IMF Executive Board Approves 3-Year ECF and EFF Arrangements for Somalia
IMF News, March 25, 2020
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- Published: March 25, 2020
Key approval and financing
- IMF Executive Board approved three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for Somalia in the amount of SDR 292.4 million (about US$395.5 million or around 179 percent of quota).
- The three-year financing package will support implementation of the authorities’ National Development Plan and anchor reforms between the HIPC Decision and Completion Points.
- Somalia’s request for interim assistance under the HIPC Initiative on the debt service falling due to the Fund over the next 12 months has been approved.
Ms. Kristalina Georgieva — principal observations (Managing Director and Acting Chair)
- Somalia has reached the HIPC Decision Point given the authorities’ sustained commitment to reform in a challenging political, security and climate environment.
- The second review of the staff-monitored program, which has been endorsed as meeting the standards of upper credit tranche conditionality, has been completed.
- Authorities’ policy commitments have helped strengthen public financial management and the financial sector, improve governance, and enhance macroeconomic stability.
- The authorities’ new three-year economic program is an ambitious and appropriate response to Somalia’s macroeconomic challenges.
- Continued reform commitment and technical assistance are critical to achieve the program’s objectives and secure higher and more inclusive growth.
- Authorities need to continue strengthening cooperation between the Federal Government of Somalia and Federal Member States.
- The medium-term fiscal framework under the program balances containing recurrent spending while channeling new resources toward Somalia’s development plan.
- Swift implementation of Somalia’s comprehensive public financial management law is needed, together with efforts to strengthen debt management and ensure a conservative approach to any future borrowing to minimize the risk of falling back into debt distress.
- Central bank capacity strengthening, improved AML/CFT compliance, completion of the national risk assessment, and advancing governance reforms are emphasized.
- Improving macroeconomic statistics, particularly GDP and balance of payments data, is important; authorities should support creation of the independent national statistics office and implement the macroeconomic statistics action plan.
- Financial and technical support from the international community is important to support reforms and implementation of the Ninth National Development Plan (NDP9).
- The global COVID-19 pandemic and regional desert locust swarm pose new risks to the outlook and program; strong international support remains critical.
Recent economic developments (annex)
- Despite security, political, and climate challenges, Somalia has remained steadfast in implementing economic reforms, reaching the HIPC Decision Point.
- 2019 real gross domestic product (GDP) is estimated to have grown by 2.9 percent.
- The desert locust swarm and the global coronavirus pandemic make the near-term outlook less certain.
- Fiscal data reflect continued strong performance in 2019, with domestic revenues outturns outpacing the indicative targets set in Somalia’s Staff Monitored Program (SMP); as a result, there was a small fiscal surplus at the end of the year.
- The current account deficit, primarily financed by grants, remained close to 12 percent of GDP.
Program summary — objectives and focus areas
- Aim: Anchor medium-term policies during the period between the HIPC Decision and Completion Points; build on 2019 Article IV recommendations and reforms underpinning Somalia’s fourth SMP.
- Main reform focuses:
- Continued strengthening of public finances while balancing fiscal sustainability considerations.
- Continued deepening of central bank capacity.
- Efforts to improve the business environment and governance.
- Enhancing statistics.
Program design and policy measures (selected elements)
- Guide fiscal policy via a robust medium-term fiscal framework (MTFF) to balance Somalia’s development priorities and fiscal sustainability.
- In the context of HIPC and NDP9 implementation, staff envisages a substantial increase in expenditures.
- The program will further mobilize domestic revenue to support self-sufficiency, provision of public services, and social stability.
- Fiscal space will remain constrained.
- A ceiling on expenditures on compensation and the use of goods and services has been put in place.
- Expenditures will continue to be capped by the overall size of the revenue envelope, with a zero limit on new debt accumulation.
- The program places critical importance on sustaining and deepening inter-governmental fiscal relations.
- Deepen and broaden ongoing public financial management (PFM) reforms hinging on implementing aspects of the new PFM Act:
- Strengthen budget preparation and execution, enhance oversight, institutionalize recent improvements in budget processes, and enhance the quality of general government fiscal reporting.
- Improve capacity of the central bank:
- Support implementation of the central bank’s new organizational structure and develop a medium-term vision to guide future policy priorities.
- Reinforce the supervisory framework and improve AML-CFT compliance:
- Expand supervision to the whole financial sector, especially the mobile money sector.
- Support improvements in AML/CFT capacity, including deepening capacity of the Financial Reporting Center, and enhancing inter-agency cooperation through the National Anti-Money Laundering Committee.
- Support efforts to improve governance:
- Support completion of the authorities’ National Anti-Corruption Strategy and the related workplan to implement the strategy.
- Support long-term growth and poverty reduction:
- Use fiscal conditionality and reforms, and complementary floating Completion Point triggers, along with other conditionality in World Bank operations, to address growth, water management, poverty, gender, and improving the ease of doing business.
- Continue to support improvements in the production and dissemination of macroeconomic statistics and provide capacity development support to the authorities’ macroeconomic statistics action plan.
IMF Press Release No. 20/105, March 25, 2020 — IMF Communications Department