Press Release: IMF Staff Completes 2015 Article IV Mission to Somalia
IMF News, June 18, 2015
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Bibliographic details
- Published: June 18, 2015
Mission context
- IMF team led by Rogerio Zandamela held discussions in Nairobi from June 8–18, 2015 on the Article IV Consultation with Somalia, the first such discussions in over 25 years.
- End-of-mission press releases convey preliminary findings; views are those of IMF staff and do not necessarily represent the IMF’s Executive Board.
- Staff will prepare a report based on the mission’s preliminary findings for presentation to the IMF's Executive Board, subject to management approval.
Economic assessment and outlook
- Economic activity is estimated to have expanded by 3.7 percent in 2014, driven by growth in agriculture, construction, and telecommunications.
- CPI inflation was 1.3 percent in 2014.
- For 2015:
- Real growth is projected at 2.7.
- Inflation should remain subdued at about 4 percent.
- Medium-term outlook:
- With modest progress on the security front and an absence of drought, medium-term annual growth should be about 5 percent.
- Caveat: Growth will remain inadequate to redress poverty and gender disparities.
Fiscal situation and public financial management
- The 2015 federal budget:
- Prepared on a zero cash balance basis.
- Used optimistic revenue forecasts and weak commitment control.
- Fiscal pressures and consequences:
- Deficiencies in revenue mobilization, considerable expenditure pressure, and unfulfilled pledges of donor support have led to extraordinary difficulties in budget execution.
- Funding shortfall led the federal government to ration cash and incur arrears to the defense forces, civil servants, and suppliers.
- Budget composition and dependence:
- Expansion in the number of ministries and government entities has left Somalia with a payroll-centric budget, with the share of wages about 45 percent of spending.
- Dependence on foreign grants remains over 40 percent of the budget.
- International assistance outside the budget is significantly higher than direct budget assistance.
- IMF staff projection and fiscal policy advice:
- In light of lower domestic revenue and shortfalls in donor support, staff projects a significant budget deficit in 2015.
- Somalia needs to boost revenue and revise the budget to align spending commitments with available resources.
- Recommended fiscal measures include:
- Adopt policies to address important budget vulnerabilities.
- Introduce fiscal rules, such as targets for the share of wages and capital, to help ensure fiscal sustainability and a desirable composition of spending.
- Accompany fiscal rules with a medium-term fiscal framework to guide realization.
- Adopt comprehensive and properly sequenced budget reforms to improve budget preparation and execution, arrears control, treasury management, and accounting and reporting.
Natural resources, governance, and federalism
- Somalia has large potential for revenue from natural resources.
- Recommendations for natural resource management:
- Effective concession management and a suitable fiscal regime are critical for peace and prosperity.
- The natural resource management strategy should incorporate best practices while facilitating private sector participation and ensuring transparency.
- Governance and federalism:
- Progress toward good governance—with sound and accountable institutions—is important for restoration of public confidence.
- Somalia needs consensus regarding fiscal federalism, including responsibilities for service delivery, and revenue collection and sharing.
Monetary and financial sector issues
- The economy is predominantly dollarized and cash is scarce, particularly in lower denominations.
- Somali banknotes are not readily available, creating problems for the poorest.
- Public and political pressure is mounting for currency reform; IMF advice:
- Currency reform should be delayed until necessary conditions are in place.
- Failed efforts would create significant direct losses and reputational costs.
- Currency reform should adhere to a well-designed roadmap, including building adequate technical and human capacity.
- The Fund stands ready to assist Somalia to carry out a successful currency reform.
- Remittances and banking:
- Swift action is required so that remittances can be channeled through the international banking system.
- Elaboration of a financial sector roadmap will be a critical first step to build credibility in licensing and supervision.
Institutional engagement and meetings
- The mission met with:
- Finance Minister Mohamad Aden Ibrahim,
- Deputy Planning Minister Abdullahi Sheikh Ali,
- Central Bank Governor Bashir Issa Ali,
- and other senior officials.
- The mission also held a debriefing session with donors.
- The mission expressed gratitude for the high quality and openness of the discussions and for the cooperation of the Somali authorities and stated continued commitment to ongoing dialogue.
Press Release No. 15/278, June 18, 2015, IMF COMMUNICATIONS DEPARTMENT.