Somalia and Angola seek IMF support amid economic turbulence

Thursday April 7, 2016

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Somalia and Angola have both begun discussions with the International Monetary Fund for support as their economies struggle under the weight of tumbling oil prices and insecurity respectively.

The IMF is set to talk in greater detail with Angola regarding a potential three-year financial assistance programme for Africa’s second largest oil exporter at the World Bank and IMF spring meetings later this month.

Beginning in May, and subject to consideration by IMF management, its economists will also support the Somali government as they pursue a reform agenda and the “ambitious process” of rebuilding the state and economic and social infrastructure.

While the programme in Somalia doesn’t include any financial element, the fund said it marks a significant milestone for the war-torn country in “normalising” relations with international financial institutions.

Rogerio Zandamela, who led an IMF team on a visit to Somalia, said its government’s reconstruction efforts were “bearing fruit”, with growth estimated at 3.7% for 2015.

“However, in the fiscal area, insecurity and war-induced destruction continue to hamper revenue collection and the delivery of services to the population,” he added.

The IMF programme will aim to support the government as it pursues policies and reforms to improve economic governance and the fiscal framework, and tries to rebuild the financial system.

Zandamela said it will focus also on fiscal management, strengthening institutions and filling “considerable” data gaps, with technical assistance and capacity building included.

In particular, the 12-month programme hopes to see through reforms to raise domestic revenue and improve budget preparation and execution, implement a recently-adopted arrears management strategy and press ahead with public financial management reforms to enhance transparency and accountability.

Both guidance and cash are on the table for Angola, however, which reached out to the IMF to initiate discussions around possible support as it works to diversify its oil-dominated economy.

A statement released by the country’s ministry of finance yesterday stressed that the government is aware that high reliance on the oil sector puts both the public finances and the economy more broadly at risk.

While over the years the contribution of the non-oil sector to growth has increased, the oil sector still accounted for over 95% of export earnings and 52% of government revenue in 2015.

In a context of rapidly declining oil prices, the ministry said it had requested support from the IMF to reach its economic diversification objectives while addressing balance of payment needs, maintaining adequate international reserves, strengthening the institutional framework and designing policies to return the economy to sustainable growth.

Particular goals include improving transparency of the public finances, reforming the non-oil tax system for greater efficiency, simplifying the broader tax system, widening the tax base and reducing tax evasion.

Near-term diversification efforts will be focused in the agricultural and fisheries, mining, education, financial services, water and sanitation and health services, all of which they hope will improve employment opportunities across the country, but especially in rural areas.

Uganda also received commendations from IMF staff yesterday for a well-performing economy despite complex and uncertain international and domestic conditions.

Growth is expected to reach 5% in the current fiscal year, and Roger Nord, IMF mission chief and deputy director of the African department, applauded the government’s “steadfast implementation of fiscal policy in a complex electoral environment”.

But he noted performance under the IMF’s programme has been “mixed”. Progress has been made on increasing tax revenue, strengthening international reserves and establishing public investment management guidelines.

“However, the end-December 2015 overall deficit target was not met, poverty-reducing expenditures were below target, and some structural reforms suffered delays.”

Nevertheless, overall the fund welcomed the government’s plans to deal with “renewed fiscal pressures” that emerged early this year, as well as the 2016/17 budget currently before parliament and the scaled-up infrastructure investment it entails.

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