## Press Release: IMF Staff Completes 2015 Article IV Mission to Somalia

_IMF News, June 18, 2015_

## Source details

**Canonical URL:** [Press Release: IMF Staff Completes 2015 Article IV Mission to Somalia](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr15278)

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## Bibliographic details
- Published: June 18, 2015

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### Mission context
- IMF team led by Rogerio Zandamela held discussions in Nairobi from June 8–18, 2015 on the Article IV Consultation with Somalia, the first such discussions in over 25 years.
- End-of-mission press releases convey preliminary findings; views are those of IMF staff and do not necessarily represent the IMF’s Executive Board.
- Staff will prepare a report based on the mission’s preliminary findings for presentation to the IMF's Executive Board, subject to management approval.

### Economic assessment and outlook
- Economic activity is estimated to have expanded by 3.7 percent in 2014, driven by growth in agriculture, construction, and telecommunications.
- CPI inflation was 1.3 percent in 2014.
- For 2015:
  - Real growth is projected at 2.7.
  - Inflation should remain subdued at about 4 percent.
- Medium-term outlook:
  - With modest progress on the security front and an absence of drought, medium-term annual growth should be about 5 percent.
- Caveat: Growth will remain inadequate to redress poverty and gender disparities.

### Fiscal situation and public financial management
- The 2015 federal budget:
  - Prepared on a zero cash balance basis.
  - Used optimistic revenue forecasts and weak commitment control.
- Fiscal pressures and consequences:
  - Deficiencies in revenue mobilization, considerable expenditure pressure, and unfulfilled pledges of donor support have led to extraordinary difficulties in budget execution.
  - Funding shortfall led the federal government to ration cash and incur arrears to the defense forces, civil servants, and suppliers.
- Budget composition and dependence:
  - Expansion in the number of ministries and government entities has left Somalia with a payroll-centric budget, with the share of wages about 45 percent of spending.
  - Dependence on foreign grants remains over 40 percent of the budget.
  - International assistance outside the budget is significantly higher than direct budget assistance.
- IMF staff projection and fiscal policy advice:
  - In light of lower domestic revenue and shortfalls in donor support, staff projects a significant budget deficit in 2015.
  - Somalia needs to boost revenue and revise the budget to align spending commitments with available resources.
  - Recommended fiscal measures include:
    - Adopt policies to address important budget vulnerabilities.
    - Introduce fiscal rules, such as targets for the share of wages and capital, to help ensure fiscal sustainability and a desirable composition of spending.
    - Accompany fiscal rules with a medium-term fiscal framework to guide realization.
    - Adopt comprehensive and properly sequenced budget reforms to improve budget preparation and execution, arrears control, treasury management, and accounting and reporting.

### Natural resources, governance, and federalism
- Somalia has large potential for revenue from natural resources.
- Recommendations for natural resource management:
  - Effective concession management and a suitable fiscal regime are critical for peace and prosperity.
  - The natural resource management strategy should incorporate best practices while facilitating private sector participation and ensuring transparency.
- Governance and federalism:
  - Progress toward good governance—with sound and accountable institutions—is important for restoration of public confidence.
  - Somalia needs consensus regarding fiscal federalism, including responsibilities for service delivery, and revenue collection and sharing.

### Monetary and financial sector issues
- The economy is predominantly dollarized and cash is scarce, particularly in lower denominations.
- Somali banknotes are not readily available, creating problems for the poorest.
- Public and political pressure is mounting for currency reform; IMF advice:
  - Currency reform should be delayed until necessary conditions are in place.
  - Failed efforts would create significant direct losses and reputational costs.
  - Currency reform should adhere to a well-designed roadmap, including building adequate technical and human capacity.
  - The Fund stands ready to assist Somalia to carry out a successful currency reform.
- Remittances and banking:
  - Swift action is required so that remittances can be channeled through the international banking system.
  - Elaboration of a financial sector roadmap will be a critical first step to build credibility in licensing and supervision.

### Institutional engagement and meetings
- The mission met with:
  - Finance Minister Mohamad Aden Ibrahim,
  - Deputy Planning Minister Abdullahi Sheikh Ali,
  - Central Bank Governor Bashir Issa Ali,
  - and other senior officials.
- The mission also held a debriefing session with donors.
- The mission expressed gratitude for the high quality and openness of the discussions and for the cooperation of the Somali authorities and stated continued commitment to ongoing dialogue.

*Press Release No. 15/278, June 18, 2015, IMF COMMUNICATIONS DEPARTMENT.*

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## References

- [Somalia and the IMF](http://www.imf.org/external/country/SOM/index.htm)
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- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr15278_