IMF lauds Somalia’s fiscal reform, bullish on debt relief

The IMF said Somalia’s currency reform path and general improvement of fiscal framework were positive steps towards debt relied process. File Photo: online

By T. Roble

The International Monetary Fund has hailed Somalia’s public sector reform sounding upbeat on the country’s path towards debt relief.

In its latest review under the IMF administered Staff Monitored Program, the global lender said it was impressed by the steps taken by the government in the last few months among them budget execution, currency reform path and general improvement of the fiscal framework.

“Directors welcomed the significant improvement in budget execution and fiscal performance in 2017 as well as the authorities’ drive to implement several important tax reforms that contributed to improving the fiscal outturn,” IMF said in a statement.

It however called for increased social spending despite limited budgetary resources.

In the 2018 budget, the government set aside $19 million for public services with $4.4 allocated for health, $7.1 for education and a further $3 million to labor and social affairs, sports and youth, and women and human rights.

ECONOMIC SLOWDOWN

It noted despite the difficult environment- terrorism and drought in 2017, the country staved off an economic slowdown though it remained subdued at 1.8% with end-on-year inflation of 5.2%.

“The authorities are continuing to improve Somalia’s fiscal framework, including its revenue collection performance,” IMF said. “They have taken steps to reform the national currency and developing the country’s financial sector.”

Somalia recently introduced sales tax to be collected upfront causing uproar among traders. The traders in the country’s largest market Bakaro went on a two days strike over the new tax measures.

The Fund welcomed the government’s process towards launching a currency reform roadmap   including the development of the legal and anti-counterfeit frameworks, and lauded the federal government for reaching an agreement with Somali federal member states to support currency reform.

“The successful launch of the new currency”, the lender said, “Will hinge on the development of an appropriate communication strategy and accountability framework.”

DEBT RELIEF PROCESS

The Fund added the progress made so far was a clear step towards Somalia’s debt relief process under the Heavily Indebted Poor Countries (HIPC) Initiative.

The HIPC process is designed to help countries avoid slipping back into arrears while putting them on a path of maintaining sustainable debt dynamics and reducing poverty.

“Directors welcomed that, even before it reaches the HIPC Decision Point, Somalia is receiving substantial grants from the international community.”

Decision point is the first stage in the two step process under the HIPC initiative which among others require countries to have qualified for the World Bank’s International Development Agency and IMF’s Poverty Reduction and Growth Trust.

“In addition to securing broad based donor support, the establishment of a satisfactory track record of cooperation with the Fund on policies and payments under this and subsequent SMPs, the Fund said, “Would be a critical step in the process of arrears clearance and normalization of relations with the international community which would pave the way to an eventual IMF supported program and HIPC debt relief.”

 

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