF. Do IMF Directors agree that Somalia qualifies for an amount of debt relief from the IMF equal to SDR 250.4 million or US$348.3 million in end-2018 PV terms to be provided at the HIPC Completion Point? - Topping-up. Do the Directors agree that Somalia has not met the requirement for exceptional topping-up at the Completion Point? - Creditor participation. Do Directors agree that Somalia’s creditors have given sufficient financing assurances to irrevocably commit HIPC Initiative assistance to Somalia? ### Key debt stock figures and composition (end-2018) - Nominal Stock as of end-2018: US$5,268.1 million - NPV as of end-2018: US$1,903.5 million - Composition of nominal stock (Figure 2 representation): - Paris Club: 58% - Other official Bilateral: 13% - World Bank: 10% - IMF: 6% - AMF: 5% - AFESD: 3% - AfDB Group: 3% - Other: 2% - Commercial: 0% - Composition of NPV (end-2018): - Paris Club: 42.4% - Other Official Bilateral: 14.4% - Other Multilateral Institutions: 14.7% - World Bank: 13.7% - IMF: 9.6% - AFESD: 5.2% - Commercial: 0.0% ### Proposed HIPC and IMF assistance amounts (preserved values) - Revised proposed amount of HIPC assistance: US$1,903.5 million (end-2018 PV terms) - IMF HIPC debt relief to Somalia: SDR 250.4 million or US$348.3 million (end-2018 PV terms) ### Debt burden indicators and scenarios (selected highlights) - Figures and tables present projected NPV of debt to exports and debt service to exports over 2022–2043 under: - Before debt relief at Completion Point - Unconditional delivery of HIPC - After conditional enhanced HIPC assistance and multilateral arrears clearance, MDRI, and bilateral beyond-HIPC assistance - Sensitivity analysis considered (Figure 5 and Table A8) includes: - Security shock: lower GDP growth (real GDP growth 1.5 percentage points lower each year than baseline, starting 2010) - Climate shock: lower exports (export prices 15 percent lower than baseline, starting 2010) ### Selected table values (preserving exact figures) - Table A4 (HIPC Initiative Assistance under proportional burden sharing, end-2018 PV terms): - Total (Revised at completion point): 1,903.5 (as US$ million) - Common reduction factor (percent): 54.5 - Exports of goods and non-factor services: 1,060.6 - Table A5 (PV of total debt—selected states): - After conditional delivery of enhanced HIPC assistance: PV of total debt (2023) 853.1; (2024) 879.6; (2025) 922.6; (2026) 977.5; (2027) 1,078.4; and multi-year projections through 2043 - After unconditional delivery of enhanced HIPC assistance: PV of total debt (2022) 732.2; PV of outstanding debt (2022) 732.2 - Table A6 (External Debt Service, selected averages and ratios): - Before debt relief at Completion Point: Total debt service (2023) 65.4; (2024) 81.8; (2025) 113.2; debt service to exports ratio (2023) 3.1; (2024) 3.4; (2025) 4.1 - After traditional debt relief: Total debt service (2023) 173.8; debt service to exports ratio (2023) 8.4 - After conditional HIPC assistance: Total debt service (2023) 19.5; debt service to exports ratio (2023) 0.9 - Debt service to exports ratio after HIPC assistance: 0.9, 1.6, 2.0, 2.4, 2.1, 2.0, 2.4, 2.0, etc. (multi-year series preserved in tables) ### Creditor participation status (Table A11, selected creditors and exact entries) - World Bank: 260.8  13.7  Yes - Note: On March 5, 2020, Somalia cleared its arrears with IDA, amounting to US$ 359 million, through bridge financing provided by the government of Norway, reimbursed with the proceeds of a Development Policy Grant. - IMF: 182.6  9.6  Yes - Note: On March 25, 2020, Somalia cleared its arrears with the IMF. IMF committed to provide HIPC and Beyond-HIPC assistance by 100 percent cancellation of debt disbursed on March 25, 2020 prior to the HIPC Decision Point in the amount of SDR 250.43 million. During interim period, IMF Executive Board approved four interim assistances totaling SDR 4.8 million. - AfDB Group: 73.0  3.8  Yes - Note: On March 5, 2020, Somalia cleared its arrears with AfDB through bridge financing provided by the government of the United Kingdom and a contribution from the EU. - AFESD: 99.1  5.2  Yes - Note: As of September 2020 AFESD proposed to forgive KD 33,622,692 (US$109.9 million); remaining proposed to be rescheduled with 2% interest, 30 years maturity. - AMF: 155.6  8.2  Yes - IFAD: 16.6  0.9  Yes - IsDB: 15.5  0.8  Yes - OFID: 19.3  1.0  No - Note: OPEC exploring trust fund; collaborative efforts with OPEC Fund to secure support or bridge loan are ongoing. - Total multilateral: 822.5  43.2  42.2 - Paris Club Creditors: 806.6  42.4  Yes - Note: Paris Club delivered interim assistance through a Cologne flow during the interim period; participating countries in principle agreed to provide debt relief under the Enhanced HIPC Initiative. - Non-Paris Club Creditors total: 274.0  14.4 (selected country entries) - Algeria: 0.3  0.0  No - Bulgaria: 1.9  0.1  No (under negotiation) - Iraq: 32.3  1.7  No (under negotiation) - Kuwait: 47.4  2.5  Yes (bilateral agreement signed) - Libya: 14.0  0.7  No - Romania: 0.5  0.0  No (under negotiation) - Saudi Arabia: 46.6  2.4  Yes (bilateral agreement signed) - United Arab Emirates: 131.0  6.9  No (under negotiation) - Commercial — Serbia 2/ 0.4 (entry continues in table) *Source: 1somea2023004 - 74. Executive Directors may wish to consider the following questions:* ### 0.0  NoThe creditor is yet to respond. ### 1somea2023004 - 0.0  NoThe creditor is yet to respond. ### Modalities to deliver debt relief and Paris Club creditor practices - Table A12 summarizes Paris Club official bilateral creditors' delivery of debt relief under bilateral initiatives beyond the HIPC Initiative (In percent), with columns describing: - (1) Countries Covered - (2) ODA (In percent) - (3) Non-ODA (In percent) - (4) Provision of Relief: Pre-cutoff Date Debt - (5) Provision of Relief: Post-cutoff Date Debt - (6) Decision Point (In percent) - (7) Completion Point - Exact creditor-specific modalities and notes (verbatim excerpts): - Australia: "Australia cancelled all HIPC claims." - Austria: "Case by case, flow Stock" - Belgium: "cancellation at completion point 100 percent of ODA loans contracted before December 31, 2000." - Canada: "100 100 100 100 100 flow Stock" - Denmark: "Denmark provides 100 percent cancellation of ODA loans and non-ODA credits contracted and disbursed before September 27, 1999." - France: "cancellation of 100 percent of debt service on pre-cutoff date commercial claims on the government as they fall due starting at decision point. Once countries have reached completion point, debt relief on ODA claims on the government will go to a special account and will be used for specific development projects [in the case of Somalia, debt relief will most likely be provided directly rather than through the mechanism described above]." - Finland: "no post-Cutoff date claims" - Germany: "If not treated in the Agreed Minutes at Completion Point, debt cancellation of 100 % only on a case by case basis." - Italy: "cancellation of 100 percent of all debts (pre- and post-cutoff date, ODA and non-ODA) incurred before June 20,1999 (the Cologne Summit). At decision point, cancellation of accrued arrears and maturities falling due in the interim period. At completion point, cancellation of the stock of remaining debt." - Japan: "100 100 100 Stock" - Netherlands: "100 percent ODA (pre- and post-cutoff date debt will be cancelled at decision point); for non-ODA: in some particular cases (Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Mali, Mozambique, Nicaragua, Rwanda, Tanzania, Uganda and Zambia), the Netherlands will write off 100 percent of the consolidated amounts on the flow at decision point; all other HIPCs will receive interim relief up to 90 percent reduction of the consolidated amounts. At completion point, all HIPCs will receive 100 per cent cancellation of the remaining stock of the pre-cutoff date debt." - Norway: "Norway has cancelled all ODA claims." and note: "Norway has so far provided 100% cancellation for all HIPCs after Completion Point, and will provide bilateral debt relief beyond HIPC to Somalia beyond Completion Point." - Russia: "Russia has no ODA claims" - Spain: "Spain provides 100 percent cancellation of ODA and non-ODA claims contracted before January 1, 2004." - Sweden: "Sweden has no ODA nor NODA claims on Somalia." - Switzerland: "Switzerland has cancelled all ODA claims." and note: "With the exception of Cameroon and Honduras, Switzerland has previously cancelled 100% of its claims on all HIPC countries. Switzerland is not a creditor to" - United Kingdom: "'beyond 100 percent' full write-off of all debts of HIPCs as of their decision points, and reimbursement at decision point of any debt service paid before the decision point." - United States: "cancellation of 100 percent of all debts (pre- and post-cutoff date, ODA and non-ODA) incurred before June 20, 1999 (the Cologne Summit). At decision point, cancellation of accrued arrears and maturities falling due in the interim period. At completion point, cancellation of the stock of remaining eligible debt." - Russia/other notes: "100% debt relief provides for countries reached Completion Point before December 31, 2006 as of December 21, 2006 and for countries reached Completion Point after December 31, 2006 as of date of Completion Point, mostly in form of 'debt to development' operations. No payments are expected from debtors from those dates." - Exception: "Exception is short term debt category." - Ireland: "Ireland does not hold a bilateral debt relief agreement with Somalia and will therefore not provide bilateral relief beyond HIPC." ### HIPC Initiative status and assistance metrics (end-September 2023) - Table A13 reports HIPC Initiative: Status of Country Cases considered under the Initiative, end-September 2023, including: - Completion point reached under enhanced framework (36 countries listed). - Decision Point Countries (2): - Somalia: "Mar. 20 Floating 150 2,068 1,225 843 189 270 56" - Sudan: "Jun. 21 Floating 150 23,328 17,036 4,590 1,048 1,100 75" - Methodology note (verbatim): "This is calculated as the NPV amount of assistance divided by NPV of debt, which is the common reduction factor. The NPV amount of assistance is calculated as the reduction of the NPV of debt after traditional debt relief that is necessary to bring the NPV of debt to exports to the threshold level of 150 percent or the NPV of debt to revenue to 250 percent." - Reporting sources: "Sources: IMF and World Bank Board decisions, completion point documents, decision point documents, preliminary HIPC documents, and staff calculations." ### Annex I — Debt management capacity: findings, requirements, and recommendations - Legal and institutional framework (findings): - "The PFM Act is the main legislative document governing public financial management and public debt management." The PFM Act was signed into law on "December 25, 2019." - Under the PFM Act: - "The Minister of Finance has the sole power to borrow and no public body, except the Minister, may borrow or obtain overdraft from any creditor or source." - The Minister "has the approval authority to issue guarantees and on-lending operations to Sub-National Governments (SNG) and State-Owned Enterprises (SOEs) and the Minister can issue guarantees according to the limits, terms and conditions approved by the Parliament." - The Act "prevents SNG from borrowing externally and requires prior approval from the Minister of Finance for borrowing domestically while allowing SNG to issue guarantees internally, subject to the federal law governing SNG finance." - "The legislation sets an annual debt ceiling and Parliament needs to approve the general terms and conditions of the borrowing except for securities." - The PFM Act "establishes recording and annual reporting requirements, mandating the annual publication of the list of newly contracted loans and outstanding external and domestic debt and the stock of arrears." - "The PFM regulations issued in May 2022 include a chapter on debt management." - Capacity assessment and recent actions: - "A joint IMF-World Bank technical assistance mission of Reform Plan took place in 2021" which "helped to establish a roadmap for strengthening debt management capacity, focusing on the legal framework, the institutional framework, as well as debt recording, monitoring, and reporting." Follow-up mission planned by IMF and World Bank. - Budget and policy constraints: - The 2019 Budget Appropriation Act "commits the FGS not to borrow domestically or from abroad, with the exception of limited advances for liquidity purposes." - Extended Credit Facility indicative targets define "(i) a zero ceiling on contracting of new domestic debt, and (ii) a zero ceiling on contracting or guaranteeing of new nominal external non-concessional borrowing;" - Somalia is subject to "the Bank’s Sustainable Development Finance Policy and the IMF’s Debt Limit Policy" following arrears clearance to IDA and the IMF. - Institutional arrangements and staffing: - The Debt Management Unit (DMU) of the Federal Ministry of Finance was established in "December 2015." - The DMU functions: "reconciliation of the debt database, monitors the accumulation of external and domestic arrears, and publishes annual debt bulletins reporting the status of the external PPG debt at year-end." - Current DMU staffing: "four consultant staff including the Head of the Unit, organized in Front (one official) and Back-office (two officials) with clear responsibilities and backup arrangements among the four DMU staff." - Plans and gaps: "The DMU has a plan to set up a middle office and the recruitment of legal advisors to the DMU is in progress." However, "the sustainability of this unit is not guaranteed as it is AfDB funded." - Domestic arrears: "The process of validation of the domestic arrears has been finalized by the Domestic Arrears Management Committee’s (DAMC), for which the DMU is the secretariat." - Systems and transparency: - "The debt recording system has been upgraded to the Commonwealth Meridien System since June 2021." Meridien is cloud-based and enables regular backups. - For the 2022 budget, "for the first time, the DMU prepared an information annex on debt, to enhance debt transparency." The 2023 Budget Policy Framework Paper "also included a section on debt." - Recommendation: "timely recording and monthly reconciliation of debt transactions between the DMU and the Office of the Accountant General should be further enhanced." - Capacity gaps and priority actions (explicit recommendations and expectations): - Strengthen and sustain DMU staffing and funding: "a durable solution to DMU staffing is essential for the long-term success of Somalia’s debt management and capacity development efforts." - Build staff capacity in middle and back-office functions to "create the capacity to regularly analyze the debt portfolio and prepare a debt management strategy." - Adopt a medium-term debt management strategy: "Future borrowing should be based on a medium-term debt management strategy." - Post-HIPC expectations and borrowing framework: - "Arrears clearance and HIPC interim debt relief followed by the full delivery of HIPC, MDRI, and beyond- HIPC debt relief at the Completion Point will significantly reduce the stock of external debt." - "After the HIPC Completion Point, it is expected that Somalia will remain at moderate risk of debt distress, at which point new financing from the World Bank and the AfDB would shift from grants to highly concessional loans." - "Therefore, going forward, it is important that new borrowings be guided by a medium-term debt management strategy consistent with debt sustainability." - Resilience and continuity planning: "Even after achieving HIPC Completion Point, Somalia is expected to remain highly vulnerable to shocks. Risks stem from climate, security, and political challenges." Recommendation: develop "a business continuity or disaster recovery plan, as loss of key staff and destruction of facilities would set back debt management capacity." - Ongoing reform monitoring: IMF and World Bank to "organize a follow up mission on the debt management roadmap reforms." *Sources: Somali authorities; and IMF and World Bank staff estimates.* ### Annex II. Joint Bank-Fund Debt S ustainability A nalysis U nder the ### Annex II. Joint Bank-Fund Debt Sustainability Analysis Under the Debt Sustainability Framework for Low-Income Countries ### Key debt sustainability findings and risk ratings - Baseline assumes full delivery of debt relief under the HIPC Initiative, Multilateral Debt Relief Initiative (MDRI), and beyond-HIPC assistance at the Completion Point reached in December 2023. - Total public debt projected to decline to US$706 million, or 6.1 percent of GDP at end-2023 from US$3.9 billion or 37.4 percent of GDP at end-2022. - External debt at end-2023 projected at US$638 million, or 5.5 percent of GDP. - Present value of external debt in 2022 (including debt relief at HIPC Completion Point) estimated to be 22.8 percent of GDP, decreasing to 5.1 percent of GDP in 2023. - Assessment results: - Risk of external debt distress: Moderate - Overall risk of debt distress: Moderate - Granularity in the risk rating: Substantial space to absorb shocks - Application of judgment: No - Stress test note: Forecast indicates sustained breaches of the external debt service to revenue indicative threshold under the stress scenario in the long term as grace periods on initial loans expire. ### Public debt coverage, reconciliation, and composition - Public debt perimeter: central government; successive debt reconciliation missions in 2020 and 2023 under the HIPC process have ensured near complete coverage of public debt. - No government guaranteed debt, no known liabilities of state-owned enterprises or subnational governments, and no public-private partnerships (PPPs). - Domestic public debt: none aside from legacy government wage arrears (domestic financial institutions and local capital markets not yet developed). - External debt defined on a residency basis; reconciliation exercise of external obligations finalized in conjunction with the December 2023 HIPC Completion Point document and used to update this DSA. - End-2018 total stock of debt outstanding: US$5.3 billion, of which US$5 billion was in arrears. Composition end-2018: Paris Club 58 percent, multilaterals 29 percent, non-Paris Club bilateral creditors 13 percent. - End-2022 public debt stock estimated at US$3.9 billion, or 37.4 percent of GDP (incorporates debt reconciliation and agreements signed in 2020-2023; for creditors not yet signed it assumes Cologne terms). ### Debt relief progress and creditor engagement - Completion Point actions: - Paris Club beyond-HIPC debt relief Initiative assumes 100 percent cancellation of all Paris Club debt, except Russia’s post-cutoff short-term debt. - Following full delivery of HIPC, MDRI, and beyond-HIPC assistance, total public debt at end-2023 projected to decline to US$706 million (6.1 percent of GDP). - Creditor agreements and status as of end-September 2023: - Creditors representing 89.5 percent of the PV of HIPC debt relief had either signed agreements with Somalia or had agreed in principle allowing Somalia to obtain financing assurances for HIPC Completion Point. - 2023 negotiations advanced with multilateral creditors (Arab Monetary Fund, Islamic Development Bank, Arab Fund for Economic and Social Development); IFAD arrears clearance and HIPC debt relief supported by international partners. - Historical note on interim relief: Paris Club granted Somalia Cologne Terms on March 31, 2020; exceptional agreement that Somalia would not be required to make debt service payments until at least end-March 2024 given limited payment capacity and satisfactory IMF program implementation. ### Debt management capacity and institutional developments - Ministry of Finance established a Debt Management Unit (DMU) in December 2015. - AfDB financed installation of a debt recording system; system upgraded to the Commonwealth Meridien System (cloud-based) enabling in-depth portfolio review. - DMU issues quarterly debt bulletins since end-2020; publication quality improving with IMF technical assistance. - Coordination between DMU and other line departments improving; 2023 Budget Policy Framework Paper included a section on debt. - Quarterly debt bulletin publication and improved debt treatment in budget documents were Performance and Policy Actions (PPAs) under the IDA Sustainable Development Finance Policy. - Joint IMF-WB technical assistance mission in 2021 established a roadmap to strengthen legal and institutional frameworks, debt recording, monitoring, and reporting. - The World Bank and IMF provide ongoing technical assistance, development policy financing, and support through the Sustainable Development Finance Policy (SDFP). ### Macroeconomic assumptions, rebased GDP, and implications for debt indicators - SNBS published rebased GDP estimates in June 2023; GDP rebased to 2022 prices and series backdated to 2016. - Comparison of new (2022 base year) vs previous (2017 base year) GDP series (average over 2016-2022): - New nominal GDP level is 37 percent higher on average between 2016-2022. - New real GDP level is 66 percent higher on average between 2016-2022. - Annual real growth for the new GDP averaged 3.2 percent compared to 2.1 percent in the previous series. - Historical export series revised in June 2023; nominal series for exports of goods and services substantially higher from 2021 onwards, with a 30 percent increase in estimates for 2023. - The rebased GDP series improves relevant debt indicators without a material impact on the risk rating or overall debt profile. ### Recent macroeconomic outturns and short-term outlook - 2022: - Drought and weak remittances affected growth; remittances growth in 2022 was 1.1 percent compared to 29 percent in 2021. - Current account deficit widened to 8 percent. - Inflation at end-December 2022 declined to 6.1 percent. - 2023: - Growth expected to pick up modestly to 2.8 percent, supported by recovery in agriculture. - Inflation in 2023 forecasted at 5.7 percent. - Domestic revenue overperformance driven mainly by a 50 percent increase in customs duties for luxury goods implemented in mid-May 2023 (estimated to bring in an additional US$1-2 million of customs duties per month) and some tax administrative improvements. - Total expenditure followed the 2023 Supplementary Budget; a small overall deficit is expected for the year. - Revenue overperformance and budget support grants (including disbursements from the World Bank and EU) expected to facilitate a small cash balance to partially address liquidity needs in early 2024. ### Medium- and long-term projections and structural factors - Medium-term growth (2024-28) average projection: 4 percent. - Long-term growth projection: 4.5 percent. - Long-term inflation expected to average 2.4 percent as Somalia remains a de facto dollarized economy. - Key drivers of medium- and long-term growth: - Confidence effects related to reaching HIPC Completion Point and enhanced access to international finance. - Continued political stability and reduced security risks. - Gradual scaling up of public spending in energy, transport, education, health financed with domestic revenues and concessional borrowing. - Financial deepening and financial inclusion from financial sector reforms. - Greater FDI and private investment supported by improvements in business environment, security, and governance. - Vulnerabilities and constraints: - COVID-19 and climate shocks expected to have lasting impacts (negative effects on schooling and health services). - Somalia remains vulnerable to security, international commodity price, and climate shocks. - Limited monetary and fiscal policy response options; economy is de facto dollarized. - Current account and exports: - Structural trade deficit expected to continue. - Exports dominated by livestock (~80 percent of total exports of goods); diversification and insurance products planned to mitigate livestock/climate risks. - Nominal exports series increased notably from 2021 onwards (30 percent increase for 2023). ### Revenue, fiscal policy, and financing outlook - Domestic revenue projected to increase by around 0.3 percent of GDP per year over 2024-2028 due to broad-based revenue-enhancing reforms. - Expected tax and revenue measures: - Efficiency gains from introduction of ad-valorem tariffs, improved data, and enhanced customs processes. - New Income Tax Law to clarify and streamline deductions. - Introduction of excise taxes on money transfer business, airtime, and telecommunications. - Expansion of the tax net (large firms in banking and hospitality), use of digital tools, and enhanced enforcement capacity. - Fiscal path: - Grants expected to gradually decline and be replaced by concessional loans upon reaching HIPC Completion Point. - An overall deficit of about 2 percent of GDP is expected by 2027. - Sustained improvements in expenditure execution and public investment management needed to absorb additional resources and expand spending on human development and infrastructure. ### Policy implications and priority reforms - Strengthen domestic revenue mobilization to reduce dependence on external concessional financing. - Strengthen debt management institutions and institutional capacity: - Continue upgrading debt recording, monitoring, reporting, and coordination across ministries. - Maintain publication of quarterly debt bulletins and improve debt information transparency. - Continue technical assistance and development policy financing from IMF, World Bank, AfDB, and partners to support reform implementation. - Pursue policies to: - Improve public financial management and expenditure execution. - Enhance financial sector reforms for financial deepening and inclusion. - Diversify exports and build resilience to climate and commodity-price shocks. - Recognize vulnerabilities: despite mechanical assessment of substantial space to absorb shocks post-HIPC Completion Point, Somalia remains highly vulnerable to security, international commodity price, and climate shocks. *Source: Annex II. Joint Bank-Fund Debt Sustainability Analysis Under the Debt Sustainability Framework for Low-Income Countries (LIC-DSA).* ### 6.6 percent of GDP i nstead of 8.4 percent by 2040, in part due to higher nominal GDP following rebasing. These ### 1somea2023004 - 6.6 percent of GDP i nstead of 8.4 percent by 2040, in part due to higher nominal GDP following rebasing. These ### Revenue outlook and tax capacity - Forecasts imply government revenue of "6.6 percent of GDP i nstead of 8.4 percent by 2040", in part due to higher nominal GDP following rebasing. - Authorities’ track record in building tax capacity: increased from "about 1 percent of GDP i n 2013, to 2.5 percent of GDP i n 2022". - Projected medium-term and long-term path for revenues is comparable to the experience of other HIPC fragile countries. - Effective tax rates on telecom sector in Somalia are far less than those in other countries in the region. - Introducing excise taxes on money transfer business requires design that "will need to mitigate risks of arbitrage and adverse impact on poor households". ### Fiscal position, grants, and financing assumptions - Baseline assumptions: - Full impact of multilateral arrears clearance, debt relief under the Enhanced HIPC Initiative, MDRI and beyond-HIPC assistance at the Completion Point reached in December 2023. - New financing in "2024-2027 would shift from grants to highly concessional loans, similar to those under IDA20". - From "2028, new borrowing would be on concessional terms similar to IDA regular credits". - Somalia would continue to receive grant disbursements for project commitments approved before the Completion Point, but "these would decline over time". - As grant disbursements decline, Somalia would resort to borrowing, resulting in "overall deficits of 2 to 3.5 percent of GDP over the medium to long term". - From "2024 to 2028, the baseline assumes that external financing will be concessional with an estimated average grant element of 64 percent, which is projected decline to around 50 percent by 2033". - Robust access to budget support financing from development partners will continue to be needed to support essential recurrent spending, especially in the near-term. ### Macroeconomic projections (selected figures from Text Table 4) - Real GDP growth: "1.7 2.8 3.7 3.9 4.0 4.5 2.4 2.8 3.7 3.9 4.0 4.5" (presented as series across rows in the source table). - GDP deflator: "5.2 4.2 4.1 4.7 4.3 2.3 3.4 7.5 4.6 4.4 4.3 2.4". - Non-interest current account deficit: "16.8 16.3 14.2 14.4 14.3 14.3 8.0 9.4 8.9 10.1 10.6 11.2". - Exports: "17.0 18.2 18.9 19.5 19.8 20.2 17.3 18.1 19.2 20.3 21.1 22.2". - Primary fiscal deficit: "0.0 0.4 1.6 1.7 1.5 1.4 0.0 0.1 0.1 1.2 1.6 2.1". - Revenues and grants: "8.8 7.8 6.7 6.5 5.5 6.7 6.9 6.4 6.9 5.2 4.7 5.5". - Of which: domestic revenues: "3.2 3.2 3.4 3.8 4.1 6.6 2.5 2.7 2.8 3.0 3.3 5.4". - Of which: grants: "5.6 4.6 3.3 2.7 1.4 0.1 4.4 3.7 4.1 2.1 1.4 0.1". - Notes tied to revisions: - Revisions to the GDP deflator reflect rebasing of GDP estimates in 2022 and the high import component of GDP. - Revisions compared to the previous DSA reflect: 1) revision of GDP data; 2) full alignment of trade data used for BOP and national accounts; and 3) revisions to services exports data. - The macroeconomic framework for the current DSA assumes HIPC Completion Point in December 2023. ### Debt-carrying capacity and external debt outlook - Composite indicator score used for classification: "1.57" (latest available composite indicator score for Somalia). - Debt-carrying capacity classification: "Weak". - Forecasts for PV of external debt to GDP: - "gradually rise from 5.1 percent of GDP to 6.3 percent of GDP in the medium-term baseline, and to 8.6 percent in the long term" — all figures explicitly as presented. - These levels are "well below the indicative threshold of 30 percent". - PV of external debt to exports, debt service to exports, and debt service to revenue all remain below indicative thresholds over the projection horizon in the baseline. - Debt service ratios are expected to increase towards the end of the projection period due to resumption of payment on restructured debt after the provision of debt relief. - Somalia assessed "to be at moderate risk of debt distress, based on IDA financing terms"; it "no longer has access to new grant commitments but only to highly concessional loans – in particular, to 50-year maturity loans and shorter maturity loans." ### Stress tests, vulnerabilities, and risks - Standard DSA stress tests indicate vulnerability to shocks; combined shocks produce the most extreme stress environment, with "external debt service to revenue breaching the indicative threshold" when payments on new borrowing to meet higher financing needs are expected to start. - Key contributors to vulnerability in combined shock: uncertainty around "real GDP growth, exports, and the non-debt flow shock". - A shock in current official transfers is a significant vulnerability, highlighting Somalia’s high dependence on official development assistance. - Breaches related to the external debt service to revenue ratio are sustained in the long term, linked to rising amortization needs after 2030 when grace periods on new debt begin to expire. ### Data limitations and realism tools - Data weaknesses constrain the scope of macroeconomic analysis: limitations in national accounts data, substantial gaps in balance-of-payments data, heavy reliance on third-party data for trade estimates and secondary transfers; direct investment data are currently estimated. - Forecast-error realism tool not yet applicable because Somalia’s debt stock has largely been determined by progress under the HIPC Initiative and because of lack of debt stock data in 2017. - Public investment-growth nexus tool inoperable due to gaps in investment data. - Fiscal adjustment realism tool suggests a fiscal expansion post-HIPC CP, reflecting "a decline in above-the-line grants after reaching HIPC CP, even as expenditures gradually also decline as a percentage of GDP". - Fiscal adjustment and growth realism tool shows projected growth path is "i n l ine with a range of possible fiscal multipliers". ### Near-term risks and policy implications - Near-term risks are "tilted to the downside": - Risks include: failure to sustain healthy rainy seasons, rises in food prices, global supply shocks to staples, deterioration of the security situation, political risks linked to questions over federalism, climate-related shocks, lower global growth, and persistent global inflationary pressures. - If adverse risks materialize, economic growth and domestic revenue will face downward pressure, increasing financing needs. - Policy and financing implications: - Sequestration rule and current financing commitments help mitigate some risks, but "the authorities would need additional support from the international community to address a significant adverse scenario". - Authorities’ efforts at reaching HIPC CP, continued IMF support through the proposed new 3-year ECF arrangement, and highly concessional financing provided by the World Bank and other multilateral institutions and bilateral donors "will unlock concessional external financing and help prevent the build-up of debt vulnerabilities". - Authorities are seeking a waiver from the IMF Executive Board for an incomplete trigger on adoption and application of a single import duty tariff schedule at all ports (reform completed at Mogadishu seaport and airport; progress in Kismayo seaport and airport; paused in Garowe and Bosaso due to political conditions). *Source: Somali authorities and IMF staff calculations.* ### 21. Total public debt is contained in the baseline. PV of t otal public debt to GDP also remains ### 1somea2023004 - 21. Total public debt is contained in the baseline. PV of total public debt to GDP also remains ### Debt outlook and baseline findings - Total public debt is contained in the baseline; PV of total public debt to GDP also remains contained in the stress scenarios. - PV of total public debt to revenue rises through the medium-term, peaking in 2029. - Pressures are likely to be felt on public debt service to revenue with the ratio rising in the long-term. - There is no market for domestic debt and the existing stock of domestic debt is limited to a small stock of government arrears; the baseline assumes the nominal stock of domestic debt will significantly decline as a percentage of total debt over the medium-term. - From 2023 to 2024, the primary deficit increases from 0.1 to 1 percent of GDP, mainly due to expected decline in budget support grants. - The DSA remains unadjusted, given severe persisting vulnerabilities that can materialize in the projection period, allowing past volatility to inform stress testing in the projection horizon. - The DSA’s sensitivity analysis is also affected by these constraints, leading to results for debt indicators in outer years that can be challenging to interpret. ### Risk rating and vulnerabilities - Somalia is assessed to be at moderate risk of debt distress. - Sustained breaches of the indicative threshold for the external debt service to revenue ratio under standardized stress tests suggest Somalia is at moderate risk of external debt distress and at moderate overall risk of public debt distress. - While the total public debt indicator remains under the benchmark across scenarios, the trajectory of public debt service to GDP under standardized stress tests highlights the need for vigilant debt management. - The moderate risk rating tool mechanically indicates that Somalia has substantial space to absorb shocks, but Somalia remains vulnerable to significant shocks and highly dependent on external, concessional financing. - Revisions to the macroeconomic outlook and the PV of debt imply reduced debt vulnerabilities in the medium term, but downside risks remain (security, international commodity price, and climate shocks). - The inclusion of domestic debt does not materially impact the analysis. - Debt relief under the HIPC Initiative, MDRI, and beyond‑HIPC assistance has improved Somalia’s external debt situation and brought debt to a manageable level such that it is judged to be sustainable in the medium-term, assuming continued highly concessional financing. - Expenditure pressures in education, health, and security will need to be financed on highly concessional terms to prevent a spike in debt service over the medium term. ### Authorities’ views - The authorities broadly concurred with staff’s assessment. - Authorities recognize the importance of relying on concessional financing post-HIPC to contain debt sustainability risks and to monitor the external debt service-to-revenue indicator as an early warning sign. - They agree on the need to strengthen debt management capacity, ensure transparency regarding terms and conditions of borrowings, and expect ongoing reforms—particularly domestic revenue mobilization—to improve debt servicing capacity. ### Key projections and sustainability indicators (selected) - PV of PPG external debt-to-GDP ratio (series in table): ......22.85.15.05.15.45.96.38.618.3 - PV of PPG external debt-to-exports ratio (series in table): ......131.728.125.925.125.426.828.138.782.1 - PPG debt service-to-exports ratio (series in table): 1.21.10.90.91.00.90.90.80.81.53.4 - PPG debt service-to-revenue ratio (series in table): 6.67.46.26.26.76.35.65.14.76.810.4 - Gross external financing need (Million of U.S. dollars, series in table): -44.8174.8311.6507.8461.7666.9794.4893.9981.81844.81917.0 - Real GDP growth (in percent, series in table): -2.63.32.42.83.73.94.04.14.34.54.5 - Government revenues (excluding grants, in percent of GDP, series in table): 2.32.32.52.72.83.03.33.63.95.07.3 - Aid flows (in Million of US dollars, series in table): 311.364.4462.7420.3592.8462.6444.0447.9415.3520.81765.1 - Nominal GDP (Million of US dollars, series in table): 9,204 9,839 10,420 11,515 12,489 13,541 14,686 15,913 17,192 24,074 46,023 - PV of public debt-to-GDP ratio (series in public DSA table): ......23.45.75.55.65.86.26.68.818.3 - PV of public debt-to-revenue and grants ratio (series in public DSA table): ......338.489.179.7107.6123.9147.9158.9176.1249.3 - Debt service-to-revenue and grants ratio (series in public DSA table): 2.84.52.32.72.74.14.44.84.87.010.5 ### Stress tests, scenarios and sensitivity analysis (high level) - Stress tests indicate sustained breaches for the external debt service-to-revenue ratio under standardized stress tests; these serve as early warning indicators. - The external DSA and public DSA present alternative and bound tests (e.g., real GDP growth, primary balance, exports, other flows, depreciation, combination shocks) and tailored tests (e.g., combined contingent liabilities, commodity price shock). - The DSA notes some stress-test results in outer years can be challenging to interpret because the DSA remains unadjusted and historical volatility informs projection stress testing. ### Policy recommendations and priorities - Continue reliance on highly concessional external financing to maintain medium-term sustainability. - Strengthen domestic revenue mobilization to reduce vulnerability to external shocks and improve debt servicing capacity. - Strengthen debt management institutions and institutional capacity, including transparency on terms and conditions of all borrowings to have a full view of costs and risks. - Ensure expenditure pressures in education, health, and security are financed on highly concessional terms to avoid spikes in debt service. *Source: IMF staff estimates, projections, and discussions with Somali authorities as presented in the DSA excerpt.* ### 5. Depreciation0.91.00.90.60.60.61.01.11.21.30.1 ### 5. Depreciation0.91.00.90.60.60.61.01.11.21.30.1 ### A. Sensitivity Analysis — Key scenarios and values (2023–2033) - Threshold: 10 10 10 10 10 10 10 10 10 10 10 10 - Baseline: 6 7 6 6 5 6 7 7 7 7 7 - A1. Key variables at their historical averages in 2023-2033 2/: 6 7 6 5 4 3 5 4 4 2 0 - B. Bound Tests (selected) - B1. Real GDP growth: 6 7 7 6 6 5 7 8 7 8 8 - B2. Primary balance: 6 3 3 3 3 5 5 -6 -4 -3 - B3. Exports: 6 7 7 7 6 6 7 7 8 11 - B4. Other flows 3/: 6 7 8 8 8 7 8 8 1 3 1 7 - B5. Depreciation: 6 8 8 5 5 4 7 7 7 7 1 - B6. Combination of B1-B5: 6 7 9 9 8 7 9 9 9 9 1 6 1 8 - C. Tailored Tests (selected) - C1. Combined contingent liabilities: 10 1 1 1 1 1 1 1 1 1 1 1 1 - C3. Commodity price: 1 1 1 1 1 1 1 1 1 1 1 2 - C4. Market Financing: n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. ### B. Sensitivity Analysis for Key Indicators of Public Debt (Table 4 highlights) - Projections 1/ (PV of debt-to-GDP ratio 4/ shown across 2023–2033): - Baseline: 66 66 67 77 88 9 - A1. Key variables at their historical averages in 2023-2033 2/: 6 1 9 18 16 14 13 11 10 9 9 8 - Bound Tests (PV of debt-to-GDP ratio 4/ highlights): - B1. Real GDP growth: 6 2 1 2 1 2 0 1 9 1 8 18 - B2. Primary balance: 6 2 0 1 9 1 7 1 6 1 6 1 6 - B5. Depreciation: 6 2 5 2 3 2 1 1 9 17 15 14 13 - B6. Combination of B1-B5: 6 3 1 2 9 2 7 2 6 2 5 2 4 - Public debt benchmark (TOTAL): 35 35 35 35 35 35 35 35 35 35 35 35 ### C. Debt ratios and stress-test outcomes (selected series) - Baseline series (percent) across 2023–2033 (excerpt): - Baseline: 89 80 108 124 148 159 168 167 169 172 176 - A. Alternative Scenarios — A1 (selected): - A1: 89 280 337 337 338 307 280 236 207 183 163 - B. Bound Tests — selected outcomes: - B1. Real GDP growth: 89 294 383 407 442 436 432 400 383 370 361 - B5. Depreciation: 89 384 456 452 451 413 381 331 304 281 263 - B6. Combination of B1-B5: 89 452 563 587 622 604 590 541 501 467 441 - C. Tailored Tests — selected outcomes: - C1. Combined contingent liabilities: 89 316 391 407 429 414 402 367 339 317 300 - C3. Commodity price: 89 289 363 383 412 406 400 373 360 349 343 ### D. Debt burden indicators (selected) - Baseline (ratios, 2023–2033 excerpt): 3 3 4 4 5 5 7 7 7 7 7 - A1. Key variables at their historical averages in 2023-2033 2/: 3 1 2 2 3 2 5 5 - - - - B. Bound Tests — selected: - B1. Real GDP growth: 3 1 2 3 3 3 6 6 (6) (4) (3) - B2. Primary balance: 3 1 2 3 3 3 5 6 (6) (4) (3) - B3. Exports: 3 3 4 5 6 5 8 8 7 9 11 - B5. Depreciation: 3 1 3 3 3 4 6 7 (8) (6) (5) - B6. Combination of B1-B5: 3 3 4 4 5 5 7 7 7 7 7 - C. Tailored Tests — selected: - C1. Combined contingent liabilities: 3 1 3 3 3 3 5 6 6 6 6 - C3. Commodity price: 3 1 2 3 3 3 5 6 (5) (3) (2) ### E. Public Debt Holder Profile (Table 5, 2022–2024, selected figures) - Total (1/): 3,894.8 (100.0 percent total debt; 37.4 percent GDP) - External: 3,827.0 (98.3 percent total debt; 36.7 percent GDP) - Multilateral creditors total: 1,074.9 (27.6 percent total debt; 10.3 percent GDP) - IMF 2/: 370.5 (9.5 percent total debt; 3.6 percent GDP) - World Bank 3/: 104.6 (2.7 percent total debt; 1.0 percent GDP) - AfDB: 20.1 (0.5 percent total debt; 0.2 percent GDP) - Other Multilaterals: 579.6 (14.9 percent total debt; 5.6 percent GDP) - Arab Monetary Fund: 298.6 (7.7 percent total debt; 2.9 percent GDP) - Arab Fund for Economic and Social Development: 191.5 (4.9 percent total debt; 1.8 percent GDP) - Bilateral creditors total: 2,752.1 (70.7 percent total debt; 26.4 percent GDP) - Paris Club 4/: 2,004.5 (51.5 percent total debt; 19.2 percent GDP) - Russia 7/: 711.1 (18.3 percent total debt; 6.8 percent GDP) — "Debt stock as of end-2022, consistent with the HIPC Debt Reconciliation Exercise in 2023." - United States: 998.4 (25.6 percent total debt; 9.6 percent GDP) - Other international creditors 8/: 745.0 (19.1 percent total debt; 7.2 percent GDP) - Kuwait Fund and Central Bank: 125.3 (3.2 percent total debt; 1.2 percent GDP) - Saudi Arabia: 118.9 (3.1 percent total debt; 1.1 percent GDP) - United Arab Emirates: 253.5 (6.5 percent total debt; 2.4 percent GDP) - Domestic: 67.8 (1.7 percent total debt; 0.7 percent GDP) - Of which: in arrears: 67.8 (1.7 percent total debt; 0.7 percent GDP) - Nominal GDP: 10,420 - Notes (selected): - 5/ Debt cancellation of 100 percent of ODA debt became effective on March 2021. - 6/ No debt reduction at the HIPC Decision Point, Japan will cancel 100% of their debt stock at the HIPC Completion Point. - 7/ Debt stock as of end-2022, consistent with the HIPC Debt Reconciliation Exercise in 2023. The bilateral agreement between Russia and Somalia was signed in 2023. - 8/ The amount reported for non-PC creditors assumes PC comparable treatment and reflects estimates of interim debt relief under Cologne Terms computed as part of the HIPC DRA exercise. *Sources: Country authorities; and staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1somea2023004.pdf_