Numbers & Statistics

IMF Executive Board Approves 3-Year ECF and EFF Arrangements for Somalia

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Approves 3-Year ECF and EFF Arrangements for Somalia







March 25, 2020











  • IMF Board approves SDR 292.4 million (about US$395.5 million) ECF and EFF arrangements for Somalia.
  • The three-year financing package will support the implementation of the authorities’ National Development Plan and anchor reforms between the HIPC Decision and Completion Points.
  • Reforms will focus on a continued strengthening of public finances to meet Somalia’s development needs in a sustainable manner; a deepening of central bank capacity; improvement of the business environment and governance; and enhancing statistics.

WASHINGTON, DC 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.”

Annex

Recent Economic Developments

Despite a challenging security, political, and climate environment, Somalia
has remained steadfast in implementing economic reforms. This has brought
them to the Decision Point for debt relief under the

Heavily Indebted Poor Country (HIPC) Initiative

. Economic growth and inflation have been relatively stable, but growth has
been too low to significantly tackle widespread poverty. In 2019, real
gross domestic product (GDP) is estimated to have grown by 2.9 percent.
However, the impact of the recent desert locust swarm and the global
coronavirus pandemic makes the near-term outlook less certain. Fiscal data
reflects continued strong performance in 2019, with domestic revenues
outturns outpacing the indicative targets set in Somalia’s Staff Monitored
Program (SMP). As a result, there was a small fiscal surplus at the end of
the year. The current account deficit, which is primarily financed by
grants, remained close to 12 percent of GDP.

Program Summary

The new three-year IMF financing arrangements aim to anchor medium-term
policies during the period between the HIPC Decision and Completion Points.
These policies build on the 2019 Article IV recommendations and reforms
underpinning Somalia’s fourth SMP. Reforms will focus on a continued
strengthening of public finances to meet Somalia’s development needs while
balancing fiscal sustainability considerations; a continued deepening of
central bank capacity; efforts to improve the business environment and
governance; and enhancing statistics.

The program will:



Guide fiscal policy via a robust medium-term fiscal framework (MTFF)

and balance Somalia’s development priorities and fiscal sustainability. In
the context of HIPC and NDP9 implementation, staff envisages a substantial
increase in expenditures. The program will also further mobilize domestic
revenue to support self-sufficiency, provision of public services, and
social stability. Nevertheless, fiscal space will remain constrained. To
ensure sufficient resources are available for critical development
expenditure a ceiling on expenditures on compensation and the use of goods
and services has been put in place. Expenditures will continue to be capped
by the overall size of the revenue envelope, with a zero limit on new debt
accumulation. Additionally, the program places critical importance on
sustaining and deepening inter-governmental fiscal relations.



Deepen and broaden on-going public financing management (PFM) reforms

which hinge on implementing aspects of the new PFM Act. In
particular, strengthening budget preparation and execution, enhancing
oversight, institutionalizing recent improvements in budget processes, and
enhancing the quality of general government fiscal reporting.

Improve the capacity of the central bank. The program
will support the implementation of the central bank’s new organizational
structure and develop a medium-term vision to guide future policy
priorities.



Reinforce the supervisory framework and improve AML-CFT compliance

. Further progress in strengthening regulatory and supervisory standards
will contribute to continued financial stability. These efforts will
include the expansion of supervision to the whole financial sector,
especially the mobile money sector. The program will support improvements
in AML/CFT capacity, including the deepening of capacity of the Financial
Reporting Center, and enhancing inter-agency cooperation through the
National Anti-Money Laundering Committee.

Support efforts to improve governance. The program will
support the completion of the authorities’ National Anti-Corruption
Strategy and the related workplan to implement the strategy.

Support long-term growth and poverty reduction. The
program will support these goals through fiscal conditionality and reforms,
and the complementary floating Completion Point triggers, along with other
conditionality in World Bank operations, which are expected to address
growth, water management, poverty, gender, and improving the ease of doing
business. Additionally, the program will continue to support improvements
in the production and dissemination of macroeconomic statistics. Along with
other technical assistance providers, staff will monitor and provide
capacity development support to the authorities’ macroeconomic statistics
action plan.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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