IMF Staff Concludes Visit to Somalia
IMF News, September 26, 2017
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Bibliographic details
- Published: September 26, 2017
Mission overview
- Press Release No. 17/369; September 26, 2017.
- IMF team led by Mohamad H. Elhage visited Nairobi from September 18–22 to discuss recent developments, progress under the Staff‑Monitored Program (SMP), and the economic outlook with Somali authorities.
- The mission conveyed preliminary findings; the views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
Context and macroeconomic outlook
- Somalia concluded two Article IV consultations with the Fund since 2015.
- The authorities entered a 12‑month SMP in May 2016 to help economic reconstruction and establish a track record of policy and reform implementation.
- IMF management completed the first SMP in June 2017 and approved a new SMP covering the period May 2017–April 2018 at the request of the Federal Government of Somalia (FGS).
- Key structural and situational challenges:
- Economic and social infrastructure remain significantly underdeveloped.
- Institutions are weak; poverty remains widespread.
- Drought has compounded humanitarian and economic conditions.
- Security situation remains fragile and is aggravated by high youth unemployment.
- Government fiscal position is weak due to shortfalls in fiscal management, a poor tax collection system, and a heavy external debt burden with no capacity to repay.
- Central bank and financial sector are nascent; widespread counterfeiting has diminished confidence in the national currency.
- 2017 projections reported by staff:
- Growth for 2017: 2.4 percent.
- Inflation for 2017: 2.9 percent.
- The drought has depressed economic activity, particularly in remote areas; sustained international support is helping ease the humanitarian crisis.
- Service sector recovery is reported as steady, notably in telecommunication and transportation sectors.
- During the first half of 2017 the fiscal position weakened: lower‑than‑expected domestic revenue and expenditure pressures resulted in a fiscal deficit in June.
Staff assessment and findings
- Overall assessment: Authorities show continued commitment to policy and reform implementation despite daunting challenges.
- Performance under SMP described as broadly satisfactory, supporting the approval of a second SMP.
- Currency reform: IMF staff welcome progress by the Central Bank of Somalia on reform implementation under the roadmap for currency reform; a number of follow‑up measures were agreed to complete remaining benchmarks for credible currency reform.
- Domestic arrears: Staff noted repeated accumulation of domestic arrears since the first SMP.
- Revenue and fiscal management: Serious shortfalls in fiscal management and a poor tax collection system are central weaknesses undermining fiscal position.
Recommendations and required measures
- General: Stronger efforts recommended to improve fiscal discipline, raise domestic revenue, and avoid new domestic arrears to keep the SMP on track.
- Fiscal framework:
- Any expenditure increase must be fully covered by realistic revenue projections or confirmed grants.
- Authorities should swiftly implement all revenue measures outlined in the budget and additional fiscal measures recently identified to keep the program on track.
- The FGS should remain current on its payment obligations.
- Domestic revenue:
- Implement speedily revenue measures outlined in the budget, particularly the sales tax on telecommunications and hotels.
- Domestic arrears:
- Stronger political commitment is required to avoid new domestic arrears accumulation.
- Staff welcomes the authorities’ initiative to work with the IMF to implement an Arrears Management Plan.
- Currency reform:
- Continue momentum of reform implementation at the Central Bank to ensure credible currency reform and implement agreed follow‑up measures to complete remaining benchmarks.
Engagement and meetings
- During the visit the team met with:
- Central Bank Governor Mr. Bashir Issa Ali.
- Permanent Secretary at the Minister of Planning, Investment and Economic Development Mr. Abdi Dirshe.
- Finance Minister Mr. Abdirahman Beileh.
- Other officials and representatives of bilateral and multilateral donors.
- IMF team expressed thanks to Somali authorities for cooperation and open, productive discussions.
IMF Communications Department