The Executive Board of the International Monetary Fund (IMF) approved three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for Somalia in the amount of SDR 292.4 million (about US$395.5 million or around 179 percent of quota).
The program will support the authorities’ implementation of their ambitious reform agenda and catalyze concessional donor financing. This will help the country implement its National Development Plan to build greater economic resilience, promote higher and more inclusive growth, and reduce poverty.
At the conclusion of the Executive Board’s discussion, Ms. Kristalina Georgieva, Managing Director and Acting Chair, stated:
“Somalia has reached the HIPC Decision Point given the authorities’ sustained commitment to reform in a challenging political, security and climate environment. The second review of the staff-monitored program, which has been endorsed as meeting the standards of upper credit tranche conditionality, has been completed. The authorities’ strong policy commitment has helped strengthen public financial management and the financial sector, improve governance, and enhance macroeconomic stability.
“The authorities’ new three-year economic program is an ambitious and appropriate response to Somalia’s macroeconomic challenges. Continued reform commitment, together with the necessary technical assistance, will be critical to achieve the program’s objectives, as well as to secure higher and more inclusive growth. The authorities need to continue strengthening the cooperation between the Federal Government of Somalia and Federal Member States.
“The medium-term fiscal framework under the program appropriately balances the need to contain recurrent spending while channeling new resources toward Somalia’s development plan. Continued efforts to strengthen fiscal federalism, enhance revenue mobilization and build social protection mechanisms will be important as Somalia moves forward. Swift implementation of Somalia’s comprehensive public financial management law is needed, together with efforts to strengthen debt management and ensure a conservative approach to any future borrowing to minimize the risk of falling back into debt distress.
“The central bank’s efforts to strengthen its organizational capacity and enhance regulation and supervision will be critical for the robust and sustainable development of the financial sector. Continued capacity building is needed to improve AML/CFT compliance and the national risk assessment should be completed as quickly as possible. Advancing reforms to promote good governance are also important.
“Improving macroeconomic statistics is important, particularly GDP and balance of payments data. In this regard, the authorities should support the creation of the independent national statistics office and implement the macroeconomic statistics action plan.
“The consultative process that accompanied the drafting of the Ninth National Development Plan (NDP9) is commendable. It is important that the authorities update the underlying macroeconomic policy framework and complete the costing exercise. Financial and technical support from the international community is important to support the authorities’ reforms and the implementation of the NDP9.
“Somalia’s request for interim assistance under the HIPC Initiative on the debt service falling due to the Fund over the next 12 months has been approved. The progress made in securing commitments from other creditors to provide debt relief in the context of the HIPC Initiative is welcome, as there is a need for equitable burden-sharing across all creditors. The coverage and content of the HIPC floating Completion Point triggers, which focus on growth, public financial management, debt management, governance, domestic revenue mobilization, and statistics, is appropriate.
“The global COVID-19 pandemic and regional desert locust swarm pose new risks to the outlook and program. In this regard, strong support from the international community remains critical.”
In a related development, IMF and the World Bank’s International Development Association have determined that Somalia has taken the necessary steps to begin receiving debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Somalia is the 37th country to reach this milestone, known as the HIPC Decision Point.
Debt relief will help Somalia make lasting change for its people by allowing its debt to be irrevocably reduced from $5.2 billion at end-2018 to $557 million in net present value terms (NPV) once it reaches the HIPC Completion Point in about three years’ time. As Somalia continues on its path towards stability and development after 30 years outside the international financial system, the immediate normalization of its relations with the international community will re-open access to critical additional financial resources to strengthen the economy, help improve social conditions, raise millions out of poverty, and generate sustainable employment for Somalis.
“I would like to congratulate the Somali government and people for their intense efforts over the past years leading to this momentous event,” said Kristalina Georgieva, IMF Managing Director. “Successful reform efforts have laid the foundation for inclusive economic growth and for addressing the needs of the country’s most vulnerable people. Work must continue to sustain and expand the implementation of these reforms as Somalia starts a new chapter of its history. I am confident a more resilient and prosperous future lies ahead for the people of Somalia.”