Somalia’s economic growth is expected to strengthen in 2024 supported by continued recovery in agriculture, remittances, and investment, though risks remain, according to the International Monetary Fund (IMF) assessment.
Meanwhile, the Horn of Africa’s real GDP growth is forecast at 3.7 per cent in 2024, compared to an estimated 2.8 per cent in 2023.
An IMF team, led by Ms. Laura Jaramillo, conducted discussions from 26 February to 7 March 2024 with the Somali authorities in Nairobi, Kenya, and reached a staff-level agreement on the first review under the Extended Credit Facility (ECF) arrangement. This agreement is subject to approval of the IMF’s Executive Board.
“I am pleased to announce that the Somali authorities and the IMF team have reached a staff-level agreement on policies to complete the first review under the ECF arrangement approved in December 2023 for US$100 million,” Ms. Jaramillo announced, indicating that the Executive Board’s approval would enable access to US$10 million, bringing total disbursements under the arrangement to US$50 million.
According to the IMF, Somalia has continued to advance its reform agenda and programme performance has been strong.
On the back of these efforts, the economy continues to strengthen. Real GDP growth is expected to rise to 3.7 per cent in 2024 compared to 2.8 per cent in 2023, supported by continued recovery in agriculture, greater remittances, and higher investment.
However, the challenges ahead are still significant, and continued support from international partners is crucial to support the authorities’ policy efforts.
Livestock and crop exports are expected to recover following the resumption of rainfall. Remittance inflows are expected to improve in the context of moderating global inflation and an upgrade of the global growth outlook.
Foreign direct investment is expected to trend upwards, following US$4.5 billion in debt relief obtained at the Completion Point under the Heavily Indebted Poor Countries (HIPC) Initiative in December 2023.
Inflation is expected to decline to 4.8 per cent in 2024 from 6.1 per cent in 2023, reflecting better crop yields and lower commodity prices. Near-term risks include climate shocks, security risks in Somalia and the region, and lower global growth.
Concluding the discussions, Ms. Jaramillo confirmed that the authorities were committed to continue improving domestic revenue collection and making room for priority spending.
She said that a small overall fiscal surplus was achieved in 2023, with strong domestic revenue outturns that were supported by the implementation of higher customs duties and tax administration improvements.
Somalia’s approved 2024 budget targets a modest overall fiscal deficit of 0.3 per cent of GDP, which is appropriate to accommodate priority expenditure that is supportive of growth, security, and development while limiting other discretionary spending.
Domestic revenues in 2024 will continue to increase and will fully cover the cost of compensation of employees.
On domestic revenue mobilization, key reforms are ongoing on customs modernization, a new income tax law, and increasing revenue collection from large businesses, including the telecom sector.
Efforts continue to strengthen public financial management – including streamlining of business processes – and debt management capacity.
Also, improvements are ongoing on integrating all employees in the payroll system and the authorities will take steps to implement the Pay and Grade policy.
The Central Bank of Somalia (CBS) continues to implement reforms to strengthen institutional capacity and promote financial deepening. The CBS will continue to enhance the regulatory framework and strengthen its capacity in risk-based supervision.
Efforts continue to strengthen the framework for anti-money laundering and combating the financing of terrorism.
