IMF Reaches Staff-Level Agreement on a Second Staff-Monitored Program with Somalia

IMF News, May 22, 2017

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An IMF team led by Mohamad Elhage visited Nairobi, Kenya from May 15-19 to conduct discussions on the second and final review of the Staff-Monitored Program (SMP) and a follow-up SMP.
The mission concluded with a staff-level agreement on the completion of the second and final review of the SMP and on a second SMP.
The views expressed 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.

In early February 2017, the Somali people held their second democratic and peaceful election since the end of the civil war.
The SMP had been approved by the IMF’s Managing Director at the request of the Federal Government of Somalia (FGS) on May 27, 2016 (Press Release No. 16/248).
With the SMP having expired in April, the authorities requested a follow-up SMP to continue supporting macroeconomic stability and capacity development.
Discussions on the new SMP followed the recent London conference on Somalia, where donors reaffirmed support and stressed the urgent need to further improve governance, and advance and broaden reforms.

2016 economic growth is estimated at 3.2 percent.
Inflation in 2016 increased to 2.3 percent from 1.4 percent in 2015, driven by higher food prices.
For 2017, growth is projected to decelerate to about 2.0 percent, as the drought is expected to continue.
For 2017, inflation is projected to increase to above 3 percent.
Government budgetary revenue and grants fell short of program projections in 2016, leading to liquidity strains and accumulation of arrears; authorities took corrective measures to prevent new arrears starting in 2017.
Sectoral performance in 2016: strong performance in the telecommunication, construction, and service sectors offset the impact of the drought on economic activity.

Performance under the SMP is described as broadly satisfactory given the difficult domestic environment.
By the end of 2016:
- All but one of the structural benchmarks had been observed.
- Five out of the six indicative targets had been met.
- The target on new domestic arrears accumulation was breached.
- Revenue performance was weak.
For March 2017, all the quantitative targets and structural benchmarks were met.
The authorities are encouraged to speed up and deepen agreed reforms, particularly by passing the needed laws such as the Communication Act.
The IMF welcomes the authorities’ continued progress on currency reform.

Continue to develop capacity and institutions.
- Despite recent progress, capacity to manage economic policies remains low and institutions are still weak.
- The IMF will continue to provide technical assistance and training in its areas of expertise.
Implement a sound fiscal framework and advance public financial management reforms.
- Emphasize prudent budget preparation, renewed efforts to generate higher domestic revenues, and improved cash management and expenditure controls to improve budgetary execution and outturns.
Increase domestic revenues.
- Broaden the tax base and enforce efficient collection of taxes and customs, based on existing laws.
Jump start financial sector activity.
- Develop and implement a financial sector roadmap to address obstacles to increased financial intermediation.
- Improve the financial sector regulatory framework and enforcement mechanism.
- Expand the regulatory umbrella to the mobile money sector.
Continue to advance currency reform.

During the visit, the team met with:
- Central Bank Governor Mr. Bashir Issa Ali;
- Senior Advisor to the President’s office Mr. Balal Osman;
- Representative of the Prime Minister’s office Mr. Abdi Abdullahi;
- Finance Minister Mr. Abdirahman Duale Beileh (discussed the MEFP);
- Representatives from development partners.
The team expressed thanks to the Somali authorities for their cooperation and the open and productive discussions.

IMF Press Release No. 17/186 — May 22, 2017