IMF welcomes Somali’s Commitment of financial system

implementation under the Staff Monitored Program in a difficult environment.

IMF staff supports the authorities’ corrective measures to prevent a shortfall in domestic reIMF welcomes the Somali authorities’ strong commitment to policy and reform venue and improve domestic revenue mobilization.

An International Monetary Fund team led by Mohamad Elhage visited Nairobi, Kenya during December to hold discussions with the Somali authorities on the 2017 Article IV Consultation and the first review of the Staff Monitored Program .

Discussions covered recent economic developments in Somalia, including: the fiscal framework; progress on currency reform; the financial sector; governance and anti-corruption efforts; and social safety net programs.

At the conclusion of the visit, Mr. Elhage issued the following statement:

On June 21, 2017, the International Monetary Fund’s management approved a 12-month covering the period May 2017—April 2018, following Somalia’s successful completion of its first since the end of the civil war. The program is designed to help economic reconstruction efforts and to start establishing a track record of policy and reform implementation

We are encouraged by the authorities’ commitment and by the pace of reforms to restore key economic and financial institutions, and welcome their efforts to keep the program on track.

“In 2017, the drought and sporadic terrorist attacks took a toll on economic activity. The drought has hurt the economy and temporarily impacted the Federal Government of Somalia’s tax collection efforts. These developments offset a steady recovery in the service sector, including in the telecommunication and transportation sectors.

Growth is projected to remain subdued at 1.8 percent and inflation to pick up to 3.7 percent in 2017, compared to 2.4 percent and 1.3 percent, respectively in 2016.

The trade deficit is projected to remain high—reflecting increased food imports and lower exports—and will be largely financed by grants and remittances. Sustained support by the international community has helped avoid a severe humanitarian crisis in 2017. As the drought started receding, growth is expected to recover to 2.5–3.0 percent and inflation to decline to 2.0-2.5 in 2018–19.

“The authorities’ performance under the SMP through September 2017 was broadly satisfactory. They have updated their memorandum of economic and financial policies for the period 2018—19, nearly completed the currency reform roadmap, and drafted a roadmap for the development of the financial sector in the period ahead.

“The mission team believes that the following policies and reforms will help the Federal Government of Somalia achieve its growth, recovery, and social inclusion objectives:

Strengthen economic resilience, accelerate the recovery and foster social inclusion . It will be important to continue advancing the broad-based growth reform agenda outlined under the mutual accountability framework in collaboration with Somalia’s development partners. To that end, the plan to update the National Development Plan with increased focus on governance, anti-corruption, and social safety net programs is welcome.

Continue to improve capacity and governance. Efforts should be redoubled to develop capacity of public institutions and continue to rebuild economic and financial data. The IMF stands ready to intensify its capacity development activities in Somalia using the multi-donor trust fund to help rebuild Somalia’s institutions and an economic and financial infrastructure. The authorities are encouraged to continue their numerous, tangible initiatives to combat corruption and improve governance.

Enhance fiscal discipline and the fiscal framework. Adhering to fiscal discipline and improving the fiscal framework will be essential. In this regard, efforts to refrain from any expenditures that are not fully covered by realistic revenue projections or grants and remaining current on the government’s obligations will be vital. Continued efforts to enhance public financial management and cash management will help improve budget execution and avoid accumulation of domestic arrears.

The government is taking bold steps to increase domestic revenues by expanding the revenue base, initially focusing on the sales tax and customs, which will provide additional resources to meet priority spending in the future.

Carefully prepare the currency reform and strengthen financial institutions . As the preconditions for the currency reform are nearly completed, a careful preparation for the launch of the new Somali Shilling will be essential.

Continued political support for combating counterfeiting will be critical for the success of the currency reform and a well-designed communications strategy should be developed for the launch of the new currency. The draft financial sector roadmap will need to be completed and implemented to revive the nascent financial sector and support economic growth and poverty reduction.

“During the visit, the IMF mission met with Finance Minister Mr. Abdirahman Beileh; Minister of Fisheries and Marine Resources, Mr. Abdirahman M. Abdi Hashi; Central Bank Governor, Mr. Bashir Issa Ali; the Accountant General, Ms. Fatuma Osman Farah; Mr. Abdirahman M. Abdullahi, Advisor to the Prime Minister; Ms. Hodan Isse, Board of Governors of the Central Bank; and other officials. In addition, the team met representatives from development partners.

The mission would like to thank the Somali authorities for their cooperation and the open and productive discussions.”