Thursday May 30, 2024
Mogadishu (HOL) — The International Monetary Fund (IMF) Executive Board has completed the first review of Somalia's Extended Credit Facility (ECF) arrangement, approving an immediate disbursement of about $10 million to support the nation's economic policies and reforms. The IMF said the decision follows significant progress in Somalia's reform agenda, which aims to boost economic growth and stability.
Somalia's real GDP growth is projected to rise to 3.7% in 2024, up from 2.8% in 2023. The growth is driven by a recovery in agriculture, increased remittances, and higher investment. The IMF commended Somalia for its strong program performance, with policy priorities focusing on fiscal sustainability, revenue strengthening, public financial management, financial deepening, governance improvement, and statistical enhancements.
This latest review follows Somalia's achievement of the Completion Point under the Heavily Indebted Poor Countries (HIPC) initiative in December 2023, which resulted in substantial debt relief. Somalia's external debt was reduced from 64% of GDP in 2018 to less than 6% by the end of 2023. The debt relief, amounting to $4.5 billion, was the culmination of nearly a decade-long effort across three political administrations, underscoring Somalia's commitment to economic reform.
Deputy Managing Director and Acting Chair, Ms. Antoinette Sayeh, highlighted the strong reform momentum maintained by Somali authorities since reaching the HIPC Completion Point. "The Somali authorities have maintained strong reform momentum, after reaching the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative in December 2023. Somalia's performance under the Fund-supported Extended Credit Facility Arrangement has been strong. The authorities' continued strong ownership of the reform agenda will be important to build resilience, promote inclusive growth, and reduce poverty. Continued and timely support from development partners is also critical for the successful implementation of the reform strategy," said Sayeh.
She added, "The authorities' strong revenue performance and steadfast implementation of revenue-enhancing reforms are welcome. Sustained efforts on domestic revenue mobilization would help to make room for priority spending. Key reforms include customs modernization and the new income tax law. Further strengthening of public financial management is also important, including continued progress on payroll integration, enhancing expenditure controls, as well as developing debt management capacity."
The IMF highlighted the Somali authorities' robust revenue performance and steadfast implementation of revenue-enhancing reforms, such as customs modernization and the new income tax law. These efforts are expected to create fiscal space for priority spending. Strengthening public financial management, including payroll integration and expenditure controls, remains crucial.
Sayeh also noted, "Ongoing reforms to strengthen central bank institutional capacity are commendable. Careful formulation of the monetary and exchange rate policy frameworks is important in the context of the planned currency reform. Efforts should continue to promote financial deepening and financial inclusion and to advance reforms to improve the AML/CFT framework and governance."
Somalia continues to face challenges such as security threats, climate volatility, and the need for robust economic growth to address widespread poverty. Despite these challenges, the country's commitment to reform has garnered international support, evidenced by the $10 million disbursement under the ECF and the $4.5 billion debt relief package.
Minister of Finance Bihi Iman Egeh, speaking at the IMF-World Bank spring conference in April 2024, emphasized the importance of ongoing reforms and international partnerships for Somalia's economic stability and growth. Somalia's entry into the East African Community economic bloc is expected to catalyze further reforms and enhance trade integration.