July 14, 2024

IMF Executive Board Approves US$100 Million Under a New Extended Credit Facility (ECF) Arrangement for Somalia

Managing Director Kristalina Georgieva speaks during IMF Managing Director Press Briefing during the 2022 Annual Meetings at the International Monetary Fund. IMF Photo/Andrew Caballero-Reynolds 13 October, 2022 Washington, DC, USA Photo ref: ACR221013.028

The Executive Board of the International Monetary Fund (IMF) has approved a new 36-month Extended Credit Facility (ECF) arrangement for Somalia, providing SDR 75 million (about US$100 million) in financial support.

The crucial decision also enables the immediate disbursement of SDR 30 million (approximately US$40 million) to bolster Somalia’s budget, IMF said on Tuesday.

The new ECF-supported program marks a significant step forward for Somalia as it builds on the nation’s recent achievements, including reaching the Heavily Indebted Poor Countries (HIPC) Completion Point and the successful conclusion of the 2020 ECF arrangement. Despite facing numerous challenges, Somalia’s dedication to implementing reforms has resulted in commendable progress in strengthening its economic and financial institutions and enhancing governance.

However, significant challenges persist, including economic, social, security, and climate-related risks. As of 2022, approximately 54 percent of Somalia’s population was living on less than US$2 per day. The country’s current economic growth rate remains insufficient to address widespread poverty, meet social needs, and generate adequate employment opportunities, particularly for the youth. Somalia is also highly susceptible to climate shocks that hinder economic growth and poverty reduction efforts.

In response to these challenges, Somalia is embarking on a new 3-year IMF-supported program. This program will support the authorities’ post-HIPC reform strategy, focusing on strengthening key economic institutions, achieving macroeconomic stability, and promoting sustainable growth. The strategy aligns with Somalia’s national development plan and the government’s long-term vision. The IMF will provide extensive capacity development assistance throughout the reform implementation, supported by the Somalia Country Fund.

The fiscal policy underpinning the new program will prioritize a prudent framework that balances the need for increased development expenditure with the imperative of maintaining fiscal sustainability, all while taking capacity constraints into account. External financing will primarily consist of grants and concessional loans to ensure debt sustainability. Enhancing domestic revenue collection is a pivotal aspect of the reform strategy, including the implementation of a new income tax law. Public financial management will see further improvements, encompassing advances in payroll integration, expenditure controls, fiscal transparency, debt management capacity, and public investment management capacity. Moreover, strengthening the institutional capacity of the Central Bank of Somalia will foster financial deepening and inclusion, with a focus on currency reform. Continuing reforms aimed at improving anti-money laundering and combating the financing of terrorism (AML/CFT) and governance will encourage private investment.

The approval of the new ECF arrangement signifies the international community’s commitment to supporting Somalia’s reform efforts. Continued financial and capacity development assistance from international partners remains imperative to assist the authorities in addressing their formidable challenges and advancing towards a more stable and prosperous future.

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments