By: Abdi Ali
The Somali Shilin is a potent reminder of how “Qawda Maqashii” continues to outshine real reform, demonstrating the glaring flaws of IMF’s Staff Monitored Programme
There is something perversely reassuring when we hear about how Somalia is making good progress against IMF’s Staff Monitored Programme (SMP) benchmarks. We know what reform means in Somalia, but we still feel somehow reassured that the country is moving in the right direction. The SMP is a process that is used to help ensure the Somali government implements the foundational reforms critical to debt relief. The idea is that a country with a sound governance framework will not slip back into unsustainable debts.
The SMP therefore tries to weave a cohesive link between debt relief and poverty reduction through the implementation of credible structural reforms. By building a good track record of sustained reforms under the SMP, the Somali government hopes to take ownership of its reform agenda. An alluring by-product of all of this is the potential for the government to start accessing international borrowing (once current arrears are cleared).
In theory, the SMP is a process with the underlying purpose of influencing sustainable reforms, supporting accountability and economic development, hence the reassurance. However, a glaring flaw in Somalia’s SMP is its emphasis of form over substance which assumes that reform in Somalia is merely a tick box exercise to walkthrough over a couple of day’s meetings. This is why Somalia’s SMP, the fourth one in as many years, has become an end in itself, morphing into a PR reform story that is endlessly sketched out but never leads to real change on the ground.
As a consequence, an all-encompassing focus on the SMP tick box has developed for the wrong reasons, eating away at the urgency of dealing with other pressing critical priorities for Somalia. Paradoxically, the potential opportunity to access more concessionary debt, once debt relief is secured, is of course what drives the government’s motivation and the current crescendo of the “debt relief” excitement. Precisely because of this, the SMP is turning into a useful fig leaf, with an IMF badge of approval, that secures international credibility without reference to the reality on the ground, thus undermining the overall long-term reform progress. The currency reform SMP benchmark is an important illustrative example.
The Shilin tragedy
Somalia is probably the only country in the world with a recognised government, a functioning parliament and a Central Bank but no national currency, making Somalia’s Shilin the best example of a fiduciary currency. As the Central Bank of Somalia (CBS) does not back it, the Shilin’s circulation depends entirely on the fact that people with no other option, are forced to use it. The U.S. dollar currency is widely used, with the Shilin, acting as a sub-denomination in many rural areas, making Somalia’s’ poorest its key dependants.
The Shilin has no significant value and heavily counterfeited for decades. The impact on the economy, the livelihoods and businesses of many millions of Somalis is real, immediate and catastrophic. Because the impact is disproportionately on the very poor within society, the vast majority of whom have no way of raising funds in dollars, many of them simply starve; children are withdrawn from schools; and otherwise viable businesses are driven into insolvency in a matter of hours. The impact on the wider economy, inflation and price stability is well-recognised. The case for an urgent reform of the currency has never been more urgent or overwhelming.
This is why currency reform was a key SMP benchmark as far back as early 2016. Under Phase I, 23 key milestones were apparently implemented, including designing a currency reform roadmap; establishing a National Anti-Counterfeit Centre; adopting key monetary regulations; designing the security features, denomination and volume of the bank notes to be issued; legal and accountability frameworks; and scope of exchange; huge resources expended on technical training. In March 2018, the IMF even issued an assessment letter on behalf of the CBS, confirming all preparation for Phase I (i.e. issuing new money to replace the counterfeits) currency reform were complete.
We are now at the end of 2019, four years after the first currency reform milestones were said to have been completed. The initial government talk about reform turned into radio silence, making them spectators to immense economic suffering; livelihoods and businesses continue to be destroyed by counterfeits; the penetration of the use of the dollar currency, pushed by electronic mobile money, is such that those on hand-to-mouth existence have been left out to starve, especially in rural areas; and the combined systemic risk posed by the mobile money, amplified by the lack of a viable national currency, has put Somalia in a financial stability risk league of its own.
In other words, the currency reform ticked all of the SMP boxes but has run into the familiar “Qawda Maqashii” firewall. From an SMP perspective, this reform benchmark is complete. The farcical nature of all of this is almost comical had it not been for the seriousness of the situation of the millions caught up in the Shilin economic tragedy.
The reputational risks for the IMF
If anything, this also illustrates a worrying glaring flaw in the SMP process. A more pertinent question is this: if the most important economic reform item is still unfinished and disappeared from the top of everyone’s agenda, is the SMP also exposed on all benchmarks? What are the chances that other benchmarks had been “successfully” implemented?
The lessons from the currency reform farce are indeed troubling, but also timely: overreliance on an SMP process, that does not have a mechanism of assessing whether promised reforms are actually in place, portends bigger scandals. There are the obvious reputational risks for the IMF in endorsing the completion of SMP milestones that are not subject to dispassionate independent verification. As the SMP provides a positive assurance to the outside world, including those that are funding the debt relief, the asymmetry between its conclusions and the reality on the ground should be an early and important warning indicator for everyone and prompt a rethink.
More importantly, the implementation of SMP’s core structural benchmarks need to be subject to independent audit with much greater emphasis on demonstrable implementation of reforms. This is as much as helping Somalia as it is safeguarding the credibility of the process. If everyone is relying on the SMP to provide assurance over the implementation of Somalia’s structural reforms, it is no more than common sense to have independent audits, that can provide critical review and challenge, baked into the overall framework. Indeed, it is worrying that a “trust but verify” approach to implementation has not been adopted at the outset.
Relentless optimism about progress is not a substitute for real change. The economic damage of the counterfeit Shilin will continue to destroy the livelihoods of millions of Somalis every day. Some assume that the currency reform is the victim of powerful corporate interests. The reality is probably far more prosaic: incompetence and greed, taking precedence over important national interests.
The CBS has recently issued mobile money regulations (another SMP benchmark). This is an important development. Crucially, the regulations are expected to be implemented by February 2020. We won’t have to wait for too long to find out.
As I write, the 9th National Development Plan is being unveiled in Mogadishu, setting out priorities on poverty reduction and inclusive growth (and yes, this all part of the SMP). At the same time, and with no apparent sense of incongruity, terrorists are now daring to strike within yards of presidential doors; the country’s economic hub is in an almost year-long state of emergency blockade; stifling the lives of its residents and paralysing day-to-day movements and trade; the city is cut-off into cubes, forcing everyone to live like squeezed chickens in a cage, chirping for help.
Welcome to 2020 and more of the same…. Qawda Maqashii Waxna Ha U Qaban……
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