WASHINGTON, U.S (Caasimada Online) – Despite ongoing economic challenges, Somalia is set to receive financial support from the International Monetary Fund (IMF) following a staff-level agreement on the fifth review under the extended credit facility (ECF) arrangement.

The IMF board’s approval will enable the release of the funds to the nation, offering much-needed assistance in a time of crisis.

Somalia has faced a multitude of challenges, including a severe food crisis and the effects of drought.

Economic slowdown amid challenges

Laura Jaramillo, IMF mission chief, acknowledged these difficulties but praised the country’s strong reform momentum, stating that “program performance has been satisfactory.”

However, economic activity has been hindered by the drought and a general slowdown in global growth, resulting in elevated risks.

The IMF recently downgraded its growth estimates for Somalia’s gross domestic product (GDP) in 2022 and projections for 2023, with the figures now standing at 1.7% and 2.8%, respectively.

The organization attributed this decrease to the ongoing drought and subdued remittance inflows.

Average inflation reached 6.8% in 2022, driven by high food and fuel prices, but is expected to decline to 4.2% in 2023 as commodity prices recede.

Risks and commitments for the future

Jaramillo highlighted the elevated near-term risks, particularly the worsening food crisis, should rains not return in 2023 or if commodity prices continue to rise.

Nevertheless, she affirmed the authorities’ commitment to improving revenue collection and prioritizing spending while containing discretionary expenditure pressures in 2023.

The Somali government intends to submit a supplementary budget to parliament to pursue this goal, presenting a balanced fiscal position based on realistic revenues.

Emphasizing the vital role of development partners, Jaramillo noted that “timely financing and capacity development support from development partners is essential for the successful implementation of the authorities’ reform strategy.”

Contributions to the Somalia Country Fund are crucial in ensuring the smooth delivery of IMF technical assistance, supporting the goals of the ECF-supported program and the Heavily Indebted Poor Countries (HIPC) Initiative, a global debt forgiveness process.

Jaramillo also revealed that the authorities had reached debt relief agreements with most Paris Club members and the Kuwait Fund for Arab Economic Development (KFAED).

She added that they continue to seek agreements with other bilateral creditors, demonstrating Somalia’s commitment to pursuing economic reform in the face of adversity.