Somalia, IMF reaches staff-level agreement on debt relief

Washington An International Monetary Fund (IMF) team, led by Laura Jaramillo, conducted discussions with the Somali authorities in Nairobi and in Washington DC on the 2022 Article IV Consultation and reached a staff-level agreement on the fourth review under the Extended Credit Facility (ECF) arrangement. This agreement is subject to approval of the IMF’s Executive Board.

At the conclusion of the discussions, Ms. Jaramillo issued the following statement:

“While political stability has improved since the elections in May 2022, Somalia’s outlook is clouded by prolonged drought, the impact of Russia’s war on Ukraine, and security risks. According to IPC, as of September 12, 2022, 4.3 million people are facing acute food insecurity, with prolonged drought compounded by global food price pressures. The rapid scale-up of humanitarian assistance has prevented a worse situation, but the most severely affected areas are those under control of Al-Shabaab that thwarts delivery of humanitarian assistance. The government continues to mobilize external funding and coordinate with the UN system on delivery of humanitarian assistance. Continued support from international partners is imperative.

“The drought and slowing global growth are weighing on economic activity in 2022, and risks remain elevated. GDP growth for 2022 is projected at 1.9 percent, compared to 2.9 percent in 2021. Drought and higher commodity prices are expected to raise inflation to 9 percent from 4.6 percent in 2021. Near-term risks are elevated, including a worsening of the food crisis if healthy rains do not resume in 2022 or if commodity prices rise further.

“Notwithstanding these shocks, Somalia has preserved macroeconomic stability and the reform momentum. Domestic revenue and expenditure have been in line with expectations which, together with higher-than-expected budget grant disbursements, will deliver a balanced budget for 2022.

“The 2023 budget is aligned with the ECF objectives and the medium-term fiscal framework. Higher domestic revenues will be supported by the implementation of 2023 budget measures. Mandatory expenditure will remain contained, while social benefits are expected to expand financed by project grants. External budget support remains crucial.

“The authorities continue to advance fiscal reforms. On domestic revenue mobilization, key reforms are ongoing on customs modernization, a new income tax law, and increasing revenue collection from large businesses, including the telecom sector. Public financial management has been strengthened, and improvements are ongoing on payroll integration, fiscal reporting, procurement, and management of non-financial assets. The authorities are also making progress on the petroleum sector legal framework.

“The CBS is advancing institutional and financial sector reforms. The CBS will continue to enhance the regulatory framework and strengthen its supervisory capacity. Further action is needed to address money laundering/financing of terrorism risks.

“The government continues to make headway in the HIPC debt relief process, and Completion Point appears feasible in late 2023. The authorities reached debt relief agreements with most Paris Club members, and continue to seek agreements with other creditors. Further progress on reforms is needed to achieve the HIPC Completion Point Triggers on a timely basis.

“The Article IV consultation focused on prospects for strong, resilient, and inclusive growth. Policy priorities include building resilience to climate shocks—also in support of food security—, advancing the implementation of the national development plan, and promoting financial deepening and financial inclusion. It will be important to preserve fiscal sustainability after the HIPC Completion Point, including raising domestic revenue to expand public services over time, maintaining a prudent fiscal deficit, and only accessing concessional financing.

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

“The mission would like to thank our counterparts for a constructive and fruitful dialogue. Meetings were held with the Minister of Finance, Minister of Planning, the Central Bank Governor, other government officials, development partners, and representatives from private sector.”

Source: Somali National News Agency

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