US: IMF commends Somalia for progress in rebuilding war-shattered economy

Washington, DC, US (PANA) - Commending the authorities in Somalia for the significant progress made in rebuilding the economy and restoring key economic and financial institutions in a difficult political and security environment, the International Monetary Fund (IMF) on Thursday emphasised that strong policy implementation is necessary to address the challenges ahead in the Horn of Africa country.

Among the challenges, the IMF Executive Board particularly noted boosting economic activity and improvement of livelihoods. It said continued support by the donor community would also be vital in this regard.

The Board has just concluded its 2016 Article IV Consultation with Somalia noting that over the past five years, the country has marked important milestones in rebuilding its economy and normalising relations with international financial institutions.

In 2012, Somalia emerged from nearly two decades of civil war. However, the post-war social and economic conditions remain difficult, poverty is widespread, and more than half of the working-age population is unemployed.

In their assessment of Somalia's economic reconstruction, the IMF Directors have welcomed the authorities’ plan to continue to improve the national development plan (NDP) and they emphasised that the NDP should give priority to social safety net and pressing humanitarian conditions.

The IMF resumed its relationship with Somalia in 2013 and has since been heavily involved in the provision of policy advice and technical assistance.

Despite the country’s weak administrative capacity, the Federal Government of Somalia (FGS)  continues to implement measures to improve the fiscal framework, raise tax revenue, and implement structural reforms.

In their assessment, IMF Directors underscored that steady improvement in tax collection would help mitigate the impact from volatility of grants and meet security and social spending needs of Somalia.

On that score, they encouraged the authorities to swiftly adopt the Appropriation Bill to endorse the tax code in order to broaden the tax base.

"Budget execution remains difficult because of weak tax collection, poor public financial management, and delays in grant disbursements," the Directors noted, stressing that greater fiscal discipline and stronger budget execution would improve fiscal performance.

The Somali economy is largely sustained by donors' grants, remittances, and foreign direct investment, mostly by the Somali diaspora. Economic activity is projected to decelerate in 2016–17 while growth is projected to be 3.4 percent and 2.5 percent respectively in the same period.

According to IMF staff  findings, the deceleration in growth mainly reflects the impact of the drought on the agriculture sector, which will be partially offset by activities in the construction, telecommunications, and service sectors.

Meanwhile, inflation was estimated to be 1.5 percent in 2016 and projected to pick up to 2.7 percent in 2017.

Further, the IMF Directors supported the authorities’ currency reform strategy, noting that "this reform would limit counterfeiting, restore credibility of the national currency, and allow the central bank to conduct monetary policy".

In connection with the authorities’ currency reform plan, the Central Bank of Somalia (CBS) was recently reconstituted and has since fully staffed its cash management department, prepared a draft anti-counterfeit strategy, and adopted a detailed road-map for currency reform.

The IMF Directors concurred that sound and successful implementation of the currency reform hinges on careful preparation and planning. They advised the authorities to follow through on the currency reform road-map as agreed with the Fund's staff.

"Directors welcomed the progress in advancing financial sector reform, including efforts to bring banks into compliance with prudential norms, and combating the financing of terrorism," said the IMF assessment report on Somalia

They stressed that aligning the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) law with international standards and ensuring an effective risk-based implementation would safeguard the flow of remittances into Somalia.

The Directors urged continued strong policy implementation under the Staff-Monitored Programme (SMP) and subsequent SMPs, noting that this would help establish a durable economic track record as a basis for future programme engagement with the Fund and eventual debt relief.
-0- PANA AR/MA 9Feb2017

09 february 2017 11:16:26

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