Somalia: Currency reform underway to help Somalia strengthen governance

Mogadishu, Somalia (PANA) - As part of a wider Somali reform initiative, the Central Bank of Somalia and the Federal Government of Somalia (FGS) are preparing to reissue new Somali shilling banknotes, for the first time in 26 years, to combat the existing massive counterfeiting in the country, the International Monetary Fund (IMF) has disclosed.

According to the Fund, the move would also restore confidence in the national currency, and  allow the central bank to start implementing monetary policy.

"The IMF is helping the authorities to implement the measures that need to be in place for the launch of the new currency," it said in its Country Focus published on Wednesday.

In a latest assessment of the country, the IMF had noted that Somalia’s economic progress, challenged by the recent drought, will depend on implementation of policy reforms along with continued support from donors to develop capacity and preserve security.

"The recent drought and famine will test the country’s resilience to provide humanitarian assistance and will require help from the international community. The government’s recent policies demonstrate its strong commitment to improving the state of the country and Somalis’ livelihoods," it said.

In the Fund's view, there are six things to know about Somalia’s economy since the country resumed relations with the international community five years ago. These include the launch of a new currency and the harsh impact of the ongoing drought on the agricultural sector.

The drought has put about 6.2 million people (about half the Somali population) in need of assistance and at risk of food insecurity, prompting an urgent need for humanitarian and financial assistance from the government and the international community.

"The government will also need to better coordinate and monitor humanitarian aid distribution amid security challenges across some regions with a focus on the most affected regions," the IMF advised.

Somalia is a fragile state, located in the Horn of Africa, that has emerged from a two-decade-long civil war that caused significant damage to the country’s economic and social infrastructures.

In 2012, the FGS was elected and recognised by the international community. Post-war conditions continue to be difficult, however, with poverty widespread and weak institutional capacity.

Currently, the Somali economy is sustained by donors' grants, remittances, and foreign direct investment mostly by the Somali diaspora. Since 2013, the donor community has given over US$4.5 billion in humanitarian and developmental grants, which is essential in contributing to finance Somalia’s trade deficit of nearly 55 percent of GDP.

IMF experts said the current drought is expected to slow economic activity and raise inflation this year, thereby making donor support all the more critical to sustain growth.

Tackling unemployment is another crucial issue for Somalia's political stability. The unemployed youth population (about 67 percent) contributes significantly to irregular migration and participation in extremist activities, including Al-Shabaab—the militant jihadist group—which is viewed as another form of employment.

With very high youth unemployment and low overall labour force participation (particularly by women), the Somali authorities have established the National Development Plan that focuses on how to achieve higher economic growth, create jobs, and absorb the Somali refugees returning from Kenya, among other areas.

Since resuming its relationship with the country in 2013, the IMF has concluded two annual economic assessments. Because Somalia is in arrears with the Fund it cannot benefit from IMF loans.

The Somali authorities, however, have engaged with the IMF in the context of a 12-month staff-monitored programme, which has helped create a framework to support Somalia’s economic reconstruction efforts, rebuild institutional capacity, and establish a track record of policy and reform implementation. The first review of this programme was completed in February 2017.

Somalia, according to the IMF, is among the largest beneficiaries of the Fund's technical assistance—which helps build institutional capacity—receiving over 70 technical assistance and training missions since 2014.

"Tangible progress is being made in budget preparation and fiscal reporting, currency reform, and financial sector reporting and licensing," the IMF said, noting, for example, preparation of  a national budget for 2014-2017 and that since January 2015, the government produced its first monthly fiscal reporting data.

"Starting from a very low capacity and a mix of Islamic and western accounting systems, central bank staff have developed a bank licensing framework, methods for periodic reporting by commercial banks, a system for bank financial analysis, and a supervisory scoring system that monitors the overall health of a bank," it explained.
-0- PANA AR/MA 12April2017

12 april 2017 08:33:09

xhtml CSS