Washington, USA – Somalia and the International Monetary Fund (IMF) reached a staff-level agreement that will unlock about $30 million under the Extended Credit Facility (ECF), the IMF announced Sunday. The deal comes as the Horn of Africa nation faces sharp cuts to foreign aid and a weakening economy.
The agreement concludes the fourth review of Somalia’s ECF arrangement, approved in December 2023. “We have reached a staff-level agreement on policies to complete the fourth review,” IMF mission chief Ran Bi said in a statement.
The deal still requires approval from the IMF Executive Board. Somali authorities also requested an additional $40 million in total program access to cushion the impact of aid disruptions.
Weaker growth, rising risks
The IMF projects Somalia’s economic growth to slow to 3 percent in 2025, down from 4.1 percent in 2024, before a modest rebound to 3.3 percent in 2026.
The fund cited “significant foreign aid cuts and adverse weather shocks” as the main reasons for the weaker outlook. Inflation is expected to hold near 3.5 percent, though food prices remain high.
The IMF said Somalia’s economic outlook remains dominated by downside risks, warning that prolonged aid disruptions and climate shocks could further worsen it.
“Continued assistance from multilateral and bilateral partners remains crucial to support the authorities’ policy efforts,” Bi stated. If approved, the new disbursement would bring total funds under the ECF to about $100 million.
Despite the strained environment, the IMF noted the Somali authorities’ steady fiscal management. Spending in 2025 has remained within program targets, and the deficit is expected to stay at 0.3 percent of GDP.
Revenue collection has improved, driven by the enforcement of the new income tax law and ongoing customs modernization.
The 2026 budget plan aims to continue domestic revenue growth while accommodating higher spending for security and elections. It also allocates resources to expand social programs to “mitigate the negative social impact of foreign aid cuts.”
Somalia’s financial governance
The Central Bank of Somalia (CBS) continues to strengthen its institutional capacity and regulatory oversight. It is preparing for a currency exchange and developing a currency board arrangement.
The IMF highlighted steady progress in improving Somalia’s anti-money laundering and counter-terrorism financing systems, as well as efforts to promote transparency in extractive industries.
Aid reductions have widened humanitarian gaps. The United Nations World Food Programme said on October 3 it will sharply cut emergency food aid next month due to a funding shortfall.
“We need $98 million to keep life-saving support for 800,000 people through the lean season,” WFP official Ross Smith said.
Health agencies also reported vaccine shortages and rising disease outbreaks amid donor budget cuts. “Besides the United States, Britain, France, and Germany are also cutting aid budgets,” Reuters reported in August, noting a surge in diphtheria cases.
Somalia’s debt position improved after reaching the Heavily Indebted Poor Countries Completion Point in December 2023, when the IMF and World Bank announced $4.5 billion in debt relief.
They said external debt fell to less than 6 percent of GDP by the end of that year. “This is a major milestone,” the institutions said in a joint statement.
National accounts data show GDP grew 4.1 percent in 2024, matching the IMF’s latest estimate. The Fund projects continued but slower growth through 2026 and stresses the need for sustained partner support as Somalia faces elections, security demands, and climate pressures.