IMF Agrees to $100 Million Loan Deal with Somalia

The International Monetary Fund (IMF) has reached a staff-level agreement with Somalia for a $100 million loan, contingent upon economic reforms supported by a new 36-month Extended Credit Facility (ECF) arrangement, which awaits approval from the IMF Executive Board. IMF mission chief Laura Jaramillo led the agreement and commended Somalia for its strides in rebuilding its economy and essential institutions since 2020 under an ECF-supported program.

Nonetheless, significant challenges persist for Somalia. Jaramillo noted issues such as economic difficulties, substantial social needs, youth unemployment, and vulnerability to climate risks. Alarmingly, 54% of the Somali population lives on less than $2.06 per day, and the nation’s growth rate is inadequate to address poverty and pressing social needs. Additionally, Somalia is highly prone to climate-related shocks.

However, there is optimism for Somalia as it is anticipated to achieve the Heavily Indebted Poor Countries Completion Point in December 2023. This milestone could potentially unlock debt relief and improve relations with key creditors. Somali authorities are also seeking a new three-year IMF-supported ECF program that aligns with the national development plan and the government’s long-term vision.

Post-completion point policy priorities for Somalia focus on maintaining fiscal sustainability, enhancing domestic revenues, strengthening public financial management, promoting financial inclusion, and improving the business environment. There are also plans to reform the currency to reintroduce the Somali shilling as legal tender.

Contributions to the Somalia Country Fund are considered essential for effective IMF technical assistance. Discussions included input from the Minister of Finance and the Central Bank Governor. Once the Heavily Indebted Poor Countries Completion Point is reached, authorities will focus on public debt management and conducting debt risk assessments following a structural change in external financing from the federal government. They are also expected to gradually increase quality investment projects.