Tue. Feb 27th, 2024

Somalia has maintained strong implementation of wide-ranging reforms to help strengthen key economic and financial policy institutions, which is paving the way for Somalia to reach debt relief at the Heavily Indebted Poor Countries (HIPC) Completion Point in December 2023; Building on this progress, the Somali authorities and IMF staff have reached a staff-level agreement on economic policies and reforms to be supported by a new 36-month arrangement of about US$100 million under the Extended Credit Facility (ECF); Somalia’s new ECF-supported program aims to guide post-HIPC policies to further strengthen key economic institutions and promote macroeconomic stability and growth, in line with Somalia’s national development plan and the government’s long-term vision. Continued support from international partners is essential to support these efforts.

An International Monetary Fund (IMF) team, led by Ms. Laura Jaramillo, conducted discussions with the Somali authorities in Nairobi, Kenya during September 11-22, 2023 and October 22-24, 20223 and reached a staff-level agreement on economic policies and reforms to be supported by a new 36-month arrangement, with access of SDR 75 million (about US$100 million, 46 percent of quota) under the Extended Credit Facility. This agreement is subject to approval by the IMF’s Executive Board.

At the conclusion of the discussions, Ms. Jaramillo issued the following statement:

“Somalia has made considerable progress in rebuilding its economy and institutions. Under the current ECF-supported program, in place since in 2020, Somalia has maintained strong implementation of wide-ranging reforms to help strengthen key economic and financial policy institutions. This progress is paving the way for Somalia to reach the Heavily Indebted Poor Countries (HIPC) Completion Point in December 2023, at which point Somalia is expected to receive debt relief and move toward fully normalizing relations with its key creditors.

However, despite the progress achieved, Somalia faces significant challenges ahead, including those stemming from economic, social, security, and climate risks. In 2022, an estimated 54 percent of the population was living on less than US$ 2.06 per day. Growth is currently insufficient to reduce widespread poverty, address large social needs, and create sufficient jobs for the youth. Somalia is highly vulnerable to climate shocks that hurt growth and hinder poverty reduction efforts.

Faced with these challenges, the authorities have requested a new 3-year IMF-supported program under the ECF. The program and the related capacity development support will help Somalia further strengthen key economic institutions and promote macroeconomic stability and growth, in line with Somalia’s national development plan and the government’s long-term vision.

Building on progress so far, post-HIPC policy priorities will be to maintain fiscal sustainability, increase domestic revenues and strengthen public financial management, promote financial deepening and financial inclusion, improve the business environment and governance, and enhance statistics. The authorities will take steps to strengthen capacity for public debt management and debt risk assessments—as Somalia is expected to face a structural shift in the size and composition of the FGS external financing following the HIPC Completion Point—and for public investment management as the FGS is expected to gradually scale up quality investment projects. The authorities will also work, with support from the IMF, on formulating and implementing new monetary and exchange rate policy frameworks in the context of the currency reform to reintroduce the Somali shilling as legal tender.

Timely financing and capacity development support from development partners is essential for the successful implementation of the authorities’ reform strategy. Contributions from Somalia’s partners to the Somalia Country Fund are also critical to ensure smooth delivery of IMF technical assistance to support the authorities as they implement the reform agenda.

The IMF staff team would like to thank the Somali authorities for a constructive and fruitful dialogue. Meetings were held with the Minister of Finance, the Central Bank Governor, other senior government officials, and development partners.”

Distributed by APO Group on behalf of International Monetary Fund (IMF).

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