IMF approves $9.4 million for Somalia

NAIROBI, Kenya - Following strong reforms momentum in Somalia, the International Monetary Fund [IMF] has completed the fifth review of the Extended Credit Facility [ECF] arrangement for Somalia, a move which gives the Horn of Africa nation $9.4 million which will help in steering development.

This, IMF said, brings Somalia’s total disbursement under the Extended Credit Facility [ECF] and the Extended Fund Facility [EFF] to SDR 285.4 million [about US$ 386.1 million]. The Executive Board approved a waiver of non-observance for the December 2022 performance criterion on spending on compensation of employees, goods, and services, and contingency based on corrective measures in the supplementary budget for 2023, the lender said.

Also approved by the board was the fourth HIPC interim assistance in the amount of SDR 2.211 million to cover 100 percent of Somalia’s eligible debt service to the IMF that falls due between June 17, 2023, and June 16, 2024, or the HIPC Completion Point, whichever is earlier.

The ECF arrangement supports the implementation of the authorities’ National Development Plan and anchors reforms between the Heavily Indebted Poor Countries [HIPC] Decision and Completion Points. Program performance has been broadly satisfactory and the HIPC Completion Point appears achievable by 2023Q4, the Board said.

Economic activity in Somalia has been weighed down by the drought and subdued remittances inflows, and the 2023 GDP growth projection was downgraded by ¼ percent to 2.8 percent. Average inflation is expected to decline to 4.2 percent in 2023 as commodity prices recede, IMF added in a statement.

Near-term risks are elevated, including a worsening of the food crisis if healthy rains are not sustained in 2023 or if commodity prices increase. Other risks include security challenges, political risks, and policy slippages that could delay reaching the HIPC Completion Point.

The authorities are committed to advancing fiscal and institutional reforms and normalizing relations with all external creditors. In particular, sustained efforts are needed to strengthen domestic revenue mobilization to make room for priority spending, while containing discretionary expenditure pressures.

In this regard, the body adds, improvements are ongoing in public financial management, including payroll integration. It will be important to continue to implement reforms to improve AML/CFT and strengthen governance and transparency, including procurement and concessions.

Timely financing and capacity development support from development partners are essential for the successful implementation of the authorities’ reform strategy. Contributions from Somalia’s partners to the Somalia Country Fund are critical to ensure the smooth delivery of IMF technical assistance to support the goals of the ECF-supported program and the HIPC Initiative, it added.

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