Six Things to Know About Somalia's Economy

IMF News, April 11, 2017

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Somalia’s economic progress, challenged by the recent drought, will depend on implementation of policy reforms along with continued support from donors, said the IMF in its latest country assessment.
The IMF has concluded two annual economic assessments since resuming relations with Somalia in 2013—the first in 2015—marking the first IMF consultation with the country since 1989.
Because Somalia is in arrears with the IMF it cannot benefit from IMF loans; however, the authorities have engaged with the IMF in the context of a 12-month staff-monitored program. The first review of this program was completed in February 2017.

The drought is severely affecting vulnerable populations.
The harsh impact of the ongoing drought on the agricultural sector has put about 6.2 million people (about half the Somali population) in need of assistance and at risk of food insecurity.
The drought is expected to slow economic activity and raise inflation this year.
Urgent need for humanitarian and financial assistance from the government and the international community; the government will need to better coordinate and monitor humanitarian aid distribution amid security challenges across some regions with a focus on the most affected regions.

Donors’ support is key: the Somali economy is sustained by donors' grants, remittances, and foreign direct investment mostly by the Somali diaspora.
Since 2013, the donor community has given over $4.5 billion in humanitarian and developmental grants.
Donor support is essential in contributing to finance Somalia’s trade deficit of nearly 55 percent of GDP (average during 2013-16).

Tackling unemployment is crucial for political stability.
The unemployed youth population (about 67 percent) contributes significantly to irregular migration and participation in extremist activities, including Al-Shabaab—which is viewed as another form of employment.
With very high youth unemployment and low overall labor force participation (particularly by women), the Somali authorities established the National Development Plan that focuses on:
- achieving higher economic growth,
- creating jobs and absorbing Somali refugees returning from Kenya,
- supporting remittance flows,
- prioritizing social safety nets and pressing humanitarian conditions.

Preparations for currency reform are under way to help strengthen governance.
The Central Bank of Somalia and the Federal Government of Somalia are preparing to reissue new Somali shilling banknotes—for the first time in 26 years—to combat the existing massive counterfeiting in the country, restore confidence in the national currency, and to allow the central bank to start implementing monetary policy.
The IMF is helping the authorities to implement the measures that need to be in place for the launch of the new currency.

The IMF is working closely with Somalia. Since resuming its relationship with the country in 2013, the IMF has engaged through assessments and a 12-month staff-monitored program to support economic reconstruction and institutional capacity building.
Technical assistance is helping: Somalia is among the largest beneficiaries of IMF technical assistance, receiving over 70 technical assistance and training missions since 2014.
Tangible progress includes:
- preparation of a national budget for 2014-2017,
- production of the government’s first monthly fiscal reporting data since January 2015,
- development of central bank capacity starting from a very low base and a mix of Islamic and western accounting systems, including:
- a bank licensing framework,
- methods for periodic reporting by commercial banks,
- a system for bank financial analysis,
- a supervisory scoring system that monitors the overall health of a bank.
As Somalia continues to engage more with international financial institutions, the IMF will deepen and scale up its capacity-building efforts as necessary.

International Monetary Fund