The International Monetary Fund (IMF) has reached a staff-level agreement with Somalia for a $100 million loan, linked to economic reforms supported by a new 36-month Extended Credit Facility (ECF) arrangement, pending approval from the IMF Executive Board. The agreement was led by IMF mission chief, Laura Jaramillo, who has applauded Somalia’s progress in rebuilding its economy and key institutions since 2020 under an ECF-supported program.
Despite the progress, significant challenges remain for the African nation. Economic issues, large social needs, youth unemployment, and climate risks were among the problems highlighted by Jaramillo. She pointed out that 54% of Somalia’s population survives on less than $2.06 per day and the country’s growth rate is insufficient to alleviate poverty and social needs. Adding to its woes, Somalia is extremely susceptible to climate shocks.
However, there is hope for Somalia as it is projected to reach the Heavily Indebted Poor Countries Completion Point in December 2023. This milestone would potentially unlock debt relief and normalize relations with key creditors. To further address these challenges, Somali authorities have requested a new three-year IMF-supported ECF program in line with its national development plan and government’s long-term vision.
Post-Heavily Indebted Poor Countries policy priorities for Somalia include maintaining fiscal sustainability, increasing domestic revenues, strengthening public financial management, promoting financial inclusion, and improving the business environment. There are also plans for currency reform to reintroduce the Somali shilling as legal tender.
Contributions to the Somalia Country Fund are deemed crucial for effective IMF technical assistance delivery. The Minister of Finance and the Central Bank Governor were involved in the discussions. Following the attainment of the Heavily Indebted Poor Countries Completion Point, authorities will work on public debt management and debt risk assessments due to a structural shift in federal government external financing. They are also expected to gradually scale up quality investment projects.
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