IMF Executive Board Concludes 2017 Article IV Consultation with Somalia, and Completion of the First Review under the Staff-Monitored Program (SMP)

IMF News, February 23, 2018

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Published: February 23, 2018

Context and program status

On February 21, 2018, the Executive Board concluded the Article IV consultation with Somalia.
The authorities’ commitment to the staff‑monitored program (SMP) is described as strong; they are implementing difficult reform measures.
IMF management approved a second 12‑month SMP covering the period May 2017–April 2018, following Somalia’s successful completion of its first SMP.
Somalia is among the largest beneficiaries of IMF technical assistance (TA) and training work, with 87 TA missions since late 2013.

Economic developments and outlook

Despite a severe drought and sporadic terrorist attacks in 2017, Somalia avoided a significant economic slowdown in 2017 with support from the national and international community.
GDP growth and inflation:
- Real GDP, annual percentage change: 2.4 (2014); 2.5 (2015); 1.8 (2016); 1.8 (2017); 2.8 (2018 proj.); 3.1 (2019 proj.).
- Consumer prices (end of period, percent change): 1.3 (2014); -1.5 (2015); 5.2 (2016); 5.2 (end-December 2017 reported); 2.6 (2018 proj.).
- Per capita GDP in U.S. dollars: 515 (2014); 517 (2015); 513 (2016); 535 (2017); 548 (2018 proj.); 562 (2019 proj.); 577 (2020 proj.).
The drought that hit the country since late 2016 receded but took a considerable toll, particularly in remote areas; economic activity in 2017 is expected to have slowed.
Year‑on‑year inflation increased to 5.2 percent at the end of December 2017 (driven by higher food prices).

Fiscal outcomes and public finances

Budgetary outcomes:
- A small budget surplus of $3.8 million was achieved by the end of September 2017, partly due to slower‑than‑expected budget execution.
- For the period ending in December 2017, preliminary information indicates a budget surplus of about $1.8 million, supported by implementation of critical tax measures and higher‑than‑programmed bilateral grants.
- Domestic revenue is also estimated to have met the program target for the period ending in December 2017.
Central government finances (selected ratios, percent of GDP; Federal Government of Somalia budget data recorded on a cash basis):
- Revenue and grants: 2.2 (2014); 2.1 (2015); 3.2 (2016); 3.5 (2017); 3.9 (2018 proj.).
- Grants (of which donors' support through treasury accounts at the Central Bank of Somalia): 0.9 (2014); 0.4 (2015); 0.8 (2016); 1.2 (2017); 1.4 (2018 proj.).
- Expenditure (selected components): Compensation of employees 1.6 (2014); 1.7 (2015). Purchase of non‑financial assets 0.0 (2014); 0.1 (2015); 0.2 (2016).
- Overall balance: 0.7 (2014); 1.0 (2015); 1.1 (2016); 0.6 (2017).
- Stock of domestic arrears: (series listed but values already above).
Central bank and public deposits (selected levels, millions or percents as presented):
- Central bank total assets: 89.2 (2014); 90.6 (2015); 82.8 (2016); 140.3 (2017).
- Foreign assets (gross): 68.5 (2014); 68.6 (2015); 60.9 (2016); 97.0 (2017).
- Cash and cash equivalent in vault (U.S. dollar): 6.2 (2014); 13.3 (2015); 8.2 (2016); 18.5 (2017).
- Domestic assets: 20.6 (2014); 22.0 (2015); 21.9 (2016); 43.3 (2017).
- FGS, total deposits: 11.7 (2014); 19.1 (2015); 12.1 (2016); 32.2 (2017).

Balance of payments and external sector

Current account balance (percent of GDP): -5.3 (2014); -4.7 (2015); -6.3 (2016); -6.7 (2017); -7.2 (2018 proj.); -6.5 (2019 proj.).
Trade balance (percent of GDP): -45.3 (2014); -44.5 (2015); -46.2 (2016); -50.5 (2017); -45.8 (2018 proj.); -43.9 (2019 proj.).
Exports of goods and services: 14.5 (2014); 15.4 (2015); 14.8 (2016); 13.4 (2017); 13.9 (2018 proj.); 14.3 (2019 proj.); 14.1 (2020 proj.).
Imports of goods and services: 59.8 (2014); 59.9 (2015); 61.0 (2016); 64.0 (2017); 59.7 (2018 proj.); 58.8 (2019 proj.); 58.0 (2020 proj.).
Remittances (percent of GDP): 20.2 (2014); 19.2 (2015); 19.6 (2016); 19.5 (2017); 19.7 (2018 proj.).
Grants (percent of GDP): 20.4 (2014); 21.0 (2015); 20.8 (2016); 23.7 (2017); 18.8 (2018 proj.); 18.3 (2019 proj.).
Foreign Direct Investment (percent of GDP): 4.0 (2014); 4.5 (2015); 4.9 (2016); 5.5 (2017); 5.7 (2018 proj.); 5.6 (2019 proj.).
External debt (percent of GDP): 78.5 (2014); 76.5 (2015); 74.5 (2016); 71.5 (2017).
Market exchange rate (SOS/USD, end of period): 20,265 (2014); 22,285 (2015); 24,005 (2016); 23,605 (2017).

Structural reforms, institutions, and governance

Fiscal and revenue reforms:
- Authorities are continuing to improve Somalia’s fiscal framework and revenue collection performance and have implemented several important tax reforms that contributed to improving the fiscal outturn.
- Progress on public financial management (PFM) reforms is noted; building on this reform momentum will be essential to strengthen the fiscal framework.
- Directors emphasized that increased budgetary allocation to social spending is needed despite limited overall budgetary resources.
Currency reform and financial sector:
- Progress toward the launch of the new national currency was welcomed; work includes development of legal and anti‑counterfeit frameworks and agreement with Somali federal member states to support currency reform.
- The successful launch of the new currency will hinge on the development of an appropriate communication strategy and accountability framework.
- Directors welcomed improvement efforts in financial intermediation and the anti‑money laundering and combating the financing of terrorism (AML/CFT) framework, and encouraged finalization of the Targeted Financial Sanctions Regulation Law.
Data, statistics, and capacity:
- Directors welcomed efforts to strengthen statistical institutions and data production and encouraged further steps to address data gaps.
- The IMF is assisting the authorities in addressing weak governance and institutional capacity concerns raised by major creditors.
Governance and anti‑corruption:
- Renewed focus on governance and corruption was described as timely, with emphasis on PFM, revenue collection, treasury management, domestic arrears, and cash management.
- Improving the business environment was emphasized as essential for sustained and inclusive growth and job creation.
Social programs:
- Authorities are making efforts to develop coherent social programs and address corruption.

HIPC initiative, arrears clearance, and donor support

The IMF is helping Somalia reach debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative as soon as feasible within established HIPC procedures.
The HIPC process aims to help countries avoid slipping back into arrears while putting them on a path to sustainable debt and reducing poverty.
Somalia can continue to receive substantial grants from donors during the HIPC preparatory period; even before reaching the HIPC Decision Point, Somalia is receiving substantial grants from the international community.
Establishing a satisfactory track record of cooperation with the Fund on policies and payments under this and subsequent SMPs is identified as a critical step toward arrears clearance, normalization of relations with the international community, eventual IMF‑supported program, and HIPC debt relief.

Executive Board assessment and policy recommendations

Executive Directors commended the authorities’ strong commitment to the SMP and reform efforts in a difficult environment.
Key areas emphasized by Directors for continued implementation:
- Improve the fiscal framework and continue tax and PFM reforms.
- Strengthen the financial sector and finalize AML/CFT‑related laws and the Targeted Financial Sanctions Regulation Law.
- Enhance institutions and governance to support sustained and inclusive growth.
- Increase budgetary allocation to social spending within constrained resources.
- Develop an appropriate communication and accountability framework for the new currency launch.
- Continue strengthening statistical institutions and addressing data gaps.
Directors supported the role of the Fund and international community in helping Somalia reach HIPC debt relief as soon as feasible and stressed the importance of securing broad‑based donor support and a track record of policy and payment cooperation.

Source: Press Release No. 18/66, IMF Communications Department — "IMF Executive Board Concludes 2017 Article IV Consultation with Somalia, and Completion of the First Review under the Staff‑Monitored Program (SMP)", February 23, 2018.