IMF approves US$100 million under new ECF arrangement for Somalia
Mogadishu, Somalia (PANA) – The International Monetary Fund (IMF} Board on Tuesday approved a new 36-month Extended Credit Facility (ECF) arrangement of US$100 million for Somalia.
Approval of the ECF arrangement enables immediate disbursement of US$40 million for budget support to the war-ravaged Horn of Africa country.
Somalia’s new ECF-supported programme builds on progress so far, including the HIPC Completion Point, and seeks to advance reforms to strengthen key economic institutions and promote inclusive growth.
Continued financial and capacity development support from international partners is imperative to support the authorities’ reform efforts.
Disbursement of the funds follows the successful completion of a previous ECF arrangement approved in 2020, which expired on 15 December 2023 after Somalia reached the Completion Point under the Heavily Indebted Poor Countries (HIPC) Initiative on 13 December 2023.
Achievement of the HIPC Completion Point and completion of the 2020 ECF is a testament to the Somali authorities’ sustained track record of reform implementation over the past years, despite numerous challenges, the IMF Executive Board pointed out in a statement, affirming that Somalia has made considerable progress in strengthening key economic and financial institutions, as well as improving governance.
However, despite the progress achieved, Somalia faces significant challenges, including those stemming from economic, social, security, and climate risks.
In 2022, an estimated 54 percent of the population was living on less than US$ 2 per day. Growth is currently insufficient to reduce widespread poverty, address large social needs, and create sufficient jobs for the youth. Somalia is highly vulnerable to climate shocks that hurt growth and hinder poverty reduction efforts.
Faced with these challenges, the authorities are embarking on a new 3-year IMF-supported programme. The programme will support the authorities’ post-HIPC reform strategy to further strengthen key economic institutions and promote macroeconomic stability and growth, in line with Somalia’s national development plan and the government’s long-term vision.
Reform implementation will be accompanied by extensive IMF capacity development assistance, supported by the Somalia Country Fund.
According to the IMF, fiscal policy will be guided by a prudent framework that balances the need for higher development expenditure with protecting fiscal sustainability and taking into account capacity constraints. External financing is expected to be based solely on grants and concessional loans to preserve debt sustainability.
Increasing domestic revenues is a key pillar of the reform strategy, including implementation of a new income tax law. Efforts to improve public financial management include further progress on payroll integration, expenditure controls, and fiscal transparency, as well as strengthening debt management capacity and public investment management capacity.
Continued improvements in the institutional capacity of the Central Bank of Somalia, including in the context of the currency reform, will foster financial deepening and financial inclusion. It will also be important to continue to advance reforms to improve AML/CFT and governance to promote private investment.
-0- PANA AR/MA 20Dec2023
