The Managing Director of the International Monetary Fund (IMF) approved on May 16, 2016 a Staff-Monitored Program (SMP) for the Federal Republic of Somalia, covering the period of May 2016–April 2017.
Somalia is recovering slowly from nearly 25 years of civil war. Weak institutional capacity, complex clan politics, and a challenging security situation have complicated the country’s economic reconstruction. As a result, social and economic conditions remain dire. With continued support from the international community and key donors, the Federal Government of Somalia has initiated important reforms to lay the foundation for the country’s economic reconstruction. To help Somalia’s economic reconstruction efforts and establish a track record on policy and reform implementation, the authorities have requested an IMF SMP.
The SMP is geared toward reestablishing macroeconomic stability, building capacity to strengthen macroeconomic management, rebuilding institutions, and improving governance and economic statistics. Given Somalia’s weak administrative capacity, technical assistance is an integral part of the SMP.
Under the SMP, fiscal policy and reforms will aim to achieve a zero fiscal balance on a cash basis, while avoiding the accumulation of domestic arrears. The pursuit of these objectives will be underpinned by revenue measures, realistic pledged foreign grants, and prudent expenditure policy. Fiscal reforms will focus on strengthening public financial management, particularly by modernizing tax and customs administration, and budget planning and execution. Monetary and financial policy and reforms will focus on: (1) maintaining a floor on the central bank net foreign assets; (2) initiating the first stage of comprehensive currency reform; (3) strengthening the licensing, supervision, and regulation of the nascent commercial bank system and money transfer businesses; and (4) enhancing the framework for anti-money-laundering and combating the financing of terrorism (AML/CFT), which is critical for maintaining the flow of remittances to Somalia.
Somalia’s external debt is high and virtually all in arrears, thus precluding access to external borrowing. In particular, Somalia remains unable to access IMF resources because of its continued arrears to the Fund. A strong track record of macroeconomic performance and implementation of reforms, together with a comprehensive strategy of arrears clearance and debt relief supported by Somalia development partners, is required for addressing Somalia’s high debt overhang.
The Federal Government of Somalia has established very good cooperation with the Fund since Fund recognition of the Federal Government of Somalia three years ago. The IMF Executive Board concluded the first Article IV Consultation for Somalia in more than 26 years in July 2015. In addition, the Fund has delivered more than 50 technical assistance missions (including training) since 2013, and will intensify training under the SMP to improve institutional capacity.
IMF staff will work closely with the authorities to monitor progress in the implementation of their economic program. Successful completion of this program and subsequent SMPs could pave the way to an IMF-supported program of upper-credit tranche quality. Continued support from creditors and donors will remain critical for a full normalization and resumption of financial assistance from the IMF.
1 An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.