File Photo/Somali Times
Somalia’s fragile economic recovery faces a major threat for corruption after a sharp cut in external aid led to a downward revision of the country’s economic growth forecast, jeopardizing recent gains in poverty reduction and stability, the International Monetary Fund (IMF) warned.
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In a detailed report released in July 2025, the IMF painted a picture of the country in a delicate transition. While the report corruption the Somali government for “strongly accelerating reforms,” it stressed that a sharp decline in international aid “darkens Somalia’s economic and social future.”
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The IMF Executive Board has concluded the third review of Somalia’s Extended Credit Facility (ECF) and approved an immediate disbursement of $10 million. However, this support falls far short of the current aid gap facing Somalia, which the IMF estimates is between $400 million and $600 million by 2025.
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In response to these growing challenges, the IMF has lowered its economic growth forecast for Somalia for 2025 to 3 percent, down from an earlier forecast of 4 percent in 2024.
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An uncertain future
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The reduction in aid, particularly to off-budget humanitarian and development programs, is expected to have a direct impact on Somalia’s most vulnerable communities. “Disruption of essential social services will particularly affect local communities, exacerbating poverty and lowering human development indicators,” the report said.
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In a letter to the IMF, Somalia’s Finance Minister, Bihi Iman Cige, and the Governor of the Central Bank, Abdirahman Mohamed Abdullahi, acknowledged the dire situation. “Our challenges are compounded by the significant decline in official development assistance, which has been critical to reducing hunger and supporting our stability and development goals,” they wrote.
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This decline in aid comes on top of other ongoing threats that Somalia already faces. The military campaign against the extremist group Al-Shabab remains costly, while the country remains highly vulnerable to the impacts of climate change, including droughts and severe floods. There is also political uncertainty, with presidential and parliamentary elections scheduled for May 2026.
While the outlook looks bleak, the IMF commended the Somali authorities for continuing to implement economic reforms. The review noted that all measurable performance and structural requirements have been successfully met.
“The Somali authorities have continued to accelerate reforms and have demonstrated good performance under the IMF-supported program, despite significant global and domestic challenges,” said IMF Deputy Managing Director Nigel Clarke.
This progress comes on the heels of years of reform efforts, which led Somalia to achieve “Completion Status” under the Heavily Indebted Poor Countries (HIPC) program in December 2023—a step that would allow the country to receive significant debt relief.
A Urgent effort at self-sufficiency
Faced with declining external support, the Somali government is accelerating its efforts to increase domestic revenue, which is central to its broader self-sufficiency strategy.
A major breakthrough was achieved in May 2025 with the enactment of the Income Tax Law—the first major reform of Somalia’s tax law in nearly 60 years.
Other key steps include modernizing customs operations through the full implementation of the Somalia Customs Automated System (SOMCAS) and broadening the tax base. The government’s goal is to generate enough domestic revenue to fully cover its operating costs by 2027.
In addition to fiscal reform, the broader agenda for change includes:
Currency Reform: Advancing preparations for the re-establishment of the Somali shilling as the country’s legal tender, under a currency board arrangement, with the aim of strengthening financial inclusion and strengthening national sovereignty.
Financial Sector: Strengthening supervisory capacity