Somalia, IMF reach a staff-level agreement

by nabad | Tuesday, May 14, 2019 | 10 views

MOGADISHU — The Somali authorities and the IMF reach a staff-level agreement on a fourth Staff-Monitored Program (SMP IV) covering the period May 2019—July 2020.

IMF staff commends the Somali authorities for sustained reform implementation and continued satisfactory performance under successive SMPs.

It is expected that the SMPIV will be endorsed by the Executive Board as meeting the conditionality standard of an upper credit tranche (UCT) arrangement, putting Somalia more clearly on the path to debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.

An International Monetary Fund (IMF) team, led by Allison Holland, met with the Somali authorities in Addis Ababa, Ethiopia, from April 24 to May 2, to discuss recent economic developments, review progress on reforms under the third Staff-Monitored Program (SMP III), and to agree a successor fourth SMP to consolidate gains and extend reforms.

Ms. Holland issued the following statement:

“Thanks to the authorities’ strong commitment, program implementation remains robust and capacity continues to strengthen, despite a challenging environment.

“Somalia’s economy continues to recover, supported by vigorous activity in the construction, telecommunications, and financial services sector in 2018. Economic growth is estimated at 2.8 percent, and end-year inflation is estimated at 3.2 percent for 2018. Growth is projected to strengthen to 3.0 percent and inflation to ease further to 3.0 percent, in 2019. But the outlook remains vulnerable to the still fragile security situation, climate shocks and the still developing institutional capacity, and more is needed to improve economic resilience, increase employment and reduce poverty.

“The Federal Government of Somalia’s (FGS) continued efforts to broaden the tax base and strengthen tax administration has been reflected in increased domestic revenue, which reached $184 million in 2018 (almost 30 percent higher than in 2017) and $54 million for the first quarter of 2019. The overall cash fiscal position remains in surplus. Public financial management continues strengthening, including with a sustained improvement in cash forecasting and reduction in the use of cash advances. Nevertheless, Somalia remains heavily dependent on grants and more efforts will be needed to create space for critical social and development spending, and put Somalia clearly on the path to fiscal self-sufficiency.

“The team is encouraged by the authorities’ further efforts to enhance financial sector supervision, especially to bring mobile money service providers within the oversight of the Central Bank of Somalia (CBS). Staff also welcomes progress in strengthening the implementation of the anti-money laundering and combatting the financing of terrorism (AML/CFT) regime, including the commencement of large transaction reporting and efforts to build capacity at the Financial Reporting Center. Staff urged the authorities to address remaining gaps in AML/CFT regulation.

“We welcomed the authorities’ efforts to consult stakeholders throughout the country and development partners in formulating a new National Development Plan (NDP9). NDP9 is expected to set out the road map to achieving higher and more inclusive growth and reducing poverty, and serve as an interim-Poverty Reduction Strategy Paper (iPRSP). Staff urged further consultation to narrow the plan’s priorities and recommended these incorporate the key findings of the Drought Impact and Needs Assessment and Recovery and Resilience Framework. The cost of the plan should be estimated, and a financing strategy put in place.

“The team, together with the authorities, discussed the application of the IMF’s new governance assessment framework to Somalia, which suggested notable governance weaknesses and a significant perception of high risks of corruption. Staff acknowledged the authorities’ efforts to reduce these risks, including through reforms already achieved in strengthening public financial management, enhancing fiscal transparency, and strengthening financial sector oversight. Swift implementation of key bills currently with Parliament—including on revenue, public financial management, audit, petroleum, and statistics—would promote better governance and help consolidate reform.

“Looking ahead, we encouraged the Somali authorities to sustain the reform momentum that has carried them through the satisfactory completion of three consecutive SMPs, and urged the completion of NDP9 and continued efforts to secure the necessary financing assurances, including to clear arrears to the international financial institutions. These efforts will help secure debt relief under the HIPC Initiative in due course.

“During the visit, the team met with Finance Minister Beileh, Minister of Planning, Investment and Economic Development Hassan, Central Bank Governor Abdullahi, Chairman of the Economic and Finance Committee of the House of the People Siraji, and other senior officials. The team met development partners and other stakeholders in Nairobi on May 3. The IMF team would like to thank the Somali authorities for their cooperation and the open and productive discussions.”

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