In early 2020, Somalia, with support from the United Kingdom Government and the European Union, settled its arrears to the African Development Bank, paving the way for the lifting of 30-year old sanctions imposed by the Bank and the resumption of full engagement with the fragile East African country.
A $122.55 million grant agreement signed in March, between Bank Vice President for Regional Development, Integration and Business Delivery, Khaled Sherif and Somali Finance Minister Abdirahman Beileh marked a milestone on a tough but necessary process of rehabilitation which began in 2014.
The shift to a new and more hopeful phase in which Somalia, with assistance from the Bank and other development partners, can accelerate its national development agenda of consolidating peace, fighting poverty and ensuring inclusive growth “is a new beginning” for the country. “We stuck with our reforms, we were persistent, and it has paid off,” Minister Beileh said.
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The reforms, driven by IMF Staff Monitored Programs (SMPs), restored the confidence of International finance Institutions and led the UK and the EU to provide the funding to support the clearance of Somalia’s loan arrears to the Bank Group.
“I am absolutely delighted that the African Development Bank provided the leadership needed to push for and successfully negotiate the arrears clearance for Somalia. It was a reflection of the power of partnerships and consensus building,” Bank President Akinwumi Adesina said.
Although Somalia had been under the Bank’s sanctions since 1990 when the government of Siad Barre fell, the institution continued to provide technical and governance support to the country through the African Development Fund, Transition Support Facility, and other special funds including Special Relief Funds, Africa Legal Support Facility Green Environment Fund, African Water Facility, RWSSI and the Multi-Partner Somalia Infrastructure Fund.
Somalia also benefitted from the Bank’s drought-related assistance channeled through the Intergovernmental Authority on Development.
Beginning in 2014, The Federal Government of Somalia resumed relations with the IMF after a two-decade break, and in 2016 signed the first of a series of SMPs to restore fiscal balance, avoid accumulation of domestic arrears and maintain a floor on the central bank’s net foreign assets. The program also included a comprehensive currency reform and modernizing tax and customs administrations.
The Bank partnered with the Somali authorities to deliver on reform commitments under the IMF SMPs. In July 2015 and December 2017, the Bank’s Board approved two projects worth $10.2 million to support economic and financial governance reforms, including boosting Somalia’s revenue mobilization through enhanced tax revenue systems and administration. The target is to raise domestic revenue collection levels from the current 1.9% of GDP to 2.5% by 2020, a target exceeded in 2019 when the ratio reached 3.9%.
“The Bank’s contribution to strengthening our revenue mobilization and institution building is evident through these investments, which will enhance our capacity to collect domestic revenue,” Beileh said.
By 2020, when the Bank and the Somali government signed the grant agreement, the country had successfully completed three SMPs and was making good progress on a fourth program that has since been converted into a three-year program funded through an Extended Credit Facility and Extended Financing Facility. In response to the country’s improving records, the Bank extended much needed financing.
The Bank’s current portfolio in Somalia totals $298 million, covering operations in agriculture, water and sanitation, transport, social and energy, and multi-sectoral projects including four economic and financial governance projects and one statistics project. The portfolio includes the Economic and Financial Reforms Support Program (EFRSP) of just over $122 million approved in February 2020. The EFRSP is a stand-alone general budget support operation that is part of the Bank’s contribution to Somalia’s post-arrears clearance and aims to support the country’s on-going economic and financial reforms.