IMF Approves Program for Economic Reconstruction of Somalia

The International Monetary Fund is to monitor and support the Somali government as it works to implement an economic reform programme – a significant milestone for the African country as it rebuilds its relationships with international financial institutions.

The fund announced today that its managing director Christine Lagarde had approved the programme earlier this month, which contains no financial element but, if successful, could pave the way for this at a later date.

The Somali government requested the programme in April this year.

It will see IMF staff work closely with the Somali authorities to monitor the progress of reforms and provide “integral” technical assistance and training over the next year.

The fund said the reform programme is aimed at rebuilding Somalia’s economy after 25 years of civil war, re-establishing stability, building capacity and rebuilding institutions, and improving governance.

“Fiscal policy and reforms will aim to achieve a zero fiscal balance on a cash basis, while avoiding the accumulation of domestic arrears,” the fund said.

“The pursuit of these objectives will be underpinned by revenue measures, pledged foreign grants, and prudent expenditure policy.”

The fund said fiscal reforms will focus on strengthening public financial management, in particular by modernising tax and customs administration as well as budget planning and execution.

It also noted that the country’s external debt is high and virtually all in arrears, including to the fund. This has prevented Somalia from accessing IMF resources and precludes access to other external borrowings.

“A strong track record of macroeconomic performance and implementation of reforms, together with a comprehensive strategy of arrears clearance and debt relief support by development partners, is required,” the fund said.

The programme also entails a range of monetary and financial policy reforms, the focus of which includes maintaining a floor on the central bank’s foreign assets, initiating currency reform and enhancing the anti-money laundering framework and combating terrorism financing.

Since the fund officially recognised the government of Somalia three years ago, the two have established “very good cooperation”, according to the statement.

In July last year, the IMF completed its first consultation on the Somali economy in more than 26 years and has delivered more than 50 technical assistance missions since 2013. It said training will intensify under the programme in order to improve institutional capacity.

But the fund said continued support from creditors and donors will also “remain critical for a full normalisation and resumption of financial assistance from the IMF”.