IMF Staff Completes Staff-Level Agreement on the Fifth Review of the Extended Credit Facility Arrangement for Somalia

IMF News, March 20, 2023

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An IMF team, led by Laura Jaramillo, conducted discussions with the Somali authorities in Nairobi on March 7-14, 2023 and reached a staff-level agreement on the fifth review under the Extended Credit Facility (ECF) arrangement.
The staff-level agreement is subject to approval of the IMF’s Executive Board.
Press Release No. 23/82; March 20, 2023.
End-of-Mission statement: views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Persistent drought has caused acute food insecurity in some areas.
Donor-supported assistance: close to 7.3 million people are getting some form of assistance.
Risk scenario: half of the population would face acute food insecurity by June 2023 if the April-June rainy season disappoints and financing of humanitarian support is not adequate.
Near-term macroeconomic risks remain elevated, including a worsening of the food crisis if healthy rains do not resume in 2023 or if commodity prices rise further.

GDP growth: the GDP growth estimate for 2022 and projections for 2023 were downgraded by ¼ percent to 1.7 percent and 2.8 percent, respectively, due to the prolonged drought and subdued remittance inflows.
Inflation: Average inflation reached 6.8 percent in 2022; expected to decline to 4.2 percent in 2023 as commodity prices recede.
Growth has been weighed down by the drought and slowing global growth; risks remain elevated.

Authorities committed to continue improving revenue collection and make room for priority spending while containing discretionary expenditure pressures.
The authorities will submit to Parliament a Supplementary Budget for 2023 that presents a balanced fiscal position based on realistic revenues.
The Supplementary Budget will:
- accommodate expenditure supportive of growth, security, and development—including security sector compensation and provisions and the hiring of new teachers;
- scale back other discretionary spending.
External budget support remains crucial.
Ongoing domestic revenue mobilization reforms include customs modernization, a new income tax law, and increasing revenue collection from large businesses, including the telecom sector.

Public financial management has been strengthened; ongoing improvements include:
- integrating all employees in the payroll system;
- fiscal reporting enhancements;
- procurement improvements;
- management of non-financial assets.
Progress has been made on the petroleum sector legal framework.
Authorities will take steps to strengthen the strategic and oversight role of the Inter-Ministerial Concessions Committee over government contracts and concessions.

The CBS is advancing institutional governance and financial sector reforms.
Progress on financial sector infrastructure improvements.
CBS will continue to enhance the regulatory framework and strengthen capacity in risk-based supervision, including through legislation and preparation of risk-based prudential regulations.
Measures to address money laundering/financing of terrorism risks include the recent enactment of the Targeted Financial Sanctions Law; further efforts will continue to be needed.

Authorities’ steady progress under the Heavily Indebted Poor Countries (HIPC) process is important to lay the ground for achieving the Completion Point in late 2023; the HIPC Completion Point appears achievable by 2023Q4.
Recent parliamentary approvals of key legislation include:
- the Electricity Act;
- the Extractive Industries Income Tax Law;
- the Data Protection Law;
- the Targeted Financial Sanctions Law;
- the Digital ID System Law;
- the Investment and Investor Protection Act;
- the Federal Law on Fisheries.
Debt relief agreements have been reached with most Paris Club members and the Kuwait Fund for Arab Economic Development (KFAED); authorities continue to seek agreements with other bilateral creditors.

Timely financing and capacity development support from development partners are essential for successful implementation of the authorities’ reform strategy.
Contributions from Somalia’s partners to the Somalia Country Fund are critical to ensure smooth delivery of IMF technical assistance to support the goals of the ECF-supported program and the HIPC Initiative.
Continued support from international partners is imperative to support the authorities’ policy efforts.

Despite significant challenges, including the continued severe food crisis, Somalia has maintained strong reform momentum and program performance has been satisfactory.
The mission thanked counterparts for a constructive and fruitful dialogue; meetings were held with the Minister of Finance, Minister of Planning, the Central Bank Governor, other government officials, and development partners.

IMF Communications Department