Washington, DC:
An International Monetary Fund (IMF) team, led by Laura Jaramillo,
concluded virtual discussions with the Somali authorities and reached a
staff-level agreement on the second and third reviews of the Extended
Credit Facility (ECF) arrangement. This agreement is subject to approval of
the IMF’s Executive Board.
At the conclusion of the discussions, Ms. Jaramillo issued the following
statement:
“Somalia has been subject to multiple shocks, including COVID-19, climate
shocks, and surge in commodity prices. As of May 13, 2022, only 8.7 percent
of the population had been fully vaccinated, mainly due to lack of vaccine
access. Somalia is also facing prolonged drought conditions that worsened
since 2021. Pressures on food security have been compounded by the increase
in global food and energy prices.
Notwithstanding these shocks, Somalia has preserved macroeconomic
stability, supported in part by the IMF’s 2021 General SDR Allocation. Real
GDP growth was estimated at 2 percent in 2021, given the recovery in
household consumption. In the face of significant revenue shortfalls
(including because budget support grants were on hold until elections were
completed), the authorities intensified expenditure prioritization and
financed the overall deficit of 1.1 percent of GDP with cash balances and
SDRs.
Growth is expected to pick up modestly in 2022, but risks are elevated.
Growth of 2.7 percent would be driven by private consumption, supported by
remittances. However higher international food and fuel costs will dampen
economic activity and will bring inflation to 8.5 percent in 2022.The
fiscal deficit is expected to narrow to 0.6 percent of GDP, as revenues and
budget grants recover. Near-term risks include the evolution of the
pandemic, prolonged drought or new climate shocks, resurgence of desert
locust infestation, security risks, and additional pressures on
international food and energy prices. Shortfalls or delays in disbursement
of budget support grants would also create risks for the budget and the
program.
The 2022 budget is aligned with the ECF objectives and the medium-term
fiscal framework. While domestic revenue collection will be supported by
the implementation of 2022 budget measures, external budget support remains
crucial. Expenditure will continue to be carefully prioritized, with a
modest increase in social spending, keeping the deficit at 0.6 percent of
GDP. The authorities continue to advance reforms on domestic revenue
mobilization, including customs modernization and increasing revenue
collection from the telecom sector. Public financial management has been
strengthened, including improvements in reporting of aggregated FGS and FMS
fiscal accounts. Issuance of the PFM Regulations and payroll integration
are key. The authorities are also working towards harmonizing the legal
framework for the extractive industries and refining the tender process to
promote competition.
The CBS continues to advance institutional reform. The new National Payment
System is a major milestone, and the two largest mobile money operators
were granted licenses in 2021. The CBS should continue to enhance its
supervisory capacity and monitor the financial system closely. Continued
capacity building across all stakeholders is needed to improve AML/CFT
compliance.
The government continues to make headway in the HIPC debt relief process.
The authorities reached debt relief agreements with most Paris Club
members, and continue to seek agreements with other creditors. Further
progress on reforms is needed to achieve the HIPC Completion Point Triggers
on a timely basis.
Timely support from development partners, both on financing and capacity
development, is essential for the successful implementation of the
authorities’ reform strategy. Contributions from Somalia’s partners to the
Somalia Country Fund are also needed to ensure smooth delivery of IMF
technical assistance to support the goals of the ECF-supported program and
the HIPC Initiative.
The mission would like to thank our counterparts for a constructive and
fruitful dialogue. Meetings were held with the President of the Federal
Republic of Somalia, the Minister of Finance, the Central Bank Governor,
other government officials, development partners, and representatives from
private sector and civil society.”