IMF Staff Completes Review Visit and Reaches Staff-Level Agreement on a Third Staff-Monitored Program with Somalia
An International Monetary Fund (IMF) team, led by Mohamad Elhage, visited Nairobi, Kenya, from May 7—14, to conduct discussions on the second review of the second Staff-Monitored Program (SMP II) and to agree on SMP III. The team met with the Somali authorities to discuss recent economic developments, review progress on the implementation of reforms under SMP II, and discuss a follow-up SMP to consolidate reforms.
At the conclusion of the visit, Mr. Elhage issued the following statement:
“The Federal Government of Somalia (FGS) successfully completed the third Article IV Consultations with the IMF and first review under its second SMP (SMP II) in February 2018. The Somali authorities continue to demonstrate a strong commitment to implement critical reform measures in a very difficult environment.
“The FGS is making progress in building institutions and improving economic performance. Budget execution, the treasury and cash management frameworks, and domestic revenue collection are improving. Efforts to lay the foundation for sustainable financial sector development and strengthen compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) standards are underway and preparatory work to launch a new national currency is well advanced.
“Economic activity in Somalia is recovering from the effects of the drought in 2016-17. The drought hurt economic activity last year, but sustained international community support and remittances helped Somalia avoid a severe humanitarian crisis. For 2018, growth is projected to increase to 3.1 percent from an estimated 2.3 percent in 2017, and inflation is expected to ease to under 3 percent from around 5.2 percent in 2017. At the same time, reflecting a strong resolve to implement important fiscal measures under the SMP, the fiscal framework and fiscal performance improved in 2017 and during the first quarter of 2018.
“Performance under SMP II was satisfactory. However, despite the important reforms implemented since the first SMP I (May 2016-April 2017), significant challenges remain. Growth is too low to make a significant dent in Somalia’s widespread poverty, high youth unemployment, and large social needs. The economy is vulnerable to shocks and lacks buffers needed to develop resilience. The external public debt is high, and there is no capacity to service public debt obligations. Without proper compliance with the AML/CFT international standards, Somalia will continue to suffer from pressures related to the reduction in correspondent banking relationships. This could result in lower and volatile remittances inflows, which are Somalia’s lifeline.
“SMP III will help maintain reform the momentum and macroeconomic stability. It will also continue to support the authorities’ broad reform agenda. In particular, it will focus on (1) enhancing public financial management and revenue mobilization; (2) completing Phase I of the currency reform, which consists of exchanging all Somali Shilling currently in circulation with a new national currency; (3) putting the foundation of financial sector reforms to foster financial development, inclusion, and stability, while strengthening compliance with the anti-money laundering and combating the financing of terrorism (AML/CFT); and (4) improving data reporting. Strengthening the procurement framework and improving governance and transparency are important features of SMP III, which will be support by technical assistance from the IMF. “Somalia’s debt relief is a priority for the IMF, and every effort is being made to accelerate the process within the established framework under the HIPC Initiative, which is designed to help countries avoid slipping back into arrears while putting them on a path to sustainable debt and reducing poverty.
“During the visit, the team met with Finance Minister, Mr. Abdirahman Duale Beileh; the Minister of Fisheries and Marine Resources, Mr. Abdirahman M. Abdi Hashi; Central Bank Governor, Mr. Bashir Issa Ali; Assistant to the President and Special Advisor, Hussein A. Gendisch; Representative of the Prime Minister’s office, Mr. Abdi Abdullahi; and other officials. The team also met representatives from development partners. The IMF team would like to thank the Somali authorities for their cooperation and the open and productive discussions.”