Statement by the IMF Mission on Somalia
An International Monetary Fund (IMF) team led by Mohamad Elhage visited Nairobi from November 14–21 to hold discussions with the Somali authorities on the 2016 Article IV Consultation and the first review of the Staff-Monitored Program (SMP). Discussions covered recent economic developments for Somalia including: the near-and medium-term outlook, economic risks; reforms at the Central Bank of Somalia (CBS); and policies to sustain growth and revive the financial sector.
At the conclusion of the mission, Mr. Elhage issued the following statement:
“The IMF Executive Board concluded the first Article IV Consultation with Somalia since 1989 in July 2015. At the request of the Federal Government of Somalia (FGS), the IMF’s Managing Director approved a 12-month SMP on May 27, 2016 ( See Press Release No. 16/248 ), marking another milestone in normalizing relations with international financial institutions. We are encouraged by the pace of reforms to restore key economic and financial institutions since the approval of the SMP. We also welcome the authorities’ commitment to keep the program on track.
“For 2016, real GDP growth is projected at 3.7 percent, driven by the telecommunication, construction and service sectors. The consumer price inflation is projected to remain low at about 1.0-1.5 percent, reflecting mainly weak commodity prices. For 2017, growth is projected to decelerate to about 2.5, while inflation is expected to remain subdued at 1-2 percent. Growth is expected to recover to about 3.5–4.5 percent in 2018–19. The slower growth rate in 2017 reflects mainly the impact of the weak rainy season on the agriculture sector. Meanwhile, construction, telecommunications, and service sectors are projected to continue to register strong growth. The external current account deficit is projected to remain large, and we expect remittances and grants to cover the deficit. The Somali Shilling/U.S. dollar exchange rate has remained stable within the range of about 22,200 and 23,000 since February 2015.
“The authorities have met all the structural benchmarks and six out of seven quantitative performance targets for the first review of the SMP. Although domestic government arrears were accumulated due to a shortfall in revenues and delayed in donors’ grants disbursement through end of September, the authorities were able to settle these new arrears following a recent disbursement of donors’ grants. Moreover, the authorities have taken corrective measures to avoid the occurrence of future arrears. They have updated their memorandum of economic and financial policies, established a comprehensive roadmap for currency reform, and are preparing a national development plan to underpin their development strategy with a roadmap for institution building and plans to initiate a social safety net program These measures will help put the economy on a sustainable path and promote inclusive growth.
“We believe that to achieve the objectives of their economic and financial policies, it is essential for the authorities to focus on the following:
- National development plan: Continue progress on the preparation of a coherent national development plan with a roadmap for institution building and strong program for social safety nets, as well as improving the business environment to encourage private sector activity.
- Capacity development: Develop domestic capacity and continue to rebuild economic and financial data. The IMF will continue to intensify its capacity development activities in Somalia using the multi-donor trust fund to help rebuild Somalia’s institutions and economic and financial infrastructure.
- Fiscal discipline: Continue to strengthen fiscal discipline while ensuring that the fiscal framework underscores the need for a realistic tax revenue projection and confirm external grants in order to avoid new arrears. The authorities are committed to placing high priority on enhancing budget execution, while adhering to the new arrears management strategy and broadening the revenue base.
- Currency reform and governance: Adhere to their agenda for currency reform, reinforce the central bank governance structure, and improve its safeguard procedures. Effective implementation of the anti-money laundering (AML) Law and guidelines is needed to sustain the inflows of remittances to Somalia, which are vital for supporting economic growth.
“During the visit, the team met with Finance Minister Mohamed Adan Ibrahim; the Minister of Planning and International Cooperation Abdirahman Yusuf Hussein Aynte, Central Bank Governor Bashir Issa Ali, Director General at the Office of the President Ali Omar, and other officials. The team also met with representatives from development partners. We anticipate that the Staff Report for the 2016 Article IV Consultation and the first review under the SMP will be discussed by the IMF’s Executive Board in late January 2017.
“The team would like to thank the Somali authorities for their cooperation and the open and productive discussions.”