Mogadishu (Caasimada Online) – Somalia’s fragile economic recovery is facing a serious threat as sharp cuts in foreign aid force a downward revision of the country’s growth forecast, placing recent gains in poverty reduction and stability at risk, the International Monetary Fund (IMF) has warned.

In a detailed review released in July 2025, the IMF painted a picture of a country at a critical crossroads. While commending the Somali government for its “strong reform momentum,” the report stressed that a sudden drop in international assistance is casting a “heavy shadow over Somalia’s economic and social outlook.”

The IMF Executive Board completed its third review under the Extended Credit Facility (ECF) for Somalia, approving an immediate disbursement of about $10 million. However, this support pales in comparison to the scale of the aid gap Somalia now faces, which the IMF estimates could range between $400 million and $600 million in 2025.

In response to these mounting challenges, the IMF has downgraded Somalia’s 2025 economic growth forecast to 3 percent, down from the 4 percent projected for 2024.

A precarious outlook

The reduction in aid, particularly in off-budget humanitarian and development programs, is expected to have a direct impact on Somalia’s most vulnerable communities. “Disruptions in critical social service deliveries would particularly hit local communities, exacerbating poverty and deteriorating human development indicators,” the report stated.

In a letter to the IMF, Somali Finance Minister Bihi Iman Egeh and Central Bank Governor Abdirahman M. Abdullahi acknowledged the problematic situation. “Our challenges have been exacerbated by the sharp declines in official development assistance, which has been critical in mitigating food insecurity and supporting our stabilization and development objectives,” they wrote.

This aid shortfall adds to a host of persistent risks already confronting Somalia. The ongoing military campaign against the Al-Shabaab extremist group continues to consume significant resources, while the country remains highly vulnerable to climate shocks, including devastating droughts and floods. Political uncertainty also looms, with presidential and parliamentary elections scheduled for May 2026.

Despite the sobering outlook, the IMF praised Somali authorities for staying the course on economic reform. The review noted that all quantitative performance criteria and structural benchmarks were successfully met.

“The Somali authorities have maintained reform momentum with strong performance under their Fund-supported program despite significant global and domestic challenges,” said IMF Deputy Managing Director Nigel Clarke in a statement.

This progress builds on years of reform efforts, which culminated in Somalia reaching the “Completion Point” of the Heavily Indebted Poor Countries (HIPC) Initiative in December 2023—a milestone that unlocked substantial debt relief from international creditors.

An urgent push for self-reliance

In the face of declining external support, the Somali government is accelerating its push to boost domestic revenue as a cornerstone of its broader strategy for self-reliance.

A significant achievement came in May 2025 with the enactment of a new Income Tax Law—the first comprehensive overhaul of Somalia’s tax code in nearly 60 years. Other necessary steps include modernizing customs operations through the full implementation of the Somalia Customs Automated System (SOMCAS) and expanding the tax base. The government’s goal is to raise enough domestic revenue to fund its operational spending by 2027 fully.

Beyond fiscal reforms, the broader reform agenda includes:

Currency Reform: Advancing preparations to reintroduce the Somali Shilling as legal tender under a currency board arrangement, aimed at boosting financial inclusion and reinforcing national sovereignty.

Financial Sector: Strengthening the central bank’s supervisory authority and improving the framework for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT).

Governance: Implementing a new, comprehensive legal framework to ensure transparency and accountability in the country’s emerging petroleum sector.