….and the IMF Mission on Somalia welcomes the commitment to reform

….and the IMF Mission on Somalia welcomes the commitment to reform

An International Monetary Fund (IMF) team visited Nairobi from November 14–21 to hold discussions on the 2016 Article IV Consultation and carry out the first review of the Staff-Monitored Program. Discussions covered recent economic developments including: near-and medium-term outlook; economic risks; reforms at the Central Bank of Somalia; and policies to sustain growth and revive the financial sector. A statement issued at the end of the Mission said: “The IMF Executive Board concluded the first Article IV Consultation with Somalia since 1989 in July 2015. At the request of the Federal Government of Somalia (FGS), the IMF’s Managing Director approved a 12-month SMP on May 27, 2016, marking another milestone in normalizing relations with international financial institutions. We are encouraged by the pace of reforms to restore key economic and financial institutions since the approval of the SMP. We also welcome the authorities’ commitment to keep the program on track.” The report is expected to be discussed by the IMF’s Executive Board in January 2017.

The statement said that for 2016, real GDP growth was projected at 3.7%, driven by the telecommunication, construction and service sectors. Consumer price inflation was projected to remain low at about 1.0-1.5%. This reflected weak commodity prices. It said that for 2017 growth was projected to decelerate to about 2.5% while inflation was expected to remain low at 1-2%. However the IMF expected growth to recover to about 3.5–4.5% in 2018–19. The figures for 2017 largely reflected the impact of the weak rainy season on the agriculture sector. Construction, telecommunications, and service sectors, however, should continue to register strong growth. The external current account deficit was projected to remain large but the IMF expected remittances and grants to cover the deficit. It noted that the Somali Shilling/U.S.dollar exchange rate had remained stable within the range of about 22,200 and 23,000 since February 2015.

It went on: “The authorities have met all the structural benchmarks and six out of seven quantitative performance targets for the first review of the SMP.” While domestic government arrears had accumulated due to a shortfall in revenue and delays in the disbursement of donors’ grants through the end of September, the Government had been able to settle these arrears following recent disbursement of donors’ grants. They had also taken corrective measures to avoid occurrence of future arrears, updating their memorandum of economic and financial policies, and establishing a comprehensive roadmap for currency reform. They were also preparing a national development plan to underpin development strategy with a roadmap for institution building and plans to initiate a social safety net program. These measures, the IMF said, would help put the economy on a sustainable path and promote inclusive growth.

The IMF said that to achieve the Federal Government’s economic and financial policy objectives, it was essential to focus on a number of issues. The first of these was the preparation of a coherent a national development plan with a roadmap for institution building and strong program for social safety nets, as well as improving the business environment to encourage private sector activity. Secondly, it was critical to develop domestic capacity and continue to rebuild economic and financial data. The IMF said it would continue to intensify its capacity development activities in Somalia using the multi-donor trust fund to help rebuild Somalia’s institutions and economic and financial infrastructure. Thirdly, the IMF emphasized the necessity to strengthen fiscal discipline while ensuring that the fiscal framework underscores the need for a realistic tax revenue projection and confirm external grants in order to avoid new arrears. It noted the Federal authorities were committed to placing high priority on enhancing budget operation while also adhering to new arrears management and broadening the revenue base. The importance of currency reform and governance was another issue. This required fully implementing the agenda for currency reform, reinforcing the central bank governance structure, and improving its safeguards. Finally, the IMF wanted to see effective implementation of the anti-money laundering law and the guidelines needed to sustain the inflows of remittances to Somalia. These, of course, are vital for supporting economic growth.

During the visit, the IMF team met with Finance Minister, Mohamed Adan Ibrahim; Minister of Planning and International Cooperation, Abdirahman Yusuf Hussein Aynte; the Governor of the Central Bank, Bashir Issa Ali; the  Director General in the Office of the President, Ali Omar, and other officials. It also met with representatives from development partners.

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