## 1. Technical Assistance by IMF Staff ## Source details **Canonical URL:** [1. Technical Assistance by IMF Staff](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15208.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15208.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15208.pdf.json) --- ### Overview and objectives - Staff TA aims to support building economic institutions and sound macroeconomic policies. - TA priorities include: (i) developing macroeconomic frameworks and policies; (ii) establishing a functional central bank; (iii) modernizing tax and customs administration; (iv) strengthening public financial management; and, (v) improving statistics. - Continued donor support is identified as critical for capacity building. ### Trust Fund for Capacity Development in Macroeconomic Policies and Statistics for Somalia - Launched on February 6, 2015. - Purpose: to finance TA in the areas listed above and to coordinate activities with the authorities and other TA providers. - Trust fund size: US$9.3 million multi-donor program covering 2014-17. - Initial contributions: Arab Fund for Economic and Social Development (US$3 million), Canada (US$2.5 million), and the UK (US$1 million). - The trust fund can be renewed. - Disbursement as of end-May 2015: US$124,297 had been disbursed. ### Modalities and delivered TA (selected) - Modalities: deployment of advisors; staff-led missions; expert visits; training; development of capacity building plans. - Fiscal TA: budget accounting and reporting; budget preparation and execution; tax policy and customs administration. - Monetary and banking TA: organization and governance structure of the central bank and its accounting systems; licensing procedures and supervision of financial institutions. - Statistical TA: development, compilation and publication of national accounts, external sector statistics, and prices statistics. - Legal TA: reviewing the central bank law; establishing a legal department in the central bank; development of central bank by-laws and a code of ethics and conduct for the board; advice on banking legislation and regulations. ### Departmental TA activities (by Fund department) - FAD: PFM reform; credible macro-fiscal policy formulation; budget planning; expenditure control and cash management including fiscal rules; budget accounting and reporting; modernization of chart of accounts; tax policy and customs administration; fiscal decentralization and revenue sharing; framework for natural resource revenue management and taxation; long-term tax reform strategies; development of revenue raising measures legislated by the Parliament. - MCM: central bank organization, governance and accounting; monetary and exchange operations and payment systems; banking legislation, regulation and supervision; currency reform; reserve management; asset recovery. - STA: development and dissemination of national accounts, external accounts (BOP and IIP), price statistics and CPI, monetary and financial accounts, government finance statistics (GFS); collection of external debt data. - LEG: central bank legislation and by-laws; banking law and regulation; natural resources law and contracts; establishment of a legal department in the central bank. *Source: Box 1, "Technical Assistance by IMF Staff", _cr15208 - 1. Technical Assistance by IMF Staff_* --- ### 2. Public Expenditure: composition, implications, and recommendations ### Key findings on composition and implications - The share of wage compensation is about half of expenditure while goods and services are a third. - The share of wages—about 45 percent—is higher than in comparable countries; wages as a share of expenditure are "about 30 percent in Africa and in low income countries." - Expenditure concentration on wages and goods and services "crowds out resources for interest payments, subsidies, social benefits and capital." - "Infrastructure investment is crowded out by spending on wages." - Fiscal outcomes for 2014 and indications to May 2015 show "significant underperformance in domestic revenue and grants." Dependence on grants is large and "All capital spending is donor funded." - Despite stricter expenditure rules, staff warn that "arrears will rise if the revenue target is not achieved." ### Staff recommendations and policy actions - Contain the wage bill; the FGS "should focus on containing the wage bill." - Revise the 2015 budget and adopt a strategy to avoid arrears; "Staff stressed the importance of revising the 2015 budget, adopting a strategy to avoid arrears, and eliminating existing arrears." - Provide for arrears repayment in future budgets and "strengthen controls to prevent arrears accumulation." - Develop and implement an emergency revenue mobilization plan and conduct an expenditure review. - Revenue options explicitly mentioned: taxing hotels; telecommunications companies; large employer payrolls. - Design laws and regulations to support revenue initiatives; implement plans for tax administration and collection improvement; enhance efforts to identify and secure reliable and timely budget support from the international community. - Undertake an expenditure review "to identify options to rebalance the composition of the budget and contain spending in light of anticipated revenue expansion in the near term, improve efficiency, and help better focus spending on poverty reduction." - For budget formulation, adopt fiscal rules (for example, "targets for the share of wages or capital") accompanied by a medium-term fiscal framework. - Improve accountability: line ministry budgets should reflect resources disbursed from the contingency reserve; publish data on off-budget assistance in an addendum to the budget. - Fiscal prudence on borrowing: "Somalia should eschew external borrowing (especially on nonconcessional terms), as this would complicate a debt workout." Continue avoidance of selective debt servicing of bilateral creditors. ### Operational and institutional priorities - Strengthen budget credibility by limiting expenditure commitments to available resources. - Improve accounting systems and regulatory practices; "the ministry of finance should enhance its capacity to prepare and manage the annual budget, and improve communication with ministries, departments, agencies, parliament, and citizens." - Carry out an expenditure review to rebalance spending toward investment and social priorities and away from unsustainable recurrent wage pressures. - Political support is required for expenditure reductions; authorities indicated plans to strengthen revenue and prioritize expenditures in a supplementary budget for 2015. *Source: Somali authorities; and Fund staff estimates and projections.* --- ### 3. Arrears, Public Financial Management, and PFM Systems ### Arrears management—stock and strategy - Stock of domestic arrears increased by US$14.9 million during 2014 to US$45.3 million at end-2014. - Table 1: Stock of domestic arrears: 0.6 (2013), 0.8 (2014), 1.1 (2015), 0.9 (2016), 0.6 (2017) (In percent of GDP). - Strategy components: - Perform a stock-take, verification, assessment, and clearance for existing arrears. - Design policies to avoid further arrears, strengthen commitment controls, improve cash management, and prioritize repayments. - Memorandum items (selected): Repayment of arrears (from expenditure): 0.0 26.8 2.2 17.0 11.3 11.3 9.3 12.8; Stock of domestic arrears (end of year): 30.4 ... 45.3 28.3 67.0 34.0 24.8 12.0. ### Public financial management (PFM) status and reform agenda - Considerable progress made in laying the foundation for PFM, but significant reform required to bring PFM systems closer to international standards. - Identified weaknesses include: (i) budget credibility and sustainability; (ii) cash management and commitment controls; (iii) IT systems; (iv) payroll management; (v) accounting and reporting; (vi) executive and legislative oversight. - Staff recommended a PFM agenda for 2016-20 to guide engagement with the international community and TA providers; focus on reform agenda and implementation modalities. - SFMIS (Single Financial Management Information System): - Progress toward implementation welcomed. - Expected benefits: comprehensive ex ante recording of liabilities; strengthened control of spending; timely and accurate financial reporting. - Staff recommended reinforcing SFMIS development with relevant procedures and practices including full implementation of the treasury single account. - Commitment controls need to be incorporated in the SFMIS to identify arrears; rules and procedures underpinning controls should be institutionalized. - Authorities reaffirmed commitment to leading and implementing PFM reforms and noted their 2013-16 PFM reform action plan is optimistic; future reform plans should be more focused, prioritized, and sequenced. --- ### 4. Financial Sector, Monetary Policy, and Currency Reform ### Financial sector—overview and governance - Economy largely dollarized; in the absence of policy instruments, the CBS is unable to conduct monetary policy. - Preliminary step toward developing a monetary policy framework: compile a monetary survey underpinned by development of the CBS’s institutional capacity. - Staff review focus areas: (i) preparing monthly financial statements; (ii) strengthening the organizational and governance structure of the CBS; (iii) implementing accounting and financial reporting systems and practices; (iv) establishing a robust licensing and supervision process. - Internal and external auditors have been appointed. - CBS balance sheet should remain broadly stable due to lack of financial intermediation, inability of the government to accumulate financial assets, and limited role of the shilling. ### Governance and reserve management recommendations - Strengthen CBS organization: establish an executive committee and a legal unit; CBS board should approve regulations to ensure consistent implementation of the CBS act. - Priority areas: (i) accounting and financial reporting; (ii) auditing; (iii) collecting and handling information from supervised institutions; (iv) establishing a robust licensing and supervision process. - Strengthen role of CBS as sole manager of international reserves by: (i) establishing a reserves management unit; (ii) approving by-laws for foreign reserve management; (iii) utilizing World Bank expertise to bolster knowledge and capacity. - Intensify efforts to recover missing, lost, or stolen financial assets under CBS leadership. ### Monetary and exchange rate policy framework and currency reform - Short-run: staff sees no alternatives to de facto dollarization. - Options for policy framework/exchange rate regime range from dollarization or a currency board-type arrangement to a freely floating exchange rate. - Introduction of a new currency is complex and costly; currency reform must be prepared properly. - Prerequisites and modalities for successful currency reform include: (i) building technical capacity; (ii) mobilizing financial resources; (iii) planning and conducting currency conversion; (iv) ensuring policy consensus and broad-based political support. - Staff recommended priority be given to an agreed framework for preparation, with extensive international support, of a roadmap providing options for eventual currency reform decisions. - Authorities: no consensus on currency reform; since May 2015 parliament escalated pressure on the CBS to issue new Somali banknotes. CBS governor underscored need for a currency reform strategy and consensus before proceeding. Authorities discussed issuing the lowest denomination banknote to assist the poor and remote areas. - Authorities confirmed de facto currency is the U.S. dollar and they enforce no restrictions on transfers; payments for all international transactions are free of restrictions. ### Financial sector developments and supervision - CBS has insufficient capacity to license and supervise financial institutions; remedial steps underway to address threats to remittance flows. - Several international banks closed correspondent accounts with Somali MTFs, threatening remittance inflows. - Authorities launched a multi-agency task force on remittances and, with donors, established an advisory council to facilitate remittances to Somalia. - CBS and World Bank agreed on appointment of a “Trusted Agent” to supervise MTFs and help build capacity in licensing and supervision. - Staff views: - Number of licensed banks should not be increased until supervisory capabilities are enhanced. - Practice of awarding provisional banking licenses should cease. - Priorities: prepare and approve additional prudential regulations, ensure compliance, strengthen the AML/CFT framework. - Authorities’ actions: - CBS board decided to halt issuance of additional bank licenses until applicants fulfill basic requirements. - Nine licensing requests on hold pending compliance with requirements: (i) adequate capital; (ii) an established board of directors; (iii) proper accounting systems; (iv) internal auditing; (v) non-concentrated shareholding; (vi) ownership of a national (non clan-based) character; (vii) an approved business plan. - Licensed banks will also have to meet these requirements and have until the end of the year to comply. --- ### 5. Staff appraisal: macro outlook, priorities, and procedural recommendation ### Context, risks, and recent macro developments - Somalia is recovering from decades of conflict; institutions remain weak and human capital sparse. - Real growth in 2014 was 3.7 percent. - Medium-term growth should be modest, supported by security improvements. - Inflation has been and should remain in low single digits. - Challenges and risks: complex politics, nascent institutions, potential slower global growth, reduced donor support, decreased remittances, and remittance risks due to weak bank supervision. ### Priority recommendations (key excerpts) - Build institutions for sustainable, inclusive growth and to reduce poverty and address gender disparities. - Implement sound and accountable economic and financial governance and create an enabling environment for the private sector. - Improve data provision: adopt international standards and codes, implement accounting systems and better regulatory practices, clarify delineation of authority between the FGS and sub-national entities. - Urgent efforts needed to ensure prospective natural resource wealth is well managed; establish effective and transparent concession management aligned with international best practices. - Build fiscal discipline via realistic budgeting and effective implementation systems: - Emergency revenue mobilization and an arrears strategy to tackle immediate problems, supported by expenditure rationalization. - Realistic budgeting within a medium-term fiscal framework, supported by fiscal rules and reliable, transparent reporting. - Postpone currency reform until prerequisites are in place; adhere to a well-designed roadmap including building adequate technical and human capacity. - Swift action required to channel remittances through the international banking system; elaboration of a financial sector roadmap is a critical first step. - Prepare and approve additional prudential regulations and ensure compliance to build credibility in licensing and supervision. ### Procedural recommendation - It is recommended that the next Article IV consultation with Somalia be held on the standard 12-month cycle. *Source: IMF staff report text (selected sections)._cr15208* --- ### 6. Aid, Projects, and External Financing (selected figures and pipeline) ### Aid and planned disbursements (selected lines) - Accumulation of new arrears: 17.1...32.90.00.0 - Financing (4 + 5): 22.9...32.90.00.0 - Total Planned Aid Disbursements, 2014-15 (Millions of U.S. Dollars) — selected entries: - Institutional Capacity Development (ICD): 14 16 - Peace and Statebuilding Goals (PSG): 8 18 4 78 - Inclusive Politics: 58 75 - Security: 16 12 6 - Justice: 2 4 9 - Economic Foundations: 26 11 60 - Revenue and Services: 314 208 - Total planned aid disbursement = ICD + PSG 1/: 832 494 - Total planned federal budget expenditure: 216 240 - Ratio of total planned aid disbursement to federal budget planned expenditure: 3.9 2.1 - Note: 1/ Includes some budget support. - Source: ACU Aid Flow Mapping, October 2014. ### Central Bank (selected balance sheet items, Thousands of U.S. Dollars) - Assets (Preliminary 2013 / Preliminary 2014): - Foreign assets: 30,964 / 30,448 - Gold: 1 / 19,540 19,551 - Foreign exchange: 11,425 / 10,897 - Cash and cash equivalent: 7,409 / 6,206 - Somali shillings: 389 / 11 - US dollars: 7,020 / 6,195 - Claims on government: 9000 / 0 - Other assets: 19,479 / 20,621 - Property and equipment: 19,474 / 20,618 - Assets: 58,752 / 57,274 - Liabilities: 58,752 / 57,274 - Reserve money 2: 1,446 / 1,683 - Demand deposits: 1,446 / 1,683 - Government deposits: 14,393 / 2,783 - Asset recovery proceeds: 9,001 / 0 - Equity and reserves: 42,792 / 49,687 - Memorandum: Somali shillings per US dollar, end-period: 20,149 / 20,265 _Sources: Central Bank of Somalia; and Fund staff estimates._ ### Balance of Payments, 2013-17 (Millions of U.S. Dollars) — selected rows - Current account balance: -656 -644 -726 -885 -1,070 - Trade balance: -2,543 -2,663 -2,790 -3,314 -3,710 - Exports, f.o.b.: 779 819 861 1,023 1,145 - Imports, f.o.b.: -3,322 -3,482 -3,651 -4,337 -4,855 - Current transfers (net): 2,312 2,469 2,531 2,984 3,261 - Private, of which: 2,270 2,416 2,414 2,846 3,106 - Remittances 1/: 1,300 1,333 1,366 1,400 1,435 - Capital account and financial account: 656 644 726 885 1,070 - Financial account (net): 506 494 576 707 871 - Foreign direct investment (net): 446 434 516 636 792 - Memorandum items: - Nominal GDP: 5,352 5,706 5,953 7,071 7,916 - Current account (percent of GDP): -12.3 -11.3 -12.2 -12.5 -13.5 _Sources: UN Comtrade; FGS estimates; and Fund staff estimates and projections._ ### External public debt (2014, Millions of U.S. Dollars) - Total stock outstanding: 5,294 - Multilateral creditors: 1,518 - International Monetary Fund: 341 - World Bank: 500 - AfDB Group: 135 - Arab Fund for Economic and Social Development: 181 - Arab Monetary Fund: 285 - Others: 31, 35, 11 (as listed) - Bilateral creditors: 3,776 - Paris Club creditors 1/: 2,304 (selected entries: France: 401; Italy: 590; United States: 918; Russia: 141) - Non-Paris Club creditors: 1,472 (selected entries: Kuwait 2/: 176; Saudi Arabia: 375; United Arab Emirates: 832) - Note: China cancelled its debt in 2005. - Loan claim conversion rates for end-2014: USD/SDR 1.45 and USD/EUR 1.21. _Sources: Somalia Debt Management Unit; World Bank; and AfDB._ ### IMF relations and financial position (as of May 31, 2015) — selected figures - Membership Status: Joined: August 31, 1962; Article XIV. - Quota: 44.20 SDR Million 100.00 - IMF holdings of currency (exchange rate): 140.45 SDR Million 317.77 - Outstanding Purchases and Loans: Stand-by Arrangements: 67.72 SDR Million 153.22 (percent of quota) - Projected Payments to the IMF (SDR Million): Principal: 111.55; Charges/Interest and Total: 124.39 0.59 1.10 1.10 1.10 1.10; Total: 235.94 0.59 1.10 1.10 1.10 1.10 - Implementation of HIPC Initiative: Not yet reached decision point. ### Exchange rate arrangement (selected points) - Currency: Somali shilling (SOS); de facto currency is the U.S. dollar. - Typical exchange rate: USD1 = SOS 20,000 (broadly stable in recent years). - May 2015 event: rate depreciated briefly to SOS 23,500 due to an influx of new, counterfeit notes. - De jure arrangement: undetermined. - De facto arrangement classification: free floating arrangement. - Somalia avails itself of transitional arrangements of Article XIV; no longer maintains restrictions under Article XIV. --- ### 7. Development Partner Programs, Pipeline, and World Bank / AfDB Engagement ### World Bank and MPF/SPF-related programs (selected) - Somalia Multi-Partner Fund (MPF): launched August 2014 with ~US$175 million in contributions from six donors; expected to grow to US$250 million over the next two years. - State- and Peace-Building Fund (SPF): contributed US$28.9 million to Somalia since 2012. - Som-PREP II: US$24.7 million MDTF focused on private sector development. - Active World Bank portfolio (totaling US$39.7 million; 72 percent disbursed) — selected projects and disbursements: - Som-PREP II: Appraised 24.7; Disbursed 22.3 - Petroleum Sector Inclusive Development: 4.0; 0.4 - Financial Governance Policy Dialogue: 2.0; 0.6 - SKOPE: 2.5; 1.3 - Somalia PFM Capacity Strengthening Project: 4.5; 2.8 - Support to the ICT Sector: 2.0; 1.2 - Total: 39.7; Disbursed: 28.6 ### Pipeline total and selected project appraisals (US$M) - Pipeline total: 255.4 - Selected appraised amounts preserved exactly: - Recurrent Cost and Reform Financing Program, Phase II* — 144.0 - Somalia Core Economic Institutions (SCORE) Program — 30.0 - Somalia Capacity Injection Program* — 20.0 - Somalia PFM Strengthening Project II* — 20.0 - ICT Sector Support in Somalia Phase II* — 14.0 - Somali Urban Development Project Feasibility Study — 4.98 - Somalia Power Sector Development Master Plan** — 1.55 - Somalia Towage Services in Berbera Port — 4.9 - Water for Agro-Pastoral Livelihoods Pilot Project — 2.0 - Note: * Pending Effectiveness ### AfDB engagement (selected) - Somaliland Statistical Capacity Building Project: 0.35 million (ongoing). - AfDB Somalia Infrastructure Trust Fund (SITF): expected operational by the fourth quarter of 2015. - DRSLP funding: Transition Support Department Pillar I: UA 5 million; Regional Operations (RO) window: UA 10 million; Total project: UA 15 million. - AfDB chairs the PSG 4 Sub-working Group on Infrastructure and leads Infrastructure Needs Assessments in energy, transport, water and sanitation, and ICT with validation timetables (ICT completed; water and sanitation validation expected Q2 2015; energy draft distributed with validation workshop in August 2015; transport expected Q3 2015). --- ### 8. Statistical issues and data adequacy for surveillance (As of June 30, 2015) ### General assessment - Data provision has serious shortcomings that significantly hamper surveillance due to institutional weaknesses, lack of source data, and agencies having unclear and overlapping responsibilities. - Somalia is rebuilding its macroeconomic statistics after several decades of civil war. - The Statistics Law from 1970 remains in effect and is being updated. - A multisector mission in May 2015 assessed status and development plans for macroeconomic statistics and identified TA requirements. - Somalia intends to commence reporting of basic IFS data to the IMF as they become available. ### National accounts and surveys - A modeled time series for annual GDP has been compiled since 2012; results largely dependent upon qualitative assessments and broad assumptions applied to limited data. - Government final consumption expenditure estimates derived from FGS accounts and assumptions regarding the relative size of the general government sector. - Capital formation estimates based upon product detail within counterparty data, assumptions about undercoverage, and value added by Somali resident units. - Household expenditure surveys: - Somaliland survey used to estimate average daily household final consumption expenditure of US$1.60 per day. - A household survey in Mogadishu will begin in late 2015 and may result in substantial revisions. ### Price, government finance, monetary, and external statistics - Price statistics: FGS began compiling a new experimental CPI (expanded basket of 312 items) following an IMF mission in January 2015; new weights to be introduced after Mogadishu survey results (expected 2016). - Government Finance Statistics: automated financial management information system commenced during 2015; mapping to GFS items being developed to enable preliminary GFS estimates for budgetary central government during 2015. - Monetary and Financial Statistics: significance limited by ambiguous status of the Somali shilling; CBS expected to produce monetary statistics for the subsector by the end of 2015 as relationships between its accounts and MFS aggregates are finalized. - External sector statistics: a modeled time series for annual Balance of Payments has been compiled since 2013; estimates depend on counterparty data and assumptions; Somalia’s Customs Directorate agreed to start collecting export and import value data to improve trade estimates. - Somalia does not participate in the General Data Dissemination System (GDDS); no data ROSC is available; no SRFs have been received by STA. ### Table of Common Indicators Required for Surveillance — selected statuses - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: M. - Central Bank Balance Sheet: Date of Latest Observation: 12/2014; Date Received: 1/2015; Frequency of Data: M. - Consumer Price Index: Date of Latest Observation: 03/2015; Date Received: 6/2015; Frequency of Data: M. - External Current Account Balance: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A. - Exports and Imports of Goods and Services: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A. - GDP/GNP: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A. - Many other series are reported as n.a. for observation, receipt, and frequency fields. *Source: Staff Report and Supplementary Information for Somalia (as provided in the supplied content).* ### 1. Technical Assistance by IMF Staff ### 1. Technical Assistance by IMF Staff ### Overview and objectives - Staff TA aims to support building economic institutions and sound macroeconomic policies. - TA priorities include: (i) developing macroeconomic frameworks and policies; (ii) establishing a functional central bank; (iii) modernizing tax and customs administration; (iv) strengthening public financial management; and, (v) improving statistics. - Continued donor support is identified as critical for capacity building. ### Trust Fund for Capacity Development in Macroeconomic Policies and Statistics for Somalia - Launched on February 6, 2015. - Purpose: to finance TA in the areas listed above and to coordinate activities with the authorities and other TA providers. - Trust fund size: US$9.3 million multi-donor program covering 2014-17. - Initial contributions: Arab Fund for Economic and Social Development (US$3 million), Canada (US$2.5 million), and the UK (US$1 million). - The trust fund can be renewed. - Disbursement as of end-May 2015: US$124,297 had been disbursed. ### Delivered TA — areas and topics - Fiscal area: - Budget accounting and reporting. - Budget preparation and execution. - Tax policy and customs administration. - Monetary and banking sector: - Organization and governance structure of the central bank and its accounting systems. - Licensing procedures and supervision of financial institutions. - Statistical systems: - Development, compilation and publication of national accounts. - Development, compilation and publication of external sector statistics. - Development, compilation and publication of prices statistics. - Legal area: - Reviewing the central bank law. - Establishing a legal department in the central bank. - Development of central bank by-laws and a code of ethics and conduct for the board. - Advice on banking legislation and regulations. ### Planned and ongoing TA priorities - Fiscal: - Assistance with preparation of the 2016 budget. - Tax policy. - Public financial management. - Monetary and banking sector: - Central bank governance. - Currency reform. - Bank licensing and supervision. - Statistical systems: - Balance of payments compilation. - The consumer price index. - Monetary aggregates. - Legal: - Preparation of central bank by-laws. ### Modalities of TA delivery - Deployment of advisors. - Staff-led missions. - Expert visits. - Training. - Development of capacity building plans. ### Capacity-building impact - TA has built capacity in key government institutions and allowed the authorities to provide basic data for surveillance. - TA has allowed staff to begin carrying out surveillance despite data limitations. ### Departmental TA activities (by Fund department) - FAD (Fiscal Affairs Department): - PFM reform. - Formulation of credible macro-fiscal policy objectives and aggregates. - Budget planning and preparation. - Expenditure control and cash management, including fiscal rules. - Budget accounting and reporting. - Application of international standards in budget management. - Modernization of chart of accounts. - Formulation and evaluation of tax policy and customs administration. - Fiscal decentralization and revenue sharing options. - Development of a framework for natural resource revenue management and taxation. - Development of long-term tax reform strategies for efficiency and equity. - Development of revenue raising measures legislated by the Parliament. - MCM (Monetary and Capital Markets Department): - Central bank organization, governance and accounting. - Monetary and exchange operations and payment systems. - Banking legislation, regulation and supervision. - Currency reform. - Reserve management. - Asset recovery. - STA (Statistics Department): - Development and dissemination of national accounts. - Development and dissemination of external accounts (BOP and IIP). - Development and dissemination of price statistics and consumer price index. - Development and dissemination of monetary and financial accounts. - Development and dissemination of government finance statistics (GFS). - Collection of external debt data. - LEG (Legal Department): - Central bank legislation and by-laws. - Banking law and regulation. - Natural resources law and contracts. - Establishment of a legal department in the central bank. *Source: Box 1, "Technical Assistance by IMF Staff", _cr15208 - 1. Technical Assistance by IMF Staff_* ### Box 2. Public Expenditure ### Box 2. Public Expenditure ### Key findings on composition and implications - Expenditure is concentrated on wages and goods and services: "The share of wage compensation is about half of expenditure while goods and services are a third." - This concentration "crowds out resources for interest payments, subsidies, social benefits and capital." - "Infrastructure investment is crowded out by spending on wages." Investment in schools, hospitals, clinics, roads, bridges, ports, and airports is noted as vital for service provision and economic growth. - "The share of wages—about 45 percent—is higher than in comparable countries." Comparative benchmarks provided: - Wages as a share of expenditure are "about 30 percent in Africa and in low income countries." - The budget is described as "payroll-centric" with "investment and social spending are crowded out by spending on wages, which are about 45 percent of expenditure in 2015." - Fiscal outcomes for 2014 and indications to May 2015 show "significant underperformance in domestic revenue and grants." Dependence on grants is large and "All capital spending is donor funded." - Staff note: "Despite the implementation of stricter expenditure rules (including sequestration rules), arrears will rise if the revenue target is not achieved." ### Staff recommendations and policy actions - Contain the wage bill; the FGS "should focus on containing the wage bill." - Revise the 2015 budget and adopt a strategy to avoid arrears; "Staff stressed the importance of revising the 2015 budget, adopting a strategy to avoid arrears, and eliminating existing arrears." - Provide for arrears repayment in future budgets and "strengthen controls to prevent arrears accumulation." Staff welcomed an "arrears management plan" while noting implementation challenges. - Develop and implement an emergency revenue mobilization plan and conduct an expenditure review. Revenue options explicitly mentioned: - taxing hotels, - telecommunications companies, - large employer payrolls. - Design laws and regulations to support revenue initiatives; implement plans for tax administration and collection improvement; enhance efforts to identify and secure reliable and timely budget support from the international community. - Undertake an expenditure review "to identify options to rebalance the composition of the budget and contain spending in light of anticipated revenue expansion in the near term, improve efficiency, and help better focus spending on poverty reduction." - For budget formulation, adopt fiscal rules (for example, "targets for the share of wages or capital") accompanied by a medium-term fiscal framework. - Improve accountability: line ministry budgets should reflect resources disbursed from the contingency reserve; publish data on off-budget assistance in an addendum to the budget. - Fiscal prudence on borrowing: "Somalia should eschew external borrowing (especially on nonconcessional terms), as this would complicate a debt workout." Continue avoidance of selective debt servicing of bilateral creditors. ### Operational and institutional priorities - Strengthen budget credibility by limiting expenditure commitments to available resources. - Improve accounting systems and regulatory practices; "the ministry of finance should enhance its capacity to prepare and manage the annual budget, and improve communication with ministries, departments, agencies, parliament, and citizens." - Carry out an expenditure review to rebalance spending toward investment and social priorities and away from unsustainable recurrent wage pressures. - Political support is required for expenditure reductions; authorities indicated plans to strengthen revenue and prioritize expenditures in a supplementary budget for 2015. *Source: Somali authorities; and Fund staff estimates and projections.* ### 49. The authorities presented an arrears management strategy to eliminate domestic ### _cr15208 - 49. The authorities presented an arrears management strategy to eliminate domestic ### Arrears management - Authorities presented an arrears management strategy to eliminate domestic arrears. - Stock of domestic arrears: - Increased by US$14.9 million during 2014 to US$45.3 million at end-2014. - Table 1: Stock of domestic arrears: 0.6 (2013), 0.8 (2014), 1.1 (2015), 0.9 (2016), 0.6 (2017) (In percent of GDP). - Strategy components: - Perform a stock-take, verification, assessment, and clearance for existing arrears. - Design policies to avoid further arrears, strengthen commitment controls, improve cash management, and prioritize repayments. ### Public financial management (PFM) - Background finding: - Considerable progress made in laying the foundation for PFM, but significant reform required to bring PFM systems closer to international standards. - Improvement in budget credibility—consistent with absorptive capacity—is required to assist fiscal discipline and improve the efficacy of public spending. - Staff views and identified weaknesses: - Recommended a PFM agenda for 2016-20 to guide engagement with the international community and TA providers. - Focused on reform agenda and implementation modalities to address gaps in policy, processes, and capacity. - Identified weaknesses include: - (i) budget credibility and sustainability; - (ii) cash management and commitment controls; - (iii) IT systems; - (iv) payroll management; - (v) accounting and reporting; - (vi) executive and legislative oversight. - Emphasized adoption of comprehensive and properly sequenced budget preparation and execution reforms, including arrears management. - SFMIS (Single Financial Management Information System): - Staff welcomed significant progress toward implementation of an effective SFMIS. - SFMIS expected benefits: comprehensive ex ante recording of liabilities; strengthened control of spending; timely and accurate financial reporting. - Staff recommended reinforcing SFMIS development with relevant procedures and practices including full implementation of the treasury single account. - Commitment controls need to be incorporated in the SFMIS to identify arrears; rules and procedures underpinning controls should be institutionalized. - Authorities’ views: - Reaffirmed commitment to leading and implementing PFM reforms. - Welcomed PFM review and suggestions for a new reform plan for 2016-20. - Noted the imperative of placing public finances on a sustainable path and closing the gap with international standards. - A fully functional SFMIS is being rolled out and PFM procedures and practices will be institutionalized across government. - Observed that their 2013-16 PFM reform action plan is optimistic and future reform plans should be more focused, prioritized, and sequenced. ### Financial sector—overview and governance - Monetary context: - Economy largely dollarized; in the absence of policy instruments, the CBS is unable to conduct monetary policy. - Preliminary step toward developing a monetary policy framework: compile a monetary survey underpinned by development of the CBS’s institutional capacity. - Staff review focus areas: - (i) preparing monthly financial statements; - (ii) strengthening the organizational and governance structure of the CBS; - (iii) implementing accounting and financial reporting systems and practices; - (iv) establishing a robust licensing and supervision process. - Internal and external auditors have been appointed. - Authorities requested TA to develop strategies to address dollarization, payment systems limitations, and monetary policy constraints. - CBS balance sheet: - Should remain broadly stable due to lack of financial intermediation, inability of the government to accumulate financial assets, and limited role of the shilling. - Financial governance—Staff’s views: - Strengthening CBS organization is essential; steps required to address lack of appropriate regulations. - Recommended establishment of an executive committee and a legal unit. - CBS board should approve regulations to ensure consistent implementation of the CBS act. - Priority areas: (i) accounting and financial reporting; (ii) auditing; (iii) collecting and handling information from supervised institutions; (iv) establishing a robust licensing and supervision process. - Strengthen role of CBS as sole manager of international reserves by: - (i) establishing a reserves management unit; - (ii) approving by-laws for foreign reserve management; - (iii) utilizing World Bank expertise to bolster knowledge and capacity. - Intensify efforts to recover missing, lost, or stolen financial assets under CBS leadership. - Authorities’ views: - Committed to enhancing governance to align with international best practice. - Agreed establishment of an executive committee would bolster governance. - Noted potential donor resources to support governance improvements and need for TA and training. ### Monetary and exchange rate policy framework - Background: - Current monetary conditions do not serve the country well and need to be addressed. - Monetary regime and currency circulation outcome of chaotic conditions since the early 1990s and operational weakness of CBS. - Absence of exchange restrictions supports trade and private sector expansion. - Staff views: - Options for policy framework/exchange rate regime range from dollarization or a currency board-type arrangement to a freely floating exchange rate. - In the short run, staff sees no alternatives to de facto dollarization. - Introduction of a new currency is complex and costly; currency reform must be prepared properly. - Prerequisites and modalities for successful currency reform include: - (i) building technical capacity; - (ii) mobilizing financial resources; - (iii) planning and conducting currency conversion; - (iv) ensuring policy consensus and broad-based political support. - CBS currently lacks capacity and resources for comprehensive currency reform; direct costs and reputational losses from ill-prepared reform can be large. - Staff recommended priority be given to an agreed framework for preparation, with extensive international support, of a roadmap providing options for eventual currency reform decisions. - Authorities’ views: - Welcomed discussion on monetary policy and exchange rate framework options and modalities for currency reform. - No consensus on currency reform; successive governments have attached importance to the national currency. - Since May 2015, parliament escalated pressure on the CBS to issue new Somali banknotes. - CBS governor underscored need for a currency reform strategy and consensus on key measures before proceeding. - Authorities discussing options including issuing the lowest denomination banknote, believed important for the poor and those in remote areas. - Authorities confirmed de facto currency is the U.S. dollar and they enforce no restrictions on transfers; payments for all international transactions are free of restrictions. The de jure regime is under discussion. - Emphasized importance of external advice and financing; extensive TA from staff and collaborating central banks and substantial donor financial support will be required. ### Financial sector developments and supervision - Threats and responses: - CBS has insufficient capacity to license and supervise financial institutions; taking steps to address threat to remittance flows. - Prudent growth of financial intermediation requires bolstering capacity in bank licensing and supervision, AML/CFT. - Several international banks closed correspondent accounts with Somali MTFs, threatening remittance inflows. - Authorities launched a multi-agency task force on remittances and, with donors, established an advisory council to facilitate remittances to Somalia. - CBS and World Bank agreed on appointment of a “Trusted Agent” to supervise MTFs and help build capacity in licensing and supervision. - Staff views: - CBS steps to establish a formal financial sector are welcome. - Number of licensed banks should not be increased until supervisory capabilities are enhanced. - Practice of awarding provisional banking licenses should cease (no legal basis in CBS act or financial institutions law). - Decisive action needed to address capacity weaknesses in licensing and supervision; elaboration of a financial sector roadmap is critical. - Priorities include preparing and approving additional prudential regulations, ensuring compliance, and strengthening the AML/CFT framework; staff providing advice supported by collaborating central banks. - Urged swift action to build credibility in licensing and supervision; trusted agent initiative may mitigate remittance flow threats. - Authorities’ views: - Broad agreement with staff on capacity building; emphasized need for external technical support for human capacity building and drafting regulations. - CBS board decided to halt issuance of additional bank licenses until applicants fulfill basic requirements. - Nine licensing requests on hold pending compliance with requirements: - (i) adequate capital; - (ii) an established board of directors; - (iii) proper accounting systems; - (iv) internal auditing; - (v) non-concentrated shareholding; - (vi) ownership of a national (non clan-based) character; - (vii) an approved business plan. - Licensed banks will also have to meet these requirements and have until the end of the year to comply. ### Staff appraisal—key findings and recommendations - Context and risks: - Somalia is recovering from decades of conflict; protracted civil war left weak institutions and sparse human capital. - FGS broadening domain while building institutions; Somalia has broad international support and is an active Fund member. - Challenges remain daunting and risks are ubiquitous: complex politics, nascent institutions, potential slower global growth, reduced donor support, decreased remittances, and remittance risks due to weak bank supervision. - Recent macro developments: - Real growth in 2014 was 3.7 percent. - Medium-term growth should be modest, supported by security improvements. - Inflation has been and should remain in low single digits. - Priority recommendations: - Build institutions for sustainable, inclusive growth and to reduce poverty and address gender disparities. - Implement sound and accountable economic and financial governance and create an enabling environment for the private sector. - Improve data provision: adopt international standards and codes, implement accounting systems and better regulatory practices, clarify delineation of authority between the FGS and sub-national entities. - Urgent efforts needed to ensure prospective natural resource wealth is well managed; establish effective and transparent concession management aligned with international best practices. - Build fiscal discipline via realistic budgeting and effective implementation systems: - Emergency revenue mobilization and an arrears strategy to tackle immediate problems, supported by expenditure rationalization. - Realistic budgeting within a medium-term fiscal framework, supported by fiscal rules and reliable, transparent reporting. - Postpone currency reform until prerequisites are in place; adhere to a well-designed roadmap including building adequate technical and human capacity. - Swift action required to channel remittances through the international banking system; elaboration of a financial sector roadmap is a critical first step. - Prepare and approve additional prudential regulations and ensure compliance to build credibility in licensing and supervision. - Procedural recommendation: - It is recommended that the next Article IV consultation with Somalia be held on the standard 12-month cycle. *Source: IMF staff report text (selected sections)._cr15208* ### 5. Accumulation of new arrears......17.1...32.90.00.0 ### _cr15208 - 5. Accumulation of new arrears......17.1...32.90.00.0 ### Financing and arrears (selected lines) - Accumulation of new arrears: 17.1...32.90.00.0 - Financing (4 + 5): 22.9...32.90.00.0 - Memorandum items: - Repayment of arrears (from expenditure): 0.0 26.8 2.2 17.0 11.3 9.3 12.8 - Stock of domestic arrears (end of year): 30.4...45.3 28.3 67.0 57.7 44.9 _Sources: Somali authorities; and Fund staff estimates and projections._ - Note: 1/ Includes only donor support provided through local treasury systems. - Note: 2/ Expenditures from hypothecated revenue in 2015. - Coverage years displayed: 2014 2015 ### Total Planned Aid Disbursements, 2014-15 (Millions of U.S. Dollars) - Institutional Capacity Development (ICD): 14 16 - Peace and Statebuilding Goals (PSG): 8 18 4 78 - Inclusive Politics: 58 75 - Security: 16 12 6 - Justice: 2 4 9 - Economic Foundations: 26 11 60 - Revenue and Services: 314 208 - Total planned aid disbursement = ICD + PSG 1/: 832 494 - Total planned federal budget expenditure: 216 240 - Ratio of total planned aid disbursement to federal budget planned expenditure: 3.9 2.1 _Source: ACU Aid Flow Mapping, October 2014._ 1/ Includes some budget support. ### Summary Accounts of The Central Bank of Somalia, 2013-14 (Thousands of U.S. Dollars) - Preliminary 2013 / Preliminary 2014 - Foreign assets: 30,964 / 30,448 - Gold: 1 / 19,540 19,551 - Foreign exchange: 11,425 / 10,897 - Cash and cash equivalent: 7,409 / 6,206 - Somali shillings: 389 / 11 - US dollars: 7,020 / 6,195 - Claims on government: 9000 / 0 - Claims on treasury: 9000 / 0 - Claims on deposit money banks: 00 - Other assets: 19,479 / 20,621 - Property and equipment: 19,474 / 20,618 - Other assets: 52 - Assets: 58,752 / 57,274 - Liabilities: 58,752 / 57,274 - Reserve money 2: 1,446 / 1,683 - Demand deposits: 1,446 / 1,683 - Government deposits: 14,393 / 2,783 - Government deposits, of which: 3: 5,392 / 2,783 - Treasury single account: 12 - Asset recovery proceeds: 9,001 / 0 - Other liabilities: 120 3,120 - MTB deposits: 120 120 - Earmarked donor funds: ... 3,000 - Other: 00 - Equity and reserves: 42,792 / 49,687 - Memorandum items: - Somali shillings per US dollar, end-period: 20,149 / 20,265 _Sources: Central Bank of Somalia; and Fund staff estimates._ 1/ Gold valued at market price. 2/ Deposits by Parliamentarians are estimated. 3/ Includes Treasury and Development Bank deposits. ### Balance of Payments, 2013-17 (Millions of U.S. Dollars) - Years: 2013 2014 2015 2016 2017 - Current account balance: -656 -644 -726 -885 -1,070 - Trade balance: -2,543 -2,663 -2,790 -3,314 -3,710 - Exports, f.o.b.: 779 819 861 1,023 1,145 - Imports, f.o.b.: -3,322 -3,482 -3,651 -4,337 -4,855 - Income (net): -425 -450 -467 -555 -621 - Receipts: 353 638 455 0 - Payments: -460 -486 -505 -600 -671 - Current transfers (net): 2,312 2,469 2,531 2,984 3,261 - Private, of which: 2,270 2,416 2,414 2,846 3,106 - Remittances 1/: 1,300 1,333 1,366 1,400 1,435 - Official 2/: 425 311 713 815 5 5 - Capital account and financial account: 656 644 726 885 1,070 - Capital account: 150 150 150 178 199 - Financial account (net): 506 494 576 707 871 - Foreign direct investment (net): 446 434 516 636 792 - Other net capital flows 3/: 60 60 60 71 79 - Errors and omissions: 0 0 0 0 0 - Overall balance: 0 0 0 0 0 - Memorandum items: - Nominal GDP: 5,352 5,706 5,953 7,071 7,916 - Current account (percent of GDP): -12.3 -11.3 -12.2 -12.5 -13.5 - External public debt: 5,259 5,294 ......... _Sources: UN Comtrade; FGS estimates; and Fund staff estimates and projections._ 1/ 2013 data from Barclays Bank, PLC. 2/ Includes direct budget support. 3/ Insurance and technical reserves. _Preliminary / Projected_ ### External Public Debt, 2014 (Millions of U.S. Dollars) - Total stock outstanding: 5,294 - Multilateral creditors: 1,518 - International Monetary Fund: 341 - World Bank: 500 - AfDB Group: 135 - Arab Fund for Economic and Social Development: 181 - International Fund for Agricultural and Development: 31 - OPEC Fund for International Development: 35 - Arab Monetary Fund: 285 - Islamic Development Bank: 11 - Bilateral creditors: 3,776 - Paris Club creditors 1/: 2,304 - Denmark: 2 - France: 401 - Italy: 590 - Japan: 122 - Netherlands: 7 - Norway: 2 - Spain: 38 - United Kingdom: 82 - United States: 918 - Russia: 141 - Non-Paris Club creditors: 1,472 - Algeria: 2 - Bulgaria: 9 - Iraq: 66 - Kuwait 2/: 176 - Libya: 5 - Romania: 6 - Saudi Arabia: 375 - Serbia: 2 - United Arab Emirates: 832 - Notes: - The table contains preliminary figures. - China cancelled its debt in 2005. - 2/ Data includes the loans from the Kuwaiti Development Fund. Additional loans from the Kuwaiti Central Bank need to be verified. - Loan claims were converted using the U.S. dollar year-end exchange rates. The rates for end-2014 are: USD/SDR 1.45 and USD/EUR 1.21. _Sources: Somalia Debt Management Unit; World Bank; and AfDB._ 1/ For Paris Club creditors, extrapolations of known penalty interest rates were applied. The average penalty interest rate is about 3.4%. For Non-Paris Club creditors, late interest rate is only known for Kuwait. No penalty interest has been included for 2014. ### IMF Relations (as of May 31, 2015) - Membership Status: Joined: August 31, 1962; Article XIV - General Resources Account: SDR Million % Quota - Quota: 44.20 100.00 - IMF holdings of currency (exchange rate): 140.45 317.77 - Reserve Tranche Position: 0.00 0.00 - SDR Department: SDR Million % Allocation - Net cumulative allocation 1: 46.46 100.00 - Holdings: 18.30 39.39 - Outstanding Purchases and Loans: SDR Million %Quota - Stand-by Arrangements: 67.72 153.22 - Trust Fund: 6.46 14.62 - SAF Loans: 8.84 20.00 - Contingency and Compensatory: 28.53 64.54 - Latest Financial Arrangements: - SAF: Date of Expiration Jun 29, 1987 - Jun 28, 1990; Amount Approved (SDR Million) 30.94; Amount Drawn (SDR Million) 8.84 - Stand-By: Date of Expiration Jun 29, 1987 - Jun 28, 1988; Amount Approved 33.15; Amount Drawn 5.53 - Stand-By: Date of Expiration Feb 22, 1985 - Sep 30, 1986; Amount Approved 20.10; Amount Drawn 20.10 - Projected Payments to the IMF (SDR Million): - Overdue as of May 31, 2015: - Principal: 111.55 - Charges/Interest: 124.39 0.59 1.10 1.10 1.10 1.10 - Total: 235.94 0.59 1.10 1.10 1.10 1.10 - Implementation of HIPC Initiative: Not yet reached decision point. - Implementation of MDRI: Not applicable. - Implementation of CCR: Not Applicable. - Notes: 1/ Excluding SDRs allocated and placed in escrow account under the Fourth Amendment of the IMF's Articles of agreement (SDR 4,156,315), such holdings will be available to Somalia upon the settlement of all overdue obligations to the Fund. 2/ Projections based on existing use of resources and present holdings of SDRs. The projection of charges and interest assumes that overdue principal at the report date (if any) will remain outstanding, but forthcoming obligations will be settled on time. ### Exchange Rate Arrangement (selected points) - Currency: Somali shilling (SOS); de facto currency is the U.S. dollar. - Typical exchange rate: USD1 = SOS 20,000 (broadly stable in recent years). - May 2015 event: rate depreciated briefly to SOS 23,500 due to an influx of new, counterfeit notes. - De jure arrangement: undetermined. - De facto arrangement classification: free floating arrangement. - Somalia avails itself of transitional arrangements of Article XIV; no longer maintains restrictions under Article XIV. - Last Article IV consultation discussions: July 9-23, 1989; Executive Board conclusion: November 13, 1989. ### Technical Assistance (TA) 2013–15 (selected items and dates) - Fiscal Affairs Department: - Budget diagnostics (w/ MCD staff visit): 10/22/2013 - Budget preparation and execution (w/MCD staff visit): 2/17/2014; 4/28/2014; 9/9/2014; 4/30/2015; 6/8/2015 - Public financial management: 1/26/2015; 6/8/2015 - General tax policy: 3/30/2015 - Legal Department: - CBS board of directors meetings procedures: 2/11/2014 - CBS conduct and ethics rules: 3/1/2014 - CBS and the MOF MoU on the CBS as a financial and fiscal agent: 3/11/2014 - Monetary and Capital Markets Department: - Currency reform: 8/26/2013 - CBS accounting and financial reporting workshop: 10/27/2013 - Support to financial governance committee (multiple dates in 2013–2015) - Banking supervision and regulation: 9/1/2014; 11/10/2014 - Central bank governance: 9/15/2014; 5/10/2015; 6/18/2015 - CBS Board orientation course: 12/2/2014 - Statistics Department: - Real sector statistics training: 1/27/2014 - Consumer price index: 1/12/2015 - Multisector statistics training: 4/29/2015 - Real sector statistics (w/ MCD staff visit): 6/7/2015 - Resident Representative: Mr. Samba Thiam, posted in Nairobi since December 1, 2014. ### IMF–World Bank Collaboration (as of June 30, 2015) - Areas of close collaboration: - Fiscal: agreement on fiscal priorities and policies; urged authorities to (i) prepare and execute a realistic budget; (ii) develop an emergency revenue mobilization plan; and (iii) find agreement between federal and sub-national governments on fiscal federalism. - Public finance management collaboration: design of the Treasury Single Account; improvements to the Chart of Accounts; implementation of the Financial Management Information System. - Preparatory work on developing a macro-fiscal framework and conducting a debt sustainability analysis. - Assistance to authorities with preparation and management of the 2015 budget (IMF Fiscal Affairs Department expert participation; World Bank-funded contract to operationalize agreed fiscal issues). - External debt statistics: establishment of the Technical Working Group on Somalia’s Debt in 2014; the group met twice since the 2014 Spring Meetings. - Macroeconomic statistics collaboration: - World Bank funded household survey in Somaliland, with Mogadishu enumeration scheduled for late 2015; survey results to assist IMF in estimating household final consumption expenditure for GDP and expenditure patterns for CPI. - Implementation of Somali Financial Management Information System providing revenue and expenditure data for Federal Government activities. ### Relations with the World Bank Group (as of June 30, 2015) - Somalia Interim Strategy Note (ISN) endorsed December 2013: objectives to lay foundations for poverty reduction and shared prosperity; structured around Priority I (Strengthening Core Economic Institutions) and Priority II (Expanding Economic Opportunity). - Priority I activities: economic governance, macro-fiscal and public finance management, statistical capacity, regulatory framework support; trust-funded activities include Recurrent Cost and Reform Financing, Public Financial Management Strengthening, Capacity Injection, financial governance program, ICT regulatory support, petroleum sector program. - Priority II activities: job creation via private sector investment and PPPs, basic infrastructure rehabilitation; key activities include private and financial sector development project, urban development project, energy sector support project. - Active projects and pipeline: - Somalia Multi-Partner Fund (MPF): launched August 2014 with ~US$175 million in contributions from six donors; expected to grow to US$250 million over the next two years. - State- and Peace-Building Fund (SPF): contributed US$28.9 million to Somalia since 2012. - Som-PREP II: US$24.7 million MDTF focused on private sector development. - Active portfolio (totaling US$39.7 million; 72 percent disbursed): - Somalia Private Sector Re-Engagement Project Phase II (Som-PREP II): Appraised (US$M) 24.7; Disbursed (US$M) 22.3 - Petroleum Sector Inclusive Development: 4.0; 0.4 - Financial Governance Policy Dialogue: 2.0; 0.6 - Knowledge for Operations & Political Economy (SKOPE): 2.5; 1.3 - Somalia PFM Capacity Strengthening Project: 4.5; 2.8 - Support to the ICT Sector: 2.0; 1.2 - Total: 39.7; Disbursed: 28.6 - Som-PREP II focus and objectives: - Primarily focused on Somaliland; activities mostly complete. - Objectives: improve access to markets and generate employment in key productive and service sectors. - Component-level objectives: (i) improving the investment climate and strengthening public-private dialogue; (ii) strengthening banking supervision and legal frameworks; (iii) promoting value chain development; (iv) supporting PPPs in ports and solid waste; (v) providing MSME financing to the private sector; (iv) identifying economic sector work constraints to private sector-led growth and job creation with focus on key economic sectors. *Prepared By Middle East and Central Asia Department (in consultation with other departments); July 8, 2015.* ### 6. Petroleum Sector Inclusive Development: Funded by the MFP, the objectives of this ### 6. Petroleum Sector Inclusive Development: Funded by the MFP, the objectives of this ### Program objectives and scope - Petroleum Sector Inclusive Development (Funded by the MFP) - Objectives: - (i) facilitate a process to harmonize issues of ownership, control and revenue sharing in the petroleum sector; - (ii) support the development of a petroleum strategy and a policy, legal and fiscal framework; and, - (iii) build government capacity to negotiate and manage petroleum contracts. - Financial Governance Policy Dialogue (Funded by the MPF) - Objective: provide technical advice and facilitate policy dialogue to strengthen transparency and accountability in strategic public procurement and concessions, asset recovery, and other selected areas of financial governance. - 2014 deliverable: Support to newly established Financial Governance Committee (FGC) by providing: - (i) predictable and reliable funding for its basic operations; and, - (ii) technical assistance to help advance its work program during the FGC’s second year. - Somalia Knowledge for Operations and Political Economy (SKOPE) (Funded by the SPF) - Objectives: - (i) enhance the development impact of domestic policies and development partner interventions through better knowledge of socio-economic realities and political economy constraints; - (ii) promote basic accountability through better information on availability and use of public resources; and, - (iii) revitalize the strategic planning process. - Components: - (i) collecting and analyzing data, and developing TA-related activities; - (ii) understanding political economy constraints; - (iii) supporting strategic planning at federal and regional levels. - Public Financial Management Capacity Strengthening, Phase I (Funded by the SPF) - Objective: establish systems for more transparent and accountable management and use of public funds in Somalia. - Focus areas: public financial management reform oversight; piloting one Financial Management Information System; establishing expenditure control, procurement, accounting, and reporting systems. - ICT Sector Support, Phase I (Funded by the SPF) - Objectives: - (i) lay foundations for a larger scale program under the MP; - (ii) contribute to developing a regulatory framework for the telecommunications sector and building an ICT infrastructure in Somalia. - Focus: supporting open access to international bandwidth and setting up communication rooms and facilities for government. ### Pipeline of activities and financing - Overall: "There is a significant pipeline of activities, many of which are nearing effectiveness, totaling over US$255 million." - Pipeline (including Pending Effectiveness) — Project and Appraised Amount (US$M): - Recurrent Cost and Reform Financing Program, Phase II* — 144.0 - Somalia Core Economic Institutions (SCORE) Program — 30.0 - Somalia Capacity Injection Program* — 20.0 - Somalia PFM Strengthening Project II* — 20.0 - ICT Sector Support in Somalia Phase II* — 14.0 - Somali Urban Development Project Feasibility Study — 4.98 - Somalia Power Sector Development Master Plan** — 1.55 - Somali Urban Development Project — TBD - Somalia Towage Services in Berbera Port — 4.9 - Water for Agro-Pastoral Livelihoods Pilot Project — 2.0 - Total — 255.4 - Note: * Pending Effectiveness ### Project descriptions in the pipeline - Recurrent Cost and Reform Financing (RCRF) Program, Phase II - Objective: support government to provide credible and sustainable payroll and establish foundation for efficient budget execution and payment systems for non-security sectors in the FGS and eligible sub-national authorities. - Starting in 2015: consolidate gains from Phase I; strengthen macro-fiscal management, central bank reform, and potential support to expanded social service delivery; explore options for expansion of recurrent cost support to regional governments. - Somali Core Economic Institutions and Opportunities (SCORE) Program - Objective: support core economic institutions linked to trade, financial sector, and private sector development to catalyze inward investment and job creation. - Components: - strengthen core institutions in central banking, the Ministries of Commerce and Industry, and local port and customs authorities; - expand economic opportunities through technical assistance and grants to private sector. - Capacity Injection Project - Objective: enable government to fill critical capacity gaps in the civil service and strengthen capacity of key ministries and agencies. - Components: - (i) develop capacity for key cross-cutting government functions; - (ii) strengthen policies and procedures for civil service management; - (iii) aid policy management, coordination and monitoring capabilities at the center of government. - Public Financial Management Strengthening Project, Phase II - Objective: establish systems for transparent and accountable public funds management, building on Phase I. - Focus: - implementation of medium-term fiscal frameworks to underpin planning and budget preparation; - managing revenue mobilization and tax administration; - developing Somalia’s financial management information system; - managing expenditure control; - overseeing procurement, accounting and financial reporting; - conducting auditing and monitoring; - establishing structures to oversee public financial management reforms. - ICT Sector Support in Somalia, Phase II - Objective: continue Phase I work to establish an enabling ICT environment and encourage efficiency and equity in access to connectivity. - Scope: combine technical assistance, provision of goods (e.g., communications rooms in ministries), and services (e.g., connectivity and bandwidth support for higher education). - Somali Urban Investment Planning Project (SUIPP) and Somalia Urban Development Project (SUDP) - Objective (SUIPP): support feasibility studies and preliminary design work for MPF-funded urban infrastructure investment and institutional strengthening in southern Somalia, Puntland and Somaliland; provide TA to government agencies to prepare and implement these activities. - Somalia Power Sector Development Master Plan - Objective: support building blocks for establishment of a modern energy sector in Somalia. - Components: - (i) develop a master plan with priorities and investment sequencing in generation, transmission and generation over a 20-year period, and detailed electrical infrastructure plans for urban areas; - (ii) prepare a “Lighting Africa Somalia” investment; - (iii) develop a renewable energy resource map for Somalia. - Somalia Towage Services in Berbera Port - Objective: support development of Berbera Port by improving throughput, towage capacity and reliability of towage services. - Water for Agro-Pastoral Livelihoods Pilot Project - Objective: build government capacity to implement small-scale water interventions to provide safe water for human consumption and sufficient quantities for livestock in targeted arid lands of Somaliland and Puntland. - Approach: pilot development and implementation of under-utilized rural water supply technologies. ### Economic and sector work - Statistical Strengthening and Socio-Economic Data Collection - Background: last nationally representative household surveys on income, consumption and poverty were conducted in 1985. - World Bank actions: - 2012 Somaliland Enterprise and Household Surveys produced data for a poverty assessment, private sector studies, CPI base weights and GDP estimates. - In Mogadishu: implementation of an innovative high-frequency computer assisted household survey to provide household expenditure, socioeconomic and peace and state-building goal data; instrument tailored for quick data collection in highly insecure settings, designed to work with new econometric techniques to produce reliable poverty profiles and CPI base weights. - World Bank support to roll-out household surveys throughout Somalia combining high frequency and standard household surveys to provide regular poverty, social and process data for poverty assessments and analytical studies. - Policies and Institutions for Economic Growth - World Bank conducting a source of growth study to establish consensus on priority policies and public investment for strong inclusive growth. - Support areas: private investment, trade, sectoral growth contributions, and building core government capacity to design and implement economic development policies. - Macroeconomic and Fiscal Planning - World Bank support to develop a simple macro-fiscal framework linked to annual planning and budgeting and a simple public investment management framework covering financing modalities and time horizons to inform national planning and improve appraisal and evaluation of capital investments. - Policy Engagement on Revenue Mobilization, Natural Resource Management and Inter-governmental Fiscal Relations - Planned analysis to better understand the Somali economy and sources to maximize revenue generation. - Focus: policy advisory work including licensing and regulatory frameworks for telecommunications, ports management, ICT and extractive industries; technical support on revenue management options for natural resource revenues; sharing international experience on inter-governmental fiscal relations. - Public Expenditure Reviews (PERs) - World Bank support for regular PERs at federal and regional levels to monitor macro-fiscal and budgetary trends and provide analysis for the Recurrent Cost and Reform Project. - Support for a joint Security and Justice Public Expenditure Review with the UN to analyze fiscal implications of current security responses and long-term implications, offering a data-driven analysis of revenues and expenditures of the security sector and the broader violence and insecurity context. ### Relations with the African Development Bank (AfDB) — key points (As of June 30, 2015) - 2013-15 Somalia Country Brief approved April 2013: reengagement program priorities include: - (i) strengthening governance and institutional capacity; - (ii) supporting re-engagement with international financial community through arrears clearance and debt relief; - (iii) including Somalia in AfDB’s DRSLP; and, - (iv) developing infrastructure planning to support recovery. - AfDB Somalia Infrastructure Trust Fund (SITF) - Status: being prepared; expected operational by the fourth quarter of 2015 (following AfDB board approval). - Focus: medium to longer-term infrastructure reconstruction and development aligned with Peace and State Building Goal 4 (PSG 4). - Activities: core infrastructure investment in energy, transport, water, sanitation and ICT; capacity building; financing and governance activities related to infrastructure reconstruction. - AfDB portfolio (since 2013) - Total operations: 12 (two finished, nine national, one regional). - Current net commitment: UA 21.7 million, equivalent to about US$33 million. - Average project size: UA 2.17 million. - Portfolio average age: 1 year. - Cumulative disbursement rate: 3.75 percent. - Selected AfDB-supported activities - Contribution to Population Estimation Survey for Somalia (PESS): about US$ 0.5million (of total cost US$6.18million). PESS findings released May 2015 (e.g., 75 percent and 46 percent of Somalis are below the ages of 30 and 15 respectively). Intended outputs: platform for compiling socio-economic and poverty baselines; pave way for an official Census in 2016; support monitoring progress towards MDGs. - AfDB support for Somalia’s re-engagement with IFIs: arrears clearance, access to HIPC/MDRI debt relief, building debt management capacity; reconstruction of external debt data and setting up initial debt management unit in ministry of finance; initial work on arrears clearance strategy and access to HIPC/MDRI debt relief (currently in Phase 2). - AfDB support for development of statistical capacity in all regions of Somalia. *Source: _cr15208 - 6. Petroleum Sector Inclusive Development: Funded by the MFP, the objectives of this* ### 0.35 million Somaliland Statistical Capacity Building Project, is currently ongoing. A similar ### _cr15208 - 0.35 million Somaliland Statistical Capacity Building Project, is currently ongoing. A similar ### AfDB engagement and projects in Somalia - 0.35 million Somaliland Statistical Capacity Building Project is currently ongoing. - A similar project has been designed for Puntland; discussions are being held to develop a comparable project with the FGS. - The AfDB is represented on the High Level Task Force (HLTF) for Statistics in Somalia. - The HLTF focuses on statistical capacity building and data gathering for development of an Interim Poverty Reduction Strategy Paper (I-PRSP), establishment of an IMF Staff-Monitored Program (SMP), and monitoring of the Peace and State Building Goals (PSGs) under the Somali Compact. - Through participation in the HLTF, the AfDB is assessing further options to provide statistical capacity building support in Somalia. ### Economic and Financial Governance Institutional Support Project (EFGISP) and related AfDB support - Through EFGISP, the AfDB is helping strengthen macroeconomic and financial management in Somalia. - Objective: set up an improved macroeconomic and budget framework to enhance fiscal discipline of the FGS and improve strategic and efficient allocation and use of public resources. - AfDB plays a lead role through the FGC in implementing the Financial Governance Program. - AfDB provided TA to the ministry of finance to build capacity for aid coordination. - Since September 1, 2014, the AfDB’s African Legal Support Facility placed a senior legal expert in the FGS to provide legal advisory services related to complex commercial negotiations including infrastructure, loans, and natural resources. - Support includes placing systems, providing capacity building services to government officials, and working on negotiations of government contracts. ### Somalia Drought Resilience and Sustainable Livelihoods Programme (DRSLP) - DRSLP is part of Phase II of AfDB’s broader initiative to support drought- and famine-stricken countries in the Horn of Africa and build sustained long-term resilience. - Main components: - (i) water and natural resource development and management; - (ii) livestock infrastructure for market access; - (iii) capacity building. - Funding: - Grants from the Transition Support Department Pillar I: UA 5 million. - Regional Operations (RO) window: UA 10 million. - Total project: UA 15 million. - Due to Somalia’s external debt arrears, the FGS cannot administer RO window resources and requires a third party administrator (per AfDB rules and regulations). - The FGS, with endorsement of Puntland and Somaliland, selected IGAD to administer the RO resources. ### Infrastructure needs assessments and AfDB leadership - AfDB conducted Infrastructure Needs Assessments (INA) in energy, transport, water and sanitation, and ICT sectors as key deliverables in the government’s Economic Recovery Plan 2014-15. - Objectives of the Somalia Infrastructure Action Plan: - (i) assist the government in building an initial project pipeline for the proposed AfDB Multi-Partner Somalia Infrastructure Trust Fund; - (ii) provide input into preparation of Somalia’s i-PRSP; - (iii) assist in broad planning, prioritization and resource mobilization for infrastructure interventions. - Assessment status and validation: - ICT assessment completed and validated. - Water and sanitation assessment expected to be validated in the second quarter of 2015. - A final draft of the energy assessment has been distributed to the FGS, and will be validated at a workshop in August 2015. - Transport assessment expected to be completed in the third quarter of 2015. - AfDB chairs the PSG 4 Sub-working Group on Infrastructure and engages with federal and regional governments to rationalise priority infrastructure projects, taking a leadership role in guiding reconstruction and development of Somalia’s infrastructure. ### STATISTICAL ISSUES — Assessment of Data Adequacy for Surveillance (As of June 30, 2015) - General: - Data provision has serious shortcomings that significantly hamper surveillance due to institutional weaknesses, lack of source data, and agencies having unclear and overlapping responsibilities. - Somalia is rebuilding its macroeconomic statistics after several decades of civil war. - The Statistics Law from 1970 remains in effect and is being updated. - An achievement: a time series of average monthly prices for several markets in Mogadishu covering several years. - State and local authorities independently produce some regional statistics while coordination arrangements are being established. - A multisector mission in May 2015 assessed status and development plans for macroeconomic statistics, affirmed authorities’ work on a strategic plan for the national statistical system, and identified technical assistance requirements. - Somalia intends to commence reporting of basic IFS data to the IMF as they become available. - National Accounts: - A modeled time series for annual GDP has been compiled since 2012. - Results largely dependent upon qualitative assessments of the authorities and broad assumptions applied to limited data. - Government final consumption expenditure estimates derived from FGS accounts and assumptions regarding the relative size of the general government sector. - Capital formation estimates based upon product detail within counterparty data, assumptions about undercoverage, and value added by Somali resident units. - A household expenditure survey conducted in Somaliland used to estimate average daily household final consumption expenditure of US$1.60 per day. - A household survey in Mogadishu will begin in late 2015 and may result in substantial revisions. - Price Statistics: - The FGS began to compile a new experimental Consumer Price Index (CPI) following an IMF mission in January 2015. - Expanded basket of 312 items with weights based on expenditure shares derived from other African countries was introduced. - When results from the household expenditure survey for Mogadishu are finalized (which should occur in 2016), TA will be provided to introduce new weights and to improve price collection procedures. - Somalia does not have a producer price index (PPI). - Government Finance Statistics: - FGS commenced use of an automated financial management information system during 2015 to replace previous manual recording. - A mapping between the underlying chart of accounts and GFS items is being developed and is expected to enable production of preliminary GFS estimates for budgetary central government during 2015. - Authorities have commenced negotiations to obtain appropriate financial data from state/local units to produce comprehensive estimates for Somalia’s general government sector. - Somalia does not currently have any significant public trading enterprises. - Monetary and Financial Statistics: - Significance of monetary statistics is limited by the ambiguous status of the Somali shilling. - The CBS is finalizing the relationship between its accounts and the MFS aggregates and is expected to produce monetary statistics for this subsector by the end of 2015. - Statistics for remaining subsectors will be produced as regulatory and reporting arrangements for Somalia’s financial institutions are established over coming months. - Financial sector surveillance: - Negligible data will be available for financial sector surveillance until regulatory arrangements are implemented. - Authorities are beginning to collect basic balance sheet data from several financial institutions. - External sector statistics: - A modeled time series for annual Balance of Payments has been compiled since *Source: _cr15208 - 0.35 million Somaliland Statistical Capacity Building Project, is currently ongoing. A similar* ### 2013. Results are largely dependent upon qualitative assessments of the authorities and broad assumptions ### _cr15208 - 2013. Results are largely dependent upon qualitative assessments of the authorities and broad assumptions ### Data standards, coverage, and quality - Estimates for imports and exports of goods and services are based upon counterparty data and assumptions about undercoverage. - Somalia’s Customs Directorate has agreed to start to collect data on the value of exports and imports that can be used to estimate values of trade in goods. - Model-based estimates for remittances and foreign direct investment will be replaced by source data as regulatory and reporting arrangements are established. - Somalia does not compile comprehensive estimates for International Investment Position; the World Bank compiles data on liabilities of Somalia’s general government to the rest of the world. - An estimate of Somalia’s reserves will be available when balance sheet data from the CBS are audited and published. - Somalia does not participate in the General Data Dissemination System (GDDS). - No data ROSC is available. - No data in the format of SRFs have been received by STA. ### Table of Common Indicators Required for Surveillance (selected entries and status) - Exchange Rates: Date of Latest Observation: n.a.; Date Received: n.a.; Frequency of Data: D; Frequency of Reporting: n.a.; Frequency of Publication: n.a.; Data Quality – Methodological Soundness: n.a.; Data Quality – Accuracy and Reliability: n.a. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: M; other frequency/publication/quality fields: n.a. - Central Bank Balance Sheet: Date of Latest Observation: 12/2014; Date Received: 1/2015; Frequency of Data: M; other fields: n.a. - Consumer Price Index: Date of Latest Observation: 03/2015; Date Received: 6/2015; Frequency of Data: M; other fields: n.a. - External Current Account Balance: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A; other fields: n.a. - Exports and Imports of Goods and Services: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A; other fields: n.a. - GDP/GNP: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A; other fields: n.a. - Many series (Reserve/Base Money, Broad Money, Consolidated Balance Sheet of the Banking System, Interest Rates, Revenue/Expenditure/Budget indicators, Stocks of Central Government Debt, Gross External Debt, International Investment Position) are reported as n.a. for observation, receipt, and frequency fields. ### IMF relations and financial position (as of May 31, 2015) - Membership Status: Joined: August 31, 1962; Article XIV. - General Resources Account: Quota 44.20 SDR Million 100.00 percent of quota. - IMF holdings of currency (exchange rate) 140.45 SDR Million 317.77 percent of quota. - Reserve Tranche Position 0.00 SDR Million 0.00 percent of quota. - SDR Department: Net cumulative allocation 46.46 SDR Million 100.00 percent; Holdings 18.30 SDR Million 39.39 percent. - Outstanding Purchases and Loans: Stand-by Arrangements 67.72 SDR Million 153.22 percent of quota; Trust Fund 6.46 SDR Million 14.62 percent; SAF Loans 8.84 SDR Million 20.00 percent; Contingency and Compensatory 28.53 SDR Million 64.54 percent. - Latest Financial Arrangements (selected): SAF Jun 29, 1987–Jun 28, 1990: Amount Approved 30.94 SDR Million; Amount Drawn 8.84 SDR Million. Stand-By Jun 29, 1987–Jun 28, 1988: Amount Approved 33.15 SDR Million; Amount Drawn 5.53 SDR Million. Stand-By Feb 22, 1985–Sep 30, 1986: Amount Approved 20.10 SDR Million; Amount Drawn 20.10 SDR Million. - Projected Payments to the IMF (SDR Million) as of May 31, 2015: - Principal: 111.55 - Charges/Interest: 124.39 0.59 1.10 1.10 1.10 1.10 - Total: 235.94 0.59 1.10 1.10 1.10 1.10 - Implementation of HIPC Initiative: Not yet reached decision point. - Implementation of Multilateral Debt Relief Initiative (MDRI): Not applicable. - Implementation of Catastrophe Containment and Relief (CCR): Not Applicable. - Note: Excluding SDRs allocated and placed in escrow account under the Fourth Amendment of the IMF's Articles of agreement (SDR 4,156,315), such holdings will be available to Somalia upon the settlement of all overdue obligations to the Fund. ### Exchange rate arrangement and currency use - Currency: Somali shilling (SOS); de facto currency is the U.S. dollar. - U.S. dollar banknotes are used as cash currency with Somali banknotes serving as a sub-denomination. - Neighboring country currencies are used in border areas. - Mobile phone payments, with transactions denominated in U.S. dollars, are widely used. - Most transactions are settled in U.S. dollars. - SOS exchange rate has remained broadly stable in recent years at USD1 = SOS 20,000. - During May 2015, the rate depreciated briefly to SOS 23,500 in response to an influx of new, counterfeit notes. - De jure exchange rate arrangement: undetermined. - De facto exchange rate arrangement: classified as a free floating arrangement. - Somalia still avails itself of the transitional arrangements of Article XIV, however it no longer maintains restrictions under Article XIV. ### Article IV consultation history - Somalia is on the standard 12-month Article IV consultation cycle, but civil war led to the postponement of discussions for 26 years. - The last Article IV consultation discussions were conducted on July 9-23, 1989 in Mogadishu. - The Executive Board concluded the 1989 Article IV consultation on November 13, 1989. ### Technical Assistance (TA) 2013–15 (selected entries) - Fiscal Affairs Department: - Budget diagnostics (w/ MCD staff visit) 10/22/2013 - Budget preparation and execution (w/ MCD staff visit) 2/17/2014 - Budget preparation and execution (w/ MCD staff visit) 4/28/2014 - Budget preparation and execution (w/ MCD staff visit) 9/9/2014 - Public financial management 1/26/2015 - General tax policy 3/30/2015 - Budget preparation and execution (w/ MCD staff visit) 4/30/2015 - Public financial management 6/8/2015 - Budget preparation and execution (w/ MCD staff visit) 6/8/2015 - Legal Department: - CBS board of directors meetings procedures 2/11/2014 - CBS conduct and ethics rules 3/1/2014 - CBS and the MOF MoU on the CBS as a financial and fiscal agent 3/11/2014 - Monetary and Capital Markets Department: - Currency reform 8/26/2013 - CBS accounting and financial reporting workshop 10/27/2013 - Multiple entries supporting the Financial Governance Committee between 12/9/2013 and 10/27/2014 - Banking supervision and regulation 9/1/2014 and 11/10/2014 - CBS Board orientation course 12/2/2014 - Central bank governance 9/15/2014, 5/10/2015, and 6/18/2015 - Statistics Department: - Real sector statistics training 1/27/2014 - Consumer price index 1/12/2015 - Multisector statistics training 4/29/2015 - Real sector statistics (w/ MCD staff visit) 6/7/2015 ### IMF resident representation - Resident Representative: Mr. Samba Thiam, posted in Nairobi since December 1, 2014. ### IMF–World Bank collaboration (as of June 30, 2015) - Fiscal collaboration: agreement on fiscal priorities and policies; specific urges to authorities to: - (i) prepare and execute a realistic budget; - (ii) develop an emergency revenue mobilization plan; - (iii) find agreement between federal and sub-national governments on fiscal federalism. - Collaboration on public finance management improvements: design of the Treasury Single Account; improvements to the Chart of Accounts; implementation of the Financial Management Information System. - Preparatory work on a macro-fiscal framework and conducting a debt sustainability analysis. - Macroeconomic statistics collaboration: - A World Bank funded household survey in Somaliland, with enumeration of Mogadishu scheduled for late 2015, to enable objective estimates for household final consumption expenditure and appropriate expenditure patterns for estimating the Consumer Price Index. - Implementation of the Somali Financial Management Information System providing revenue and expenditure data for most activities conducted by the Federal Government of Somalia. - External debt statistics: establishment of the Technical Working Group on Somalia’s Debt in 2014; the group has met twice since the 2014 Spring Meetings. ### Relations with the World Bank Group (as of June 30, 2015) — strategy and active portfolio - Somalia Interim Strategy Note (ISN) endorsed December 2013, structured around: - Priority I: Strengthening core economic institutions. - Priority II: Expanding economic opportunity. - Trust-funded support due to Somalia’s arrears to the World Bank: three main trust funds: - Somalia Multi-Partner Fund (MPF): launched August 2014 with approximately US$175 million in contributions from six donors and expected to grow to US$250 million over the next two years. - State- and Peace-Building Fund (SPF): contributed US$28.9 million to Somalia since 2012. - Som-PREP II: a US$24.7 million MDTF focused on private sector development. - Active portfolio: 6 projects totaling US$39.7 million; 72 percent of the funding has been disbursed. - Somalia Private Sector Re-Engagement Project Phase II (Som-PREP II): Appraised (US$M) 24.7; Disbursed (US$M) 22.3 - Petroleum Sector Inclusive Development: Appraised 4.0; Disbursed 0.4 - Financial Governance Policy Dialogue: Appraised 2.0; Disbursed 0.6 - Knowledge for Operations & Political Economy (SKOPE): Appraised 2.5; Disbursed 1.3 - Somalia PFM Capacity Strengthening Project: Appraised 4.5; Disbursed 2.8 - Support to the ICT Sector: Appraised 2.0; Disbursed 1.2 - Total Appraised US$39.7; Total Disbursed US$28.6 *Prepared by Middle East and Central Asia Department (in consultation with other departments), July 8, 2015.* ### 5. Somalia Private Sector Development Re-engagement Program Phase II (Som-PREP II): ### 5. Somalia Private Sector Development Re-engagement Program Phase II (Som-PREP II): ### Program-level objectives and status - Som-PREP II has been primarily focused on Somaliland. Its activities are mostly complete. - Objective: improve access to markets and generate employment in key productive and service sectors. - Component-level objectives: - (i) improving the investment climate and strengthening public-private dialogue; - (ii) strengthening banking supervision and legal frameworks; - (iii) promoting value chain development; - (iv) supporting PPPs in ports and solid waste; - (v) providing MSME financing to the private sector; and, - (iv) identifying economic sector work constraints to private sector-led growth and job creation with a particular focus on key economic sectors. ### Other ongoing and planned programs (objectives) - Petroleum Sector Inclusive Development (Funded by the MFP): - (i) facilitate a process to harmonize issues of ownership, control and revenue sharing in the petroleum sector; - (ii) support the development of a petroleum strategy and a policy, legal and fiscal framework; - (iii) build government capacity to negotiate and manage petroleum contracts. - Financial Governance Policy Dialogue (Funded by the MPF): - Objective: provide technical advice and facilitate policy dialogue to strengthen transparency and accountability in strategic public procurement and concessions, asset recovery, and other selected areas of financial governance. - Support to the Financial Governance Committee (FGC): (i) predictable and reliable funding for basic operations; (ii) technical assistance to advance its work program during the FGC’s second year. - Somalia Knowledge for Operations and Political Economy (SKOPE) (Funded by the SPF): - Objectives: - (i) enhance the development impact of domestic policies and development partner interventions through better knowledge of socio-economic realities as well as political economy constraints; - (ii) promote basic accountability through better information on availability and use of public resources; - (iii) revitalize the strategic planning process. - Components: - (i) collecting and analyzing data, and developing TA-related activities; - (ii) understanding political economy constraints; - (iii) supporting strategic planning at federal and regional levels. - Public Financial Management Capacity Strengthening, Phase I (Funded by the SPF): - Objective: establish systems for more transparent and accountable management and use of public funds in Somalia. - Launched as a pilot effective early 2014 to lay foundations for a larger MPF-supported PFM program. - Focus: PFM reform oversight, piloting one Financial Management Information System, establishing expenditure control, procurement, accounting, and reporting systems. - ICT Sector Support, Phase I (Funded by the SPF): - Objectives: (i) lay foundations for a larger scale program under the MP; (ii) contribute to developing a regulatory framework for telecommunications and building an ICT infrastructure in Somalia. - Focus: supporting open access to international bandwidth and setting up communication rooms and facilities for government. ### Pipeline (including Pending Effectiveness) - There is a significant pipeline of activities, many nearing effectiveness, totaling over US$255 million. - Pipeline (Project — Appraised Amount (US$M)): - Recurrent Cost and Reform Financing Program, Phase II* — 144.0 - Somalia Core Economic Institutions (SCORE) Program — 30.0 - Somalia Capacity Injection Program* — 20.0 - Somalia PFM Strengthening Project II* — 20.0 - ICT Sector Support in Somalia Phase II* — 14.0 - Somali Urban Development Project Feasibility Study — 4.98 - Somalia Power Sector Development Master Plan** — 1.55 - Somali Urban Development Project — TBD - Somalia Towage Services in Berbera Port — 4.9 - Water for Agro-Pastoral Livelihoods Pilot Project — 2.0 - Total — 255.4 - Note: Projects marked with * are Pending Effectiveness. ### Descriptions of key pipeline projects and objectives - Recurrent Cost and Reform Financing (RCRF) Program, Phase II: - Objective: support the government to provide credible and sustainable payroll and establish foundation for efficient budget execution and payment systems for non-security sectors in the FGS and eligible sub-national authorities. - Phase II, starting in 2015, will consolidate gains from Phase I and strengthen macro-fiscal management, central bank reform, and potential target support to expanded social service delivery. Phase II will explore expansion of recurrent cost support to regional governments. - Somali Core Economic Institutions and Opportunities (SCORE) Program: - Objective: support select core economic institutions linked to trade, financial sector, and private sector development to catalyze inward investment and job creation. - Components: strengthening core institutions in central banking, the Ministries of Commerce and Industry, and local port and customs authorities; expanding economic opportunities via TA and grants to the private sector. - Capacity Injection Project: - Objective: enable the government fill critical capacity gaps in the civil service and strengthen capacity of key ministries and agencies. - Components: (i) developing capacity for key cross-cutting government functions; (ii) strengthening policies and procedures for civil service management; (iii) aiding policy management, coordination and monitoring at the center of government. - Public Financial Management Strengthening Project, Phase II: - Objective: establish systems for transparent and accountable public funds management, building on Phase I. - Focus: implementation of medium-term fiscal frameworks to underpin (i) planning budget preparation; (ii) managing revenue mobilization and tax administration; (iii) developing Somalia’s financial management information system; (iv) managing expenditure control; (v) overseeing procurement, accounting and financial reporting; (vi) conducting auditing and monitoring; (vi) establishing structures to oversee PFM reforms in Somalia. - ICT Sector Support in Somalia, Phase II: - Objective: continue Phase I support to establish an enabling environment and encourage efficiency and equity in access to connectivity. - Scope: technical assistance, provision of goods (e.g., communications rooms in ministries), and services (e.g., connectivity and bandwidth support for higher education). - Somali Urban Investment Planning Project (SUIPP) and Somalia Urban Development Project (SUDP): - Objective: support feasibility studies and preliminary design work for an MPF-funded operation targeted at urban infrastructure investment and institutional strengthening in southern Somalia, Puntland and Somaliland; provide TA to government agencies to prepare and implement these activities. - Somalia Power Sector Development Master Plan: - Objective: support building blocks for a modern energy sector in Somalia. - Components: - (i) develop a master plan that sets out priorities and investment sequencing in generation, transmission and generation over a 20-year period, and deliver detailed electrical infrastructure development plans for a number of urban areas; - (ii) prepare a “Lighting Africa Somalia” investment; - (iii) develop a renewable energy resource map for Somalia. - Somalia Towage Services in Berbera Port: - Objective: support development of the Berbera Port by improving throughput, towage capacity and reliability of towage services. - Water for Agro-Pastoral Livelihoods Pilot Project: - Objective: build government capacity to implement small-scale water interventions to provide safe water for human consumption and sufficient quantities of water for livestock as inputs to enhancing fodder and agricultural production in targeted arid lands of Somaliland and Puntland. - Approach: pilot development and implementation of under-utilized rural water supply technologies. ### Economic and sector work (key activities and gaps) - Statistical Strengthening and Socio-Economic Data Collection: - Last nationally representative household surveys for household income, consumption and poverty were conducted in 1985. - World Bank actions: address data gaps in Somaliland, Puntland and Mogadishu. - 2012 Somaliland Enterprise and Household Surveys provided data for a poverty assessment; private sector studies; and CPI base weights and estimates of GDP. - In Mogadishu: World Bank and Somali Department of Statistics implemented an innovative high-frequency computer assisted household survey to provide household expenditure, socioeconomic and peace and state-building goal data; instrument tailored for quick collection in highly insecure settings and designed to work with new econometric techniques to produce a reliable poverty profile and CPI base weights. - World Bank will support roll-out throughout Somalia of household surveys combining high frequency and standard surveys to provide regular poverty, social and process data; support poverty assessments and analytical studies. - Policies and Institutions for Economic Growth: - World Bank conducting a source of growth study to establish consensus on priority policies and public investment for strong inclusive growth. - Work will support analysis and TA related to private investment, trade, and growth-contributing sectors and build government capacity to design and implement economic development policies. - Macroeconomic and Fiscal Planning: - World Bank supporting development of a simple macro-fiscal framework with clear linkages to annual planning and budgeting, and a simple public investment management framework covering financing modalities and time horizons to inform national planning and improve appraisal and evaluation of capital investments. - Policy Engagement on Revenue Mobilization, Natural Resource Management and Inter-governmental Fiscal Relations: - World Bank plans analysis to better understand the Somali economy and potential sources for maximizing revenue generation. - Focus areas: licensing and regulatory frameworks for telecommunications, ports management, ICT and extractive industries; technical support on revenue management options for natural resource revenues; sharing international experience on inter-governmental fiscal relations. - Public Expenditure Reviews (PERs): - World Bank supporting regular PERs at both federal and regional level to monitor macro-fiscal and budgetary trends and provide underlying analysis for the Recurrent Cost and Reform Project. - World Bank supported a Security and Justice Public Expenditure Review as a joint exercise with the UN to analyze fiscal implications of current response to threats facing Somalia and long-term implications, offering data-driven analysis of security sector revenues and expenditures and the broader impacts of violence and insecurity. ### Key statistics and pipeline totals - Pipeline total: over US$255 million. - Pipeline total (explicit): 255.4 (US$M). - Appraised amounts (examples preserved exactly): - Recurrent Cost and Reform Financing Program, Phase II* — 144.0 (US$M) - Somalia Core Economic Institutions (SCORE) Program — 30.0 (US$M) - Somalia Capacity Injection Program* — 20.0 (US$M) - Somalia PFM Strengthening Project II* — 20.0 (US$M) - ICT Sector Support in Somalia Phase II* — 14.0 (US$M) - Somali Urban Development Project Feasibility Study — 4.98 (US$M) - Somalia Power Sector Development Master Plan** — 1.55 (US$M) - Somalia Towage Services in Berbera Port — 4.9 (US$M) - Water for Agro-Pastoral Livelihoods Pilot Project — 2.0 (US$M) *Italic source attribution line.* *Source: _cr15208 - 5. Somalia Private Sector Development Re-engagement Program Phase II (Som-PREP II):* ### 0.35 million Somaliland Statistical Capacity Building Project, is currently ongoing. A similar ### _cr15208 - 0.35 million Somaliland Statistical Capacity Building Project, is currently ongoing. A similar ### African Development Bank (AfDB) engagement and projects - Somaliland Statistical Capacity Building Project: ongoing (0.35 million). - A similar project has been designed for Puntland; discussions to develop a comparable project with the FGS are underway. - AfDB representation: AfDB is represented on the High Level Task Force (HLTF) for Statistics in Somalia. - HLTF focus: statistical capacity building and data gathering for the Interim Poverty Reduction Strategy Paper (I-PRSP), establishment of an IMF Staff-Monitored Program (SMP), and monitoring of the Peace and State Building Goals (PSGs) under the Somali Compact. - Through HLTF participation, AfDB is assessing further options to provide statistical capacity building support in Somalia. - Economic and Financial Governance Institutional Support Project (EFGISP): - Objective: strengthen macroeconomic and financial management in Somalia; set up an improved macroeconomic and budget framework to enhance fiscal discipline of the FGS and improve strategic and efficient allocation and use of public resources. - AfDB role: lead role through the FGC in implementing the Financial Governance Program; provided TA to the ministry of finance on aid coordination capacity building. - African Legal Support Facility (since September 1, 2014): - Placed a senior legal expert in the FGS to provide legal advisory services related to complex commercial negotiations for infrastructure, loans, and natural resources. - Support includes placing systems, capacity building for government officials, and working on negotiations of government contracts. - Somalia Drought Resilience and Sustainable Livelihoods Programme (DRSLP) — Phase II: - Main components: (i) water and natural resource development and management; (ii) livestock infrastructure for market access; (iii) capacity building. - Funding: grants from the Transition Support Department Pillar I (UA 5 million) and the Regional Operations (RO) window (UA 10 million) for a total project of UA 15 million. - Administration note: because of Somalia’s external debt arrears situation, the FGS cannot administer RO resources; FGS, with endorsement of Puntland and Somaliland, selected IGAD to administer the RO resources. - Infrastructure Needs Assessments (INA) conducted in energy, transport, water and sanitation and ICT sectors: - Purpose: deliverables for Economic Recovery Plan 2014-15 and to develop a Somalia Infrastructure Action Plan to (i) assist government in building initial project pipeline for AfDB Multi-Partner Somalia Infrastructure Trust Fund; (ii) provide input into Somalia’s i-PRSP; (iii) assist planning, prioritization and resource mobilization for infrastructure interventions. - Status and timetable: - ICT assessment: completed and validated. - Water and sanitation assessment: expected to be validated in the second quarter of 2015. - Energy assessment: final draft distributed to the FGS; validation workshop in August 2015. - Transport assessment: expected to be completed in the third quarter of 2015. - AfDB role: chairs the PSG 4 Sub-working Group on Infrastructure and engages with federal and regional governments to rationalise priority infrastructure projects. ### Statistical issues — assessment of data adequacy for surveillance (As of June 30, 2015) - General: - Data provision has serious shortcomings that significantly hamper surveillance due to institutional weaknesses, lack of source data, and unclear/overlapping agency responsibilities. - Somalia is rebuilding macroeconomic statistics after several decades of civil war. - The Statistics Law from 1970 remains in effect and is being updated. - An achievement: time series of average monthly prices for several markets in Mogadishu covering several years. - State and local authorities produce some regional statistics while coordination arrangements are being established. - A multisector mission in May 2015 assessed status and development plans for macroeconomic statistics; affirmed authority work to develop a strategic plan and identified technical assistance (TA) requirements. - Somalia intends to commence reporting of basic IFS data to the IMF as they become available. - National Accounts: - A modeled time series for annual GDP has been compiled since 2012. - Results depend on qualitative assessments and broad assumptions applied to limited data. - Government final consumption expenditure estimates: derived from FGS accounts and assumptions on general government sector size. - Capital formation estimates: based on product detail within counterparty data, assumptions about undercoverage, and value added by Somali resident units. - Household expenditure surveys: - Somaliland: conducted and used to estimate average daily household final consumption expenditure of US$1.60 per day. - Mogadishu: household survey to begin in late 2015 and may result in substantial revisions. - Price Statistics: - FGS began compiling a new experimental Consumer Price Index (CPI) following an IMF mission in January 2015. - Expanded basket: 312 items with weights based on expenditure shares derived from other African countries. - When household expenditure survey results for Mogadishu are finalized (should occur in 2016), TA will be provided to introduce new weights and improve price collection procedures. - Somalia does not have a producer price index (PPI). - Government Finance Statistics: - FGS commenced use of an automated financial management information system during 2015 to replace manual recording. - A mapping between the underlying chart of accounts and GFS items is being developed and is expected to enable production of preliminary GFS estimates for budgetary central government during 2015. - Authorities have commenced negotiations to obtain appropriate financial data from state/local units to produce comprehensive estimates for Somalia’s general government sector. - Somalia does not currently have any significant public trading enterprises. - Monetary and Financial Statistics (MFS): - Significance limited by the ambiguous status of the Somali shilling. - CBS is finalizing relationship between its accounts and the MFS aggregates and is expected to produce monetary statistics for this subsector by the end of 2015. - Statistics for remaining subsectors will be produced as regulatory and reporting arrangements for Somalia’s financial institutions are established. - Financial sector surveillance: - Negligible data will be available until regulatory arrangements are implemented. - Authorities are beginning to collect basic balance sheet data from several financial institutions. - External sector statistics: - A modeled time series for annual Balance of Payments has been compiled since 2013. - Results largely dependent on qualitative assessments and broad assumptions applied to existing data. - Imports and exports estimates: based on counterparty data and assumptions about undercoverage. - Somalia’s Customs Directorate has agreed to start collecting data on the value of exports and imports for trade in goods estimates. - Model-based estimates for remittances and foreign direct investment will be replaced by source data as regulatory and reporting arrangements are established. - Somalia does not compile comprehensive International Investment Position estimates; World Bank compiles data on liabilities of Somalia’s general government to the rest of the world. - An estimate of Somalia’s reserves will be available when CBS balance sheet data are audited and published. ### Data standards, ROSC, and reporting to STA - Somalia does not participate in the General Data Dissemination System (GDDS). - No data ROSC is available. - No data in the format of SDDS/SDDS-Plus/SRFs have been received by STA. ### Table of Common Indicators Required for Surveillance — selected entries (as presented) - Exchange Rates: Date of Latest Observation: n.a.; Date Received: n.a.; Frequency of Data: D; Frequency of Reporting: n.a.; Frequency of Publication: n.a.; Memo Items: n.a. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: M; other reporting/publication fields: n.a. - Central Bank Balance Sheet: Date of Latest Observation: 12/2014; Date Received: 1/2015; Frequency of Data: M; other reporting/publication fields: n.a. - Consumer Price Index: Date of Latest Observation: 03/2015; Date Received: 6/2015; Frequency of Data: M; other reporting/publication fields: n.a. - External Current Account Balance: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A; other reporting/publication fields: n.a. - Exports and Imports of Goods and Services: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A; other reporting/publication fields: n.a. - GDP/GNP: Date of Latest Observation: 12/2014; Date Received: 6/2015; Frequency of Data: A; other reporting/publication fields: n.a. - Many other dataset fields are listed as n.a. (not available) in the table as presented. ### Federal budget developments, revisions and key budget figures - Staff highlights since staff report circulated on July 8, 2015; information does not alter the thrust of staff appraisal. - Revised 2015 budget (approved by Cabinet on July 19 and sent to Parliament): - Measures expected to yield $66 million on a full-year basis, equivalent to 33 percent of revised expenditure for 2015. - Key measures: (i) sharp reduction in allowances for the military and police; (ii) cuts in spending on goods and services; (iii) significant reduction in civil service salaries and allowances; (iv) substantial new taxes on allowances for parliamentarians. - Staff view: with strengthened revenue efforts, the revised budget for 2015 could be implemented without incurring new arrears. - Extracted figures from Table 2. Federal Budget, 2013–17 (Millions of U.S. Dollars) — selected rows and columns as presented: - Revenues and grants (2013 actual to 2017 proj.): 110.8 188.5 145.3 239.9 183.7 198.8 238.3 247.0 - Revenue (2013–2017): 69.2 115.3 84.3 123.4 100.4 113.6 133.4 150.5 - Tax revenue (2013–2017): 65.1 108.0 73.8 103.1 77.9 85.9 108.7 123.4 - Non-tax revenue (2013–2017): 4.1 7.3 10.5 20.3 22.5 27.7 24.7 27.2 - Grants 1/ (2013–2017): 41.7 73.2 61.0 116.5 83.3 85.2 104.9 96.4 - Total expenditure (2013–2017): 117.4 216.2 151.1 239.9 183.7 198.8 238.3 247.0 - Current expenditure (2013–2017): 117.4 203.8 150.9 226.0 169.7 184.8 219.3 226.3 - Wages and salaries (2013–2017): 50.4 94.3 77.2 108.3 81.9 86.5 108.3 108.3 - Goods and services (2013–2017): 56.0 68.8 57.6 82.7 58.4 68.9 82.7 84.3 - Transfers to sub-national government 2/ (2013–2017): 7.5 10.1 10.1 14.8 15.2 15.2 16.0 17.9 - Repayment of arrears and advances (2013–2017): 0.0 26.8 2.2 17.0 11.3 11.3 9.3 12.8 - Capital 2/ (2013–2017): 0.0 12.4 0.2 13.9 13.9 13.9 19.0 20.6 - Overall balance (1 - 2) (2013–2017): -6.6 -27.7 -5.8 0.0 0.0 0.0 0.0 0.0 - Liquidation of recovered government assets: ... 5.8 ... 0.0 ... 0.0 0.0 - Accumulation of new arrears: ... 17.1 ... 32.9 ... 0.0 0.0 - Financing (4 + 5): ... 22.9 ... 32.9 ... 0.0 0.0 - Memorandum items: Repayment of arrears (from expenditure): 0.0 26.8 2.2 17.0 11.3 11.3 9.3 12.8 - Stock of domestic arrears (end of year): 30.4 ... 45.3 28.3 67.0 34.0 24.8 12.0 - Sources: Somali authorities; and Fund staff estimates and projections. - Notes in table: 1/ Includes only donor support provided through local treasury systems. 2/ Expenditures from hypothecated revenue in 2015. ### Recent developments, policy issues, and challenges (authorities’ statement and staff observations) - Context: - Somalia remains fragile after years of civil war with challenging political and security situation; government and people have started rebuilding with international support. - Reengagement with the IMF viewed as pivotal to rebuilding institutions, infrastructure, and human resource capacity. - Arrears accumulated during years of conflict impair ability to service external debt and render Somalia ineligible for IMF financial assistance. - Political and security environment has slowed rebuilding progress. - Recent developments: - Economic activity analysis constrained by lack of data; TA by the Fund under the “Trust Fund for Capacity Development in Macroeconomic Policies and Statistics for Somalia” launched in February 2015. - Staff assessment (based on incomplete information): some expansion in real GDP and low inflation. - Policy issues and challenges: - Concerted efforts needed to build capacity and institutions for sustainable and inclusive growth. - Key macroeconomic areas needing strengthened capacity: fiscal and public financial management; central banking; financial sector regulation and supervision; statistics. - Fiscal policy: authorities acknowledge need to strengthen budget process to align expenditure commitments with available resources; Somalia continues to rely crucially on donor funding; need to improve coordination to ensure financial assistance channeled through the Ministry of Finance. - Monetary and exchange rate policy framework: - CBS responsibilities: currency issuance by law; no bank notes issued since 1991 leading to predominant dollarization and unregulated environment. - Consequences: shortage of currency and pressure for CBS to undertake currency reforms despite capacity constraints. - Fund role: assist CBS to develop roadmap towards reforms and ongoing training and capacity building. - External debt: - Somalia’s external debt estimated at more than 90 percent of GDP at end-2014. - Staff assessment: Somalia lacks ability to service its debt in the medium term. - Technical Working Group (TWG) on Somalia’s Debt established to work towards arrears clearance and eventual debt relief; TWG co-chaired by IMF mission Chief, World Bank’s Country Director, and Somalia’s Minister of Finance. ### Conclusions (authorities’ views) - Authorities remain committed to rebuilding institutions, infrastructure and human resource capacity to revive Somalia’s economy and improve lives. - Authorities appreciate assistance from international community including AfDB, IMF, and World Bank; acknowledge progress to date but emphasize that continued international support is critical. *Source: Staff Report and Supplementary Information for Somalia (as provided in the supplied content).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15208.pdf_