On February 21, 2018, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation
with Somalia. 2
Despite a severe drought and sporadic terrorist attacks, Somalia avoided a
significant economic slowdown in 2017 with support from the national and
international community.
The authorities’ commitment to the staff-monitored program is strong and
they are implementing difficult reform measures.
In 2017, Somalia faced a severe drought and sporadic terrorist attacks.
These developments hurt economic activity, particularly in the north of the
country and in rural areas, and temporarily impacted the tax collection
efforts of the Federal Government of Somalia. However, the authorities have
navigated through these challenges and, with sustained national and
international community support, the country avoided a severe humanitarian
crisis and a significant economic slowdown.
Nevertheless, economic activity in 2017 is expected to have slowed. The
drought that hit the country since late 2016 has receded, but it took a
considerable toll, particularly in the remote areas. GDP growth is
projected to have remained subdued at 1.8 percent in 2017 (down from 2.2
percent in 2016). Driven by higher food prices, year-on-year inflation
increased to 5.2 percent (compared to a 4 percent annual average) at the
end of December 2017.
Meanwhile, a small budget surplus was achieved by the end of September
2017, even though domestic revenue fell short of the program target. The
surplus of $3.8 million was due in part to a slower-than-expected pace of
budget execution. For the period ending in December, preliminary
information indicates that implementation of critical tax measures, and
higher-than-programmed bilateral grants, have helped generate a budget
surplus of about $1.8 million. Domestic revenue is also estimated to have
met the program target.
Despite the challenging environment, the Somali authorities remain
committed to reform implementation under their program. On June 21, 2017,
IMF management approved a second 12‑month SMP covering the period May
2017–April 2018, following Somalia’s successful completion of its first
SMP. The program is designed to help economic reconstruction efforts and
assist the country in establishing a track record of policy and reform
implementation. We are encouraged by the authorities’ commitment and the
pace of reforms to restore key economic and financial institutions, and
welcome their efforts to keep the program on track.
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 is designed to help countries avoid
slipping back into arrears while putting them on a path to sustainable debt
and reducing poverty. The authorities are normalizing relations with the
international community and establishing track record of reform
implementation, developing adequate policy instruments, tackling Somalia’s
low institutional capacity and fragile security situation to help the
country to achieve arrears clearance and debt relief. During this period,
Somalia can continue to receive substantial grants from donors. The IMF is
also assisting the authorities in addressing outstanding concerns by major
creditors, such as weak governance and institutional capacity, and
establishing a track record of implementing strong economic policies.
Somalia is among the largest beneficiaries of the IMF’s technical
assistance (TA) and training work, with 87 TA missions since late 2013.
The authorities are continuing to improve Somalia’s fiscal framework,
including its revenue collection performance. They have taken steps to
reform the national currency and developing the country’s financial sector.
The authorities are also making progress on addressing significant
shortcomings in economic data, and making efforts to develop coherent
social programs and address corruption.
Executive Board Assessment 3
Executive Directors commended the authorities’ strong commitment to the
staff monitored program (SMP) and their efforts to implement important
reforms in a difficult environment. Directors noted that Somalia confronted
a severe drought and sporadic terrorist attacks in 2017, and with support
from the international community, avoided a significant economic slowdown
and famine. Going forward, they underscored the importance of continued
implementation of reforms to improve the fiscal framework, strengthen the financial sector,
and enhance institutions and governance to set the foundation for sustained
and inclusive growth.
Directors welcomed the significant improvement in budget execution and
fiscal performance in 2017 as well as the authorities’ drive to implement
several important tax reforms that contributed to improving the fiscal
outturn. They were encouraged by the continued progress on public financial
management (PFM) reforms and stressed that building on the reform momentum
will be essential to strengthen the fiscal framework. Directors emphasized
that, while the government’s overall budgetary resources are limited,
increased budgetary allocation to social spending is needed.
Directors welcomed the progress toward the launch of the new national
currency, which is an essential component of the authorities’ economic
reform program. They commended efforts to implement the currency reform
roadmap, including the development of the legal and anti-counterfeit
frameworks, and lauded the federal government for reaching an 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 the authorities’ recent work to improve financial
intermediation and the anti-money laundering and combating the financing of
terrorism (AML/CFT) framework. They saw merit in the roadmap for financial
sector development, and encouraged the authorities to finalize the Targeted
Financial Sanctions Regulation Law.
Directors agreed that the renewed focus on governance and corruption is
timely. They encouraged the authorities to focus particularly in the areas
of PFM, revenue collection, treasury management, and domestic arrears and
cash management. Directors stressed that improving the business environment
is essential for sustained and inclusive growth and job creation.
Directors welcomed efforts to strengthen statistical institutions and data
production, and encouraged the authorities to take further steps to address
data gaps.
Directors supported the role of the Fund and the international community in
helping Somalia reach debt relief under the Heavily Indebted Poor Countries
(HIPC) Initiative as soon as feasible within established HIPC procedures.
The HIPC process is designed to help countries avoid slipping back into
arrears while putting them on a path of maintaining sustainable debt
dynamics and reducing poverty. Directors welcomed that, even before it
reaches the HIPC Decision Point, Somalia is receiving substantial grants
from the international community. In addition to securing broad based donor
support, the establishment of a satisfactory track record of cooperation
with the Fund on policies and payments under this and subsequent SMPs would
be a critical step in the process of arrears clearance and normalization of
relations with the international community which would pave the way to an
eventual IMF supported program and HIPC debt relief.
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Somalia: Selected Economic and Financial Indicators,
2014–20
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(IMF Quota = SDR 44.20 million; Population: 13 million,
2015 estimate)
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(Poverty Rate: n.a.; Main Export: Livestock)
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Est.
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Proj.
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Proj.
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2014
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2015
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2016
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2017
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2018
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2019
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2020
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National income and prices
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Nominal GDP in millions of U.S. dollars
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6,528
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6,739
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6,887
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7,382
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7,781
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8,210
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8,688
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Real GDP, annual percentage change
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2.4
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2.5
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2.4
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1.8
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2.5
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2.8
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3.1
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Per capita GDP in U.S. dollars
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515
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517
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513
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535
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548
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562
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577
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Consumer prices (e.o.p., percent change)
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1.3
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-1.5
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1.3
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5.2
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2.8
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2.6
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2.6
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Central government finances 1/
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Revenue and grants
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2.2
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2.1
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2.5
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3.1
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3.2
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3.5
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3.9
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of which:
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Grants 2/
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0.9
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0.4
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0.8
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1.3
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1.2
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1.3
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1.4
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Expenditure, of which:
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2.3
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2.0
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2.5
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3.1
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3.2
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3.5
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3.9
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Compensation of employees
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1.2
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0.8
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0.8
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1.6
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1.7
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1.7
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1.8
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Purchase of non-financial assets
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0.0
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0.0
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0.1
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0.1
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0.1
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0.2
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0.2
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Overall balance
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0.0
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0.1
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0.0
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0.0
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0.0
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0.0
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0.0
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Stock of domestic arrears
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0.7
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1.0
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1.1
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0.9
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0.8
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0.6
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0.4
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Central bank assets
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Total assets, of which:
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89.2
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90.6
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82.8
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140.3
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…
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…
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…
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Foreign assets (gross)
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68.5
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68.6
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60.9
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97.0
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…
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…
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…
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Cash and cash equivalent, in vault (U.S. dollar)
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6.2
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13.3
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8.2
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18.5
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…
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…
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…
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Domestic assets
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20.6
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22.0
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21.9
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43.3
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…
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…
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…
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FGS, total deposits 3/
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11.7
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19.1
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12.1
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32.2
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…
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…
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…
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Balance of payments
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Current account balance
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-5.3
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-4.7
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-6.3
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-6.7
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-7.2
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-6.5
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-6.3
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Trade balance
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-45.3
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-44.5
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-46.2
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-50.5
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-45.8
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-44.5
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-43.9
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Exports of goods and services
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14.5
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15.4
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14.8
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13.4
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13.9
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14.3
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14.1
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Imports of goods and services
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59.8
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59.9
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61.0
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64.0
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59.7
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58.8
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58.0
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Remittances
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20.2
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19.2
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19.6
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20.6
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19.5
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19.6
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19.7
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Grants
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20.4
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21.0
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20.8
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23.7
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19.5
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18.8
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18.3
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Foreign Direct Investment
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4.0
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4.5
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4.9
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5.2
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5.5
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5.7
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5.6
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External debt
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78.5
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76.5
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74.5
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71.5
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…
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…
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…
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Market exchange rate
(SOS/USD, e.o.p.)
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20,265
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22,285
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24,005
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23,605
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…
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…
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…
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Sources: Somali authorities; and Fund staff estimates and
projections.
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1/ Budget data for the Federal Government of Somalia.
Fiscal operations are recorded on a cash basis. GDP data
cover the entire territory of Somalia.
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2/ Includes only donors' support provided to the Federal
Government of Somalia through treasury accounts at the
Central Bank of Somalia.
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3/ Includes Treasury deposits, grants, and asset recovery
balances.
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[1]
An SMP is an informal agreement between country authorities and
Fund staff to monitor the implementation of the authorities’
economic program. SMPs do not entail financial assistance or
endorsement by the IMF Executive Board. For more on Somalia SMP, go
to: http://www.imf.org/en/Countries/SOM.
[2]
Under Article IV of the IMF's Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country's economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.
[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summaries can be found here:
http://www.imf.org/external/np/sec/misc/qualifiers.htm