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### Context
- Growth and drivers:
  - Real GDP growth in 2024: 4 percent.
  - Growth supported by robust agricultural and livestock output and ample rainfall in 2023Q4 and 2024Q1.
- Aid dependence and shock:
  - Donor information suggests aid could be around 20-30 percent of GDP over the last decade, with more than 85 percent of foreign aid off budget and implemented directly by development partners.
  - Preliminary estimates suggest reduction in foreign aid inflows to Somalia in 2025 could range between US$400 million and US$600 million (presented as 3.0 percent to 4.6 percent of GDP in scenarios across the text).
  - June 25, 2025 date referenced for executive summary material.

### Reform priorities and institutional strengthening
- Fiscal stance and buffers:
  - Despite expected negative impact of foreign aid cuts, overall fiscal deficit expected to be limited to 0.6 percent of GDP in 2025 (also referenced as an envisaged 0.2 percent of GDP in the 2025 Budget).
  - Part of the deficit to be covered by drawing down accumulated cash buffers from 2024; specified withdrawal of cash buffers in TMU memorandum items: Jun-25: 44.7; Sep-25: 44.7; Dec-25: 44.7; Mar-26: 8.8 (US$ million).
- Revenue reforms advancing:
  - Customs modernization (SOMCAS operationalization at Mogadishu port and airport and implemented in Kismayo).
  - Enactment of the Income Tax Law: New Income Tax Law signed May 16th, 2025; regulations published end-May 2025.
  - Enhanced revenue administration and digitalization (sales tax electronic system implemented in August 2024; non-tax revenue portal implementation started; procurement of Integrated Tax Administration System developer in process).
- Public financial management and debt management:
  - Pay and Grade Roadmap approved by Cabinet on February 26, 2025.
  - First Annual Debt Management Report published April 24, 2025.
  - Medium-term Debt Management Strategy (MTDS) expected by end-October 2025.
- Central Bank of Somalia (CBS) and currency reform:
  - CBS Board approved Strategic Plan (2025-2029) in November 2024.
  - 2024 audited financial statements published May 2025 with a clean auditor’s opinion.
  - Currency exchange project to reintroduce the Somali Shilling (SOS) and preparation for a currency board arrangement (CBA); proposed CBS Law amendments target end-December 2025 (SB#9).

### Program performance (implementation and milestones)
- Program compliance:
  - All quantitative performance criteria (QPCs) and indicative targets (ITs) due for this review were met.
  - All six structural benchmarks (SBs) due for this review were met.
- Selected SBs met (dates as in source):
  - Roadmap to implement the Pay and Grade Policy approved by Cabinet: February 26, 2025 (SB#1).
  - Amended regulation harmonizing the Petroleum and Procurement Acts published: December 28, 2024 (SB#2).
  - Regulations for the Extractive Industries Fiscal Regime Law published: January 18, 2025 (SB#3).
  - Petroleum Act regulation on PSA publication standards finalized: March 28, 2025 (SB#4).
  - Continuous SB on refraining from signing new PSAs met and dropped; three PSAs under existing security framework reviewed and approved by IMCC (SB#5).
  - Annual Debt Management Report published: April 24, 2025 (SB#6).
- Mission request and staff support:
  - Authorities requested modification to the end-June QPC for the floor on FGS domestic revenue to reflect projected negative impact of foreign aid cuts; staff supports modification.
  - Staff supports completion of the third review and disbursement of SDR 7.5 million.

### Fiscal and revenue outcomes (selected figures)
- Domestic revenues:
  - Domestic revenues reached US$369 million by end-December 2024, above program floor US$358 million.
  - In the first three months of 2025, domestic revenues performed in line with program targets.
  - Estimated impact of foreign aid cuts on domestic revenues in 2025:
    - Overall impact: US$8 million (0.1 percentage point of GDP) in 2025 (text also reports US$8 – US$14 million under two scenarios; Annex II quantifies).
- Expenditures and surplus:
  - Expenditures by end-December 2024 were below program ceiling, contributing to a small overall fiscal surplus for 2024.
  - IMF disbursement at completion of second ECF review in December 2024, together with the surplus, led to buildup of cash buffers to partially address liquidity needs in 2025.
- Fiscal financing and adjustors (TMU memorandum items, US$ million):
  - Maximum fiscal balance adjustor related to delays/shortfalls in budget support grants: Jun-25: 36.0; Sep-25: 61.0; Dec-25: 135.2; Mar-26: 0.0.
  - Budget support grants in the Budget estimate: Jun-25: 36.0; Sep-25: 61.0; Dec-25: 170.0; Mar-26: 0.0.
  - Proceeds from CBS temporary advances (possible): Jun-25: 55.4; Sep-25: 55.4; Dec-25: 0.0; Mar-26: 55.4.

### Financial sector and payments infrastructure
- Banking and credit:
  - Private sector credit expanded by 22.9 percent (y-o-y) in 2025Q1, though still below 6 percent of GDP.
  - Nonperforming loans (NPLs) remained low at around 3 percent.
  - Bank capital and liquidity remained comfortable.
- Payments systems and inclusion:
  - Somalia Instant Payment SWITCH (SIPS) launched January 2025 to facilitate real-time, low cost, interoperable transactions between banks and mobile money operators and support standardized QR transactions.
  - National Payment System launched in 2021; IBAN standardization launched March 27, 2023; standardized National QR code developed June 2023.
  - As of September 2024, five mobile money operators licensed.
  - Ten licensed commercial banks fully integrated and tested in NIRA Hubiye Platform as of May 2025; remaining banks to be integrated in Q4 2025.
- Regulatory and AML/CFT developments:
  - Revised Financial Institutions and new Takaful legislations effective May 2025, expanding CBS supervisory powers.
  - Amended AML/CFT Act enacted May 2025; MENAFATF Technical Compliance Report adopted in May 2025 identifying key gaps.
  - CBS to issue detailed written instructions to banks on CAR and LCR data calculations (SB#10, due end-July 2025).

### Outlook and key risks (selected projections and risks)
- Growth projections:
  - 2025 growth forecast revised down from 4 percent at the 2nd review to 3 percent.
  - Real GDP growth projected to pick up to 4.1 percent over the medium term; medium-term growth forecast downgraded from 4.5 percent in the 2nd review.
  - Key macro projections (selected):
    - Real GDP growth: 2023: 4.2; 2024: 4.0; 2025: 3.0; 2026: 3.3; 2027: 3.6; 2028: 3.8.
- Inflation:
  - End-2024 inflation: 5.6 percent.
  - Expected end-2025 inflation: around 4.9 percent.
- External sector:
  - Current account deficit in 2024 estimated at 9.1 percent of GDP.
  - Non-interest current account deficit (percent of GDP): 2024: 8.8; 2025: 8.7; 2026: 9.7; 2027: 9.9.
  - Exports (percent of GDP): 2024: 20.5; 2025: 20.5; 2026: 21.1.
- Downside risks (selected): further foreign aid cuts; domestic security deterioration; political tensions (including universal suffrage implementation); climate shocks and erratic rainfall; lower global growth and higher commodity prices; regional geopolitical tensions.
- Mitigating factors: existing cash buffers, domestic revenue mobilization commitment, expenditure rationalization, capacity development assistance, continued engagement with development partners.

### Aid shock scenarios and quantified first-round impacts (Annex II)
- Two aid shock scenarios for 2025:
  - Partial aid retrenchment scenario: US$400 million, 3.0 percent of GDP.
  - Broad-based aid withdrawal scenario: US$600 million, 4.6 percent of GDP.
- First-round macro impacts (2025):
  - Real GDP growth: estimated to be 0.8–1.4 percentage points lower than baseline under the two scenarios.
  - Domestic revenues: estimated reduction of US$8 – US$14 million.
    - Partial aid cut scenario: US$8 million (1.9 percent of domestic revenue, 0.06 percent of GDP).
    - Broad-based aid cut scenario: US$14 million (3.4 percent of domestic revenue, 0.1 percent of GDP).
  - Private consumption growth: Partial scenario: 1.2 percentage points lower than baseline; Broad scenario: 1.9 percentage points lower than baseline.
  - Investment growth: Partial: 0.3 percentage points lower; Broad: 0.5 percentage points lower.
  - Import growth: Partial: 0.9 percentage points lower; Broad: 1.3 percentage points lower.
  - Export volumes assumed unchanged.
- Social impacts:
  - Reduction in aid-funded cash transfers estimated to reduce beneficiaries by more than one third from the 2024 level.
  - Deep cuts could increase poverty, domestic displacement, jeopardize social stability, and deteriorate human development indicators.

### Financing, donor support, and program financing (selected figures)
- Program financing commitments and gaps (Text Table 2 highlights, Millions of USD):
  - External financing requirement in 2025: 74; in 2026: 44.4.
  - Fiscal financing gap: 144.7 in 2025 and 108.0 in 2026.
  - Financing commitments so far equal the fiscal financing gap: 144.7 (2025) and 108.0 (2026).
  - IMF ECF: 19.9 in both 2025 and 2026.
  - World Bank budget support grants: 104.5 in 2025 and 88.0 in 2026.
  - Other: 20.3 in 2025 and 0.0 in 2026.
- Firm donor commitments for next 12 months (selected):
  - World Bank budget support grants expected to be extended from June 2025 to June 2028 (subject to annual approvals).
  - EU: US$10 million; Türkiye: US$7.5 million; UAE: US$2.8 million (firm financing commitments noted).
- Program fully financed statement and capacity to repay Fund:
  - IMF credit outstanding projected to peak at 70.75 percent of quota in 2026 (SDR 115.6 million), below the normal cumulative access limit.
  - Disbursement for the third review: SDR 7.5 million.
  - ECF schedule selected entries (SDR):
    - Approval of arrangement (December 19, 2023): 30.000000 SDR; Percent of quota 18.359853.
    - First review (April 15, 2024): 7.500000 SDR; Percent of quota 4.589963.
    - Second review (October 15, 2024): 7.500000 SDR; Percent of quota 4.589963.
    - Third review (April 15, 2025): 7.500000 SDR; Percent of quota 4.589963.
    - Total: 75.000000 SDR; Percent of quota 45.899633.
  - Somalia's quota: SDR163.4 million.

### Debt sustainability and stress tests (LIC-DSA key findings)
- Risk rating:
  - Risk of external debt distress: Moderate.
  - Overall risk of debt distress: Moderate.
- Public debt levels and projections:
  - Total public debt projected to increase marginally to US$1,124.4 million in 2025 from US$1,111.3 million in 2024.
  - Public debt-to-GDP ratio: 8.6 percent in 2025.
  - PV of PPG external debt estimated at 4.9 percent of GDP in 2025.
  - Nominal GDP (in millions of US$): 12,149 (2024).
- Stress test outcomes:
  - Debt service-to-revenue indicative threshold breached under stress scenario in outer years of the 10-year horizon (notably around 2041 in standardized tests).
  - Shocks to other flows (current transfers and FDI) produce most extreme stress, underscoring dependence on official transfers.
- Policy implication: preserve debt sustainability by accelerating domestic revenue mobilization, adopting credible MT fiscal anchor, and strengthening debt management capacity.

### Structural reforms, governance, and social priorities
- Petroleum and natural resources governance:
  - Comprehensive legal framework for petroleum and extractives completed; strict implementation and strengthened IMCC oversight emphasized.
- Governance and anti-corruption:
  - Implementation of the 2023 Audit Law and its 2024 regulations ongoing.
  - Somalia acceded to UNTOC and its three protocols in March 2025.
  - National Anti-Corruption Strategy (2025-2029) and resourcing for the Independent Anti-Corruption Commission prioritized.
- Social protection, digital ID, and resilience:
  - National digital ID rollout: 200 thousand individuals enrolled in NIRA by March 2025 (one percent of population).
  - Baxnaano cash transfer program provides safety net for 50,000 households.
  - National Transformation Plan (NTP) launched to accelerate poverty reduction, inclusive growth, and climate resilience.
  - NTP estimated investment needs: USD 26.2 billion over 2025–2029; expected financing composition:
    - FGS: USD 5.3 billion (20 percent).
    - Private sector: USD 9.3 billion (36 percent).
    - Donors: USD 11.6 billion (44 percent).
  - Careful prioritization required given limited fiscal and administrative capacity.

### Monitoring, program conditionality, and capacity development
- Monitoring framework:
  - Program implementation monitored through QPCs, continuous performance criteria (including Article VIII commitments), ITs, and structural benchmarks; semi-annual reviews.
  - Selected QPCs and ITs (Millions of U.S. dollars) from Table 1:
    - FGS domestic revenue, floor: Dec. 2024: 357 Prog. Act. Met 369.
    - Spending on FGS compensation of employees, goods & services (excl. CBS commission), & contingency, ceiling: Dec. 2025: 468 Prog. Act. Met 439.
    - Net international reserves (excl. all SDR holdings of MoF), floor: Dec. 2025: 1.5 Prog. Act. Met 2.8.
  - Structural benchmarks next 12 months: new QPCs and ITs proposed for Dec. 2025 and Mar. 2026; four new SBs proposed.
- Key SBs in monitoring pipeline (selected with target dates as in source):
  - SOMCAS sustained end-to-end use/PCMIS discontinued: target End-June 2025 (SB#7).
  - Publish updated PFM regulations relating to digital signatures: publish End-June 2025; implement digital signatures in SFMIS by End-August 2025 (SB#8; authorities requested new target date End-August 2025).
  - Issue detailed instructions to CAR and LCR reported by banks: target End-July 2025 (SB#10).
  - Complete income tax administrative manual for tax administrators: target End-December 2025 (proposed SB#11).
  - CBS Board approval of FX regulations for CBA counterparties: target End-May 2026 (proposed SB#12).
  - CBS Board approval of regulation to publish CBA balance sheet weekly: target End-July 2026 (proposed SB#13).
  - Publish PFM Reform Strategic Plan 2026-2029: target End-March 2026 (proposed SB#14).
- Capacity development and Somalia Country Fund (SCF):
  - Fund CD, supported through SCF, instrumental for reform implementation.
  - SCF has sufficient funding until April 2026; additional financing needed for CD activities beyond that date.

### Key operational recommendations and policy priorities (as stated)
- Prioritize and accelerate:
  - Domestic revenue mobilization (customs modernization, Income Tax Law implementation, stronger enforcement of sales and income taxes).
  - Strengthening PFM (digital signatures, SFMIS implementation, PFM Reform Strategic Plan, public investment management).
  - Strengthening public debt management and publication of MTDS.
  - Financial sector supervision and AML/CFT compliance, including eKYC and MENAFATF follow-up.
  - Completion of currency exchange and preparatory steps for CBA with requisite CBS Law amendments and supporting regulations.
- Contingency planning:
  - Use cash buffers, expenditure reprioritization, and sequestration rules to absorb revenue shortfalls.
  - Seek additional international support and consider ECF augmentation if severe and persistent foreign aid disruptions materialize.

*Source: EXECUTIVE SUMMARY and selected chapters and annexes, 1somea2025001-source-pdf.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Economic growth in 2024 was supported by robust agricultural and livestock output.
- The outlook is shadowed by foreign aid cuts and high global uncertainty, which exacerbate challenges from domestic security, climate shocks, and regional tensions.
- Somalia is one of the most aid dependent economies in the world; donor information suggests aid could be around 20-30 percent of GDP over the last decade, with more than 85 percent of foreign aid off budget and implemented directly by development partners.
- Preliminary estimates suggest the reduction in foreign aid inflows to Somalia in 2025 could range between 3 and 4½ percent of GDP, weighing on consumption, business activities and employment.
- The current account deficit in 2024 is estimated at 9.1 percent of GDP, driven by stable food imports and strong livestock exports.

### Reform priorities and institutional strengthening
- Despite expected negative impact of foreign aid cuts, the fiscal deficit is expected to be limited to 0.6 percent of GDP in 2025.
- Domestic revenue reforms advancing:
  - customs modernization;
  - enactment of the Income Tax Law;
  - enhanced revenue administration.
- Authorities plan to maintain overall 2025 spending within the budget envelope.
- Public financial management and debt management capacity have strengthened.
- Implementation of the Pay and Grade reform and the new pension regime for civil servants should ensure fiscal sustainability.
- The Central Bank of Somalia continues to strengthen its institutional framework and build capacity; preparation for the currency exchange and the currency board arrangement has advanced.
- The program includes new targets and benchmarks for the next 12 months to support key policy areas.

### Program performance (implementation and milestones)
- Program performance has been strong: all quantitative performance criteria (QPCs) and indicative targets (ITs) due for this review were met.
- Authorities requested a modification to the end-June QPC for the floor on the Federal Government of Somalia’s (FGS’) domestic revenue to reflect the projected negative impact of foreign aid cuts.
- All six structural benchmarks (SBs) due for this review were met; the authorities requested a new target date for an SB on updating PFM regulations relating to digital signatures and its implementation to allow for additional technical assistance.
- Structural benchmarks met (selected):
  - Roadmap to implement the Pay and Grade Policy approved by Cabinet on February 26, 2025 (SB#1).
  - Amended regulation harmonizing the Petroleum and Procurement Acts published on December 28, 2024 (SB#2).
  - Regulations for the Extractive Industries Fiscal Regime Law published on January 18, 2025 (SB#3).
  - Petroleum Act regulation clarifying publication standards for all Production Sharing Agreements finalized on March 28, 2025 (SB#4).
  - Continuous SB on refraining from signing new PSAs was met; three PSAs under an existing security framework were reviewed and approved by the IMCC (SB#5) and the continuous SB is dropped for the rest of the program.
  - Annual Debt Management Report published on April 24, 2025 (SB#6).

### Fiscal and revenue outcomes
- Domestic revenues reached US$369 million by end-December 2024, above the program floor of US$358 million, supported by:
  - digitalization of tax collection (including for sales tax);
  - expansion of the tax base through increased registration of properties, vehicles, and businesses;
  - enhanced enforcement.
- Overall budget support grants were as expected.
- Expenditures by end-December 2024 were below the program ceiling, contributing to a small overall fiscal surplus for 2024.
- IMF disbursement at the completion of the second ECF review in December 2024, together with the surplus, led to a buildup of cash buffers to partially address liquidity needs in 2025.
- In the first three months of 2025, domestic revenues performed in line with program targets despite initial impact of foreign aid cuts; expenditures by end-March 2025 remained below the program ceiling.

### Financial sector and payments infrastructure
- Private sector credit expanded by 22.9 percent (y-o-y) in 2025Q1, though still below 6 percent of GDP.
- Bank capital and liquidity remained comfortable; NPLs stayed low at around 3 percent.
- In January 2025, the Somalia Instant Payment SWITCH (SIPS) was launched to facilitate real-time, low cost, interoperable transactions between banks and mobile money operators and to support standardized QR code transactions.

### Outlook and risks
- Growth:
  - 2025 growth forecast revised down from 4 percent at the 2nd review to 3 percent, reflecting foreign aid cuts, adverse weather events, and high uncertainty.
  - Real GDP growth is projected to gradually pick up to 4.1 percent over the medium term, supported by accelerated structural reforms and improved access to concessional financing.
  - The medium-term growth forecast has been downgraded from 4.5 percent in the 2nd review, reflecting potentially persistent cuts in aid flows.
- Inflation: expected to remain at around 4.9 percent at end-2025, falling at a slower pace than previously anticipated due to domestic food price pressures and potentially higher import prices.
- Downside risks are prominent and include:
  - further foreign aid cuts (highly uncertain evolution);
  - domestic security deterioration and political tensions, including underfunding of AUSSOM and frictions around universal suffrage implementation for upcoming elections;
  - climate shocks and erratic rainfall affecting agricultural production;
  - lower global growth, higher commodity prices, global trade uncertainties, and regional geopolitical tensions.
- If adverse risks materialize, growth and domestic revenue would decline further, spending pressures would increase, and financing needs would rise.
- Mitigating factors: existing cash buffers, authorities’ commitment to domestic revenue mobilization and expenditure rationalization, capacity development assistance, and continued engagement with development partners.
- Additional international support would be needed in a significant adverse scenario; the World Bank is lining up financing (mainly reallocations within the existing envelope) that could be disbursed quickly in the event an emergency is declared, including through the Catastrophe Deferred Drawdown option and Rapid Response Facility.

June 25, 2025

*Source: EXECUTIVE SUMMARY, 1somea2025001-source-pdf.*

### 12. The authorities are committed to maintaining fiscal discipline and keeping the

### 12. The authorities are committed to maintaining fiscal discipline and keeping the 

### Fiscal policy and revenues
- Overall spending will be kept within the 2025 budget envelope given tight budgetary and financing constraints and uncertainty about future aid inflows.
- Additional on-budget security spending:
  - about $30 million to partially offset the reduction in off-budget foreign security assistance; to be absorbed through expenditure reorientation and some additional room from lower interest payments.
- Estimated impact of foreign aid cuts on domestic revenues in 2025:
  - Overall impact: US$8 million (0.1 percentage point of GDP) in 2025.
  - Main channels: lower collections of personal income tax (freezing of salary payments to local NGOs reliant on U.S. or UN funding), customs duties (import compression), and sales tax (lower cash transfers and aid-funded spending depress consumption).
- Fiscal balance and buffers:
  - Overall 2025 fiscal deficit is forecasted at 0.6 percent of GDP.
  - Part of the deficit will be covered by drawing down some of the accumulated cash buffers from 2024.
- Revenue mobilization measures under the Medium-term Revenue Roadmap (MTRR) expected to offset aid cuts and raise revenues:
  - Expected increase in revenue-to-GDP ratio of 0.2 percentage points from 2024 to 2025.

### Tax and customs reforms, and administrative measures
- Income Tax Law milestones:
  - New Income Tax Law signed by the President on May 16th, 2025; relevant regulations published at end-May 2025; broader taxpayer education ongoing.
  - IMF TA to complete an income tax administrative manual for tax administrators (proposed SB #11, due end-December 2025).
- Customs modernization:
  - Port Customs Management Information System (PCMIS) discontinued since early May 2025.
  - Somalia Customs Automated System (SOMCAS) to be fully operationalized at the Mogadishu port and airport (SB#7, due end-June 2025).
  - SOMCAS implemented in Kismayo port and airport (in Jubbaland State).
- Non-tax revenue and IT systems:
  - Implementation of non-tax revenue portal has started to channel all fees charged by MDAs to the Treasury Single Account.
  - Procurement of a developer for the Integrated Tax Administration System (ITAS) in process.
  - Strengthened efforts to enhance tax compliance and tax audits.

### Public financial management (PFM) and debt management
- PFM regulations and digital signatures:
  - Draft update of PFM regulations relating to digital signatures for the purchase order to payment process is well advanced.
  - Authorities requested a new target date to allow further IMF TA for proper implementation of digital signatures in SFMIS (SB#8, proposed new target date of end-August 2025).
- Public Investment Management (PIM) reforms:
  - IMF TA identified key needs: clear public investment program, solid project appraisal and selection process, and multiyear budgeting.
  - Revision of the PPP bill (with Parliament since August 2024) is underway to ensure consistency with the budget process and manage fiscal risks.
- PFM Reform Strategic Plan:
  - Authorities requested IMF TA to develop a new PFM Reform Strategic Plan for 2026-29 (proposed SB #14, due end-March 2026) covering multi-year commitment controls, public investment management, fiscal transparency, and institutional coordination.
- Debt management capacity:
  - First Annual Debt Management Report published in April 2025 (SB#6, met).
  - Medium-term Debt Management Strategy (MTDS) publication expected by end-October 2025.
  - Note: sustainable staffing of the Debt Management Unit is critical to realize benefits of substantial capacity development support.

### Pay, grade, and pension reforms
- Implementation cautions:
  - Pay and Grade reform and new pension scheme for civil servants should be carefully assessed to ensure fiscal costs are manageable.
  - Functional reviews of MDAs (supported by the World Bank) and a pilot costing exercise (with IMF TA) will inform Pay and Grade implementation.
  - Comprehensive coverage of employees (permanent and temporary, including teachers and healthcare workers) and compensation (salary and allowances) should be included in assessments.
- Pension reforms:
  - Implementation of the recently approved Pension Law for Civil Servants and the proposed Armed Forces pension reform require a fiscal impact assessment informed by pay and grade reform and demographic information on dependents eligible for survivor benefits.
  - Authorities plan to establish a Pension and Gratuity Fund Directorate to begin collecting information and setting up administration systems.
- Note: Implementation of the pension law and pay and grade policies has not yet been incorporated in the baseline macroframework and can be incorporated at a later review once costs and timelines are defined.

### Monetary and financial sector policies and inclusion
- Regulatory and supervisory advances:
  - Revised Financial Institutions and new Takaful legislations became effective in May 2025, expanding CBS supervisory powers to non-bank financial institutions.
  - Authorities developing regulations to support these legislations with multilateral assistance.
  - CBS to issue detailed written instructions to banks on CAR and LCR data calculations (SB#10, due end-July 2025).
  - Adoption of supervisory technologies and efforts to improve regulatory data quality are underway.
- Payment systems and financial inclusion:
  - Instant payment functionality of the National SWITCH operationalized.
  - Authorities committed to enact the National Payment Systems Law.
  - Planned establishment of a credit bureau and central collateral registration to facilitate access to credit information.
- AML/CFT progress:
  - Amended AML/CFT Act, drafted with IMF TA, enacted in May 2025.
  - Technical compliance report from the MENAFATF mutual evaluation published in May 2025, identifying key gaps.
  - Implementation of the amended AML/CFT Act initiated, including drafting corresponding regulations and developing priority actions to address MENAFATF recommendations.
  - MENAFATF on-site effectiveness visit delayed pending improvement in Mogadishu security.
- Central Bank of Somalia (CBS) institutional developments:
  - CBS Board approved Strategic Plan (2025-2029) in November 2024.
  - 2024 audited financial statements published in May 2025 with a clean auditor’s opinion for the fourth consecutive year.
  - Most recommendations from the 2024 IMF Safeguards Assessment implemented, with progress on remaining items (enterprise risk management, cybersecurity, amendment of the CBS Act).
- Reintroduction of Somali Shilling (SOS) and currency board arrangement (CBA):
  - Currency exchange project aims to reintroduce the SOS as legal tender by replacing old and mostly counterfeit notes; authorities are intensifying efforts to secure co-financing and reach agreement with Federal member States.
  - Draft amendments to the CBS Law (with IMF CD support) covering the CBA and strengthening mandate, governance, autonomy, transparency, and accountability expected to be submitted to Parliament later this year (SB#9, due end-December 2025).
  - To support CBA implementation after CBS Law amendments, CBS will secure:
    - Board approval of FX regulations on criteria for selecting counterparties and obligations under the CBA (proposed SB#12, due end-May 2026).
    - Board approval of a regulation specifying process to produce and publish the CBA balance sheet on a weekly basis with minimal lag (proposed SB#13, due end-July 2026).
  - Both regulations will enter into effect upon completion of the currency exchange and adoption of the CBA.

### Governance, inclusive growth, and resilience
- Petroleum sector governance:
  - Comprehensive legal framework for the petroleum sector completed since the 2nd review; strict implementation and improved institutional/technical capacity are now key.
  - Oversight by the Inter-Ministerial Concessions Committee (IMCC) in recent PSAs and enhanced technical capacity for PSA reviews are important.
- Anti-corruption and oversight:
  - Implementation of the 2023 Audit Law and its 2024 regulations is ongoing; ensuring a strong role for the Auditor General’s Office (AGO) is critical.
  - First cycle of UNCAC Implementation Review Mechanism completed.
  - Somalia acceded to UNTOC and its three protocols in March 2025.
  - Strengthening resources of the Independent Anti-Corruption Commission (IACC) and advancing the National Anti-Corruption Strategy (2025-2029) with development partner support are priorities.
- Social protection, digital ID, and climate resilience:
  - National digital ID rollout continued: 200 thousand individuals (one percent of the population) enrolled in NIRA by March 2025.
  - Wider rollout and banks’ access to NIRA will improve customer due diligence.
  - Since January 2024, Somalia’s Food Security Crisis Plan implementation includes regular Integrated Food Security Phase Classification and Joint Monitoring Reports for early warning and crisis interventions.
  - National Transformation Plan launched to accelerate poverty reduction, inclusive growth, and climate resilience.
  - Given declining foreign aid for education and health, building domestic capacity to improve access to social services is a priority.
- EAC trade integration:
  - Gradual approach to EAC integration being undertaken; National Integration Committee developing sectoral implementation plans and holding stakeholder consultations.

### Statistics, financing, and program modalities
- Statistics improvements:
  - Compilation of nationwide CPI nearing completion.
  - Work advancing on GDP by production, balance of payments, and expanded monetary and financial statistics coverage.
- Program targets and benchmarks:
  - Performance criteria and structural benchmarks agreed for the next 12 months.
  - Authorities requested modification to the June QPC on domestic revenue to reflect negative impact of foreign aid cuts; corresponding adjustments to September IT on domestic revenue and ITs on the overall fiscal balance proposed.
  - New QPCs and ITs proposed for December 2025 and March 2026; four new SBs proposed for the next 12 months.
  - Authorities requested new target date for SB on updating PFM regulations/digital signatures and implementing digital signatures in SFMIS by end-August 2025 to allow additional CD support.
- Debt sustainability and financing gaps:
  - Debt sustainability assessment (DSA) indicates a moderate risk of debt distress; staff assesses external and overall public debt sustainable in the medium-term.
  - Debt service to revenue indicative threshold breached under the stress scenario in the outer years of the 10-year horizon, consistent with a moderate risk rating.
  - World Bank budget support grants expected to be extended from June 2025 to June 2028 (subject to annual approvals); debt relief agreements signed by April 2025 reduce projected interest payments in 2025 by about 0.1 percent of GDP relative to the 2nd review.
- Key financing figures and gaps (Text Table 2 highlights):
  - External financing requirement in 2025: 74 (Millions of USD) and in 2026: 44.4 (table column headings present a compacted layout in source).
  - Fiscal financing gap: 144.7 (Millions of USD) in 2025 and 108.0 (Millions of USD) in 2026.
  - Financing commitments so far equal the fiscal financing gap: 144.7 (2025) and 108.0 (2026).
  - IMF ECF: 19.9 (Millions of USD) in both 2025 and 2026.
  - World Bank budget support grants: 104.5 (Millions of USD) in 2025 and 88.0 (Millions of USD) in 2026.
  - Other: 20.3 (Millions of USD) in 2025 and 0.0 (Millions of USD) in 2026.
- Staff note on official creditor treatment:
  - Paris Club agreement with Somalia is representative; based on Paris Club comparability of treatment, principal arrears to non-Paris Club official creditors can be deemed away under the Fund’s Lending into Official Arrears (LIOA) policy.

*Source: IMF staff estimates and authorities as presented in the provided text.*

### 26. The program is fully financed. The authorities have secured firm financing commitments

### 26. The program is fully financed. The authorities have secured firm financing commitments

### Financing and donor support
- The authorities have secured firm financing commitments for the next 12 months (Text table 2), including grants from the World Bank, the EU (US$10 million), Türkiye (US$7.5 million), and UAE (US$2.8 million).
- Despite cuts in off-budget foreign aid, on-budget support from international partners is expected to remain robust, indicating good prospects that financing will be adequate for the rest of the program period.

### Somalia’s capacity to repay the Fund
- IMF credit outstanding is projected to peak at 70.75 percent of quota in 2026 (SDR 115.6 million), below the applicable normal cumulative access limit.
- Program design to mitigate debt servicing risks includes reforms to increase revenues over the course of the program, ceilings on overall deficits, and ceilings on non-concessional borrowing.

### Capacity development (CD) and Somalia Country Fund (SCF)
- Fund CD, supported through the SCF, has been instrumental for Somalia’s reform implementation.
- The SCF currently has sufficient funding until April 2026, but additional financing will be needed for CD activities that extend beyond this date.
- Authorities are expected to benefit from the financial sector follow-up TA program based on the Financial Sector Stability Review (FSSR) concluded in 2024.

### Staff appraisal — reform momentum and macroeconomic outlook
- Somalia has maintained strong reform momentum; all QPCs and SBs have been met.
- Foreign aid cuts and associated uncertainty could weigh on Somalia’s economic outlook, exacerbate poverty, and deteriorate human development indicators, especially among the most vulnerable.
- Adequate foreign aid is critical to support rebuilding institutions and advancing economic development and poverty reduction.

### Domestic revenue mobilization and 2025 fiscal stance
- Authorities are committed to sustaining domestic revenue mobilization efforts and spending discipline in 2025.
- Domestic revenue mobilization reforms remain anchored in the objectives and policies outlined in the MTRR.
- Despite bringing on-budget additional essential spending, the authorities intend to maintain overall 2025 spending unchanged by expenditure reprioritization.
- The authorities remain committed to fully covering operational expenditure with domestic revenues by 2027.

### Urgency to accelerate revenue mobilization and transparency
- Domestic revenues remain insufficient to cover operational expenditure; spending needs are likely to rise faster to partially offset foreign aid cuts.
- Key priority actions outlined in the MTRR:
  - Customs modernization.
  - Implementation of the Income Tax Law.
  - Stronger enforcement of sales and income taxes.
  - Enhancement of revenue administration.

### Public financial management (PFM) and debt management
- Key reforms include implementing digital signatures, building capacity in public investment management, and developing the PPP framework to ensure project quality, affordability, and mitigation of fiscal risks.
- Developing a new PFM Reform Strategic Plan for 2026-29 would guide the PFM reform agenda.
- Implementation of the pay and grade reform and the new pension scheme for civil servants requires careful consideration to ensure fiscal costs are manageable.
- Continued efforts are needed to strengthen the public debt management framework and capacity.

### Central Bank of Somalia (CBS) and financial sector reforms
- Recent enactment of key financial sector and AML/CFT laws is an important milestone.
- CBS should continue to strengthen financial sector regulation and supervision capacity, including measures to improve commercial banks’ data quality.
- CBS has made commendable progress in implementing most recommendations from the 2024 Safeguards Assessment; remaining items include enterprise risk management and business continuity.
- Timely finalization of the amended CBS Law, which also includes CBA-related amendments, is critical to enhance the CBS’s mandate, autonomy, governance, transparency, and accountability.
- Continued progress in improving the AML/CFT framework should be guided by the findings of the ongoing MENAFATF mutual evaluation.

### Currency exchange, currency board arrangement (CBA), and complementary policies
- Authorities should secure co-financing and an agreement with all FMS on the currency exchange project.
- Progress made towards adopting a currency board arrangement, with IMF CD support, is encouraging.
- It is critical to develop relevant regulations to support implementation of the currency exchange and the CBA once the amended CBS law is enacted.
- Complementary policies needed to sustain CBA credibility include fiscal sustainability and central bank independence, among others.

### Petroleum sector governance
- Diligent implementation of the comprehensive legal framework for the petroleum sector is important to ensure accountability and transparency.
- Enhanced oversight by the IMCC in approving the most recent PSAs is a welcome development.
- Steady improvement in institutional and technical capacity, including in the IMCC, would support strong implementation of the petroleum sector legal framework.

### Anti-corruption and governance
- Reforms should continue to improve governance and fight corruption.
- Priorities include further progress in aligning with the UNCAC, strengthening staffing of the IACC, and advancing work on the new National Anti-Corruption Strategy (2025-2029).

### Resilience, poverty reduction, and NTP
- Sustained efforts are crucial to increase resilience, reduce poverty, and promote inclusive growth.
- The NTP provides a comprehensive medium-term reform agenda underpinned by priority projects and reform initiatives.
- Declining foreign aid exacerbates Somalia’s severe resource constraints; while domestic revenue mobilization and private sector financing are important, sustained support from development partners remains critical.
- EAC accession presents opportunities and risks; a gradual approach is advised to ensure macroeconomic stability while strengthening human capital and productivity.

### Risks to the program
- Downside risks remain significant and include:
  - Further reductions in foreign assistance.
  - Domestic security situation.
  - Regional and domestic political tensions.
  - Climate shocks.
  - Lower global growth and higher global trade uncertainties.
- Risks to the program are mitigated by continued strong program ownership, CD support, and close engagement with development partners.

*Source: IMF staff appraisal and program documentation.*

### 39. Staff supports the completion of the third review and disbursement of SDR 7.5 million

### 39. Staff supports the completion of the third review and disbursement of SDR 7.5 million

### Program approval and disbursement decision
- Staff supports the completion of the third review and the disbursement of SDR 7.5 million under the ECF arrangement.
- The authorities plan to use the disbursement for direct budget support.
- The attached Letter of Intent and the MEFP set out the appropriate policies that meet the program objectives.

### Requested program adjustments and staff support
- To accommodate the projected negative impact of foreign aid cuts on domestic revenue:
  - Staff supports the authorities’ request for a modification of the end-June 2025 QPC for the floor on FGS’ domestic revenue.
  - Staff supports the corresponding adjustments in end-September 2025 ITs on domestic revenue and the overall fiscal balance.
- In view of additional capacity development need:
  - Staff supports the authorities’ request for a new target date for the SB on updating PFM regulations relating to digital signatures for the purchase order to payment process and implementing the digital signatures in the SFMIS by end-August 2025.

### Relevant operational and financing facts (exact figures preserved)
- Disbursement for the third review: SDR 7.5 million.
- ECF schedule (Table 7) — selected entries:
  - Approval of arrangement (December 19, 2023): Amount of Disbursements 30.000000 SDR; Percent of quota 18.359853.
  - First review (April 15, 2024): Amount of Disbursements 7.500000 SDR; Percent of quota 4.589963.
  - Second review (October 15, 2024): Amount of Disbursements 7.500000 SDR; Percent of quota 4.589963.
  - Third review (April 15, 2025): Amount of Disbursements 7.500000 SDR; Percent of quota 4.589963.
  - Fourth review (October 15, 2025): Amount of Disbursements 7.500000 SDR; Percent of quota 4.589963.
  - Fifth review (April 15, 2026): Amount of Disbursements 7.500000 SDR; Percent of quota 4.589963.
  - Sixth review (October 15, 2026): Amount of Disbursements 7.500000 SDR; Percent of quota 4.589963.
  - Total: Amount of Disbursements 75.000000 SDR; Percent of quota 45.899633.
- Somalia's quota: SDR163.4 million.

### Program conditionality and timing (as stated)
- Modification requested: end-June 2025 QPC for floor on FGS’ domestic revenue.
- Corresponding IT adjustments requested: end-September 2025 (domestic revenue and overall fiscal balance).
- New SB target date requested: update PFM regulations and implement digital signatures in SFMIS by end-August 2025.

*Source: IMF staff report (PDF chapter/section provided).*

### 1.  Principal

### 1. Principal

### Repurchases, Repayments, Charges, and Fund Credit (Summary of Presented Series)
- Repurchases and Repayments (series): 250.40.00.01.42.86.315.217.419.820.617.18.36.02.30.00.0
- SDR related charges (series): 0.01.50.60.60.60.60.60.60.60.60.60.60.60.60.60.6
- Total obligations (series): 250.41.50.62.03.46.915.718.020.321.217.78.86.62.80.60.6
- Outstanding Fund credit, end of period (series): 72.087.0    102.0    115.6    112.8    106.591.474.054.233.616.58.32.30.00.00.0
- Net Use of Fund Credit (series): -206.415.015.013.6-2.8-6.3-15.2-17.4-19.8-20.6-17.1-8.3-6.0-2.30.00.0
- Disbursements and Purchases (series): 44.015.015.015.00.00.00.00.00.00.00.00.00.00.00.00.0
- Repayments and Repurchases (repeated series): 250.40.00.01.42.86.315.217.419.820.617.18.36.02.30.00.0

Memorandum ratios (Outstanding Fund credit, in percent):
- Exports of goods and services: 4.44.75.05.14.63.93.12.31.60.90.40.20.00.00.00.0
- External public debt: 9.111.112.814.412.710.37.04.72.81.40.60.20.10.00.00.0
- Gross official reserves: 44.954.964.373.673.172.068.859.843.827.213.36.71.80.00.00.0
- GDP: 0.91.01.01.11.00.90.70.50.30.20.10.00.00.00.00.0
- Quota: 44.153.262.470.769.065.255.945.333.220.610.15.01.40.00.00.0

Total Obligations, in percent of:
- Exports of goods and services: 15.40.10.00.10.10.30.50.60.60.60.40.20.10.10.00.0
- External public debt: 31.80.20.10.20.40.71.21.11.10.90.60.30.20.10.00.0
- Gross official reserves: 156.30.90.41.32.24.711.814.516.417.114.37.15.32.30.50.5
- GDP: 3.00.00.00.00.00.10.10.10.10.10.10.00.00.00.00.0

Quota (series): 153.30.90.41.22.14.29.611.012.413.010.85.44.01.70.40.4
Quota repeated: 163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4    163.4

Source note:
- Source: IMF staff estimates and projections.
- 1/ Projections are based on current IMF charges.

### Quantitative Performance Indicators and Indicative Targets (Under the ECF Arrangement, Dec 2024–Mar 2026; Millions of U.S. Dollars)
Quantitative Performance Criteria (selected rows with presented test dates and outcomes):
- FGS domestic revenue, floor 2/: Dec. 2025 Prog.Act.Status: 357369Met178170415
- Spending on FGS compensation of employees, goods & services (excl. CBS commission), & contingency, ceiling 2/: Dec. 2025: 468439Met260260491
- Net international reserves (excl. all SDR holdings of MoF), floor 7/: Dec. 2025: 1.52.8Met1.51.51.5
- Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/: Dec. 2025: 00Met000
- Accumulation of new external arrears, ceiling 3/: Dec. 2025: 00Met000

Indicative Targets (selected):
- FGS domestic revenue, floor 2/: Dec. 2025: 8594Met283275101
- Spending on FGS compensation of employees, goods & services (excl. CBS commission), & contingency, ceiling 2/: Dec. 2025: 131111Met387387146
- Net international reserves (excl. all SDR holdings of MoF), floor 7/: Dec. 2025: 1.52.6Met1.51.51.5
- Fiscal balance, floor (cash basis) 2/ 5/: series: -3821Met-47-27Met-62-64-86-88-29-45
- Contracting of new domestic debt, ceiling 3/: series: 00Met00Met000000
- Accumulation of new domestic expenditure arrears, ceiling 3/: series: 00Met00Met000000

Memorandum item:
- Contracting or guaranteeing of new external concessional debt 5/ 6/: 0000075000

Sources and notes:
- Sources: Somali authorities; and IMF staff estimates and projections.
- Notes include: 1/ Targets defined in the TMU. 7/ Floor on NIR adjustments specified. 6/ Excludes IMF disbursements. 2/ Cumulative from the beginning of the fiscal year. 3/ Continuous application. 4/ Test dates for the third, fourth and fifth reviews. 5/ Fiscal balance floor commentary referencing budget and IMF staff forecast differences and adjustments per TMU.

### Structural Benchmarks Under the ECF (March 2024–March 2026)
Implemented and monitored benchmarks (selected, with target dates and monitoring status):
- Develop a roadmap to implement the Pay and Grade policy; target End-February 2025; Sector: PFM / MOF NCSC MOLSA; Monitoring: Publish the roadmap approved by the Cabinet on the Ministry of Finance website. Status: Met.
- Publish the amended regulation harmonizing the Petroleum and Procurement Acts; target End-December 2024; Sector: Governance / MOF; Monitoring: Publish the approved regulation on the MoF website. Status: Met.
- Publish regulations for the Extractive Industries Fiscal Regime Law (EIFRL); target End-January 2025; Sector: Governance / MOF; Monitoring: Publish the approved EIFRL regulations on the MoF website. Status: Met.
- Publish a new regulation for the Petroleum Act clarifying publication standards for PSAs; target End-March 2025; Sector: Governance / MOF MPMR; Monitoring: Publish on the MPMR website. Status: Met.
- No new production sharing agreements (PSAs) signed until legal framework completed; Continuous until issuance; Sector: Governance / MOF; Monitoring: Monthly letter from the MoF confirming no new PSAs signed. Status: Continuous SB, met.
- Publish an Annual Debt Management Report (ADMR) for FY2024 in line with IMF TA recommendations; target End-April 2025; Sector: Public debt/ MOF; Monitoring: Publish ADMR approved by the Minister of Finance on the MoF website. Status: Met.

Additional benchmarks, monitoring metrics, and proposed benchmarks (selected):
- Ensure sustained end-to-end use of SOMCAS by fully discontinuing PCMIS at Mogadishu seaport and airport; target End-June 2025; Monitoring: Ratio of total customs duties reported in the Treasury Single Account (SFMIS) to total customs duties paid through SOMCAS should be at least 99 percent on average across May and June 2025 and letter from the Minister of Finance confirming PCMIS no longer used.
- Publish updated PFM regulations relating to digital signatures for the purchase order to payment process; target End-June 2025 / implement digital signatures in SFMIS by End-August 2025; Monitoring: Publish amended regulations and confirm implementation; provide user list and payment voucher counts/amounts processed with digital signatures.
- Submit to Parliament amendments to the CBS Law to cover the currency board arrangement; target End-December 2025; Monitoring: Send IMF staff the Bill submitted to Parliament.
- Issue detailed instructions to CAR and LCR templates reported by banks; target End-July 2025; Monitoring: Send IMF staff the detailed instructions communicated to banks.

Proposed structural benchmarks (selected with dates):
- Complete the income tax administrative manual for tax administrators; target End-December 2025; Monitoring: Send IMF staff the manual.
- CBS Board approval of foreign exchange regulations for selecting counterparties under the CBA; target End-May 2026; Monitoring: Send IMF staff the regulations approved by the CBS Board.
- CBS Board approval of a regulation to produce and publish the CBA balance sheet on a weekly basis with minimal lag; target End-July 2026; Monitoring: Send IMF staff the regulation.
- Publish the Public Financial Management (PFM) Reform Strategic Plan for 2026-2029; target End-March 2026; Monitoring: Publish the plan approved by MoF on the MoF website and send IMF staff the link.

Notes:
- Abbreviations used: MOF (Ministry of Finance), CBS (Central Bank of Somalia), FMS (Federal Member States), FRC (Financial Reporting Center), MOJ (Ministry of Justice), PFM (public financial management), SFMIS (Somalia Financial Management Information System), AML-CFT (Anti-Money Laundering/Combating the Financing of Terrorism).

### Summary Table on Projected External Borrowing Program (January 1, 2025 - December 31, 2025)
- PPG external debt contracted or guaranteed: Volume of new debt, USD million: 19.9100
- Sources of debt financing: Concessional debt, 1/: 19.9100
  - o/w IMF prospective: 19.9100
  - o/w Other 2/: 0.00
- Non-concessional debt: 0.00
  - o/w Semi-concessional 3/: 0.00
  - o/w Commercial terms 4/: 0.00
- Uses of debt financing: Project Financing: 0.00; Budget Financing: 19.9100
- Type of interest rate: Fixed Interest Rate: 19.9100; Variable Interest Rate: 0.00
- Currency denomination: USD denominated loans: 0.00; Loans denominated in other currency: 19.9100
- Memorandum items:
  - Indicative projection FY2026: 19.9
  - Indicative projection FY2027: 128.9

Footnotes:
- 1/ Debt with a grant element of at least 35 percent.
- 2/ Can include multilateral lenders such as the World Bank and the AfDB.
- 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.

### Decomposition of Public Debt and Debt Service by Creditor, 2024–2027 (Selected Figures)
- Total (2025, 2026, 2027 columns shown in matrix form with percent breakdowns): Total 1/ 1,111.3100.09.112.920.924.50.100.150.16
- External: 1,043.593.98.612.920.924.50.100.150.16
- Multilateral creditors: 486.743.84.05.68.811.70.040.060.08
  - IMF 2/: 139.112.51.10.73.56.40.010.020.04
  - Other Multilaterals: 347.731.32.94.95.35.20.040.040.03
  - Arab Monetary Fund: 201.518.11.70.20.20.20.000.000.00
  - Arab Fund for Economic and Social Development 3/: 81.07.30.74.34.34.20.030.030.03
  - International Fund for Agricultural Development: 1.60.10.00.00.50.40.000.000.00
  - Islamic Development Bank: 27.22.40.20.10.10.10.000.000.00
  - OPEC Fund for International Development: 36.43.30.30.20.20.20.000.000.00
- Bilateral creditors: 556.850.14.67.312.112.80.060.090.08
  - Paris Club 4/: 6.80.60.11.61.51.50.010.010.01
  - Russia: 6.80.60.11.61.51.50.010.010.01
  - Non-Paris Club 5/: 549.549.44.55.710.611.30.040.070.07
    - Algeria: 0.30.00.00.00.00.00.000.000.00
    - Bulgaria: 2.00.20.00.00.10.10.000.000.00
    - Iraq: 33.13.00.30.01.41.40.000.010.01
    - Kuwait: 123.911.11.02.62.62.60.020.020.02
    - Libya: 14.41.30.10.03.34.00.000.020.03
    - Romania: 0.40.00.00.00.00.00.000.000.00
    - Saudi Arabia: 118.110.61.03.13.13.10.020.020.02
    - United Arab Emirates: 257.323.22.10.00.00.00.000.000.00
- Commercial creditors: 0.50.00.00.00.00.00.000.000.00 (Serbia: 0.50.00.00.00.00.00.000.000.00)
- Domestic: 67.86.10.60.00.00.00.000.000.00
  - Of which: in arrears: 67.86.10.60.00.00.00.000.000.00
- Nominal GDP (in millions of US$): 12,149

Notes on methodology and assumptions:
- Debt stock and debt service amounts reflect full delivery of debt relief under the HIPC Initiative, MDRI, and beyond-HIPC assistance at the Completion Point reached in December 2023, actual debt relief agreements signed with remaining creditors post-HIPC CP, and hypothetical debt treatment on HIPC CP terms for debts pending a debt relief agreement. Estimates are based on April 18, 2025 exchange rates.
- Sources: Somalia Debt Management Unit; IMF; World Bank; and AfDB.
- Footnotes clarify loan record coverage, IMF debt stock inclusion of net SDR position of government (used for budget support), assumptions of debt treatment in line with HIPC CP, and treatment notes for Paris Club, Russia, Kuwait, Saudi Arabia, and United Arab Emirates.

### Progress on Negotiations with Creditors for Restructuring Outstanding HIPC-Eligible Debt
- Table title and status: Table 14. Somalia: Progress on Negotiations with Creditors for Restructuring Outstanding HIPC-Eligible Debt (As of May 9, 2025) — table present (details not reproduced beyond the table title in the source extract).

### Annex I. National Transformation Plan (2025–2029) — Overview and Alignment with ECF
Key points:
- Somalia adopted the National Transformation Plan in March 2025. The NTP serves as the country’s primary development framework for 2025–2029, succeeding the National Development Plan 9 (2020–2024).
- NTP anchor: Achieving the Sustainable Development Goals; aims to foster inclusive and sustainable growth through improved governance, economic diversification, human capital development, and environmental resilience.

NTP strategic pillars:
- Transformational Governance: Enhancing institutional capacity, promoting inclusive governance, and strengthening the rule of law.
- Sustainable Economic Transformation: Stimulating economic growth through diversification, infrastructure development, and employment opportunities.
- Social and Human Capital Transformation: Investing in education, health, and social protection to improve quality of life.
- Environmental Sustainability and Climate Resilience: Addressing climate change impacts and promoting sustainable resource management.

Alignment with IMF-supported ECF program (areas of shared emphasis):
- Maintaining macroeconomic stability through prudent fiscal management, building reserve buffers, and strengthening financial oversight, particularly in the post-HIPC context.
- Enhancing domestic revenue mobilization and public financial management (PFM), including customs modernization and tax system reforms.
- Promoting transparency and accountability, including anti-corruption, financial governance, and enforcement of AML/CFT standards; implementation of the National Anti-Corruption Strategy.
- Fostering financial deepening and inclusion via expanded access to credit and digital financial services, stronger supervision, and rollout of national digital ID.
- Enabling private sector development and economic diversification to support job creation and inclusive growth.
- Strengthening debt sustainability through a debt management framework supporting use of concessional financing in the post-HIPC context.
- Building statistical capacity to enhance policymaking and monitoring.
- Advancing monetary and exchange rate reforms, including the planned reintroduction of the Somali shilling and development of a currency board arrangement.

*Source: IMF staff estimates, projections, and documentation contained in the provided PDF content.*

### 3. Careful prioritization is important in implementing NTP initiatives to ensure credible

### 3. Careful prioritization is important in implementing NTP initiatives to ensure credible and sustained progress, considering Somalia’s resource and capacity constraints

### National Transformation Plan (NTP) investment needs and financing composition
- Total investment needs estimated by the authorities: USD 26.2 billion over 2025–2029.
- Expected financing composition:
  - Federal Government of Somalia (FGS): USD 5.3 billion (20 percent).
  - Private sector: USD 9.3 billion (36 percent).
  - Donors: USD 11.6 billion (44 percent).
- Investment needs are projected to increase over time, with external support playing a critical role in expanding infrastructure and social services.
- Given limited fiscal resources and nearly half of expected financing dependent on donor contributions, the plan requires careful prioritization of the most impactful, cost-effective, and implementable projects to avoid overburdening Somalia’s limited implementation capacity.

### Implementation imperatives and constraints
- Success hinges on significant domestic resource mobilization from both fiscal revenue and private investment, and continued strong donor support.
- Careful prioritization is necessary to:
  - Ensure credible and sustained progress.
  - Target projects that are implementable given current capacity constraints.
  - Avoid overextension given limited fiscal and administrative resources.

---

### Annex II. Assessing the Near-Term Macroeconomic Impact of Foreign Aid Cuts on Somalia

### Context and scenarios
- Somalia is highly dependent on foreign aid; donor information suggests aid could be around 20-30 percent of GDP over the last decade.
- Two aid shock scenarios for 2025 are considered, reflecting confirmed disbursement delays and planned retrenchment by key donors as of May 2025:
  - Partial aid retrenchment scenario: US$400 million, 3.0 percent of GDP. Reflects partial delays in disbursements, program reallocations, and lower funding to multilateral agencies, while preserving some humanitarian flows.
  - Broad-based aid withdrawal scenario: US$600 million, 4.6 percent of GDP. Assumes full suspension of several aid flows, broader reductions in bilateral and multilateral support, and sharper cuts to humanitarian programs.

### Methodology (first-round impacts)
- A bottom-up accounting framework estimates first-round impacts on growth and domestic revenue using calibrated elasticities from household survey data and donor program-level disbursement records.
- GDP expenditure components assessed:
  - Private consumption: Mapped from reductions in cash transfers and local NGO/contractor activities using marginal propensities to consume from the 2022 Somalia Integrated Household Budget Survey and donor disbursement data.
  - Government consumption: Held constant across both scenarios because direct budget support is a small share of aid and no compensating fiscal response for off-budget humanitarian aid cuts is assumed.
  - Investment: Declines in donor-financed projects lower gross fixed capital formation; impacts based on sectoral aid composition and reported project delays.
  - Imports: Most foreign aid cuts expected to be offset by import compression; import content of cash transfers and NGO operations estimated using the 2022 budget survey data and partner input-output assumptions.
  - Fiscal revenues: Affected via lower household income (including job losses), weaker economic activity, and import compression—impacting personal income tax, customs duties, and sales taxes.

### Quantified first-round macroeconomic impacts (2025)
- Real GDP growth: Estimated to be 0.8-1.4 percentage points lower than in the baseline under the two scenarios.
- Domestic revenues: Estimated reduction of US$8 – US$14 million.
- Private consumption (largest affected GDP component):
  - Partial aid cut scenario: private consumption growth is 1.2 percentage points lower than baseline.
  - Broad-based aid cut scenario: private consumption growth is 1.9 percentage points lower than baseline.
- Investment growth:
  - Partial aid cut scenario: 0.3 percentage points lower than baseline.
  - Broad-based aid cut scenario: 0.5 percentage points lower than baseline.
- Import growth:
  - Partial aid cut scenario: 0.9 percentage points lower than baseline.
  - Broad-based aid cut scenario: 1.3 percentage points lower than baseline.
- Export volumes: Assumed unchanged in both scenarios.
- Domestic revenue reductions:
  - Partial aid cut scenario: US$8 million (1.9 percent of domestic revenue, 0.06 percent of GDP).
  - Broad-based aid cut scenario: US$14 million (3.4 percent of domestic revenue, 0.1 percent of GDP).

### Limitations and broader impacts
- Analysis focuses on first-round impacts and relies on staff estimates due to lack of comprehensive official records for off-budget aid flows.
- Economic activities funded by some aid programs (e.g., cash transfers) may concentrate in informal sectors and may be undercaptured in official GDP and fiscal statistics.
- Results do not capture second-round or general equilibrium effects (e.g., informal employment, private investment, worsening humanitarian conditions) which could amplify overall impact.
- Social impact (difficult to quantify) is likely profound:
  - Reduction in aid-funded cash transfers alone is estimated to reduce the number of beneficiaries by more than one third from the level in 2024.
  - Deep cuts could increase poverty, domestic displacement, jeopardize social stability, and deteriorate human development indicators and progress on SDGs.

---

### Annex III. Risk Assessment Matrix (RAM) — key risks and expected impacts

### Conjunctural risks (shorter horizon, 12–18 months)
- Trade and foreign aid policy shocks
  - Overall level of concern: High
  - Relative likelihood: High
  - Expected impact: Weaker global growth could lower remittances; significant reductions in foreign aid, especially from the U.S., would intensify the humanitarian crisis and may destabilize Somalia’s fragile security situation.
- Sovereign debt distress
  - Overall level of concern: High
  - Relative likelihood: Low
  - Expected impact: Limited for Somalia given low external and overall public debt-to-GDP ratios following HIPC completion; Somalia lacks access to international capital markets and has a nascent domestic financial sector.
- Tighter financial conditions and systemic instability
  - Overall level of concern: Medium
  - Relative likelihood: Low
  - Expected impact: Would negatively affect the incipient financial system and reduce availability of credit.
- Regional conflict(s)
  - Overall level of concern: Medium
  - Relative likelihood: High
  - Expected impact: Intensifying spillovers (e.g., from Russia’s war in Ukraine or conflict in Gaza) can exacerbate inflation, affect humanitarian support, reduce remittances, and have negative repercussions on security, trade, and fiscal revenues.
- Commodity price volatility
  - Overall level of concern: Medium
  - Relative likelihood: (noted as) Low
  - Expected impact: External and fiscal pressures, social discontent, economic instability.
- Global growth acceleration
  - Overall level of concern: Low
  - Relative likelihood: Medium
  - Expected impact: Positive effects on remittances, exports, and domestic growth.

### Structural risks (longer horizon)
- Deepening geoeconomic fragmentation
  - Overall level of concern: High
  - Relative likelihood: Low
  - Expected impact: Constrains Somalia’s potential to integrate into value chains in the medium- to long-term.
- Cyberthreats
  - Overall level of concern: High
  - Relative likelihood: Low
  - Expected impact: Somalia’s weak digital infrastructure limits immediate exposure, but cyberthreats could trigger instability.
- Extreme weather events and natural disasters
  - Overall level of concern: Medium
  - Relative likelihood: High
  - Expected impact: Recurring droughts can be macro-critical; pastoral agriculture and livestock are key to the economy and exports.
- Social discontent
  - Overall level of concern: Medium
  - Relative likelihood: High
  - Expected impact: Could intensify precarious security situation, weaken growth, and lead to policy uncertainty.

---

### Letter of Intent — policy stance and program commitments (summary)
- Date and signatories: Mogadishu, Somalia, June 23, 2025. Signed by Bihi Iman Egeh, Minister of Finance of Somalia, and Abdirahman M. Abdullahi, Governor of the Central Bank of Somalia.
- Key program context:
  - Somalia reached HIPC Completion Point in December 2023.
  - Despite progress, significant challenges remain: insufficient growth to reduce poverty, climate vulnerability, and a challenging security situation amid transition from African Union Transition Mission in Somalia to African Union Support and Stabilization Mission in Somalia.
  - Sharp declines in official development assistance have disrupted programs across security, agriculture, health, education, water, sanitation and hygiene.
- Program request and performance:
  - Request IMF Executive Board approval of the completion of the 3rd review of the 3-year Extended Credit Facility (ECF) arrangement and disbursement of SDR 7.5 million (about 4.56 percent of quota).
  - Plan to use disbursement under the 3rd review for budget support.
  - Met all quantitative performance criteria (QPCs) and indicative targets (ITs) for end-December 2024 and end-March 2025.
  - Request modification to the end-June QPC for the floor on FGS’ domestic revenue to reflect projected negative impact of foreign aid cuts on revenue.
- Policy priorities and reforms under the ECF and NTP 2025-2029:
  - Maintain macroeconomic stability.
  - Increase domestic revenues and accelerate domestic revenue mobilization.
  - Strengthen public financial management.
  - Promote financial deepening and financial inclusion through effective financial sector supervision and currency reform.
  - Reintroduce the Somali shilling as legal tender and prepare for a currency board arrangement as the new monetary and exchange rate policy framework.
  - Improve the business environment and governance, enhance statistics, and strengthen capacity for public debt management, debt risk assessments, and public investment management.
- Contingency and support:
  - Stand ready to seek additional measures, including requesting an augmentation in access under the ongoing ECF arrangement, should severe and persistent foreign aid disruptions materialize.
  - Commitment to continue seeking technical assistance from partners and to provide IMF staff with required information per the Technical Memorandum of Understanding (TMU).

*Source: IMF staff report content (chapters and annexes provided in the content unit).*

### 1.      We have made great strides in rebuilding institutions and policy-making capacity

### 1.      We have made great strides in rebuilding institutions and policy-making capacity 

### Reform achievements and strategic framework
- Since 2013, wide-ranging reforms under NDP8 and NDP9 helped rebuild key institutions, including economic institutions, and laid the foundations for macroeconomic stability and growth.
- The National Transformation Plan (NTP) 2025–2029 is the current medium-term roadmap, aligned with the forthcoming Centennial Vision 2060, and is underpinned by four pillars: transformational governance, sustainable economic transformation, social and human capital development, and environmental resilience.
- NTP priorities include reducing poverty and vulnerability by mobilizing domestic resources to finance social programs, invest in human capital, and expand access to basic services for the most underserved populations.
- The government emphasizes continued commitment to macroeconomic stability, reform, and deeper federal–regional political cooperation; timely financing and capacity development support from development partners is identified as essential.

### Poverty, vulnerability, and resilience needs
- In 2022, an estimated 54 percent of the population was living below the poverty line of US$ 2 per day based on the 2022 Somalia Integrated Household Budget Survey.
- Growth is currently insufficient to reduce poverty and address large social needs in health, education, and job creation.
- Somalia is highly vulnerable to global trade uncertainty and climate shocks that aggravate food insecurity, hurt growth, and hinder poverty reduction efforts.
- The government calls for large, multi-year investments in human and physical capital to improve resilience and achieve higher, more inclusive growth.

### Food insecurity and humanitarian response
- Food insecurity remains critical due to factors including climate shocks.
- The government coordinates with the UN system on humanitarian assistance delivery.
- The Baxnaano cash transfer program provides a safety net for 50,000 households.

### Security developments and fiscal pressures
- The UN Security Council lifted the arms embargo on the FGS in December 2023 (embargo had been in place since 1992).
- Since mid-2022, the government scaled up military, ideological, and financial campaigns against Al-Shabab; gains in central Somali regions have facilitated humanitarian delivery and beginnings of local governance.
- The Somali National Armed Forces are gradually taking over security responsibilities amid the transition from ATMIS to AUSSOM, which officially started in early 2025.
- The transition, military scale-up, reduced international financial assistance on security, and stabilization policies for liberated areas are generating pressures on government finances.
- Somalia is engaging the United Nations, African Union, and key partners to secure support for AUSSOM.

### Recent macroeconomic performance
- Real GDP growth was 4.2 percent in 2023 and is estimated to be [4 percent] in 2024.
- Ample rainfall in 2023Q4 and 2024Q1 boosted agricultural output in 2024 and improved food security; rains stalled in 2024H2 and 2025Q1.
- Inflation eased from 6.6 percent in end-December 2023 to 5.6 percent by December 2024, aided by softer global commodity prices.
- Remittances rebounded as economic conditions improved in host countries, supporting domestic demand.

### East African Community integration
- Somalia joined the East African Community (EAC) as its eighth Partner State in March 2024.
- A roadmap for full integration into the EAC has been developed; full integration (including customs union and common market) is expected to take several years.
- Institutional groundwork includes establishment of a National Taskforce for the Customs Union Protocol and a National Integration Committee coordinating sectoral implementation plans and stakeholder consultations.

### Fiscal performance and liquidity
- In 2024, domestic revenues performed strongly and expenditures were within the budget; a small overall surplus was achieved in 2024.
- Domestic revenues in 2024 were larger than the cost of compensation of employees, as was the case in 2023.
- Revenue overperformance and budget support grants allowed maintenance of a cash balance to partially address liquidity needs in early 2025.
- In the first three months of 2025, domestic revenues performed in line with expectations and expenditures were below budget estimates.

### Domestic revenue mobilization reforms (selected measures and targets)
- Medium-Term Revenue Roadmap (MTRR) for 2024-2027 finalized on June 29, 2024; sets quantitative targets to raise revenue to GDP by 0.3 percentage points every year and cover the operational expenditure of the government by 2027. Priorities: revenue mobilization, tax administration capacity, fiscal (tax) harmonization and EAC integration.
- Customs modernization: enactment of the ad valorem tariff schedule in June 2022; customs regulations on valuation and declarations in September 2022; roll-out of SOMCAS to ports and airports incorporating harmonized tariffs, Harmonized System (HS) codes, and harmonized item descriptions.
  - Since early May 2025, Port Customs Management Information System (PCMIS) discontinued; SOMCAS fully operationalized in Mogadishu port and airport (SB#7, due by end-June 2025). SOMCAS also implemented in Kismayo port and airport (Jubaland State).
- Income Tax bill finalized and submitted to Parliament on July 9, 2024; law approved by both Houses of Parliament in April 2025 and signed by the President in May 2025; relevant regulations published at end-May 2025.
- New spectrum fees issued in September 2022; revenue collection from the spectrum fee schedule 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; first quarterly report for 2022Q4 published in January 2023; regular quarterly reports have followed.
- Digitalization: new IT system for electronic invoices/receipts and tracking rental income tax payments for all rental properties in Mogadishu; mobile app—Somalia Road Tax—developed for road tax management and payments; expanded vehicle registration to enhance road tax collection.
- Extension of sales tax to services enacted as part of the 2024 Appropriations Law, covering services including telecom, electricity, and TV cable providers; related regulations issued.
- Sales tax electronic system implemented in August 2024, collecting sales tax directly from consumers paying into merchant mobile money/mobile wallet accounts; sales tax revenues automatically transmitted to the Treasury Single Account.
- Revenue Administration Law regulation issued in April 2024 covering enforcement issues.
- Rolling out of Point of Sales (POS) machines at restaurants and hotels in Mogadishu transmitting sales data in real time has improved data integrity and revenue collection.
- New rounds of annual tax audits since 2020 have improved quality of tax returns, particularly for SMEs; personal income tax withholding at source implemented for workers in health and education.
- New regulation establishing civil penalties for violation of revenue laws issued on September 14, 2024.
- Non-tax revenue portal implementation started; payment integration completed for the Ministry of Education and in progress for the Ministry of Commerce.

### Public financial management (PFM) reforms
- Reporting: annual financial statements of the Federal Government of Somalia (FGS) published regularly since 2019; aggregated budget (FGS, five FMS, and Banaadir Regional Administration) first published as part of the 2021 Budget Policy Framework and annually since; monthly consolidation reports of fiscal outturns for the FGS and five FMS published on the MoF website since January 2021; additional disclosures at FGS level include a memorandum annex on SDR holdings of the MoF.
- PFM Act regulations on debt, public investment, and natural resource revenue management issued in May 2022.
- PPP Bill submitted to Parliament on August 12, 2024; establishes Technical Unit within the Ministry of Finance and requires IMC review and approval for PPPs.
- Expenditure controls: Somalia Financial Management Information System (SFMIS) functionality fully operationalized to control commitments within allocations and warrants guided by monthly cash forecasts; Parliament resolution (September 2024) mandates MoF clearance for proposed legislation with fiscal implications.
- Payroll integration: Pay and Grade policy and roadmap approved by Cabinet on December 1, 2022; SFMIS configured in October 2023 to allow only MoF to change payroll entries with financial implications; MoF’s authority over financial clearance of compensation included in the 2023 Appropriations Law and the 2024 Appropriations Bill approved by Cabinet in October 2023; all compensation of employees fully integrated into the single payroll included in the SFMIS.
  - Roadmap to implement the Pay and Grade Policy approved by the Cabinet on February 26, 2025 (SB#1, met), including plan and timeline for aligning temporary worker salaries with permanent pay scales and conducting a costing exercise to assess fiscal implications.
- Streamlining of business processes: roadmap to expand invoice tracking to all goods and services approved on February 28, 2024 and being implemented on schedule.
- Public procurement: implementation of the Public Procurement Law and regulations continues; Prime Minister guidelines on emergency procurement issued July 2023; standard operating procedures for the Inter-Ministerial Concessions Committee (IMCC) approved to strengthen oversight; Prime Ministerial decree in October 2023 reinforced due process for procurement and concessions; Cabinet resolution on August 21, 2024 reinforced transparency in contract and concession management.
- Public lands and real estate: September 2023 amendments to PFM Regulations and issuance of Asset Management Guidelines to implement PFM Act provisions on public property and nonfinancial assets.
- Public investment management (PIM): MoF reforms to create a systematic structure for the public investment project cycle, including drafting regulations for project identification, appraisal, prioritization, budgeting, implementation, monitoring and evaluation; training of key staff from MoF and three infrastructure ministries on PIM basics with AfDB support.

### Debt management progress
- Debt Management Unit (DMU) upgraded its debt recording management system with the Commonwealth Meridian System.
- DMU has been publishing consecutive quarterly public debt reports since 2020Q4.
- The first Annual Debt Management Report was published in April 2025 (SB#6, met).
- A debt reconciliation exercise was carried out in 2023 in preparation for the HIPC Completion Point.
- On July 15, 2024, a decree and regulation were issued articulating key parameters for debt policy, establishing procedures for entering into new borrowing and issuing sovereign guarantees, and amending PFM regulations to define “other financial liabilities” considered guarantees as per Article 37 (6) of the PFM Act, in line with IMF staff recommendations.

### Federalism, constitutional amendments, and electoral steps
- March 2023 National Consultative Council convened leaders of the 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 revenue pool to be shared between FGS and FMS.
- July 2023 agreements on distribution of external budget support.
- March 2024 Parliament ratified amendments to the first four chapters of the Provisional Constitution.
- April 2025 the Independent National Electoral and Boundaries Commission launched a voter registration campaign, marking a historic step towards Somalia’s return to direct electoral democracy.

*Source: IMF country chapter content provided in the supplied PDF content unit.*

### 12.      The CBS has made significant progress in promoting financial stability and enhancing

### 12.      The CBS has made significant progress in promoting financial stability and enhancing supevision and regulation.

### Financial stability, supervision, and regulation
- Guidance for Islamic bank financial reporting and guidance for the Shariah bank governance framework were issued in 2020.
- In January 2024, the CBS joined the Islamic Financial Services Board (IFSB) to provide technical support to regulate Islamic banks.
- Banking regulations on capital and liquidity requirements were issued in July 2023 (effective in January 2024), covering risk management aspects.
- The capital adequacy regulation incorporates risk weighting of exposures to credit and operational risks according to the Basel III framework in a proportionate manner considering Islamic financing.
- The liquidity regulation clarifies and simplifies the liquidity coverage ratio (LCR) requirement and includes qualitative requirements on risk management, in line with Basel III.
- All banks are compliant with the regulations on capital adequacy ratio (CAR) and LCR.
- In December 2024, the risk-based relicensing round for 13 banks was completed.
- In May 2025, revised Financial Institutions and new Takaful (Islamic Insurance) legislations became effective, expanding CBS supervisory powers to non-bank financial institutions, including microfinance institutions and insurance service providers.
- CBS adopted an action plan in July 2024 to improve the quality of data submitted by commercial banks and communicated it to commercial banks.
- Capacity in financial supervision has been improving through increased resources and a move towards risk-based prudential supervision.

### Payments, mobile money, and financial deepening
- As of September 2024, five mobile money operators have been granted licenses.
- Mobile money regulations were issued and a payment system and mobile money oversight division was established.
- Operator self-assessment of the national payment system against Principles of Financial Markets Infrastructure (PMFI) has been conducted and an oversight policy framework drafted.
- The National Payment System (NPS) was launched in 2021, allowing all banks interoperable access for the first time.
- IBAN account standardization was launched March 27, 2023.
- A standardized National QR code was developed in June 2023.
- The instant payment system was operationalized in January 2025 as part of the National SWITCH to support the NPS.
- The Gargaara program, with World Bank support, continues to support access to financing for micro, small, and medium-sized enterprises.
- In February 2024, the CBS joined the Alliance for Financial Inclusion (AFI).

### Institutional strengthening, governance, and safeguards
- IMF safeguards assessment recommendations are being implemented; all recommendations from the March 2020 safeguards assessment have been implemented except CBS Act amendment which is being finalized.
- A function-based organizational structure was adopted and a performance management system was established.
- Financial reporting transparency improved with implementation of International Financial Reporting Standards.
- Governance bodies—the Board and the Audit Committee—continue to exercise oversight effectively.
- The performance criterion on net international reserves (NIR) has been consistently met.
- The 2024 audited financial statements were published in May 2025 with a clean auditor opinion for the fourth consecutive year.
- Period-end closing procedures were established in January 2023.
- Most 2024 Safeguards recommendations addressed, including on cyber security, internal controls, internal audit quality assessment, NIR procedure, reviews on program monetary tests, and expanded disclosures of CBS financial statements.
- The CBS joined the World Bank’s Reserve Advisory and Management Partnership (RAMP) in October 2024.
- In November 2024, the CBS Board approved the new Strategic Plan (2025-2029).

### AML/CFT, eKYC, and financial integrity
- The National AML/CFT Taskforce has been operational since February 2021 to support the National Anti-Money Laundering Committee (NAMLC).
- The National Risk Assessment (NRA) on ML/FT was finalized and published in 2022; the NRA Action Plan was published in February 2023.
- The Targeted Financial Sanctions Law (TFSL) was enacted in March 2023; related regulations approved in July 2023.
- In April 2024, the List of Financial Sanctions Targets was published and expanded in July 2024.
- Key infrastructure and IT systems were 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, expanded in September 2024 to include mobile wallets.
- CBS issued electronic Know Your Customer (eKYC) regulation in November 2024 to digitize customer identification and verification.
- As part of MENA-FATF Mutual Evaluation Assessment preparations:
  - Amendments to the 2016 AML/CFT Law were submitted to Parliament in March 2024.
  - Responses to the Effectiveness Questionnaire were submitted in April 2024.
  - The Technical Compliance Questionnaire was completed in February 2025.
  - In May 2025, MENAFATF adopted Somalia’s Technical Compliance Report with 40 recommendations.
  - The revised AML/CFT law was approved by Parliament in April 2025 and signed by the President in May 2025.
- In October 2024, CBS signed an MOU with the National Identification and Registration Agency (NIRA) to facilitate eKYC implementation.
- Following an MOU between NIRA and the Somali Bankers Association, NIRA desks have been operating at major bank branches to rollout National digital IDs.
- NIRA introduced the Hubiye Platform online verification platform, integrated with financial institution systems.
- As of May 2025, ten licensed commercial banks have been fully integrated and tested in this platform; remaining banks and other financial institutions will be integrated in the fourth quarter of 2025.

### Anti-corruption, audit, and legal frameworks
- CBS and the National Communications Authority (NCA) published outcomes of licensing applications for Mobile Network Operators and Mobile Money Operators on their websites to enhance transparency.
- Somalia acceded to the UN Convention Against Corruption (UNCAC) in August 2021 and to the Arab Anti-Corruption Convention in October 2023; ratification of the African Union Convention on Preventing and Combating Corruption is pending deposit of the instrument.
- Somalia completed the first cycle of the Implementation Review Mechanism (IRM) under UNCAC, including a formal country dialogue held with Belize and Equatorial Guinea in April 2025.
- In March 2025, Somalia acceded to the United Nations Convention Against Transnational Organized Crime (UNTOC) and its three protocols; Somalia is now a State Party to UNTOC.
- The Audit Law enacted in September 2023 strengthens independent oversight of public resources and intergovernmental transfer auditing responsibilities.
- Corresponding regulations were issued in June 2024 to align the Office of the Auditor General (OAGS) with international standards and reinforce autonomy.

### Natural resources, sectoral laws, and other legislation
- Model Oil and Gas Production Sharing Agreement (PSA) approved by the IMCC in November 2021.
- PFM regulations on natural resource revenue management issued in May 2022; revised tender protocol approved by the IMCC in November 2022.
- Extractive Industries Fiscal Regime Law (EIFRL) enacted in June 2023.
- Since the 2nd review, milestones achieved:
  - Regulation harmonizing the Petroleum and Procurement Acts finalized December 2024 (SB#2, met).
  - Regulations for the EIFRL published in January 2025 (SB#3, met).
  - Petroleum Act regulations finalized in March 2025.
  - Publication standards for PSAs established in March 2025 (SB#4, met).
  - All new PSAs to be submitted to IMCC for review and approval, with the exception of PSAs negotiated under the existing specific defense and security framework agreement approved by Parliament in February 2024 (continuous SB#5, met).
- Additional legislation and reforms:
  - Somali Standards and Quality Control Bill and Somali Bureau of Standards established in 2020.
  - “One-stop-shop” to e-register business for integrated tax and business licensing services established.
  - Second set of Company Act regulations on minority shareholder protection issued May 2022.
  - Electricity Act enacted March 2023; ESP Licensing Regulations and ESP Tariff Regulations approved.
  - Data Protection Law, Digital ID System Law, Investment and Investor Protection Act, and Federal Law on Fisheries passed by Parliament in March 2023.
  - New Pension Law for Civil Servants enacted in April 2024.

### Digital ID, social protection, and human capital
- National digital ID launched September 2023.
- As of March 2025, 200 thousand individuals were enrolled in the National Identification and Registration Agency (NIRA).
- The digital ID supports targeted social protection programs and improves KYC requirements to enhance AML/CFT efforts.
- The FGS and FMS adopted agreements for joint education curriculum/examinations and a joint national health sector strategy to support accountability across government levels.
- A national Unified Social Registry (USR) has been established and is undertaking a nationwide survey covering approximately 2.2 million households.
- The social safety net scheme—Baxnaano—is being implemented with World Bank support and transitioning to direct government implementation.

### Statistics and data transparency
- Somalia National Bureau of Statistics (SNBS) has published Somalia Facts and Figures annually since 2018.
- CBS published a statistical bulletin for three consecutive years since 2022.
- National accounts are published annually; consumer price index is published monthly.
- The 2022 Somalia Integrated Household Budget Survey (SIHBS), the first since 1985, was published in February 2023 and used to rebase GDP and produce a national CPI starting in May 2025.
- A business census was conducted in 2024 to lay the foundation for an annual business survey.
- Somalia continues to implement the enhanced General Data Dissemination System (e-GDDS) framework.

### Outlook and risks
- Real GDP growth is projected to decline from 4 percent in 2024 to 3 percent in 2025, mainly driven by a sharp drop in foreign assistance.
- Preliminary estimates suggest potential reduction in aid inflows in 2025 could be around $400–600 million (3 –4½ percent of GDP), though uncertainty remains high.
- Inflation is projected to ease to 4.9 percent by end-2025, with a slower decline than previously anticipated due to drought risks affecting food prices.
- Major near-term risks: climate shocks (drought, floods), reduced humanitarian response, further withdrawals of foreign aid, lower-than-anticipated global growth, higher international food and energy prices, security situation risks (including underfunding of AUSSOM), and risks related to universal suffrage elections.
- Contingency measures if risks materialize:
  - Absorb revenue shortfalls through continued fiscal discipline, drawing on cash buffers, and using a sequestration rule that prioritizes critical expenditure.
  - Seek additional financing from development partners.

### Economic and financial policies under the ECF-supported program
- Reform priorities:
  (i) increasing domestic revenues;
  (ii) strengthening PFM (legal and regulatory framework, internal and external audit, expenditure controls, cash management, accounting and reporting, debt management, public investment management);
  (iii) promoting financial deepening and financial inclusion, including the currency reform and currency board arrangement;
  (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 (compensation of employees, goods and services excluding the CBS commission, and contingency);
  - 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 involve reforms in revenue administration, public financial management, financial stability, and governance and AML/CFT; additional reforms will be introduced on a 12-month rolling basis.
- Program expectations by 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;
  - progress on the currency reform and currency board arrangement;
  - enhanced statistics and governance across all macro-critical sectors.

### Fiscal policy stance and borrowing strategy
- The FGS will follow a prudent fiscal policy to preserve fiscal sustainability while addressing development needs.
- Policy anchor: medium-term fiscal framework (MTFF).
- For external financing, reliance solely on grants and concessional loans to preserve debt sustainability.
- Aim 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.
- Highly concessional financing for the program is defined as borrowing with at least 50 percent grant element.
- Borrowing capacity will be reviewed periodically and is expected to increase over time as revenue capacity, debt management capacity, and public investment management capacity strengthen.
- Specific fiscal conditionality will be set on a 12-month rolling basis during program reviews.
- Policy measures to implement: accelerate mobilization of domestic revenues; improve budget execution; improve public financial management to safeguard fiscal resources and strengthen governance; integrate national transformation plan costs into budgets; strengthen inter-governmental fiscal relations.

*Source: 1somea2025001-source-pdf*

### 28.      In 2025, we will continue to improve revenue collection and make room for priority

### In 2025, we will continue to improve revenue collection and make room for priority spending, while containing discretionary expenditure pressures

### Fiscal stance and 2025 projections
- The 2025 Budget envisages a small overall fiscal deficit of 0.2 percent of GDP.
- Tax revenue is expected to reach 3.2 percent of GDP in 2025, with foreign aid cuts expected to weigh on tax revenue.
- Continued fiscal discipline will ensure that domestic revenues cover the compensation of employees by a margin.
- The overall fiscal deficit is projected to be 0.6 percent of GDP in 2025 (text also references an envisaged 0.2 percent of GDP deficit for 2025).

### Medium-term domestic revenue mobilization objectives
- Domestic revenue mobilization is a cornerstone of the fiscal program with the aim to raise domestic revenue to fully cover operational expenditure by 2027.
- Operational expenditure definition to be covered by domestic revenues includes: non-project compensation of employees, goods and services, and interest payments.
- The MTRR for 2024-2027 outlines key revenue reforms to be implemented over the medium term.

### Key revenue reforms and measures
- Customs modernization – ad valorem tariffs:
  - Complete the ad valorem customs reform once stakeholders have experience with the full end-to-end use of the SOMCAS system at ports and airports of Mogadishu and Kismayo.
  - Initially keep the common valuation table to provide minimum values for duty calculation.
  - Advance customs reform in remaining ports of Somalia once political conditions allow.
  - Align customs modernization strategy with requirements under the EAC membership and collaborate with FMS for tariff harmonization before integration into the Customs Union of the EAC.
- Modern income tax law:
  - Swift implementation to streamline definitions of taxable income and deductions in both FGS and FMSs; expected to increase income tax collection over the medium-term.
  - Complete an income tax administrative manual for tax administrators by the end of the year with IMF technical assistance (proposed SB #11, due end-December 2025) and publish it after completion.
  - Advance taxpayer education and hands-on support for filling and filing tax forms.
- Revenue mobilization from large businesses, in particular the telecom sector:
  - Speed up revenue mobilization from sectors with significant potential, including telecom.
  - Bring effective tax rates on the telecom sector up to a level comparable to peers and other countries in the region.
  - Leverage expansion in tax registrations from the sales tax electronic system.
  - Request large and medium taxpayers to submit payment records and financial statements for CIT enforcement.
- Other revenue administration measures:
  - Develop the Integrated Tax Administration System (ITAS); procurement of a developer is in process.
  - Once operationalized, ITAS will enable collection/use of third-party data, enhance tax audits, automate collection processes, and improve inland tax administration effectiveness.
  - Continue rollout of the non-tax revenue portal to more MDAs.
  - Strengthen tax audits by building capacity and implementing the new audit manual; publish the first annual tax audit report for the fiscal year of 2025 by end of the second quarter of 2026.

### Public financial management (PFM) strengthening
- Streamlining business processes:
  - Streamline budget execution and Treasury management to enhance financial controls and reporting.
  - Accelerate automation of cash planning and revenue management through the SFMIS by eliminating paper-based parallel processes and utilizing interfaces with SOMCAS and ITAS.
  - Update PFM regulations relating to digital signatures for the purchase order to payment process and implement digital signatures in the SFMIS (SB#8, rescheduled from end-June to end-August 2025).
- Debt management:
  - With IMF TA support, develop a Medium-term Debt Management Strategy (MTDS) in line with Somalia’s MTFF, expected to be published later in 2025 to support the annual borrowing plan.
- Fiscal transparency and accountability:
  - Ensure annual budget alignment with NTP priorities and clear reporting of budget allocation for NTP initiatives.
  - Coordinate with Banaadir to develop a PFM system to participate in aggregated fiscal reporting.
- Public investment management (PIM):
  - Develop capacity in project appraisal and selection to ensure quality and affordable projects while ensuring fiscal sustainability.
  - Submit revised PFM regulations (including a revised section on PIM) to Cabinet; develop a PIM policy and guidelines; establish databases for screening and appraisal of projects.
  - With IMF TA, develop a PFM Reform Strategic Plan for 2026—29 (proposed SB#14, due end-March 2026) to strengthen multi-year commitment controls, PIM, fiscal transparency, and institutional coordination.
- Public-private partnerships (PPP):
  - Develop legal and fiscal institutional framework for PPPs to promote investment while adequately managing fiscal risks.
  - PPP bill submitted to Parliament in August 2024; edits are being incorporated to ensure consistency with the budget process, update affordability and project selection criteria, and ensure PPP assessment alongside other investment projects per IMF staff recommendations.
- Public procurement:
  - Continue implementing the Public Procurement Law and regulations, strengthen MDA capacity through training and sensitization, and develop a procurement portal focusing on transparency.
- Public lands and real estate:
  - Implement PFM Regulations on public property and the Asset Management Guidelines.
  - Build a digital asset registry to record and track public nonfinancial assets centrally and transparently; train staff in public asset registration.

### Expenditure policy, pay and pension reforms
- Implement the roadmap to implement Pay and Grade policies, including a pilot costing exercise to assess fiscal implications.
- Application of the Civil Service Pension Act will be preceded by a fiscal impact assessment informed by planned pay and grade reform and information about the number and age structure of dependents eligible for survivor benefits.
- Establish a Pension and Gratuity Fund Directorate to start collecting information and setting up administration systems for future pension reforms.

### Constitutional and legal alignment
- In the context of the Constitutional review process, strengthen links between the Constitution’s fiscal provisions and primary legislation and policy agreements established over the past decade.
- Seek consistency between the Fiscal Chapter of the Constitution and other chapters with fiscal provisions.

### Debt relief and HIPC negotiations
- Since reaching the Enhanced HIPC Completion Point in December 2023, significant progress in negotiations with pending multilateral and bilateral creditors has been made.
- Paris Club agreed on a debt treatment for Somalia under the HIPC process on March 13, 2024, and beyond-HIPC debt relief to cancel all debt on a voluntary basis; bilateral agreements signed with nearly all Paris Club creditors.
- Negotiations advanced with Spain on a debt swap arrangement.
- Reached a debt relief agreement with United Arab Emirates in February 2025; agreements earlier signed with Kuwait and Saudi Arabia in 2023.
- Concluded negotiations with Arab Monetary Fund in April 2025; earlier deals signed with the Islamic Development Bank and OPEC Fund for International Development.
- Remain engaged in best effort and good faith negotiations with remaining creditors.

### Extractive industries legal framework
- Harmonized legal framework for extractive industries has been revised and updated; focus shifted to building institutional capacity to operationalize it.
- Future direct negotiations will be limited and informed by price discovery through previous competitive licensing rounds.

### Monetary and financial sector reforms
- Strengthen CBS institutional capacity and support financial deepening:
  - Develop regulations to implement Financial Institutions and Takaful legislations.
  - Seek approval of the National Payments System bill submitted to Parliament.
  - Strengthen CBS Licensing and Supervision Department staffing and capacity.
  - Work with multilateral partners to enhance regulatory framework for Islamic banking, including Shariah compliance.
  - Address remaining recommendations of the 2024 IMF safeguards assessment, including enterprise risk management, business continuity, and amendment of the CBS Law.
  - Issue detailed instructions to CAR and LCR templates reported by banks by end-July 2025 (SB#10, due end-July 2025).
  - With World Bank support, adopt supervisory technologies to automate data collection and analysis systems.
- Currency reform and currency board arrangement (CBA):
  - Progress toward adopting a currency board arrangement as the monetary and exchange rate framework with IMF TA support.
  - Reintroduce the Somalia shilling as legal tender while maintaining a dual currency regime with the U.S. dollar.
  - Steps include securing a firm agreement between FGS and all FMS, establishing CBS branches in all federal member states, addressing the funding gap (including discussions with the World Bank), and securing gross international reserves to backstop the new currency including catalyzing donor assistance.
  - Submit amendments to the CBS Law to Parliament to cover the CBA and strengthen governance and autonomy provisions (SB#9, due end-December 2025).
  - Once revised CBS Act is enacted, advance preparations for a CBA including securing:
    - CBS Board approval of FX regulations outlining CBS criteria for selecting counterparties and specifying how counterparties will fulfill obligations under the CBA (proposed SB#12, due end-May 2026).
    - CBS Board approval of a regulation specifying the process to produce and publish the CBA balance sheet on a weekly basis with minimal lag (proposed SB#13, due end-July 2026).
  - Both regulations will be published and enter effect upon completion of the currency exchange and adoption of the CBA.
  - Commitments to sustain CBA credibility: (i) ensure fiscal sustainability; (ii) ensure CBS operational independence and prevent deficit financing; (iii) strengthen CBS capacity, including cash management and transparency; (iv) secure financial stability, develop financial markets, and support capacity building of financial institutions; (v) improve quality, frequency, and timeliness of macroeconomic and financial data.

### AML/CFT and remittances
- Continue advancing AML/CFT operational and legal reforms to comply with international standards and support remittance flows.
- Implement the NRA action plan; MENAFATF onsite visit delayed until security improves in Mogadishu.
- Address recommendations of the Technical Compliance Report as part of the MENA-FATF Mutual Evaluation Assessment.
- Begin implementing the recently approved AML/CFT law by issuing corresponding regulations.

### Governance, anti-corruption, and inclusion
- Continue commitment to improving governance and fighting corruption:
  - Review existing laws to ensure compliance with UNCAC.
  - Advance self-assessment work as part of the UNCAC review mechanism.
  - Strengthen resources of the Independent Anti-Corruption Commission and update the National Anti-Corruption Strategy.
- Advance a broad-based reform agenda to bolster inclusive growth, climate resilience, and trade integration:
  - Ministries of Planning and Finance with Ministry of Agriculture launched a Food Security Crisis Plan in December 2023; implementation began January 2024 with regular Integrated Food Security Phase Classification and Joint Monitoring Reports prepared.
  - Developed a National Climate Change Policy for harmonized responses and integration of climate considerations into sectoral activities.
  - Developing the Centennial Vision 2060 to accelerate development in poverty reduction, inclusive growth, and climate resilience.
  - Work with development partners to encourage greater channeling of aid through the budget and country systems to align with NTP priorities, enhance visibility, and facilitate monitoring and evaluation.

### Regional integration, trade accession, and institutional alignment
- Advance regional integration under the EAC customs union and common market, and prepare for WTO accession:
  - Work towards establishment of the Somali Revenue Authority.
  - Aligning Somalia’s fiscal calendar with the EAC's July 1–June 30 cycle would require legislative changes; engaging with the EAC secretariat to revise roadmap timelines.
  - The first accession meeting to WTO took place in February 2025; next steps are progressing.

### Statistics and data improvements
- Commit to improving key macroeconomic and financial data to guide economic policies.
- Annual business survey to be finalized by end-2025 to broaden availability of economic activity and social data.
- Agriculture census planned for 2025-2026.
- New population census expected to begin in 2026 (the first after 40 years).
- A nationally representative food security vulnerability survey is underway.
- Annual business surveys intended to provide foundation for deriving GDP by the production approach.
- Publication of quarterly GDP estimates is planned as part of the expanded national accounts framework.

*Source: 1somea2025001-source-pdf - 28. In 2025, we will continue to improve revenue collection and make room for priority spending and related sections.*

### 42.      Program implementation will be monitored through quantitative performance criteria,

### Program implementation will be 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). These will be assessed through semi-annual reviews.

### Monitoring framework and review timeline
- Program assessment instruments:
  - Quantitative performance criteria (QPCs)
  - Continuous performance criteria (including Article VIII commitments)
  - Indicative targets (ITs) (MEFP Table 1)
  - Structural benchmarks (MEFP Table 2)
- Reviews:
  - Semi-annual reviews.
  - The fourth review of the ECF arrangement will be based on the QPCs and ITs set for end-June 2025.
  - The fifth review will be based on the QPCs and ITs set for end-December 2025.
  - All reviews conditioned on quantitative performance criteria outlined in MEFP Table 1.

### Quantitative Performance Criteria and Indicative Targets (Table 1) — key figures (Millions of U.S. dollars)
- Column header (test dates): Dec. 2024 4/Mar. 2025 Jun. 2025 4/Sept. 2025 Dec. 2025 4/Mar. 2026
- Quantitative Performance Criteria
  - 1 FGS domestic revenue, floor 2/ : 357 369 Met 178 170 415
  - 2 Spending on FGS compensation of employees, goods & services (excl. CBS commission), & contingency, ceiling 2/ : 468 439 Met 260 260 491
  - 3 Net international reserves (excl. all SDR holdings of MoF), floor 7/ : 1.5 2.8 Met 1.5 1.5 1.5
  - 4 Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/ : 0 0 Met 0 0 0
  - 5 Accumulation of new external arrears, ceiling 3/ : 0 0 Met 0 0 0
- Indicative Targets
  - 1 FGS domestic revenue, floor 2/ : 85 94 Met 28 3 275 101
  - 2 Spending on FGS compensation of employees, goods & services (excl. CBS commission), & contingency, ceiling 2/ : 131 111 Met 38 7 387 146
  - 3 Net international reserves (excl. all SDR holdings of MoF), floor 7/ : 1.5 2.6 Met 1.5 1.5 1.5
  - 4 Contracting or guaranteeing any new external, non-concessional debt, ceiling 3/ : 0 0 Met 0 0 0
  - 5 Accumulation of new external arrears, ceiling 3/ : 0 0 Met 0 0 0
  - 6 Fiscal balance, floor (cash basis) 2/ 5/ : -38 21 Met -47 -27 Met -62 -64 -86 -88 -29 -45
  - 7 Contracting of new domestic debt, ceiling 3/ : 0 0 Met 0 0 Met 0 0 0 0 0 0
  - 8 Accumulation of new domestic expenditure arrears, ceiling 3/ : 0 0 Met 0 0 Met 0 0 0 0 0 0
- Memorandum item
  - Contracting or guaranteeing of new external concessional debt 5/ 6/ : 0 0 0 0 0 7 5000
- Notes associated with Table 1 (selected):
  - 1/ The quantitative targets, indicative targets, and program exchange rates are defined in the Technical Memorandum of Understanding (TMU).
  - 2/ Cumulative from the beginning of the fiscal year.
  - 3/ This target is applied on a continuous basis.
  - 4/ Test date for the third, fourth and fifth reviews, respectively.
  - 5/ The fiscal balance floor for 2025 is broadly in line with the authorities' 2025 budget (-US$28 million), which is consistent with the IMF staff forecast (-US$73 million). The difference is mainly explained by different assumptions regarding budget support grants. The authorities' 2025 budget includes US$170 million in budget support grants, while the IMF staff forecast incorporates US$125 million in grants. As per the TMU, the fiscal balance floor would be adjusted downward by any delays or shortfalls in budget support grants as compared to the budget estimate, or if interest payments are higher than the budget estimate.
  - 6/ Excludes IMF disbursements.
  - 7/ The floor on NIR would be adjusted downward if the CBS transfers distributable earnings to the government, and if the CBS provides temporary liquidity advances to the government, as per the TMU.

### Structural benchmarks (Table 2) — selected benchmarks, targets, monitoring, and status
- Benchmarks completed (Met)
  - Develop a roadmap to implement the Pay and Grade policy (elements include plan/timeline for aligning temporary workers with permanent pay scale and plan/timeline for conducting a costing exercise). Target: End-February 2025. Sector: PFM / MOF NCSC MOLSA. Monitoring: Publish the roadmap approved by the Cabinet on the Ministry of Finance website. Status: Met.
  - Publish the amended regulation harmonizing the Petroleum and Procurement Acts requiring all PSAs to be submitted to IMCC for review and approval. Target: End-December 2024. Sector: Governance / MOF. Monitoring: Publish the approved regulation on the MoF website. Status: Met.
  - Publish regulations for the Extractive Industries Fiscal Regime Law (EIFRL), in line with IMF recommendations. Target: End-January 2025. Sector: Governance / MOF. Monitoring: Publish approved EIFRL regulations on the MoF website. Status: Met.
  - Publish a new regulation for the Petroleum Act clarifying publication standards for all PSAs, in line with IMF recommendations. Target: End-March 2025. Sector: Governance / MOF MPMR. Monitoring: Publish the approved Petroleum Act regulation on the MPMR website. Status: Met.
  - Publish an Annual Debt Management Report (ADMR) for FY2024 in line with IMF TA recommendations. Target: End-April 2025. Sector: Public debt/ MOF. Monitoring: Publish the ADMR, approved by the Minister of Finance, on the MoF website. Status: Met.
- Continuous benchmark (on track)
  - No new PSAs to be signed until the legal framework is completed (EIFRL regulations, Petroleum Act regulations on publication standards, amendment harmonizing Petroleum and Procurement Acts to cement IMCC review and approval, and Petroleum Act regulations), with exception for PSAs under the existing specific defense and security framework agreement approved by Parliament in February 2024 (these would be submitted to IMCC for review and approval). Monitoring: Monthly letter from MoF confirming no new PSAs. Status: Continuous SB is on track.
- Benchmarks in progress / proposed dates
  - Ensure sustained end-to-end use of Somalia Customs Automated System (SOMCAS) in Mogadishu seaport and airport by fully discontinuing PCMIS. Target: End-June 2025. Sector: Domestic revenue / MOF. Monitoring: Ratio of total customs duties reported in the Treasury Single Account (SFMIS) to total customs duties paid through SOMCAS should be at least 99 percent on average across May and June 2025 and letter from the Minister of Finance confirming PCMIS is no longer used at Mogadishu seaport nor airport.
  - Publish updated PFM regulations relating to digital signatures for the purchase order to payment process; implement digital signatures in SFMIS. Targets: End-June 2025 (publish); End-August 2025 (implement). Sector: PFM / MOF. Monitoring: Publish amended PFM regulations on MoF website; confirm implementation of digital signatures in SFMIS and provide user list and number/amount of payment vouchers processed using digital signatures.
  - Submit to Parliament amendments to the CBS Law, including to cover the currency board arrangement, in line with IMF recommendations. Target: End-December 2025. Sector: Financial Supervision / CBS. Monitoring: Send to IMF staff the version of the Bill submitted to Parliament.
  - Issue detailed instructions to capital adequacy (CAR) and liquidity coverage ratios (LCR) templates reported by banks. Target: End-July 2025. Sector: Financial Supervision / CBS. Monitoring: Send IMF staff the detailed instructions communicated to banks.
- Proposed structural benchmarks with later target dates
  - Complete the income tax administrative manual for tax administrators, in line with IMF recommendations. Target: End-December 2025. Sector: Domestic revenue / MOF. Monitoring: Send IMF staff the manual.
  - CBS Board approval of foreign exchange regulations outlining CBS criteria for selecting counterparties and specifying how counterparties will fulfill obligations under the CBA. Target: End-May 2026. Sector: Financial Supervision / CBS. Monitoring: Send IMF staff the regulations approved by the CBS Board.
  - CBS Board approval of a regulation specifying the process to produce and publish the CBA balance sheet on a weekly basis with minimal lag (effective with currency exchange). Target: End-July 2026. Sector: Financial Supervision / CBS. Monitoring: Send IMF staff the regulation approved by the CBS Board.
  - Publish the Public Financial Management (PFM) Reform Strategic Plan for 2026-2029, including plans to strengthen multi-year commitment controls, public investment management, fiscal transparency, and institutional coordination. Target: End-March 2026. Sector: PFM/MOF. Monitoring: Publish the plan approved by MoF on the MoF website and send IMF staff the link to the plan.

### Technical Memorandum of Understanding (TMU) — definitions, computation, and reporting (selected provisions)
- Purpose:
  - Sets definitions of QPCs and ITs agreed between Somali authorities and IMF for the Extended Credit Facility (December 2023 to December 2026).
  - Establishes terms and timeframe for transmitting data to enable IMF staff to assess program implementation and performance.
- Quantitative targets (paragraph highlights)
  - Quantitative targets specified in Table 1 of the MEFP.
  - Targets set on a 12-month rolling basis during program reviews.
  - Test dates for QPCs usually set on a semiannual basis; ITs set on a quarterly basis.
  - Unless otherwise specified, quantitative targets evaluated in terms of cumulative flows from the beginning of each calendar year.
- QPCs for June 2025 and December 2025, and related ITs:
  - Floor on FGS domestic revenue;
  - Ceiling on spending on FGS compensation of employees, goods & services, & contingency;
  - Floor on 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 September 2025 and March 2026:
  - 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 (Article VIII commitments):
  - Non-introduction of exchange restrictions and multiple currency practices.
  - Coverage includes: (i) non-imposition or intensification of restrictions on making payments and transfers for current international transactions; (ii) non-introduction or modification of multiple currency practices; (iii) non-conclusion of bilateral payments agreements inconsistent with Article VIII; (iv) non-imposition or intensification of import restrictions for balance of payments reasons.
- Key definitions and computation rules
  - Government definition: The government is defined as the FGS. Excludes public entities with autonomous legal personalities whose budgets are not included in the federal government budget and federal member states (FMS).
  - For monitoring external debt, general government = FGS and FMS (Galmudug, Hirshabelle, Jubaland, Puntland, and South West State) and the Banaadir region.
  - Government revenue and expenditure:
    - Defined in accordance with GFSM 2014 on a cash basis.
    - Recognized when cash is received and paid; measured cumulatively from the beginning of the current fiscal year (calendar year).
    - Financing transactions (amortization of World Bank and other debt, receipts/repayments of CBS advances, 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 are 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.
    - Includes taxes, nontax revenues, other compulsory transfers, property income, sales of goods and services, penalties and forfeits, and voluntary transfers other than 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.
    - Commission paid to the CBS is excluded from spending on goods and services for the program ceiling.
    - Program requests expenditures by 4-digit object code for each MDA with breakdowns for general government fund, contingency funds, and project support grants 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 of the tax exemptions and the reasons.
    - Article 5 (4): The Minister shall submit the tax exemptions approved 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 should show micro-level details: individual granted the exemption; reasons; total taxes due but not paid; benefits to Government arising from the exemption.
    - Article 18 (1)(f): The proposed Budget Appropriation Bill submitted by the Minister should contain the annual tax exemption report.
  - Budget execution control points:
    - Allotment: Ceiling on amount of warrants to be requested by MDAs during a specific time period; issued by MoF within available funds.
    - Warrant: Ceiling on amount of commitments to be made by MDAs during a specific time period; issued by MoF on request from an MDA within available allotment; once approved, warrant reduces available allotment.
    - Commitment: Contract or legally binding agreement to make payments; includes agreements for future delivery of goods/services and continuing agreements including compensation of employees.
  - Fiscal balance (cash basis): Difference between (i) total government revenue (including domestic revenue, transfers of CBS distributable earnings not included in the Appropriation Law, and grants) and (ii) 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 any delays or shortfalls in budget support grants compared to the budget estimate, up to maximum amounts in TMU Table 1, to cover priority spending as specified in the sequestration rule under the Appropriation Law, provided no overruns in other non-priority spending items.
    - Floor will also be adjusted down by any higher amounts of interest payments compared to the budget estimate.
  - New domestic arrears:
    - Defined as FGS obligations for payments to residents that remain unpaid 90 days after the due date.
    - Due date refers to the date payments are due according to contract/agreement after contractual grace periods lapse.
    - Obligations include CBS advances, borrowing from commercial banks, accrued but unpaid expenditure commitments for compensation of employees, goods and services, interest payments, mandatory transfer to the Banaadir region, and acquisition of nonfinancial assets.
    - New domestic arrears include those accumulated from the beginning of the fiscal year.

*Source: Excerpts from the MEFP, Table 1 and Table 2, and Attachment II: Technical Memorandum of Understanding (TMU).*

### 12. External arrears of the government are defined as debt obligations to non-residents

### 12. External arrears of the government are defined as debt obligations to non-residents that are not paid on the contractual due date (plus any applicable grace period)

### Definition and treatment of external arrears
- External arrears: debt obligations to non-residents not paid on the contractual due date (plus any applicable grace period).
- Exclusions for program purposes:
  - Arrears arising from debt being renegotiated with creditors in the context of the HIPC process, including Paris Club creditors.
  - External arrears in respect of which a creditor has agreed that no payment needs to be made pending negotiations.
- Special treatment of nonpayment to Russia for the ceiling on new external arrears:
  - Nonpayment will not give rise to arrears when the Central Government and the CBS cannot pay or settle based on contractual terms solely due to factors outside Somalia’s control (e.g., transfer of funds rejected owing to intermediary financial institutions’ compliance policies, sanctions, or inability to identify the counterparty), provided:
    - Debt service payments have been paid in full into a designated account held by a third-party (in this case the CBS) by the contractual due date, taking into account any contractual grace period.
    - The designated account conditions:
      - (i) No third party (including the Ministry of Finance) has access to the funds deposited in the account;
      - (ii) Funds deposited in the account can only be used to service the debt to the creditor, according to the repayment schedule agreed between the creditor and Somalia;
      - (iii) Funds accumulated in the account can only be transferred back to the Ministry of Finance if there is legal evidence of an agreement to service the debt through other instruments or if funds need to be transferred to another account with the same purpose.
    - Funds in such designated account will be used only to satisfy the related external debt obligations; their use or withdrawal for other purposes would constitute a breach of the PC.

### Fiscal balance adjustor (maximum amount) and memorandum items (US$ million, cumulative flows from the beginning of each calendar year)
- Maximum amount of the fiscal balance adjustor related to delays or shortfalls in budget support grants:
  - Jun-25: 36.0
  - Sep-25: 61.0
  - Dec-25: 135.2
  - Mar-26: 0.0
- Memorandum items:
  - Budget support grants in the Budget estimate:
    - Jun-25: 36.0
    - Sep-25: 61.0
    - Dec-25: 170.0
    - Mar-26: 0.0
  - Interest payments in the Budget estimate:
    - Jun-25: 6.1
    - Sep-25: 6.1
    - Dec-25: 6.1
    - Mar-26: 6.9
  - Possible sources of financing for fiscal deficit:
    - Jun-25: 180.6
    - Sep-25: 190.6
    - Dec-25: 135.2
    - Mar-26: 154.6
  - Withdrawal of cash buffers 1/:
    - Jun-25: 44.7
    - Sep-25: 44.7
    - Dec-25: 44.7
    - Mar-26: 8.8
  - MOF SDR holdings 3/:
    - Jun-25: 80.5
    - Sep-25: 90.5
    - Dec-25: 90.5
    - Mar-26: 90.5
  - Proceeds from CBS temporary advances 2/:
    - Jun-25: 55.4
    - Sep-25: 55.4
    - Dec-25: 0.0
    - Mar-26: 55.4

Notes referenced in table:
- 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 Türkiye 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 2024, the most recent audited domestic revenue corresponds to 2023 and the maximum amount of liquidity advances from the CBS is USD49.4 million. For 2025, the most recent audited domestic revenue will correspond to 2024   and the maximum amount of liquidity advances from the CBS is currently estimated at USD55.4 million—this amount will be updated in forthcoming program reviews once the audited accounts for 2024   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.
- 3/ MOF SDR holdings include the remaining SDR holdings related to the 2021 SDR allocation not converted into USD, the SDR 7   million windfall from the HIPC debt relief not converted into USD, EU balance transfer of SDR 7.5 million from Somalia Administered Account not converted into USD, and IMF ECF disbursements for budget support not converted into USD. Drawdown of SDR holdings to pay for net SDR charges are assumed to be reconstituted.

### Definition of debt for program purposes
- Debt is defined in accordance with Executive Board Decision No. 15688 (14/107), Point 8(a) and 8(b), adopted on December 5,   2014, as amended, and is defined on a residency basis.
- General definition:
  - “Debt” means a current (that is, not contingent) liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract.
- Primary forms of debt:
  - Loans: advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets equivalent to fully collateralized loans (e.g., repurchase agreements and official swap arrangements).
  - Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided.
  - Leases: arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains title. For the guideline, debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding payments that cover operation, repair, or maintenance.
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (for example, payment on delivery) will not give rise to debt.

### Domestic debt and QPCs/ITs
- Domestic debt: debt for which the counterparty is resident of Somalia, including the CBS.
- Exclusions: temporary advances for liquidity management from the CBS (temporary advances will be fully repaid within 90 days).
- QPCs and related ITs on domestic debt: cumulative ceilings on contracting new domestic debt from the beginning of the fiscal year.

### External debt, concessionality, and QPCs/ITs
- QPCs (and related ITs) for external debt: cumulative ceilings on contracting or guaranteeing of new non-concessional borrowing by the general government from the beginning of the fiscal year.
- Memorandum item: contracting of new concessional borrowing by the general government from the beginning of the fiscal year.
- For program purposes:
  - External debt is defined by the residency of the creditor and is deemed to have been contracted when an underlying loan agreement is signed.
  - Excluded from this performance criterion are disbursements from the IMF.
  - The government will report any planned external borrowing and its terms to Fund staff before external debt is contracted or guaranteed.
- Concessionality threshold:
  - Borrowing is concessional if it includes a grant element of at least 35 percent, calculated as:
    - Grant element = (NPV of debt subtracted from nominal value) expressed as a percentage of the nominal value.
    - The NPV of debt at signing is calculated by discounting the future stream of debt service payments due on this debt.
    - Discount rate used: 5 percent.
  - External borrowing that does not have a grant element of at least 35 percent is deemed non-concessional borrowing.
  - Highly concessional financing for the program is defined as borrowing with at least 50 percent grant element.
- Calculation note:
  - The calculation of concessionality will take into account all aspects of the loan agreement, including maturity, grace period, payment schedule, upfront commissions, and management fees.

### CBS Net International Reserves (NIR): definition and components
- NIR defined as: difference between gross foreign assets and gross foreign liabilities.
- Valuation conventions:
  - All SDRs are valued over the calendar year at the August 31, 2023 exchange rate of US$1.329940 per SDR.
  - IMF representative exchange rates against the U.S. dollar at August 31, 2023 will be used to convert foreign assets and liabilities denominated in currencies other than U.S. dollars.
- Exclusion:
  - The assets and liabilities related to the designated account held by the CBS into which FGS debt service payments due are deposited as per paragraph 12 are excluded from the definition of NIR for program purposes.

- Gross foreign assets are defined as:
  - 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) all SDR holdings that belong to the MoF.
- Gross foreign liabilities are defined as:
  - 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;
    - (vi) SDRs disbursed under the ECF arrangement for budget support.

### Adjustors to the NIR floor
- Events that trigger downward adjustments to the NIR floor (maximum amounts in TMU Table 2):
  - (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 2024, the most recent audited domestic revenue corresponds to 2023 and the maximum amount of liquidity advances from the CBS is USD49.4 million.
    - For 2025, the most recent audited domestic revenue will correspond to 2024   and the maximum amount of liquidity advances from the CBS is currently estimated at USD55.4 million—this amount will be updated in forthcoming program reviews once the audited accounts for 2024   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.

### Program monitoring and governance
- Program-Monitoring Technical Working Group (TWG):
  - Composition: 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 the working group.
  - Responsibilities:
    - Monitor program performance.
    - Recommend policy responses.
    - Inform the Fund regularly on program performance.
    - Transmit supporting materials necessary for the evaluation of benchmarks.
  - Reporting:
    - The committee shall provide the Fund with quarterly progress reports on the program within four weeks of the end of each quarter, using the latest available data.

*Source: 12. External arrears of the government are defined as debt obligations to non-residents (excerpts).*

### 20. Data Reporting to the Fund. To allow monitoring of developments under the program,

### 20. Data Reporting to the Fund

### Data reporting framework and participating agencies
- Reporting agencies: MoF, CBS, MoPIED, SNBS, and FRC will provide data to the Resident Representative’s office of the IMF on the schedule specified in Table 3.
- Purpose: To allow monitoring of developments under the program.

### Key datasets, frequency, and timing (high-level)
- Central Bank of Somalia (CBS)
  - Monetary Survey: detailed CBS balance sheet data. Frequency: Monthly. Timing: 3 weeks after the end of each month.
  - Monetary Survey (consolidated commercial banks): balance sheet data including deposits by mobile money operators (MMOs). Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
  - Financial data not in broad money: volume and value of mobile money transactions. Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
  - Other financial indicators: prudential data (total capital, core capital, total net assets, high quality liquid assets, and 30-day funding requirement, capital adequacy ratio, liquidity coverage ratio), and average profit rates and tenor information for private sector financing assets from banks. Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
  - Balance of payments: Trade in goods by HS code and value for Mogadishu, Bossaso, Kismayo (starting Sept 2020); petroleum imports to Mogadishu; travel data from Immigration Department. Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
  - Balance of payments: Cross-border current transfers (inflows and outflows) by MTBs and banks starting from end-March 2021. Frequency: Quarterly. Timing: 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. Frequency: Monthly. Timing: 3 weeks after the end of each month.
  - Designated account at CBS into which debt service payments due to Russia are paid: end-month balances and within-month flows, taking into account contractual grace periods. Frequency: Monthly. Timing: 3 weeks after the end of each month.
- Financial Reporting Center (FRC)
  - AML/CFT compliance data: total number of each STR, LCTR, and Nil reports received from banks, MTBs, and MMOs; total number of each banks and MTBs that submitted reports during the period; MMO reporting to be added as oversight develops but latest for end-December 2020 data point. Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
- Ministry of Finance (MoF) — FGS budget operations and fiscal reporting (selected items)
  - Annual and supplemental budgets: revenue by GFS 6-digit classification; statement of tax exemption (previous 12-month period, annual only); proposed appropriation by MDA, program/project and 4-digit object code; staffing table by MDA; donor assistance tables by COFOG showing on- and off-budget spending; proposed spending by NTP sector; spending by FGS, Banaadir, and FMS. Timing: 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): revenue at GFS 6-digit code; expenditure by budget line and GFS classification with MDA lines disaggregated by program/project and GFS 6-digit object code; details of budget transfers to each FMS and other units where applicable. Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - Report 1C: details of FGS financing transactions. Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - Report 2A: original budget, virement, allotment, warrant, commitment, and YTD expenditure by 4-digit object codes for each MDA, breakdown by funding source. Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - Cash planning and projections (reports 3A/3B/3C): monthly cash plan and at least one-month ahead forward projections supported by SFMIS reports on domestic revenue and donor budget support (excluding donor project funding), expenditures by MDA and 4-digit object code (excluding project support grants). Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - Comprehensive government operations tables (reports 5A–5D): revenue, expenditure (by MDA and Object code), and TSA balances for the month and YTD, including fiscal buffer balances (Excel and PDF). Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - Payments report: all payments in number and value made, disaggregated by payment type (vendor bank accounts, cash advances, other payments). Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - Payroll: payroll and non-payroll salary and allowance payments made by MDAs and individual embassies (Excel). Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - SDR balances: table showing SDR balances of the MoF and changes from the beginning of the fiscal year, with breakdown of withdrawal and reconstitution of SDR holdings and their credits and deductions for interest. Frequency: Monthly. Timing: 4 weeks after the end of each month.
  - Customs: total customs duties paid through SOMCAS (Excel); total customs duties reported in the Treasury Single Account (SFMIS) (Excel); separately for Mogadishu seaport and airport: total customs duties paid through SOMCAS, number of declarations registered in SOMCAS, number of assessments accepted by customs through SOMCAS, number of payments received through SOMCAS, and number of releases registered through SOMCAS. Frequency: Monthly. Timing: 4 weeks after the end of the month (starting January 2025).
  - FMS and Banaadir budgets: budget for each FMS and aggregated budget (both revenue and expenditure). Timing: Within a week of approval (as required).
  - FMS final accounts: final accounts of each FMS and BRA. Frequency: Annually. Timing: 6 months after the end of the year.
  - FMS fiscal operations: reports of fiscal operations (expenditures and revenues) from all Federal Member States using the consolidation tool. Frequency: Monthly. Timing: 6 weeks after the end of each month.
  - BRA fiscal operations: reports of revenue and expenditure of the Banaadir region. Frequency: Monthly. Timing: 6 weeks after the end of each month (from September 2024).
  - Domestic arrears: letter confirming no accumulation of arrears or table providing end-of-period stock of domestic arrears accumulated during the year by MDA and 4-digit Object Code. Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
  - Outstanding invoices: report showing amount of outstanding invoices, including those past due and not due yet. Frequency: Monthly. Timing: 4 weeks after the end of the month (from May 2023).
  - Quarterly debt bulletin (Debt Management Unit): overview of external debt position with decompositions, alignment with debt policy objective and debt management strategy when available, and risk assessment. Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
  - Domestic debt: amount of new domestic debt contracted by Government. Frequency: Monthly. Timing: 4 weeks after the end of the month.
  - External debt: end of year external debt in U.S. dollars, by creditor, and origination currency; amount of new external debt contracted or guaranteed by Government. Frequency: Annually. Timing: End-April.
  - External debt disbursements and repayments: (i) scheduled; and (ii) actual interest and principal on debt of the Government and the CBS, by creditor. Frequency: Annually. Timing: 30 days after the end of each year.
  - External debt arrears: accumulation of any new arrears (principal or interest payments) on external debt. Frequency: Monthly. Timing: 3 weeks after the end of the month.
  - Structural benchmarks: a table with a description of the status of implementation of the structural benchmarks in the MEFP Table 2. Frequency: Quarterly. Timing: 4 weeks after the end of each quarter.
- Somalia National Bureau of Statistics (SNBS)
  - CPI: price indices for all goods and subcategories at subnational and national level. Frequency: Monthly. Timing: Every 15th of the month consistent with inflation report.
  - GDP: GDP by expenditure data. Frequency: Annually. Timing: 6 months after the end of each year.

### Debt Sustainability Analysis (LIC-DSA) — headline findings and metrics
- This LIC-DSA update adds:
  - assumed grant extension by the World Bank until June 2028 from June 2025 previously;
  - updates to future debt service payments following debt relief agreements signed as of April 2025;
  - updated macroeconomic forecasts.
- Risk ratings and assessments:
  - Risk of external debt distress: Moderate
  - Overall risk of debt distress: Moderate
  - Granularity in the risk rating: Substantial space to absorb shocks
  - Application of judgment: No
  - Date: June 25, 2025
- Public debt projections and levels:
  - Total public debt is projected to increase marginally to US$1,124.4 million in 2025 from US$1,111.3 million in 2024.
  - Public debt-to-GDP ratio: largely stable at 8.6 percent in 2025.
  - Most public debt is external.
  - Present value (PV) of public and publicly guaranteed (PPG) external debt is estimated at 4.9 percent of GDP in 2025 — below the 30 percent threshold for countries like Somalia with weak debt carrying capacity.
- Stress test outcome:
  - The LIC-DSA involves a breach of the external debt service-to-revenue indicative threshold in the stress scenario.
  - Primary driver: expected increase in debt service cost associated with future new borrowings, triggered by shocks to other non-debt creating flows (current transfers and FDI).
- Vulnerabilities highlighted:
  - Security, international commodity price, slower global growth, and climate shocks.
  - High dependence on external financial assistance; broader and more persistent declines in foreign aid could have significant economic impact.

### Public debt coverage, background, and recent developments
- Public debt perimeter: central government.
- Reconciliation: 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 (SOEs) or subnational governments; no public-private partnerships (PPPs).
- Domestic public debt: not developed aside from legacy government wage arrears; no domestic public debt issuances in the medium-term forecast.
- Stock of outstanding public debt:
  - Estimated at US$1,111.3 million at end-2024, equivalent to 9.1 percent of GDP.
  - PPG external debt: US$1,043.5 million.
  - Central government wage arrears: US$67.8 million.
  - The PPG external debt stock estimate was revised up by US$346 million from the end-2023 level reported in the November 2024 LIC-DSA after reflecting actual debt relief agreements signed as of April 2025.
  - Creditor composition at end-2024: 47 percent multilateral, 53 percent bilateral.
- Debt relief and negotiation developments:
  - Paris Club creditors agreed on debt treatment under the HIPC process on March 13, 2024; Paris Club creditors voluntarily granted beyond-HIPC debt relief by fully cancelling all outstanding claims to the Somali government.
  - Bilateral agreements with nearly all Paris Club creditors have been signed; negotiations with Spain on a debt swap arrangement ongoing.
  - Debt relief agreement with the United Arab Emirates in February 2025; agreements signed with Kuwait and Saudi Arabia earlier in 2022–23.
  - Multilateral agreements: negotiations with the Arab Monetary Fund concluded in April 2025; Islamic Development Bank and OPEC Fund for International Development agreements were signed in 2024.
  - Remaining creditors under negotiation include Arab Fund for Economic and Social Development and official bilateral creditors (Algeria, Bulgaria, Iraq, Libya, and Romania); efforts to resolve commercial debt arrears to Serbia on Paris Club-comparable terms are ongoing.
- Institutional strengthening:
  - Ministry of Finance established a Debt Management Unit (DMU) in December 2015.
  - Debt recording system upgraded to the Commonwealth Meridien System (cloud-based).
  - Middle office established in 2024 with World Bank support.
  - DMU issues quarterly debt bulletins since end-2020; committed to producing bulletins within the month following the end of each quarter.
  - First Annual Debt Management Report published in April 2025.
  - Medium-term Debt Management Strategy (MTDS) developed and expected to be published later in 2025.
  - Pipeline of IMF technical assistance missions intended to build DMU capacity for annual borrowing plans (ABPs), debt sustainability assessment, cost-risk analysis of new fiscal commitments, and monitoring/recording/reporting of debt and guarantees.
  - Capacity building for gradual development of a domestic financial market through technical assistance in the medium- to long-term noted as important given expected tightening of grant financing.

### Policy priorities and recommended focus areas (as stated)
- Accelerate domestic revenue mobilization.
- Adopt a credible medium-term fiscal anchor to ensure sustainability.
- Strengthen debt management institutions and institutional capacity.

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

### 5.      Growth in 2024 is estimated at 4 percent, driven by robust agricultural and livestock output.

### 5.      Growth in 2024 is estimated at 4 percent, driven by robust agricultural and livestock output.

### Real sector and inflation
- Growth in 2024 is estimated at 4 percent, driven by robust agricultural and livestock output.
- Ample rainfall boosted agricultural output and improved food security.
- Inflation eased from 6.6 percent in end-December 2023 to 5.6 percent by December 2024, aided by softer global commodity prices.
- Remittances rebounded as economic conditions improved in host countries, supporting domestic demand.

### External sector and current account
- The current account deficit in 2024 is estimated at 9.1 percent of GDP, driven by robust food imports and strong livestock exports in response to increased regional demand.
- Non-interest current account deficit projections (Percent of GDP):
  - 2023: 9.3
  - 2024: 8.8
  - 2025: 8.7
  - 2026: 9.7
  - 2027: 9.9
  - 2028: 9.9
  - 2029-44: 9.7
- Exports (Percent of GDP):
  - 2023: 19.7
  - 2024: 20.5
  - 2025: 20.5
  - 2026: 21.1
  - 2027: 21.5
  - 2028: 21.7
  - 2029-45: 22.9
- Somalia’s exports are currently dominated by livestock (representing about 80 percent of total goods exports in 2021–23).

### Fiscal performance through end-December 2024
- Domestic revenue reached US$369 million by end-December 2024, surpassing the program floor of US$358 million.
- The strong revenue outturn was supported by improvements in custom duties and sales and income tax revenues, digitalization of tax and customs collection, broadening the tax base, and enhanced tax enforcement.
- Total expenditure was below the program ceiling, contributing to a small overall fiscal surplus and a build-up of cash buffers.
- Budget support grants were as expected; shortfalls in bilateral grants (Türkiye and the United Arab Emirates) were compensated by higher multilateral grants (World Bank, OPEC).

### 2025 outlook and near-term fiscal implications
- Growth forecast for 2025 has been downgraded to 3 percent (compared to 4 percent in the Article IV Consultation and 2nd review).
- The downward revision is mainly driven by adverse climate events and a sharp drop in foreign assistance.
- Preliminary estimates suggest aid inflows in 2025 could decline by around US$400–600 million (3¼ –5 percent of 2024 GDP) from the 2024 level, though uncertainty remains high.
- Reduced foreign aid is expected to weigh on private consumption and dampen imports, compressing domestic demand.
- Inflation is expected to ease to 4.9 percent by end-2025, though the decline is slower than previously anticipated due to drought risks pressuring food prices.
- In the first three months of 2025, domestic revenues performed in line with expectations, supported by strong collection of taxes on personal and corporate income and non-tax revenues; expenditures remained below the program ceiling.
- As foreign aid cuts materialize, domestic revenue collection is likely to dampen—particularly customs duties, personal income, and sales taxes—as salary payments to NGOs and contracting agencies reliant on US or UN funding are frozen.
- Some essential security spending formerly funded off-budget by foreign assistance has been brought on-budget by reorienting other spending to keep the overall expenditure envelope unchanged for 2025.
- Authorities’ accelerated efforts in domestic revenue mobilization and expenditure reprioritization are expected to offset potential further foreign aid cuts and keep the fiscal deficit within the 3.5-percent-of-GDP ceiling beyond 2025.
- The impact of foreign aid cuts on the external balance is expected to be mitigated by import compression.

### Risks and scenarios
- Near-term risks are tilted to the downside.
- Key downside risks:
  - More persistent and severe declines in foreign aid.
  - Worse-than-expected climate events, especially irregular rainfalls (droughts or excessive rain leading to flooding).
  - Lower global growth and higher commodity prices.
  - Domestic deterioration in security (including underfunding of AUSSOM) and political frictions related to implementation of universal suffrage.
- If adverse risks materialize, economic growth and domestic revenue would decline, spending pressures would increase, and financing needs would rise.
- Existing cash buffers, expenditure rationalization, and current financing commitments help mitigate some risks, but additional international support would be needed in a significant adverse scenario.
- Continued IMF support through the ECF arrangement and highly concessional financing (including grants) by the World Bank and other multilateral institutions and bilateral donors is expected to unlock concessional external financing and help prevent the build-up of debt vulnerabilities.

### Debt, financing assumptions, and reforms
- It is assumed Somalia’s access to grant terms under IDA21 will be extended by three years until June 2028 (subject to annual approval), improving the medium-term fiscal outlook. This extension amounts to an average of 2.3 percent of GDP in 2026-28 and narrows the primary deficit in 2026–28 compared to the November 2024 LIC-DSA.
- From July 2028, financing terms are assumed to change from grants to concessional loans.
- The DSA incorporates updated estimates of future debt service based on debt relief agreements signed as of April 2025.
  - As of April 2025, debt relief negotiations concluded equivalent to 92 percent of Enhanced HIPC Initiative debt relief in PV terms (up from 77 percent as of August 2024).
  - Signed debt relief agreements provide extended grace periods, lowering debt service payments between 2025 and 2035 compared to hypothetical HIPC-consistent estimates.
  - Debt service increases significantly around 2040 as amortization begins for restructured debts.
- External debt profile projections (Percent of GDP):
  - External debt projected to decline from 8.6 percent of GDP in 2024 to 7.5 percent in 2026.
  - External debt projected to rise toward 11.0 percent of GDP in 2030 and 18.6 percent in 2035 following a shift from grants to concessional loans.
  - PV of PPG external debt to GDP forecast: 4.9 percent in 2025, 6.7 percent in 2030, and 11.4 percent in 2035 (well below the indicative threshold of 30 percent).
- Debt-carrying capacity is classified as Weak; the composite indicator score is 1.71.

### Revenue mobilization and public investment
- Domestic revenue-to-GDP is projected to increase by around 0.3 percentage point on average per year over 2025–28, supported by the Medium-term Revenue Roadmap (MTRR).
- Trade-related revenues are expected to increase due to customs modernization, including implementation of SOMCAS, improved data collection, and enhanced customs processes.
- Further customs reforms envisaged: customs harmonization, shifting from package-based custom duties to ad-valorem, and implementing the EAC common external tariff.
- Implementation of the recently approved Income Tax Law and enhanced sales tax enforcement are expected to raise income and sales tax revenues.
- Revenue administration will continue adding new taxpayers, expand digital tools, and enhance enforcement capacity.
- Higher domestic revenues would create greater space for public investment and social spending; sustained improvements in expenditure execution and public investment management will facilitate absorption of additional resources.

### Data limitations and realism tools
- Data weaknesses constrain macroeconomic analysis and standardized stress tests: limitations in national accounts, gaps in balance-of-payments data, and reliance on third-party data for trade and secondary transfers; direct investment data are estimated.
- Realism tools:
  - Forecast error realism tool shows a significant decline in debt in the 5-year historical period versus the 5-year projection period due to HIPC debt relief.
  - Public investment-growth nexus tool is inoperable due to gaps in investment data.
  - Fiscal adjustment realism tool suggests a fiscal expansion in 2025 and 2026 reflecting decline in budget support grants after reaching HIPC Completion Point.
  - Fiscal adjustment and growth realism tool shows lower GDP growth projections in 2025 and 2026 compared to multiplier-based projections due to off-budget foreign aid cuts and adverse weather conditions.

### Key macro projections (selected series from Text Table 2)
- Real GDP growth:
  - 2023: 4.2
  - 2024: 4.0
  - November 2024 LIC-DSA projection for 2025: 4.0
  - Current LIC-DSA projection for 2025: 3.0
  - 2026: 3.3
  - 2027: 3.6
  - 2028: 3.8
  - 2029-44 / 2029-45 long-term: 4.5 / 4.4 (table shows row for two vintages)
- Consumer Price Inflation (eop):
  - 2023: 6.6
  - 2024: 4.5 (November 2024 LIC-DSA) / 5.6 (Current LIC-DSA)
  - Current LIC-DSA projection for 2025: 4.3
  - Current LIC-DSA projection for 2025 end: 4.3; 2026: 3.6; 2027: 3.3; 2028: 3.1; 2029-45: 3.0
- Primary fiscal deficit (Percent of GDP):
  - 2023: -0.1
  - 2024: 0.1
  - Current LIC-DSA 2025: 0.5
  - 2026: 0.5
  - 2027: 0.7
  - 2028: 1.1
- Revenues and grants (Percent of GDP):
  - 2023: 6.8
  - 2024: 7.5
  - Current LIC-DSA 2025: 7.9
  - 2026: 6.6
  - 2027: 6.2
  - 2028: 5.8
  - 2029-45: 6.4
- Domestic revenues (Percent of GDP):
  - 2023: 3.0
  - 2024: 3.0
  - Current LIC-DSA 2025: 3.2
  - 2026: 3.6
  - 2027: 3.9
  - 2028: 4.2
  - 2029-45: 6.3
- Of which: grants (Percent of GDP):
  - 2023: 3.8
  - 2024: 4.6
  - Current LIC-DSA 2025: 4.8
  - 2026: 3.0
  - 2027: 2.3
  - 2028: 1.6
  - 2029-45: 0.1

*Source: IMF staff summary of the Somalia DSA and macro-fiscal analysis (text and tables provided).*

### 18.      Standard stress tests to the baseline scenario confirm the PPG external debt position’s

### 1somea2025001-source-pdf - 18.      Standard stress tests to the baseline scenario confirm the PPG external debt position’s

### Stress test results and scenario findings
- Standard LIC-DSA stress tests confirm vulnerability of the PPG external debt position to unexpected shocks.
- Application of the standard LIC-DSA stress test to Somalia is complicated by structural breaks.
- Deterioration of some indicators occurs under temporary shock scenarios.
- Shocks to other flows (current transfers and FDI) produce the most extreme stress environment, resulting in a sustained breach of the external debt service-to-revenue ratio relative to the indicative threshold starting in 2041.
- The timing of the breach is delayed relative to the November 2024 LIC-DSA owing to updates in projected debt service payments to reflect debt relief agreements signed as of April 2025.
- A shock in current official transfers is identified as a significant vulnerability, underscoring Somalia’s high dependence on official development assistance.
- A natural disaster tailored stress test, designed to account for potential climate shocks similar to the droughts of 2021–23, produces debt and debt burden paths that are more benign than the most extreme standardized stress test environment.

### Public debt sustainability (baseline and stress)
- Total public debt is contained in the baseline.
- The PV of total public debt is projected to rise from 5.4 percent of GDP in 2025 to 22.1 percent of GDP in 2045 – well below the 35 percent indicative benchmark.
- The PV of total public debt to revenue rises steadily through the medium and long term.
- Public debt service-to-revenue is expected to come under pressure and rises steadily in the long-term as burden from existing debt obligations and additional borrowing mounts.
- Conclusions regarding PPG external debt sustainability are also relevant for public debt sustainability given:
  - There is currently no market for domestic debt.
  - The existing stock of domestic debt is limited to government wage arrears.
- The baseline assumes that the nominal stock of domestic debt will decline as a percentage of total debt over the medium-term.

### Risk rating, vulnerabilities, and outlook
- Somalia is assessed to be at moderate risk of external and overall public debt distress.
- The three-year extension of grant financing through June 2028, updates to debt servicing terms on existing obligations, and revisions to the macro forecasts do not have a material impact on the risk outlook across the LIC-DSA’s medium- and long-term assessment horizon.
- Despite key debt burden indicators being contained in the baseline, the breach of the indicative threshold for the external debt service-to-revenue ratio in the long run under standardized stress tests supports the moderate risk assessment.
- The total public debt indicator remains under the benchmark across the baseline and stress scenarios, but:
  - The rapid increase in the public debt service-to-revenue under standardized stress tests highlights the need for vigilant debt management and prudent fiscal policy anchored in credible fiscal deficit limits, especially beyond 2030.
- The moderate risk rating tool mechanically indicates substantial space to absorb shocks, but significant vulnerabilities remain, including:
  - Deterioration in the domestic security situation.
  - Climate shocks.
  - Slower global growth.
  - Heightened geopolitical uncertainty.
  - Heavy reliance on external concessional financing, making Somalia susceptible to shifts in donor priorities.

### Policy implications and recommendations
- Preserve debt sustainability by:
  - Accelerating domestic revenue mobilization.
  - Developing a medium-term fiscal framework with a credible fiscal anchor.
  - Strengthening debt management institutions and overall institutional capacity.

*Source: 1somea2025001-source-pdf - 18. Standard stress tests to the baseline scenario confirm the PPG external debt position’s*

### 21.      The authorities broadly agreed with staff’s assessment of Somalia’s debt sustainability. They

### The authorities broadly agreed with staff’s assessment of Somalia’s debt sustainability.

### Authorities' agreement and actions
- Authorities acknowledged the importance of relying on grants and concessional financing in the post-HIPC period to mitigate debt sustainability risks.
- Authorities are actively pursuing debt relief agreements with creditors to secure more favorable financing terms in the near term.
- Authorities concurred on the importance of strengthening debt management capacity and ensuring full transparency of borrowing terms and conditions.
- Authorities welcomed IMF technical assistance on:
  - debt reporting and management,
  - medium-term fiscal framework and debt strategy,
  - debt sustainability analysis and annual borrowing plans.
- Authorities reiterated commitment to timely implementation of TA recommendations and recognized the need to accelerate reforms to:
  - boost domestic revenue,
  - control expenditure,
  - gradually enhance Somalia’s debt servicing capacity.

### Key projections and sustainability indicators (External DSA, Baseline Scenario, 2022–2045)
- External debt (nominal, in percent of GDP): 37.5 (2022); 9.6 (2023); 8.6 (2024); 8.0 (2025); 7.5 (2026); 7.7 (2027); 8.3 (2028); 9.7 (2029); 11.0 (2030); 18.6 (2035); 32.5 (2045); 34.9 (2045—noted twice across tables).
- Change in external debt (percent of GDP): -3.8 (2022); -28.0 (2023); -1.0 (2024); -0.5 (2025); -0.6 (2026); 0.2 (2027); 0.6 (2028); 1.4 (2029); 1.3 (2030); 1.6 (2035); 1.1 (2045).
- Identified net debt-creating flows (percent of GDP): 0.5 (2022); 2.0 (2023); 2.5 (2024); 2.3 (2025); 3.0 (2026); 3.1 (2027); 4.2 (2028); 5.1 (2029); 4.5 (2030); 3.9 (2035); 1.6 (2045); 0.0 (additional year shown).
- Non-interest current account deficit (percent of GDP): 8.6 (2022); 9.8 (2023); 9.1 (2024); 7.7 (2025); 8.5 (2026); 8.7 (2027); 9.8 (2028); 10.5 (2029); 10.2 (2030); 9.8 (2035); 7.9 (2045); 6.3 (2045 alternative row); 9.5 (final projection row).
- Net current transfers (negative = inflow, percent of GDP): -54.7 (2022); -51.5 (2023); -52.5 (2024); -49.2 (2025); -46.6 (2026); -46.5 (2027); -46.0 (2028); -45.0 (2029); -45.2 (2030); -46.3 (2035); -45.8 (2045); -46.9 (alternate year); -46.5 (final).
  - of which: official transfers (percent of GDP): -33.7 (2022); -32.3 (2023); -32.7 (2024); -30.0 (2025); -26.7 (2026); -26.2 (2027); -25.8 (2028); -25.0 (2029); -25.0 (2030); -24.7 (2035); -24.0 (2045).
- Net FDI (negative = inflow, percent of GDP): -5.2 (2022); -5.2 (2023); -5.7 (2024); -5.2 (2025); -5.4 (2026); -5.4 (2027); -5.4 (2028); -5.2 (2029); -5.4 (2030); -5.4 (2035); -5.4 (alternate); -5.0 (final).
- Endogenous debt dynamics (percent of GDP): -2.9 (2022); -2.6 (2023); -0.9 (2024); -0.2 (2025); -0.2 (2026); -0.2 (2027); -0.2 (2028); -0.2 (2029); -0.3 (2030); -0.5 (2035); -0.9 (2045).
  - Contribution from nominal interest rate (percent): 0.0 (2022–2024); 0.0 (2025); 0.1 (2026); 0.1 (2027); 0.1 (2028); 0.1 (2029); 0.1 (2030); 0.2 (2035); 0.4 (2045).
  - Contribution from real GDP growth (percent): -1.0 (2022); -1.5 (2023); -0.3 (2024); -0.2 (2025); -0.2 (2026); -0.2 (2027); -0.3 (2028); -0.3 (2029); -0.4 (2030); -0.7 (2035); -1.3 (2045).
- Residual (percent of GDP): -4.3 (2022); -29.9 (2023); -3.5 (2024); -2.8 (2025); -3.5 (2026); -2.9 (2027); -3.6 (2028); -3.7 (2029); -3.2 (2030); -2.3 (2035); -0.5 (2045); -9.7 (alternate); -2.9 (final).
- Sustainability indicators:
  - PV of PPG external debt-to-GDP ratio: 4.6; 4.9; 5.0; 5.3; 5.6; 6.1; 6.7; 11.4; 22.1 (years not individually labeled in table but shown across projection horizon).
  - PV of PPG external debt-to-exports ratio: 22.3; 23.9; 23.8; 24.5; 25.8; 28.1; 30.1; 50.8; 93.0.
  - PPG debt service-to-exports ratio: 0.9; 0.5; 0.2; 0.5; 0.7; 0.7; 0.9; 1.2; 1.2; 1.6; 4.4 (across projection years).
  - PPG debt service-to-revenue ratio: 6.2; 3.5; 1.4; 3.1; 4.2; 4.1; 4.5; 6.0; 5.4; 6.2; 12.5.
- Gross external financing need (Million of U.S. dollars): 361.4; 513.6; 423.5; 339.8; 466.8; 524.7; 761.0; 989.4; 959.9; 1335.4; 2049.4.
- Key macroeconomic assumptions:
  - Real GDP growth (in percent): 2.7 (2022); 4.2 (2023); 4.0 (2024); 3.0 (2025); 3.3 (2026); 3.6 (2027); 3.8 (2028); 4.0 (2029); 4.1 (2030); 4.5 (2035); 4.5 (2045); 2.9 (alternate); 4.0 (final).
  - GDP deflator in US dollar terms (change in percent): 4.7; 3.2; 6.5; 4.9; 4.7; 4.4; 3.9; 3.4; 3.2; 3.0; 3.0; 3.7; 3.8.
  - Effective interest rate (percent) 4/: 0.0; 0.0; 0.3; 0.6; 0.9; 0.9; 1.0; 1.3; 1.2; 1.1; 1.5; 0.1; 1.1.
  - Growth of exports of G&S (US dollar terms, in percent): 17.7; 20.0; 14.8; 8.5; 10.8; 10.3; 8.9; 8.7; 8.7; 8.6; 7.6; 10.6; 8.8.
  - Growth of imports of G&S (US dollar terms, in percent): 25.6; 7.5; 12.4; 2.4; 2.0; 6.3; 8.9; 9.0; 7.6; 7.5; 7.7; 9.9; 7.5.
  - Grant element of new public sector borrowing (in percent): 32.2; 32.2; 35.7; 48.8; 54.3; 55.4; 41.3; 37.7; 44.1 (select projection years shown).
  - Government revenues (excluding grants, in percent of GDP): 2.6 (2022); 3.0 (2023); 3.0 (2024); 3.2 (2025); 3.6 (2026); 3.9 (2027); 4.2 (2028); 4.5 (2029); 4.8 (2030); 5.8 (2035); 8.3 (2045); 2.3 (alternate); 4.6 (final).
  - Aid flows (Million of US dollars) 5/: 462.7; 315.7; 570.4; 626.3; 429.0; 485.9; 485.6; 516.5; 508.6; 831.9; 2316.9.
  - Grant-equivalent financing (in percent of GDP) 6/: 4.8; 3.1; 2.6; 2.3; 1.9; 1.7; 1.2; 1.5; 2.1; 65.9 (intermediate table values presented).
  - Nominal GDP (Million of US dollars): 10,203; 10,969; 12,149; 13,127; 14,197; 15,356; 16,558; 17,807; 19,128; 27,952; 58,366.
  - Nominal dollar GDP growth (percent): 7.6; 7.5; 10.8; 8.0; 8.2; 8.2; 7.8; 7.5; 7.4; 7.6; 7.6; 7.7; 7.9.
- Memorandum items:
  - PV of external debt (in Million of US dollars): 555.4; 645.7; 711.0; 807.8; 925.5; 1094.7; 1278.3; 3187.8; 12906.3 (table shows PV values across horizons).
  - (PVt-PVt-1)/GDPt-1 (in percent): 0.7; 0.5; 0.7; 0.8; 1.0; 1.0; 2.0; 2.6.

### Public sector debt dynamics and indicators (Public DSA, Baseline Scenario, 2022–2045)
- Public sector debt (percent of GDP): 38.2 (2022); 10.2 (2023); 9.1 (2024); 8.6 (2025); 8.0 (2026); 8.1 (2027); 8.7 (2028); 10.0 (2029); 11.3 (2030); 18.8 (2035); 32.5 (2045); 35.6 (alternate row); 12.1 (other row).
  - of which external debt (percent of GDP): 37.5 (2022); 9.6 (2023); 8.6 (2024); 8.0 (2025); 7.5 (2026); 7.7 (2027); 8.3 (2028); 9.7 (2029); 11.0 (2030); 18.6 (2035); 32.5 (2045); 34.9 (alternate); 11.8 (other).
- Change in public sector debt (percent of GDP): -3.9 (2022); -28.0 (2023); -1.0 (2024); -0.6 (2025); -0.6 (2026); 0.1 (2027); 0.6 (2028); 1.3 (2029); 1.3 (2030); 1.6 (2035); 1.1 (2045).
- Identified debt-creating flows (percent of GDP): -3.0 (2022); -27.6 (2023); -1.2 (2024); -0.1 (2025); 0.0 (2026); 0.1 (2027); 0.6 (2028); 1.3 (2029); 1.3 (2030); 1.6 (2035); 1.1 (2045).
  - Primary deficit (percent of GDP): 0.0 (2022); 0.4 (2023); -0.2 (2024); 0.5 (2025); 0.5 (2026); 0.7 (2027); 1.1 (2028); 1.9 (2029); 1.9 (2030); 2.6 (2035); 2.9 (2045); -0.1 (alternate).
  - Revenue and grants (percent of GDP): 7.1 (2022); 6.3 (2023); 7.5 (2024); 7.9 (2025); 6.6 (2026); 6.2 (2027); 5.8 (2028); 5.3 (2029); 5.3 (2030); 5.8 (2035); 8.3 (2045); 4.6 (alternate); 5.9 (final).
    - of which: grants (percent of GDP): 4.5 (2022); 3.3 (2023); 4.5 (2024); 4.8 (2025); 3.0 (2026); 2.3 (2027); 1.6 (2028); 0.8 (2029); 0.5 (2030); 0.0 (2035); 0.0 (2045).
  - Primary (noninterest) expenditure (percent of GDP): 7.0 (2022); 6.7 (2023); 7.3 (2024); 8.5 (2025); 7.1 (2026); 6.9 (2027); 6.9 (2028); 7.1 (2029); 7.2 (2030); 8.4 (2035); 11.2 (2045); 4.5 (alternate); 7.5 (final).
- Automatic debt dynamics (percent of GDP): -3.0 (2022); -2.7 (2023); -1.0 (2024); -0.6 (2025); -0.6 (2026); -0.5 (2027); -0.5 (2028); -0.5 (2029); -0.6 (2030); -1.0 (2035); -1.8 (2045).
  - Contribution from average real interest rate (percent): -1.8 (2022); -1.1 (2023); -0.6 (2024); -0.4 (2025); -0.3 (2026); -0.3 (2027); -0.2 (2028); -0.2 (2029); -0.2 (2030); -0.3 (2035); -0.4 (2045).
  - Contribution from real GDP growth (percent): -1.1 (2022); -1.5 (2023); -0.4 (2024); -0.3 (2025); -0.3 (2026); -0.3 (2027); -0.3 (2028); -0.3 (2029); -0.4 (2030); -0.7 (2035); -1.4 (2045).
- Other identified debt-creating flows: -25.3 (2023) reflecting debt relief (HIPC and other).
- Residual (percent of GDP): -0.9 (2022); -0.4 (2023); 0.1 (2024); -0.5 (2025); -0.6 (2026); 0.0 (2027 onward zeros) with -0.1 and -0.1 shown elsewhere.
- Sustainability indicators:
  - PV of public debt-to-GDP ratio (selected projection values): 5.1; 5.4; 5.5; 5.7; 6.0; 6.5; 7.0; 11.6; 22.1.
  - PV of public debt-to-revenue and grants ratio (selected projection values): 68.1; 68.5; 83.5; 91.0; 102.3; 122.7; 131.3; 198.8; 267.7.
  - Debt service-to-revenue and grants ratio 3/: 2.3; 1.7; 0.6; 1.2; 2.2; 2.9; 3.6; 5.4; 5.1; 6.4; 12.6.
  - Gross financing need 4/: 0.1; -24.8; -0.2; 0.2; 0.1; 0.8; 1.3; 2.1; 2.1; 3.0; 4.0.

### Public debt holder profile (2024–2027) and projected borrowing program
- Total public debt (in millions of US$) and shares:
  - Total (1/): 1,111.3 (percent total debt 100.0; percent GDP 9.1; additional columns: 12.9; 20.9; 24.5; 0.10; 0.15; 0.16).
  - External: 1,043.5 (93.9 percent total debt; 8.6 percent GDP; projections repeated).
  - Multilateral creditors: 486.7 (43.8 percent total debt; 4.0 percent GDP; columns show 5.6; 8.8; 11.7; 0.04; 0.06; 0.08).
    - IMF 2/: 139.1 (12.5 percent total debt; 1.1 percent GDP; 0.7; 3.5; 6.4; 0.01; 0.02; 0.04).
    - Other Multilaterals: 347.7 (31.3 percent total debt; 2.9 percent GDP; breakdown by creditor provided).
  - Bilateral creditors: 556.8 (50.1 percent total debt; 4.6 percent GDP; projected shares).
    - Paris Club 4/: 6.8 (0.6 percent total debt; 0.1 percent GDP; specifics on Russia noted).
    - Non-Paris Club 5/: 549.5 (49.4 percent total debt; 4.5 percent GDP).
      - Kuwait: 123.9 (11.1 percent total debt; 1.0 percent GDP).
      - United Arab Emirates: 257.3 (23.2 percent total debt; 2.1 percent GDP).
      - Saudi Arabia: 118.1 (10.6 percent total debt; 1.0 percent GDP).
  - Commercial creditors: 0.5 (0.0 percent).
  - Domestic debt: 67.8 (6.1 percent total debt; 0.6 percent GDP).
    - Of which: in arrears: 67.8 (6.1 percent total debt; 0.6 percent GDP).
- Nominal GDP (in millions of US$): 12,149 (2024).

### Progress on negotiations with creditors for restructuring outstanding HIPC-eligible debt (as of May 9, 2025)
- Multilateral creditors:
  - Arab Fund for Economic and Social Development (AFESD): Enhanced HIPC debt relief in PV terms 99.1 (pending 5.2). Status: broad consensus reached on terms in line with HIPC Common Reduction Factor; discussions continued as of May 1, 2025 to finalize an agreement including irrevocability clause.
  - Arab Monetary Fund (AMF): 155.6 (8.2). Status: debt restructuring agreement in line with HIPC CRF signed on April 9, 2025; outstanding debt repaid at zero interest over 20 years in semi-annual increasing installments starting June and December 2025.
  - Islamic Development Bank (IsDB): 15.5 (0.8). Status: debt rescheduling agreement signed on July 16, 2024 over 30 years with zero interest and first principal repayment beginning 31st December 2024.
  - OPEC Fund for International Development (OFID): 19.3 (1.0). Status: rescheduling agreement signed on June 25, 2024 over 20 years with 10-year grace period and interest rate 0.5% per annum.
  - Total Multilateral: 822.5 (43.2 percent of total assistance under HIPC); o/w Pending: 99.1 (5.2).
- Paris Club creditors:
  - Total Paris Club: 806.6 (42.4 percent). Status: On March 13, 2024, Paris Club agreed on debt treatment under HIPC, and beyond-HIPC debt relief to cancel all debt on voluntary basis; bilateral agreements signed with Denmark, France, Italy, Japan, Netherlands, Norway, Russia, the United Kingdom and the United States; negotiations ongoing with Spain (discussions on April 10, 2025).
- Non-Paris Club and bilateral creditors (selected):
  - Iraq: 32.3 (1.7). Status: Iraqi authorities offered to write off 67% of outstanding debt; discussions continue on repayment terms for the 33% balance.
  - Kuwait: 47.4 (2.5). Status: Restructuring agreement on Paris Club-comparable terms signed in 2022; rescheduled over 40 years including 16-year grace period at 1.5% per annum (inclusive of 0.5% administrative charge).
  - Libya: 14.0 (0.7). Status: Discussions to resume; Somali Finance Minister requested bilateral meeting during AfDB Annual Meetings on May 26-30, 2025.
  - United Arab Emirates: 131.0 (6.9). Status: Agreement signed on February 11, 2025 allowing repayment within 40 years starting in 2040 after 16-year grace period; interest rate reduced to 2%; deferred interest payments scheduled over 5 years starting February 2029.
- Bilateral and commercial totals:
  - Total Bilateral and Commercial: 1,081.0 (56.8 percent); o/w Pending: 49.3 (2.6).
  - TOTAL outstanding HIPC-eligible debt (in PV terms, December 31, 2018 PV terms as revised at completion point): 1,903.5 (100.0 percent); o/w Total Pending: 148.4 (7.8).

### Stress tests, sensitivity analysis, and realism tools
- Stress testing and sensitivity analysis cover alternative scenarios, bound tests, and tailored tests with results presented for key indicators (PV of debt-to-GDP, PV of debt-to-exports, debt service-to-exports, debt service-to-revenue).
- Table 3 and Table 4 present sensitivity outcomes (2025–2035) with bold values indicating breaches of thresholds.
  - Example bound-test results (PV of debt-to-GDP ratio, percent): Baseline 5, 5, 6, 6, 7, 7, 8, 9, 10, 11 (selected series across 2025–2035).
  - Debt service-to-revenue (baseline series across 2025–2035): 0.5; 0.7; 0.7; 0.9; 1.2; 1.2; 1.2; 1.3; 1.4; 1.3; 1.6.
- Stress test design notes:
  - The most extreme stress test is the test that yields the highest ratio in or before 2035. One-off breaches are presented where applicable.
  - Additional financing needs generated by shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal debt are based on baseline 10-year projections.
  - Commodity price shock magnitudes are based on the IMF research department commodity prices outlook.
- Realism tools and qualification of the moderate category are applied (Figures present fiscal adjustment scenarios and possible growth paths under different fiscal multipliers; thresholds for PV debt/GDP and PV debt/exports use x = 20 percent and y = 40 percent; debt service/Exports and debt service/revenue thresholds use x = 12 percent and y = 35 percent).

### Policy implications and recommendations (implied by content)
- Continue reliance on grants and concessional financing in the post-HIPC period to mitigate debt sustainability risks.
- Expedite negotiations and finalization of debt relief agreements with multilateral, Paris Club, and non-Paris Club creditors to secure favorable terms (zero or concessional interest rates, extended maturities, grace periods).
- Strengthen debt management capacity and transparency of borrowing terms and conditions to better assess costs and risks.
- Implement IMF technical assistance recommendations on debt reporting, medium-term fiscal framework, debt strategy, DSA, and annual borrowing plans in a timely manner.
- Accelerate reforms to boost domestic revenue and control expenditure to gradually enhance debt servicing capacity and reduce dependence on external grants.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1somea2025001-source-pdf.pdf*

### Introduction and Context

### Introduction and Context

### Overview & Context
- Mission acknowledgements: appreciation extended to Ms. Ran Bi (new mission Chief for Somalia) and team; thanks to former Mission Chief Ms. Laura Jaramillo for three and half years of guidance.
- Review backdrop: heightened global economic uncertainty, dwindling development assistance, and ongoing geopolitical tensions.
- Authorities broadly agree with staff assessment of program performance and policy priorities.
- Key challenges: significant security, humanitarian, and political challenges; more frequent and severe climate-related events; persistently high incidents of poverty.
- Humanitarian situation: deterioration driven by a decline in donor funding and climate-induced shocks; disruption of critical donor-reliant programs in agriculture, health, education, water, sanitation, and hygiene.
- Political process: broad-based, inclusive national dialogue underway to build consensus for next year’s electoral framework and resolve sensitive political disputes to ensure timely elections and peaceful transfer of power.
- Security developments:
  - Notable improvements achieved via Somalia National Army (SNA) efforts, supported by African Union forces and other international partners.
  - Somalia Security and Development Plan (SSDP) and updated National Counterterrorism Strategy aim to build a resilient and self-reliant security sector.
  - African Union Support and Stabilization Mission in Somalia (AUSSOM) commenced operations in January 2025; pivotal role in supporting SNA but significantly underfunded.
  - Authorities actively engaging UN, AU, and bilateral partners to mobilize necessary resources.

### Program Performance
- Authorities met all six structural benchmarks (SBs) due for this review period.
- Authorities met all quantitative performance criteria and indicative targets for end-December 2024 and March 2025.
- Authorities request the Executive Directors’ support for the completion of the third review as well as modification to the QPC on the Federal Government’s domestic revenue floor.

### Recent Economic Development
- Growth forecasts:
  - 2025 projection revised from 4.0 percent to 3.0 percent, compared to 4.0 percent recorded in 2024.
  - Staff projection: if significant reduction in foreign aid materializes, economic growth in 2026 and medium term will decline to 3.3 percent and 4.1 percent, respectively, down from earlier forecasts of 4.0 percent and 4.5 percent.
- Drivers of slowdown: decline in donor grants affecting agriculture, health, education; projected decline in humanitarian spending dampening household consumption; climate-related shocks (below-average rainfall in some regions and flooding in others) likely to weigh on agricultural output.
- Offsetting factors: robust export performance, increased remittance inflows, and ongoing economic reforms expected to provide support.
- Outlook: highly uncertain due to potential reduction in donor support, political tensions, persistent security risks, and broader geopolitical and regional instability.
- Inflation:
  - Declined from 6.6 percent in December 2023 to 5.6 percent in December 2024, driven by lower global commodity prices.
  - Domestic food price pressures expected to keep inflation elevated at around 4.9 percent by end-2025.

### Fiscal Policy
- Revenue mobilization:
  - Domestic revenue remains below potential; prioritized as a key pillar of fiscal strategy.
  - 2024 revenue collection exceeded both program targets and the approved national budget, driven by strengthened revenue administration and new tax measures.
  - Authorities committed to rigorous implementation of the 2024 Medium-Term Revenue Roadmap.
  - Major milestone: enactment of a modernized income tax law in May 2025, replacing legislation in place for nearly sixty years.
- 2025Q1: revenue collection remained robust.
- Risks to revenues: projected economic slowdown due to external shocks expected to weigh on revenues for the rest of this year and the next.
- Mitigating reforms and measures:
  - Revenue Administration Law regulation issued in April 2024 expected to minimize potential revenue losses.
  - Implementation of the new income tax law.
  - Increasing use of digitalization: non-tax revenue portal; digitalization of rental income and road tax collection.
  - Strengthening tax compliance and tax audits; planned rollout of the Integrated Tax Administration System expected to significantly enhance revenue collection efficiency and transparency.
  - Operationalization of the Somalia Customs Administration System (SOMCAS) in Mogadishu port and airport as well as Kismayo port expected to yield significant benefits.
- Expenditure management:
  - Federal government compensation of employees, goods, and services spending remained below the program ceiling.
  - Ongoing implementation of Pay and Grade Policy Roadmap to streamline public service payroll.
  - Anticipated intensified fiscal pressure from reduction in donor funding (often off budget) amid rising demands for social services and security spending.
  - Commitment to improve public expenditure efficiency, strengthen public finance management, and introduce digital signature and transition to a paperless environment to enhance security, efficiency, transparency, and accountability.
  - Planned completion of a new PFM Reform Strategic Plan (2026 - 2029) in early 2026.
  - IMF-supported reforms to establish a strong public investment management framework to ensure efficient project selection and execution.

### Monetary and Financial Sector
- Legal and regulatory reforms:
  - In May 2025, the President signed a revised Financial Institutions Law and a new Islamic Insurance (Takaful) Law to enhance the Central Bank of Somalia’s (CBS) supervisory authority over bank and non-bank financial institutions.
  - CBS issued regulations for licensing non-deposit taking microfinance institutions, and capital, solvency, and financial reporting for Takaful operators.
- Supervisory capacity and digitalization:
  - Capacity of the Licensing and Supervision Department staff being strengthened to enhance oversight of Islamic banks with development partner support.
  - Plans to expand supervisory technologies and digital systems for data collection and analysis.
  - Implementation of the CBS Board-approved three-year action plan (adopted in July 2024) to enhance the quality of supervisory data; issuance of detailed reporting instructions to banks on capital adequacy ratio and liquidity coverage ratio on track to be released in July 2025.
- Central Bank transformation:
  - Majority of 2024 Safeguards recommendations implemented; significant progress on others.
  - Amended CBS Act scheduled to be submitted to Parliament later this year to bolster CBS independence and operational autonomy.
  - New 2025-2029 strategic plan launched in February 2025 to create a modern, policy driven central bank with a practical implementation roadmap.
- National payment infrastructure:
  - Since launch of the national payment system, banks in Somalia became interoperable for the first time.
  - Key milestones: launch of IBAN account standardization; development of standardized QR code; operationalization of instant payment system in January 2025 under the National SWITCH initiative.
  - National Payment Bill under parliamentary review and expected to be enacted by end-2025.
- Currency reform:
  - Currency exchange project a national priority to replace counterfeit and deteriorated notes and meet local currency demand, particularly among the poorest.
  - Authorities consulting with stakeholders including all Federal Member States to secure commitments and financing.
  - Adoption of the Currency Board Arrangement (CBA) facilitates creation of necessary instruments.
  - IMF staff supporting development of regulatory framework for CBA implementation, including amendments to the CBS Act.
  - Further regulations to support CBA implementation (including foreign exchange regulations and requirements for weekly publication of the CBA balance sheet) expected to be approved by mid-next year.

### Structural Reforms
- Strategic frameworks: reforms guided by the National Transformation Plan (2025-2029) and Somali Centennial Vision 2060 (formally launched June 23, 2025).
- Governance and international instruments:
  - Following Somalia’s accession to the UN Convention Against Corruption, the first cycle of the Implementation Review Mechanism (IRM) completed consistent with UNCAC obligations.
  - Accession to the United Nations Convention Against Transnational Organized Crime in March 2025.
- Digital ID: rollout of the national digital ID system underway to improve service delivery, strengthen public finance management, and enhance AML/CFT.
- Petroleum sector governance:
  - Comprehensive regulatory framework aligned with international best practices established for the petroleum sector.
  - Enacted: Petroleum Sector law, Extractive Industries Fiscal Regime law, and respective regulations; harmonized regulations aligning Petroleum and Procurement Acts.
  - Inter-Ministerial Concessions Committee significantly strengthened and empowered to review and approve petroleum production sharing agreements (PSAs).
  - Clear publication standards for all future PSAs in line with IMF recommendations formally integrated into petroleum regulations.
- Regional integration:
  - Somalia’s accession to the East African Community recognized as significant; authorities adopting a deliberate and gradual approach to integration.
  - Reforms to safeguard macroeconomic stability include solidifying internal common economic space through robust fiscal federalism and internal customs harmonization.

### Conclusion
- Authorities demonstrate strong and sustained commitment to implementing challenging reforms under the IMF-supported program.
- Acknowledge critical financial support, technical assistance, and capacity development provided by the Fund and other development partners as essential to progress.
- Request for Executive Directors’ support for completion of the third review and modification to the QPC on the Federal Government’s domestic revenue floor.

*Source: Introduction and Context (1somea2025001-source-pdf - Introduction and Context)*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1somea2025001-source-pdf.pdf_