IMF Executive Board Concludes 2024 Article IV Consultation and Second Review Under Extended Credit Facility for Somalia
IMF News, December 10, 2024
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- Published: December 10, 2024
Program performance and disbursement
- Somalia’s program performance has been strong, demonstrating the authorities’ steadfast commitment to macroeconomic stability and strengthening institutional capacity and frameworks.
- The Executive Board completed the 2024 Article IV Consultation and the second review under the Extended Credit Facility (ECF) arrangement for Somalia on December 9.
- Immediate disbursement enabled:
- SDR 7.5 million (about US$ 10 million) disbursed upon the Board’s decision.
- Total disbursements under the ECF to date: SDR 45 million (about US$ 60 million).
- Original ECF approval:
- ECF arrangement approved on December 19, 2023 for SDR 75 million (about US$100 million).
Macroeconomic outlook and projections
- Real GDP growth projections:
- Upgraded to 4 percent for 2024.
- Upgraded to 4 percent for 2025.
- Inflation outlook:
- Expected to continue on a downward trend to 4.5 percent by end 2024, with the pace slower than anticipated earlier.
- Growth drivers cited:
- Strong exports and remittances.
- Positive trends in agriculture, exports, and remittances in 2024 expected to continue in 2025.
Risks and near-term vulnerabilities
- Elevated risks include:
- Regional and domestic security developments.
- Climate shocks.
- Commodity price developments.
- Lower global growth.
- Security transition note:
- Somali government continues to work with international partners to ensure a successful transition from the current African Union Transition Mission to a new force by January 2025.
Policy priorities and reforms recommended
- Fiscal policy and public finance:
- Continue fiscal reforms to strengthen domestic revenue mobilization, especially given prospects of declining external grants and large social and development spending needs.
- Strengthen tax capacity, public financial management, investment and debt management, and spending efficiency.
- Continue progress on the fiscal federalism agenda, customs modernization, implementation of the Income Tax Law, and stronger tax enforcement.
- Conduct careful fiscal impact assessment of wage bill and pension reforms before implementation.
- Central bank, financial sector, and currency policy:
- Ongoing efforts to strengthen central bank institutional capacity are commendable.
- Promote financial deepening and financial inclusion; advance reforms to improve the AML/CFT framework.
- Preparatory work to reintroduce the Somali shilling and adopt a currency board arrangement is welcome; a gradual and carefully managed implementation strategy is warranted with support from the IMF and the World Bank.
- Complementary policies needed to protect the credibility of the currency board arrangement, including fiscal sustainability and central bank operational independence.
- Governance, transparency, and anti-corruption:
- Further reforms to improve governance are encouraged, including measures to enhance transparency and accountability in the petroleum sector.
- Continue steps to improve governance and fight corruption and sustain efforts in this regard.
- Address AML/CFT deficiencies and implement the legal framework for the petroleum sector.
- Social inclusion and resilience:
- Promote inclusive growth by addressing food insecurity, building climate resilience, improving access to education and health, and enhancing trade integration.
- Increase access to and close gender gaps in education.
- Continued and timely support from development partners, including capacity development, is important for implementing the reform agenda.
Executive Board assessment
- Directors agreed with the thrust of the staff appraisal and commended:
- Reaching the HIPC completion point in December 2023.
- Continued commitment to economic reform and strong performance under the Fund‑supported program.
- Directors emphasized:
- Sustaining reform momentum to increase resilience, reduce poverty, and promote inclusive growth amid downside risks from fragility, regional tensions, climate shocks, and food insecurity.
- The vital role of continued donor support and capacity development facilitated by the Fund and other development partners.
- Need for careful and gradual accession to the East African Community, noting opportunities, challenges, and risks.
- Financial sector and safeguards:
- Welcomed enhancement of the central bank’s governance and legal frameworks and progress on recommendations from the 2024 Safeguards Assessment.
- Recommended continued reforms to promote financial deepening and inclusion, and further strengthen financial regulation and supervisory capacity.
Press Release No. 24/462 — IMF, December 10, 2024.
