## 1somea2023005

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### EXECUTIVE SUMMARY — Context and Recent Developments
- Economic recovery as rains resumed in 2023; authorities advancing efforts to rebuild economy and institutions.
- Fragility drivers:
  - climate shocks;
  - unsettled security situation as government advances against Al-Shabab amid ATMIS withdrawal (ATMIS mandate ends in December 2024);
  - lack of political consensus among all Federal Member States affecting federalism agenda.
- Social and poverty indicators:
  - More than 54 percent of the population lived below the national poverty line of US$2.06 per day in 2022 (Somalia Poverty Report 2023).
  - Food accounts for an average of 56 percent of household consumption.
  - Integrated Food Security Phase Classification September 2023: 25 percent of the population would face acute food insecurity in 2023.
- Recent macro developments:
  - Growth: 2.4 percent in 2022; growth in 2023 forecast at 2.8 percent (Text) and affected by drought and weak remittances in 2023H1.
  - Remittances growth largely flat in 2022 and 2023H1 (after 29 percent increase in 2021).
  - Inflation moderated to 5.4 percent in September 2023; average inflation 2023 anticipated at 5.7 percent and projected to decline to 4.1 percent in 2024.
- Fiscal through September 2023:
  - Domestic revenues reached US$232 million year to September vs US$170 million projected in the 5th review.
  - Revenue overperformance driven mainly by a 50 percent increase in customs duties for luxury goods (mid-May) estimated to bring an additional US$1–2 million per month and some tax administrative improvements.
  - Small overall deficit expected for 2023; revenue overperformance and budget support grants (including World Bank and EU) will facilitate a small cash balance to partially address liquidity needs in early 2024.
- Financial sector:
  - Deposits and credit to the private sector grew around 9.2 percent and 14.6 percent (y-o-y), respectively, in 2023Q2.
  - Reported NPLs around 4 percent in 2023Q2.
  - CBS issued new banking regulations on capital and liquidity on July 4, 2023; expected effective date 2024Q1.

*Source: EXECUTIVE SUMMARY (1somea2023005) — Somalia IMF Country Report, November 27, 2023.*

### PROGRAM PERFORMANCE, STRUCTURAL BENCHMARKS, AND HIPC COMPLETION POINT
- Overall assessment: Program performance satisfactory; all QPCs and ITs for end-June 2023 and end-September 2023 met.
- Structural benchmarks (ten due for 6th review):
  - Met on time (5): Supplementary Budget submitted June 8, 2023 (approved July 31, 2023); SFMIS reconfigured and MoF authority provision included in 2024 Appropriations Bill sent Oct 28, 2023; PFM Act property regulations and Asset Management Guideline approved Aug 17 and Sept 11, 2023; CBS banking regulations issued July 4, 2023; Targeted Financial Sanctions Law enacted March 8, 2023 with regulations July 27, 2023.
  - Implemented with delay (3): Payroll coverage extension (SB#5); registration of 2,597 taxpayers for turnover tax with collections US$166,650 in July (SB#3); IMCC SOPs approved Sept 11, 2023 (SB#10).
  - Not met (2): POS machines rollout limited (SB#2); SOMCAS rollout incomplete—fully operational in Mogadishu seaport and airport (early October 2023), partially in Kismayo, paused in Bosaso and Garowe (SB#4).
- HIPC Completion Point (CP):
  - IMF Board scheduled to discuss HIPC CP on December 13, 2023.
  - Authorities implemented 13 of 14 floating CP triggers; the single import duty tariff schedule at all ports not met; waiver to be requested.
  - Financing assurances from external creditors representing 89.5 percent of the PV of HIPC debt relief as of end-September 2023.
  - IMF interim assistance: four tranches totaling SDR 4.8 million; fourth tranche SDR 2.211 million approved May 2023 covering eligible debt service between June 17, 2023 and June 16, 2024 or HIPC CP.
  - IMF receipts as of June 2023: SDR 261.1 million vs preliminary total cost SDR 252.9 million at Decision Point; total commitments by 123 members and the EU about SDR 288.1 million.

### OUTLOOK AND RISKS
- Near-term forecasts:
  - Growth 2023: 2.8 percent; 2024: 3.7 percent.
  - Inflation average 2023: 5.7 percent; projected 2024: 4.1 percent. CPI (period average) path in Table 1 includes 5.7, 4.1, 3.8, 3.6, 3.4, 3.2 (selected series).
- Medium-term projections:
  - Growth projected to gradually increase to 4 ¼ percent by 2028; current account deficit will widen gradually as Somalia loses access to grant financing, financed by FDI and modest concessional borrowing.
- Key risks (tilted to the downside): food insecurity if rainy seasons not sustained or global food shock; climate shocks; deterioration of security including ATMIS transition; political risks linked to federalism; lower global growth.
- Mitigants: strong program ownership; IMF capacity development and TA; development partner support and bilateral financing for Somalia Country Fund remain essential.

### NEW ECF ARRANGEMENT — Request, Objectives, and Access
- Authorities request a 3-year ECF arrangement for SDR 75 million (approximately 45.9 percent of quota; proposed US$100 million in texts).
- Objectives:
  - Further strengthen economic institutions and promote macroeconomic stability and growth.
  - Key priorities: maintain fiscal sustainability; increase domestic revenues and strengthen PFM; promote financial deepening and financial inclusion; improve business environment and governance; enhance statistics.
- Proposed disbursement modalities:
  - SDR 30 million at Board approval; remaining SDR 45 million equally across 6 biannual reviews (SDR 7.5 million each).
  - Access: SDR 75.000000 / 45.899633 percent of quota (Table 14 schedule; Somalia's quota SDR163.4 million).
- Staff supports new 3-year arrangement and completion of 6th review with SDR 7 million disbursement for the current ECF.

### FISCAL FRAMEWORK, DEFICITS, AND REVENUE MOBILIZATION
- Fiscal anchor and limits:
  - Authorities commit to keep deficits below 3.5 percent of GDP financed with concessional loans, with at least 1.5 percent of GDP from multilateral creditors with at least 50 percent grant element.
  - 2024 overall deficit expected at 1.2 percent of GDP (US$145.5 million overall fiscal deficit in gross financing needs; amortizations US$9 million).
  - For 2024 authorities plan domestic revenues at 2.8 percent of GDP; domestic revenues by end-December 2023 at 2.7 percent of GDP.
- Revenue gap and targets:
  - Gap between domestic revenue and operational expenditure in 2023 estimated at 0.7 percent of GDP.
  - Authorities plan measures to raise revenues by about 0.9 percent of GDP between 2023 and 2027 aiming to cover operational costs with domestic revenue by 2027.
- Revenue reform measures and targets:
  - Prepare Tax Policy and Revenue Administration Roadmap by end-June 2024 (proposed SB#1).
  - Completion and phased application of ad valorem customs reform using SOMCAS and common valuation table when ready.
  - Submit Income Tax Bill to Parliament by end-June 2024 (proposed SB#2).
  - Mobilize revenue from large businesses, notably telecom sector; spectrum fees expected US$6 million per year for next 10 years (spectrum fee schedule Sep 2022).
  - Finalize Revenue Administration Law regulations; develop ITAS; establish gateway for tax payments through private banks; leverage ICTs.
- Estimated revenue increases (Text Table 3):
  - 2023 Proj. Increase in domestic revenue: 0.4 percent of GDP (New measures/better enforcement 0.2; Tax on international trade 0.2; Other tax revenue 0.0; Nontax revenue 0.0; Ongoing policies 0.3).
  - 2024 Proj. Increase in domestic revenue: 0.3 percent of GDP (New measures 0.2; Tax on international trade 0.1; Other tax revenue 0.0; Nontax revenue 0.1; Ongoing policies 0.1).

### PUBLIC FINANCIAL MANAGEMENT (PFM) AND EXPENDITURE CONTROLS
- PFM priorities and SBs:
  - Integrate remaining non-payroll compensation into single payroll; reduce ratio of non-payroll payments to total compensation to less than 1 percent by end-June 2024 (proposed SB#3).
  - Invoice tracking roadmap to expand to all goods and services by end-February 2024 (proposed SB#4).
  - By June 2024: issue Prime Ministerial Decree articulating debt policy parameters and amend PFM regulations to define “other financial liabilities” considered guarantees (proposed SB#5).
  - Submit PPP Bill to Parliament by June 2024 with gateway process managed by MoF (proposed SB#6).
- Execution and prioritization:
  - Execution rate social benefit projects close to 80 percent; other projects about 40 percent. Prioritization of project spending critical.
- Transparency and audit:
  - Audit Bill enacted September 2023; capacity building for Auditor General's Office emphasized.
  - Reporting: monthly consolidated fiscal outturns published since January 2021; audited FGS financial accounts published for 2019–2022.

### MONETARY, FINANCIAL SECTOR, AML/CFT, AND CURRENCY REFORM
- CBS institutional strengthening:
  - Preparing amendments to CBS Law to enhance autonomy; new IMF safeguards assessment initiated (mission expected early December 2023).
  - By end-July 2024 CBS to develop action plan to improve quality of data submitted by commercial banks (proposed SB#7).
- Financial supervision and payments:
  - Banking regulations on capital adequacy and liquidity issued July 4, 2023; capital adequacy incorporates risk weighting per Basel III in a proportionate manner; liquidity regulation clarifies LCR requirement.
  - Payment system reforms: national QR code and national SWITCH; IBAN adopted March 27, 2023; NPS launched 2021.
  - MMOs relicensing and compliance; as of September 2023, four MMOs granted licenses.
- AML/CFT:
  - TFSL enacted March 8, 2023; related regulations July 27, 2023.
  - NRA Action Plan published February 2023; prepare for 2024 MENA-FATF Mutual Evaluation; submit AML/CFT Law amendments to Parliament by end-March 2024 (proposed SB#8).
- Currency exchange project:
  - Reintroduce Somali shilling (SOS) as legal tender by replacing old and counterfeit notes; World Bank project expected to provide US$40 million in grant financing against total estimated cost US$72 million.
  - World Bank estimates old shillings in circulation range between SOS 1.022-1.546 trillion (USD 40.9-61.8 million).
  - There are currently no deposits in shillings; about USD 1.2 billion in bank deposits and a similar amount in mobile money wallets.
  - Assessment recommends a fixed exchange rate regime given near-term capacity constraints; complementary policies required including fiscal discipline, CBS independence, capacity building, and reserve backing.
  - Timing depends on funding gap and firm agreement between FGS and all FMS.

### FINANCING, ACCESS, AND PROGRAM CONDITIONALITY
- Financing for 2023–24:
  - Gross financing needs include overall fiscal deficit US$145.5 million (1.2 percent of GDP) and amortizations US$9 million.
  - Identified financing for first 12 months: World Bank budget support loans US$109.8 million and EU EUR10 million; prospective ECF disbursements US$60.3 million in 2023 and 2024 (as described).
- Program monitoring and targets:
  - QPCs and ITs include floor on FGS domestic revenue, ceiling on spending on FGS compensation/goods & services/contingency, floor on CBS NIR (adjustors apply), ceiling on contracting/guaranteeing new external non-concessional debt (zero), ceiling on accumulation of new external arrears (zero).
  - Indicative targets include floor on FGS fiscal balance (cash basis, adjusted by shortfalls in budget support grants), ceilings on new domestic debt and accumulation of domestic arrears.
  - Table 10 (June–Sept 2023) shows QPCs and ITs were met; example entries: FGS domestic revenue, floor 115.0 / 137.2 — Met; Spending ceiling 240.0 / 172.7 — Met; Net international reserves floor -346.0 / -340.1 — Met.
- Proposed QPCs under new ECF (Table 12 sample Prog. values):
  - FGS domestic revenue, floor: 312 / 145 / 345 (selected Prog. entries).
  - Spending on FGS compensation... ceiling: 384 / 236 / 437.
  - NIR floor: 10 / 10 / 10.
- Structural Benchmarks under new ECF (Table 13 selected):
  - SB#1 Publish Tax Policy and Revenue Administration Roadmap (End-June 2024).
  - SB#2 Submit Income Tax Bill to Parliament (End-June 2024).
  - SB#3 Ensure full payroll integration reducing non-payroll ratio to less than 1 percent (End-June 2024).
  - SB#4 Publish invoice tracking expansion plan (End-February 2024).
  - SB#5 Issue PM Decree and amend PFM regs to define guarantees (End-June 2024).
  - SB#7 Develop action plan to improve bank data quality (End-July 2024).
  - SB#8 Submit AML/CFT Law amendments (End-March 2024).

### DEBT SUSTAINABILITY, DSA HIGHLIGHTS, AND CAPACITY TO REPAY
- DSA baseline assumes HIPC Completion Point in December 2023 with full delivery of HIPC, MDRI, and beyond-HIPC assistance.
- 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.
  - PV of external debt in 2022 estimated 22.8 percent of GDP, decreasing to 5.1 percent of GDP in 2023 (below 30 percent threshold).
- Risk assessment: moderate risk of debt distress post-HIPC CP; under shock scenarios some indicators breach thresholds.
- Fund credit outstanding projections with proposed access:
  - IMF credit outstanding projected to peak at 70.7 percent of quota in 2026 (SDR 115.6 million) under proposed access.
- Indicators of Fund credit and CtR (Table on charges and interest):
  - Outstanding Fund credit, end of period series includes 72.0 / 87.0 / 102.0 / 115.6 / 112.8 / 106.5 ... (selected series).
  - Total obligations series includes 250.4 / 3.2 / 3.0 / 4.4 / 5.8 / 9.3 ... (selected).
- Capacity to repay uncertainty: several CtR indicators exceed 75th percentile of past PRGT arrangements; program sets ceilings and fiscal rules to mitigate debt servicing risks.

### SOCIAL, POVERTY, AND CHILDREN — Key Findings
- Poverty:
  - More than 54 percent of the population lived below national poverty line in 2022 (consuming less than US$2.06 per day).
  - Poverty rates by population group: Nomadic 78.4 percent; Rural 65.5 percent; Urban 46.1 percent.
  - Population without formal education: 65.5 percent.
- Household expenditures: Food 55.5 percent; Housing costs 16.5 percent; Clothing and footwear 7.6 percent.
- Children:
  - Children represent over 60 percent of the population.
  - Sanitation deprivations: 85 percent of children 0–4 years; 64 percent of children 5–17 years; nearly all children in nomadic settings deprived of sanitation.
  - Water: 44 percent of children lack access to improved water sources.
  - Health and nutrition: 67 percent of children 0–4 years and 59 percent of children 5–17 years experience nutritional and health deprivations.
  - Multidimensional deprivation: at least 8 out of 10 children deprived in two or more dimensions; only 2 percent of children under 5 free from deprivation across six dimensions.
- Data source: 2022 Somalia Integrated Household Budget Survey (SIHBS) — 7,212 households across 601 Enumeration Areas in 17 regions.

### FINANCIAL SECTOR BALANCE SHEETS, MONETARY SURVEY, AND EXTERNAL ACCOUNTS (selected numeric excerpts)
- Consolidated Commercial Banks Balance Sheet (millions USD, sample series):
  - Total assets: 556; 821; 1,2621,279; 1,3311,384 (series as printed).
  - Customer Deposits: 430; 659900; 1,164; 1,134; 1,143.
  - Credit to private sector: 206; 219319; 400; 401409.
  - Memorandum: Credit to private sector share of GDP (percent): 2; 3 45; 55 (series printed).
- Monetary survey (selected series, levels and memoranda preserved as printed):
  - Broad Money 5/: 1119 1190 1326 1255 1483 1648 1857 2129 2299 2541.
  - Credit to the private sector (percent of GDP): 3.2; 4.0; 3.8; 4.6; 4.3; 4.9; 5.7; 6.8; 7.6; 8.7.
  - Central Bank gross reserves (sample): 172 246 197 193 221 221 221 220 216 207.
- Balance of Payments (levels, millions USD selected):
  - Current account balance: -671; -1,373; -838; -1,432; -1,092; -1,127; -1,386; -1,574; -1,738; -1,894.
  - Exports of goods and services: 717 687 704 818 859 1,020 1,205 1,392 1,590 1,796 (goods f.o.b. series).
  - Imports of goods f.o.b.: -4,790 -5,700 -6,340 -5,876 -7,014 -7,678 -8,339 -9,027 -9,839 -10,639.
- External financing and gaps (selected from External Financing Needs and Sources):
  - Gross financing requirement series (millions USD): 8,939.0 5,128.7 6,415.3 10,316.2 7,612.3 8,153.4 8,735.3 9,448.3 10,166.0.
  - Financing gap series (millions USD): 4,827.5 350.7 243.9 3,436.2 140.0 206.9 264.3 347.9 365.3.
  - Exceptional Financing (HIPC debt relief) entries: 4,265.2 15.8 0.0 3,248.0 0.0 0.0 0.0 0.0 0.0.
- Memorandum nominal GDP series (millions USD): 9,839 8,158 10,420 8,738 11,515 12,489 13,541 14,686 15,913 17,192.

### PROGRAM IMPLEMENTATION, MONITORING ARRANGEMENTS, AND DATA REPORTING
- Monitoring Committee (TWG) composition: senior officials from MoF, CBS, FRC, SNBS, MoPIED; IMF Resident Representative observer.
- Data reporting requirements (selected):
  - CBS monetary survey: Monthly; 3 weeks after month end.
  - Consolidated commercial banks balance sheet: Quarterly; 4 weeks after quarter end.
  - FGS TSA end-month balances: Monthly; 3 weeks after month end.
  - Customs modernization outputs (SOMCAS): Quarterly; 4 weeks after quarter end.
  - Domestic arrears confirmation/table: Quarterly; 4 weeks after quarter end.
- Technical Memorandum of Understanding (TMU) specifies definitions, adjustors to fiscal balance and NIR floors, and calculation of concessionality (grant element threshold 35 percent; highly concessional financing at least 50 percent grant element).
- TMU Table 1 fiscal balance adjustor maximum amounts (US$ million cumulative): Dec-23 56.1; Jun-24 75.0; Sep-24 150.0; Dec-24 150.0 (selected series).
- TMU Table 2 NIR adjustors (US$ million cumulative): Adjustor 1 distributable earnings -0.2 at each calendar point; Adjustor 2 temporary liquidity advances -35.0 at Mar-24/Jun-24/Sep-24; Adjustor 3 IMF HIPC SDR 7 million remains with MoF: 7.0 at each calendar point.

### STAFF APPRAISAL, CAPACITY DEVELOPMENT, AND CONCLUDING OBSERVATIONS
- Staff view: Authorities made commendable efforts and satisfactory program performance under 2020 ECF; readiness to complete last review and be considered for HIPC Completion Point.
- Remaining challenges: insufficient growth to reduce widespread poverty and create jobs; high vulnerability to climate shocks; needs to maintain fiscal sustainability, increase domestic revenues, strengthen PFM, promote financial deepening and inclusion, improve business environment and governance, enhance statistics, and design/implement new monetary and exchange rate frameworks.
- Capacity development:
  - CD crucial for program success and financed by Somalia Country Fund (SCF).
  - Fundraising for SCF Phase II through FY2025 insufficient, posing implementation risks.
  - Continued IMF safeguards assessment and TA to guide priority reforms.
- Staff recommendation: continue decisive revenue mobilization efforts, maintain fiscal discipline, and sustain strong engagement of international donors to support financing and capacity building.

*Source: IMF staff report and Somali authorities (content unit 1somea2023005).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Economic activity is recovering as rains resumed in 2023; the authorities continue to advance efforts to rebuild the economy and institutions.
- Somalia remains fragile, facing:
  - climate shocks;
  - an unsettled security situation as the government advances against Al-Shabab amid the withdrawal of the African Union Transition Mission (ATMIS);
  - lack of political consensus among all Federal Member States (FMS) that affects advancement of the federalism agenda.
- Social and poverty indicators:
  - In 2022 more than 54 percent of the population lived below the national poverty line of US$2.06 per day (Somalia Poverty Report 2023).
  - Household expenditures: food accounts for an average of 56 percent of total consumption.
  - Integrated Food Security Phase Classification September 2023: 25 percent of the population would face acute food insecurity in 2023.
- Security and federalism:
  - ATMIS mandate ends in December 2024; Somali National Armed Forces are expected to fully take over security responsibilities.
  - National Consultative Council (March 2023) reached high-level agreements on creating a National Revenue Authority, assignment of revenue responsibilities, and distribution of external budget support; lack of consensus across all FMS continues to impact implementation.

### Recent economic developments
- Growth and agriculture:
  - Growth in 2022 was 2.4 percent; drought and weak remittances weighed on activity in 2023H1.
  - Livestock and crops expected to recover only gradually from the earlier prolonged drought.
- Remittances and inflation:
  - Remittances growth remained largely flat in 2022 and 2023H1 (compared to a 29 percent increase in 2021).
  - Inflation moderated to 5.4 percent in September 2023 as food and fuel prices eased.
- Fiscal performance through September 2023:
  - Domestic revenues reached US$232 million in the year to September, compared to US$170 million projected in the 5th review.
  - Revenue overperformance driven mainly by a 50 percent increase in customs duties for luxury goods implemented in mid-May (estimated to bring in an additional US$1–2 million of customs duties per month) and some tax administrative improvements.
  - Total expenditure has 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) will facilitate a small cash balance to partially address liquidity needs in early 2024.
- Financial sector:
  - Deposits and credit to the private sector grew around 9.2 percent and 14.6 percent (y-o-y), respectively, in 2023Q2.
  - Reported NPLs around 4 percent in 2023Q2.
  - CBS issued new banking regulations on capital and liquidity requirements on July 4, 2023; expected effective date of 2024Q1.

### Program performance under the Extended Credit Facility (ECF) arrangement
- Overall assessment: Program performance has been satisfactory.
- Quantitative performance:
  - All quantitative performance criteria (QPCs) and indicative targets (ITs) for end-June 2023 and end-September 2023 were met.
- Structural benchmarks (ten due for the 6th review):
  - Five met on time, three implemented with delay, two not met due to institutional, social, and political constraints.
  - Met on time:
    - Supplementary Budget for 2023 submitted to Parliament on June 8, 2023 (SB#1, met, due end-June 2023); approved by Parliament on July 31, 2023.
    - SFMIS reconfigured to enable MoF approval of payroll changes; provision included in 2024 Appropriations Bill sent to Parliament on October 28, 2023 specifying MoF authority over financial clearance of compensation of all FGS employees (SB#6, met, due end-October 2023).
    - Regulations to implement the PFM Act’s provisions on public property approved on August 17, 2023; Asset Management Guideline approved by Cabinet on September 11, 2023 (SB#7, met, due end-September 2023).
    - CBS banking regulations on capital and liquidity requirements issued July 4, 2023 (SB#8, met, due end-September 2023); capital adequacy incorporates risk weighting per Basel III in a proportionate manner; liquidity regulation clarifies LCR requirement.
    - Targeted Financial Sanctions Law (TFSL) enacted March 8, 2023; related regulations approved July 27, 2023 (SB#9, met, due end-July 2023).
  - Implemented with delay:
    - Coverage of payroll extended to more than 50 percent of non-payroll compensation of FGS employees as of June 2023 (SB#5, implemented with delay, due end-May 2023). The ratio of non-payroll payments to total compensation averaged 14.5 percent in April–June 2023, relative to 32 percent in 2021.
    - Authorities registered 2,597 taxpayers for the turnover tax by end July 2023; collection of US$166,650 from 420 small and 327 micro enterprises received in July (SB#3, implemented with delay, due end-May 2023).
    - Standard operating procedures for the Inter-Ministerial Concessions Committee approved September 11, 2023 (SB#10, implemented with delay, due end-June 2023).
  - Not met:
    - Rollout of POS machines: 50 POS machines operationalized in largest hotels and restaurants around the airport and safer districts, but further rollout to smaller/informal businesses yields little revenue; implementation in the telecom sector did not move forward due to industry concerns (SB#2, not met, due end-June 2023).
    - SOMCAS rollout: fully operationalized in Mogadishu seaport and airport as of early October 2023; partially implemented in Kismayo (Jubaland) with discussions on common valuation table ongoing; paused in Bosaso and Garowe (Puntland) due to political conditions (SB#4, not met, due end-July 2023).
- Other reforms implemented include: 2023 Supplementary Budget, revenue and public financial management measures, new risk-based prudential regulations, and the Targeted Financial Sanctions Law.

### HIPC Completion Point
- Progress: Somalia has made satisfactory progress in meeting requirements for reaching the HIPC Completion Point (CP).
- IMF Board scheduled to discuss the HIPC Completion Point on December 13, 2023.
- Authorities implemented thirteen of fourteen triggers needed for the HIPC CP and have obtained necessary financing assurances from external creditors.

### Request for a new ECF arrangement
- Authorities request a 3-year financing arrangement under the ECF for SDR 75 million (approximately 45.9 percent of quota).
- Objectives of the new ECF:
  - Further strengthen key economic institutions and promote macroeconomic stability and growth.
  - Key priorities:
    - maintain fiscal sustainability;
    - increase domestic revenues and strengthen public financial management;
    - promote financial deepening and financial inclusion;
    - improve the business environment and governance;
    - enhance statistics.
- Rationale: to guide policies and maintain reform momentum post-HIPC CP.

### Risks and mitigants
- Key risks:
  - climate shocks that could aggravate food insecurity;
  - deterioration of the security situation;
  - political risks linked to federalism;
  - lower global growth.
- Program mitigants:
  - continued strong program ownership;
  - capacity development and extensive IMF technical assistance;
  - support from development partners and bilateral financing for the Somalia Country Fund remain essential.

### Mission and procedural information
- Date on document: November 27, 2023.
- Discussions held in Nairobi, Kenya during September 11–22, 2023 and October 22–25, 2023.
- IMF staff team led by Ms. Jaramillo; participating staff included Mr. Baltabaev, Ms. Bendjellal, Mr. Kularatne, Ms. Yang (all MCD), Mr. Nguyen (FAD), Mr. Abbas (SPR), Mr. Le Hen (Resident Representative), Mr. Irungu and Mr. Osman (Resident Representative Office); Mr. Abdullahi (OED) participated in key policy meetings. Ms. Gupta and Mr. de Asis supported report preparation.
- Mission met with Finance Minister Egeh, Central Bank Governor Abdullahi, other senior officials, development partners, and private sector representatives.

*Source: EXECUTIVE SUMMARY (1somea2023005) — Somalia IMF Country Report, November 27, 2023.*

### 11.      Based on this performance, staff support the completion of the 6th review under the

### 1somea2023005 - 11.      Based on this performance, staff support the completion of the 6th review under the

### HIPC COMPLETION POINT
- IDA and IMF staffs view Somalia as having made satisfactory progress in meeting the requirements for reaching the floating Completion Point.
- HIPC CP triggers (Annex IV):
  - Somalia has satisfactorily implemented for at least one year a poverty reduction strategy and maintained a track record of sound macroeconomic management.
  - Somalia has achieved thirteen of fourteen floating Completion Point triggers, 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 in Mogadishu seaport and airport; important progress was made in Kismayo seaport and airport; the reform is paused in Garowe and Bosaso due to political conditions. The authorities will be requesting a waiver for this reform.
- HIPC financing assurances:
  - Financing assurances from creditors representing at least 80 percent of the PV of HIPC debt relief is required for the HIPC CP.
  - As of end-September 2023, financial assurances from Somalia‘s external creditors represented 89.5 percent of the PV of HIPC debt relief.
  - Financial assurances were received in the form of either signed agreements or agreements in principle from all multilateral creditors except for the OPEC Fund, all Paris Club creditors, and two non-Paris Club bilateral creditors.
  - The Somali authorities continue good faith negotiations with their creditors to finalize debt relief agreements.
- IMF contributions and interim assistance:
  - As of June 2023, SDR 261.1 million have been received compared to the preliminary total cost of SDR 252.9 million estimated at the HIPC Decision Point.
  - Total commitments by 123 members and the European Union amount to about SDR 288.1 million.
  - In May 2023, the Board approved the fourth tranche of interim assistance of SDR 2.211 million to cover 100 percent of eligible debt service obligations due to the Fund between June 17, 2023 and June 16, 2024 or the HIPC CP, whichever is earlier.
  - The IMF has provided four tranches of HIPC interim assistance in the total amount of SDR 4.8 million.
  - At Completion Point, the IMF will provide the remaining HIPC and beyond-HIPC assistance to fully cancel eligible outstanding debt under the pre-Decision Point financing.

### OUTLOOK AND RISKS
- Near-term growth and inflation forecasts:
  - Growth in 2023 is forecast at 2.8 percent, supported by a gradual recovery in agriculture, remittances, and investment, though affected by lingering drought impacts and recent floods.
  - Growth in 2024 is expected to rise to 3.7 percent as crops and livestock recover more fully.
  - Average inflation in 2023 is anticipated at 5.7 percent and projected to decline to 4.1 percent in 2024 due to lower fuel and food prices.
- Medium-term projections:
  - Growth is projected to gradually increase to 4 ¼ percent by 2028 as public and private investment scale up, supported by structural reforms and greater access to financing.
  - The current account deficit will widen gradually as Somalia loses access to grant financing, financed by foreign direct investment and a modest increase in concessional borrowing.
- Near-term risks (tilted to the downside):
  - Food insecurity if healthy rainy seasons are not sustained or if there is a global food shock.
  - Additional risks: climate shocks; deterioration of the security situation (including risks related to the ATMIS transition or spillovers from geopolitical developments); political risks linked to federalism; lower global growth.
  - If adverse risks materialize, economic growth and domestic revenue would be lower, increasing financing needs. Authorities would need additional support from the international community for a significant adverse scenario.

### NEW ECF ARRANGEMENT — Program Objectives
- Authorities request a new three-year ECF-supported program to anchor macroeconomic policies post-HIPC and fill balance of payments and fiscal financing gaps.
- Program aims:
  - Build resilience, promote inclusive growth, and reduce poverty.
  - Build on previous achievements under the current ECF arrangement, HIPC process, and related capacity development support.
  - Anchor in Somalia’s Ninth National Development Plan (NDP9) prepared in January 2020 (which also served as the poverty reduction strategy for the HIPC process).
- Key pillars of the program:
  1. Maintain fiscal sustainability to ensure Somalia’s continued access to external financing.
  2. Increase domestic revenues and strengthen public financial management to expand the government’s capacity to finance and implement high quality development projects.
  3. Promote financial deepening that supports financial inclusion.
  4. Improve the business environment and governance to promote private investment.
  5. Enhance statistics to better inform economic policies.
- Design and implementation principles:
  - Strong ownership, sustained development partner support, and appropriate prioritization of reforms is critical.
  - Proposed structural benchmarks (SBs) are tailored, parsimonious, prioritized, sequenced, and anchored in capacity development support.
  - SBs are designed to complement other development partner programs and capacity development where possible.

### NEW ECF ARRANGEMENT — Fiscal Policy
- Fiscal framework objectives:
  - Anchor fiscal policy and ensure debt sustainability post-HIPC.
  - With debt relief at HIPC CP, Somalia will be assessed as having a moderate risk of debt distress and, based on World Bank IDA20 financing terms, will no longer have access to new grant commitments but only to new concessional loans.
  - Somalia would continue to receive grant disbursements for project commitments approved before HIPC CP, but these amounts are projected to decline considerably over time.
- Fiscal anchor and deficit limits:
  - Authorities commit to keeping deficits below 3.5 percent of GDP financed with concessional loans, of which at a minimum 1.5 percent of GDP will come from multilateral creditors that provide highly concessional financing terms (at least 50 percent grant element).
  - Maintaining overall fiscal deficits below 3.5 percent of GDP financed at concessional terms would not raise debt sustainability concerns (per simulation in Text Table 1).
  - The fiscal anchor would be reviewed periodically in line with Somalia’s borrowing capacity and its debt management and public investment management capacity.
  - For 2024-28, the fiscal deficit forecasts in Tables 2a and 2b are below 3.5 percent of GDP and are based on currently available information regarding possible financing from multilateral creditors.
  - For 2024, the fiscal deficit is expected at 1.2 percent of GDP, based on the authorities’ 2024 budget.
- Domestic revenues and operational expenditure:
  - Revenue intake remains very low at 2.7 percent of GDP by end December 2023 and inadequate to cover essential spending needs.
  - In 2023, the gap between domestic revenue and operational expenditure (non-project compensation of employees, non-project goods and services, and interest payments) is estimated at 0.7 percent of GDP.
  - Under the new program, authorities seek to strengthen domestic revenue mobilization and restrain operational expenditure, aiming to cover operational costs with domestic revenue by 2027.
  - Authorities plan to implement measures to raise revenues by about 0.9 percent of GDP between 2023 and 2027.
- Prioritization and implementation capacity:
  - Execution rate of social benefit projects is close to 80 percent; execution rate for other projects is about 40 percent.
  - Prioritization of project spending will be critical, based on clear cost-benefit analyses and implementation capacity.
  - Authorities will attempt to maintain a fiscal buffer and cash balances when possible to withstand unanticipated shocks.
- Debt management measures and structural benchmarks:
  - By June 2024, authorities will:
    1. Issue a Prime Ministerial Decree that articulates key parameters for debt policy and establishes procedures for entering into new borrowing and issuing sovereign guarantees, in line with IMF staff recommendations.
    2. Amend the PFM regulations to include a clear definition of “other financial liabilities” that are considered guarantees as per Article 37 (6) of the PFM Act, in line with IMF staff recommendations (proposed structural benchmark SB#5).
  - Authorities commit to transparency on terms and conditions of different borrowings to provide a full view of costs and risks.
  - Authorities will seek to prevent creation of contingent liabilities, including external and domestic borrowing by member states, implicit and explicit debt guarantees for public entities, and poorly designed PPPs.

### FISCAL ACCOUNTS AND 2024 OUTLOOK (Key Figures)
- Fiscal framework targets and projections (selected entries from Text Table 2 and related text):
  - 2024 overall deficit expected at 1.2 percent of GDP.
  - Authorities plan to increase domestic revenues in 2024 to 2.8 percent of GDP.
  - Domestic revenues surpassing compensation of employees (2.6 percent of GDP) for the first time since 2020 is expected in 2024.
  - Operational expenditure expected to increase modestly by 0.1 percent of GDP reflecting additional security spending, allowances for teachers, and higher interest payments.
  - Project grant disbursements estimated to increase to 3.8 percent of GDP in 2024.
  - Gross financing needs include an overall fiscal deficit of US$145.5 million (1.2 percent of GDP) and amortizations of US$9 million.
  - Financing sources for 2023–24 include cash balances from 2023, World Bank budget support loans (US$75 million), and disbursements from the proposed ECF arrangement in 2023 and 2024 (US$60.3 million).

### REVENUE REFORMS AND TAX MEASURES
- Timely implementation of revenue reforms is crucial; authorities to prepare a Tax Policy and Revenue Administration Roadmap (proposed SB#1, due end-June 2024) with IMF capacity development support.
- Roadmap will include key revenue reforms:
  - Completion of the ad valorem customs reform:
    - After gaining sufficient experience with SOMCAS, authorities will begin application of ad valorem tariffs that rely on invoice values, initially keeping the common valuation table to provide minimum values for duty calculation.
    - Customs reforms will be advanced in remaining ports once conditions allow.
  - Submission of the Income Tax Bill to Parliament by end-June 2024 (proposed SB#2) and its implementation:
    - The existing Income Tax Law dates from 1966; the new ITL will streamline definitions of taxable income and deductions and is expected to increase income tax collection over the medium-term.
  - Revenue mobilization from large businesses, in particular the telecom sector:
    - Aim to bring effective tax rates on the telecom sector up to a level comparable to peers and other countries in the region.
    - With IMF capacity development support, authorities will develop a comprehensive reform strategy to increase revenues from the telecom sector.
  - Other revenue administration measures:
    - Finalize the Revenue Administration Law regulations.
    - Leverage information and communication technologies for revenue administration, including developing the Integrated Tax Administration System and establishing a gateway for tax payments through private banks.
- Estimated increase in domestic revenue (Text Table 3):
  - 2023 Proj. Increase in domestic revenue: 0.4 percent of GDP
    - New measures/better enforcement: 0.2 percent of GDP
    - Tax on international trade (including customs duty increase in May 2023, SOMCAS implementation, Khat import tax): 0.2 percent of GDP
    - Other tax revenue (including turnover tax, POS machines): 0.0 percent of GDP
    - Nontax revenue (including spectrum fees, fishing license, automation of road tax and rental income): 0.0 percent of GDP
    - Ongoing policies: 0.3 percent of GDP
  - 2024 Proj. Increase in domestic revenue: 0.3 percent of GDP
    - New measures/better enforcement: 0.2 percent of GDP
    - Tax on international trade: 0.1 percent of GDP
    - Other tax revenue: 0.0 percent of GDP
    - Nontax revenue: 0.1 percent of GDP
    - Ongoing policies: 0.1 percent of GDP

*Source: IMF staff and Somali authorities (content unit 1somea2023005).*

### 23.      Public financial management improvement should aim at strengthening expenditure

### 23.      Public financial management improvement should aim at strengthening expenditure controls and fiscal transparency

### Public financial management reforms and controls
- Payroll integration
  - Plan to integrate remaining non-payroll compensation of FGS employees into a single payroll.
  - Target: reduce the ratio of non-payroll payments to total compensation of employees to less than 1 percent by end-June 2024 (proposed SB#3).
  - Develop a strategy to align salaries of temporary workers with the existing pay scale of permanent workers and implement the Pay and Grade Policy.
- Invoice tracking
  - Roadmap to expand the coverage of invoice tracking to all goods and services to be developed by end-February 2024 (proposed SB#4).
  - Building on experience of invoice tracking for electricity and internet.
- Public investment management
  - Seek CD support on implementation of public investment projects.
  - Initial focus: build MoF capacity in project appraisal and selection to ensure quality, affordability, and fiscal sustainability of projects.
- Accounting system, business processes, and digitalization
  - Reforms include updating accounting and financial reporting to comply with cash-basis IPSAS.
  - PFM regulations may need amendment to support GovTech.

### Fiscal federalism and expenditure frameworks
- Development hinges on broad-based political consensus.
- IMF to support authorities to develop and implement revenue sharing and expenditure frameworks once political agreements are achieved.

### Monetary and financial policy: institutional strengthening and supervision
- Central Bank of Somalia (CBS) institutional enhancements
  - Preparing amendments to the CBS Law to enhance central bank autonomy (in line with IMF safeguards recommendations).
  - Strengthening capacity of the Finance Department and updating the CBS Strategic Plan.
  - New IMF safeguards assessment initiated; mission expected in early December 2023.
- Banking supervision, data quality, and payment systems
  - By end-July 2024, CBS to develop an action plan to improve the quality of data submitted by commercial banks and communicate the plan to commercial banks (proposed SB#7).
  - Action plan to incorporate improvements to infrastructure, the regulatory framework, and capacity development as needed.
  - Medium-term goal: improvements in data quality to allow Somalia to submit financial stability indicators to the IMF.
  - CBS to engage with mobile money operators (MMOs) on relicensing; MMOs expected to fully comply with regulations at relicensing.
  - Need to strengthen enforcement capacity of financial sector regulations and empower supervisors.
  - Payment system reforms advanced, including a national QR code and national SWITCH.
- AML/CFT framework
  - Preparations for the 2024 MENA-FATF Mutual Evaluation Assessment continue.
  - By end-March 2024, submit amendments of the AML/CFT Law to Parliament in line with IMF staff recommendations (proposed SB#8), aiming for enactment before the Mutual Evaluation.
  - Progress on implementation of Targeted Financial Sanctions law, including training for law enforcement staff.
- Currency reform (currency exchange project)
  - Considered a national development priority; could be carried out in the next two years.
  - Project will reintroduce the Somali shilling (SOS) as legal tender by replacing old and counterfeit notes in circulation.
  - Even after new SOS banknotes are introduced, the Somali economy is expected to remain highly dollarized for some time.
  - Timing depends on addressing the funding gap and securing a firm agreement between the FGS and all FMS.
  - Authorities to formulate monetary and exchange rate policy frameworks and develop capacity of the CBS and financial institutions in consultation with the IMF, including further IMF technical assistance.
  - Note: SOS notes currently in circulation are old and mostly counterfeit (80 percent) and are not backed by the CBS.

### Governance, inclusive growth, and resilience
- Petroleum sector capacity
  - Authorities developing regulations for the Extractive Industries Income Tax Law and the Petroleum Act.
  - Licensing round may launch in 2023Q4; staff reiterated licensing and PSAs should align with the established legal framework.
- Procurement, concessions, and public assets
  - New emergency procurement procedures issued in September 2023.
  - By June 2024, submit the PPP Bill to Parliament with a framework that adequately manages fiscal risks and establishes a gateway process managed by the Ministry of Finance (proposed SB#6).
  - Implementing new policy on management of public assets.
- Anti-corruption and audit
  - Audit Bill enacted in September 2023 to lay the legal groundwork for a robust federal audit system.
  - Emphasis on building capacity of the Auditor General’s Office.
  - Authorities to advance implementation of UNCAC, including legal framework review; progress limited by resource constraints.
- Social protection, digital ID, and climate resilience
  - Based on NDP9, commitment to bolstering inclusive growth and resilience to climate shocks.
  - Newly established national unified social registry as a functional platform to facilitate social protection programs.
  - Somalia National Digital ID rollout started in September 2023 to support targeted social protection and improve know-your-customer requirements for AML/CFT.
  - Preparing the Food Security Crisis Plan to strengthen resilience of food systems to climate change.
  - Working towards ensuring Somalia’s accession to the East African Community.
- Statistics and data improvements
  - New census expected in 2024 (first after 40 years).
  - New Business Survey to be launched to develop production-based national accounts.
  - Scope to strengthen compilation and dissemination of macroeconomic and financial statistics and advance within the e-GDDS framework with IMF CD support.

### Financing and program modalities
- New ECF arrangement
  - Proposed access of SDR 75 million (approximately 45.9 percent of quota, US$100 million) for budget support under a 36-month ECF.
  - Arrangement aims to help meet Somalia’s balance of payments and fiscal financing needs and support reform program.
  - Note: Once the currency exchange reform takes place and Somalia adopts a new monetary and exchange rate regime, there may be a need for additional reserves to back the new currency and enhance credibility. An augmentation of the ECF could be considered in a subsequent review.
- Phasing and disbursement modality
  - Phasing somewhat frontloaded to match timing of fiscal financing needs in 2024H1.
  - Staff proposes disbursement of SDR 30 million at Board approval, with remaining access equally distributed across 6 biannual reviews (SDR 7.5 million each).
  - Disbursements to be made for direct budget support.
- Program monitoring and conditionality
  - Program performance monitored by semi-annual reviews.
  - Performance criteria (QPCs) include:
    - Floor on FGS domestic revenue.
    - Ceiling on spending on FGS compensation of employees, goods and services, and contingency.
    - Floor on CBS net international reserves (NIR) (note: NIR floor will be adjusted downward under specified circumstances).
    - Ceiling on contracting or guaranteeing any new external, non-concessional debt (set at zero in line with the IMF Debt Limits Policy).
    - Ceiling on accumulation of new external arrears by the FGS.
  - Indicative targets (ITs) include:
    - Floor on the FGS fiscal balance (on a cash basis) (adjusted down by delays/shortfalls in budget support grants or higher interest payments).
    - Ceiling on new domestic debt contracted by the FGS.
    - Ceiling on accumulation of new domestic arrears by the FGS.
  - New concessional borrowing monitored as a memorandum item.
  - SBs for the first year are parsimonious, prioritized, sequenced, and anchored in capacity development support.
  - New safeguards assessment of CBS to be carried out before the first review; an agreement on repayment modalities between the CBS and MoF is in place.
- Financing commitments and risks
  - Program is fully financed with firm commitments through December 2024 and good prospects thereafter.
  - Financing needs for the first 12 months to be met with disbursements from the World Bank (US$109.8 million) and the EU (EUR10 million).
  - Continued strong engagement of international donors expected to support full financing; emphasis on early disbursement of partner budget support.
- Debt sustainability and capacity to repay the Fund
  - External and public debt assessed at moderate risk of debt distress following HIPC CP.
  - Under shock scenarios some indicators breach thresholds, consistent with moderate risk rating.
  - With debt relief at HIPC CP and proposed access, IMF credit outstanding projected to peak at 70.7 percent of quota in 2026 (SDR 115.6 million), below normal access limits.
  - Capacity to repay (CtR) is subject to high uncertainty; several CtR indicators exceed the 75th percentile of past PRGT arrangements.
  - Program sets ceilings on overall deficits and non-concessional borrowing and supports fiscal and governance reforms to mitigate debt servicing risks.
- Currency exchange project financing note
  - World Bank project expected to provide US$40 million in grant financing, against a total estimated cost of US$72 million for the currency exchange.
  - World Bank estimates old shillings in circulation to be exchanged range between SOS 1.022-1.546 trillion (USD 40.9- 61.8 million).
  - There are currently no deposits in shillings; contrast with about USD 1.2 billion in bank deposits and a similar amount in mobile money wallets.
- Financing gap and program projections (selected figures preserved as in source)
  - Staff proposes access of SDR 75 million (approximately 45.9 percent of quota, US$100 million) for budget support under a 36-month ECF.
  - Disbursement proposal: SDR 30 million at Board approval; remaining access equally across 6 biannual reviews (SDR 7.5 million each).
  - Financing needs for the first 12 months: World Bank (US$109.8 million) and EU (EUR10 million).

### Capacity development and assessment
- CD crucial for program success, financed by the Somalia Country Fund (SCF).
- Fundraising for SCF Phase II supporting CD through FY2025 has been insufficient, posing a risk to reform implementation.
- New IMF safeguards assessment of the CBS will guide priority reforms and additional IMF TA.

### Staff appraisal and outlook
- Authorities have made commendable efforts to implement the ECF-supported program amid political, security, and climate challenges.
- Progress includes satisfactory program performance under the 2020 ECF arrangement and readiness to complete the last review and be considered for HIPC Completion Point.
- Remaining challenges: insufficient growth to reduce widespread poverty and create enough jobs, high vulnerability to climate shocks, and need for continued reforms to maintain fiscal sustainability, increase domestic revenues, strengthen PFM, promote financial deepening and inclusion, improve business environment and governance, enhance statistics, and formulate/implement new monetary and exchange rate policy frameworks in the context of currency reform.

*Source: 1somea2023005 - 23.      Public financial management improvement should aim at strengthening expenditure*

### 44.      The authorities are committed to a prudent fiscal framework that balances the need

### The authorities are committed to a prudent fiscal framework that balances the need for higher development expenditure with protecting fiscal sustainability

### Fiscal framework and revenue mobilization
- Authorities commit to a prudent fiscal framework balancing higher development expenditure with protecting fiscal sustainability, while taking into account capacity constraints.
- External financing will be based solely on grants and concessional loans to preserve debt sustainability.
- The 2024 budget strengthens domestic revenue collection, which is expected to surpass the cost of compensation of employees for the first time in years.
- External budget support remains crucial.
- Authorities aim to increase domestic revenues by 0.9 percent of GDP between 2023-2027, which would allow the authorities to cover operational costs with domestic revenue by 2027.
- Revenue reforms planned:
  - Customs modernization.
  - Implementation of a new income tax law.
  - Higher revenues from large businesses including the telecom sector.
  - Enhancement of revenue administration.
- Staff recommendation: Continue decisive revenue mobilization efforts to fully cover operational expenditure and create room for development spending over time.

### Public financial management and public debt management
- Continue strengthening public financial management and debt management capacity.
- Key expenditure management reforms:
  - Fully integrating all compensation of FGS employees into the payroll.
  - Implementation of invoice tracking.
- Need to build public investment management capacity to ensure implementation of high quality and affordable projects.
- Strengthen the public debt management framework, including fully articulating and disseminating the procedures for initiating loan negotiations and entering into loan agreements.

### Central Bank of Somalia (CBS), monetary policy, and AML/CFT
- Program will help improve CBS capacity and AML/CFT efforts.
- Continued efforts needed to bolster CBS financial regulation and supervision capacity.
- Improve the quality of data submitted by commercial banks.
- A new IMF safeguards assessment will help guide additional priority reforms.
- Continued efforts are needed to address ML/FT risks ahead of the MENA-FATF Mutual Evaluation Assessment in 2024, including amendments to the AML/CFT Law.
- In the context of the proposed currency reform, monetary and exchange rate policy frameworks need to be formulated and CBS and financial sector capacity enhanced, with IMF CD support.
- Choice of a new monetary and exchange rate framework should:
  1. Provide an efficient nominal anchor.
  2. Be simple, transparent, and easily understandable by businesses and households.
  3. Be operationalized even with limited central bank resources and operational capacity.
- Under any regime, essential measures include:
  - Maintain CBS’ operational independence and technical capacity.
  - Ensure fiscal discipline.
  - Further develop financial markets.
  - Improve the quality and timeliness of macroeconomic and financial data.

### Governance, petroleum sector, and procurement
- Sustained efforts needed to improve governance and fight corruption.
- For the petroleum sector, continue building capacity and ensure implementation of the established legal framework.
- Additional reforms needed to strengthen the framework for procurement and concessions, including a new PPP law that adequately manages fiscal risks.
- Additional governance measures include strengthening the capacity of the Auditor General’s Office and further progress on implementation of the UNCAC.

### Risks and mitigation
- Risks remain significant and reflect Somalia’s drivers of fragility:
  - Climate shocks.
  - Deterioration of the security situation.
  - Political risks linked to federalism.
  - Lower global growth.
- Mitigating factors: continued program ownership, capacity development, and sustained support from development partners.

### IMF capacity development (CD), financing, and program review
- Somalia continues to need extensive IMF CD support and financing; Somalia Country Fund (SCF) is critical.
- Staff encourages Somalia’s partners to accelerate their pledges to the SCF to ensure a continued smooth delivery of IMF TA to support the authorities’ reform agenda.
- Given strong implementation of reforms, staff supports completion of the sixth review of the current ECF with a corresponding SDR 7 million disbursement.
- The authorities plan to use the disbursement to help strengthen gross external reserves.

*Source: SOMALIA — INTERNATIONAL MONETARY FUND (excerpt from 1somea2023005).*

### 53.      Based on the balance of payments need and policy commitments, staff supports the

### 1somea2023005 - 53.      Based on the balance of payments need and policy commitments, staff supports the

### Program request and Fund decision framework
- Staff supports the authorities’ request for a new three-year arrangement under the ECF.
- Staff proposes program access of SDR 75 million (approximately 46 percent of quota) for direct budget support, frontloaded to match the timing of fiscal financing needs.
- The current ECF arrangement will expire at the time that the last disbursement is made.
- Because a member cannot have two ECF arrangements effective at the same time under the PRGT Instrument, the new ECF arrangement would only come into effect once the current ECF arrangement expires.

### Key macroeconomic baseline and projections (selected figures from Table 1)
- Population: 15.6 million, 2022 estimate
- Nominal GDP in millions of U.S. dollars (series shows alternating values across rows): 9,839 8,158 10,420 8,738 11,515 12,489 13,541 14,686 15,913 17,192
- Real GDP in millions of U.S. dollars (series): 10,172 6,235 10,420 6,410 10,711 11,108 11,541 12,002 12,495 13,032
- Real GDP, annual percentage change: 3.3 1.7 2.4 2.8 2.8 3.7 3.9 4.0 4.1 4.3
- Real GDP per capita in U.S. dollars: 670 399 667 399 667 673 680 688 699 711
- CPI (period average, percent change): 4.6 6.8 6.8 4.2 5.7 4.1 3.8 3.6 3.4 3.2
- CPI (e.o.p., percent change): 5.7 6.1 6.1 3.7 4.6 3.9 3.7 3.5 3.3 3.1

### Central government finances (percent of GDP, selected)
- Revenue and grants: 3.8 8.8 6.9 7.8 6.4 6.9 5.2 4.7 4.2 4.1
  - Tax: 1.7 2.2 1.7 2.2 1.9 1.9 2.1 2.4 2.7 2.9
  - Grants 4/: 1.5 5.6 4.4 4.6 3.7 4.1 2.1 1.4 0.6 0.3
- Expenditure (FGS): 4.7 8.8 6.9 8.3 6.5 8.1 6.5 6.3 6.3 6.2
  - Compensation of employees: 2.5 3.2 2.5 3.4 2.5 2.6 2.6 2.6 2.6 2.6
  - Purchase of non-financial assets: 0.2 0.2 0.1 0.2 0.3 0.3 0.2 0.2 0.2 0.2
- Overall balance: -0.9 0.0 0.0 -0.5 -0.1 -1.2 -1.3 -1.7 -2.1 -2.0
- Net change in the stock of cash: -0.2 0.5 0.4 -0.7 0.1 -0.5 0.0 0.0 0.0 0.0
- Stock of domestic arrears: 0.7 0.8 0.7 0.8 0.6 0.5 0.5 0.4 0.4 0.3

### Public debt and external sector (percent of GDP and balances)
- Public debt 5/, 6/: 40.6 40.8 37.4 7.0 6.1 6.8 7.6 8.7 10.1 11.3
- Net Foreign Assets (monetary sector, percent of GDP): -3.5 -3.2 -1.5 1.1 2.0 2.0 2.0 2.0 1.8 1.7
- Credit to the private sector: 3.2 4.9 3.8 5.5 4.3 4.9 5.7 6.8 7.6 8.7
- Broad Money 8/: 11.4 14.6 12.7 14.4 12.9 13.2 13.7 14.5 14.4 14.8
- Current account balance: -6.8 -16.8 -8.0 -16.4 -9.5 -9.0 -10.2 -10.7 -10.9 -11.0
- Trade balance: -50.9 -79.1 -61.2 -75.0 -61.0 -60.8 -60.0 -59.3 -59.2 -59.0
- Exports of goods and services: 15.6 17.0 17.3 18.2 18.1 19.2 20.3 21.1 21.8 22.2
- Imports of goods and services: 66.5 96.2 78.5 93.2 79.0 79.9 80.3 80.4 81.0 81.2
- Remittances: 21.5 26.3 20.6 27.6 20.6 20.9 21.2 21.5 22.0 22.0
- Grants (percent of GDP): 23.0 36.6 33.0 31.5 31.3 31.2 28.9 27.4 26.6 26.3
- Foreign Direct Investment: 5.2 7.8 5.2 7.8 5.2 5.4 5.4 5.4 5.4 5.4
- External debt 9/: 39.9 40.0 36.7 6.3 5.5 6.3 7.1 8.3 9.7 11.0

### Fiscal operations and financing (selected data from Table 2a, millions of U.S. dollars)
- Revenue and grants (sample row values across periods): 376.5 721.9 721.9 909.0 681.7 732.4 307.0 863.0 700.5 684.6 669.0 712.8
- Revenue (sample values): 229.6 262.7 262.7 283.3 283.3 312.2 0.0 345.1 409.5 484.6 569.0 662.8
- Tax revenue (sample values): 162.8 181.7 181.7 189.9 189.9 219.3 0.0 241.4 284.2 348.7 421.8 503.8
- Grants (sample values): 147.0 459.2 459.2 625.7 398.3 420.3 307.0 517.8 291.0 200.0 100.0 50.0
  - Multilateral (sample values): 144.5 422.1 422.1 595.7 398.3 419.5 277.0 517.8 291.0 200.0 100.0 50.0
- Total expenditure (sample values): 460.2 719.5 719.5 909.0 725.5 746.4 192.8 1,008.5 877.5 932.2 998.3 1,059.0
- Current expenditure (sample values): 444.1 706.3 706.3 859.0 708.2 716.2 171.4 966.6 853.5 907.5 972.4 1,032.4
- Compensation of employees (sample values): 250.1 259.6 259.6 293.8 295.6 291.7 2.7 327.1 352.1 384.0 417.9 453.7
- Purchase of non-financial assets (sample values): 16.1 13.2 13.2 51.7 17.2 30.2 21.4 41.9 24.0 24.7 25.9 26.6
- Overall fiscal balance (millions USD, sample values): -83.7 2.4 2.4 0.0 -43.8 -14.0 114.3 -145.5 -177.1 -247.6 -329.3 -346.2
- Net accumulation of external debt (sample values): 60.7 32.7 32.7 0.0 -14.2 25.7 0.0 86.4 180.1 250.6 332.3 349.2
- IMF: ECF prospective arrangement (sample financing line): 40.1 20.2 20.3 20.3

### Central Bank summary (selected balances, Table 3, millions of U.S. dollars)
- Net Foreign Assets (sample period values): 82 (250) (183) (301) (356) (327)
- Foreign assets (sample period values): 146 193 322 346 297 328
- SDR holdings (sample): 24 51 200 174 176 184
- Foreign liabilities (sample period values): 64 444 650 646 653 655
- IMF obligations (sample): - 371 360 371 375 380
- SDR allocations (sample): 64 73 290 276 279 276
- Net Domestic Assets (sample): (10) 409 409 378 401 377
- Claims on government (sample): 40 392 451 472 478 472
- Equity and reserves (sample): 72 159 226 77 45 50

### Social, infrastructure, and vulnerability indicators (figures summary)
- GDP per Capita in 2022 (USD): SOM 138; LIC 745; FCS 2,405; EMDE 8,078 (figure shows comparative bars with Somalia lowest).
- Poverty Rate at US$1.90 (2011 PPP) in 2018 (Percent of population): SOM 68; LIC 30; FCS 25; EMDE 9.
- Global Hunger Index (index with score 1 to 100, series): 0 10 20 30 40 50 60 70 80 90 (figure context provided).
- Life Expectancy in 2021 (Years): SOM 55; LIC 62; FCS 64; EMDE 69.
- Infant Mortality Rate in 2021 (per 1,000 live births): SOM 71; LIC 47; FCS 39; EMDE 24.
- Adult Literacy Rate in 2017-2018 (Percent, by sex): Male 64; Female 47 (figure shows higher literacy for male than female).
- People Using at Least Basic Drinking Water Services in 2022 (Percent of population): EMDE 77; FCS 64; LIC 62; SOM 58.
- Access to Electricity in 2021 (Percent of population): EMDE 83; FCS 61; SOM 49; LIC 41.
- Logistics Performance Index in 2022 (index with scores 1 to 5): EMDE 2.75; FCS 2.41; LIC 2.40; SOM 2.0 (figure context shows Somalia lowest).

### Capacity to repay and historical Fund exposures (Figure 4 summary)
- Capacity-to-repay (CtR) indicators are presented versus medians and interquartile ranges for UCT arrangements for PRGT countries (2012–2022 comparators).
- Notes indicate indicators cover up to T+10, include PPG variables, and show total Fund credit outstanding and peaks in Fund credit as percent of PPG external debt and percent of PPG external debt service for comparator cases.
- The dataset includes multiple country arrangement events and clarifies treatment of blenders and RST in CtR charts.

*Source: Excerpt from IMF chapter PDF (staff analysis, figures, and tables contained in the provided content).*

### 222.13 million) between the CBS (about US$ 90 million) and the FGS (about US$ 133 million).

### 1somea2023005 - 222.13 million) between the CBS (about US$ 90 million) and the FGS (about US$ 133 million).

### Consolidated Commercial Banks Balance Sheet (2019–2023)
- Total assets: 556; 821; 1,2621,279; 1,3311,384 (Millions of U.S. Dollars) as shown across periods.
- Cash on Hand: 117285; 553; 476; 467; 459.
- Balances with Central Bank: 18; 29; 4149; 43.
- Deposits with other banks 1/: 79; 104122; 79; 89; 81.
- Credit to private sector: 206; 219319; 400; 401409.
- Investment 2/: 60; 6186; 138; 138; 138.
- Other Assets 3/: 77; 123155; 145; 187; 254.
- Total liabilities: 459704; 975; 1,247; 1,232; 1,245.
- Customer Deposits 4/: 430; 659900; 1,164; 1,134; 1,143.
- Financing Liabilities2: 3; 33; 73.
- Other Liabilities: 27; 32; 5757; 6967.
- Equity: 97 117288; 32; 99; 138.
- Memorandum items (selected):
  - Credit to private sector share of total assets (percent): 37 27; 25 31; 30 30.
  - Credit to private sector share of GDP (percent): 2; 3 45; 55.
  - y-o-y changes (percent): 127461812; 10.
  - Total capital to assets (percent): 16; 12 14 13 14; 14.
  - Loan to deposits (percent): 48 33 35 34; 35; 36.
  - Liquid assets to total assets (percent): 32; 45 54 49 44.

Notes:
- 1/ Primarily deposits and placements with non-resident banks and other financial institutions.
- 2/ Primarilly investment in real estate.
- 3/ Fixed, intangible and other assets.
- 4/ Starting from December 2020, include deposits of mobile money operators.
- Prudential regulations require that commercial banks hold $1.5 million of the minimum $7 million capital requirement at the CBS; MTBs must hold $60,000 each at the CBS.

### Monetary Survey (2021–2028)
- Net foreign assets 2/: -343 -260 -159 932 272 462 662 902 912 91.
- Claims on nonresidents: 321 423 509 383 559 578 598 619 615 606.
- Central Bank 3/: 281 355 306 311 334 334 334 332 328 320.
  - of which gross reserves of the CBS: 172 246 197 193 221 221 221 220 216 207.
- Other Depository Corporations: 396 820 373 225 244 264 287 287 287.
- Liabilities to Nonresidents 4/: 663 683 669 290 332 332 332 329 324 316.
- Net Domestic Claims: 146 214 501 485 116 212 561 402 159 118 392 008 2250.
- Net Claims on Central Government: 419 366 401 -213 636 363 534 34.
  - of which CBS claim on government 2/: 703 723 708 330 372 372 372 369 364 356.
- Claims on private sector: 319 400 400 480 496 615 777 1002 1212 1493.
- Other net claims not included in broad money: 724 684 684 702 725 751 777 802 762 723.
- Capital and Reserves: 203 146 228 157 252 274 297 322 322 322.
- Other items, net: 99 101 01112141516.
- Broad Money 5/: 1119 1190 1326 1255 1483 1648 1857 2129 2299 2541.
- Memorandum item:
  - Credit to the private sector (percent of GDP): 3.2; 4.0; 3.8; 4.6; 4.3; 4.9; 5.7; 6.8; 7.6; 8.7.

Notes:
- 1/ The macroeconomic framework assumes HIPC Completion Point in December 2023.
- 2/ The authorities decided to distribute the 2021 SDR Allocation by the IMF on August 23, 2021 for the SDR 156.6 million (about US$ 222.13 million) between the CBS (about US$ 90 million) and the FGS (about US$ 132 million).
- 3/ Includes Federal Governmnet of Somalia (FGS) grants held abroad.
- 4/ Assuming reaching HIPC Completion Point in 2023.
- 5/ Primarilly desposits at commercial banks. Data does not yet include balances held with Mobile Network Operators.

### Balance of Payments (2021–2028) — Levels (Millions of U.S. Dollars)
- Current account balance: -671; -1,373; -838; -1,432; -1,092; -1,127; -1,386; -1,574; -1,738; -1,894.
- Overall trade balance: -5,012; -6,454; -6,378; -6,555; -7,020; -7,589; -8,128; -8,710; -9,423; -10,143.
- Goods balance: -4,073; -5,013; -5,636; -5,058; -6,155; -6,658; -7,134; -7,634; -8,249; -8,843.
  - Exports of goods, f.o.b.: 717 687 704 818 859 1,020 1,205 1,392 1,590 1,796.
  - Imports of goods, f.o.b.: -4,790 -5,700 -6,340 -5,876 -7,014 -7,678 -8,339 -9,027 -9,839 -10,639.
- Services, net: -939; -1,441; -742; -1,497; -865; -931; -994; -1,076; -1,174; -1,300.
  - Service credits: 815 703 1,100 773 1,221 1,374 1,544 1,704 1,878 2,029.
  - Service debit: -1,754 -2,145 -1,842 -2,270 -2,085 -2,305 -2,538 -2,779 -3,052 -3,329.
- Income (net): -42 -45 -45 -43 -44 -39 -43 -46 -50 -54.
  - Receipts: 545 858 626 469 758 188 95.
  - Payments: -96 -102 -102 -104 -108 -108 -117 -127 -138 -149.
  - of which: Interest payments, public debt: -1 -1 -1 -6 -6 -14 -14 -14 -14 -15.
  - Multilateral, official: -1 -1 -1 -5 -6 -7 -6 -6 -6 -8.
- Current transfers (net): 4,384 5,125 5,584 5,166 5,972 6,501 6,784 7,182 7,735 8,303.
  - Private (net), including remittances: 2,118 2,142 2,142 2,414 2,367 2,607 2,867 3,157 3,501 3,782.
  - Official: 2,265 2,983 3,443 2,751 3,606 3,894 3,917 4,025 4,235 4,521.
  - On budget aid 2/: 147 367 459 319 420 518 291 200 100 50.
  - Off-budget aid: 2,118 2,616 2,983 2,433 3,185 3,376 3,626 3,825 4,135 4,471.
- Capital account and financial account: 698 1,372 790 1,432 1,061 1,107 1,366 1,552 1,734 1,886.
  - Foreign direct investment: 512 636 542 677 599 674 731 793 859 928.
  - Other Investment: 222 0000 75172 244 348 365.
  - of which: Long-term debt liabilities 3/: 222 000000000.
  - Official concessional borrowing: 0000075172244348365.
- Amortization, public debt 4/: -13.7 -12 -11.9 -14 -14.4 -8.7 -11.8 -13.7 -15.6 -16.1.
  - Multilateral, official: -13.7 -12 -11.9 -14 -14 -5 -6 -7 -9 -13.
  - Bilateral, official: 00000 -4 -6 -6 -6 -3.
- Overall balance and error and omissions: 27 -1 -480 -31 -20 -20 -22 -4 -9.
- Financing: -271 480 3120202249.
- Change in central bank reserves (- = increase): -1021 -250 -2800 249.
- Use of Fund resources (net): 747072 -315 -27620202000.
  - Purchases and loans: 747072 195920202000.
  - of which: ECF Prospective arrangement 40.120202000.
  - Repayments: 000 -334 -33500000.
- Arrears, net change (+ = accumulation): -1600 -1,236 -2,91300000.
- Prospective debt relief and rescheduling 5/: 1600 1,236 3,24800000.

Memorandum items:
- Nominal GDP: 9,839 8,158 10,420 8,738 11,515 12,489 13,541 14,686 15,913 17,192.
- Exports of goods and services: 1,532 1,390 1,804 1,591 2,079 2,394 2,749 3,096 3,467 3,825.
- External debt 5/, 6/: 3,922 3,264 3,827 547 638 783 963 1,214 1,546 1,895.

Notes:
- 1/ The macroeconomic framework assumes HIPC Completion Point in December 2023.
- 3/ Includes allocations of SDRs in August 2021, for SDR 156.6 million or US$ 222.13 million.
- 5/ Assumes application of HIPC debt relief and interim HIPC assistance from the Decision Point, and MDRI and beyond-HIPC debt relief at Completion Point in 2023.
- 6/ Consistent with the DSA external debt definition, which reflects the external debt of the country as a whole. Includes the total net SDR position of the central bank. This differs from public external debt reported in Tables 2A, 2B, and 10.
- 4/ From 2023, reflects payments on restructured debt, including IDA, assuming full delivery of HIPC, MDRI, and beyond-HIPC debt relief. Excludes payments to the IMF.

### Balance of Payments (2021–2028) — Ratios (Percent of GDP)
- Current account balance (percent of GDP): -6.8; -16.8; -8.0; -16.4; -9.5; -9.0; -10.2; -10.7; -10.9; -11.0.
- Overall trade balance: -50.9; -79.1; -61.2; -75.0; -61.0; -60.8; -60.0; -59.3; -59.2; -59.0.
- Goods balance: -41.4; -61.4; -54.1; -57.9; -53.5; -53.3; -52.7; -52.0; -51.8; -51.4.
- Exports of goods, f.o.b. (percent of GDP): 7.3 8.4 6.8 9.4 7.5 8.2 8.9 9.5 10.0 10.4.
- Imports of goods, f.o.b. (percent of GDP): -48.7 -69.9 -60.8 -67.2 -60.9 -61.5 -61.6 -61.5 -61.8 -61.9.
- Services, net: -9.5; -17.7; -7.1; -17.1; -7.5; -7.5; -7.3; -7.3; -7.4; -7.6.
- Service credits: 8.3 8.6 10.6 8.9 10.6 11.0 11.4 11.6 11.8 11.8.
- Current transfers (net): 44.6 62.8 53.6 59.1 51.9 52.1 50.1 48.9 48.6 48.3.
  - Private (net), including remittances: 21.5 26.3 20.6 27.6 20.6 20.9 21.2 21.5 22.0 22.0.
  - Official: 23.0 36.6 33.0 31.5 31.3 31.2 28.9 27.4 26.6 26.3.
- Capital account and financial account: 6.8 16.8 8.0 16.4 9.5 9.0 10.2 10.7 10.9 11.0.
  - Foreign direct investment: 5.2 7.8 5.2 7.7 5.2 5.4 5.4 5.4 5.4 5.4.
- Amortization (percent of GDP): -0.1 -0.1 -0.1 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1.
- Overall balance and error and omissions: 0.3 0.0 -0.5 0.0 -0.3 -0.2 -0.1 -0.2 0.0 0.0.
- Change in central bank reserves (- = increase): -1.0 0.0 -0.2 0.0 -0.2 0.0 0.0 0.0 0.0 0.0.

Memorandum:
- Nominal GDP (Million of U.S. dollars): 9,839 8,158 10,420 8,738 11,515 12,489 13,541 14,686 15,913 17,192.
- External debt 6/, 7/ (percent of GDP): 39.9 40.0 36.7 6.3 5.5 6.3 7.1 8.3 9.7 11.0.
- Exports of goods and services (percent of GDP): 15.6 17.0 17.3 18.2 18.1 19.2 20.3 21.1 21.8 22.2.
- Imports of goods and services (percent of GDP): 66.5 96.2 78.5 93.2 79.0 79.9 80.3 80.4 81.0 81.2.

Notes:
- 1/ The macroeconomic framework assumes HIPC Completion Point in December 2023.
- 2/ In June 2023, the Somalia National Bureau of Statistics rebased GDP to 2022.
- 4/ Includes allocations of SDRs in August 2021, for SDR 156.6 million or US$ 222.13 million.
- 7/ Consistent with the DSA external debt definition, which reflects the external debt of the country as a whole. Includes the total net SDR position of the central bank. This differs from public external debt reported in Tables 2A, 2B, and 10.
- 6/ From 2023, reflects payments on restructured debt, including IDA, assuming full delivery of HIPC, MDRI, and beyond-HIPC debt relief. Excludes payments to the IMF.
- 3/ Includes only donor support provided to the federal government through treasury accounts at the Central Bank of Somalia. A change in World Bank policy for countries with moderate risk of debt distress that replaces the previous 50:50 mix of grants and loans with 100 percent loans (with 50-year maturity), will impact Somalia starting in 2024 because after reaching HIPC Completion Point in 2023, Somalia would be assessed as having a moderate risk of debt distress.

### Schedule of Reviews and Disbursements for the Current ECF Arrangement
- Availability date and Percent of quota 1/ (Millions of SDRs) — Selected entries:
  - March 25, 2020: Amount of Disbursements 210.8620039.56778250.42978153.26200 (Approval of arrangement).
  - November 18, 2020: 7.000000.000007.000004.28400 (First review and end-June 2020 performance criteria).
  - April 15, 2021 and October 15, 2021, respectively: 14.000000.0000014.000008.56800 (Second and Third Review, and end-Dec 2020 and end-June 2021 performance criteria).
  - October 15, 2022: 7.000000.000007.000004.28400 (Fourth review and end-June 2022 performance criteria).
  - April 15, 2023: 7.000000.000007.000004.28400 (Fifth review and end-December 2022 performance criteria).
  - October 15, 2023: 7.000000.000007.000004.28400 (Sixth review and end-June 2023 performance criteria).
- Total: 252.8620039.56778292.42978178.96600.
- Note: 1/ Somalia's quota is SDR 163.4 million.

### External Financing Needs and Sources (2020–2028)
- Gross financing requirement: 8,939.0 5,128.7 6,415.3 10,316.2 7,612.3 8,153.4 8,735.3 9,448.3 10,166.0 (Millions of U.S. Dollars) across years.
- Trade deficit: 4,639.4 5,012.3 6,378.0 7,020.2 7,589.1 8,127.7 8,710.0 9,422.9 10,143.3.
- Amortization: 12.7 13.7 11.9 14.4 8.7 11.8 13.7 15.6 16.1.
- Interest on external obligations: 2.5 0.9 0.8 5.6 14.5 14.0 13.5 13.6 15.1.
- Official arrears/repayments: 4,265.2 0.0 0.0 3,248.0 0.0 0.0 0.0 0.0 0.0.
  - Of which: IMF: 360.0 0.0 0.0 335.0 0.0 0.0 0.0 0.0 0.0.
- Change in reserves (increase = +): 19.2 101.8 24.6 28.0 0.0 0.0 -1.9 -3.8 -8.5.
- Available financing: 4,111.5 4,778.1 6,171.4 6,880.0 7,472.4 7,946.6 8,471.0 9,100.4 9,800.7.
  - Current transfers (net) 2/: 4,119.3 4,345.4 5,413.0 5,843.2 6,456.2 6,769.0 7,182.4 7,735.4 8,303.3.
    - Of Which: Remittances: 1,642.0 2,118.4 2,141.7 2,366.8 2,607.2 2,866.7 3,157.4 3,500.8 3,782.3.
  - Foreign Direct Investment: 463.9 511.6 541.8 598.8 674.4 731.2 793.0 859.3 928.4.
  - Other flows 3/: -471.7 -78.9 216.6 438.1 341.7 446.4 495.6 505.8 569.0.
- Financing gap: 4,827.5 350.7 243.9 3,436.2 140.0 206.9 264.3 347.9 365.3.
- Exceptional Financing: 4,265.2 15.8 0.0 3,248.0 0.0 0.0 0.0 0.0 0.0.
  - HIPC debt relief: 4,265.2 15.8 0.0 3,248.0 0.0 0.0 0.0 0.0 0.0.
  - Of which: IMF 4/: 0.8 0.5 0.6 335.1 0.0 0.0 0.0 0.0 0.0.
- Remaining gap: 562.3 334.8 243.9 188.2 140.0 206.9 264.3 347.9 365.3.
- Identified financing (remaining gap): 562.3 334.8 243.9 188.2 140.0 206.9 264.3 347.9 365.3.
  - Official budget grants: 153.4 38.4 171.4 129.3 44.8 15.0 0.0 0.0 0.0.
  - IMF 5/: 408.8 222.1 27.9 58.9 20.2 20.3 20.3 0.3 0.0.
    - ECF: 313.3 0.0 27.9 18.7 0.0 0.0 0.0 0.0 0.0.
    - ECF: Prospective arrangement: .........40.120.220.320.3......
    - EFF: 56.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0.
    - SDR: 0.0 222.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0.
  - Official loans (net) 6/: 0.0 74.4 44.6 0.0 75.0 171.6 244.0 347.9 365.3.

Notes:
- 1/ The macroeconomic framework assumes HIPC Completion Point in December 2023.
- 2/ On-budget project grants, off-budget grants, and private remittances.
- 3/ Includes other financial account flows.
- 6/ Includes WB loan financing only from 2024 onwards.
- 4/ Includes HIPC interim assistance received between the Decision and Completion Points, and HIPC and beyond-HIPC debt relief at Completion Point in 2023.
- 5/ Disbursements in 2020-23 are conditional on Board approval of ECF reviews.

### Indicators of Fund Credit and Capacity to Repay (2023–2038)
- Obligations from existing and prospective drawings — Principal Repurchases and Repayments 3/ (In millions of SDR):
  - 2023: 250.4.
  - 2024: 0.0.
  - 2025: 0.0.
  - 2026: 1.4.
  - 2027: 2.8.
  - 2028: 6.3.
  - 2029: 15.2.
  - 2030: 18.2.
  - 2031: 19.8.
  - 2032: 20.6.
  - 2033: 17.1.
  - 2034: 8.3.
  - 2035: 5.3.
  - 2036: 2.3.
  - 2037: 0.0.
  - 2038: 0.0.

*Source: IMF staff estimates and Somali authorities as provided in the supplied content.*

### 2.  Charges and interest 4/

### 2. Charges and interest 4/

### Charges, SDR related charges, obligations, and Fund credit
- Charges: 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- SDR related charges: 0.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
- Total obligations: 250.4 3.2 3.0 4.4 5.8 9.3 18.1 21.1 22.7 23.6 20.1 11.2 8.2 5.2 3.0 3.0
- Outstanding Fund credit, end of period: 72.0 87.0 102.0 115.6 112.8 106.5 91.4 73.2 53.5 32.9 15.8 7.5 2.3 0.0 0.0 0.0
- Net Use of Fund Credit: -206.4 15.0 15.0 13.6 -2.8 -6.3 -15.2 -18.2 -19.8 -20.6 -17.1 -8.3 -5.3 -2.3 0.0 0.0
- Disbursements and Purchases: 44.0 15.0 15.0 15.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Repayments and Repurchases 3/: 250.4 0.0 0.0 1.4 2.8 6.3 15.2 18.2 19.8 20.6 17.1 8.3 5.3 2.3 0.0 0.0

### Memorandum items — Outstanding Fund credit, end of period (percent)
- In percent of Exports of goods and services: 4.6 4.8 4.9 5.0 4.3 3.7 3.0 2.2 1.5 0.9 0.4 0.2 0.0 0.0 0.0 0.0
- In percent of External public debt: 15.0 14.8 14.1 12.7 9.7 7.5 5.5 3.9 2.5 1.3 0.6 0.2 0.1 0.0 0.0 0.0
- In percent of Gross official reserves: 43.2 52.3 61.3 70.0 69.5 68.3 64.9 55.6 40.6 24.9 12.0 5.7 1.7 0.0 0.0 0.0
- In percent of GDP: 0.8 0.9 1.0 1.0 0.9 0.8 0.7 0.5 0.3 0.2 0.1 0.0 0.0 0.0 0.0 0.0
- In percent of Quota: 44.1 53.2 62.4 70.7 69.0 65.2 55.9 44.8 32.7 20.1 9.6 4.6 1.4 0.0 0.0 0.0

### Memorandum items — Total Obligations, in percent
- In percent of Exports of goods and services: 16.0 0.2 0.1 0.2 0.2 0.3 0.6 0.6 0.6 0.6 0.5 0.3 0.2 0.1 0.1 0.1
- In percent of External public debt: 52.2 0.5 0.4 0.5 0.5 0.6 1.1 1.1 1.0 0.9 0.7 0.3 0.2 0.1 0.1 0.1
- In percent of Gross official reserves: 150.4 1.9 1.8 2.6 3.5 5.9 12.9 16.0 17.2 17.9 15.2 8.5 6.2 3.9 2.2 2.2
- In percent of GDP: 2.9 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0
- Quota series: 153.3 2.0 1.8 2.7 3.5 5.7 11.1 12.9 13.9 14.4 12.3 6.9 5.0 3.2 1.8 1.8
- Quota (constant): 163.4 repeated values (163.4 ...)

- Source: IMF staff estimates and projections.
- Notes:
  - 1/ The macroeconomic framework assumes HIPC Completion Point in December 2023.
  - 2/ Projections incorporate debt relief expected at the HIPC Completion Point.
  - 3/ 2023 projections incorporate IMF portion of the HIPC debt relief in the amount of SDR 250.4 millions.
  - 4/ Projections are based on current IMF charges.

### Table 10 — Quantitative Performance Indicators and Indicative Targets (June 2023–September 2023) (Millions of U.S. Dollars)
- Quantitative Performance Criteria (Prog. / Prel. Status):
  - 1 FGS domestic revenue, floor 2/: 115.0 / 137.2 — Met
  - 2 Spending on FGS compensation of employees, goods & services, & contingency, ceiling 2/: 240.0 / 172.7 — Met
  - 3 Net international reserves, floor: -346.0 / -340.1 — Met
  - 4 Contracting of new domestic debt, ceiling 3/: 0.0 / 0.0 — Met
  - 5 Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/: 0.0 / 0.0 — Met
  - 6 Accumulation of new external arrears, ceiling 3/: 0.0 / 0.0 — Met
- Indicative Targets (Prog. / Prel. Status):
  - 1 FGS domestic revenue, floor 2/: 170.0 / 232.4 — Met
  - 2 Spending on FGS compensation of employees, goods & services, & contingency, ceiling 2/: 340.0 / 266.9 — Met
  - 3 Net international reserves, floor: -346.0 / -341.1 — Met
  - 4 Contracting of new domestic debt, ceiling 3/: 0.0 / 0.0 — Met
  - 5 Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/: 0.0 / 0.0 — Met
  - 6 Accumulation of new external arrears, ceiling 3/: 0.0 / 0.0 — Met
  - 7 Fiscal balance, floor (cash basis) 2/5/: -62.1 adjusted / -51.3 — Met; -42.1 adjusted / 26.6 — Met
  - 8 Accumulation of new domestic expenditure arrears, ceiling 3/: 0.0 / 0.0 — Met
  - 9 Contracting or guaranteeing any new external, concessional debt, ceiling 3/: 0.0 / 0.0 — Met
- Sources: Somali authorities; and IMF staff estimates and projections.
- Notes:
  - 2/ Cumulative from the beginning of the fiscal year.
  - 3/ This target is applied on a continuous basis.
  - 4/ Test date for the sixth review.
  - 5/ The program floor on the fiscal balance is adjusted down by the amount of shortfalls in budget support grants as compared to the budget estimate, up to the maximum amounts stipulated in Table 1 of TMU.
  - Jun. 2023 / Sept. 2023.

### Table 11 — Structural Benchmarks Under the Current ECF-Arrangement (June 2023–December 2023)
- Benchmarks, target dates, sector/FGS agency, rationale, monitoring, status (selected entries):
  - 1 Submit to Parliament a Supplementary Budget for 2023... End-June 2023 / Fiscal policy / MOF — Rationale: accommodate higher spending... — Monitoring: Submit to IMF the Supplementary Budget for 2023 approved by the Cabinet — Status: Met
  - 2 Operationalize POS machines connected to tax offices... End-June 2023 / Domestic revenue / MOF — Rationale: Support domestic revenue generation and revenue administration — Monitoring: Confirm installment... Provide IMF staff summary of data transmitted — Status: Not met
  - 3 Introduce turnover taxes with at least 2000 newly registered taxpayers... End-May 2023 / Domestic revenue / MOF — Monitoring: Confirm collection... Provide IMF staff with list of taxpayers — Status: Implemented with delay
  - 4 Operationalize the Customs Automated System at the ports and airports of Mogadishu, Bosaso, Garowe, and Kismayo. End-July 2023 / Domestic revenue / MOF — Status: Not met
  - 5 Extend coverage of payroll to 50 percent of non-payroll compensation of FGS employees. End-May 2023 / PFM / MOF NCSC MOLSA — Monitoring: Submit SFMIS reports; ratio of non-payroll payments to total compensation to decrease to 16 percent or less on average between March and May 2023 (relative to 32 percent in 2021) — Status: Implemented with delay
  - 6 (i) Configure the SFMIS to allow only the MoF to change the payroll entries; (ii) Cabinet approval of the 2024 Appropriation Bill including a provision specifying the MoF’s authority... End-October 2023 / PFM / MOF — Status: Met
  - 7 (i) Amend PFM Regulations to implement the PFM Act's provisions on public property and (ii) issue the asset management policy... End-September 2023 / Governance / MOF — Status: Met
  - 8 Issue the Banking Regulations on Capital Adequacy and Liquidity Coverage Ratio. End-September 2023 / Financial Supervision / CBS — Status: Met
  - 9 Enact the Targeted Financial Sanctions Law and issue related regulations. End-July 2023 / AML-CFT Governance / MOF CBS — Status: Met
  - 10 Cabinet approval of standard operating procedures for the Inter-Ministerial Concessions Committee (IMCC). End-June 2023 / Governance / MOF — Status: Implemented with delay
- Note: Abbreviations include MOF, CBS, MOLSA, SPA, IMCC, FMS, NCSC, PFM, SFMIS, IPSAS, AML-CFT.

### Table 12 — Proposed Quantitative Performance Indicators and Indicative Targets Under the New ECF Arrangement (December 2023 – December 24) (Millions of U.S. Dollars)
- Projection dates: Dec. 2023 4/, Mar. 2024, June. 2024 4/, Sept. 2024, Dec. 2024 4/ (Prog. values)
- Quantitative Performance Criteria (Prog.):
  - 1 FGS domestic revenue, floor 2/: 312 145 345
  - 2 Spending on FGS compensation of employees... ceiling 2/: 384 236 437
  - 3 Net international reserves, floor 7/: 10 10 10
  - 4 Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/: 0 0 0
  - 5 Accumulation of new external arrears, ceiling 3/: 0 0 0
- Indicative Targets (Prog.):
  - 1 FGS domestic revenue, floor 2/: 69 231
  - 2 Spending on FGS compensation of employees... ceiling 2/: 118 349
  - 3 Net international reserves, floor 7/: 10 10
  - 4 Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/: 0 0
  - 5 Accumulation of new external arrears, ceiling 3/: 0 0
  - 6 Fiscal balance, floor (cash basis) 2/: -15 -48 -216 -38
  - 7 Contracting of new domestic debt, ceiling 3/: 0 0 0 0 0
  - 8 Accumulation of new domestic expenditure arrears, ceiling 3/: 0 0 0 0 0
- Memorandum item:
  - Contracting or guaranteeing of new external concessional debt 5/6/: 0 0 75 75 75
- Sources: Somali authorities; and IMF staff estimates and projections.
- Notes:
  - 2/ Cumulative from the beginning of the fiscal year.
  - 3/ This target is applied on a continuous basis.
  - 4/ Test date for the first, second and third reviews, respectively.
  - 5/ The fiscal balance floor is in line with the authorities' 2024 budget (US$38 million), which is consistent with the IMF staff forecast (US$146 million). The authorities' budget assumes that budget support financing from IDA (US$75 million) could be on grant terms and approved before June 30, 2024. A decision by the IDA deputies on the latter is still pending, therefore in the IMF forecast budget support financing from IDA is included as borrowing and not as a grant. The authorities' 2024 budget also includes budget grants from Turkiye (US$30 million), which are not incorporated in the IMF baseline. In addition, in the authorities' 2024 budget, interest payments are estimated based on signed agreements with creditors (US$10 million), while the IMF forecast shows interest payments assuming agreements are reached with all creditors (US$15 million). For 2024, the fiscal balance floor would be adjusted downward by any delays or shortfalls in budget support grants as compared to the 2024 budget estimate, or if interest payments are higher than the budget estimate, as per the TMU.
  - 6/ Excludes IMF disbursements.
  - 7/ The floor on NIR would be adjusted downward if the CBS transfers distributable earnings to the government, if the CBS provides temporary liquidity advances to the government, and if the IMF HIPC debt relief of SDR 7 million remains with the MoF and not the CBS, as per the TMU.
  - 1/ The quantitative targets, indicative targets, and program exchange rates are defined in the Technical Memorandum of Understanding (TMU).

### Table 13 — Proposed Structural Benchmarks Under the New ECF-Arrangement (December 2023–December 2024)
- Benchmarks, target dates, sector/FGS agency, rationale, monitoring (selected entries):
  - 1 Publish a Tax Policy and Revenue Administration Roadmap approved by the Minister of Finance. End-June 2024 / Domestic revenue / MOF — Monitoring: Publish roadmap on the MOF website.
  - 2 Submit the Income Tax Bill to Parliament. End-June 2024 / Domestic revenue / MOF — Monitoring: Send to IMF staff the version of the Bill submitted to Parliament.
  - 3 Ensure full payroll integration of FGS employees by reducing the ratio of non-payroll payments to total compensation of employees to less than 1 percent. End-June 2024 / PFM / MOF NCSC MOLSA — Monitoring: Submit monthly SFMIS reports; ratio to be decreased to less than 1 percent on average between April and June 2024 (relative to 10.9 percent in May-July 2023).
  - 4 Publish a plan approved by the Minister of Finance to expand invoice tracking functionality to all goods and services. End-February 2024 / PFM / MOF — Monitoring: Publish the plan on the MOF website.
  - 5 (1) Issue a Prime Ministerial Decree that articulates the key parameters for debt policy and establishes procedures for new borrowing and sovereign guarantees; (2) amend the PFM regulations to define “other financial liabilities” that are considered guarantees as per Article 37 (6) of the PFM Act. End-June 2024 / Public debt/ MOF — Monitoring: Publish the approved Decree and amended PFM regulations on the MoF website.
  - 6 Submit the PPP Bill to Parliament with a framework that adequately manages fiscal risks and establishes a gateway process managed by the Ministry of Finance. End-June 2024 / Governance / MOF — Monitoring: Send to IMF staff the version of the Bill submitted to Parliament.
  - 7 Develop an action plan to improve the quality of data submitted by commercial banks, and communicate the plan to commercial banks. End-July 2024 / Financial Supervision / CBS — Monitoring: Provide IMF staff with action plan approved by the CBS Board and copies of letters from the CBS Governor to commercial banks.
  - 8 Submit to Parliament amendments to the AML/CFT Law, in line with IMF staff recommendations. End-March 2024 / AML-CFT Governance / FRC MOF CBS — Monitoring: Send to IMF staff the version of the AML/CFT Act amendments submitted to Parliament.

### Table 14 — Proposed Schedule of Reviews and Disbursements for the New ECF Arrangement (Millions of SDRs / Percent of quota)
- December 19, 2023: 30.000000 SDRs / 18.359853 percent of quota — Approval of arrangement
- April 15, 2024: 7.500000 SDRs / 4.589963 — First review and end-December 2023 performance criteria
- October 15, 2024: 7.500000 SDRs / 4.589963 — Second review and end-June 2024 performance criteria
- April 15, 2025: 7.500000 SDRs / 4.589963 — Third review and end-December 2024 performance criteria
- October 15, 2025: 7.500000 SDRs / 4.589963 — Fourth review and end-June 2025 performance criteria
- April 15, 2026: 7.500000 SDRs / 4.589963 — Fifth review and end-December 2025 performance criteria
- October 15, 2026: 7.500000 SDRs / 4.589963 — Sixth review and end-June 2026 performance criteria
- Total: 75.000000 SDRs / 45.899633 percent of quota
- Source: IMF
- 1/ Somalia's quota is SDR163.4 million.

### Table 15 — Summary Table on Projected External Borrowing Program (January 1, 2024 – December 31, 2024)
- Volume of new debt, USD million: 95.2 (100 percent)
- Sources of debt financing:
  - Concessional debt 2/: 95.2 (100 percent)
  - o/w IMF prospective: 20.2
  - o/w Other: 75.079
  - Non-concessional debt: 0.00
  - o/w Semi-concessional 3/: 0.0 (0 percent)
  - o/w Commercial terms 4/: 0.00
- Uses of debt financing:
  - Project Financing: 0.00 (0 percent)
  - Budget Financing: 95.2 (100 percent)
- Type of interest rate:
  - Fixed Interest Rate: 95.2 (100 percent)
  - Variable Interest Rate: 0.00
- Currency denomination:
  - USD denominated loans: 95.2 (100 percent)
  - Loans denominated in other currency: 0.0 (0 percent)
- Memorandum items:
  - Indicative projection FY2025: 191.9
  - Indicative projection FY2026: 264.3
- Notes:
  - 1/ The macroeconomic framework assumes HIPC Completion Point in December 2023.
  - 2/ Debt with a grant element of at least 35 percent.
  - 3/ Debt with a positive grant element that is lower than the minimum grant element of 35 percent.
  - 4/ Debt without a positive grant element.
- PPG external debt contracted or guaranteed.

### Annex I — Poverty and Child Multidimensional Deprivation (summary of findings)
- Prevalence:
  - More than 54 percent of the population lived below the national poverty line in 2022 as they consumed less than US$2.06 per day.
  - Poverty rates by population group:
    - Nomadic population: 78.4 percent
    - Rural population: 65.5 percent
    - Urban population: 46.1 percent
- Household expenditure composition:
  - Food: 55.5 percent of total consumption (average)
  - Housing costs: 16.5 percent
  - Clothing and footwear: 7.6 percent
- Demographic and household correlates of poverty:
  - Children aged 0–17 years exhibit the most pronounced poverty incidence.
  - Children living in nomadic areas: poverty headcount of 80.7 percent.
  - Extended households (ten or more members): poverty rate of 63 percent.
  - Households headed by individuals without formal education: poverty incidence of approximately 56 percent.
  - Population without formal education: 65.5 percent of Somali population.
  - Households headed by individuals with tertiary education: 10 percent poverty rate.

*Source: IMF staff estimates and projections; Somali authorities; National Bureau of Statistics (2023 Somalia Poverty Report) — as presented in the source content.*

### 3. Children represent over 60 percent of the population in Somalia, and they face

### 1somea2023005 - 3. Children represent over 60 percent of the population in Somalia, and they face

### Key findings on child deprivations
- Children represent over 60 percent of the population in Somalia.
- Sanitation deprivations:
  - 85 percent of children between the ages of 0–4 years are individually affected by sanitation issues (limited access to an improved sanitation source or handwashing facility).
  - 64 percent of children aged 5–17 years are individually affected by sanitation issues.
  - Nearly all children in nomadic settings are deprived of sanitation, mainly due to widespread open defecation.
- Water access:
  - 44 percent of children lack access to improved water sources.
- Housing and energy:
  - Housing ranks second in terms of deprivation, primarily because of limited access to electricity.
- Health and nutrition:
  - 67 percent of children aged 0–4 years experience nutritional and health deprivations.
  - 59 percent of children aged 5–17 years experience nutritional and health deprivations.

### Multidimensional poverty patterns and overlap
- Overall multidimensional deprivation:
  - At least 8 out of 10 children in Somalia are deprived in two or more poverty dimensions.
  - Only 2 percent of children under 5 years are free from deprivation across the six evaluated dimensions (nutrition, health, water, sanitation, housing, and violence).
- Depth and overlap of deprivations:
  - The largest proportion of infants (at least 25 percent) faces deprivation across 4–5 different dimensions.
  - In sanitation specifically, more than 56 percent of children who are deprived also experience deprivations in three additional dimensions.
  - For children aged 5–17 years, at least 13 percent are deprived in 4–5 dimensions, with housing and sanitation the primary overlapping deprivations.

### Data source and survey details
- The analysis is based on the 2022 Somalia Integrated Household Budget Survey (SIHBS).
- Survey scope and sample:
  - A total of 7212 households were surveyed.
  - Surveys were conducted in 601 Enumeration Areas (EAs).
  - The EAs were distributed across 17 regions.
- National poverty line:
  - The national poverty line is calculated from the 2022 SIHBS data using the cost-of-basic needs (CBN) method that defines a consumption bundle considered to be adequate for basic consumption needs, and then estimates the cost of this bundle in reference prices.

*Source: 1somea2023005 - 3. Children represent over 60 percent of the population in Somalia, and they face*

### 1. Satisfactory implementation

### 1. Satisfactory implementation

### HIPC Completion Point Triggers — Assessment
- Trigger 1: "Satisfactory implementation for at least one year of Somalia’s full poverty reduction strategy, as evidenced by an Annual Progress Report on the implementation of the poverty reduction strategy submitted by the government to IDA and the IMF."
  - Status: Met. The Annual Progress Report evaluating the implementation of the Ninth National Development Plan (NDP9) covering 2020-24 in 2020 was completed in June 2022. Staffs of the World Bank and IMF issued a Joint Staff Assessment Note (JSAN) confirming satisfactory implementation of the NDP9 during 2020, which was transmitted to the IDA and IMF Executive Boards in July 2023.
- Trigger 2: "Maintain macroeconomic stability as evidenced by satisfactory implementation of the 3-year ECF-supported program."
  - Status: Met. The fifth review of the ECF-supported program was completed on May 17, 2023. The sixth review and final review will be considered for approval by the IMF Executive Board in December 2023.
- Trigger 3: "Publish at least two years of the audited financial accounts of the Federal Government of Somalia (FGS)."
  - Status: Met. The Office of the Auditor General published the 2019, 2020, 2021, and 2022 FGS financial accounts.
- Trigger 4: "Issue regulations to implement the Public Financial Management Act’s provisions on debt, public investment, and natural resource revenue management."
  - Status: Met. The PFM regulations—including chapters on debt, public investments, and natural resource revenue management—were approved by the Cabinet in May 2022.
- Trigger 5: "Adopt and apply a single import duty tariff schedule at all ports in the Federal Republic of Somalia (to also foster greater trade integration)."
  - Status: Not completed but satisfactory progress has been made.
  - Details:
    - Customs regulations on valuation and declarations were issued in September 2022 and the ad valorem tariff schedule was enacted in June 2022.
    - The Somalia Customs Automated System (SOMCAS) has incorporated harmonized tariffs, Harmonized System (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 and declarations are being made for khat imports. Efforts are ongoing to implement a common valuation table across Mogadishu and Kismayo to enable full customs processing in Kismayo.
    - Reform paused in the ports of Bosaso and Garowe in Puntland due to political conditions.
- Trigger 6: "Enact the Extractive Industry Income Tax Law."
  - Status: Met. The Extractive Industries Fiscal Regime Law was enacted in June 2023.
- Trigger 7: "Ratify the ‘United Nations Convention Against Corruption’ (UNCAC)."
  - Status: Met. Somalia acceded to the UNCAC in August 2021.
- Trigger 8: "Publish at least four consecutive quarterly reports."
  - Status: 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.
- Trigger 9: "Establish a national unified social registry (USR) as a functional platform that supports registration and determination of potential eligibility for social programs."
  - Status: Met. In July 2023, the functionality status of the USR was achieved with the successful completion of all governance, technical and operational requirements that enables MoLSA to operate the USR for the intended objective.
- Trigger 10: "FGS and Federal Member States (FMS) Ministers of Education (MOE) adopt an agreement defining their respective roles and responsibilities on curriculum and examinations."
  - Status: Met. On July 14, 2021, the FGS and FMS MoEs finalized and officially signed the revised education cooperation Memorandum of Understanding (MoU) at the intergovernmental meeting held in Garowe. A permanent intergovernmental forum for education has been formalized. Key agreements include formation of national examination, certification, and curriculum boards and an interim committee to develop criteria for board member selection.
- Trigger 11: "FGS and FMS Ministers of Health adopt a joint national health sector strategy."
  - Status: Met. The Somalia Health Sector Strategic Plan for 2022-2026 was finalized. FGS and FMS ministers have agreed on a framework for a joint national health strategy.
- Trigger 12: "Enact the Electricity Act and issue supporting regulations to facilitate private sector investment in the energy sector."
  - Status: Met. The Somalia Electricity Act was enacted on March 8, 2023. Two regulations—the ESP Licensing Regulations and the ESP Tariff Regulations—have also been approved.
- Trigger 13: "Issue Company Act implementing regulations on minority shareholder protection to encourage private sector investment."
  - Status: Met. Regulations to the Companies Act were issued in January 2021. A second set of Regulations to the Company Act were issued in May 2022 specifically covering minority shareholder protection.
- Trigger 14: "Publish at least two editions of the Somalia Annual Fact Book."
  - Status: Met. The Facts and Figures of Somalia has been published for 2018, 2019, 2020, and 2021.

### Annex V — Monetary and Exchange Rate Policy Framework in the Context of the Currency Reform
- Key context:
  - Somalia is a de facto dollarized economy. The CBS has not issued currency since 1991, and it does not conduct monetary or exchange rate policy. Somali Shillings (SOS) notes currently in circulation are old and mostly counterfeit (80 percent) and are not backed by the CBS. The SOS is generally used for small-value transactions and is the main medium of exchange for those earning in Somali shillings.
- Objectives of the currency reform (currency exchange project):
  - (1) restore credibility in the national currency;
  - (2) support financial inclusion of the most vulnerable populations that have limited access to formal financial services;
  - (3) fulfill an important liquidity function by facilitating payments for small value transactions;
  - (4) over the medium-term, allow the central bank to develop monetary policy as a tool to help address aggregate demand shocks.
  - The FGS views the currency reform as an opportunity to contribute to peacebuilding as the national currency will be a symbol of national sovereignty and unity.
- Challenges affecting design of policy frameworks:
  - De facto dollarization for currency and financial assets/liabilities provides a nominal anchor that has kept inflation low.
  - Mobile money in US dollars is used extensively; the economy is expected to remain highly dollarized after new SOS banknotes are introduced.
  - CBS has low net international reserves, weak capacity, and no recent experience with monetary policy.
  - Financial system capacity is weak; money and foreign exchange markets are undeveloped.
  - Limited availability of timely and accurate macroeconomic and market data.
- Assessment and recommended exchange rate arrangement:
  - The assessment suggests Somalia would be best served by a fixed exchange rate regime given near-term capacity constraints and weak policy buffers.
  - Under a fixed exchange rate regime, options include a currency board, a hard peg, or adopting US dollar as official legal tender while issuing coins for small transactions.
  - The framework pursued should:
    - (1) provide an efficient nominal anchor;
    - (2) be simple, transparent, and easily understandable by businesses and households;
    - (3) be operationalizable even with limited central bank resources and operational capacity.
- Complementary policies and reforms required under any regime:
  - Maintain fiscal discipline and ensure fiscal sustainability.
  - Ensure CBS operational independence and prevent fiscal dominance.
  - Significant CBS capacity building and policies to promote transparency.
  - Develop financial markets and build capacity of financial institutions.
  - Improve quality, frequency, and timeliness of macroeconomic and financial data.
- Quantitative and contextual figures cited:
  - World Bank estimate: old shillings in circulation range between SOS 1.022-1.546 trillion (USD 40.9 - 61.8 million).
  - There are currently no deposits in SOS.
  - Bank deposits: about USD 1.2 billion in bank deposits and a similar amount in mobile money wallets.

### Appendix I — Letter of Intent (key commitments and requests)
- Date and signatories:
  - Mogadishu, November 19, 2023.
  - Signed by Bihi Iman Egeh, Minister of Finance of Somalia, and Abdirahman M. Abdullahi, Governor of the Central Bank of Somalia.
- Program performance and requests:
  - Request for IMF Executive Board approval of the completion of the 6th review of the 2020 ECF arrangement and disbursement of SDR 7 million (about 4.28 percent of quota).
  - Statement that all the quantitative performance criteria (QPCs) for June 2023 and all the indicative targets (ITs) for end-June and end-September 2023 were met.
  - Eight of ten structural benchmarks due for the 6th review have been implemented, including the 2023 Supplementary Budget, implementation of revenue and public financial management measures, implementation of risk-based prudential regulations, and enactment of the Targeted Financial Sanctions Law.
  - Note that Somalia Customs Automated System was operationalized in Mogadishu and partially in Kismayo, and point-of-sale machines were rolled out in the tourism sector; however, structural benchmarks related to the latter two reforms were not met due to institutional, social, and political constraints.
  - Plan to use the disbursement under the 6th review to help strengthen gross external reserves.
  - Request for a new 3-year ECF-supported program with access of SDR 75 million (approximately 45.9 percent of quota) to be provided for direct budget support.
- Program priorities under the proposed new ECF:
  - Maintain macroeconomic stability.
  - Increase domestic revenues.
  - Strengthen public financial management.
  - Promote financial deepening and financial inclusion.
  - Improve the business environment and governance.
  - Enhance statistics.
  - Strengthen capacity for public debt management and debt risk assessments in anticipation of a structural shift in FGS external financing after HIPC Completion Point.
  - Strengthen public investment management as FGS scales up quality investment projects.
  - Formulate and implement new monetary and exchange rate policy frameworks in the context of the currency reform to reintroduce the Somali shilling as legal tender.
- Transparency and monitoring commitments:
  - FGS will provide IMF staff with necessary information within deadlines specified in the Technical Memorandum of Understanding (TMU).
  - A Memorandum of Understanding (MoU) between the Ministry of Finance and the Central Bank of Somalia clarifies responsibilities for timely servicing of financial obligations to the IMF under the new ECF arrangement.
  - FGS authorizes the IMF to publish the Letter, attached MEFP, TMU, and related staff report.

### Attachment I — Memorandum of Economic and Financial Policies (MEFP) — Background highlights
- Progress and reform context:
  - Significant institutional rebuilding and policy-making capacity improvements since 2013 with development partner support.
- Poverty and growth context:
  - In 2022, an estimated 54 percent of the population was living below the poverty line of US$ 2.06 per day based on the 2022 Somalia Integrated Household Budget Survey.
  - Growth is currently insufficient to reduce poverty and address large social needs; Somalia is highly vulnerable to climate shocks that aggravate food insecurity and hurt growth.
- Policy focus:
  - Commitment to macroeconomic stability, continued reform, deepening political cooperation at federal and regional levels, and the need for timely financing and capacity development support from development partners.

*Source: IMF staff report content (1somea2023005 - 1. Satisfactory implementation).*

### 3.      We are taking action to address food insecurity in several districts that remain affected

### 3.      We are taking action to address food insecurity in several districts that remain affected by the lingering impact of prolonged drought, compounded by severe security risks and global food supply and price pressures.

### Food insecurity and humanitarian response
- Following consecutive failed rainy seasons in 2021-2022, livestock and crops are expected to recover only gradually, and food insecurity remains severe.
- The government has been coordinating with the UN system on delivery of humanitarian assistance.
- The Baxnaano cash transfer program has been expanded and provides a safety net for more than 200,000 households.

### Security, counterterrorism, and stabilization
- Since mid-2022, the government has scaled up the military, ideological, and financial campaign against Al-Shabab.
- The Somali military—with support of the community defense, the general population, and international partners—has gained ground against Al-Shabab in the central Somali regions, facilitating delivery of humanitarian assistance, with the Somalia Disaster Management Agency (SODMA) providing the emergency response.
- Stabilization efforts in liberated areas include delivery of health and education services and the beginnings of establishment of local governance.
- The Somali National Armed Forces are gradually taking over security responsibilities from the African Union Transition Mission in Somalia (ATMIS), which is expected to gradually withdraw its forces by December 2024.
- The ATMIS transition, military scale-up, and stabilization policies are generating pressures on government finances; the FGS is developing a National Security Plan and discussions are ongoing with development partners on security financing.

### Economic activity, remittances, and inflation
- Real GDP growth: 2.4 percent in 2022, compared to 2.9 percent in 2021.
- Prolonged drought in 2021-2022 hurt agriculture production and exports; although rainfall resumed in 2023Q1, crops and livestock remain affected and some flooding occurred.
- Remittances growth was subdued in 2022 and in the first half of 2023, attributed in part to elevated prices reducing diaspora purchasing power, negatively affecting economic activity.
- Average inflation moderated and was at 5.4 percent in September 2023.
- Outlook projections:
  - Inflation is expected to decline to 4.6 percent (eop) in 2023 reflecting lower commodity prices.
  - Growth is expected to increase to 4.3 percent by 2028, supported by improvements in agriculture, remittances, investment, and reforms that facilitate a gradual scaling up of public spending and foster greater private investment.

### Fiscal performance and budgetary stance
- The 2023 Supplementary Budget was approved by Parliament in July 2023.
- All performance criteria for June 2023 and indicative targets for September 2023 have been met.
- The 2023 Supplementary Budget presents a balanced fiscal position based on realistic revenues and grants and is consistent with the performance criteria in the ongoing ECF-supported program.
- Domestic revenue performance has been strong through September 2023 due to higher customs duties and tax administration improvements.
- Total expenditure has followed the 2023 Supplementary Budget; a small overall deficit is expected for the year.
- Revenue overperformance and budget support grants will allow maintenance of a small cash balance to partially address liquidity needs in early 2024.

### Revenue administration reforms and revenue measures
- Customs modernization:
  - 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) rolled out incorporating harmonized tariffs, HS codes, and harmonized item descriptions.
  - SOMCAS fully operationalized in Mogadishu port and airport as of early October 2023.
  - Partial implementation in Kismayo port and airport in Jubaland State; discussions ongoing on common valuation table to enable full customs processing through SOMCAS.
  - Training and additional IT equipment provided to support implementation.
- New spectrum fees:
  - Spectrum fee schedule issued in September 2022; revenue collection expected to be US$ 6 million per year for the next 10 years.
- New turnover tax:
  - Introduced with 2,597 newly registered taxpayers who commenced paying taxes in July 2023.
- Reporting on tax exemptions:
  - Annual report on tax exemptions published as part of the 2023 budget package.
  - Quarterly reporting initiated with 2022Q4 first quarterly report published in January 2023; 2023Q2 report published on July 30, 2023.
- Revenue administration measures:
  - POS machines piloted in 2021 at hotels in Mogadishu transmitting sales data in real time; additional POS rolled out in tourism sector in 2023.
  - Annual rounds of tax audits since 2020, improving tax return quality especially for SMEs.
  - Public awareness events held to support implementation of the 2019 Revenue Administration Law.

### Public financial management (PFM) strengthening
- Reporting and transparency:
  - Annual financial statements of the FGS for 2019, 2020, 2021, and 2022 published and audited by the Auditor-General (HIPC Completion Point Trigger (CPT)).
  - Aggregated budget combining FGS, five FMS, and Banaadir Regional Administration published for the first time as part of the 2021 Budget Policy Framework and annually thereafter.
  - Monthly consolidation reports of fiscal outturns of the FGS and five FMS published on the MoF website since January 2021.
  - Expanded disclosures in monthly and annual financial statements, including memorandum annex on SDR balances of the MoF.
- PFM Act regulations:
  - Regulations on debt, public investment, and natural resource revenue management issued in May 2022 (CPT).
- Expenditure controls:
  - Somalia Financial Management Information System (SFMIS) fully operationalized to control commitments within allocations and warrants, guided by monthly cash forecasts.
  - Invoice tracking functionality of SFMIS launched since May 2023 for electricity and internet service.
- Payroll integration:
  - Pay and Grade policy and roadmap approved by Cabinet on December 1, 2022.
  - Share of non-payroll payments to total compensation reduced to 10.9 percent on average in May-July 2023, from 32 percent in 2021.
  - In October 2023, SFMIS configured to allow only the MoF to change payroll entries with financial implications.
  - MoF authority over financial clearance of compensation included in the 2023 Appropriations Law and the 2024 Appropriations Bill approved by Cabinet in October 2023.
- Public procurement and assets:
  - Implementation of the Public Procurement Law and regulations; Prime Minister guidelines on emergency procurement issued in July 2023.
  - Standard operating procedures for the Inter-Ministerial Concessions Committee (IMCC) approved by Cabinet.
  - Prime Ministerial decree issued in October 2023 reinforcing due process for procurement and concessions; noncompliant agreements void and subject to criminal procedures.
  - PFM Regulations amended in September 2023 to implement PFM Act provisions on public property; Asset Management Guidelines issued.

### Debt management and HIPC Completion Point preparation
- Debt Management Unit upgraded debt recording management system with the Commonwealth Meridian System.
- Consecutive quarterly public debt reports published from 2020Q4 to 2023Q2 (CPT).
- A debt reconciliation exercise was carried out in 2023 in preparation for the HIPC Completion Point.

### Federalism, revenue sharing, and institutions
- National Consultative Council in March 2023 brought together FGS, four out of five FMS, and the Mayor of Mogadishu.
- High-level agreements reached on creating a National Revenue Authority, assignment of revenue responsibilities across levels of government, and the pool of revenues to be shared between FGS and FMS.
- In July 2023, the group agreed on distribution of external budget support.

### Central Bank of Somalia (CBS): financial stability, payments, and supervision
- National Payment System (NPS) launched in 2021; transactions through the NPS increasing.
- IBAN account standardization launched March 27, 2023 to improve cross-border payments and reduce operational processes within the NPS.
- Gargaara program (World Bank support) continues to support access to financing for micro, small, and medium-sized enterprises.
- Guidance for Islamic bank financial reporting and Shariah bank governance framework issued in 2020.
- Banking regulations on capital and liquidity requirements issued in July 2023 covering risk management; capital adequacy regulation incorporates Basel III risk weighting in a proportionate manner considering Islamic financing; liquidity regulation clarifies LCR requirement and qualitative risk management requirements in line with Basel III.
- Engagement with banks to ensure compliance with new requirements.
- As of September 2023, four mobile money operators granted licenses.
- Mobile money regulations issued; payment system and mobile money oversight division established; regulation manual drafted.
- Capacity in financial supervision improving with increased resources; moving towards risk-based prudential supervision.

### CBS institutional strengthening and safeguards
- Performance criteria on net international reserves (NIR) consistently met.
- Function-based organizational structure adopted and performance management system established.
- Most recommendations from March 2020 safeguards assessment implemented.
- 2022 audited financial statements published in July 2023 with a clean auditor opinion; period-end closing procedures completed in January 2023.

### AML/CFT and financial integrity
- National AML/CFT Taskforce operational since February 2021 supporting the National Anti-Money Laundering Committee (NAMLC).
- National Risk Assessment (NRA) on ML/FT finalized and published in 2022; NRA Action Plan published in February 2023.
- Targeted Financial Sanctions Law (TFSL) enacted in March 2023; related regulations approved in July 2023.
- Key infrastructure and IT systems acquired to support the Financial Reporting Center’s capacity to review and assess suspicious transactions.
- CBS issued guidance on Know-Your-Customer and customer due diligence risk-based approach and large cash transactions and suspicious transactions reporting for commercial banks in July 2023.
- NAMLC issued a guideline on mobile money transaction limits in July 2023.

### Governance, anti-corruption, and audit
- CBS and NCA published outcomes of licensing applications for Mobile Network Operators and Mobile Money Operators on their websites to enhance transparency.
- Accession to the UN Convention Against Corruption (UNCAC) in August 2021 (CPT); Parliament ratified the African Union Convention on Preventing and Combating Corruption and Arab Anti Corruption Convention.
- National Anti-Corruption Strategy (NACS) published; outreach ongoing for ethics training and awareness.
- Audit Law enacted in September 2023 to strengthen federal audit system, oversight of public resources, checks and balances for appointing/dismissing the Auditor General, and separation of responsibilities between federal and state Auditors General for special audits of grant transfers.

### Sectoral legal and institutional reforms supporting growth and climate resilience
- Model Oil and Gas Production Sharing Agreement (PSA) approved by IMCC in November 2021.
- PFM regulations on natural resource revenue management issued May 2022.
- Revised tender protocol approved by IMCC in November 2022.
- Extractive Industries Fiscal Regime Law enacted in June 2023 (CPT).
- Somali Standards and Quality Control Bill passed and Somali Bureau of Standards established in 2020 for agricultural standards and certification.
- “One-stop-shop” established to e-register business for integrated tax and business licensing.
- Regulations to the Company Act on minority shareholder protection issued May 2022 (CPT).
- Electricity Act enacted in March 2023; Electricity Service Provider Licensing Regulations and ESP Tariff Regulations approved (CPT).
- Additional legislation passed by Parliament in March 2023: Data Protection Law, Digital ID System Law, Investment and Investor Protection Act, and Federal Law on Fisheries.

### Human capital, social protection, and data
- FGS and FMS Ministers of Education adopted agreement defining respective roles on curriculum and examinations (CPT).
- FGS and FMS Ministers of Health adopted a joint national health sector strategy (CPT).
- National unified social registry (USR) established (CPT) to support a comprehensive shock response safety net system.
- Social safety net scheme Baxnaano being implemented with World Bank support using World Food Program systems.
- Somalia National Bureau of Statistics (SNBS) has published Somalia Facts and Figures annually since 2018 (CPT); national accounts and CPI published annually and monthly, respectively.
- 2022 Somalia Integrated Household Budget Survey (SIHBS), the first since 1985, published in February 2023 and used to rebase GDP.
- Somalia continues implementing the enhanced General Data Dissemination System (e-GDDS) framework.

*Source: IMF staff report excerpt (content unit: 1somea2023005).*

### 22.      We have considered how best to safeguard our objectives under the ECF-supported

### 1somea2023005 - 22.      We have considered how best to safeguard our objectives under the ECF-supported

### Risks and contingency framework
- Significant near-term risks: climate shocks (drought, floods, and related impact on food insecurity), security risks, lower than anticipated global growth, and additional pressures on international food and energy prices.
- Shortfalls or delays in disbursement of budget support financing create fiscal risks.
- Policy safeguards:
  - Continued fiscal discipline and application of the sequestration rule that prioritizes critical expenditure to partly absorb revenue shortfalls.
  - Seek additional financing from development partners if risks materialize.

### Economic and financial policy objectives and program design
- Reform priorities under the ECF-supported program:
  - (i) increasing domestic revenues;
  - (ii) strengthening PFM (including the legal and regulatory framework, internal and external audit, expenditure controls, cash management, accounting and reporting, debt management, and public investment management);
  - (iii) promoting financial deepening and financial inclusion, including the currency reform;
  - (iv) improving the business environment and governance (including AML/CFT);
  - (v) enhancing statistics.
- Quantitative performance criteria and indicative targets include:
  - a floor for domestic revenue;
  - a ceiling on recurrent operating expenditures;
  - a floor on the cash-based fiscal balance;
  - no new external arrears;
  - no new accumulation of domestic arrears;
  - no new accumulation of non-concessional external debt;
  - a ceiling on new domestic debt;
  - a floor on the net international reserves of the CBS.
- Structural benchmarks focus on revenue administration, public financial management, financial stability, governance and AML/CFT.
- Additional reforms will be introduced on a 12-month rolling basis as needs and priorities emerge.
- Expected outcomes by the conclusion of the arrangement:
  - improved efficiency and transparency of fiscal processes as domestic revenues and expenditures increase;
  - strengthened debt management and public investment management capacity;
  - established some limited capacity for monetary and exchange rate policy as part of the currency reform;
  - enhanced statistics and governance across macro-critical sectors.

### Fiscal policy stance and medium-term framing
- Anchor policy in a medium-term fiscal framework (MTFF).
- External financing: rely solely on grants and concessional loans to preserve debt sustainability.
- Fiscal deficit target: seek to maintain overall fiscal deficits of up to 3.5 percent of GDP financed with concessional loans, of which at a minimum 1.5 percent of GDP will come from multilateral creditors that provide highly concessional financing terms as well as capacity development support.1
- Borrowing capacity will be reviewed periodically and expected to increase over time as revenue, debt management, and public investment management capacity strengthen.
- Specific fiscal conditionality will be set on a 12-month rolling basis during program reviews.

### 2024 budget and near-term fiscal targets
- 2024 Budget: present an overall fiscal deficit of US$ 38 million (0.3 percent of GDP), assuming budget support financing from IDA could be on grant terms and approved before June 30, 2024.
- Domestic revenues in 2024 expected to rise to at least match the cost of compensation of employees.
- The Budget will:
  - accommodate expenditure supportive of growth, security, and development;
  - contain other discretionary spending;
  - incorporate any new hires in the payroll system with wages in line with existing pay scales;
  - include a costing of NDP9 for 2024.

### Domestic revenue mobilization strategy and measures
- Objective: raise domestic revenue to fully cover operational expenditure by 2027.
- Near-term target: intensify efforts to increase domestic revenues to at least match compensation of employees in 2024.
- Tax Policy and Revenue Administration Roadmap:
  - finalize by June 2024 (SB#1);
  - will lay out the proposed revenue strategy for the next three years and include key reforms such as:
    - Customs modernization: complete ad valorem customs reform; operationalize SOMCAS at Mogadishu and Kismayo ports and airports; begin application of ad valorem tariffs based on invoice values while keeping the common valuation table for minimum values; advance reform in remaining ports when political conditions allow.
    - Modern income tax law: finalize draft Income Tax bill and submit to Parliament by end-June 2024 (SB#2).
    - Revenue mobilization from large businesses, notably the telecom sector: increase effective tax rates on the telecom sector to levels comparable to peers; seek IMF capacity development support for a comprehensive reform strategy.
    - Other revenue administration measures: issue implementing regulations of the Revenue Management Law (covering Taxpayer Identification Number, Large and Medium Taxpayers Offices, tax audits); develop the Integrated Tax Administration System (ITAS) to enable third-party data use, enhance tax audits, automate collection, and improve inland tax administration effectiveness; establish a gateway for tax payments through private banks; strengthen tax audits via a new audit manual.

### Public financial management (PFM) reforms and deadlines
- Payroll integration:
  - Integrate all compensation of employees into the single payroll included in the SFMIS following a sequenced roadmap.
  - Reduce the ratio of non-payroll payments to total compensation of employees to less than 1 percent by end-June 2024 (SB#3).
  - Develop a strategy to align salaries of temporary workers with existing pay scales and implement the Pay and Grade Policy.
- Streamlining business processes:
  - Develop a roadmap to expand invoice tracking coverage to all goods and services by end-February 2024 (SB#4).
  - Require MDAs to register invoices in the SFMIS immediately upon receipt; SFMIS will reject payment vouchers for unregistered invoices.
  - Accelerate automation of cash planning and revenue management through SFMIS and interfaces with CAS and ITAS.
  - Implement recommendations from the SFMIS Quality Assurance exercise to strengthen ICT governance.
- Debt management:
  - By June 2024:
    - Issue a Prime Ministerial Decree articulating key parameters for debt policy and establishing procedures for entering into new borrowing and sovereign guarantees, in line with IMF staff recommendations.
    - Amend PFM regulations to include a clear definition of “other financial liabilities” that are considered guarantees as per Article 37 (6) of the PFM Act, in line with IMF staff recommendations (SB#5).
- Fiscal transparency and accountability:
  - Amend PFM Regulations to require costing of the NDP in annual and supplementary budgets.
  - An intergovernmental technical working group will undertake a gap analysis of FMS financial statements and prepare a common Cash-Basis IPSAS-compliant template.
  - Coordinate with Banaadir to develop regular fiscal reporting and ensure participation in aggregated reporting.
- Public-private partnerships (PPP) law and regulations:
  - By June 2024 submit the PPP Bill to Parliament with a framework that adequately manages fiscal risks and establishes a gateway process managed by the Ministry of Finance (SB#6).
- Public procurement and public lands:
  - Continue implementation of the Public Procurement Law and regulations; strengthen MDA capacity through training and sensitization.
  - Implement PFM Regulations on public property and the Asset Management Guidelines.

### Debt restructuring and extractive industries framework
- Debt restructuring:
  - Reached debt relief agreements with all Paris Club creditors, the Kuwait Fund for Arab Economic Development, and the Saudi Fund for Development.
  - Continuing negotiations with remaining creditors to finalize debt relief agreements.
- Extractive industries legal framework:
  - Following enactment of the Extractive Industries Fiscal Regime Law (EIFRL) (HIPC CPT), develop related regulations and finalize Petroleum Act regulations.
  - Commit not to issue new product sharing agreements until the legal framework is completed, including EIFRL regulations and Petroleum Act regulations; limit direct negotiations and inform them by price discovery from previous licensing rounds.

### Monetary and financial sector reforms
- Strengthen CBS institutional capacity and support financial deepening:
  - Bills for the National Payment System and Islamic Insurance submitted to Parliament.
  - Revised Financial Institutions Bill being finalized for Cabinet submission.
  - Drafting amendments to the CBS Act to enhance central bank autonomy and enable CBS capitalization.
  - Develop a National QR code and National SWITCH to support the national payment system.
  - Strengthen staffing and capacity of the CBS Licensing and Supervision Department.
  - By end-July 2024, CBS will develop an action plan to improve quality of data submitted by commercial banks and communicate the action plan to commercial banks (SB#7).
  - An upcoming IMF safeguards assessment will guide additional priority reforms.
- Currency exchange project (with World Bank support):
  - Plan to implement once preconditions and financing are in place.
  - Steps include securing a firm agreement between the FGS and all FMS, addressing the funding gap, formulating monetary and exchange rate policy frameworks, and developing CBS and financial institutions’ capacity with IMF technical assistance.
  - Need to secure gross international reserves required to backstop the new currency, including by catalyzing donor assistance.

### AML/CFT and remittances
- Advance reforms of AML/CFT operational and legal framework to comply with international standards and support remittance flows.
- Implement the recently approved NRA action plan and prepare for the MENA-FATF Mutual Evaluation Assessment in 2024.
- By end-March 2024, submit amendments to the 2016 AML/CFT Law to Parliament, in line with IMF staff recommendations (SB#8).

### Governance, social inclusion, digital ID, and statistics
- Governance and anti-corruption:
  - Review existing laws for compliance with the UNCAC.
  - Strengthen resources of the Independent Anti-Corruption Commission and continue implementing the National Anti-Corruption Strategy action plan.
- Climate resilience and food security:
  - Ministry of Environment and Climate Change preparing a Food Security Crisis Plan.
  - Work with development partners to channel aid through country systems aligned with NDP9 priorities.
  - Continue accession efforts to the East African Community and the World Trade Organization and improve regional and bilateral trade ties.
- Digital ID and social protection:
  - Legal underpinnings for digital ID completed via Digital ID and Data Protection Laws.
  - Procurement for IT system finalized and national ID agency established.
  - Somalia National ID roll-out started in September 2023.
  - Plan to enroll 500 thousand individuals in the National Identification and Registration Agency (NIRA) by the end of 2023.
  - Use digital ID to support targeted social protection and improve Know-Your-Customer requirements to enhance AML/CFT efforts.
- Statistics and data:
  - Business Survey expected to commence in the coming year to broaden economic activity and social data.
  - A new census is expected in 2024, the first after 40 years.
  - Work ongoing to develop production-based national accounts data in 2023 using Business Survey data.

### Program monitoring, access, and selected numeric program targets (as printed)
- Program monitoring:
  - Monitored through quantitative performance criteria, continuous performance criteria (including a continuous performance criteria related to Article VIII commitments), indicative targets (MEFP Table 1) and structural benchmarks (MEFP Table 2).
  - Assessed through semi-annual reviews.
  - The first review based on QPCs and ITs set for end-December 2023 and the structural conditionality described in MEFP Table 2.
  - All reviews conditioned on quantitative performance criteria in MEFP Table 1.
- Selected numeric lines as printed in Table 1 and notes (December 2023–December 2024) (Millions of U.S. dollars):
  - Quantitative Performance Criteria lines as printed: "FGS domestic revenue, floor 2/312145345"
  - "Spending on FGS compensation of employees, goods & services, & contingency, ceiling 2/ 384236437"
  - "Net international reserves, floor 7/101010"
  - "Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/ 000"
  - "Accumulation of new external arrears, ceiling 3/ 000"
  - Indicative Targets lines as printed: "FGS domestic revenue, floor 2/69231"
  - "Spending on FGS compensation of employees, goods & services, & contingency, ceiling 2/ 118349"
  - "Net international reserves, floor 7/10 10"
  - "Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/ 00"
  - "Accumulation of new external arrears, ceiling 3/ 00"
  - "Fiscal balance, floor (cash basis) 2/ 5/-15-48-216-38"
  - "Contracting of new domestic debt, ceiling 3/00 000"
  - "Accumulation of new domestic expenditure arrears, ceiling 3/ 000 00"
  - Memorandum item printed: "Contracting or guaranteeing of new external concessional debt 5/ 6/ 007575"
- Table notes as printed:
  - "Sources: Somali authorities; and IMF staff estimates and projections."
  - "2/ Cumulative from the beginning of the fiscal year."
  - "3/ This target is applied on a continuous basis."
  - "4/ Test date for the first, second and third reviews, respectively."
  - "7/ The floor on NIR would be adjusted downward if the CBS transfers distributable earnings to the government, if the CBS provides temporary liquidity advances to the government, and if the IMF HIPC debt relief of SDR 7 million remains with the MoF and not the CBS, as per the TMU."
  - "1/ The quantitative targets, indicative targets, and program exchange rates are defined in the Technical Memorandum of Understanding (TMU)."
  - "5/ The fiscal balance floor is in line with the authorities' 2024 budget (US$38 million), which is consistent with the IMF staff forecast (US$146 million). The authorities' budget assumes that budget support financing from IDA (US$75 million) could be on grant terms and approved before June 30, 2024. A decision by the IDA deputies on the latter is still pending, therefore in the IMF forecast budget support financing from IDA is included as borrowing and not as a grant. The authorities' 2024 budget also includes budget grants from Turkiye (US$30 million), which are not incorporated in the IMF baseline. In addition, in the authorities' 2024 budget, interest payments are estimated based on signed agreements with creditors (US$10 million), while the IMF forecast shows interest payments assuming agreements are reached with all creditors (US$15 million). For 2024, the fiscal balance floor would be adjusted downward by any delays or shortfalls in budget support grants as compared to the 2024 budget estimate, or if interest payments are higher than the budget estimate, as per the TMU."

*Source: Excerpt from the IMF staff document as supplied.*

### 10.9 percent in May-July 2023)

### Attachment II. Technical Memorandum of Understanding

### Quantitative targets and program monitoring
- Quantitative performance criteria (QPC) and indicative targets (IT) are specified in Table 1 of the Memorandum of Economic and Financial Policies (MEFP).
- Quantitative targets set on a 12-month rolling basis during program reviews; QPC test dates usually semiannual; IT test dates quarterly.
- Unless specified otherwise, quantitative targets evaluated in terms of cumulative flows from the beginning of each calendar year.
- QPCs for December 2023, June 2024, and December 2024, and related ITs for March 2024 and September 2024:
  - Floor on Federal Government of Somalia (FGS) domestic revenue;
  - Ceiling on spending on FGS compensation of employees, goods & services, & contingency;
  - Floor on the Central Bank of Somalia’s (CBS) net international reserves (NIR);
  - Ceiling on accumulation of new external arrears by the FGS;
  - Ceiling on contracting or guaranteeing any new external, non-concessional debt.
- ITs for December 2023, and March, June, September, and December 2024:
  - Floor on the FGS fiscal balance (on a cash basis);
  - Ceiling on new domestic debt contracted by the FGS;
  - Ceiling on accumulation of new domestic arrears by the FGS.
- Memorandum item:
  - Contracting or guaranteeing of any new external, concessional debt, excluding disbursements under an IMF arrangement.
- Continuous performance criteria (non-quantitative) include adherence to Article VIII commitments: non-introduction/intensification of exchange restrictions, multiple currency practices, inconsistent bilateral payments agreements, and import restrictions for BOP reasons.

### Definitions and computation (key points)
- Government defined as the FGS; excludes public entities with autonomous legal personalities and federal member states (FMS).
- For external debt monitoring, general government = FGS + FMS (Galmudug, Hirshabelle, Jubaland, Puntland, and South West State) and the Banaadir region.
- Government revenue and expenditure defined per GFSM 2014 on a cash basis; recognized when cash is received/paid and measured cumulatively from the beginning of the fiscal year (calendar year).
  - Financing transactions (including amortization of World Bank and other debt, receipts and repayments of CBS advances, and withdrawal/reconstitution of SDRs distributed to the MoF) are excluded from revenue and expenditure.
  - Interest payments are included in expenditure.
  - Receipts from disposal of nonfinancial assets are excluded from revenue.
  - SFMIS reports used as the basis for program monitoring, supplemented by monthly MoF financial reports.
- Government domestic revenue includes all tax and nontax receipts received into the FGS general accounts and excludes grants.
  - Excludes (i) grants and other noncompulsory contributions from foreign governments or international organizations; and (ii) transfers of CBS distributable earnings not included in the Appropriation Law.
- Spending on FGS compensation of employees, goods and services, and contingencies excludes expenditure under project appropriations specified in the Appropriation Law.
- Tax exemptions reporting requirements under the PFM Law:
  - Article 5 (3): Within 7 days of granting an exemption the Minister shall notify the Council of Ministers and the Auditor General.
  - Article 5 (4): Minister shall submit tax exemptions to both Houses of Parliament on or before March 31st, June 30th, September 30th, and December 31st of each financial year.
  - Article 5 (5): Reports must show micro-level details (individual recipient, reasons, total taxes due but not paid, and benefits to Government).
  - Article 18 (1)(f): Proposed Budget Appropriation Bill must contain the annual tax exemption report.
- Budget execution control points:
  - Allotment: ceiling on amount of warrants to be requested by MDAs during a specific period; issued by MoF within available funds.
  - Warrant: ceiling on commitments by MDAs during a specific period; issued by MoF on request within available allotment; reduces available allotment once approved.
  - Commitment: contract or legally binding agreement to make payments; liability recognized on delivery for goods/services; includes continuing agreements such as compensation of employees.

### Fiscal balance and adjustors
- Fiscal balance (cash basis) = total government revenue (including domestic revenue, transfers of CBS distributable earnings not in Appropriation Law, and grants) minus total government expenditures (excluding foreign-financed off-budget expenditure).
- Adjustor to the fiscal balance floor:
  - Floor on the fiscal balance will be adjusted down by delays/shortfalls in budget support grants compared to the budget estimate, up to maximum amounts in TMU Table 1, to cover priority spending as per the sequestration rule under the Appropriation Law, provided no overruns in other non-priority spending items.
  - Floor on the fiscal balance will also be adjusted down by higher interest payments compared to budget estimate.

### Arrears and debt definitions
- New domestic arrears: FGS obligations for payments to residents unpaid 90 days after due date. Due date = contractual due date after contractual grace periods. Obligations include CBS advances, borrowing from commercial banks, accrued but unpaid expenditure commitments (compensation of employees, goods and services, interest payments, mandatory transfer to Banaadir region, acquisition of nonfinancial assets). New domestic arrears include those accumulated from the beginning of the fiscal year.
- External arrears: debt obligations to non-residents unpaid on contractual due date (plus applicable grace period). Excludes arrears from debt being renegotiated in HIPC process where creditor has agreed no payment pending negotiations.
- Debt for program purposes defined on a residency basis in line with Executive Board Decision No. 15688 (14/107), adopted December 5, 2014, as amended.
- Forms of debt include: loans (including deposits, bonds, debentures, commercial loans, buyers’ credits; repurchase agreements and official swap arrangements), suppliers’ credits, and leases (debt equals present value at lease inception of all lease payments expected during agreement, excluding operation/repair/maintenance payments).
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual debt obligation are debt. Failure to pay on an obligation not considered debt (e.g., payment on delivery) does not give rise to debt.
- Domestic debt: debt where counterparty is resident of Somalia, including the CBS. Excludes temporary advances for liquidity management from the CBS; temporary advances fully repaid within 90 days. QPCs/ITs on domestic debt are cumulative ceilings on contracting new domestic debt from the beginning of the fiscal year.
- External debt QPCs/ITs: cumulative ceilings on contracting or guaranteeing new non-concessional borrowing by the general government from the beginning of the fiscal year. Memorandum item on contracting new concessional borrowing from the beginning of the fiscal year. External debt defined by creditor residency and deemed contracted when loan agreement signed. Excludes IMF disbursements.
- Concessionality:
  - Borrowing is concessional if it includes a grant element of at least 35 percent.
  - Grant element calculated as (NPV of debt difference from nominal value) / nominal value.
  - NPV calculated by discounting future debt-service payments using a discount rate of 5 percent at signing.
  - External borrowing with grant element < 35 percent deemed non-concessional.
  - Highly concessional financing defined as borrowing with at least 50 percent grant element.

### Central Bank net international reserves (NIR) and valuation
- CBS NIR = gross foreign assets minus gross foreign liabilities.
- All SDRs valued over the calendar year at the August 31, 2023 exchange rate of US$1.329940 per SDR.
- IMF representative exchange rates at August 31, 2023 used to convert foreign assets/liabilities denominated in currencies other than U.S. dollars.
- Gross foreign assets defined as the sum of:
  - (i) gold (valued over the calendar year at the market price of August 31, 2023 (US$ 1,942.9 per ounce));
  - (ii) total foreign exchange held abroad;
  - (iii) Somalia’s SDR holdings in the IMF SDR Department;
  - net of (iv) the unused portion of the MoF share of the 2021 IMF General SDR Allocation, and (v) the unused SDRs disbursed under the ECF arrangement for budget support.
- Gross foreign liabilities defined as the sum of:
  - (i) government deposits at the CBS in foreign currency held abroad;
  - (ii) other earmarked foreign currency deposits at the CBS by residents of Somalia held abroad;
  - (iii) outstanding IMF credits and loans;
  - (iv) total amount of SDR general allocation;
  - net of (v) the MoF share of the 2021 General SDR Allocation as per the September 2021 Memorandum of Understanding between the MoF and the CBS; and (vi) SDRs disbursed under the ECF arrangement for budget support.

### TMU Table 1 — Adjustor to the Fiscal Balance Floor (US$ million, cumulative flows from the beginning of each calendar year)
Columns: Dec-23 | Mar-24 | Jun-24 | Sep-24 | Dec-24

- Maximum amount of the fiscal balance adjustor related to delays or shortfalls in budget support grants:
  - Dec-23: 56.1
  - Mar-24: 0.0
  - Jun-24: 75.0
  - Sep-24: 150.0
  - Dec-24: 150.0

- Memorandum items — Budget support grants in the Budget estimate:
  - Dec-23: 170.6
  - Mar-24: 0.0
  - Jun-24: 75.0
  - Sep-24: 150.0
  - Dec-24: 150.0

- Memorandum items — Interest payments in the Budget estimate:
  - Dec-23: 9.8
  - Mar-24: 9.8
  - Jun-24: 9.8
  - Sep-24: 9.8
  - Dec-24: 9.8

- Possible sources of financing for fiscal deficit:
  - Dec-23: 56.1
  - Mar-24: 112.4
  - Jun-24: 112.4
  - Sep-24: 187.4
  - Dec-24: 152.4

- World Bank DPO as loan rather than grant:
  - Dec-23: 0.0
  - Mar-24: 0.0
  - Jun-24: 0.0
  - Sep-24: 75.0
  - Dec-24: 75.0

- Withdrawal of cash buffers 1/:
  - Dec-23: 56.1
  - Mar-24: 68.4
  - Jun-24: 68.4
  - Sep-24: 68.4
  - Dec-24: 68.4

- Proceeds from SDR holdings distributed to the MOF:
  - Dec-23: 0.0
  - Mar-24: 9.0
  - Jun-24: 9.0
  - Sep-24: 9.0
  - Dec-24: 9.0

- Proceeds from CBS temporary advances 2/:
  - Dec-23: 0.0
  - Mar-24: 35.0
  - Jun-24: 35.0
  - Sep-24: 35.0
  - Dec-24: 0.0

1/ Includes the Fiscal Buffer (a dedicated account in the Treasury Single Account managed in accordance with the MoF guidelines of July 25, 2019), the SDR transit account (an account held with a correspondent bank in Turkey through which proceeds from SDR holdings distributed to the MOF are channeled), and other accounts with cash balances.
2/ In line with the CBS Law, the total amount outstanding at any time of CBS advances shall not exceed 15 percent of the most recent audited domestic revenue of FGS. For 2023, the most recent audited domestic revenue corresponds to 2022 and the maximum amount of liquidity advances from the CBS is USD39.4 million. For 2024, the most recent audited domestic revenue will correspond to 2023 and the maximum amount of liquidity advances from the CBS is currently estimated at USD42.45 million--this amount will need to be updated in forthcoming program reviews once the audited accounts for 2023 become available.  In line with the Appropriation Law, all liquidity advances should be repaid by end-December of the fiscal year. In line with the Short-Term Government Financing Agreement between the CBS and MoF signed on June 21, 2021, the maturity of temporary advances should not exceed 90 days.

*Source: IMF*

### 18. Adjustors to the NIR floor. In case any of the following events materialize, the NIR floor

### 18. Adjustors to the NIR floor

### Adjustors and triggers
- The NIR floor would be adjusted downward by the maximum amounts stipulated in TMU Table 2 if any of the following events materialize:
  - a. If the CBS transfers distributable earnings to the government as per the Central Bank of Somalia Act.
  - b. If the CBS provides the MoF with temporary liquidity advances to finance delays or shortfalls in budget support grants relative to the budget estimate.
    - In line with the CBS Law, the total amount outstanding at any time of CBS advances shall not exceed 15 percent of the most recent audited domestic revenue of FGS.
    - For 2023, the most recent audited domestic revenue corresponds to 2022 and the maximum amount of liquidity advances from the CBS is USD39.4 million.
    - For 2024, the most recent audited domestic revenue will correspond to 2023 and the maximum amount of liquidity advances from the CBS is currently estimated at USD42.45 million; this amount will need to be updated in forthcoming program reviews once the audited accounts for 2023 become available.
    - In line with the Appropriation Law, all liquidity advances should be repaid by end-December of the fiscal year.
    - In line with the Short-Term Government Financing Agreement between the CBS and MoF signed on June 21, 2021, the maturity of temporary advances should not exceed 90 days.
  - c. If the CBS transfers to the MoF part or all of the SDR 7 million windfall from the HIPC debt relief.
- Calculation of concessionality will take into account all aspects of the loan agreement, including maturity, grace period, payment schedule, upfront commissions, and management fees.

### Table 2 — Maximum adjustment amounts (US$ million, cumulative flows from the beginning of each calendar year)
- Calendar points shown: Dec-23, Mar-24, Jun-24, Sep-24, Dec-24
- Adjustor 1, if the CBS transfers distributable earnings to the government:
  - Dec-23: -0.2
  - Mar-24: -0.2
  - Jun-24: -0.2
  - Sep-24: -0.2
  - Dec-24: -0.2
- Adjustor 2, if the CBS provides temporary liquidity advances to the government 1/:
  - Dec-23: 0.0
  - Mar-24: -35.0
  - Jun-24: -35.0
  - Sep-24: -35.0
  - Dec-24: 0.0
- Adjustor 3, if IMF HIPC debt relief of SDR 7 million remains with the MoF:
  - Dec-23: 7.0
  - Mar-24: 7.0
  - Jun-24: 7.0
  - Sep-24: 7.0
  - Dec-24: 7.0

Notes related to adjustors:
- 1/ In line with the CBS Law, the total amount outstanding at any time of CBS advances shall not exceed 15 percent of the most recent audited domestic revenue of FGS. For 2023, the most recent audited domestic revenue corresponds to 2022 and the maximum amount of liquidity advances from the CBS is USD39.4 million. For 2024, the most recent audited domestic revenue will correspond to 2023 and the maximum amount of liquidity advances from the CBS is currently estimated at USD42.45 million--this amount will need to be updated in forthcoming program reviews once the audited accounts for 2023 become available. In line with the Appropriation Law, all liquidity advances should be repaid by end-December of the fiscal year. In line with the Short-Term Government Financing Agreement between the CBS and MoF signed on June 21, 2021, the maturity of temporary advances should not exceed 90 days.
- 2/ As part of the 2021 IMF General SDR Allocation, Somalia received approximately SDR157 million. Of this, the authorities distributed about SDR93 million to the MoF and about SDR64 million to the CBS to strengthen reserves. The September 2021 Memorandum of Understanding between the CBS and MoF clarifies the responsibilities and procedures related to the distribution of the 2021 IMF General SDR Allocation, including that the MoF will be responsible for servicing the liability related to the use of the SDRs (including net charges).
- 3/ At HIPC Completion Point, the IMF will provide debt forgiveness in the amount of SDR 250.43 million (US$348.3 million in end-2018 PV terms), which corresponds to the ECF/EFF disbursement immediately prior to the HIPC Decision Point in March 2020. Part of the 2020 ECF/EFF disbursement had been used to repay a bridge loan used for arrears clearance to the IMF (SDR 243.4 million), and the remainder (SDR 7 million) was kept as higher gross reserves at the CBS. The authorities need to decide the distribution of the SDR 7 million that will no longer need to be repaid to the IMF.

### Program monitoring arrangements
- Program Monitoring Committee (Technical Working Group, TWG):
  - Composed of senior officials from the Ministry of Finance (MoF), the CBS, Financial Reporting Centre (FRC), Somalia National Bureau of Statistics (SNBS), and the Ministry of Planning, Investment and Economic Development (MoPIED).
  - The IMF Resident Representative will have observer status on this working group.
  - Responsibilities: monitoring program performance, recommending policy responses, informing the Fund regularly on program performance, and transmitting supporting materials for evaluation of benchmarks.
  - The committee shall provide the Fund with quarterly progress reports within four weeks of the end of each quarter, using the latest available data.

### Data reporting requirements (selected highlights, December 2023–December 2026)
- Central Bank of Somalia
  - Monetary Survey: Detailed balance sheet data of the CBS; Monthly; 3 weeks after the end of each month.
  - Consolidated commercial banks’ balance sheet data: Quarterly; 4 weeks after the end of each quarter.
  - Volume and value of mobile money transactions: Quarterly; 4 weeks after the end of each quarter.
  - Prudential data (total capital, core capital, total net assets, high quality liquid assets, and 30-day funding requirement), and average profit rates and tenor information for private sector financing assets from banks: Quarterly; 4 weeks after the end of each quarter.
  - Balance of payments: Trade in goods data by HS code and value for the ports of Mogadishu, and Bossaso and Kismayo, starting end-September 2020; petroleum imports to Mogadishu; and travel data from the Immigration Department: Quarterly; 4 weeks after the end of each quarter.
  - Cross-border current transfers (inflows and outflows) by MTBs, banks, and for MMOs starting from end-March 2021: Quarterly; 4 weeks after the end of each quarter.
- FGS external accounts
  - End-month balances included in the Treasury Single Account held abroad by the CBS on behalf of the FGS, including on-budget grants and the fiscal buffer: Monthly; 3 weeks after the end of each month.
- Financial Reporting Center
  - AML/CFT compliance data: total number of each STR, LCTR, and Nil reports received from banks, MTBs, and MMOs; Quarterly; 4 weeks after the end of each quarter.
- Ministry of Finance — FGS budget operations (selected)
  - For annual and supplemental budgets: Revenue by GFS 6-digit classification; statement of tax exemption for the previous 12-month period (annual budget only); proposed Appropriation by MDA, program/project and 4-digit object code; staffing table by MDA; donor assistance tables by COFOG; Proposed spending by NDP sector; spending by FGS, Banaadir, and FMS: As required; Within a week of submission to Cabinet and to the Parliament; and when signed by the President.
  - Current year SFMIS reports (Reports 1A, 1B and special report for FMS transfers): Monthly; 4 weeks after the end of the month.
  - Monthly cash plan and at least one-month ahead forward projections supported by SFMIS reports (reports 3A, 3B, 3C): Monthly; 4 weeks after the end of each month.
  - A comprehensive table summarizing Government operations including revenue, expenditure (by MDA and Object code), and TSA balances for the month and YTD (reports 5A, 5B, 5C and 5D): Monthly; 4 weeks after the end of the month.
  - Payroll and non-payroll salary and allowance payments made by MDAs and individual embassies: Monthly; 4 weeks after the end of the month.
  - SDR balances of the MoF and changes therein from the beginning of a fiscal year: Monthly; 4 weeks after the end of the month.
  - Customs modernization: number of declarations, manifests processed, and goods inspections from SOMCAS and SOMSAD systems: Quarterly; 4 weeks after the end of the quarter (March, June, September, December).
- FMS and Banaadir budgets and fiscal operations: As required/Monthly; timings vary (e.g., within a week of approval for annual and supplemental budgets; FMS fiscal operations monthly 6 weeks after the end of each month).
- Domestic arrears: A letter confirming no accumulation of arrears or a table providing the end-of-period stock of domestic arrears by MDA and 4-digit Object Code: Quarterly; 4 weeks after the end of the quarter.
- External debt reporting (Ministry of Finance):
  - End of year external debt in U.S. dollars, by creditor, and origination currency; amount of new external debt contracted or guaranteed by Government: Annually; 6 weeks after the end of the year.
  - Disbursements and repayments: (i) scheduled; and (ii) actual interest and principal on debt of the Government and the CBS, by creditor: Annually; 30 days after the end of each year.
  - Accumulation of any new arrears (principal or interest payments) on external debt: Monthly; 3 weeks after the end of the month.

### LIC-DSA — Key debt findings and outlook
- The Low-Income Countries Debt Sustainability Analysis (LIC-DSA) updates the May 2023 LIC-DSA and incorporates:
  - Updated macroeconomic assumptions including a rebased GDP series.
  - Use of reconciled end-2018 and end-2022 debt databases for the HIPC Completion Point Debt Relief Analysis (DRA) and DSA.
- Baseline assumptions:
  - 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.
- Public debt projections:
  - Total public debt is 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.
  - Of the projected US$706 million at end-2023, US$638 million is projected to be external debt, or 5.5 percent of GDP.
- Present value of external debt:
  - Including debt relief at HIPC Completion Point, the present value of external debt in 2022 is estimated to be 22.8 percent of GDP, decreasing to 5.1 percent of GDP in 2023 — below the 30 percent threshold for countries like Somalia with weak debt carrying capacity.
- Risk assessments:
  - Post-HIPC Completion Point, Somalia is assessed to be at moderate risk of debt distress, both for external and overall public debt.
  - Under the stress scenario, forecasts indicate sustained breaches of the external debt service to revenue indicative threshold in the long term as grace periods on initial loans expire.
  - Under the moderate rating for overall risk of debt distress, Somalia is mechanically assessed to have substantial space to absorb shocks post-HIPC Completion Point.
  - Vulnerabilities remain: security, international commodity price, and climate shocks; high dependence on external concessional financing.
- Policy priorities highlighted:
  - Strengthen domestic revenue mobilization.
  - Strengthen debt management institutions and institutional capacity.

### Public debt coverage and background (selected)
- Public debt perimeter is the central government; 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 is limited: no developed domestic financial institutions/local capital markets and no domestic public debt aside from legacy government wage arrears.
- End-2018 and end-2022 debt stock context:
  - End-2018 nominal total stock: US$5.3 billion, of which US$5 billion was in arrears.
    - Of the US$220 million not in arrears, US$5 million, US$31 million, and US$160 million were obligations to the International Fund for Agricultural Development, African Development Fund, and the International Development Association, respectively. The remaining US$25 million were obligations to bilateral creditors.
  - End-2022 overall public debt stock estimated at US$3.9 billion, or 37.4 percent of GDP.
  - For bilateral creditors that have not yet signed an agreement, the DSA assumes application of Cologne terms.
  - At Completion Point, the Paris Club beyond-HIPC debt relief Initiative assumes 100 percent cancellation of all Paris Club debt, except Russia’s post-cutoff short-term debt.

*Prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA).*

### 5.      For HIPC Completion Point, Somalia signed agreements with individual creditors to

### 5.      For HIPC Completion Point, Somalia signed agreements with individual creditors to

### Debt relief progress and creditor agreements
- Somalia signed agreements with individual creditors to restructure its external public debt for HIPC Completion Point.
- In 2023, authorities advanced negotiations on debt relief and restructuring with most multilateral creditors (Arab Monetary Fund, Islamic Development Bank, Arab Fund for Economic and Social Development).
- International partners supported International Fund for Agricultural Development (IFAD) arrears clearance and HIPC debt relief.
- The authorities have signed agreements with all Paris Club creditors, the Kuwait Fund for Arab Economic Development and the Saudi Fund for Development.
- 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.
- Somalia continues good faith negotiations with creditors to finalize debt relief agreements.
- February 3, 2023: IDA agreed to finance 85 percent of IFAD's share of HIPC debt relief to Somalia through the IDA-managed Debt Relief Trust Fund (DRTF), provided that DRTF donors support this arrangement; this financing includes compensation of up to one-third of the HIPC debt relief delivered by IFAD to Somalia in the interim period.
- Under the March 31, 2020 Paris Club understanding, it was agreed on an exceptional basis that Somalia would not be required to make debt service payments until at least end March 2024, given Somalia’s very limited payment capacity, and if it continued to implement satisfactorily an IMF-supported program.

### GDP rebasing, data revisions, and implications for debt indicators
- SNBS published rebased GDP estimates in June 2023; GDP was rebased to 2022 prices and series backdated to 2016.
- Comparison of the new GDP series (2022 base year) to the previous series (2017 base year) indicates:
  - 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 was revised in June 2023; resulting nominal series for exports of goods and services is substantively 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 the overall debt profile.
- Sources cited: Somali authorities and IMF staff calculations.

### 2022 developments and 2023 near-term outlook
- Drought and weak remittances affected growth in 2022; remittances growth in 2022 was 1.1 percent (compared to 29 percent in 2021).
- Wider current account deficit in 2022 was 8 percent.
- Inflation at end-December 2022 declined to 6.1 percent.
- Growth in 2023 is expected to pick up modestly to 2.8 percent, supported by recovery in agriculture.
- Inflation in 2023 is forecasted at 5.7 percent.
- Domestic revenue overperformance in 2023 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) will facilitate a small cash balance to partially address liquidity needs in early 2024.

### Medium- and long-term projections and drivers
- Average growth projection for 2024-28 is 4 percent.
- Long-term growth is expected at 4.5 percent.
- Long-term inflation is expected to average 2.4 percent.
- Key drivers for 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 as financial sector reforms pay off;
  - greater FDI and private investment supported by improvements in the business environment, including security and governance.
- COVID-19 and climate shocks expected to have lasting impacts (negative effects on schooling and health services).
- Somalia expected to continue running a structural trade deficit; exports currently dominated by livestock representing about 80 percent of total exports of goods.
- Exports nominal series projected improvements due to market diversification beyond Saudi Arabia and the Hajj period;  new insurance products are being prepared to mitigate livestock risks.
- Pipeline investments in electricity and transport expected to support new sectors such as fisheries.
- Current account deficit projected to deteriorate slightly as grant support decays; part of financing need expected to be filled by increased external creditors and higher FDI inflows.

### Fiscal outlook, revenue reforms, and public investment
- Domestic revenue projected to increase by around 0.3 percent of GDP per year over 2024-2028, driven by broad-based revenue-enhancing reforms.
- Expected improvements in trade-related revenues from ad-valorem tariffs, improved data, and enhanced customs processes.
- Approval of the new Income Tax Law and introduction of excise taxes on money transfer business, airtime, and telecommunications projected to increase income and sales taxes.
- Revenue administration expected to add new taxpayers, expand digital tools, and enhance enforcement.
- Achieving HIPC Completion Point provides Somalia new access to concessional borrowing; grants expected to gradually decline and be replaced by concessional loans.
- An overall deficit of about 2 percent of GDP is expected by 2027.
- Sustained improvements in expenditure execution and public investment management will facilitate absorption of additional resources for human development and public infrastructure.

### Policy reform progress and near-term risks
- Authorities achieved 13 out of 14 triggers for reaching HIPC Completion Point, including on public financial and expenditure management, domestic revenue mobilization, governance, social sectors, and statistics.
- Authorities implemented performance and policy actions under the IDA Sustainable Development Finance Policy (including commitment not to borrow on non-concessional terms and improving debt transparency and reporting) and complementary World Bank reforms.
- Near-term risks are tilted to the downside: risks include failure of sustained rainy seasons, rising food prices, global supply shocks to staples, deterioration of security, political risks linked to federalism, climate-related shocks, lower global growth, and persistent global inflationary pressures.
- If adverse risks materialize, economic growth and domestic revenue would face downward pressure, increasing financing needs; additional international support would be required.
- Continued IMF support through the proposed new 3-year ECF arrangement and highly concessional financing from the World Bank and other institutions and donors will be important to prevent build-up of debt vulnerabilities.

### Data limitations, realism tools, and baseline assumptions
- Data weaknesses constrain macroeconomic analysis; limitations in national accounts data, substantial gaps in balance-of-payments data, heavy reliance on third-party trade estimates, and direct investment data currently estimated.
- Some realism tools are inapplicable:
  - Forecast error realism tool not yet applicable because Somalia’s debt stock has been largely determined by HIPC progress and lacks 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.
  - Fiscal adjustment and growth realism tool shows projected growth path is in line with a range of possible fiscal multipliers.
- Baseline scenario assumptions:
  - Full impact of multilateral arrears clearance, debt relief under the Enhanced HIPC Initiative, MDRI and beyond-HIPC assistance at Completion Point reached in December 2023.
  - New financing in 2024-2027 shifts from grants to highly concessional loans similar to those under IDA20.
  - From 2028, new borrowing assumed on concessional terms similar to IDA regular credits.
  - Somalia to continue receiving grant disbursements for project commitments approved before Completion Point, but these decline over time.
  - Overall deficits of 2 to 3.5 percent of GDP over the medium to long term as grants decline and borrowing rises.
  - Robust access to budget support financing from development partners will continue to be needed to support essential recurrent spending in the near-term.

*Source: Somali authorities and IMF staff calculations.*

### 19.      Somalia’s external debt profile is projected to improve significantly post-HIPC

### 19.      Somalia’s external debt profile is projected to improve significantly post-HIPC

### Baseline projections and drivers
- The baseline assumes full delivery of debt relief and HIPC Completion Point in December 2023.
- Revised DSA assumptions and GDP rebasing lead to improvements relative to the May 2023 LIC-DSA, including a slight improvement in primary deficit-to-GDP in the near term.
- PV of external debt to GDP is forecast to 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 — well below the indicative threshold of 30 percent.
- From 2024 to 2028, the baseline assumes external financing will be concessional with an estimated average grant element of 64 percent, which is projected to decline to around 50 percent by 2033.
- Debt service ratios are expected to increase towards the end of the projection period due to the resumption of payment on restructured debt after the provision of debt relief.

### Stress tests and vulnerability analysis
- Standard DSA stress tests show deterioration of some indicators under temporary shock scenarios; combined shocks to key macroeconomic variables produce the most extreme stress environment.
- The combined shock can lead to external debt service to revenue breaching the indicative threshold when payments on new borrowing to meet higher financing needs are expected to start.
- Uncertainty around real GDP growth, exports, and the non-debt flow shock is the largest contributor to the combined shock.
- A shock in current official transfers is a significant vulnerability, reflecting Somalia’s high dependence on official development assistance.
- Breaches related to the external debt service to revenue ratio are sustained in the long term, related to rising amortization needs after 2030 when grace periods on new debt begin to expire.

### Public debt sustainability
- 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 on public debt service to revenue with the ratio rising in the long-term.
- The baseline assumes the nominal stock of domestic debt will significantly decline as a percentage of total debt over the medium-term.
- Given there is no market for domestic debt and the existing stock of domestic debt is limited to a small stock of government arrears, conclusions regarding external debt sustainability are relevant also for public debt sustainability.

### 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 moderate risk of external debt distress and moderate overall risk of public debt distress.
- The moderate risk rating tool mechanically indicates Somalia has substantial space to absorb shocks, but the country remains vulnerable to significant security, international commodity price, and climate shocks.
- Somalia remains highly dependent on external, 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 and policy implications
- 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 agreed on the need to strengthen debt management capacity and ensure transparency regarding terms and conditions of borrowings.
- They expect ongoing reforms, in particular domestic revenue mobilization, will improve the country’s debt servicing capacity.

### Key statistics (selected, baseline scenario)
- PV of external debt-to-GDP ratio: 5.1 percent (2024), 6.3 percent (medium term), 8.6 percent (long term).
- Indicative threshold for PV of external debt-to-GDP: 30 percent.
- PV of PPG external debt-to-exports ratio: 28.1 (medium-term value shown in table).
- PPG debt service-to-exports ratio examples: 1.2, 1.1, 0.9, 0.9, 1.0, 0.9.
- PPG debt service-to-revenue ratio examples: 6.6, 7.4, 6.2, 6.2, 6.7, 6.3.
- Grant element of new public sector borrowing: average 64 percent (2024–2028), projected ~50 percent by 2033.
- Grant-equivalent financing (in percent of external financing) sample: 91.7, 94.5, 86.2, 79.8, 69.3, 67.8.
- Gross external financing need (Million of U.S. dollars) sample: -44.8, 174.8, 311.6, 507.8, 461.7, 666.9.
- Real GDP growth (in percent) path sample: -2.6, 3.3, 2.4, 2.8, 3.7, 3.9, 4.0, 4.1, 4.3, 4.5.
- Government revenues (excluding grants, in percent of GDP) sample: 2.3, 2.3, 2.5, 2.7, 2.8, 3.0, 3.3, 3.6, 3.9, 5.0.
- Nominal GDP (Million of US dollars) sample: 9,204; 9,839; 10,420; 11,515; 12,489; 13,541; 14,686; 15,913; 17,192; 24,074; 46,023.
- PV of PPG external debt (in Million of US dollars) sample: 2,375.3; 5,584.7; 6,20.2; 6,88.7; 7,86.6; 9,31.0; 10,76.6; 20,72.3; 48,02.0.

*Source: IMF staff estimates and projections, Somalia DSA (baseline scenario).*

### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### 1somea2023005 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### Fiscal adjustment distribution and projected 3-year primary balance (PB) adjustment
- Chart shows 3-Year Adjustment in Primary Balance (Percentage points of GDP) with horizontal axis labeled from -4.5 to "more" and positive values through 8.0.
- Projected 3-yr adjustment: 3-year PB adjustment greater than 2.5 percentage points of GDP is identified as "in approx. top quartile".
- Baseline and multiplier scenarios shown for years 2017–2024 with multipliers: Multiplier = 0.2, Multiplier = 0.4, Multiplier = 0.6, Multiplier = 0.8.
- Vertical axis described as "percent of sample".

### Qualification of the Moderate Category, 2023–2033 (Debt indicators and thresholds)
- Threshold definitions: For PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent.
- Categories referenced: Limited space, Some space, Substantial space, Baseline.
- Time series presented for 2023, 2025, 2027, 2029, 2031, 2033 for:
  - Debt service-to-revenue ratio (vertical scale 0–16)
  - PV of debt-to-exports ratio (vertical scale 0–160)
  - PV of debt-to-GDP ratio (vertical scale 0–35)
  - Debt service-to-exports ratio (vertical scale 0–12)

### Sensitivity analysis for Public and Publicly Guaranteed External Debt, 2023–2033 (Table 3)
- Table spans 2023–2033 with baseline year values and multiple scenario panels: A. Alternative Scenarios; B. Bound Tests; C. Tailored Tests.
- Baseline items (selected):
  - Baseline row (first numeric sequence): 5 5 5 5 6 6 7 7 7 8 9
- A. Alternative Scenarios
  - A1. Key variables at their historical averages in 2023-2033: 5 3 10 -2 -4 -6 -9 -11 -13 -15
- B. Bound Tests (selected panels)
  - B1. Real GDP growth: 5 5 6 6 7 7 7 8 9 10
  - B2. Primary balance: 5 -6 -5 -5 -4 -3 -2 -2 -10 1
  - B3. Exports: 5 6 9 9 9 10 10 10 11 11 11
  - B4. Other flows 3/: 5 11 15 15 15 16 16 16 16 16 16
  - B5. Depreciation: 5 6 -1 -10 12 23 4 5
  - B6. Combination of B1-B5: 5 5 13 16 16 16 16 17 17 17 17
- C. Tailored Tests (selected)
  - C1. Combined contingent liabilities: 5 -4 -4 -3 -2 -1 -1 0 0 1 2
  - C2. Natural disaster: n.a. entries across period
  - C3. Commodity price: 5 5 5 5 6 6 7 7 7 8 9
  - C4. Market Financing: n.a. entries across period
- Threshold rows and baseline rows present for multiple indicator groupings (debt service-to-exports ratio, debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio) with numeric sequences preserved in tables.

### Sensitivity analysis for Key Indicators of Public Debt, 2023–2033 (Table 4)
- Baseline and scenario sequences presented (selected excerpts preserved):
  - Baseline (top sequences include): 6 6 6 6 7 7 8 8 9 ...
  - A1. Key variables at their historical averages in 2023-2033: 6 19 18 16 14 13 11 10 9 9 8
  - B. Bound Tests (B1–B6) and C. Tailored Tests present large numeric sequences, e.g. B6. Combination of B1-B5: 6 31 29 27 26 25 24 23 23 22 22
- TOTAL public debt benchmark indicated as 35 across periods.
- Baseline public debt numeric sequence (selected): 89 80 108 124 148 159 168 167 169 172 176
- A. Alternative Scenarios examples: A1. sequence includes 89 280 337 337 338 307 280 236 207 183 163
- B. Bound Tests examples: B1. Real GDP growth sequence includes 89 294 383 407 442 436 432 400 383 370 361
- C. Tailored Tests examples: C1. Combined contingent liabilities sequence includes 89 316 391 407 429 414 402 367 339 317 300
- PV of Debt-to-Revenue Ratio and Debt Service-to-Revenue Ratio panels contain sequences with values such as Baseline: 3 3 4 4 5 5 7 7 7 7 7 and Threshold rows 1/ show entries like 1 or 2 for some scenarios.
- Notes: 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 4/ Structural breaks in Somalia's historical series affect the DSA's sensitivity analysis. Negative values should be considered bounded at zero.

### Public Debt Holder Profile, 2022–2024 (Table 5)
- Aggregate totals and breakdowns (In millions of U.S. dollars, unless otherwise indicated):
  - Total (1/): 3,894.8 (Percent total debt: 100.0; Percent GDP: 37.4; additional columns show 16.4, 19.5, 14.5, 0.2, 0.2, 0.2)
  - External: 3,827.0 (Percent total debt: 98.3; Percent GDP: 36.7; columns with 16.4, 19.5, 14.5, 0.2, 0.2, 0.2)
- Multilateral creditors total: 1,074.9 (Percent total debt: 27.6; Percent GDP: 10.3)
  - IMF (2/): 370.5 (Percent total debt: 9.5; Percent GDP: 3.6; additional percent columns 0.0, 4.1, 4.0, 0.0, 0.0, 1.0, 0.0)
  - World Bank (3/): 104.6 (Percent total debt: 2.7; Percent GDP: 1.0)
  - AfDB: 20.1 (Percent total debt: 0.5; Percent GDP: 0.2)
  - Other Multilaterals: 579.6 (Percent total debt: 14.9; Percent GDP: 5.6)
- Bilateral creditors total: 2,752.1 (Percent total debt: 70.7; Percent GDP: 26.4)
  - Paris Club (4/): 2,004.5 (Percent total debt: 51.5; Percent GDP: 19.2)
  - Russia (7/): 711.1 (Percent total debt: 18.3; Percent GDP: 6.8)
  - United States: 998.4 (Percent total debt: 25.6; Percent GDP: 9.6)
  - Other individual bilateral creditor entries preserved as reported (Denmark 2.8; France 109.7; Japan 109.0; Netherlands 2.1; Norway 0.6; Spain 40.9; United Kingdom 28.6; Serbia 2.5; and others).
- Other international creditors (8/): 745.0 (Percent total debt: 19.1; Percent GDP: 7.2) with breakdowns for Algeria 1.6; Bulgaria 11.0; Iraq 201.9; Kuwait Fund and Central Bank 125.3; Libya 30.4; Romania 2.5; Saudi Arabia 118.9; United Arab Emirates 253.5.
- Domestic: 67.8 (Percent total debt: 1.7; Percent GDP: 0.7) — "Of which: in arrears 67.8 1.7 0.7"
- Nominal GDP reported: 10,420
- Notes and contextual annotations preserved:
  - 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 for table: Somalia Debt Management Unit; IMF; World Bank; and AfDB.
- Debt records note: loans contracted from 1965 to 2002 included; recognized debtor is the Ministry of Finance of the FGS or a line ministry of the FGS. Note exclusion of a Russian claim on the Central Bank of Somalia totaling about $7.5 million (or 0.1 percent of GDP), deemed not eligible for HIPC debt relief.
- IMF debt stock reported in 2022 includes net SDR position of government (used for budget support). World Bank obligations are to IDA. Updated 2022 debt stock reflects interim debt relief under signed bilateral agreements with PC creditors.

### Projected External Borrowing Program summary heading
- Table 6 titled "Summary Table on Projected External Borrowing Program, January 1, 2024 to December 31, 2024" is present (data not reproduced beyond title block in provided excerpt).

### Executive Board Meeting Statement (December 13, 2023) — Key points
- Opening acknowledgements:
  - Gratitude expressed to IMF staff for contributions since 2013, including support through four Staff Monitored Programs and the current UCT-quality arrangement. Specific thanks to Mission Chief Ms. Laura Jaramillo.
- Context and achievements:
  - Somalia faced prolonged drought, humanitarian crisis, COVID-19, insecurity from Al-Shabaab, limited capacity, and weak institutions.
  - Authorities implemented reforms leading to progress toward HIPC Completion Point (CP), successful completion of current ECF program, and staff-level negotiations of a successor ECF program.
- I. Context (humanitarian and security)
  - November 2023 OCHA report: "33 districts in three out of the five federal member states are flooded."
  - Floods caused loss of lives, property destruction, farm and livestock damage, and increased cholera risk.
  - Authorities preparing to assume full security responsibility after ATMIS mandate ends in December 2024; developing a post-ATMIS National Security Plan and discussing financing with development partners.
  - UN Security Council decision on December 2, 2023 to lift the 31-year-old Arms Embargo expected to boost national army capacity.
- II. Recent Economic Developments
  - Growth: 2021 GDP growth 2.9 percent; 2022 GDP growth 2.4 percent.
  - 2023 expected growth: 2.8 percent.
  - 2024 projected growth: 3.7 percent.
  - 2028 projected growth: 4.3 percent.
  - Inflation: 2022 inflation 6.1 percent; expected to moderate to 4.6 percent (eop) in 2023 and 3.9 percent in 2024.
  - Growth drivers: foreign direct investment, remittances, rebound in agriculture production.
- III. Performance under current program and reforms
  - Reforms under the ECF arrangement: strengthened domestic revenues, customs modernization, budget process improvements, strengthened expenditure controls and reporting.
  - Governance reforms: accession to UN Convention Against Corruption; implementation of National Anti-Corruption Strategy; petroleum sector legal framework; policy for management of non-financial assets; strengthened due process on contracts and concessions.
  - Central Bank of Somalia (CBS) institutional strengthening: regular publication of audited financial statements; new financial sector regulations and guidance to promote financial stability.
  - AML/CFT: ongoing implementation of National ML/FT Risk Assessment action plan and adoption of a Targeted Financial Sanctions legal framework.

*Sources: Country authorities; and staff estimates and projections; Somalia Debt Management Unit; IMF; World Bank; and AfDB.*

### 7. The performance  of the  sixth  and  last  review  under  the  current  ECF  was  strong.  The S o mali

### 7. The performance of the sixth and last review under the current ECF was strong.

### Program performance and request
- Somali authorities successfully met all quantitative performance criteria for June 2023, and all indicative targets for end-June and end-September 2023.
- Eight out of ten structural benchmarks due for the 6th review have been implemented; three of these experienced delays due to technical and capacity challenges.
- POS machines were installed by some in the tourist sector; rollout to the telecom sector was not accomplished due to technical issues related to data security and confidentiality.
- The missed customs harmonization benchmark resulted from refusal by one region to participate for political reasons; authorities remain committed to implementing this reform benchmark as crucial to revenue mobilization and establishment of functional intergovernmental relations and ultimate adoption of an ad valorem tariff structure throughout the country.
- Based on robust program performance and commitment to reforms, Somali authorities request the Executive Board’s approval of the completion of the sixth and final review of the 2020 Extended Credit Facility.
- The authorities have requested a new 3-year successor ECF program to support post-HIPC economic policies under Somalia’s ninth National Development Plan (NDP9).
- The new program will aim to maintain fiscal sustainability through domestic revenue mobilization, expenditure restraint, and strengthened public finance management.
- The program includes a front-loaded disbursement of SDR 30 million to help address the fiscal gap and liquidity pressures during 2024H1 if some expected grants do not materialize; future disbursements will be used to build reserves of the CBS.

### HIPC Completion Point
- Since 2013, reaching HIPC Completion Point (CP) has been a paramount objective; authorities met 13 out of the 14 required reforms, implemented their poverty reduction strategy for more than one year, and maintained a track record of sound macroeconomic management.
- The sole unmet target is adoption and implementation of a single import duty tariff structure at all ports, contingent on cooperation from Jubaland and Puntland in addition to Mogadishu ports.
- Puntland withdrew from the process earlier this year for political reasons; authorities are in discussions to resolve the dispute and anticipate a resolution by early 2024, following parliamentary and presidential elections in that region.
- Somalia has secured financing assurances from the majority of its bilateral and multilateral creditors, representing 89.5 percent of the present value of HIPC debt relief.
- Somali authorities request from the Executive Board a waiver of the unmet floating HIPC CP trigger and a favorable decision to allow Somalia to reach Completion Point under the enhanced HIPC initiative.

### Fiscal policy
- Authorities will practice prudent fiscal policy anchored by a new debt fiscal anchor and will avoid non-concessional loans, prioritizing highly concessional loans from multilateral development banks (MDBs), particularly the World Bank and the African Development Bank.
- Overall annual deficit will be limited to a maximum of 3.5 percent of GDP, with a minimum of 1.5 percent sourced from MDBs.
- Preference will be given to borrowing for investment in physical and social infrastructure and to securing bilateral grant budget support while boosting domestic revenue collection.
- Domestic revenue increased by more than 400 percent since the first 2013 budget but still accounts for 2.7 percent of GDP.
- Authorities aim to cover operational costs with domestic revenue by 2027 through new tax measures, tax laws, and enhanced tax administration capacity.
- Key revenue measures to be developed with IMF support over the next three years include a Tax Policy and Revenue Administration Roadmap, implementation of an ad valorem tariff structure nationwide, enacting and operationalizing a new Income Tax Law to replace the 1966 income law, new telecom-specific tax measures, development and operationalization of an Integrated Tax Administration System, and facilitating on-line tax payment.
- Fiscal federalism: National Consultative Council reached broad agreement on revenue assignment, establishment of a National Revenue Authority, and limited expenditure assignments; a comprehensive revenue sharing model and clearly defined expenditure assignments remain to be developed with possible IMF technical support.
- Debt management: authorities have established modern debt management systems and enhanced the debt management unit; reforms will articulate key parameters for debt policy and procedures for new borrowing and sovereign guarantees, with the Prime Minister issuing a decree in this regard.
- Expenditure restraint: implement recently approved pay and grade policy, integrate all non-payroll compensation into a single payroll, strengthen public procurement transparency, protect against misuse of public lands and real estate, develop a new Public-Private Partnerships law, and incrementally improve Public Investment Management (PIM) capacity beginning with a request for an IMF PIM Assessment.

### Financial sector
- Transformation of the Central Bank of Somalia (CBS) into a well-functioning modern central bank continues: implementation of a function-based management structure and hiring of three experienced executive directors to facilitate committee-based decision making.
- Systems improvements: operationalization of the national payment system in July 2021; adoption of International Bank Account Numbers (IBAN) in March 2023 by all banks; Standard National QR Code launched in June 2023.
- CBS awarded the 2023 Central Banking’s Payments and Market Infrastructure Development Award.
- CBS implemented all 2020 IMF Safeguards Assessment recommendations except those requiring amendment of the Central Bank Act; the revised CBS Act addressing remaining recommendations will be submitted to Parliament for approval in 2024Q1.
- CBS granted licenses to two foreign banks: Ziraat Katilim Bank from Türkiye was inaugurated in October 2023; Banque Misr from Egypt is expected to start operation in 2024Q2.
- Authorities prioritize integrating financial institutions into the global financial system by strengthening financial sector supervision and improving the AML/CFT framework ahead of the 2024 MENA-FATF Mutual Evaluation.
- Measures undertaken include implementation of the Targeted Financial Sanctions Law and regulations, capacity building for the Financial Reporting Center (FRC) and law enforcement agencies, and intent to amend the AML/CFT Law early 2024.
- Authorities have started issuing new unique biometric National Digital IDs to support targeted social protection programs and AML/CFT “know your customer” requirements.
- Currency strategy: de facto dollarization will remain in the near future; a limited currency exchange is a priority but will await secured financing. With World Bank support under the currency exchange project, authorities plan to replace single-denominated counterfeit Somali Shilling notes to facilitate financial inclusion; success requires support of all regional governments.

### Structural reforms
- Governance and anti-corruption efforts intensified: accession to the UN Convention Against Corruption; Parliament ratified the African Union Convention of Preventing and Combating Corruption and the Arab Anti-Corruption Convention; public actions against high-ranking officials including prosecutions and some convictions.
- A modern Supreme Audit Bill was enacted in September 2023 to establish a robust independent audit institution.
- Authorities continue to build a regulatory framework for the petroleum sector and have committed not to issue new production sharing agreements until the legal framework is completed.
- Inclusive growth and climate resilience: Ministry of Environment and Somali Disaster Management Agency intensified mitigation, adaptation, and disaster response; private sector participation measures include a registration one-stop-shop, approval of Investment and Investor Protection and Data Protection Acts, and issuance of Company Act regulations for minority shareholder protection.

### Capacity development
- Authorities recognize the need for continued strong capacity development and technical support from the IMF given low institutional capacity.
- Continued intensive support will be necessary to sustain reforms and implement deeper reforms.
- Authorities encourage contributions from friendly countries to the Somalia Trust Fund, which has been instrumental in providing timely and extensive capacity development.

### Conclusion
- Somali authorities have demonstrated commitment to implementing challenging reforms in a difficult environment and emphasize the importance of continued robust engagement from the Fund and other partners, including the World Bank, in the post-HIPC development phase as Somalia seeks to exit fragility and embark on its next development phase.

*Source: IMF staff report content provided in the supplied document.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1somea2023005.pdf_